-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BbUHCm50ZIW5pL8+H1tdIO4z/Il8+zB9JyLeZ2xHVcY/ms5fq9IdCoyC6u8Eubo3 QGfh4bTSykOfgnvk0g/mAw== 0001024739-97-000080.txt : 19970311 0001024739-97-000080.hdr.sgml : 19970311 ACCESSION NUMBER: 0001024739-97-000080 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 19970310 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL DOWNS HOLDINGS INC CENTRAL INDEX KEY: 0001027430 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-18295 FILM NUMBER: 97553191 BUSINESS ADDRESS: STREET 1: P O BOX 456 CITY: PROVIDENCE FORGE STATE: VA ZIP: 23140 BUSINESS PHONE: 8049667223 MAIL ADDRESS: STREET 1: P O BOX 456 CITY: PROVIDENCE FORGE STATE: VA ZIP: 23140 S-1/A 1 FORM S-1/A As Filed with the Securities and Exchange Commission on March 10, 1997 Registration No. 333-18295 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- COLONIAL DOWNS HOLDINGS, INC. (Exact name of registrant as specified in its charter)
Virginia 7948 54-1826807 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
3610 North Courthouse Road Providence Forge, Virginia 23140 (804) 966-7223 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------- Michael D. Salmon 3610 North Courthouse Road Providence Forge, Virginia 23140 (804) 966-7223 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- Copies to:
J. Warren Gorrell, Jr., Esq. L. Charles Long, Jr., Esq. Emanuel Faust, Jr., Esq. Bruce W. Gilchrist, Esq. James L. Weinberg, Esq. Howard S. Jatlow, Esq. HOGAN & HARTSON L.L.P. HIRSCHLER, FLEISCHER, DICKSTEIN SHAPIRO MORIN & 555 Thirteenth Street, N.W. WEINBERG, COX & ALLEN OSHINSKY LLP Washington, D.C. 20004-1109 701 East Byrd Street 2101 L Street, N.W. (202) 637-5600 Richmond, VA 23219 Washington, D.C. 20037 (804) 771-9500 (202) 785-9700 ---------------
Approximate date of commencement of proposed sale to the public: As soon as practicable following effectiveness of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /_/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. /_/ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. /_/ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. /_/ --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ SUBJECT TO COMPLETION, DATED MARCH 10, 1997 PROSPECTUS 4,250,000 Shares COLONIAL DOWNS HOLDINGS, INC. Class A Common Stock -------------- Colonial Downs Holdings, Inc. ("Colonial Downs Holdings" and, together with its subsidiaries, the "Company") was organized to pursue opportunities for horse racing and pari-mutuel wagering in Virginia. The Company holds the only unlimited licenses to own and operate a racetrack and satellite wagering facilities ("SWFs") in Virginia. The Company is constructing a racetrack anticipated to open and begin live racing on or prior to September 1, 1997. The Company also holds licenses for three SWFs, of which the first opened in February 1996, the second opened in December 1996, and the third is planned to open in June 1997, and plans to apply for licenses for up to three additional SWFs during the next 12 to 18 months as suitable sites are selected. The shares of Class A common stock, $.01 par value per share ("Class A Common Stock"), offered hereby are being sold by the Company. Approximately $7.5 million of the net proceeds of this offering will be used to repay indebtedness and fees owed to affiliates of the Company. See "Use of Proceeds." Prior to this offering, there has been no public market for the Class A Common Stock. It is currently anticipated that the initial public offering price for the Class A Common Stock will be between $9 and $11 per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. The Class A Common Stock has been approved for inclusion in The Nasdaq National Market subject to notice of issuance. The Company has two classes of common stock, the Class A Common Stock and Class B common stock, $.01 par value per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"). The rights of the holders of the Class A Common Stock and the holders of the Class B Common Stock are substantially identical, except that holders of the Class A Common Stock are entitled to one vote per share and holders of the Class B Common Stock are entitled to five votes per share generally, provided that on any vote or approval with respect to a merger, consolidation or other business combination, or a sale of all or substantially all of the assets of the Company, the holders of Class B Common Stock are entitled to one vote per share. The Class B Common Stock is fully convertible into Class A Common Stock, at the option of the holder, on a one-for-one basis. Both classes of Common Stock vote together as one class on all matters generally submitted to a vote of stockholders, including the election of directors. The Class B Common Stock, which initially will represent approximately 73% of the ordinary voting power of all outstanding shares of common stock of the Company, will be held by certain founders of the Company. See "Description of Capital Stock." See "Risk Factors" beginning on page 6 for a discussion of certain factors that should be considered by prospective purchasers of the Class A Common Stock. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================================ Price to Underwriting Discounts Proceeds to Public and Commissions(1) Company(2) ================================================================================================ Per Share............... $ $ $ Total(3)................ $ $ $ ================================================================================================ (1) The Company has agreed to indemnify the Underwriters named herein against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting estimated expenses of $625,000 payable by the Company. (3) The Company has granted the Underwriters a 30-day over-allotment option to purchase up to 637,500 additional shares of Class A Common Stock on the same terms and conditions as set forth above. If all such shares are purchased by the Underwriters, the total Price to Public, Underwriting Discounts and Commissions, and Proceeds to Company will be $_____, $_____, and $______, respectively. See "Underwriting."
The shares of Class A Common Stock are offered by the Underwriters named herein, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to their right to withdraw, modify, correct and reject orders in whole or in part. It is expected that delivery of the certificates representing the shares of Class A Common Stock will be made against payment therefor at the offices of Friedman, Billings, Ramsey & Co., Inc., Arlington, Virginia or in book entry form through the book entry facilities of The Depository Trust Company on or about __________, 1997. FRIEDMAN, BILLINGS, RAMSEY & CO., INC. The date of this Prospectus is ____________, 1997. [INSIDE COVER: ARTIST'S RENDITION OF COLONIAL DOWNS TRACK] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF CLASS A COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 - -------------------------------------------------------------------------------- PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information, financial statements and notes thereto appearing elsewhere in this Prospectus. The information in this Prospectus, unless otherwise indicated, (i) does not give effect to the exercise of the over-allotment option granted to the Underwriters, (ii) assumes an initial public offering price of $10 per share, (iii) assumes that the convertible subordinated note to be issued by the Company in the principal amount of $5.5 million prior to the closing date of this offering (the "Convertible Subordinated Note") is not converted, and (iv) is set forth as if the Reorganization described herein had already been completed. See "The Reorganization." Unless the context indicates otherwise, the term "Company" refers to Colonial Downs Holdings, Inc. ("Colonial Downs Holdings") and its wholly owned subsidiaries, Colonial Downs, L.P. ("Colonial LP") and Stansley Racing Corp. ("Stansley Racing"), collectively, or any of them. Certain of the matters discussed under the captions "Risk Factors," "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Business," and elsewhere in this Prospectus contain forward-looking statements and as such involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements speak only as of the date of this Prospectus. The Company The Company was organized to pursue opportunities for horse racing and pari-mutuel wagering in Virginia. The Company is the only entity that has been awarded unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia and is currently the only entity eligible to apply for licenses to own and operate satellite wagering facilities ("SWFs") in Virginia. The Company plans to conduct thoroughbred and standardbred ("harness") horse racing at a racetrack that it is currently constructing in New Kent County, Virginia (the "Track"). The Company also intends to conduct pari-mutuel wagering at the Track and at its SWFs on races run at the Track and on races telecast from out-of-state tracks ("import simulcasting"). After it begins live racing at the Track, the Company will seek to increase its revenues by entering into agreements to simulcast races run at the Track to out-of-state racetracks, SWFs, casinos and other gaming facilities ("export simulcasting"). The Track is anticipated to open and begin live racing on or prior to September 1, 1997. The Track's initial racing season is expected to consist of 30 days of live thoroughbred racing and up to 50 days of live harness racing. The Company's goal is to establish the Track as one of the premier venues for thoroughbred horse racing in the East by attracting high quality horses and offering an appealing environment for racing participants and customers. The Company believes that its average purses will be competitive with those currently offered by most other tracks in the mid-Atlantic region that hold racing meets at the same time as the Company's scheduled meets, enabling the Track to attract high quality thoroughbred horses, trainers and jockeys to the Company's meets. The Track site consists of approximately 345 acres of land located approximately 25 miles east of Richmond, Virginia and approximately 25 miles west of Williamsburg, Virginia. When completed, the Track will include a dirt race track, a unique double-width turf track, a four-level grandstand and clubhouse, bleachers, six bars, a gift shop, two simulcast/TV amphitheaters, and over 95 wagering stations. The Track site is located in an area that Chesapeake Corporation and its subsidiaries plan to develop into a resort area. An 18-hole golf course adjacent to the Track site was opened in July 1996 by The Legends Golf Group, a golf course developer based in Hilton Head, South Carolina. Future development plans for the area include hotels, theaters, restaurants, additional golf courses, commercial offices and residential development. This development is planned to occur in four phases over the next twenty-five years. The first phase of development is in the areas adjacent to the Track site and the golf course and is expected to be completed over the next eight years. According to plans filed with New Kent County by the developer, 460 residential units and approximately 930,000 square feet of commercial space will be completed in the next three years. New Kent County residents have demonstrated support for this development, but the Company has no control over the extent and timing of the development or the grant of governmental approvals required for its completion as planned. Therefore, there can be no assurance that the development will be actively pursued or completed or if pursued, will be fully developed according to the plans filed with New Kent County. See "Business -- The Track and Track Facilities." - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- The Company currently holds licenses for three SWFs: a 15,000 square foot facility that opened in Chesapeake, Virginia in February 1996, a 19,700 square foot facility that opened in Richmond in December 1996 and a 13,500 square foot facility to be constructed in Hampton. Under current Virginia law, which allows a maximum of six SWFs in the state, the Company holds the right to seek licenses for up to three more SWFs. The Company plans to apply for licenses for additional SWFs as soon as desirable locations are selected, which the Company believes will be within 12 to 18 months after this offering closes. The Company intends to locate its additional SWFs near the population centers in northern and southeastern Virginia and on the southern border of Virginia, where the Company hopes to attract business from residents of the Chapel Hill-Raleigh-Durham area of North Carolina. The Company expects to apply for licenses in March 1997 for a fourth SWF in Brunswick County on the North Carolina border. The Company plans to seek an appropriate location in northern Virginia for one of its two remaining SWFs. In order to obtain licenses for the fifth and sixth SWFs in the areas desired by the Company, the Company will initiate referenda in potential localities in which the additional SWFs may be located. Five northern Virginia localities have in the past rejected such referenda. In the future, the Company may seek legislative changes to allow more than six SWFs in Virginia. There can be no assurance that the Company will be able to obtain licenses for any additional SWFs. Since it opened in February 1996, the Company's Chesapeake SWF has had average daily attendance of 500 customers, average daily wagers of $105,000, and pari-mutuel wagering of approximately $36,600,000 (based on eleven and one-half months of actual results). Since the Richmond SWF opened December 10, 1996, the facility has had average daily attendance of 785 customers, average daily wagers of $162,000, and pari-mutuel wagering of approximately $8,400,000 (based on 52 days of actual results). In the future, the Company plans to promote attendance and wagering business at the Track and its SWFs by introducing entertainment activities, including family fun days, premium give-away programs, contests and special events. See "Business -- Satellite Wagering Facilities." To provide experienced management for the Track and promote thoroughbred racing in Virginia and Maryland, the Company has entered into an agreement with Maryland-Virginia Racing Circuit, Inc., which is affiliated with the owners of the Pimlico and Laurel racetracks in Maryland (collectively, "Maryland Jockey Club"), to create a Virginia-Maryland thoroughbred racing circuit. Under this agreement (the "Management and Consulting Agreement"), the Maryland Jockey Club has agreed to seek permission to cease live racing during the Company's thoroughbred meets. While the Maryland thoroughbred tracks are not conducting live racing, the Company expects to attract the thoroughbred race horses that typically have run at the Maryland racetracks at that time. The Management and Consulting Agreement further provides that the Maryland Jockey Club will provide experienced personnel from Laurel Park and Pimlico Race Course to assist the Company in managing its live thoroughbred meet at the Track. The Company has agreed to pay the Maryland Jockey Club a management fee equal to two percent of all amounts wagered at the Company's facilities other than on live standardbred racing, which management fee will represent approximately 10% of the Company's revenues from wagering. See "Business -- Virginia-Maryland Thoroughbred Racing Circuit." RISK FACTORS For a discussion of considerations relevant to an investment in the Class A Common Stock and the Company's ability to develop its operations and achieve its objectives, see "Risk Factors." - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- THE OFFERING Class A Common Stock offered.......... 4,250,000 shares(1) Common Stock to be outstanding after the Offering......................... 5,000,000 shares of Class A Common Stock and 2,250,000 shares of Class B Common Stock(2) Use of Proceeds...................... The Company will use the estimated net proceeds of this offering (the "Offering"), a credit facility from an institutional lender or an affiliate of a shareholder (see "Description of Certain Indebtedness--Credit Facility"), and the proceeds of the Convertible Subordinated Note (see "Description of Certain Indebtedness -- Convertible Subordinated Note") (i) to complete construction and commence operation of the Track; (ii) to acquire, construct, renovate and/or equip SWFs; (iii) to repay interim financing provided by certain shareholders; and (iv) for working capital and other general corporate purposes. See "Use of Proceeds." Nasdaq National Market Symbol............................... CDWN Dividend Policy...................... The Company has never declared or paid any dividends on its capital stock and does not anticipate paying dividends in the foreseeable future. See "Dividend Policy." - ---------------------- (1) No purchaser of shares in this Offering will be permitted to acquire beneficial ownership of 5% or more of the Company's Common Stock, due to certain provisions of the Horse Racing and Pari-Mutuel Wagering Act of Virginia (the "Virginia Racing Act"). See "Risk Factors -- 5% Ownership Limit; Virginia Racing Act Restrictions on Stock Ownership." (2) Excludes 300,000 shares of Class A Common Stock issuable pursuant to the Company's stock option plan and 450,820 shares of Class B Common Stock issuable upon the conversion of the Convertible Subordinated Note at a conversion price per share of 122% of the initial public offering price. See "Description of Certain Indebtedness--Convertible Subordinated Note." - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- SUMMARY FINANCIAL AND OPERATING DATA(1) The summary financial and operating data set forth below gives effect to the Reorganization as if it had occurred as of September 30, 1993, the date on which the predecessor to the Company was formed, and should be read in conjunction with "Capitalization," "Selected Financial and Operating Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto included elsewhere in this Prospectus. (In thousands, except share, per share, per capita, days of operation, and attendance data)
Year Ended Year Ended December 31, December 31, 1996 1995 ------------ ------------ Income Statement Data: Revenues: Pari-mutuel commissions - Import simulcasting............ $ 7,745 $ -- Other related revenues........... 782 -- ----------- ----------- Total revenues...................... 8,527 -- ----------- ----------- Direct operating expenses Direct expense of import simulcasting..................... 4,582 -- Other direct operating expenses 2,691 -- ----------- ----------- Total direct operating expenses..... 7,273 -- ----------- ----------- General and administrative....... 1,438 315 Depreciation and amortization.... 284 3 ----------- ----------- Loss from operations................ (468) (318) Other interest income............... 6 -- Interest expense ................... (183) (2) ----------- ----------- Net loss............................ $ (645) $ (320) =========== =========== Net loss per share (2).............. $ (0.22) $ (0.11) Weighted average number of shares outstanding (2).................. 3,000,000 3,000,000 Pro forma net loss per share (3).... $ (0.13) -- Pro forma weighted average number of shares outstanding (3)........ 3,555,847 --
At December 31, 1996 ----------------------------- At December 31, Actual As Adjusted (4) 1995 ------ --------------- ---- Balance Sheet Data: Current assets........................ $ 1,765 $ 50,468 $ 330 Total assets.......................... 12,176 61,280 3,142 Working capital....................... (5,926) 45,474 (1,589) Short-term debt, including current portion of long-term debt.. 1,686 49 632 Long-term debt, excluding current portion..................... 3,491 15,542 1,548 Total liabilities..................... 11,181 21,385 3,467 Shareholders' equity.................. 995 $ 39,895 (325)
- -------------------------------------------------------------------------------- 6 - -------------------------------------------------------------------------------- Year Ended December 31, 1996 -------------------------------- Other Data: EBITDA(5)..................................... $ (184) Net cash provided (absorbed) by: Operating activities....................... 2,285 Investing activities....................... (5,997) Financing activities....................... 4,761 From Opening Day Through December 31, 1996 -------------------------------- Chesapeake SWF Richmond SWF -------------- ------------ Operating Data: Days of operation.......................... 317 21 Total pari-mutuel wagering (in thousands).. $ 33,561 $ 3,391 Average daily wagering (in thousands)...... $ 106 $ 161 Total attendance........................... 160,579 17,493 Average daily attendance................... 507 833 Average daily per capita wager............. $ 209 $ 194 - ------------------ (1) Includes entities which prior to the Reorganization were affiliated through common ownership and control. See "The Reorganization." (2) Based on 3,000,000 shares of Common Stock outstanding prior to the consummation of this Offering. (3) Reflects the per share data and weighted average number of shares outstanding giving effect to the issuance of only that number of shares needed to generate the portion of the net proceeds used to repay the $5.1 million of debt actually outstanding at December 31, 1996, and elimination of interest expense thereon, as if the repayment had occurred at the beginning of the latest year. (4) As adjusted to reflect (i) the sale of 4,250,000 shares of Class A Common Stock by the Company in this Offering and the application of the net proceeds therefrom, (ii) borrowing by the Company of $10 million under a credit facility from an institutional lender or an affiliate of a shareholder (see "Description of Certain Indebtedness--Credit Facility"), and (iii) proceeds of $5.5 million from the Convertible Subordinated Note. See "Description of Certain Indebtedness--Convertible Subordinated Note." (5) EBITDA consists of the sum of the Company's net income (loss), net interest expense and depreciation and amortization. EBITDA data are unaudited and are presented because such data are used by certain investors to determine the Company's ability to meet debt service requirements. The Company considers EBITDA to be an indicative measure of the Company's ability to service debt and fund capital expenditures. However, such information should not be considered as an alternative to net income (loss), operating profit, cash flows from operations, or any other operating or liquidity performance measure prescribed by generally accepted accounting principles. EBITDA is not a measurement under generally accepted accounting principles and may not be comparable to other similarly titled measures presented by other companies. Cash expenditures for various long-term assets and interest expense have been, and will be, incurred which are not reflected in the EBITDA presentation. - -------------------------------------------------------------------------------- 7 RISK FACTORS In addition to the other information contained in this Prospectus, prospective investors should consider carefully the following factors before purchasing any of the Class A Common Stock offered hereby. Limited Operating History; Losses The Company was organized on September 30, 1993, was awarded the Track licenses in October 1994, opened the Chesapeake SWF in February 1996, and opened the Richmond SWF in December 1996. The Company has incurred losses since its organization and anticipates that it will continue to incur losses until the Track is completed and operating and four SWFs are opened and operating at the levels projected by the Company, as is planned to occur on or prior to September 1, 1997, although the Company may continue to incur losses thereafter. There can be no assurance that the Company will achieve its objectives or that the Company's operations as a whole will be profitable. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements included elsewhere in this Prospectus. Financing Requirements Although the Company believes that the proceeds of this Offering, a credit facility in the amount of up to $10 million that the Company will obtain from an institutional lender or an affiliate of a shareholder (the "Credit Facility"), and the issuance by the Company of the Convertible Subordinated Note in the principal amount of $5.5 million prior to the closing date of this Offering, together with operating cash flow, will provide sufficient funds to complete the Track and the related infrastructure for which the Company is responsible, acquire and equip its planned additional SWFs and provide sufficient working capital for the foreseeable future, there can be no assurance that such funds will be adequate. There can be no guarantee that the Company will secure any additional financing, or if it is able to do so, that the Company will secure such additional financing in a timely fashion and on terms favorable to the Company. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." In the event that the Company obtains the Credit Facility from an institutional lender, it is likely that such lender will require credit enhancement from an affiliate of the Company, and any adverse change in the financial condition of such affiliate may cause a default and such Credit Facility. Such a default could have a maker's adverse effect on the Company. Risk of New and Uncertain Market Horse racing with pari-mutuel wagering is a new industry in Virginia. Although there is a long history of horse racing in Virginia, it is impossible to predict with any certainty the economic outlook or future of the pari-mutuel wagering industry in Virginia. There can be no guarantee that the market will be sufficient to generate enough revenue to make the Company profitable. The Company's business plan for operating its Track and system of SWFs is unproven and there can be no assurance that the Company's business plan will be successful. Attendance and wagering at the Track and at the Company's SWFs may be adversely affected by matters outside the Company's control, such as competing gaming and entertainment opportunities, changes in public attitudes toward gaming and pari-mutuel wagering, or other factors. In addition, the Company is subject to risks to which other new businesses and industries in general are subject, such as changes in general economic conditions, markets, and interest rates. Risk of Delay in Commencement of Live Racing; Possible Loss of SWF Licenses Significant delays in the Company's plan to open and operate four SWFs prior to commencement of live racing would have a material adverse effect on the Company's expected revenues, its ability to offer competitive purses at the Track and its ability to meet its obligation to fund guaranteed minimum purse amounts and debt service in respect of its loans on an ongoing basis. See "Business -- Purse Structure and Guarantees," and "Business -- Competition." Under current Virginia law, if the Company fails to open the Track and conduct live racing by September 1, 1997, its existing SWF licenses will become invalid and the Company would be required to close its existing SWFs, pending issuance of new SWF licenses. Although the Virginia Racing Commission may subsequently re-grant such licenses, there can be no assurance that it would do so. 8 Pending litigation that challenges the Virginia Racing Commission's authority to issue SWF licenses for the Richmond SWF prior to the completion of the Track's construction also may affect the Company's Richmond SWF licenses. Although the final outcome of this proceeding cannot be predicted, the Company believes that it will be ultimately resolved in a manner that will not have a material adverse effect on the Company's results of operations, liquidity or financial condition. See "Business-- Legal Proceeding." The Company has received from the Virginia Racing Commission race days for 1997 commencing on June 29, 1997. However, the Company has experienced construction delays since receiving the race days. Accordingly, the Company will seek an amendment to its race days for 1997 from the Virginia Racing Commission, but there can be no assurance that such amendment will be granted, or if granted, that the schedule as amended will be consistent with the Track's anticipated opening date. Delay in the opening of the Track beyond July 17, 1997, could cause the Company to become obligated to pay some or all of a $1,000,000 performance guarantee provided to the Virginia Racing Commission. The Virginia Racing Commission's decision awarding licenses to the Company required a performance guarantee of the Company's obligation to construct, complete and open the Track for racing by July 17, 1997. For each day beyond July 17, 1997 that the Track is not complete and open for racing, the Company will pay a penalty of $5,000, up to a maximum of $1,000,000. The July 17 deadline may be extended by amendment at the discretion of the Virginia Racing Commission, or by an act of God, war, terrorism or other force majeure event beyond the control of the Company. The Company intends to ask the Virginia Racing Commission to extend the July 17 deadline because of certain construction delays the Company has experienced. Although the Company believes that it will be able to complete the Track and commence racing in advance of such deadline, there can be no assurance that it will be able to do so, and no assurance that the Company will not have to pay a portion or all of the performance guarantee. The Track site is subject to reversion to the grantors of the site if the Company fails to complete, open and operate for three years a racetrack licensed by the Virginia Racing Commission on the site. State and Local Approval of Satellite Wagering Facilities The Company's strategy and future success is dependent, in significant part, upon the Company being awarded licenses from the Virginia Racing Commission to own and operate the maximum of six SWFs permitted by Virginia law. As set forth below, passage of a local referendum approving the location of SWFs within a locality is required as a condition to issuance of licenses to the Company in localities where the Company wishes to operate. Under the Virginia Racing Act, only the Company, as the holder of licenses to own and operate a pari-mutuel racetrack in Virginia, is eligible to be licensed to own and operate SWFs in Virginia. The Company has received licenses for three such facilities: a Chesapeake SWF, which has operated since February 1996, a Richmond SWF which opened in December 1996; and a Hampton SWF, which is scheduled to open before July 1, 1997. In March 1997, the Company intends to apply for licenses to own and operate an SWF in Brunswick County, where a referendum has passed. There can be no guarantee that the Virginia Racing Commission will issue licenses for the Brunswick SWF or the remaining two SWFs to the Company, or if issued, that they will be issued consistent with the Company's schedule for opening SWFs. See "Business -- Satellite Wagering Facilities." The Virginia Racing Act provides that the Company cannot apply for a license to own or operate a SWF in any county or city in Virginia unless a local referendum approving such SWF has been passed. Although such referenda have passed in several localities which are potential SWF sites, all five attempts at such referenda have failed in northern Virginia, which because of its population density is a highly desirable market to the Company for the location of additional SWFs. See "Business -- Satellite Wagering Facilities." There can be no guarantee that the Company will be able to obtain such local approval in localities considered desirable by the Company for an SWF, or at all. This process may also delay or otherwise limit the Company's ability to respond rapidly to changing operating or other conditions. Government 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 United States Congress recently passed legislation creating a national gaming study commission (the "National Gaming Commission"). The National Gaming Commission will have the duty to conduct 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, to formulate and propose changes in such policies and practices, and to recommend legislation and administration actions for such changes. It is not possible to predict the future impact of any such proposals on the Company and its operations. Any such proposals could 9 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 were 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. See "Business -- The Company's Licenses." The Virginia Racing Commission is responsible for, among other things, (i) conducting an annual review of the Company's Track and SWF 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 SWFs. 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 SWFs and the Maryland Jockey Club as manager of the Company's thoroughbred meets pursuant to the Management and Consulting Agreement. 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. 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. See "Business -- The Company's Licenses." Other State and Local Regulation. The Company, the Track and the SWFs 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 SWF 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 SWF, 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 originating state. To conduct export simulcasting, the Company must obtain the consent of the Virginia Horsemen's Benevolent & Protective Association or the Virginia Harness Horse Association, as the case may be, and the Virginia Racing Commission. Also, in the case of off-track wagering to be conducted at any of the Company's SWFs, the Interstate Horse Racing Act requires the Company to obtain the approval of all currently operating horse racetracks within sixty miles of the SWF 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. Compliance With Regulation. No assurance can be given that the Company will be able to obtain all necessary regulatory approvals for the operation or expansion of its business without undue delay, cost or significant conditions imposed therein, if at all. See "-- Risk of Delays in Opening the Track and the SWFs." 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 payable to New Kent County where the Track is located, and taxes payable to localities in which SWFs are located based upon the amount of monies wagered both at the Track and at the Company's SWFs. See "Management's Discussion and Analysis of 10 Financial Condition and Results of Operations -- Overview." 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. Certain Income Tax Considerations Related to the Acquisition of the Track Site The Company will receive the property on which the Track is being constructed from neighboring landowners, subject to a right of reversion if the Company ceases to operate the Track, as licensed by the Virginia Racing Commission, within three years after transfer and subject to a deed restriction limiting its use to operation of a horse racetrack and ancillary special events unless otherwise agreed by the grantor. The Company intends to take the position that the conveyance should qualify as a nontaxable contribution to capital. Nonetheless, the Internal Revenue Service may seek to recharacterize the transaction as a taxable transfer, and there can be no assurance that a court would not agree with that characterization. If the Internal Revenue Service is successful, the Company would be obligated to pay federal income tax based upon the land's fair market value of $5,000,000 as estimated by the Company at the time of transfer (but the Company's gain on any subsequent disposition of the land would be reduced by a corresponding amount). Dependence on Key Personnel; Future Need to Hire Additional Qualified Personnel The Company believes it currently employs sufficient personnel to apply for additional SWF licenses to the Virginia Racing Commission, to staff its Chesapeake and Richmond SWFs, to oversee the development and construction of the Track, and to develop future SWF sites. As Track construction nears completion, however, the Company will need to hire additional personnel to operate the Track and to supplement its management team. The Company anticipates hiring approximately 200 full-time employees and approximately 200 part-time employees for the Track. There can be no guarantee that the Company will be able to hire such additional personnel on terms favorable to the Company or at all. In addition, Arnold W. Stansley, who has directed the operations of the Company to date, will assume a more passive role in the operations of the Company after this Offering, when it is expected he will devote no more than two days per month to the business of the Company. He will serve as Vice-Chairman of the Board of Directors and will provide management consultation and advice. The future success of the Company will depend upon the continuing active participation of Jeffrey P. Jacobs, who will serve as Chairman of the Board and Chief Executive Officer, although he is expected to devote only one-third of his time to the business of the Company, and O. James Peterson, III, the Company's President and Chief Operating Officer. Messrs. Jacobs and Peterson will enter into employment agreements with the Company to be effective upon the completion of the Reorganization. See "Management -- Directors and Executive Officers." Risk of New Construction/Infrastructure Completion The Track is anticipated to open on or prior to September 1, 1997; however, there can be no guarantee that the opening will occur by that time or that budgeted construction costs for the project will be sufficient. Major construction projects such as the Track entail significant risks, including shortages of materials or skilled labor, unforeseen engineering, environmental and/or geological problems, work stoppages, weather interference and unanticipated cost increases. Such problems, or difficulties in obtaining any of the requisite licenses, permits or authorizations from regulatory authorities, could increase the cost of or delay the construction or opening of the Track. The Company has entered into a construction agreement (the "Construction Agreement") with Norglass, Inc., an affiliate of James M. Leadbetter, a substantial shareholder of the Company, which provides among other matters, for a guaranteed maximum price of $27,075,000 for construction of the grandstand, barns, track surfaces and related sitework and Norglass, Inc.'s fee and out-of-pocket expense reimbursement. Norglass, Inc. also will provide additional work and act as construction manager for the entire Track. The total estimated cost of Norglass, Inc.'s services under the Construction Agreement is approximately $29.5 million. There can be no assurance that the Track will be completed without exceeding such guaranteed maximum price or currently estimated cost or consistent with the Company's development schedule. See "Certain Transactions." Construction expenditures not covered by this contract are estimated to be $4.9 million for Track fixtures, furniture and equipment, $1.8 million in professional fees, $1.4 million for water, sewer and road expenses, and $0.6 million for Track opening expenses. The Company anticipates that, as of the consummation of this Offering, the Company will have paid approximately $4.9 million of expenses associated with the construction, equipping and furnishing of the Track. Additional parties beyond the Company's control are responsible for several infrastructure improvements affecting the Track. New Kent County has agreed to widen Route 155, the road leading to the entrance of the Track's main boulevard. Similarly, pursuant to a development agreement with the Company, a grantor of the Track site will develop and construct a sewer and water system that will service the Track, with costs reimbursed by the Company not to exceed $985,000. There can be no guarantee that the widening of Route 155 and the sewer and water system will be completed consistent with the Company's development schedule. 11 Potential Fluctuations in Operating Results; Seasonality The Company anticipates that its operating results will fluctuate from quarter to quarter because revenues may be higher during scheduled live racing than at other times of the year. Adverse weather conditions may cause cancellation of or curtail attendance at outdoor races, thereby reducing wagering. Attendance and wagering at both outdoor races and indoor SWFs may be adversely affected by holidays and other competing seasonal activities. Given that a substantial portion of the Company's expenses are fixed, the loss of scheduled racing days could adversely effect the Company's profitability. See "Business -- Seasonality and the Effects of Inclement Weather," and "Business -- Simulcasting." Competition The Company competes and will compete for wagering dollars and simulcast fees with live racing and races simulcast from horse racetracks in other states, such as Charles Town in West Virginia, Pimlico Race Course, Laurel Park and Rosecroft Raceway in Maryland, and Delaware Park in Delaware. In addition, new racetracks could be constructed in adjacent states that would compete with the Track, or new licenses could be granted to Company competitors in Virginia. See "-- Additional Licenses May Be Granted." The Company will face competition from a wide range of entertainment options, including other forms of gaming, live and televised professional and collegiate sporting events, and other recreational activities. The legalization of other forms of gaming in Virginia or any neighboring states also may provide competition for the Company. The Company anticipates competition from video lottery terminals ("VLTs") and slot machines. In particular, Delaware legalized slot machines at three racetracks as of January 1, 1996 and proposed legislation increasing gaming activities, including slot machines at Maryland racetracks and SWFs, is pending before the Maryland legislature. In addition, a referendum for the legalization of VLTs was passed on November 5, 1996 in Lewistown, West Virginia, where the Charles Town racetrack is located. Although Charles Town's purses are currently significantly lower than those that the Company expects to offer, VLT revenue may substantially increase Charles Town's purses. VLTs and slot machines are prohibited in Virginia. The Company believes that the legalization of VLTs and/or slot machines in neighboring states may adversely affect its business by attracting the Company's potential SWF and Track customers and enabling other tracks to offer higher purses than the Track. It may be more difficult for the Company to attract horsemen to race at the Track if other nearby racetracks offer higher purses. See "Business -- Competition." Reliance Upon Virginia-Maryland Thoroughbred Racing Circuit The Company believes that the Management and Consulting Agreement will effectively promote thoroughbred racing in Maryland and Virginia by enhancing coordination of thoroughbred events between the two states. Pursuant to this agreement, the Maryland Jockey Club has agreed to seek permission to cease live thoroughbred racing at Pimlico Race Course and Laurel Park during the Company's thoroughbred meet, and the management team of these courses will manage the Company's thoroughbred meet. Accordingly, the Company will avoid competing directly with Maryland's thoroughbred tracks, will seek to attract horses that typically run at the Maryland tracks during such period and will benefit from the experience of the management provided by the Maryland Jockey Club. The Maryland Jockey Club has received the maximum number of race days (296) allowed under Maryland law for 1997. In requesting such race days, the Maryland Jockey Club notified the Maryland Racing Commission of its intention to close Pimlico Race Course and Laurel Park for live racing during the Company's thoroughbred meet. Although the Maryland Racing Commission's express approval is not a pre-condition to the Maryland Jockey Club not conducting live racing at such tracks during the Company's thoroughbred meet in 1997, if the Maryland Racing Commission subsequently disapproves of such action, it may penalize the Maryland Jockey Club in a variety of ways, including denying race days or imposing monetary fines. If the Maryland Jockey Club is unable (or unwilling) to cease live racing as aforesaid in future years because of actions by the Maryland Racing Commission, the Company may compete directly with thoroughbred horse racing at the Maryland tracks. Further, while the Company may be able to recoup some or all of the two percent management fee payable to the Maryland Jockey Club, the Company will need to recruit additional personnel to manage its thoroughbred meet in such event. See "Business -- Virginia-Maryland Thoroughbred Racing Circuit." The Maryland-Virginia Racing Circuit, Inc. is owned by Laurel Park Racing Association Limited Partnership (50%) and Pimlico Racing Association, Inc. (50%), which conduct business under the trade name The Maryland Jockey Club. A potential conflict of interest arises between the Maryland-Virginia Racing Circuit, Inc. and the Maryland Jockey Club if the Maryland Jockey Club cannot, or elects not to, cease live racing in Maryland during the Company's live thoroughbred meet. The Maryland-Virginia Racing Circuit, Inc. is responsible for managing the Company's thoroughbred meet. To the extent that it is unable to do so because the Maryland Jockey Club does not cease live racing during the Company's thoroughbred meet, it may forfeit its management fee payable by the Company and the Company will need to recruit additional personnel and take other action to manage its thoroughbred meet. Additional Licenses May Be Granted The Company was awarded the only existing unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering issued by the Virginia Racing Commission. (The Maryland Jockey Club has been issued an operator's license for the limited purpose of managing the Company's thoroughbred meet.) The Company's licenses were awarded on October 12, 1994 after a competitive one-year application process involving five other applicants. The Company does not believe that an award of additional licenses in the immediate future is likely; however, the Virginia 12 Racing Commission has the authority to award subsequent licenses if it finds such award to be in the best interest of the Virginia horse racing industry. The issuance of any additional unlimited licenses to other parties could have a material adverse effect on the Company's financial performance. The Virginia Racing Commission also has the authority to issue limited licenses for race meets of less than 15 days. To date, the Commission has only issued limited licenses to a nonprofit organization that sponsors one day of pari-mutuel racing per year. See "Business -- The Company's Licenses." Decline in Live Racing Attendance at Racetracks; Future Growth Dependent on SWFs A substantial historic decline has occurred in attendance and wagering on live racing at racetracks nationwide. The Company believes this decline results primarily from competition from other forms of entertainment and gaming, including wagering at SWFs, and an increasing unwillingness of customers to travel a significant distance to racetracks. In light of this historical decline in on-track customers, the Company believes that its future growth is dependent upon the opening of additional SWFs to increase its total revenues. The Company intends to obtain licenses for up to four additional SWFs. The Company's wagering business, however, has a limited history. There can be no assurance that either the Chesapeake or Richmond SWFs will increase or maintain its current level of revenues, or that any or all of the additional planned SWFs will be opened, or that, if opened, they will achieve or maintain profitability. See "Business -- Satellite Wagering Facilities." Reliance on Independent Horse Owners; Relationship with Maryland Racing Organizations The Company is dependent upon its ability to attract individual horse owners to obtain and maintain a supply of race horses necessary for the Track to operate. The Company has entered into agreements with certain associations representing the Virginia thoroughbred and standardbred horse owners, pursuant to which the Company has guaranteed certain purse levels which it believes will be attractive to thoroughbred and standardbred horse owners. See "Business -- Purse Structure and Guarantees." The future success of the Company is dependent upon its maintaining a positive working relationship with such horsemen's groups and negotiating future agreements with such groups on satisfactory terms. There can be no assurance that the Company will be able to do so. To help promote its thoroughbred racing, the Company entered into the Management and Consulting Agreement with Maryland-Virginia Racing Circuit, Inc. to create a Virginia-Maryland thoroughbred racing circuit. See "Business -- Virginia-Maryland Thoroughbred Racing Circuit." The Virginia-Maryland thoroughbred racing circuit is designed to encourage Maryland horsemen who historically have run their horses at the Maryland tracks during certain time periods to send their horses to the Track. The Company and the Maryland Jockey Club have agreed to encourage such horsemen to ship their horses to the Track for its thoroughbred meet. There can be no guarantee that the Virginia-Maryland thoroughbred racing circuit will be successful, however, or that the Company's purses will be sufficient to attract horse owners to the Track. Control of Company; Conflicts of Interest Following the completion of this Offering, Jeffrey P. Jacobs, the Company's Chairman of the Board and Chief Executive Officer, will have effective voting control of the Company, directly and indirectly through a family trust and other entities, by virtue of ownership of 1,500,000 shares of Class B Common Stock, which will represent approximately 46.2% of the total voting power of the Common Stock as to matters other than any vote or approval with respect to a merger, consolidation or other business combination, or a sale of all or substantially all of the assets of the Company ("Special Voting Matters") (20.7% for Special Voting Matters). If Mr. Jacobs converts the Convertible Subordinated Note, he will own 1,950,820 shares of Class B Common Stock, which would represent approximately 52.7% of the total voting power of the Common Stock (25.3% for Special Voting Matters). The foregoing does not give effect to the exercise of options that Arnold W. Stansley and James M. Leadbetter will grant to Mr. Jacobs for up to 300,000 shares of Class A Common Stock. Mr. Jacobs is also a substantial shareholder, directly and indirectly, in other gaming companies, including, but not limited to, Jacobs Entertainment Ltd., which holds interests in a casino in Colorado and a casino in Nevada. The Company does not anticipate any conflicts of interest with such casinos; however, there can be no assurance that future activities of Mr. Jacobs or the companies in which he holds interests will not compete with the Company. Except for Special Voting Matters, Mr. Jacobs effectively controls and will be able to control all matters submitted to stockholders for a vote. See "Principal Shareholders." See also "Certain Transactions." In addition, pursuant to the Convertible Subordinated Note and the agreements of an affiliate of Mr. Jacobs in connection with the Credit Facility, Mr. Jacobs and his affiliates may be the Company's largest secured creditors, and conflicts of interest also may arise in connection with such indebtedness. See "Certain Transactions--Credit Facility." 13 5% Ownership Limit; Virginia Racing Act Restrictions on Stock Ownership No purchaser of shares in this Offering will be permitted to acquire direct or indirect ownership or control ("beneficial ownership") of 5% or more of the Company's Common Stock. The Virginia Racing Act requires that any person proposing to acquire beneficial ownership of 5% or more of the Company's shares obtain the prior approval of the Virginia Racing Commission. In addition, under the Virginia Racing Act, the Virginia Racing Commission has the authority to order a 5% or greater beneficial shareholder of the Company to dispose of his or her Common Stock of the Company if it determines that such shareholder (i) is or has been guilty of any illegal, corrupt or fraudulent act, conduct or practice in connection with horse racing in Virginia or any other state, (ii) knowingly failed to comply with the Virginia Racing Act or the Virginia Racing Commission's regulations, or (iii) has had a license or permit to hold or conduct a race meet suspended, denied for cause, or revoked. See "-- Government Regulation." No Prior Market for the Class A Common Stock Prior to this Offering, there has been no public market for the Class A Common Stock, and there can be no assurance that a regular trading market for the Class A Common Stock will develop or be sustained. The initial offering price for the Class A Common Stock will be determined through negotiation between the Company and Friedman, Billings, Ramsey & Co., Inc. as representative of the Underwriters. There can be no assurance that future market prices for the Class A Common Stock will equal or exceed the initial public offering price set forth on the cover page of this Prospectus. Recent history relating to the market prices of other newly public companies indicates that the market price of the Class A Common Stock following this Offering may be highly volatile. The market price of the Class A Common Stock could be subject to significant fluctuations in response to such factors as regulation, competitive conditions, the Company's operating results, prevailing interest rates and the markets for similar securities. Provisions with Possible Anti-Takeover Effect Certain provisions of Virginia law and the Company's Amended and Restated Articles of Incorporation could delay or impede the removal of incumbent directors or the acquisition of the Company by an outside party even if such events would be beneficial to the interests of the shareholders. Such provisions could limit the price that certain investors might be willing to pay in the future for the Class A Common Stock. Such statutory provisions include the 5% ownership limit under the Virginia Racing Act, the Virginia Affiliated Transactions statute, and the Virginia Control Share Acquisition statute. Provisions of the Company's Amended and Restated Articles of Incorporation include the two classes of Common Stock with disproportionate voting power, a staggered Board of Directors and the ability of the Company to issue up to 17 million shares of capital stock, including up to 2 million shares of preferred stock, for which the Board of Directors could establish special preferences or rights without a vote of the shareholders. See "Description of Capital Stock -- Certain Charter and Statutory Provisions," and "-- 5% Ownership Limit; Virginia Racing Act Restrictions on Stock Ownership." In addition, following the completion of this Offering, Jeffrey P. Jacobs will have direct or indirect effective voting control of the Company. See "-- Control of Company; Conflicts of Interest." Dividend Policy The Company does not anticipate paying any dividends on the Class A Common Stock in the foreseeable future, and intends to retain earnings to finance the development and expansion of its operations. See "Dividend Policy." Dilution Purchasers of the Class A Common Stock will experience immediate and substantial dilution in pro forma net tangible book value per share of Class A Common Stock of $4.65 from the initial public offering price, assuming an offering price of $10.00 per share. See "Dilution." 14 Shares Eligible for Future Sale; Registration Rights Upon completion of this Offering, there will be 5,000,000 shares of Class A Common Stock outstanding (5,637,500 shares if the Underwriters' over-allotment option is exercised in full), of which the 4,250,000 shares of Class A Common Stock sold in this Offering are freely transferable by persons other than "affiliates" of the Company without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"). The remaining 750,000 shares of Class A Common Stock and the 2,250,000 shares of Class B Common Stock may be deemed "restricted" or "affiliate" securities within the meaning of the Securities Act and, if so, may not be sold in the absence of registration under the Securities Act or an exemption therefrom, including the exemption contained in Rule 144. No prediction can be made as to the effect, if any, that future sales of shares of Class A Common Stock will have on the market price of the shares of the Class A Common Stock prevailing from time to time. Sales of substantial amounts of Class A Common Stock in the public market following this Offering, or the possibility that such sales could occur, could adversely affect the market price of the Class A Common Stock. In connection with this Offering the Company has agreed not to issue any shares of Common Stock, and the Company's current directors, officers and all existing shareholders have agreed not to, directly or indirectly, offer, sell, contract to sell or otherwise dispose of any shares of Common Stock for a period ending on the later of (i) 180 days following the consummation of this Offering and (ii) the date on which the Company has four SWFs (excluding SWF operations at the Track) in operation, without the prior written consent of Friedman, Billings, Ramsey & Co., Inc. In addition, the Company has granted certain registration rights to the holders of such shares. See "Shares Eligible for Future Sale," and "Certain Transactions -- Registration Rights." 15 THE COMPANY Colonial Downs Holdings is a Virginia corporation organized in November 1996 to pursue opportunities for wagering and horse racing in Virginia. The Company holds the only unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia and is the only entity currently authorized to apply for licenses to own and operate SWFs in Virginia. Upon completion of this Offering and the Reorganization described below, Colonial Downs Holdings will be a holding company for Colonial LP and Stansley Racing. Colonial LP was formed on September 30, 1993, and was awarded the license to own the Track by the Virginia Racing Commission in October 1994. Stansley Racing was formed on June 3, 1994, and was awarded the license to operate the Track by the Virginia Racing Commission in October 1994. Colonial LP also holds owner's licenses for the Chesapeake, Richmond and Hampton SWFs and Stansley Racing holds the operator's licenses for those facilities. The Company was delayed in commencing construction of the Track and operation of its SWFs pending resolution of an appeal by a competitor of the award of the initial licenses to the Company. That appeal was resolved in May 1996. The Company opened its first SWF in Chesapeake in February 1996, opened its second SWF in Richmond in December 1996, received licenses in February 1997 for a third SWF in Hampton, and during the next 12 to 18 months intends to apply for licenses for, and to open, three additional SWFs. The Company's Track in New Kent County, Virginia, which will host thoroughbred and harness racing, is anticipated to open and begin live racing on or prior to September 1, 1997. The Company plans to conduct pari-mutuel wagering at the Track and at the Company's SWFs, on live races run at the Track or imported by simulcast from other racetracks. After it begins live racing at the Track, the Company also intends to enter into agreements for the export simulcasting of races run at the Track. The Company's principal executive offices are located at 3610 N. Courthouse Road, Providence Forge, Virginia 23140 and its telephone number is (804) 966-7223. THE REORGANIZATION The Company's licenses to own and operate the Track and its SWFs are held by Colonial LP and Stansley Racing. Stansley Management Corp. ("SMC") and CD Entertainment Ltd. each own 50% of the partnership interests in Colonial LP. CD Entertainment Ltd. is beneficially owned by Jeffrey P. Jacobs, and Gary L. Bryenton and Jeffrey P. Jacobs as Trustees. SMC is owned 68% by Arnold W. Stansley and 30% by James M. Leadbetter, with the balance held by two other individuals. Mr. Stansley also owns 70% of the outstanding capital stock of Stansley Racing and Mr. Leadbetter owns the remaining 30% of the outstanding capital stock. CD Entertainment Ltd. and Mr. Stansley each own one share of common Stock of Colonial Downs Holdings. The ownership and operating licenses held by Colonial LP and Stansley Racing are non-transferable under the Virginia Racing Act. In order to bring the licenses under the control of one entity while avoiding transfer of the licenses, Colonial Downs Holdings will become a holding company for Colonial LP and Stansley Racing pursuant to an Agreement and Plan of Reorganization (the "Plan of Reorganization"). Pursuant to the Plan of Reorganization, which will occur prior to the consummation of this Offering, Colonial Downs Holdings will acquire a 99% limited partner interest in Colonial LP from SMC (which will be merged into Colonial Downs Holdings) and CD Entertainment Ltd., and 100% of the outstanding stock of Stansley Racing from Messrs. Stansley and Leadbetter, in exchange for an aggregate of 750,000 shares of its Class A Common Stock and 2,250,000 shares of its Class B Common Stock. Also pursuant to the Plan of Reorganization, Stansley Racing will acquire a 1% general partner interest in Colonial LP. The Virginia Racing Commission has approved the Reorganization, as required by the Virginia Racing Act. The transactions described in the Plan of Reorganization are collectively referred to herein as the "Reorganization." As a result of the Reorganization, the Company will own, directly or through its wholly owned subsidiaries Colonial LP and Stansley Racing, the ownership and operating licenses for the Track and the Chesapeake and Richmond SWFs, the real property on which the Richmond SWF will be located, the 345 acres on which the Track is being constructed, the Track facilities and certain related infrastructure, and the rights under various agreements described in this Prospectus. 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the 4,250,000 shares of Class A Common Stock offered in this Offering are estimated to be approximately $38.9 million (assuming an initial public offering price of $10.00 per share) after deducting estimated underwriting discounts and estimated expenses of this Offering. The Company plans to use the net proceeds of this Offering, the Credit Facility and the issuance of the Convertible Subordinated Note (i) for completion and operation of the Track; (ii) to acquire, renovate and/or equip SWFs; (iii) to repay interim financing provided by and fees owed to certain shareholders totaling $7.5 million; and (iv) for working capital and other general corporate purposes, such as marketing activities, and other development and operating costs. Pending the application of proceeds for these uses, the Company intends to invest the net proceeds from this Offering in interest-bearing bank accounts, United States government securities, certificates of deposit of major banks or high grade commercial paper. Financing Plan A brief description of the Company's financing plan through March 1998 is set forth below. The financing plan includes the Company's present expectations regarding the sources of necessary funding and assumes completion of this Offering on March 15, 1997. See "Risk Factors -- Financing Requirements."
$ (millions) % of Total Sources: Net proceeds from this Offering (1)....... $ 38.9 72.0% Credit Facility (2)....................... 9.6 17.8 Convertible Subordinated Note............. 5.5 10.2 ------- ------ Total $ 54.0 100.0% ======= ====== Uses: Completion of construction, equipping and furnishing of the Track(3).......... $33.3 61.7% Acquisition, renovation and equipping of SWFs.................................. 6.3 11.7 Payment of interim financing owed to certain shareholders(4).................. 7.2 13.3 Funding of purse accounts(5).............. 2.2 4.1 Working capital........................... 4.7 8.7 Management fees(6)........................ 0.3 0.5 ------- ----- Total $ 54.0 100.0% ======= ===== ---------------------- (1) Net proceeds from this Offering are net of approximately $3.6 million of estimated offering expenses. (2) Net proceeds from the Credit Facility assumes that such facility will be provided by an institutional lender and are net of approximately $400,000 of estimated expenses. Prior to the consummation of this Offering and prior to the closing of the Credit Facility, certain affiliates of Mr. Jacobs will provide a $6.5 million irrevocable letter of credit and will leave outstanding $3.5 million of interim financing described in footnote (3) below. On closing of the Credit Facility, the letter of credit will be withdrawn and the amounts drawn under the letter of credit and the remaining $3.5 million of interim financing will be repaid from the proceeds of the Credit Facility. (3) Includes a $125,000 deferred consulting fee due to Premier One Development Co., an affiliate of Mr. Jacobs. (4) Interim financing includes loans and other credit facilities aggregating $6.5 million from CD Entertainment Ltd. ($4.4 million accumulated from June 1996 to December 1996, and projected $2.1 million from January 1997 to March 1997), of which $3.0 million will be paid from this Offering and the proceeds of the Convertible Subordinated Note, loans aggregating $386,788 from Arnold W. Stansley (accumulated from inception, September 1993, to February 1996), and loans aggregating $311,994 from Norglass, Inc.(accumulated from inception, September 1993, to February 1996). See "Certain Transactions." (5) Upon funding of the purse accounts, letters of credit provided by CD Entertainment Ltd., as support for the Company's purse funding obligation, will be terminated. (6) Deferred management fees due to Stansley Racing.
17 DIVIDEND POLICY The Company 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. CAPITALIZATION The following table sets forth as of December 31, 1996 (i) the actual capitalization of the Company after giving effect to the Reorganization and (ii) the capitalization of the Company as adjusted to reflect the net proceeds from this Offering, borrowing by the Company of $10 million under the Credit Facility and the issuance of the Convertible Subordinated Note. See "Use of Proceeds." This table should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Prospectus.
December 31, 1996 ------------------- Actual As Adjusted(1) ------ -------------- (In thousands) Current portion of long-term debt ....................... $ 49 $ 49 Current portion of notes payable to shareholders......... 1,638 -- Long-term debt .......................................... 42 10,042 Long-Term Notes payable to shareholders.................. 3,448 5,500 Shareholders' equity: Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued........... -- -- Common Stock, Class A $.01 par value, 12,000,000 shares authorized; 750,000 shares issued (actual) and 5,000,000 shares issued (as adjusted)........... 7 50 Common stock, Class B, $.01 par value, 3,000,000 shares authorized; 2,250,000 shares issued (actual) and 2,250,000 shares issued (as adjusted).......... 23 23 Additional paid-in capital........................... 1,966 40,823 Retained earnings (deficit).......................... (1,001) (1,001) ------ ------- Total stockholders' equity........................... 995 39,895 ------ ------- Total capitalization..................................... $6,172 $55,486 ====== ======= - --------------- (1) Gives effect to this Offering, borrowing by the Company of $10 million under the Credit Facility and the issuance of the Convertible Subordinated Note as if each had occurred as of December 31, 1996.
18 DILUTION As of December 31, 1996, the Company had a negative net tangible book value of $126,417 or approximately $.04 per share. After giving effect to the sale of the Class A Common Stock offered by the Company hereby and the application by the Company of the estimated net proceeds of this Offering, the Credit Facility and the issuance of the Convertible Subordinated Note as described in "Use of Proceeds," the pro forma net tangible book value of the Company as of December 31, 1996 would have been $38,773,583, or $5.35 per share of Common Stock. This represents an immediate increase in pro forma net tangible book value of $5.39 per share of Common Stock to the current shareholders and an immediate dilution in pro forma net tangible book value per share of Common Stock of $4.65 after the completion of this Offering from the price per share paid by purchasers in this Offering. The following table illustrates this dilution:
Assumed initial public offering price per share of Class A Common Stock (1)............ $10.00 Net tangible book value per share of Common Stock as of December 31, 1996, before this Offering (2)....................................... $(0.04) Increase attributable to this Offering............................................. $ 5.39 ====== Pro forma net tangible book value per share of Common Stock after this Offering................................................................ $5.35 ===== Dilution per share of Class A Common Stock to purchasers of Class A Common Stock in this Offering.............................................. $4.65 ===== - ------------------------ (1) Before deduction of underwriting discounts and concessions and estimated offering expenses. (2) Net tangible book value per share is determined by dividing the net tangible book value of the Company (total assets less intangible assets less total liabilities) by the number of shares of Common Stock outstanding.
The following table sets forth as of December 31, 1996, on a pro forma basis after giving effect to this Offering: (i) the total number of shares of Common Stock held by the current shareholders, the total consideration given for such shares and the average price per share paid or invested in the Company for such shares; (ii) the total number of shares to be purchased from the Company, the total consideration for such shares and the average price per share to be paid by new investors purchasing such shares in this Offering; and (iii) the percentage of shares purchased and the percentage of total consideration paid by the current shareholders and the new investors.
Shares Purchased Total Consideration ---------------- ------------------- (thousands) (thousands) Average Price Number Percent Amount Percent Per Share ------ ------- ------ ------- --------- Current Shareholders............. 3,000 41.4% $ 1,996 4.5% $0.67 New Investors.................... 4,250 58.6% 42,500 95.5% $10.00 ----- ----- ------ ---- Total................... 7,250 100.0% $ 44,496 100.0% ===== ===== ====== =====
19 SELECTED FINANCIAL AND OPERATING DATA(1) The following selected consolidated financial data of the Company for the years ended December 31, 1996, 1995, 1994, and 1993, except for Operating Data, are derived from financial statements that have been examined by BDO Seidman, LLP, independent certified public accountants, adjusted as described in the notes below. The selected consolidated financial data should be read in conjunction with the consolidated financial statements, and related notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included herein. (In thousands, except share, per share, per capita, days of operation, and attendance data)
Year ended December 31, ----------------------- 1996 1995 1994 1993(2) ---- ---- ---- ---- Income Statement Data: Revenues: Pari-mutuel commissions - Import simulcasting............ $ 7,745 $ -- $ -- $ -- Other related revenues........... 782 -- -- -- ---------- ---------- ---------- --------- Total revenues...................... 8,527 -- -- -- ---------- ---------- ---------- --------- Direct operating expenses Direct expense of import simulcasting..................... 4,582 -- -- -- Other direct operating expenses 2,691 -- -- -- ---------- ---------- ---------- ---------- Total direct operating expense 7,273 -- -- -- ---------- ---------- ---------- ---------- General and administrative....... 1,438 315 19 17 Depreciation and amortization 284 3 -- -- ---------- ---------- ---------- ---------- Loss from operations................ (468) (318) (19) (17) Other interest income............... 6 -- -- -- Interest expense.................... (183) (2) -- -- ---------- ---------- ---------- ---------- Net loss............................ $ (645) $ (320) $ (19) $ (17) ========== ========== ========== ========== Net loss per share (3).............. $ (0.22) $ (0.11) $ (0.01) $ (0.01) Weighted average number of shares outstanding...................... 3,000,000 3,000,000 3,000,000 3,000,000 Pro forma net loss per share(4)..... $ (0.13) -- Pro forma weighted average number of shares outstanding............ 3,555,847 --
At December 31, 1996 At December 31, --------------------- --------------- Actual As Adjusted(5) 1995 1994 1993 ------ -------------- ---- ---- ---- Balance Sheet Data: Current assets...................... $ 1,765 $ 50,468 $ 330 $ 2 $ -- Total assets........................ 12,176 61,280 3,142 667 227 Working capital..................... (5,926) 45,474 (1,589) (669) (213) Short-term debt, including current portion of long-term debt.. 1,686 49 632 671 213 Long-term debt, excluding current portion.................... 3,491 15,542 1,548 -- -- Total liabilities................... 11,181 21,385 3,467 671 213 Shareholders' equity................ 995 39,895 (325) (4) 14
20 Year Ended December 31, 1996 ----------------- Other Data: EBITDA(6)................................. $ (184) Net cash provided (absorbed) by: Operating activities................. 2,285 Investing activities................. (5,997) Financing activities................. 4,761 From Opening Day Through December 31, 1996 ---------------------------- Chesapeake SWF Richmond SWF -------------- ------------ Operating Data: Days of operation.................... 317 21 Total pari-mutuel wagering (in thousands)..................... $ 33,561 $ 3,391 Average daily wagering (in thousands) $ 106 $ 161 Total attendance..................... 160,579 17,493 Average daily attendance............. 507 833 Average daily per capita wager....... 209 194 - ---------------- (1) The consolidated financial statements of the Company include entities which prior to the Reorganization were affiliated through common ownership and control. See "The Reorganization." (2) From inception on September 30, 1993 to December 31, 1993. (3) Based on 3,000,000 shares of Common Stock outstanding before this Offering. (4) Reflects the per share data and weighted average number of shares outstanding giving effect to the issuance of only that number of shares needed to generate the portion of the net proceeds used to repay the $5.1 million of debt actually outstanding at December 31, 1996, and elimination of interest expense thereon, as if the repayment had occurred at the beginning of the latest year. (5) As adjusted to reflect (i) the sale of 4,250,000 shares of Class A Common Stock by the Company and the application of the net proceeds therefrom, (ii) borrowing by the Company of $10 million under the Credit Facility, and (iii) proceeds of $5.5 million from the Convertible Subordinated Note. (6) EBITDA consists of the sum of the Company's net income (loss), net interest expense and depreciation and amortization. EBITDA data are unaudited and are presented because such data are used by certain investors to determine the Company's ability to meet debt service requirements. The Company considers EBITDA to be an indicative measure of the Company's ability to service debt and fund capital expenditures. However, such information should not be considered as an alternative to net income (loss), operating profit, cash flows from operations, or any other operating or liquidity performance measure prescribed by generally accepted accounting principles. EBITDA is not a measurement under generally accepted accounting principles and may not be comparable to other similarly titled measures presented by other companies. Cash expenditures for various long-term assets and interest expense have been, and will be, incurred which are not reflected in the EBITDA presentation. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the selected financial information and the Company's consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus. Overview The Company has incurred losses since its organization and anticipates that it will continue to incur losses until the Track is completed and operating and four SWFs are operating, as is anticipated to occur on or prior to September 1, 1997. However, the Company may continue to incur losses thereafter. The Company's revenues currently are derived from: (i) pari-mutuel commissions from wagering on races broadcast from out-of-state racetracks to the Company's Chesapeake and Richmond SWFs using import simulcasting; (ii) admissions fees, program, racing form and tip sheet sales, and certain other ancillary activities at the Chesapeake and Richmond SWFs; and (iii) rent from food and beverage sales and concessions at the Chesapeake and Richmond SWFs. Upon the opening of the Track and additional SWFs, the Company expects to derive additional revenue from (i) wagering on races at the Track and at the Company's SWFs; (ii) admissions fees, program, racing form and tip sheet sales, and certain other ancillary activities; (iii) rent from food and beverage sales and concessions; and (iv) fees from wagering at out-of-state locations on races run at the Track using export simulcasting. The Company operates in a single industry segment. 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 SWFs 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 approximately 80%), is legislated by the state in which a race takes place. Revenues from export simulcasting will consist of amounts payable to the Company by the out-of-state racetracks and the SWFs with respect to wagering on races run at the Track. The Company's operating expenses have included or will include (i) purses payable to the horsemen for races run at the Track, (ii) commissions payable to other racetracks with respect to wagering at their facilities on races run at the Track (iii) amounts payable to host racetracks for import simulcast races (approximately 3% of amounts wagered on such races at the Company's SWFs), (iv) a management fee of 2% of amounts wagered (other than on standardbred races run at the Track) payable to the Maryland Jockey Club, which fee represents approximately 10% of the Company's revenues from wagering, (v) pari-mutuel taxes payable to Virginia (approximately 1.6% of all amounts wagered), New Kent County (approximately 0.4% of all amounts wagered) and the SWF's locality (approximately 0.4% of all amounts wagered at that locality), (vi) 1.0% of all amounts wagered payable to the Virginia Breeders Fund, (vii) totalisator, video and audio expenses at the Company's SWFs, (viii) direct salaries, payroll and benefit expenses and (ix) other direct and indirect operating expenses. Historically, the Company has included management fees paid to Stansley Racing as an operating expense (which have been accrued and will be paid out of the proceeds of this Offering). The Maryland Jockey Club management fee is compensation for services provided under the Management and Consulting Agreement, including the management of the Company's thoroughbred meet. The Company will also pay a pro rata share (based upon the duration of the thoroughbred meet) of the salaries of those employees of the Maryland Jockey Club that participate in managing the live thoroughbred racing at the Track. The Company will bear all expenses associated with the thoroughbred meet. The Management and Consulting Agreement will remain in effect for so 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. The Maryland-Virginia Racing Circuit, Inc. is owned by Laurel Racing Association Limited Partnership (50%) and Pimlico Racing Association, Inc. (50%), which conduct business under the trade name The Maryland Jockey Club. A potential conflict of interest arises between the Maryland-Virginia Racing Circuit, Inc. and the Maryland Jockey Club if the Maryland Jockey Club cannot, or elects not to, cease live 22 racing in Maryland during the Company's live thoroughbred meet. The Maryland-Virginia Racing Circuit, Inc. is responsible for managing the Company's thoroughbred meet. To the extent that it is unable to do so because the Maryland Jockey Club does not cease live racing during the Company's thoroughbred meet, it may forfeit its management fee payable by the Company and the Company will need to recruit additional personnel and take other action to manage its thoroughbred meet. The Maryland Racing Commission has issued a license for race days for 1997 to the Maryland Jockey Club. In its request for race days, the Maryland Jockey Club noted its intention to cease live racing at Pimlico Race Course and Laurel Park during the thoroughbred meet at the Track. Although the Maryland Racing Commission's express approval is not a pre-condition to the Maryland Jockey Club not conducting live racing at such tracks during the Company's thoroughbred meet in 1997, if the Maryland Racing Commission subsequently disapproves of such action, it may penalize the Maryland Jockey Club in a variety of ways, including denying race days or imposing monetary fines. If in the future the Maryland Racing Commission discourages the cessation of thoroughbred racing at Pimlico Race Course or Laurel Park during the Company's meets, the Company may compete directly with the Maryland tracks and will rely upon its purse structure, unique turf track and the timing of its race meet to attract quality thoroughbred horses. Further, depending upon the basis for the Maryland Jockey Club's inability to close its tracks or provide management, the Company may recoup some or all of the 2% management fee payable under the Management and Consulting Agreement. In addition to other services, the Management and Consulting Agreement provides for reciprocal simulcasting of live races. Pursuant to the agreement, the Company receives simulcasts of races at Laurel Park and Pimlico Race Course free of charge in exchange for simulcast of races at the Track. If the Management and Consulting Agreement is terminated, the Company would need to negotiate a fee for the receipt of simulcast races from Pimlico Race Course and Laurel Park. The fee for such import simulcasting is typically 3% of the amounts wagered on such races (representing approximately 2% of the Company's revenues from total simulcast wagering) at the Company's SWFs and Track on such races. Minimum purses for live racing at the Track during its first two years have been agreed with the Virginia Horsemen's Benevolent and Protective Association ("VaHBPA") and the Virginia Harness Horse Association ("VHHA") pursuant to SWF agreements. Pursuant to these agreements, the Company has agreed, among other things, to make annual contributions or loans to the purse accounts of not less than $4.5 million for thoroughbred races and $2.5 million for standardbred races. After the Company has realized after-tax net income of $1 million in the first year, and $3 million in the second year, the Company will share net income equally with the purse accounts. Contributions to the purse accounts under the SWF agreements amount to approximately 26.25% of revenues from wagering (after payment of winning wagers) for thoroughbreds and approximately 25% of revenues from wagering (after payment of winning wagers) for standardbreds. See "Purse Structure and Guarantees." The Track is being constructed on approximately 345 acres approximately 25 miles east of Richmond and approximately 25 miles west of Williamsburg. The Company will own the Track site upon consummation of the Offering subject to the reversionary rights of the grantors, which may be exercised if the Company fails to complete, open and operate for three years a racetrack licensed by the Virginia Racing Commission and subject to the limitation that the site may only be used for operating a horse racetrack and ancillary speed events unless otherwise agreed by the grantor. Exercise of the reversion would arise only if the Company lost its licenses to own and operate a racetrack, which would also result in the loss of the SWF licenses under current law. Executives of the Company will be employed pursuant to two-year employment agreements and receive a salary plus expenses associated with travel and membership in horsemen and trade associations. See "Management -- Executive Compensation." 23 Results of Operations Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995 The following table sets forth certain consolidated income statement data and such data as a percentage of total revenues.
(In thousands, except share and per share data) Percent of Percent of December 31, 1996 Total Revenues December 31, 1995 Total Revenues ------------------ -------------- ------------------ -------------- Revenues: Pari-mutuel commissions - Import simulcasting....... $ 7,745 90.8% $ -- -- Admissions.................. 215 2.5% -- -- Programs.................... 361 4.2% -- -- Rental income............... 85 1.0% -- -- Miscellaneous............... 121 1.5% -- -- ---------- ----- ------ ---- Total revenues............ 8,527 100.0% -- -- ---------- ----- ------ ---- Direct operating expenses: Purses, awards, and breeders fund fees........ 2,316 27.2% -- -- Pari-mutuel taxes........... 947 11.1% -- -- Simulcast and totalisator expenses.................. 1,319 15.5% -- -- Direct salaries, payroll tax and benefits.......... 1,160 13.6% -- -- Other direct operating expenses.................. 792 9.3% -- -- Management fees paid to Maryland Jockey Club...... 739 8.7% -- -- ---------- ---- ------ ---- Total direct operating expenses............... 7,273 85.4% -- -- ---------- ----- ------ ---- General and administrative expenses.................... 1,438 16.8% 315 -- Depreciation and amortization.. 284 3.3% 3 -- ---------- ---- ------ ---- Loss from operations........... (468) 5.5% (318) -- Other interest income.......... 6 0.0% -- -- Interest expense .............. (183) 2.1% (2) -- ----------- ---- ------ ---- Net loss....................... $ (645) 7.6% $ (320) -- =========== ==== ====== ==== Net loss per share(2).......... $ (0.22) $(0.11) Weighted average number of shares outstanding.......... 3,000,000 3,000,000
- --------------------- (1) The consolidated financial statements of the Company include entities which prior to the Reorganization were affiliated through common ownership and control. See "The Reorganization." (2) Based on 3,000,000 shares of Common Stock outstanding prior to the consummation of this Offering. 24 The following table sets forth certain operating data for the Chesapeake SWF for the period from February 17, 1996, when it opened, through December 31, 1996 and for the Richmond SWF for the period from December 10, 1996, when it opened, through December 31, 1996. Chesapeake SWF Richmond SWF -------------- ------------ Days of operation.................... 317 21 Total pari-mutuel wagering (in thousands)...................... $ 33,561 $ 3,391 Average daily wagering (in thousands) $ 106 $ 161 Total attendance..................... 160,579 17,493 Average daily attendance............. 507 833 Average daily per capita wager....... 209 194 For the year ended December 31, 1996, the Company's operating results reflect the opening of the Chesapeake SWF in February 1996 and the Richmond SWF in December 1996. For the operating period of February 17, 1996 through December 31, 1996, the Company had total revenues of $8.5 million and total operating expenses of $9.0 million. The Company's pari-mutuel commissions from import simulcasting were approximately 21% of the amount wagered at the Chesapeake and Richmond SWFs ($7.7 million), representing 317 days of operation of the Chesapeake SWF with an average daily attendance of 507 and an average daily per capita wager of $209, and 21 days of operation of the Richmond SWF with an average daily attendance of 833 and an average daily per capita wager of $194. The Company's other revenue from the sale of racing programs, admissions, and other miscellaneous items was approximately $0.8 million over the same period. The Company's operating expenses included (i) purses payable to the horsemen of $1.9 million (approximately 5.2% of all amounts wagered), (ii) host fees paid for import simulcast races of $1.0 million (approximately 2.8% of all amounts wagered), (iii) management fees paid to the Maryland Jockey Club of $0.7 million (approximately 2.0% of all amounts wagered), (iv) pari-mutuel taxes paid the Commonwealth of Virginia and its localities of $0.9 million (approximately 2.6% of all amounts wagered), (v) breeders fund fees of $0.4 million (1% of all amounts wagered), (vi) salaries and payroll expense of $1.2 million (approximately 3.0% of all amounts wagered), and (vii) other direct operating expenses of $2.9 million, consisting of such items as utilities, maintenance, leases, advertising, legal, accounting and supplies (approximately 7.8% of all amounts wagered). After depreciation, amortization, and interest expense, the Company had a net loss of $0.6 million for the year ended December 31, 1996. However, because the principal components of the Company's general and administrative expenses are relatively fixed, the Company's current level of general and administrative expenses, which were approximately $1.4 million in 1996, are not expected to increase significantly with the opening of the Track and the remaining SWFs. The Company plans to open the Hampton SWF, an additional SWF, and the Track on or prior to September 1, 1997 and the two remaining SWFs by March 1998. As these additional SWFs are located in new markets within the state not easily serviced by the existing SWFs, the Company expects to generate additional revenue. Accordingly, the Company expects that general and administrative expenses will decline significantly as a percentage of total revenue after the Company opens additional SWFs. Prior Fiscal Years The Company had no meaningful operations prior to the opening of the Chesapeake SWF in February 1996. The Company had four employees before staffing the Chesapeake SWF; after its opening, the Company had approximately 160 employees. As a result, the Company reported no revenue from its inception on September 30, 1993 until February 1996. The Company incurred costs since its inception in obtaining the licenses and developing the Track and the SWFs. The majority of costs specific to the acquisition and development of the Chesapeake SWF were incurred in fiscal 1995, whereas those relating to the Richmond SWF generally were not incurred until 1996. Liquidity and Capital Resources Funding to Date. Historically, the Company's primary sources of liquidity and capital resources have been cash flow from operations of the Chesapeake SWF, capital contributions from its partners and shareholders, and borrowings from related parties. From December 31, 1995 to December 31, 1996, the Company's cash position increased from $0.3 million to $1.4 million. Net cash provided by operating activities for the year ended December 31, 1996 totaled $2.3 million, which came from increased accounts payable, accrued expenses, and purses owed to horsemen. Upon the consummation of this Offering, the Company plans to deposit up to $2.2 million from the proceeds of this Offering into the horsemen's purse accounts. CD Entertainment Ltd., Arnold W. 25 Stansley, and Norglass, Inc. each have outstanding loans to the Company aggregating $6.5 million, $386,788 and $311, 994, respectively, each of which will be repaid from the proceeds of this Offering or the Credit Facility. See "Use of Proceeds." The Company's primary uses of funds have been expenditures relating to securing licenses for the Track and SWFs, coverage of operating costs, and capital improvements at the Track and SWFs. Since inception (September 30, 1993) the Company expended approximately $0.9 million relating to securing licenses for the Track and the SWFs. In addition, since inception the Company expended $9.4 million for property, equipment, development and construction of the Track and the Chesapeake and Richmond SWFs. Capital expenditures during 1995 totaled $1.6 million, and for the year ended December 31, 1996 totaled $7.5 million. The Company's capital expenditures from inception through December 31, 1996 reflect approximately: (i) $1.5 million to develop, construct, and equip the Chesapeake SWF; (ii) $1.5 million for the purchase of the Richmond SWF, with renovation and equipment expenditures of $1.2 million, which resulted in a total Richmond SWF investment of $2.7 million; and (iii) $5.2 million towards the development and construction of the Track. Current Funding Requirements. In addition to the funds provided by this Offering, the Company will require approximately $10 million of financing to be used to construct the Track, acquire, construct, equip and open additional planned SWFs, to repay interim financing and for general corporate purposes. Diversified Opportunities Group Ltd. ("Diversified"), an affiliate of Mr. Jacobs, will deliver prior to the consummation of the Offering a $6.5 million irrevocable letter of credit to be used by the Company to meet its current funding requirements and CD Entertainment Ltd. will keep in place $3.5 million of existing financing. It is expected that the $6.5 million letter of credit will be replaced by a $10 million credit facility from either an institutional lender or by Diversified prior to the opening of the Track and such $3.5 million of existing financing will be repaid from such credit facility. Although the Company has not yet signed a firm commitment letter for such financing with an institutional lender, pursuant to an Agreement for Provision of Credit, Diversified has agreed to provide the Company guarantees, a pledge of its assets or other forms of security to assist the Company in securing such financing. If the Company is unable to obtain such financing, Diversified has agreed to loan the Company $10 million. Diversified's obligations are guaranteed by Mr. Jacobs. For a description of the principal terms of such letter of credit and financing, see "Description of Certain Indebtedness--Credit Facility." Substantially all of the Company's assets are pledged to secure the Company's loans and loans of certain affiliates. Upon payment of the loans with proceeds from this Offering or the Credit Facility, the liens will be released and will be replaced by liens securing the Company's obligations under the Credit Facility. The proceeds from this Offering, the Credit Facility and the issuance of the Convertible Subordinated Note to CD Entertainment Ltd., the Company's principal shareholder, are expected to provide the Company net proceeds of approximately $54 million. The Company has projected the capital expenditures required to complete the construction of the Track to be $33.3 million, including the necessary furniture and equipment, and funds required for the acquisition and/or the renovation and equipping of the four additional SWFs to be $6.3 million. The Company believes that the proceeds of this Offering, the Convertible Subordinated Note and the Credit Facility or interim letter of credit, together with cash generated from operations, will be sufficient to complete construction of and equip and furnish the Track, acquire, construct, equip and open four additional SWFs and satisfy its working capital requirements for the foreseeable future. In addition, the Company has projected the full funding of the thoroughbred and standardbred purses, consisting of guaranteed aggregate annual purses of $4.5 million and $2.5 million, respectively (see "Business -- Purse Structure and Guarantees"), based on the opening schedule of the additional SWFs. The Company has included in the use of such proceeds an amount of $2.2 million to cover any potential shortfall due to delays in opening the remaining SWFs. See "Use of Proceeds." See also "Description of Certain Indebtedness." Historically, the Company has operated with a working capital deficit. As of December 31, 1996, the Company had a working capital deficit of $5.9 million. Such deficit will be eliminated upon the consummation of this Offering. The Company has outstanding five letters of credit. Two letters of credit in the amount of $500,000 each secure the Company's obligations under the Performance Guarantee Agreement with the Virginia Racing Commission. See "Risk Factors -- Risk of Delay in Commencement of Live Racing; Possible Loss of SWF Licenses" An additional $200,000 letter of credit secures the Company's obligations under certain erosion control bonds related to construction of the Track. These letters of credit are personally guaranteed by Messrs. Stansley and Leadbetter, who will be released from these guarantees upon the consummation of this Offering. These letters of credit will remain outstanding until the Track is complete and open for racing. Finally, an affiliate of Mr. Jacobs has issued on behalf of the Company letters of credit aggregating $1.8 million to the VaHBPA and the VHHA to secure the Company's payment to certain joint accounts to be used to fund purses for live racing. These letters of credit may be drawn upon by the VaHBPA or VHHA to fund such accounts by March 31, 1997 pursuant to the terms of certain SWF agreements between the Company and the VaHBPH and VHHA, respectively. These letters of credit will be canceled upon consummation of the Offering and the use of proceeds to fund such joint purse accounts. BUSINESS The Company was organized to pursue opportunities for horse racing and pari-mutuel wagering in Virginia. The Company is the only entity that has been awarded unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia and as such is the only entity currently eligible to apply for licenses to own and operate SWFs in Virginia. The Company plans to conduct thoroughbred and standardbred racing at a racetrack that it is currently constructing in New Kent County, Virginia. The Company also intends to conduct pari-mutuel wagering at the Track and at its SWFs on races run at the Track and on races that the Company shows via import simulcasting. After it begins live racing at the Track, the Company intends to increase its revenues by entering into agreements to simulcast races run at the Track to out-of-state racetracks, SWFs, casinos and other gaming facilities. 26 The Company's plan is to open additional SWFs as soon as possible, and to promote a successful inaugural 1997 season at the Track. The Company will seek to increase the number of venues for pari-mutuel wagering while simultaneously increasing the number of races available for simulcast. The Company may seek legislative changes to allow more than six SWFs in Virginia. In addition, the Company will actively seek out export simulcast opportunities in other states. In the future, the Company plans to promote attendance and wagering business at the Track and its SWFs by introducing additional entertainment activities, including family fun days, premium giveaway programs, contests and special events. Satellite Wagering Facilities Chesapeake. The Chesapeake SWF opened on February 17, 1996. During the period ended January 31, 1997, the Chesapeake SWF has had average daily attendance of 500 patrons, average daily wagers of $105,000, and total wagers of approximately $36,600,000. The Company's Chesapeake SWF is a 15,000 square foot facility featuring wagering, racing and wagering information, a modern lounge area, state-of-the-art television and video monitors, as well as food and beverage services. It is accessible by nearby highways and major thoroughfares and offers patrons free parking. The facility contains a sports bar area in which patrons can watch and wager on horse races and watch other sporting events. A grandstand area provides seating for patrons where they may also watch and wager on horse races. Patrons may select from a variety of food and beverage options, from concession-style sandwiches and salads, to full service dining. The Chesapeake SWF is equipped with state-of-the-art simulcast technology and a total of approximately 170 television screens, including approximately seven large screen televisions for viewing races. The Company leases the premises in which the Chesapeake SWF is located pursuant to a lease expiring in May 2000, subject to two 5-year renewal terms at the option of the Company. Richmond. The Company's Richmond SWF opened on December 10, 1996, in the west end of Richmond, the capital of Virginia. The 19,700 square foot Richmond facility offers similar amenities and services to those offered by the Chesapeake SWF, described above. The Richmond facility is accessible by Interstate 64 and by public transportation and offers patrons free parking. The Company acquired the Richmond facility for $1.5 million in July 1996 and has made an additional investment of approximately $1.2 million to refurbish, renovate and equip the facility. During the first 52 days of operation, the facility has had average daily attendance of 785 customers, average daily wagering of $162,000 and pari-mutuel wagering of approximately $8,400,000. Hampton and Brunswick County. The Company received in February 1997 the necessary licenses to own and operate a third SWF in Hampton. The Company expects to apply in March 1997 for the necessary licenses to own and operate a fourth SWF in Brunswick County (in southern Virginia, on the North Carolina border). The referenda approving SWFs in Brunswick County expires in November 1997. The Company will custom design and construct the Hampton and Brunswick County SWFs and plans to make similar amenities and services available at these facilities as are available at its Chesapeake SWF described above. The proposed sites for these SWFs are convenient to major thoroughfares. The Company expects to open the Hampton and Brunswick County SWFs by June 1997, provided that it obtains the licenses for the Brunswick County SWF in a timely manner. There can be no assurance that the licenses will be obtained for this facility consistent with the Company's development schedule or at all. Two Additional SWFs. Under Virginia law, the Company is eligible to apply for licenses to own and operate up to a total of six SWFs, leaving two SWFs in addition to the current Chesapeake and Richmond, and planned Hampton and Brunswick County SWFs. See "-- The Company's Licenses." The Company may apply for SWF licenses only in those Virginia localities which have passed a referendum approving the location of a SWF within their boundaries. A SWF license must be issued for a locality within five years of the date of the approving referendum. In addition to the localities in which the Company has licenses, or for which it intends to apply for licenses in February 1997, two additional localities, Greenville (in southern Virginia) and the City of Virginia Beach (in southeast Virginia), have passed referenda that expire in November 1997. 27 The Company plans to initiate referenda in various localities in 1997 for its fifth and sixth SWFs. The Company anticipates that it will focus on obtaining support for a referendum in northern Virginia, with the goal of opening an SWF in northern Virginia by March 1998, but there can be no assurance that it will be successful and, if the Company is unsuccessful, it may decide to locate both SWFs elsewhere in the state. Referenda initiated by other entities, prior to the receipt of the licenses by the Company, failed in a number of northern Virginia localities: Arlington (1993), Alexandria (1993), Fairfax City (1992), and Falls Church (1992). A referendum organized by the Company failed in Manassas Park in November 1996. A new referendum cannot be sought in a locality for three years from the date of the failed referendum in that locality. If the Company successfully receives licenses for all six SWFs authorized under current law, the Company may make a request to the Virginia General Assembly to amend the Virginia Racing Act to authorize additional SWFs. Additional SWFs would allow the Company to reach a larger patron base and to expand its business. There can be no assurance that the Company will be successful in any such efforts. The Company believes that the opening of its additional SWFs may negatively impact live racing attendance at the Track. The Company expects this potential impact to be minimized, however, by the Company's strategy of opening SWFs at distances that generally are more than 35 miles from the Track. The Company further believes that wagering, food and beverage and other ancillary revenues (such as the sale of racing programs) at its SWFs will more than offset the effects of any such decline in live racing attendance at the Track caused by the opening of additional SWFs. An additional benefit of the SWFs is that they are not as subject to interruptions by adverse weather conditions as is live racing at the Track. Simulcasting Simulcasting involves broadcasting a live race to other locations. Wagers are then placed on the race being broadcast. Generally, wagering conducted on simulcast races is aggregated with the pool of the track at which the live race is run and wherever the race is broadcast, so that track odds are maintained. The Company has been receiving import simulcasts at its Chesapeake SWF from racetracks in other states since February 1996 and at its Richmond SWF since December 1996. The Company plans to receive import simulcasts at the Track after it opens and at all additional SWFs that the Company opens. At its Chesapeake SWF, the Company regularly receives import simulcasts from over 20 different racetracks (including Belmont Park, Saratoga, Gulfstream Park, Santa Anita and Arlington International Racecourse). The Company currently receives simulcast signals from these tracks pursuant to an agreement with Pocono Downs (the "Hubbing Agreement") under which the Company receives the benefit of import simulcasting terms negotiated by Pocono Downs with other racetracks. The Company believes that these terms are more favorable than the terms it could separately negotiate with such racetracks because of the economies of scale achieved under the Hubbing Agreement. The original term of the Hubbing Agreement expired December 31, 1996, and the Company has elected to extend the agreement on a month-to-month basis. The Company intends to increase the number and quality of races it imports for simulcast wagering in the future. The Company believes that by simulcasting high-quality races from nationally known racetracks it will increase the number of wagerers as well as the size of the average wager. The Company's success in implementing this strategy will depend upon the terms it negotiates with such tracks. The Company believes that simulcasting diminishes the negative effect of inclement weather on wagering. Indoor facilities featuring simulcasting make available wagering on races from racetracks regardless of local weather. In addition, the Company can change the simulcast signals it receives if racing at a particular track is canceled because of poor weather conditions. See "--Seasonality and the Effects of Inclement Weather." Typical simulcast arrangements usually require the receiver of a signal to pay a fee equal to approximately 2% to 4% of the handle (the total amount wagered at the off-track facilities) attributable to such signal. The Management and Consulting Agreement provides for reciprocal simulcasting agreements between the Company and the Maryland Jockey Club. The Company will send its live racing signal to the Maryland tracks and the Maryland tracks will send their live racing signals to the Track and the Company's current and future SWF facilities at no cost to either party. Wagers placed at the Company's SWFs on races run at other racetracks are treated as part of the common pari-mutuel wagering pool at that track. From such a pool, a fixed percentage is 28 paid out as winning wagers. Winning wagers paid at the Company's SWFs are likely to be disproportionate to the winning wagers to be paid from the entire pari-mutuel pool for a particular race. Accordingly, to the extent the Company paid out more or less than its share of winning wagers, it is obligated to pay or be paid funds from the track at which the race originated. In contracting for the receipt of simulcast signals, the Company agrees with the originators of the signals for the reconciliation of winning wagers. The reconciliation occurs on a daily basis with cash reconciliation occurring each week. Through the Hubbing Agreement, Pocono Downs handles the Company's weekly reconciliation with other tracks, and the Company settles with Pocono Downs each month. It is possible that the Company could fail to receive reimbursement for funds to which it is entitled under the Hubbing Agreement. Historically, the Company has not experienced such collection problems. Import simulcasting of races from other tracks, especially from nationally known tracks in other states, may compete with wagering on Company races run at the Track. The Company believes, however, that simulcasting of out-of-state races, and making available wagering on higher quality races, will increase the number of wagerers as well as the size of the average wager. Due to the Company's limited history of simulcasting, the Company is unable to predict whether such simulcasting will favorably or adversely affect its net income. The Track and Track Facilities The Track Site. The Track is being constructed approximately 25 miles east of Richmond, Virginia and approximately 25 miles west of Williamsburg, Virginia. It is anticipated to be completed on or prior to September 1, 1997. See "Risk Factors -- Risk of New Construction/Infrastructure Completion." The Track is located within a 50-mile radius of a population of approximately 1.8 million people. Richmond, Williamsburg and their adjoining areas are tourist and business destinations, with such attractions as Busch Gardens, Colonial Williamsburg, Kings Dominion, downtown Richmond, Virginia Beach, and the Williamsburg Pottery Factory. Approximately 1,935,000 people visit the Richmond-Williamsburg area each year based on data maintained by the Virginia Division of Tourism. The Track site is accessible via several major federal and state highways. Interstate 64 intersects the property from the east and west. North and southbound traffic on Interstate 95 will be able to take advantage of the Interstate 295 beltway around Richmond, which intersects with Interstate 64 only 12 miles from the Track site. Interstate 85 and Interstate 95 can be used by patrons traveling up from North Carolina and the southern portion of Virginia. The Track is within a two hour drive of several major Virginia localities, such as Alexandria, Arlington, Charlottesville, Fairfax, Fredericksburg, Norfolk, Richmond, Williamsburg, and Virginia Beach. The Company will own the Track site subject to the reversionary right of the grantors if the Company fails to complete, open and operate for three years a racetrack licensed by the Virginia Racing Commission. The prior consent of the grantors is required for any use of the track site for any purpose other than operation of a horse racetrack and ancillary special events. Pursuant to a development agreement with the Company, one of the grantors will develop, construct and put into service a sewer and water system that will serve the Track and will provide water to the Track in sufficient quantities to meet the Company's needs, with costs reimbursed by the Company not to exceed $985,000. New Kent County has agreed to widen Route 155, the road leading to the entrance of the Track's main boulevard. The Company will construct a short road leading from Route 155 to the Track. The Company anticipates that the sewer and water system and the road will be completed prior to July 1, 1997. Upon completion, the sewer and water system will become the property of New Kent County and the road will become the property of the Commonwealth of Virginia. The Grandstand and the Clubhouse. The grandstand has been designed with an initial occupancy capacity of approximately 4,000 patrons. The front apron will accommodate an additional 4,000 people and, on special event days, the grass picnic area east of the grandstand will accommodate an additional 3,000 non-reserved seats in bleachers and on benches. Valet, preferred and general paved parking will be available for over 1,825 vehicles. Additional unpaved parking will be available for large and capacity crowds. The grandstand and clubhouse will have four levels. A grandstand area will be on the first level where patrons will enter the facility, together with two simulcast/TV amphitheaters, two covered patio seating areas, four bars, one large concession center court, a gift shop, restrooms, and wagering locations with approximately 60 tellers. The second level will house administrative offices and a kitchen. The main grandstand area will be located on the third level together with a full-service dining area with a seating capacity of 200 patrons, an 29 additional 616 box seats, two separate lounge areas and additional wagering locations with 38 tellers. When live racing is not occurring at the Track, the first level will continue to receive simulcasts of races from other tracks. Ten suites with sky box seating and a full-service finish line dining area will be located on the fourth level. The fourth level will also house the judges' room, the stewards' room, a press agents' room, photo finish services, a video room, the announcers' room, the audio/video control room and a VIP room. An unfinished fifth level will be available for further expansion. The Turf and Dirt Tracks. The Track is planned to include a unique one mile double-width (180 feet wide) turf racetrack and a one and one quarter mile dirt racetrack. The Company believes that the tracks' designs will help it to attract highly competitive horses, which will in turn both attract patrons and produce a desirable product for the Company to market via export simulcasting to other racetracks, SWFs, casinos and other gaming facilities outside Virginia. The Company's turf track is designed to be twice as wide as a typical turf track in order to maximize usage. A typical turf track may be raced over only two or three times a day before it requires repair. The Company's turf course will be equipped with two moveable rails, enabling the Company in effect to run turf races over two courses. This design should allow more turf racing per day than at most tracks in the mid-Atlantic region. The turf track will require extensive maintenance and will be expensive to maintain and will also be vulnerable to adverse weather conditions. To prevent damage to the turf track in the event of rain, races may be moved off of this track and onto the dirt track (although thoroughbred horse owners may choose not to participate in a dirt track race). The Company's management, based on its experience, believes that the unique design of the Company's turf track will be attractive to thoroughbred owners, who are believed to prefer to race their horses on turf courses, which are generally considered to be less stressful on the horses and to produce fewer injuries. The Company's dirt track will be used for harness racing and for a significant portion of the Company's thoroughbred racing. Due to the design of the dirt track, standardbreds will be able to race one mile with only one turn. The Company believes that most tracks include more turns over a one mile distance. The dirt track's design is expected to result in fast mile times. The Company believes that the times recorded on its track will help attract standardbred owners to race at the Track. Other Track Facilities. The Track's backstretch area will provide stables for over 1,000 horses, as well as several bath houses, a blacksmith and tack shop, dormitory buildings, a restaurant and horsemen's lounge, and a recreation park/picnic area for the horsemen and backstretch employees. The paddock building will house the jockeys' quarters, the kitchen, dining and lounge areas for the jockeys, the veterinarian's office and lab, and the pre-race and post-race holding area. Simulcast signals from other tracks will be received at the clubhouse and, when live racing is not conducted at the Track, the first level of the grandstand and clubhouse will continue to receive simulcasts of races from other tracks. The Track's features also are conducive to other activities between live race meets. The Track provides a polo field for the staging of polo matches and can be used for horse shows and sales. In addition, the Company anticipates using the facilities for other special events such as concerts, antique shows, and hot air balloon races and exhibitions. Live Racing In addition to the SWF Agreements entered into with the VaHBPA and the VHHA described below under "Purse Structure and Guarantees," the Company will enter into a live racing agreement (a "Live Racing Agreement") with each of the VaHBPA and the VHHA regarding the conduct of racing at the Track. The Live Racing Agreements will address, among other things, the sharing of export simulcast revenues (50% for the Company and 50% for the Track's purse account), the setting of a schedule of purse amounts, preparation of conditions for races, reconciliation of any over or under payment of purse amounts, the number of Virginia-bred races to be run at each meet, the availability of stalls and track facilities during and after meets, and the sharing of revenues, if any, from television (other than simulcasting) or radio broadcasts of races run at the Track. A Live Racing Agreement with each of the VaHBPA and the VHHA must be signed at least one day prior to commencement of the thoroughbred and standardbred meet or the VaHBPA SWF Agreement and the VHHA SWF Agreement, respectively, will terminate. See "Purse Structure and Guarantees." The Virginia Racing Commission has previously approved a schedule of race days for 1997 that provides for a thoroughbred meet from June 29 to August 15, 1997 with 30 days of racing and a 50 day harness racing meet scheduled from late September through November 1997. 30 The Company plans to seek the Virginia Racing Commission's approval to amend such dates to coincide with the anticipated opening of the Track on or before September 1, 1997. For the thoroughbred meet, post times during the week will be between 3:30 and 5:30 p.m. and post times on weekends will be at 1:00 p.m. Few racetracks in the eastern time zone offer twilight thoroughbred racing, and as a consequence, the Company expects to be able to sell its weekday twilight simulcast signal to a number of other tracks, out-of-state SWFs, casinos and other gaming establishments. The Virginia Racing Act requires the Company to conduct at least 150 days of live racing each calendar year; however, the Commission may permit fewer live race days during the first five years of the Track's operation. In approving the 1997 race schedule, the Virginia Racing Commission approved 80 days of live racing as proposed by the Company. There can be no assurance that the Commission will grant the Company's request to amend its race days, or that if such approval is granted, that the approved race day schedule will be consistent with the Track's anticipated opening date. Purse Structure and Guarantees The Company has taken steps to ensure competitive purses to attract horse owners to race at the Track. The Company has guaranteed purses of $150,000 per day for not less than 30 days for thoroughbred meets to be held in 1997 and 1998, and minimum purses of $50,000 per day for not less than 50 days for standardbred meets in 1997 and 1998. The Company expects its purses to be competitive with purses at tracks in the mid-Atlantic market that conduct meets concurrently with the Company's meets, with the possible exception of Delaware Park and Charles Town, West Virginia, each of which have recently legalized VLTs or slot machines, which will likely increase the purses offered at such racetracks. The guaranteed purse structure arises from the Company's SWF agreements (the "SWF Agreements") with each of the VaHBPA and the VHHA. Pursuant to the VaHBPA SWF Agreement, the Company has agreed, among other things, to contribute to its thoroughbred purse account, a certain percentage (approximately 5%) of all money wagered on thoroughbreds at its SWFs until such account accumulates a total of $4.5 million. (Under the Virginia Racing Act, the Company is also required to contribute, on average, approximately 8.5% of all money wagered at the Track on live racing to the purse account and these funds will be counted towards the $4.5 million target.) If such funds are less than $4.5 million, the Company will contribute one half of the deficiency and loan the purse account the remaining one half of the deficiency. The VHHA SWF Agreement reflects a similar arrangement, and requires the Company, among other things, to contribute to its standardbred purse account a certain percentage (approximately 5%) of all money wagered on harness racing at its SWFs until such account accumulates a total of $2.5 million. If the total thoroughbred and standardbred purse contributions for any year is greater than $4.5 million and $2.5 million, respectively, then the amounts otherwise payable to such accounts will be paid to the Company until its after-tax income equals $1 million (for the first year) or $3 million (for the second year), after which point such amounts will be shared equally between the Company, on the one hand, and the applicable purse account, on the other hand. These additional contributions, if any, to the purse accounts are expected to enhance the Company's ability to attract quality horses to the Track and, as a result, to sell the Company's export simulcast signal. Each SWF Agreement terminates if a live racing agreement is not signed by the day prior to the commencement of the thoroughbred meet or the standardbred meet, as the case may be. Each SWF Agreement expires on December 31, 1998 and renews automatically for successive one year terms. Contributions to the purse accounts after December 31, 1998 are to be negotiated in good faith by the parties based upon annual budgets prepared by the Company. These budgets will contain provisions for net after-tax return consistent with prior years and purse contributions necessary to attract quality horses to race at the Track. Because the Company commenced simulcast operations prior to the commencement of live racing, it has entered, or plans to enter, into two separate agreements -- a live racing agreement and a SWF agreement -- with each horsemen group. After 1998, the Company likely will enter into a single agreement with each horsemen group. The agreements are not mandated by law; however, each contains the horsemen group's consent to the receipt and sending of simulcast signals in compliance with the Interstate Horse Racing Act. Marketing In addition to increasing the number of facilities that it operates, the Company will seek to increase its revenues by further developing its customer base and expanding the wagering activity of its customers. The Company believes that new customers are more likely to wager on races if they feel comfortable doing so. For 31 example, to make wagering more "user friendly" to the novice and more efficient for the expert, the Company employs individuals to give entertaining, on-site instruction at its SWFs on how to place a wager and how to understand printed racing materials. The Company also leases state-of-the-art Autotote automated wagering equipment. These wagering systems enable the customer to choose a variety of ways to place a bet through touch- screen interactive terminals and personalized portable wagering terminals, provide current odds information and enable customers to place bets and credit winning tickets to their accounts. The same strategy will be used at additional planned SWFs. Management currently anticipates that approximately 25% of all wagers at the Track and SWFs will be processed through self-service wagering terminals. The Company also works to create a welcoming physical environment at its SWFs. The Chesapeake and Richmond SWFs are modern, comfortable facilities, each including a lounge, a sports bar area devoted to televised sporting events, multiple state-of-the-art television and video displays, and a range of restaurant services. The same amenities are planned for additional SWFs. The Company believes that its attractive new facilities will appeal to its current customers and to new customers, including those who have not previously visited a SWF or racetrack. The Company also plans to attract new customers by pursuing various types of promotions, including special events, family fun days, premium give-away programs, contests and handicapping seminars. Seasonality and the Effects of Inclement Weather Revenues may be higher during scheduled live racing than at other times of the year. In addition, weather conditions sometimes cause cancellation of outdoor horse races or curtail attendance, both of which reduce wagering. Attendance and wagering at both outdoor races and indoor SWFs 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. See "-- Simulcasting." The Company's Licenses The Company (i) holds the only unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia, (ii) is the only entity that holds licenses to own and operate SWFs in Virginia (currently in Chesapeake and Richmond), and (iii) is currently the only entity authorized to apply for additional licenses to own and operate SWFs in Virginia. Each of these licenses is granted by the Virginia Racing Commission. The Company's licenses and current and planned horse racing and pari-mutuel wagering operations are subject to extensive regulation and oversight by the Virginia Racing Commission pursuant to the Virginia Racing Act. See "Risk Factors -- Government Regulation." The Track and each of the current and planned SWFs require both an ownership license and an operating license. Colonial LP holds the Company's ownership licenses and Stansley Racing holds the Company's operating licenses. The Maryland-Virginia Racing Circuit, Inc. was granted an operator's license for the limited purpose of managing the Company's thoroughbred meet. The Company anticipates applying for additional SWF ownership licenses through Colonial LP and additional SWF operating licenses through Stansley Racing. Each of the Company's current licenses is for a period of not less than 20 years, but is subject to annual review by the Virginia Racing Commission. Such licenses may be suspended or revoked by the Virginia Racing Commission for violations of the Virginia Racing Act or Virginia Racing Commission rules. The SWF ownership and operating license applications must describe, among other matters, the proposed facility in detail, the number of jobs to be created, the social and economic impact of the facility on the locality, the anticipated amount of investment and capital improvements to the facility, requisite governmental actions, and identification of on-site management. The Virginia Racing Commission considers each application at a public hearing at which the objections of any parties are considered, following which the Virginia Racing Commission determines whether to approve the application. Although there is no specified time period for the 32 decision from the Virginia Racing Commission, the Company estimates, based upon its experience, that it can obtain a license and open an additional SWF in approximately six to nine months after submitting a license application. The Virginia Racing Commission will consider a variety of factors when deciding on a license application, including community opposition. The Company has encountered some community opposition, but, to date, once a referendum has been passed, such opposition has not ultimately affected the licensing process. See "-- Legal Proceedings." Under current Virginia law, if the Company fails to open the Track and conduct live racing by September 1, 1997, its existing SWF licenses will become invalid. Although the Virginia Racing Commission may subsequently re-grant such licenses, there can be no assurance that it would do so. Virginia-Maryland Thoroughbred Racing Circuit The Company and the Maryland Jockey Club have agreed to create a Virginia-Maryland thoroughbred horse racing circuit to promote thoroughbred racing in the two states. More than 2,200 horses are stabled at Laurel Park, Pimlico Race Course and Bowie Training Center in Maryland each year, making it among the nation's largest year-round thoroughbred racing operations, according to the Maryland Jockey Club. Pursuant to the Management and Consulting Agreement, the Maryland Jockey Club will cease live racing during the Company's thoroughbred meet. While the Maryland tracks are not conducting live racing, the Company expects to attract the thoroughbred race horses that typically have run at the Maryland tracks at that time. Pursuant to the Management and Consulting Agreement, the Maryland Jockey Club will be responsible for providing, at the Company's expense, all horse racing officials and management staff essential to the operation of a thoroughbred racing meet. Colonial LP and Stansley Racing, as the licensees, will retain ultimate authority with respect to the operation of the Track during the thoroughbred meet. The Company believes that the Maryland Jockey Club's significant thoroughbred experience and expertise will serve to complement that of Company management. The Management and Consulting Agreement also should allow the Company to reduce labor costs as the Company should not need to employ and maintain a separate staff of thoroughbred race officials year-round. For its undertakings pursuant to the Management and Consulting Agreement, the Maryland Jockey Club will receive 2% of the Company's thoroughbred meet handle and 2% of its SWF handle. All disputes arising under the Management and Consulting Agreement are to be addressed through arbitration. The Maryland Jockey Club and the Company must submit their proposed race days to the Maryland Racing Commission and the Virginia Racing Commission, respectively, each year. The Virginia Racing Commission has approved the Company's proposed 1997 race schedule; however, the Company expects to request an amendment to such dates to coincide with the Track's anticipated opening on or before September 1, 1997. The Maryland Racing Commission approved the Maryland Jockey Club's proposed 1997 race schedule without specifically commenting on the Maryland Jockey Club's proposal to not host live racing during the Company's thoroughbred meet. Although the Maryland Racing Commission's approval is not required for the Maryland Jockey Club to cease thoroughbred racing during the Company's meet in 1997, if the Maryland Racing Commission disapproves of such action, it may penalize the Maryland Jockey Club, through fines, the denial of race days, or otherwise, in future years. If the Maryland Jockey Club cannot, or elects not to, cease thoroughbred racing at Pimlico Race Course or Laurel Park, the Company may compete directly with the Maryland tracks and will rely upon its purse structure, unique turf track and the timing of its race meet to attract quality thoroughbred horses. Further, depending upon the reason for the Maryland Jockey Club's inability to cease live racing at its tracks or provide management, the Company may recoup some or all of the 2% management fee payable under the Management and Consulting Agreement. Competition The Company is subject to competition from 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 in neighboring 33 states. The Company will also face competition from a wide range of entertainment options, including live and televised sporting events and other recreational activities. The possible legalization of other forms of gaming in Virginia, such as riverboat casino gaming, also could have an adverse effect on the Company's business. Although bills for the creation of riverboat gaming 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. If additional gaming opportunities become available in or around Virginia and the Company is unable to participate in such gaming opportunities, it could have a material adverse effect on the Company and its operations. The Company competes and will compete for wagering dollars and simulcast fees with live racing and races simulcast from horse 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. In addition, patrons may be attracted to thoroughbred races in Maryland during the Company's harness racing meet. The Company believes that the Management and Consulting Agreement will promote coordination of thoroughbred events between the two states. See "Business -- Virginia-Maryland Thoroughbred Racing Circuit." However, if the Virginia or Maryland Racing Commissions do not approve a party's proposed racing days, or if the Virginia-Maryland thoroughbred racing circuit is otherwise unsuccessful, the Track may compete directly with thoroughbred racetracks in Maryland. In addition, new racetracks could be constructed in adjacent states that would compete with the Track, or new licenses could be granted to Company competitors in Virginia. Based on the stated intent of the Virginia Racing Commission, the Company does not believe that the Virginia Racing Commission is likely to grant licenses to other entities in the foreseeable future. See "Risk Factors -- Additional Licenses May Be Granted." The Company anticipates competition from VLTs and slot machines, in particular. Delaware legalized slot machines at three racetracks as of January 1, 1996. In addition, legislation legalizing slot machines at Maryland racetracks and SWFs is pending before the Maryland legislature, and a referendum for the legalization of VLTs was passed on November 5, 1996 in Lewistown, West Virginia where the Charles Town racetrack is located. VLTs and slot machines are prohibited in Virginia. The Company believes that the legalization of VLTs and slot machines in neighboring states may adversely affect its business in two ways. First, VLTs and slot machines may attract the Company's potential SWF and Track customers, thereby reducing the Company's revenues. Second, 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 than the Track. It may be more difficult for the Company to attract horsemen to race at the Track if other nearby racetracks offer higher purses. Other Business In addition to SWF and Track wagering revenues, the Company receives revenues from the sale of food and beverages, admission fees, the sale of programs and corporate sponsorship. Such revenues are anticipated to collectively total less than ten percent of total revenue. Other Property and Equipment The Company currently leases office space in an office building in Providence Forge, Virginia. Upon completion of the Track, the Company will relocate its offices to the Track. The Company considers its properties adequate for its present purposes, but, as noted above, the Company intends to open four additional SWFs. Based upon its experience, the Company believes that suitable sites will be available on satisfactory terms. Employees and Labor Relations At December 31, 1996, the Company had 213 permanent employees, of whom 64% were full-time and 36% part-time. Other than management personnel and head office staff, all employees worked at the Company's SWF. No employees are represented under a collective bargaining agreement. The Company believes that its relations with its employees are satisfactory. 34 Legal Proceeding Robin J. Pearsall and Monument Avenue Park Association, an unincorporated association representing certain individuals residing close to the Richmond SWF, filed suit in Richmond Circuit Court on July 11, 1996, against the Virginia Racing Commission. (Robin J. Pearsall and Monument Avenue Park Association v. The Virginia Racing Commission.) The Company intervened as a party on January 28, 1997. The suit seeks to overturn the award of the Company's licenses for the Richmond SWF on the grounds that the referendum approving the locating of an SWF in Richmond was void; that the Virginia Racing Commission did not have authority to issue the licenses under the Virginia Racing Act; and that no SWF licenses could be issued until completion of construction of the Track. The case was dismissed by order entered February 20, 1997, in which the judge found that Ms. Pearsall and the Association lacked standing to challenge the Virginia Racing Commission's actions. Ms. Pearsall and the Association filed a motion to vacate the court's order, which motion is currently pending. A decision is expected on or before March 13, 1997. Although the ultimate outcome of this proceeding cannot be predicted, the Company believes that it will be ultimately resolved in a manner that will not have a material adverse effect on the Company's results of operations, liquidity or financial condition. 35 MANAGEMENT Directors and Executive Officers The following persons are the current directors and executive officers of Colonial Downs Holdings: Name Position - ---- -------- Jeffrey P. Jacobs Chairman of the Board and Chief Executive Officer Arnold W. Stansley Director and Secretary O. James Peterson, III President and Chief Operating Officer Robert H. Hughes Vice President and Chief Financial Officer Michael D. Salmon Controller The following is a list of the people who will be directors and executive officers following the consummation of this Offering. Biographies of these individuals follow below. Name Age (1) Position - ---- ------ -------- Jeffrey P. Jacobs 42 Chairman of the Board and Chief Executive Officer Arnold W. Stansley 62 Vice-Chairman of the Board and Director O. James Peterson, III 61 President and Chief Operating Officer Robert H. Hughes 55 Director and Chief Financial Officer Stephen Peskoff 54 Director William J. Koslo, Jr. 37 Director David C. Grunenwald 43 Secretary and Director Patrick J. McKinley 41 Director Brett Lee Stansley 33 Vice President of Administration Gilbert Short 50 Vice President of Track Operations Michael D. Salmon 39 Controller Hugh Mellon 47 Vice President of Marketing - ---------------------- (1) All ages are set forth as of December 31, 1996. Information with respect to the business experience and the affiliations of the directors and executive officers of the Company and those persons nominated or chosen to become such following consummation of this Offering for the past five years is set forth below. Jeffrey P. Jacobs serves as Chairman of the Board and Chief Executive Officer of the Company. From 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 & Development Company, Inc. based in Boulder, Colorado and the Boardwalk Casino, Inc. hotel and casino in Las Vegas. From 1975 to present, he has also served as President and CEO of Jacobs Investment, 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 became involved with the Company in November, 1995, acquired a fifty percent ownership interest in the Company through an affiliate in July, 1996, and devotes an increasing amount of time to the activities of the Company. Following consummation of this Offering, Mr. Jacobs expects to devote approximately one-third of his time to the Company's affairs. Arnold W. Stansley will assume the role of Vice-Chairman of the Board upon the consummation of this Offering. He served as President of Stansley Management Corp., Colonial LP's managing general partner prior to the Reorganization, from 1993 to 1997. He also served as President of Stansley Racing prior to the Reorganization, from 1994 to 1997. Mr. Stansley has devoted a substantial amount of his time to the development of the Company's business. He directed the successful effort to win an owner's license and an 36 operator's license granted by the Virginia Racing Commission and was instrumental in the opening of the Company's Chesapeake SWF and the Richmond SWF. Mr. Stansley is an owner and has been an executive officer of Raceway Park, a standardbred racetrack in Toledo, Ohio, for seven years. Mr. Stansley has over 30 years of experience in the horse racing industry, as a driver, trainer and owner of standardbred horses. He shares management responsibility at Raceway Park with his sister and brother-in-law. Mr. Stansley is the father of Brett Lee Stansley. O. James Peterson, III, has served as President and Chief Operating Officer of the Company since January 1997. From 1994 through 1996, Mr. Peterson served as Chief Financial Officer of The Maryland Jockey Club. For fifteen years prior to his retirement in 1994, Mr. Peterson was the Chief Financial Officer of Dominion Resources, Inc., a utility holding company and its subsidiary, Virginia Electric and Power Company. Mr. Peterson has been active in owning and breeding thoroughbred race horses since 1983. He currently serves as Chairman and a director of Maplewood Investment Trust. Robert H. Hughes has served as Chief Financial Officer of Jacobs Investments, Inc. since 1993. Mr. Hughes is a director of Black Hawk Gaming and Development Co., Inc. Mr. Hughes was a 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. Stephen Peskoff has served as President of Underhill Investment Corp. since 1976 and has acted as a consultant to Friedman, Billings, Ramsey & Co., Inc. for the last two years. 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 U.S. horse of the year (Black Tie Affair). William J. Koslo, Jr. joined CIBC Wood Gundy Securities Corp., an investment banking subsidiary of the Canadian Imperial Bank of Commerce, as a director in September 1996. From 1993 to 1996, Mr. Koslo was an associate director of the investment bank Rodman & Renshaw, Inc. In 1992 and 1993, he was a vice president with Creditanstalt--Bankverein, a commercial bank then affiliated with Rodman & Renshaw, Inc. Prior to joining Creditanstalt- Bankverein, Mr. Koslow was a vice president of Security Pacific Business Credit. David C. Grunenwald has served as Vice President of Development and Leasing for Jacobs Investments, 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. Patrick J. McKinley has served as Executive Vice President of Jacobs Investments, Inc. for more than twenty years and is responsible for such company's day-to-day operations. Mr. McKinley has over twenty years' experience in restaurant operations and real estate development and management. Brett Lee Stansley will assume the role of Vice President of Administration upon the consummation of this Offering. He has served as Vice President of Stansley Management Corp., Colonial LP's managing general partner prior to the Reorganization, since 1994. From 1987 to 1994, Mr. Stansley was a grain analyst with Merrill Lynch. Mr. Stansley has worked as a trainer and groom of standardbred race horses and has owned several standardbred race horses. Brett Lee Stansley is the son of Arnold W. Stansley. Gilbert Short will assume the role of Vice President of Track Operations upon the consummation of this Offering. He joined the Company in 1994 as General Manager and has overseen the design and development of the Track and the Chesapeake and Richmond SWFs. Prior to joining the Company, Mr. Short served as Director of Operations of Trinity Meadows, a thoroughbred racetrack outside of Fort Worth, Texas, from 1991 to 1994. He has been a standardbred horse owner and trainer for over twenty years. Michael D. Salmon will assume the role of controller upon the consummation of this Offering. He has served as the Company's Certified Public Accountant from January 1, 1996 until June 1, 1996 at which time he joined the Company as Controller. Mr. Salmon was an accounting manager with Philip Morris from 1979 to 1989 at which time he started a public accounting firm as a sole proprietor and merged his practice with a larger firm in 1995. Mr. Salmon has consulted in a number of mergers, acquisitions, and start-ups of small businesses as a CPA, as well as starting a mortgage banking company of which he was an officer and director. Mr. Salmon also served as an elected official on the New Kent County, Virginia, Board of Supervisors from 1992 through 1995. 37 Hugh R. Mellon will assume the role of Vice President of Marketing upon the consummation of this Offering. He served as Marketing Director of the Playfair Race Course from 1993 to 1996. For ten years prior to 1993, Mr. Mellon was an independent consultant providing marketing, advertising and corporate sponsorship consulting services for Hialeah Park, Delaware Park, Arlington International and other racetracks across the country. Mr. Mellon has also worked in the marketing and publicity departments of Charles Town Races, Penn National Race Course, and Delta Downs. The Amended and Restated Bylaws of Colonial Downs Holdings provide for a staggered Board of Directors divided into three classes, each consisting of approximately one-third of the total number of directors. There will be seven directors upon consummation of this Offering. Class I directors, consisting of Messrs. Peskoff and McKinley, will hold office until the 1998 annual meeting of shareholders; Class II directors, consisting of Messrs. Stansley and Koslo, will hold office until the 1999 annual meeting of shareholders; and Class III directors, consisting of Messrs. Jacobs, Hughes, and Grunenwald, will hold office until the 2000 annual meeting of shareholders. See "Description of Capital Stock -- Certain Charter and Statutory Provisions." Officers are appointed by and serve at the discretion of the Board of Directors. Board Committees The Board of Directors intends to establish an Audit Committee, a Compensation Committee and a Stock Option Committee within 90 days of the consummation of this Offering. Executive Compensation The Company to date has not paid any compensation to its executive officers. The Company has paid certain management and other fees to affiliates of Messrs. Stansley, Leadbetter and Jacobs. The Company will enter into employment agreements effective upon the completion of the Reorganization with Jeffrey P. Jacobs, O. James Peterson, III, Brett Lee Stansley, Mike Salmon, Hugh Mellon and Gilbert Short, at annual base salaries of approximately $120,000, $200,000, $75,000, $60,000, $60,000 and $65,000, respectively. The agreements are expected to terminate two years after consummation of this Offering. Such employment agreements are expected to restrict the ability of the employee to engage in any activities which compete with the Company's horse racing business in Virginia, Maryland, North Carolina or West Virginia during the agreement's term and for one year thereafter. Such agreements are further expected to provide that Mr. Jacobs will devote not less than one-third of his time to the Company in the performance of his duties. Pursuant to the remaining employment agreements, each of the executives is expected to agree to devote his full time to the Company. Upon the consummation of this Offering, the Company will enter into a five-year consulting agreement with Arnold W. Stansley. Mr. Stansley will advise and assist the Company in the operation of the Track and the SWFs as the Company requests and will devote not more than two days a month to the Company. For his services, the Company will pay Mr. Stansley $75,000 annually, payable quarterly. Stock Option Plan Immediately prior to the consummation of this Offering, the Company's Board of Directors will adopt and approve a stock option plan (the "Stock Option Plan"). The Stock Option Plan will be administered by a committee (the "Committee") consisting of at least two persons who are appointed by, and serve at the pleasure of, the Board of Directors and at least two of whom are non-employee directors as that term is defined in Rule 16b-3(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Pending election of two independent directors, the Stock Option Plan is to be administered by the Board of Directors, which does not consist of two non-employee directors. Subject to the express provisions of the Stock Option Plan, the Committee has the sole discretion to determine to whom, among those eligible, options will be granted and the time or times at which options may be exercised. Options are designated at the time of grant as either "incentive stock options" or "non-qualified options." Unless the Stock Option Plan is terminated earlier by the Board of Directors, the Stock Option Plan will terminate ten years from earlier of the the date of its approval by the shareholders or its adoption by the Company's Board of Directors. Subject to adjustments resulting from changes in capitalization, 300,000 shares of Class A Common Stock may be issued pursuant to the exercise of options granted under the Stock Option Plan. If any option expires or 38 terminates for any reason, without having been exercised in full, the unpurchased shares subject to such option will be available again for purposes of the Stock Option Plan. An incentive stock option may not be transferred other than by will or by laws of descent and distribution, and, during the lifetime of any option holder, may be exercised only by such holder. Pursuant to Section 422 of the Internal Revenue Code of 1986, as amended, stock options granted under the Stock Option Plan may be treated as incentive stock options only if the following conditions are satisfied: (i) the options must be granted under a plan specifying the aggregate number of shares of stock which may be issued and the employees or class of employees eligible to receive the option; (ii) the Stock Option Plan must be approved by the shareholders of the Company within twelve (12) months before or after the Stock Option Plan is adopted; (iii) the options must be granted within ten years from the earlier of (x) the date the Stock Option Plan is adopted or (y) the date the Stock Option Plan is approved by the shareholders; (iv) the options must by their terms be exercisable only within ten years of the date it is granted; (v) the option price must equal or exceed the fair market value of the stock at the time the option is granted; (vi) the options must be nontransferable other than at death and, during the employee's lifetime, must not be exercisable by any other person; (vii) the employee may not, at the time the option is granted, own stock representing more than 10% of the voting power of all classes of stock of the Company, unless the option price is at least 110% of the fair market value of the stock subject to the option determined at the time the option is granted, and the option is not exercisable more than five years from the date it is granted; and (viii) the aggregate fair market value of the stock (determined at the time of the grant of the option) that can be exercised for the first time by an employee in any one year may be more than $100,000. No options have been granted under the Stock Option Plan; however, pursuant to a two-year employment agreement with O. James Peterson, III, the Company has agreed to grant Mr. Peterson stock options for 30,000 shares of Class A Common Stock per year, which options vest after each such year of employment. The exercise price of such stock options shall be 105% of the initial offering price of the Company's stock pursuant to this Offering. Such options are exercisable after January 2, 2002, the fifth anniversary of Mr. Peterson's commencement of employment with the Company. In addition, concurrently with the closing of this Offering, the Company intends to grant options under the Stock Option Plan for an aggregate of 162,000 shares of Class A Common Stock, at an exercise price equal to the initial public offering price in this Offering, which options generally will vest over a five-year period. Such grants are expected to include options for 70,000 shares to employees and options for 92,000 shares to nonemployees, including grants to the following directors and executive officers: Stephen Peskoff (50,000 shares), Jeffrey Jacobs (20,000 shares), and David Grunenwald, Robert Hughes, Hugh Mellon, Michael Salmon, Gilbert Short and Brett Stansley (10,000 shares each). Director Compensation Directors of the Company who are also employees of the Company will receive no directors' fees. Non-employee directors will receive directors fees of $1,000 for each Board and committee meeting attended in person and $500 for committee meeting, which fees may, at the option of the Company, be payable in the form of shares of Class A Common Stock having an aggregate fair market value equal to the fees owed. In addition, directors are reimbursed for their reasonable out-of-pocket travel expenditures incurred in attending Board and committee meetings. Limitation of Liability and Indemnification of Directors and Officers The Company's Amended and Restated Articles of Incorporation provide that in any proceeding brought in the name of the Company or by or on behalf of shareholders of the Company, the damages assessed against an officer or director arising out of a single transaction, occurrence, or course of conduct shall not exceed one dollar, unless the officer or director engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities law, including without limitation, any claim of unlawful insider trading or manipulation of the market for any security. Additionally, the Company's Amended and Restated Articles of Incorporation and Amended and Restated Bylaws provide that the Company shall indemnify an officer, director or employee who is, was or is threatened to be made a party to a proceeding (including a proceeding by or in the right of the Company) because he is or was an officer, director, or employee of the Company, against liability incurred in the proceeding and against expenses incurred by him in connection therewith except such liabilities and expenses incurred because of his willful misconduct or knowing violation of the criminal law. CERTAIN TRANSACTIONS Historically, the Company has not had a formal mechanism for addressing potential conflicts of interest. Following the completion of the Reorganization, the Company plans to adopt a policy requiring that any material transactions between the Company and persons or entities affiliated with officers, directors or principal shareholders of the Company be on terms no less favorable to the Company than reasonably could have been obtained in arm's-length transactions with independent third parties. The management of the Company believes that the terms of the related party transactions set forth below are consistent with what would have been negotiated in an arm's-length transaction with an independent third party, except for management fees described below, which will be terminated on the date of the Reorganization: The following is a summary of certain transactions and relationships among the Company and its associated entities, and among the directors, executive officers, nominees for directors and shareholders of the Company and its associated entities. Loans to the Company CD Entertainment Ltd. has made a loan and has provided letters of credit to the Company aggregating $8.0 million. CD Entertainment Ltd. is beneficially owned by Jeffrey P. Jacobs, and Gary L. Bryenton and Jeffrey P. Jacobs as Trustees. The 39 indebtedness under these facilities bears interest at a variable rate equal to CD Entertainment Ltd.'s cost of funds. The current rate is LIBOR plus 2%. Interest is payable monthly. Principal is due on the earlier to occur of January 31, 1998 or the consummation of this Offering, except with respect to $3.5 million, which will be repaid upon closing of the Credit Facility. In addition to principal and interest payments, the Company has agreed to pay all fees, costs and expenses incurred by CD Entertainment Ltd. in making such funds and letters of credit available. As of December 31, 1996, the Company had incurred aggregate interest costs of $272,000 and made no principal payments. The proceeds of the credit facilities were used to acquire and renovate the Chesapeake and Richmond SWFs, to fund improvements at the Track site and to pay for expenses incurred in seeking licenses for other SWFs. A portion of such indebtedness is secured by a first deed of trust on the Richmond SWF and the pledge of certain other assets of the Company. Arnold W. Stansley, a principal shareholder, loaned the Company $386,788, which is evidenced by notes dated as of September 30, 1995 and January 23, 1996. These notes do not bear interest unless the notes are not repaid from the proceeds of this Offering. The loan proceeds were used to fund the operations of the Company and will be repaid from the proceeds of this Offering. Norglass, Inc. loaned $311,994 to the Company, which is evidenced by notes dated as of September 30, 1995 and January 23, 1996. Norglass, Inc. is owned by James Leadbetter, a principal shareholder of the Company. The loan does not bear interest unless not repaid from the proceeds of this Offering. The loan proceeds were used to fund the operations of the Company and will be repaid from the proceeds of this Offering. Construction The Company has agreed to enter into a guaranteed maximum price contract with Norglass, Inc. for the construction of the grandstand and certain ancillary facilities for Track. Pursuant to the contract, Norglass, Inc. will receive a fixed fee of $2,000,000. The fee was negotiated by CD Entertainment Ltd. on behalf of the Company with Norglass, Inc. SMC, the other general partner of Colonial LP, vested CD Entertainment Ltd. with SMC's authority to negotiate such fee on an arm's length basis by taking into account the work performed by Norglass, Inc. in assisting the Company to secure licenses for the ownership and operation of the racetrack and for work performed at the Track site. In addition, Norglass, Inc. will be paid up to $1,050,000 for certain out-of-pocket expenses. Pursuant to the contract terms, absent certain force majeure events, the guaranteed maximum price for the contract is $27,075,000. An additional estimated $2,425,000 of work that is not subject to the guaranteed price is to be performed for the interior finish of the grandstand and construction of the paddock, dorms and other backstretch buildings. Further, this contract does not cover other areas of the Track, such as the track kitchen, nor does it include furniture and equipment for the grandstand. Norglass, Inc. will warrant and guarantee its labor for periods running from one to two years and will warrant the materials provided to the project for periods ranging from one to fifteen years depending upon the nature of the work and the materials. Norglass. Inc. will provide market terms for insurance and bonding requirements upon the Company's demand. One half of Norglass, Inc.'s fee is payable in monthly installments as construction progresses. One quarter is due upon the issuance of a certificate of occupancy for the Company's fourth SWF (but no later than December 31, 1997), and the remaining quarter of Norglass, Inc.'s fee is due upon the issuance of a certificate of occupancy for the Company's sixth SWF (but no later than December 31, 1998). The contract may be terminated by the Company upon seven days' written notice for Norglass, Inc.'s failure to perform and may be terminated by Norglass, Inc. upon seven days' written notice if work ceases for more than 30 days as a result of the Company's default, court order or government action. In addition, Norglass, Inc. acted as general contractor for the renovation of the Chesapeake and Richmond SWFs, pursuant to the terms of a costs plus ten percent (10%) contract between the Company and Norglass, Inc. that was entered into at the time the Company applied for licenses to own and operate a racetrack in Virginia, Pursuant to such contract, Norglass, Inc. received from the Company aggregate fees of approximately $160,500 and reimbursement of expenses of approximately $97,000. The contract for the Richmond and Chesapeake SWFs was negotiated between Mr. Stansley, on behalf of Colonial LP, and Mr. Leadbetter, on behalf of Norglass, Inc., and the Company believes that fees paid under the contract were consistent with those that would have been negotiated in an arm's-length transaction, particularly in light of the financial and other assistance provided by Norglass, Inc. at the time of the application process. Pursuant to the Construction Agreement, Norglass, Inc. will act as construction manager for construction or renovation of the Company's SWFs on a cost of construction plus 10% basis. The Company may direct Norglass, Inc. to bid work on the SWFs to local general contractors or to subcontractors. Concessions Agreement In connection with CD Entertainment Ltd.'s acquisition of a 50% interest in Colonial LP, the Company entered into a Food and Beverages Concessions Agreement with Virginia Concessions LLC, an entity owned by Jeffrey P. Jacobs. Pursuant to the Food and Beverages Concessions Agreement, Virginia Concessions LLC was granted an option to manage the food and beverage concessions at the initial six SWFs and up to 50% of any additional SWFs that may be licensed and developed by the Company. Virginia Concessions LLC pays the Company rent based upon gross sales equal to 10% of the first $500,000 of gross sales, 13% of the next $500,000 of sales and 15% of all gross sales above $1,000,000 at each SWF. The Company is responsible 40 for site-related expenses such as updating, refurbishing, equipping, and repairing each SWF. It also is responsible for all advertising, cleaning of areas other than those relating to food service, linen, casualty insurance, one-half of the premiums for liquor liability insurance, utilities, real estate taxes and assessments, trash removal and equipment repair and replacement. The agreement is for a term of ten years from the opening date of each applicable SWF, but in no event beyond February 17, 2011. In addition, within six months prior to the expiration of the initial term with respect to any SWF, Virginia Concessions LLC has a first right of refusal to meet any competing offer to provide food and beverage service; however, Virginia Concessions LLC is entitled to a 1% discount to such competing offer. Additionally, once the Track and six SWFs have been open and operating for twenty-four (24) months, the Company shall have the option for sixty (60) days to terminate the Food and Beverage Concessions Agreement for a termination fee equal to six (6) times the annual net operating cash flow of Virginia Concessions LLC under the agreement, calculated in accordance with generally accepted accounting principles consistently applied. Management Fees The Company is party to a management agreement with Stansley Racing (the "Management Agreement"), which prior to the Reorganization is owned by Messrs. Stansley and Leadbetter. Stansley Racing is in turn party to a submanagement agreement (collectively with the Management Agreement, the "Management Agreements") with CD Entertainment Ltd., an affiliate of Mr. Jacobs. Pursuant to the Management Agreements, the Company is obligated to pay a $15,000 monthly management fee. As of December 31, 1996, the accrued and unpaid management fees are $210,000. Upon consummation of this Offering, the Management Agreements will be terminated and the accrued management fees will be paid to Messrs. Stansley and Leadbetter and CD Entertainment Ltd. Premier One Development Co. Management Fee The Company also has agreed to pay Premier One Development Co., an affiliate of Mr. Jacobs, a fee of $250,000, of which $125,000 was paid in December 1996 and the balance will be paid immediately upon consummation of this Offering, for real estate development and construction consulting services. Premier One Development Co. has assisted the Company in its negotiations with Chesapeake Corporation for the timely construction of the infrastructure to support the Track; the design, bidding and construction management of the Track; site selection, permitting, development, renovation and construction of the Richmond, Hampton and proposed SWFs; and other real estate development matters. The three principal shareholders of the Company negotiated the fee. Convertible Subordinated Note Prior to the consummation of this Offering, CD Entertainment Ltd., a principal stockholder of the Company, will acquire the Convertible Subordinated Note for $5,500,000. See "Description of Certain Indebtedness -- Convertible Subordinated Note." Provision of Credit Pursuant to an Agreement for Provision of Credit, Diversified, an affiliate of Mr. Jacobs, has agreed to provide the Company with an irrevocable bank letter of credit in the amount of $6.5 million prior to the consummation of this offering, which may be drawn upon at any time, and CD Entertainment Ltd. has agreed to leave $3.5 million of indebtedness outstanding. Diversified has also agreed to provide credit support as may be required for, or to extend, a loan to the Company of $10 million on specified terms and conditions. See "Description of Certain Indebtedness--Credit Facility." Interest on, and terms of repayment of, amounts drawn under the letter of credit or amounts loaned by Diversified with respect to the Credit Facility shall be identical. In return for such agreement, Diversified will receive an annual fee equal to 3% of the amount represented by the letter of credit, or guaranteed or loaned, as the case may be, during the preceding year (based on the average maximum amount thereof). The Company will reimburse Diversified for the cost of the letter of credit provided that in no event will the annual fee payable by the Company be less than $50,000. Arnold W. Stansley Consulting Agreement Upon the consummation of this Offering, the Company will enter into a five-year consulting agreement with Arnold W. Stansley. Mr. Stansley will advise and assist the Company in the operation of the Track and the SWFs as the Company requests. For his services, the Company will pay Mr. Stansley $75,000 annually, payable quarterly. Underhill Investment Financial Advisory Fee Pursuant to an agreement with Colonial LP, Underhill Investment Corporation, which is an affiliate of Mr. Peskoff (who will be a director of the Company following consummation of this Offering), has provided financial advisory services to the Company and its founders since in 1995. As compensation for services rendered in 1995, 41 Underhill Investment Corporation received a $50,000 fee and will be paid an additional $50,000 upon consummation of this Offering. Underhill Investment Corporation will receive 15,000 shares of Class A Common Stock from Messrs. Stansley and Leadbetter for such services. These shares were personal property of Messrs. Stansley and Leadbetter and the Company did not compensate them for the shares conveyed by them. Registration Rights Agreement In connection with the Reorganization, the Company will enter into a registration rights agreement on behalf of all holders of Class A Common Stock issued in the Reorganization and Class A Common Stock that may be issued in exchange for shares of Class B Common Stock issued in the Reorganization or issuable upon conversion of the Convertible Subordinated Note (such shares of Class A Common Stock, "Registrable Shares"). If at any time beginning 12 months after the date of this Offering, the holders of not less than 30% of the Registrable Shares request that the Company file a registration statement covering at least 20% of the Registrable Shares (or any lesser percentage if the anticipated aggregate offering price would exceed $10,000,000), the Company will be obligated to file a registration statement under the Securities Act covering the resale of Registrable Shares and to use reasonable efforts to maintain the effectiveness of such registration statement for a period of up to 180 days or such earlier time as all Registrable Shares can be sold pursuant to Rule 144 under the Securities Act without limitation on volume. Thereafter, the Company will be required to file up to two additional registration statements with respect to resale of Registrable Shares held by affiliates of the Company, upon the demand of holders of a majority of such Registrable Shares, and will be required to use reasonable efforts to maintain the effectiveness of such registration statement for a period of up to 180 days. The Company will be obligated to pay the expenses of any such registration, other than any brokerage fees or commissions payable in connection with the sale of Registrable Shares pursuant to any such registration statement. In addition, the holders of Registrable Shares are entitled to have Registrable Shares included in a registration statement filed on behalf of the Company, on a pro rata basis, subject to certain other terms and conditions. The Company will bear the expenses of registration of such shares, except for any underwriting discounts and commissions which will be borne by the participating shareholders in proportion to the number of shares sold. These registration rights are subject to customary conditions and limitations. Issuance of Shares of Common Stock In connection with the Reorganization, the Company will issue 750,000 shares of Class A Common Stock and 2,250,000 shares of Class B Common Stock for the acquisition of 99% of the partnership interests of Colonial LP and all of the outstanding stock of Stansley Racing. Arnold W. Stansley will receive 510,000 shares of Class A Common Stock and 510,000 shares of Class B Common Stock in exchange for his shares of SMC (which presently owns one half of Colonial LP) and Stansley Racing, which shares he has held since September 1993 and June 1994, respectively. James M. Leadbetter will receive 225,000 shares of Class A Common Stock and 225,000 shares of Class B Common Stock for his shares of SMC and Stansley Racing, which shares he has held since June 1994. Two individuals will each receive 7,500 shares of Class A Common Stock and 7,500 shares of Class B Common Stock for shares of SMC they received as gifts from Mr. Stansley in July 1995. Additionally, CD Entertainment Ltd., which owns 50% of the partnership interests of Colonial LP, will receive 1,500,000 shares of Class B Common Stock. CD Entertainment Ltd. acquired its 50% interest in Colonial LP in July 1996 for $2,000,000 and its provision of certain interim financing. Stansley Racing will acquire a 1% general partnership interest in Colonial LP for nominal consideration in connection with the Reorganization. Also in connection with the Reorganization, Mr. Stansley will convey 10,408 shares of Class A Common Stock, and Mr. Leadbetter will convey 4,592 shares of Class A Common Stock, to Underhill Investment Corporation, an affiliate of Mr. Peskoff, for payment for certain financial services received by them. Additionally, Mr. Stansley will convey 8,673 shares of Class A Common Stock, and Mr. Leadbetter will convey 3,827 shares of Class A Common Stock, to an affiliate of a financial advisor that assisted in the application for the Track's owner's and operator's licenses. Share Transactions Among Certain Shareholders In connection with the consummation of the Offering, Arnold W. Stansley and James M. Leadbetter will grant options to CD Entertainment Ltd. to acquire up to 300,000 of their shares in aggregate (208,200 from Mr. Stansley and 91,800 from Mr. Leadbetter) of Class A Common Stock at 85% of the initial offering price for this Offering. Such options shall remain outstanding for three years from the date of the consummation of the Offering and may be exercised all or in part. Prior to the consummation of the Offering, Arnold W. Stansley, James M. Leadbetter and CD Entertainment Ltd. will enter into a Buy-Sell Agreement covering the shares of Common Stock held by them. The agreement will provide, with certain exceptions, that if any one of the parties receives a bona-fide offer for the purchase of any or all of his shares, such shareholder will first offer the shares to the others on a pro rata basis. For private transactions exempt from the registration requirements of the Securities Act, the other shareholders will have five business days in which to elect to purchase such shares on the terms presented in the offering shareholder's notice. For public market sales, the other shareholders will have 24 hours in which to elect to purchase such shares. Additionally, prior to the exercise of any rights under the Registration Rights Agreement, the selling shareholder will offer his shares to the remaining shareholders (unless all three shareholders elect to exercise their rights under the Registration Rights Agreement). 42 PRINCIPAL SHAREHOLDERS The following table provides information concerning beneficial ownership of Common Stock, as of December 31, 1996 (after giving effect to the Reorganization), and as adjusted to reflect the sale of 4,250,000 shares of Class A Common Stock offered hereby and the issuance of the Convertible Subordinated Note, by (1) each person or entity known by the Company to beneficially own more than 5% of the outstanding Common Stock, (2) each director of the Company following this Offering, (3) the Chief Executive Officer and all other executive officers whose salaries or bonuses was or would have been in excess of $100,000 for the fiscal year ended December 31, 1996, and (4) all directors and executive officers of the Company as a group following this Offering. The information as to beneficial ownership has been furnished by the respective shareholders, directors and executive officers of the Company, and, unless otherwise indicated, each of the shareholders has sole voting and investment power with respect to the shares beneficially owned. Unless otherwise specified, the address of all shareholders is the address of the Company set forth herein.
Voting Power as Percent of Common Percent of Common Name of Beneficial Stock Outstanding Stock Outstanding Owner Shares Owned After Offering After Offering(8) ----- ------------ ----------------------------- ----------------- Class A Class B Class A Class B All ------- ------- ------- ------- ----- CD Entertainment Ltd. (1) 300,000(2) 1,950,820(3) 6.0% 72.2% 29.2% 54.3% Jeffrey P. Jacobs (4) 300,000(2) 1,950,820(3) 6.0 72.2 29.2 54.3 Arnold W. Stansley....... 490,919(5) 510,000 9.8 22.7 13.8 18.7 James M. Leadbetter...... 216,581(6) 225,000 4.3 10.0 6.1 8.3 Stephen Peskoff(7)....... 15,000 -- 0.3 -- 0.2 0.1 O. James Peterson, III... -- -- -- -- -- -- David C. Grunenwald...... -- -- -- -- -- -- Robert H. Hughes......... -- -- -- -- -- -- Patrick J. McKinley...... -- -- -- -- -- -- All executive officers and directors as a group (12 persons)............... 597,719 2,460,820 12.0% 91.1% 39.7% 69.7%
- ------------- (1) CD Entertainment Ltd. is beneficially owned by Jeffrey P. Jacobs, and Gary L. Bryenton and Jeffrey P. Jacobs as Trustees under the Opportunities Trust Agreement dated February 1, 1996. (2) Represents 300,000 shares of Class A Common Stock which may be acquired upon the exercise of options to be issued by Messrs. Stansley and Leadbetter. (3) Includes 450,820 shares of Class B Common Stock issuable upon conversion of the Convertible Subordinated Note (assuming a $10 per share initial public offering price for the Class A Common Stock). (4) Represents the shares owned by CD Entertainment Ltd. (5) Includes 208,200 shares that will be subject to an option in favor of CD Entertainment Ltd. (6) Includes 91,800 shares that will be subject to an option in favor of CD Entertainment Ltd. (7) Represents shares owned by Underhill Investment Corp., an affiliate of Mr. Peskoff. (8) Except for votes on Special Voting Matters, 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 after this Offering, as set forth above. 43 DESCRIPTION OF CAPITAL STOCK The following summary description of the capital stock of the Company does not purport to be complete and is subject to the provisions of the Company's Amended and Restated Articles of Incorporation and Amended and Restated Bylaws, which are included as exhibits to the Registration Statement of which this Prospectus forms a part and by the provisions of applicable law. Authorized and Outstanding Capital Stock Pursuant to the Company's Amended and Restated Articles of Incorporation, which will become effective upon the consummation of the Reorganization, the Company has authority to issue 17,000,000 shares of capital stock, consisting of 12,000,000 shares of Class A Common Stock, par value $.01 per share, 3,000,000 shares of Class B Common Stock, par value $.01 per share, and 2,000,000 shares of Preferred Stock. As of the date hereof, the Company has two outstanding shares of Common Stock, one each held by CD Entertainment Ltd. and Arnold W. Stansley, and no outstanding shares of Preferred Stock. Immediately following the Reorganization, the Company will have outstanding 750,000 shares of Class A Common Stock, 2,250,000 shares of Class B Common Stock and no outstanding shares of Preferred Stock. Immediately following this Offering, the Company will have outstanding 5,000,000 shares of Class A Common Stock and 2,250,000 shares of Class B Common Stock. All the shares of Common Stock outstanding on the date of this Prospectus are validly issued, fully paid and non-assessable, and the shares offered hereby, when sold, will be validly issued, fully paid, and non-assessable. The Company will reserve 450,820 shares of Class B Common Stock (subject to adjustment) for issuance upon conversion of the Convertible Subordinated Note (assuming a $10 per share initial public offering price for the Class A Common Stock). Class A Common Stock Voting Rights. Each holder of the Class A Common Stock shall be entitled to attend all special and annual meetings of the stockholders of the Company and, together with the holders of shares of Class B Common Stock and the holders of all other classes of stock entitled to attend and vote at such meetings, to vote upon any matter or thing (including, without limitation, the election of one or more directors) properly considered and acted upon by the stockholders. Holders of the Class A Common Stock will be entitled to one vote per share. Liquidation Rights. In the event of any dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the holders of the Class A Common Stock, the holders of the Class B Common Stock and holders of any class or series of stock entitled to participate therewith, shall become entitled to participate in the distribution of any assets of the Company remaining after the Company shall have paid, or provided for payment of, all debts and liabilities of the Company and after the Company shall have paid, or set aside for payment to the holders of any class of stock having preference over the Common Stock in the event of dissolution, liquidation or winding up the full preferential amounts (if any) to which they are entitled. The holders of Class A Common Stock and Class B Common Stock will participate equally, on a per share basis, in any such distribution of any such assets. Dividends. Dividends may be paid on the Class A Common Stock, the Class B Common Stock and on any class or series of stock entitled to participate therewith when and as declared by the Board. The Class A Common Stock and Class B Common Stock will be entitled to participate equally in any dividend declared by the Board in respect of the Common Stock. Class B Common Stock Voting Rights. Each holder of the Class B Common Stock shall be entitled to attend all special and annual meetings of stockholders of the Company and, together with the holders of shares of Class A Common Stock and the holders of all other classes of stock entitled to attend and vote at such meetings to vote upon any matter or thing (including without limitation, the election of one or more directors) properly considered and acted upon by the stockholders. Holders of the Class B Common Stock are entitled to five votes per share generally, other than votes on any Special Voting Matters (which include any vote or approval with respect to a merger, consolidation or other business combination, or a sale of all or substantially all of the assets of the Company), and any amendments to the Amended and Restated Articles of Incorporation or Amended and Restated Bylaws to alter or adversely effect the voting rights of the Class B Common Stock, with respect to which holders of Class B Common Stock will be entitled to one vote per share. 44 Liquidation Rights. In the event of any dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the holders of the Class B Common Stock, the holders of the Class A Common Stock, and the holders of any class or series of stock entitled to participate therewith shall become entitled to participate in the distribution of any assets of the Company remaining after the Company shall have paid, or provided for payment of, all debts and liabilities of the Company and after the Company shall have paid, or set aside for payment, to the holders of any class of stock having preference over the Common Stock in the event of dissolution, liquidation or winding up the full preferential amounts (if any) to which they are entitled. The holders of Class A Common Stock and Class B Common Stock will participate equally, on a per share basis, in any such distribution of any such assets. Dividends. Dividends may be paid on the Class B Common Stock the Class A Common Stock and any class or series of stock entitled to participate therewith when and as declared by the Board. The Class A Common Stock and Class B Common Stock will be entitled to participate equally in any dividend declared by the Board in respect of the Common Stock. Conversion into Class A Common Stock. The shares of Class B Common Stock may be converted at any time at the option of the holder into fully paid and nonassessable shares of Class A Common Stock at the rate of one share of Class A Common Stock for each share of Class B Common Stock (as adjusted for any stock split or combination). Restrictions on Transfer. The Class B Common Stock shall not be transferable to any person or entity other than any of CD Entertainment Ltd., Jeffrey P. Jacobs, or members of Mr. Jacob's immediate family. Preferred Stock The Board of Directors is authorized to have the Company issue one or more series of shares of Preferred Stock, and to provide for the designation, preferences, limitations and relative rights thereof. The Board of Directors can fix and determine, among other things: (i) whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and if so, the terms of such voting rights; (ii) the rate or rates (which may be fixed or variable) at which dividends, if any, are payable on such series; (iii) whether the shares of such series shall be subject to redemption or repurchase by the Company; (iv) the amount or amounts payable upon shares of such series upon, and rights of the holders of such series in, the voluntary or involuntary liquidation, dissolution or winding up, or any distribution of the assets of the Company, whether the shares of such series shall be subject to the operation of a retirement or sinking fund, and if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the repurchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; and (v) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock or any other securities (including Common Stock) and, if so, the price or prices or the rate or rates of conversion or exchange. Certain Charter and Statutory Provisions The Amended and Restated Bylaws of the Company provide for the Board of Directors to be divided into three classes of directors, with each class to consist as nearly as possible of an equal number of the directors. The terms of office of one class of directors (2 directors) will expire at the 1998 annual meeting of shareholders; the term of the next class of directors (2 directors) will expire at the 1999 annual meetings of shareholders; and the term of the third class of directors (3 directors) will expire at the 2000 annual meeting of shareholders. At each annual meeting of shareholders, the class of directors to be elected at such meeting will be elected for a three-year term, and the directors in the other two classes will continue in office. Because holders of Common Stock have no right to cumulative voting for the election of directors, at each annual meeting of shareholders, the holders of the shares of Common Stock with a majority of the voting power of the Common Stock will be able to elect all of the successors of the class of directors whose term expires at that meeting. The over-all effect of the provision of the Bylaws with respect to a classified Board of Directors may be to render more difficult a change in control of the Company or the removal of incumbent management. Because under the Amended and Restated Articles of Incorporation the Board of Directors has the power to establish the preferences and rights of additional series of capital stock without further shareholder vote, the 45 Board of Directors may afford the holders of any series of senior capital stock preferences, powers and rights, voting or otherwise, senior to the rights of holders of Common Stock. The issuance of any such senior capital stock could have the effect of delaying or preventing a change in control of the Company. The Board of Directors, however, currently does not contemplate the issuance of any series of capital stock other than the Class A Common Stock and the Class B Common Stock. The Virginia Racing Act requires that any person proposing to acquire beneficial ownership of 5% or more of the Company's shares acquire the approval of the Virginia Racing Commission. The shares of any 5% or greater shareholder may be redeemed at fair market value by the Company pursuant to the Company's Amended and Restated Articles of Incorporation upon a vote of the majority of its shareholders if the Virginia Racing Commission determines that such shareholder (i) is or has been guilty of any illegal, corrupt or fraudulent act, conduct or practice in connection with horse racing in Virginia or any other state, (ii) knowingly failed to comply with the Virginia Racing Act or the Virginia Racing Commission's regulations, or (iii) has had a license or permit to hold or conduct a race meet suspended, denied for cause or revoked. Each of CD Entertainment Ltd., Stansley Racing and Stansley Management Corp. and the controlling persons thereof, including Mr. Jacobs, Arnold Stansley and Mr. Leadbetter, have been approved as beneficial owners of 5% or more of the Company's voting stock by the Virginia Racing Commission. The Virginia Affiliated Transactions statute imposes restrictions on certain transactions between a public Virginia corporation and a 10% beneficial shareholder of the corporation (the "Interested Shareholder"). Under this statute, significant transactions (such as a merger, a transfer to the Interested Shareholder of corporate assets worth more than 5% of net worth, or a reclassification of securities having the effect of increasing by 5% or more the corporation's outstanding voting shares held by any Interested Shareholder) between the corporation and an Interested Shareholder must receive the approval of both a majority of disinterested directors and the holders of two-thirds of the corporation's voting shares (not including the Interested Shareholder's shares). After an Interested Shareholder has held the stock for three years, the transaction may proceed upon the approval of either the disinterested directors or the holders of two-thirds of the voting shares. The corporation may avoid application of the statute if a majority of the disinterested directors approves the initial 10% stock acquisition by the Interested Shareholder. In addition, this statute does not apply to an Interested Shareholder who has been such continuously since the date the corporation first became a public corporation. Accordingly, although CD Entertainment Ltd., Jeffrey P. Jacobs, Gary L. Bryenton and Jeffrey P. Jacobs as trustees, and Arnold W. Stansley are each an Interested Shareholder, the restrictions imposed under the statute are inapplicable because each will be an Interested Shareholder as of the date the Company became a public corporation. Pursuant to the Virginia Control Share Acquisitions statute, any person acquiring 20% or more of the outstanding shares of the Company may not be able to vote such shares and such shares may be redeemed by the Company at their cost of acquisition unless such acquisition is approved by a majority of the Company's disinterested shareholders and the Board of Directors. Pursuant to Section 13.1-646 of the Virginia Stock Corporation Act, the Board of Directors has the ability to create or issue rights, options or warrants for the purchase of shares of the Company upon such terms and conditions and for such consideration, if any, as the Board may approve. The terms and conditions of such rights, options or warrants may include restrictions or conditions that preclude or limit the exercise, transfer or receipt of such rights, options or warrants by designated persons or classes of persons (such as 10% or more shareholders) or that invalidate or void such rights, options or warrants held by them. Transfer Agent and Registrar The transfer agent and registrar for the Class A Common Stock will be American Stock Transfer and Trust Company. 46 DESCRIPTION OF CERTAIN INDEBTEDNESS Set forth below is a summary of certain indebtedness to which the Company will be subject following completion of this Offering. This summary does not purport to be complete and is qualified by reference to the applicable agreements filed as exhibits to the Registration Statement of which this Prospectus is a part. Convertible Subordinated Note Prior to the consummation of this Offering, CD Entertainment Ltd. will purchase the Convertible Subordinated Note at a purchase price equal to its $5.5 million principal amount. The Convertible Subordinated Note will be secured by a second deed of trust on the Track, and will bear interest, payable quarterly, at a fixed rate of 7.25% per annum. The principal of the Convertible Subordinated Note will be payable in a single balloon payment at maturity, which will be three years after issuance. The Company will have the right to redeem the Convertible Subordinated Note at any time upon specified notice to the holder, at a price equal to the principal amount thereof plus interest accrued to the date of redemption. The holder will have the option to convert the Convertible Subordinated Note in whole or in part into up to 450,820 shares of Class B Common Stock, at a conversion price equal to 122% of the initial public offering price of the Class A Common Stock in this Offering (subject to adjustment in certain events), at any time or from time to time prior to maturity or any earlier date specified for redemption by the Company. The Convertible Subordinated Note will be subordinated in right of payment to Senior Indebtedness (as defined therein), including indebtedness under the Credit Facility. Credit Facility In connection with this Offering, the Company will require approximately $10 million of financing to be used to construct the Track, acquire, construct, equip and open additional planned SWFs, to repay interim financing and for general corporate purposes. Diversified, an affiliate of Mr. Jacobs, will deliver prior to the consummation of the Offering a $6.5 million irrevocable letter of credit to be used by the Company to meet its current funding requirements and CD Entertainment Ltd. will keep in place $3.5 million of existing financing. It is expected that the $6.5 million letter of credit will be replaced by a $10 million credit facility from either an institutional lender or by Diversified prior to the opening of the Track. The Company has entered into a non-binding letter of intent with a commercial bank relating to such financing but has not yet signed a firm commitment letter for such financing. Such financing is expected to provide for an interest rate of not more than LIBOR plus 3% and have a term of four to five years and be secured by a first lien on all or substantially all of the Company's assets. Pursuant to an Agreement for Provision of Credit, Diversified, an affiliate of Mr. Jacobs, has agreed to provide the Company guarantees, a pledge of its assets or other form of security to assist the Company in securing such financing from a financial institution. If the Company is unable to obtain such a facility, Diversified has agreed to loan the Company $10 million. The Diversified loan, if made, will bear interest, payable monthly, at a rate of not more than LIBOR plus three percent (3%) per annum have a term of four years. During the first year, the Diversified loan will require payment only of interest. During the remaining years, principal amortization will be required in quarterly payments, based on a 15-year amortization schedule, with the balance payable at maturity. The loan will be secured by liens on substantially all of the Company's real and personal property. Mr. Jacobs has agreed to personally guarantee the performance of Diversified pursuant to this agreement. Interest on, and terms of repayment of, amounts drawn under the $6.5 million letter of credit or amounts loaned by Diversified with respect to the Credit Facility shall be identical. The proceeds of the Credit Facility will be used to retire any obligations the Company may have to repay Diversified in respect of any drawings under the $6.5 million letter of credit provided by Diversified prior to closing, and to repay approximately $3.5 million of interim financing provided by CD Entertainment Ltd. 47 SHARES ELIGIBLE FOR FUTURE SALE Prior to this Offering, there has not been any public market for securities of the Company. No prediction can be made as to the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. An increase in the number of shares of Class A Common Stock that may become available for sale in the public market after the expiration of the restrictions described below could adversely affect the market price prevailing from time to time of the Class A Common Stock in the public market and could impair the Company's ability to raise additional capital through the sale of its equity securities in the future. Upon consummation of this Offering, the Company will have issued and outstanding 5,000,000 shares of Class A Common Stock (5,637,500 shares if the Underwriters' over-allotment is exercised in full) and 2,250,000 shares of Class B Common Stock. The 4,250,000 shares of Class A Common Stock sold in this Offering are freely transferable by persons other than "affiliates" of the Company without restriction or further registration under the Securities Act. The 750,000 shares of Class A Common Stock and the 2,250,000 shares of Class B Common Stock currently outstanding (the "Restricted Shares") are "restricted securities" within the meaning of Rule 144 under the Securities Act and may only be sold if they are registered under the Securities Act or unless an exemption from registration is available, including an exemption afforded by Rule 144 of the Securities Act. Under Rule 144 (as amended, effective in April 1997), a person who holds Restricted Shares that were acquired from the Company or an affiliate of the Company at least one year prior to any proposed resale of such securities is entitled to sell, within any three-month period, that number of shares that does not exceed the greater of (i) 1.0% of the then outstanding shares of Common Stock or (ii) the average weekly trading volume in the over-the-counter market of the then outstanding shares of Common Stock during the four calendar weeks preceding each such sale. However, a person who is not an affiliate of the Company and who has held Restricted Shares acquired from the Company or an affiliate of the Company for at least two years prior to any proposed resale is entitled to sell such shares under Rule 144 without regard to the volume limitations described above. No existing shareholder will be able to commence any public sale of any of its currently-held shares of Common Stock for at least one year, absent registration of such shares of Common Stock to be sold. The Company has granted certain registration rights to the holders of the Common Stock issued in the Reorganization and issuable upon conversion of the Convertible Subordinated Note. See "Certain Transactions -- Registration Rights." In connection with this Offering, the Company has agreed not to issue any shares of Common Stock, and the Company's current directors, officers and existing shareholders have agreed not to, directly or indirectly, offer, sell, contract to sell or otherwise dispose of any shares of Common Stock, until the later of (i) 180 days after the consummation of this Offering or (ii) such time as the Company is operating four SWFs, not including any SWF operations at the Track, without the prior written consent of Friedman, Billings, Ramsey & Co., Inc. See "Underwriting." 48 UNDERWRITING The Underwriters named below, represented by Friedman, Billings, Ramsey & Co., Inc. (the "Representative"), have severally agreed to purchase, subject to the terms and conditions of a purchase agreement (the "Purchase Agreement"), and the Company has agreed to sell, the number of shares of Class A Common Stock set forth opposite the name and each Underwriter. Number of Underwriters Shares ------------ ------ Friedman, Billings, Ramsey & Co., Inc.......................... --------- Total................................................. 4,250,000 ========= The Purchase Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the shares of Class A Common Stock if any shares are purchased. The Representative has advised the Company that the Underwriters propose initially to offer the shares of Class A Common Stock to the public on the terms set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $_____ per share. After the shares of Class A Common Stock have been released for sale to the public, the offering price and concession may be changed. The Class A Common Stock is offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. The Representative has informed the Company that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. The Company has granted the Underwriters an option, exercisable not later than 30 days from the date of this Prospectus, to purchase up to an aggregate of 637,500 additional shares of Class A Common Stock at the public offering price less underwriting discounts and commissions shown on the cover of this Prospectus. The Underwriters may exercise such options solely to cover over-allotments. To the extent that such options are exercised, each Underwriter will be committed, subject to certain conditions, to purchase a number of additional shares of Class A Common Stock proportionate to such Underwriter's initial commitment as indicated in the preceding table. Until the distribution of the Class A Common Stock is completed, rules of the Securities and Exchange Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase the Class A Common Stock. As an exception to these rules, the Representative is permitted to engage in certain transactions that stabilize the price of the Class A Common Stock. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Class A Common Stock. If the Underwriters create a short position in the Class A Common Stock in connection with the Offering (i.e., if they sell more shares of Class A Common Stock than are set forth on the cover page of this Prospectus), the Representative may reduce that short position by purchasing Class A Common Stock in the open market. The Representative may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The Representative may also impose a penalty bid on certain Underwriters and selling group members. This means that if the Representative purchases shares of Class A Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Class A Common Stock, it may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of the Offering. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Class A Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Representative will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. Prior to the Offering, there has been no public market for the Class A Common Stock. The offering price has been determined by negotiation between the Company and the Representative. In determining such price, consideration was given to, among other things, the financial and operating history and trends of the Company, the experience of its management, the position of the Company in its industry, the Company's prospects and the Company's financial results. In addition, consideration has been given to the status of the securities markets, market conditions for new offerings of securities and the prices of similar securities of comparable companies. In connection with this Offering, the Company, and the Company's executive officers, directors and existing shareholders have agreed not to, directly or indirectly, offer for sale, sell or otherwise dispose of any shares of Common Stock (other than shares purchased in the Offering or otherwise in the open market, if any), until the later of (i) 180 days after the consummation of this Offering or (ii) such time as the Company is operating four SWFs, not including any SWF operations at the Track, without the prior written consent of the Representative. See "Shares Eligible for Future Sale." The Company has agreed to indemnify the Underwriters against certain civil liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The Company will reimburse the Underwriters for their reasonable out-of-pocket expenses (including legal fees and expenses) incurred in connection with this Offering. The Company has also granted the Representative the exclusive right to act as the Company's financial advisor, placement agent and underwriter in 49 connection with any debt financings, equity financings or sale transactions by the Company during the period ending 24 months after the closing date of this Offering. LEGAL MATTERS The validity of the Class A Common Stock offered hereby has been passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal matters are being passed upon for the Underwriters by Dickstein Shapiro Morin & Oshinsky LLP, Washington, D.C. EXPERTS The financial statements included in this Prospectus and in the Registration Statement have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in their report appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given upon the authority of said firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") under the Securities Act, a Registration Statement on Form S-1 (of which this Prospectus is a part) with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and in the exhibits and schedules thereto. For further information with respect to the Company, reference is made to the Registration Statement and to the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document filed as an exhibit to the Registration Statement are not necessarily complete and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified by such reference. Copies of the Registration Statement, including all exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located at Seven World Trade Center, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission and the address of such web site is http://www.sec.gov. As a result of this Offering, the Company will be subject to the informational requirements of the Exchange Act. In accordance therewith, the Company will file certain reports and other information with the Commission. The Company intends to furnish its shareholders with annual reports containing financial statements audited by the Company's independent accountants and unaudited quarterly consolidated financial statements and other reports. 50 COLONIAL DOWNS HOLDINGS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Report of Independent Certified Public Accountants........................ F-2 Consolidated Financial Statements Balance Sheets as of December 31, 1996 and 1995......................... F-3 Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994................................................... F-5 Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995, and 1994..................................... F-6 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994......................................................... F-7 Notes to Consolidated Financial Statements................................ F-8 F-1 Report of Independent Certified Public Accountants (the following is the form of the report that BDO Seidman, LLP will be in a position to issue upon completion of the reorganization described in Note 1) Colonial Downs Holdings,Inc. Providence Forge, Virginia We have audited the accompanying consolidated balance sheets of Colonial Downs Holdings, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. 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 generally accepted auditing standards. 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 Downs Holdings, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. BDO Seidman, LLP Richmond, Virginia February 10, 1997 F-2 Colonial Downs Holdings, Inc. and Subsidiaries Consolidated Balance Sheets December 31, December 31, 1996 1995 ------------ ------------ Assets Current Cash and cash equivalents.................. $ 1,379,884 $ 330,066 Horsemen's deposits (Notes 1 and 9)........ 337,738 - Accounts receivable........................ 38,519 - Prepaid expenses........................... 9,335 - ----------- ---------- Total current assets........................ 1,765,476 330,066 ----------- ---------- Property and equipment (Notes 1, 6 and 7) Land...................................... 800,000 - Building and improvements................. 1,788,343 - Leasehold improvements.................... 807,643 737,864 Equipment, furnishings and fixtures....... 868,918 253,222 Vehicles.................................. 19,585 19,585 Construction in progress.................. 5,080,098 858,029 ----------- ---------- 9,364,587 1,868,700 Less accumulated depreciation and amortization........................ 126,167 3,060 ----------- ---------- Net property and equipment.................. 9,238,420 1,865,640 ----------- ---------- Other Licensing costs (Note 1).................. 942,572 777,592 Financing costs........................... 332,037 131,244 Organization costs (Note 1)............... 7,500 7,500 Miscellaneous............................. 51,352 30,000 ----------- ---------- 1,333,461 946,336 Less accumulated amortization............. 160,867 - ----------- ---------- Total other................................. 1,172,594 946,336 ----------- ---------- $12,176,490 $3,142,042 =========== ========== F-3 Colonial Downs Holdings, Inc. and Subsidiaries Consolidated Balance Sheets--(Continued) December 31, December 31, 1996 1995 ------------ ------------ Liabilities and Stockholders' Equity (Deficit) Current liabilities Accounts payable......................... $ 3,567,388 $1,242,855 Management fee payable (Note 7).......... 210,000 30,000 Accrued expenses......................... 123,292 14,761 Uncashed pari-mutuel tickets............. 147,064 - Current maturities of long-term debt and capital lease obligations (Note 6).............................. 47,678 4,403 Notes payable - stockholders (Note 6).... 1,637,619 400,000 Advances from stockholders (Note 6)...... - 227,234 Purses due horsemen (Note 9)............. 1,957,683 - ----------- ---------- Total current liabilities.................. 7,690,724 1,919,253 ----------- ---------- Long-term liabilities Long-term debt and capital lease obligations, net of current maturities (Note 6).................... 42,159 11,086 Notes payable - stockholders (Note 6)............................... 3,448,782 1,536,532 ----------- ---------- Total long-term liabilities................ 3,490,941 1,547,618 ----------- ---------- Total liabilities.......................... 11,181,665 3,466,871 ----------- ---------- Commitments and contingencies (Notes 1, 2, 3, 4, 5, 7, 8 and 9) Stockholders' equity (Deficit) Preferred stock, $.01 par value, 2,000,000 shares authorized; none issued............................ - - Common stock Class A, $.01 par value, 12,000,000 shares authorized; 750,000 shares outstanding.......................... 7,500 7,500 Class B, $.01 par value, 3,000,000 shares authorized; 2,250,000 shares outstanding................... 22,500 22,500 Additional paid-in capital............... 1,966,169 1,100 Retained earnings (deficit).............. (1,001,344) (355,929) ----------- ---------- Total stockholders' equity (deficit)....... 994,825 (324,829) ----------- ---------- $12,176,490 $3,142,042 =========== ========== See accompanying summary of accounting policies and notes to consolidated financial statements. F-4 Colonial Downs Holdings, Inc. and Subsidiaries Consolidated Statements of Operations
Year Ended December 31, ------------------------------------ 1996 1995 1994 ---- ---- ---- Revenues Pari-mutuel commissions-- import simulcasting.................. $7,744,839 $ - $ - Admissions............................. 215,494 - - Programs............................... 361,217 - - Miscellaneous (Note 7)................. 205,760 - - ---------- ---------- ---------- Total revenues........................... 8,527,310 - - ---------- ---------- ---------- Operating expenses Direct operating expenses: Purses and awards...................... 1,946,037 - - Totalisator and simulcast expenses..... 1,319,187 - - Breeder's fund fees.................... 369,526 - - Pari-mutuel taxes...................... 947,180 - - Direct salaries, payroll taxes and employee benefits................ 1,160,385 - - Other direct expenses.................. 792,023 - - Consulting fees (Note 2)............... 739,062 - - ---------- ---------- ---------- Total direct operating expenses........ 7,273,400 - - ---------- ---------- ---------- General and administrative expenses: Management fees (Note 7)............. 180,000 30,000 - Attorney and professional fees....... 536,733 - - Other................................ 721,720 285,175 - ---------- ---------- ---------- Total general and administrative expenses............................ 1,438,453 315,175 - ---------- ---------- ---------- Depreciation and amortization......... 283,974 3,060 - ---------- ---------- ---------- Total operating expense.................. 8,995,827 318,235 18,648 ---------- ---------- ---------- Loss from operations..................... (468,517) (318,235) (18,648) ---------- ---------- ---------- Other income (expense) Interest expense....................... (183,118) (2,252) - Interest income........................ 6,220 - - ---------- ---------- ---------- Total other income (expense)............. (176,898) (2,252) - ---------- ---------- ---------- Net loss................................. $ (645,415) $ (320,487) $ (18,648) ---------- ---------- ---------- Earnings per share data: Earnings per share..................... $ (0.22) $ (0.11) $ (0.01) ---------- ---------- ---------- Weighted average number of shares outstanding................ 3,000,000 3,000,000 3,000,000 ========== ========== ==========
See accompanying summary of accounting policies and notes to consolidated financial statements. F-5 Colonial Downs Holdings, Inc. and Subsidiaries Consolidated Statements Stockholders' Equity (Capital Deficit)
Common Stock ---------------------------------------------- Class A Class B Additional Retained --------------------- -------------------- Paid-in Earnings Partners' Shares Amount Shares Amount Capital (Deficit) Capital Total ------ ------ ------ ------ ------- --------- ------- ----- Balance, December 31, 1993.................... - $ - - $ - $ - $ (16,794) $ 1,100 $ (15,694) Elimination of partner's capital due to reorganization.......... - - - - 1,100 - (1,100) - Issuance of the reorganized common stock................... 750,000 7,500 2,250,000 22,500 - - - 30,000 Net loss.................. - - - - - (18,648) - (18,648) -------- ------ ---------- ------- ---------- ----------- --------- ---------- Balance, December 31, 1994.................... 750,000 7,500 2,250,000 22,500 1,100 (35,442) - (4,342) Net loss.................. - - - - - (320,487) - (320,487) -------- ------ ---------- ------- ---------- ----------- --------- ---------- Balance, December 31, 1995.................... 750,000 7,500 2,250,000 22,500 1,100 (355,929) - (324,829) Conversion of shareholder debt to equity (Note 6). - - - - 1,965,069 - - 1,965,069 Net loss.................. - - - - - (645,415) - (645,415) -------- ------ ---------- ------- ---------- ----------- --------- ---------- Balance, December 31, 1996.................... 750,000 $7,500 2,250,000 $22,500 $1,966,169 $(1,001,344) $ - $ 994,825 ======== ====== ========== ======= ========== =========== ========= ==========
See accompanying summary of accounting policies and notes to consolidated financial statements. F-6 Colonial Downs Holdings, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Year Ended December 31, ------------------------------------ 1996 1995 1994 ---- ---- ---- Operating activities Net loss....................................... $ (645,415) $ (320,487) $ (18,648) Adjustments to net loss Depreciation and amortization................ 283,974 3,060 - Increase in uncashed tickets................. 147,064 - - Increase in accounts receivable and other assets........................... (47,854) - - Increase in accounts payable - trade......... 638,867 112,922 - Increase in accrued expenses and other....... 200,087 44,132 - Increase in accrued interest payable......... 88,444 629 - Increase in horsemen's deposits.............. (337,738) - - ---------- ---------- --------- Net cash provided (absorbed) by operating activities........................ 327,429 (159,744) (18,648) ---------- ---------- --------- Investing activities Purchases of property and equipment......... (5,770,758) (436,570) (223,240) Increase in purses due horsemen............. 1,957,683 - - Investment in other assets.................. (186,332) (483,649) (199,343) ---------- ---------- --------- Net cash absorbed by investing activities..... (3,999,387) (920,219) (422,583) ---------- ---------- --------- Financing activities Net proceeds (repayments) from borrowings... $ (4,404) $ 15,489 $ - Net increase in financing costs............. (200,793) (100,000) (15,045) Proceeds from long-term debt................ 50,200 - - Payments on long-term debt.................. (712) - - Payments on capital lease agreements........ (10,219) - - Proceeds from stockholder advances and notes payable......................... 4,987,704 1,492,117 458,699 Payments on stockholders' advances and notes payable......................... (100,000) - - ---------- ---------- --------- Net cash provided by financing activities..... 4,121,776 1,407,606 443,654 ---------- ---------- --------- Net increase in cash and cash equivalents..... 1,049,818 327,643 2,423 Cash and cash equivalents, beginning of year.. 330,066 2,423 - ---------- ---------- --------- Cash and cash equivalents, end of year........ $1,379,884 $ 330,066 $ 2,423 ========== ========== ========= Supplemental Disclosures of Cash Flow Information Cash paid for interest........................ $ 94,674 $ 2,400 $ - ---------- ---------- --------- Conversion of debt to equity.................. $1,965,069 $ - $ - ---------- ---------- --------- Capital lease obligations incurred............ $ 39,483 $ - $ - At December 31, 1996 and 1995, $2,815,599 and $1,129,933, respectively, were due vendors for property and equipment purchases.
See accompanying summary of accounting policies and notes to consolidated financial statements. F-7 Colonial Downs Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the following entities of Colonial Downs Holdings, Inc. (collectively, the "Company"), which prior to the planned reorganization were affiliated through common ownership and control: Colonial Downs, L.P. ("Partnership") Stansley Racing Corp. ("SRC") Colonial Downs Holdings, Inc. ("CD Holdings") The consolidated financial statements have been prepared as if the entities had operated as a single consolidated group and assuming that the reorganization had taken place as of December 31, 1993. All significant intercompany accounts and transactions have been eliminated. The Company intends to obtain funds to develop, construct, and operate a pari-mutuel horse racing facility and up to six satellite wagering credit facility through a public offering of $42.5 million in common stock and securing a $10.0 million credit facility from an institutional lender or an affilate of a shareholder and a $5.5 million convertible subordinated note issued to the Company's principal Shareholder. On November 25, 1996, the Company entered into a letter of intent with an investment banking firm to sell 4,250,000 shares of its common stock in an underwritten initial public offering ("IPO"). The IPO is expected to close during the first quarter of 1997. Reorganization The Company's licenses to own and operate the racetrack and its SWFs are held by the Partnership and SRC. Stansley Management Corp. ("SMC") and CD Entertainment Ltd. each own 50% of the Partnership. CD Entertainment Ltd. is beneficially owned by Jeffrey P. Jacobs, and Gary L. Bryenton and Jeffrey P. Jacobs as Trustees. SMC is owned 68% by Arnold W. Stansley and 30% by James M. Leadbetter, with the balance held by two other individuals. Mr. Stansley also owns 70% of the outstanding capital stock of SRC and Mr. Leadbetter owns the remaining 30%. CD Entertainment Ltd. and Mr. Stansley each own one share of common stock of CD Holdings. The ownership and operating licenses held by the Partnership and SRC are non-transferable under the Virginia Racing Act. In order to bring the licenses under the control of one entity while avoiding transfer of the licenses, CD Holdings will become a holding company for the Partnership and SRC pursuant to an Agreement and Plan of Reorganization ("Reorganization"). Pursuant to the Reorganization, which will occur prior to the effectiveness of the Registration Statement of which this Prospectus is a part, CD Holdings will acquire, in exchange for 3,000,000 shares of its common stock, a 99% limited partner interest in the Partnership and 100% of the outstanding stock of SRC. Also, in conjunction with the Reorganization, SRC will acquire a 1% general partner interest in the Partnership. As a result of the Reorganization, the Company will own, directly or through its wholly-owned subsidiaries, the ownership and operating licenses for the racetrack and the Chesapeake, Richmond, and Hampton Satellite Wagering Facilities ("SWFs"); the property for the Richmond SWF; the rights to apply for licenses to own and operate up to three additional SWFs in Virginia; the 345 acres on which the racetrack is being constructed; and the racetrack facilities and certain related infrastructure. Description of Business The Company's wholly-owned subsidiary, Colonial Downs, L.P., a Virginia limited partnership, was organized on September 30, 1993. The Partnership, along with its affiliate, Stansley Racing Corp., was formed to apply to the Virginia Racing Commission for licenses to acquire, own, and operate a pari-mutuel horse racing facility in New Kent County, Virginia, in accordance with the regulations stipulated by the Virginia Racing Commission (the "Commission"). On October 12, 1994, the Commission awarded the ownership and operating F-8 Colonial Downs Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 1. Significant Accounting Policies--(continued) licenses for the facility to the Partnership and SRC. In addition to the construction and operation of the pari-mutuel horse racing facility, the Partnership and SRC are the only entities currently authorized to be awarded unrestricted licenses to own and operate up to six SWFs, which offer or will offer off-track pari-mutuel wagering on simulcast races from tracks around the country. The Company is seeking to secure the funds necessary to complete construction of the facilities and begin operation of the racetrack. Upon obtaining the necessary funds, the Company intends to construct the Colonial Downs racing facility on approximately 345 acres between Interstate Highway 64 and State Route 155 in New Kent County. The facility has been designed to accommodate thoroughbred and standardbred racing as well as simulcast wagering. The Company currently operates two SWF's. The first SWF began operations in Chesapeake, Virginia during February 1996. The second facility opened in Richmond, Virginia in December 1996. The Company has received licenses to own and operate a third SWF in Hampton, Virginia and plans to apply for licenses in Brunswick County, Virginia, which the Company expects to open in the second quarter of 1997. The Company plans to work towards obtaining licenses for the remaining two SWF's authorized by the Commission. Cash and Cash Equivalents For the purposes of preparing the Company's statement of cash flows, investments with maturities of less than three months are considered to be cash equivalents. Construction in Progress Construction in progress is recorded at cost and includes capitalized costs such as architect, contractor, and engineering fees. Estimated costs to complete the racetrack, including all furnishings and equipment, is approximately $35.9 million as of December 31, 1996. Approximately $72,000 of interest expense was capitalized during 1996 in connection with the construction of the racetrack and development of the SWF's. Property, Equipment and Depreciation Property and equipment is stated at cost. Expenditures for ordinary maintenance and repairs are charged to income as incurred. Costs of betterments, renewals, and major replacements are capitalized. At the time properties are retired or otherwise disposed of, the related cost and allowance for depreciation are eliminated from the accounts and any gain or loss on disposition is reflected in income. Depreciation is computed using the straight-line method over the following estimated useful lives: Years ----- Building and improvements............... 39 Leasehold improvements.................. 7-39 Vehicles................................ 3-7 Machinery and equipment................. 3-7 Office equipment........................ 3-7 F-9 Colonial Downs Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 1. Significant Accounting Policies--(continued) Licensing Costs and Amortization Licensing costs consist primarily of legal and professional fees associated with the application for the racetrack licenses and related licensing fees for the SWF's. Organization costs include legal and professional fees incurred in conjunction with organizing the Company. Organization and licensing costs are being amortized over a period of sixty months. Revenue Recognition The Company currently primarily derives revenue from import simulcasting, which is the Company's share of wagering (approximately 20%) at the Company's SWF's on races simulcast from other racetracks. Revenue is recognized under the accrual method, and accordingly, revenue is recognized when earned and expenses are recognized when incurred. Horsemen's Purses and Awards Amounts due under agreements with the Virginia Horsemen's Benevolent and Protective Association, Inc. and the Virginia Harness Horse Association (collectively "the Associations"), are accrued based on the terms of the agreements. Funds not yet remitted to the Associations to satisfy the liability are held in a restricted cash account. As of December 31, 1996 approximately $337,800 was held in the restricted cash accounts. See also Note 9. Income Taxes Subsequent to the reorganization, the Company and its subsidiaries will file a consolidated income tax return. Prior to the reorganization, the Partnership and SRC (an "S" Corporation for income tax purposes) filed income tax returns as separate entities. No provision has been made for income taxes for the Partnership and SRC as income taxes are the liabilities of the individual partners and shareholders, respectively. CD Holdings was incorporated in November, 1996 and had no activity for the periods presented. The Company adopted the provisions of Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes" effective January 1, 1993. SFAS 109 requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. 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 reported period. Actual results could differ from those estimates. Concentration of Credit Risk Financial instruments which potentially subject the Company to credit risk consist of cash equivalents and accounts receivable. The Company's policy is to limit the amount of credit exposure to any one financial institution and place the investments with financial institutions evaluated as being creditworthy. At December 31, 1996 and 1995, the F-10 Colonial Downs Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 1. Significant Accounting Policies--(continued) Company had cash deposits which exceeded federally insured limits by approximately $899,000 and $230,000, respectively. Accounting Pronouncements In March 1995, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to Be Disposed Of". SFAS 121 requires that long-lived assets and certain intangibles to be held and used by an entity be reviewed for impairment when events or changes in circumstances indicate that the carrying amount may be not recoverable. In addition, SFAS 121 requires long-lived assets and certain intangibles to be disposed of to be reported at the lower of carrying amount of fair value less costs to sell. SFAS 121 is effective for fiscal years beginning after December 15, 1995. The application of this pronouncement did not have a material effect on the Company's financial statements. 2. Management and Consulting Agreement with Maryland - Virginia Racing Circuit The Company entered into a consulting agreement with the Maryland - Virginia Racing Circuit, Inc. ("Circuit") an affiliate of the Maryland Jockey Club ("MJC"). Pursuant to the agreement, MJC will suspend live racing at Pimlico and Laurel racetracks during the Company's live thoroughbred racing meet and manage the thoroughbred racing at the Company's racing facility. The agreement provides that the Company pay Circuit two percent of gross amounts wagered on all racing, which is approximately 10% of pari-mutuel revenues, exclusive of live harness racing at the Company's racetrack, at all of the Company's locations. Additionally, the Company will pay a pro-rata share, based on the duration of its live thoroughbred racing meet, of the salaries of the MJC employees that participate in the management of the Company's meet. The Company will bear all expenses associated with the management and operation of the thoroughbred meet. Under the agreement, approximately $739,000 of costs were incurred through December 31, 1996. The Management and Consulting Agreement will remain in effect for so 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. The Maryland-Virginia Racing Circuit, Inc. is owned by Laurel Park Racing Association Limited Partnership (50%) and Pimlico Racing Association, Inc. (50%), which conduct business under the trade name The Maryland Jockey Club. A potential conflict of interest arises between the Maryland-Viginia Racing Circuit, Inc. and the Maryland Jockey Club if the Maryland Jockey Club cannot, or elects not to, cease live racing in Maryland during the Company's live thoroughbred meet. The Maryland-Virginia Racing Circuit, Inc. is responsible for managing the Company's thoroughbred meet. To the extent that it is unable to do so because the Maryland Jockey Club does not cease live racing during the Company's thoroughbred meet, it may forfeit its management fee payable by the Company and the Company will need to recruit additional personnel to manage its thoroughbred meet. 3. Land Conveyance and Land Development 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, will convey the land required to build the racetrack and facilities in New Kent County upon the Company obtaining the financing required to build the racetrack and facilities. Under the agreement, Delmarva will convey the land to the Company or designee within five days of such a request by the Company. The land is subject to reversion to Delmarva if the Company fails to complete, open and operate for three years a racetrack licensed by the Commission on the land and subject to a restriction limiting its use to operation of a horse racetrace and certain ancillary activities. The land will be recorded at fair value due to the contribution being made from an independent third party. Conveyance will occur upon the completion of the IPO at which time it will be recorded as a refundable advance with an offset to a liability account, until all conditions have been satisfied. When the likelihood for reversion is remote, which is expected to be upon the completion of the IPO and the racing facility and the Company has shown the ability to conduct live racing meets, the refundable deposit will be transferred to land and the corresponding liability will be transferred to contributed capital. The Company has entered into a development agreement with Delmarva in which Delmarva is responsible for the construction of water and sewer lines on the property. Under the agreement, the Company will reimburse Delmarva for 100% of the construction costs, not to exceed $985,000. The water and sewer system will become property of New Kent County upon completion. 4. Performance Guarantee As part of obtaining the pari-mutuel license from the Virginia Racing Commission, the Company was required to provide the Commission with a $1,000,000 performance agreement. The agreement stipulates that the Company must construct the racetrack and related facilities, as proposed, within 14 months of the unappealable award of the licenses to the Company. The award of the licenses became unappealable on May 17, 1996; F-11 Colonial Downs Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 4. Performance Guarantee--(continued) therefore, the racetrack facilities must be completed by July 17, 1997. If the Company fails to complete the racetrack by July 17, 1997, the Commission is to be paid $5,000 a day that performance is not complete, up to a maximum of $1,000,000. As a part of the agreement, the Commission required the Company to provide two letters of credit of $500,000 each. In connection with this requirement, the Company obtained two letters of credit which can be drawn on by the Commission, one of which expires in December 1997 and the other in March, 1997 in the sum of $1,000,000. Both letters of credit are renewable for additional terms. 5. Industrial Development Agreement To assist in the development and improvement in certain public roads adjacent to the racetrack facility, the Company entered into an agreement in July 1996 with New Kent County and the Capital Area Training Consortium for a Community Development Block Grant of $700,000. In addition to the grant, an additional amount of approximately $700,000 will be allocated by the Virginia Department of Transportation to complete a project which would widen State Route 155 from I-64 to the entrance of the racetrack grounds. Under the agreement, the Company will take affirmative steps to employ a minimum number of low and moderate income persons based on HUD Section 8 Income Limits. In the event that the Company fails to honor its commitment to take such affirmative steps, the Company must repay all local or grant funds already expended in full to the locality and the Virginia Department of Housing and Community Development. 6. Notes Payable, Advances from Stockholders, and Capital Lease Obligations Notes payable, advances from stockholders and capital lease obligations consist of the following: December 31, ------------ 1996 1995 ---- ---- Advances from Arnold Stansley, non-interest bearing, unsecured................................. $ - $ 227,234 Note payable to Arnold Stansley, maturing March 1998, non-interest bearing, unsecured.............. 211,788 273,213 Note payable to Arnold Stansley, maturing January 1997, non-interest bearing, unsecured...... 175,000 - Note payable to Norglass, Inc., maturing March 1998, non-interest bearing, unsecured.............. $ 236,994 $ 263,319 Note payable to Norglass, Inc., maturing January 1997, unsecured............................ 75,000 - Convertible promissory note to CD Entertainment Ltd. maturing with principal and interest on March 1998 at a rate of 10%; collateralized by machinery, equipment, inventory, and receivables....................................... - 1,000,000 Demand note payable to CD Entertainment Ltd. payable on demand, with interest payable monthly at a rate of 10%; collateralized by machinery, equipment, inventory, and receivables............ - 400,000 Note payable to CD Entertainment Ltd. maturing January 1998 bearing interest at LIBOR (5.625% at December 31, 1996) plus 2%; collateralized by land and building.......... 3,000,000 - Note payable to CD Entertainment Ltd. bearing interest at LIBOR (5.625% at December 31, 1996) plus 2%, with maximum borrowings of $5,000,000, unsecured........................................ 1,387,619 - Demand note payable to a Bank, with interest payable at prime plus 2% (10.25% at December 31, 1996); unsecured........................................ 20,100 - Note payable to a Bank, maturing November, 1999 bearing interest at 11% with monthly payments of $987; collateralized by equipment.............. 29,388 - F-12 Colonial Downs Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 6. Notes Payable, Advances from Stockholders, and Capital Lease Obligations--(continued) Installment notes and capitalized leases collateralized by certain vehicles, machinery, and equipment, maturing at various dates, primarily March 1997 through January 1999, at interest rates ranging from 3% to 12%......... 40,349 15,489 ---------- ---------- 5,176,238 2,179,255 Less current maturities............................ 1,685,297 631,637 ---------- ---------- $3,490,941 $1,547,618 ========== ========== Capital lease obligations as of December 31, 1996 and 1995 are approximately $29,300 and $0, respectively. The amount of leased fixed assets capitalized at December 31, 1996 and 1995 are approximately $39,500 and $0, respectively. Arnold Stansley, Norglass, Inc. and CD Entertainment Ltd. are related to the Company either directly or indirectly (See Notes 1 and 7). The aggregate amounts of notes payable and capital lease obligations at December 31, 1996 matures as follows: Through December 31, Amount -------------------- ------ 1997............................ $1,685,297 1998............................ 3,469,456 1999............................ 13,345 2000............................ 3,636 2001............................ 4,504 ---------- $5,176,238 ========== During the year ended December 31, 1996, $1,965,069 of debt due to CD Entertainment Ltd. was converted to equity and treated as capital contributions. No shares of common or preferred stock were issued in connection with the conversion. 7. Related Party Transactions The Company has a management agreement to pay directly and indirectly to SRC and CD Entertainment Ltd. a monthly management fee of $10,000 and $5,000, respectively, per month until closing of the IPO. The Company accrued management fees of $180,000 and $30,000 during the years ended December 31, 1996 and December 31, 1995, respectively. Virginia Concessions, L.L.C., an affiliate of shareholder CD Entertainment Ltd., was granted an option by the Company to manage the food and beverage concessions at the initial six SWFs. Under the agreement, Virginia Concessions, L.L.C. pays rent to the Company based upon gross sales equal to 10% of the first $500,000 of gross sales, 13% of the next $500,000 of gross sales, and 15% of all gross sales above $1,000,000 at each SWF. The Company had approximately $89,000 of rental income generated from the Chesapeake and Richmond SWF's for the year ended December 31, 1996. Norglass, Inc., an affiliate of shareholder James M. Leadbetter, is engaged as the general contractor to construct the racetrack and related facilities in New Kent County, Virginia. The original contract value with Norglass, Inc. for the facilities (which does not include approximately $8.1 million for certain equipment, furniture, fixtures and infrastructure improvements and professional fees) is estimated at approximately $29.5 million. Norglass, Inc. has also been engaged to perform construction management related to the SWFs. Total construction costs incurred with Norglass, Inc. were approximately $5,545,000 through December 31, 1996. F-13 Colonial Downs Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 8. Commitments and Contingencies Current legislation requires that live racing commence at the track facilities by September 1, 1997 or the Company will lose all licenses to own and operate SWFs; however, should that occur it is expected that the Commission will reissue the licenses to the Company upon commencement of live racing, but there is no assurance that the Commission would do so. The Company agreed to pay Premier One Development Co. (Premier), a company affiliated with a shareholder of the Company, CD Entertainment Ltd., a fee of $250,000 (of which $125,000 was paid, capitalized and included in construction in progress at December 31, 1996) for services related to the construction of the Track and the development of the SWF's. Pursuant to 1996 Acts of the General Assembly, the Virginia Racing Commission has directed the Company to establish a construction account into which are deposited total net profits derived from the operation of the SWF's. There were no amounts deposited into the construction account at December 31, 1995, since there were no net profits. As of December 31, 1996, there was $717 in the construction account. In 1995, the Company 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 during the first six years of operations. As a part of the agreement, the Company agreed to pay the totalisator company certain percentages of the gross amounts wagered at the facilities, as well as a minimum of $37,500, payable annually for equipment installed at the racetrack for live race meets. In addition, the Company agreed to use certain equipment provided by the totalisator company. In 1996, the Company entered into agreements with a company which provides closed circuit television service and equipment. The basic terms of the agreement state that the company shall provide closed circuit television to the Company at the Chesapeake and Richmond SWFs. As a part of the agreement, the Company agreed to pay the company approximately $245 and $246 per simulcast day at the Chesapeake and Richmond SWFs, respectively, as well as certain additional amounts per television per day. Total expense incurred for totalisator and TVs (excluding host fees) was approximately $190,000 for the year ended December 31, 1996. The Company is liable under numerous operating leases for automobiles, equipment and buildings expiring at various dates. In addition, the Company currently rents its temporary main office facilities on a month to month basis for $1,200 a month. Total rental expense under non-cancelable leases was approximately $144,000 for the year ended December 31, 1996. The following are the future estimated minimum lease commitments relating to non-cancelable operating agreements and leases. The totalisator and TV categories include amounts for the Chesapeake and Richmond SWFs. The SWF category includes rent and other operating leases for the Chesapeake and Richmond facilities. Year Ending December 31, Totalisator TVs SWF Other Total - ------------ ----------- --- --- ----- ----- 1997............. $228,800 $178,200 $ 86,000 $26,300 $ 519,300 1998............. 228,800 178,200 86,000 17,900 510,900 1999............. 125,000 178,200 86,000 6,300 395,500 2000............. - 178,200 36,700 1,400 216,300 2001............. - 48,700 - 700 49,400 -------- -------- -------- ------- ---------- $582,600 $761,500 $294,700 $52,600 $1,691,400 ======== ======== ======== ======= ========== The Company has a $200,000 letter of credit that secures the Company's obligations under certain erosion control bonds related to construction of the racetrack. This letter of credit is personally guaranteed by certain shareholders of the Company. In conjunction with the Reorganization and IPO, the Company intends to implement a stock option plan. 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 300,000 shares of Class A Common Stock. The exercise price per share for Incentive Stock Options will be no less than the fair value of the stock at the grant date. The exercise price of Non-qualified Stock Options will be determined by the Board of Directors on the grant date. The term of the plan is ten years from its effective date unless sooner terminated. Pursuant to a two-year employment agreement with the President of the Company, the Company has agreed to grant stock options for 30,000 shares of Class A Common Stock per year, which vest after each year of employment. The exercise price of such stock options shall be 105% of the initial offering price of the IPO. Such options are exercisable after January 2, 2002, the fifth anniversary of the President's employment with the Company. 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 or the amount of any loans made to the Company (subject, in the case of a letter of credit, to a minimum annual fee of $50,000). Upon consummation of the IPO, the Company will enter into a five-year consulting agreement with Arnold Stansley. Under the agreement, Mr. Stansley will receive $75,000 annually. F-14 Colonial Downs Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements--(Continued) 9. Horsemen's Agreements The Company entered into an agreement effective February 17, 1996 with the Virginia Horsemen's Benevolent and Protective Association, Inc. ("VAHBPA") applicable to revenue generated from pari-mutuel wagering on simulcast thoroughbred races at all facilities owned and operated by the Company. In accordance with the agreement, the Company will maintain a separate joint bank account into which the Company will deposit an amount equal to 5.25%, which is approximately 26.25% of pari-mutuel revenues, of the SWF thoroughbred handle (the "Thoroughbred Partner Account"). The initial period of the agreement runs through December 31, 1997 with an additional term to follow through December 31, 1998, with similar terms, and renews automatically for successive one year terms. If the sum of 5.25% of the SWF thoroughbred handle plus the total amount of handle generated by live thoroughbred racing at the racetrack for each period is less than the guaranteed $4.5 million, then the Company shall pay the difference into the Thoroughbred Partner Account, used to pay purses, with half of such amount being considered a loan by the Company to the VAHBPA. The Company entered into another agreement effective February 17, 1996 with the Virginia Harness Horse Association ("VHHA") applicable to revenue generated from pari-mutuel wagering on simulcast standardbred races at all facilities owned and operated by the Company in Virginia, exclusive of live races held at the racetrack. In accordance with the agreement, the Company will maintain a separate joint bank account into which the Company will deposit an amount equal to 5%, which is approximately 25% of pari-mutuel revenue, of the SWF standardbred handle (the "Standardbred Partner Account"). The initial period of the agreement runs through December 31, 1997, with an additional term to follow through December 31, 1998, with similar terms, and renews automatically for successive one year terms. If the sum of 5% of the SWF standardbred handle plus the total amount of handle generated by live standardbred racing at the racetrack for the initial period is less than the guaranteed $2.5 million, then the Company shall pay the difference into the Standardbred Partner Account, used to pay purses, with half of such amount being considered a loan by the Company to the VHHA. If the sum of all thoroughbred and standardbred contributions is greater than $4.5 million and $2.5 million, respectively, then such excess contributions will be paid back to the Company until $1 million (year 1) and $3 million (year 2) after tax net income is achieved by the Company, after which point any remaining amounts will be shared equally by the Company and the VAHBPA and VHHA. Under the Virginia Racing Act, the Company is required to contribute approximately 8.5% of all money wagered at the racetrack on live racing to the purse accounts and these funds will count towards the required minimum $4.5 million and $2.5 million for thoroughbred and standardbred purses, respectively. F-15 10. Income Taxes If the consolidated group of companies had been treated as a "C" corporation for income tax purposes for the three years presented, no income tax expense would have been recorded due to the net operating losses incurred. Pro forma deferred tax assets and liabilities of the Company, assuming conversion to a "C" corporation, are as follows at December 31, 1996: Deferred tax assets Licensing costs............... $160,000 Net operating losses.......... 164,000 Accrued management fees....... 80,000 -------- 404,000 Deferred tax liabilities Property and equipment........ (28,000) -------- Net deferred tax asset prior to valuation allowance......... 376,000 Less valuation allowance (376,000) -------- -- ======== F-16 [INSIDE BACK COVER-- INSERT PHOTO OF INTERIOR OF CHESAPEAKE SWF] ================================================================================ No dealer, salesperson or any other person has been authorized to give any information or to make any representations not contained in this Prospectus in connection with the offer contained herein, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the shares of Class A Common Stock offered hereby by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such solicitation or offer. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to the date hereof. ---------------- TABLE OF CONTENTS Page Prospectus Summary.......................... 1 Risk Factors................................ 8 The Company................................. 16 The Reorganization.......................... 16 Use of Proceeds............................. 17 Dividend Policy............................. 18 Capitalization.............................. 18 Dilution.................................... 19 Selected Financial and Operating Data ...... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 22 Business.................................... 26 Management.................................. 36 Certain Transactions........................ 39 Principal Shareholders...................... 43 Description of Capital Stock................ 44 Description of Certain Indebtedness......... 47 Shares Eligible for Future Sale............. 48 Underwriting................................ 49 Legal Matters............................... 50 Experts..................................... 50 Available Information....................... 50 Index to Consolidated Financial Statements F-1 Until _______________, 1997 (25 days after the date of this Prospectus), all dealers effecting transactions in the shares of Class A Common Stock, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ================================================================================ ================================================================================ 4,250,000 Shares [LOGO] COLONIAL DOWNS HOLDINGS, INC. Class A Common Stock ---------- PROSPECTUS ---------- FRIEDMAN, BILLINGS, RAMSEY & CO., INC. , 1997 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Expenses of Issuance and Distribution. The following is an estimate of the expenses to be incurred by the Company in connection with the issuance and distribution of the securities being registered, other than the underwriting discounts and commissions: SEC registration fee.............................. $ 16,292 NASD filing fee................................... 4,750 Nasdaq Stock Market fee........................... 10,000 Blue Sky fees and expenses........................ 65,000 Printing.......................................... 75,000 Transfer agent's fees and expenses................ 5,000 Attorneys' fees and expenses...................... 375,000 Accountants' fees and expenses.................... 70,000 Miscellaneous..................................... 3,958 ------- Total ................................ $625,000 ======= Item 14. Indemnification of Directors and Officers. Article J of the Company's Amended and Restated Articles of Incorporation provides that the Company will, to the fullest extent permitted by the laws of Virginia, indemnify an individual who is or was a director or officer of the Company and who was, is, or is threatened to be made a named defendant or respondent in any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (collectively, a "proceeding"), against any obligation to pay a judgment, settlement, penalty, fine (including any excise tax assessed with respect to any employee benefit plan) or other liability and reasonable expenses (including counsel fees) incurred with respect to such a proceeding, except such liabilities and expenses as are incurred because of such director's or officer's willful misconduct or knowing violation of the criminal law. Article J also provides that unless a determination has been made that indemnification is not permissible, the Company will make advances and reimbursements for expenses reasonably incurred by a director or officer in a proceeding as described above upon receipt of an undertaking from such director or officer to repay the same if it is ultimately determined that such director or officer is not entitled to indemnification. Article J also provides that the determination that indemnification under such Article J is permissible, the authorization of such indemnification (if applicable), and the evaluation as to the reasonableness of expenses in a specific case shall be made as provided by law. Special legal counsel selected to make determinations under such Article J may be counsel for the Company. The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent will not of itself create a presumption that a director or officer acted in such a manner as to make him or her ineligible for indemnification. For the purposes of Article J, every reference to a director or officer includes, without limitation, (i) every individual who is a director or officer of the Company, (ii) an individual who, while a director or officer, is or was serving at the Company's request as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, II-1 partnership, joint venture, trust, employee benefit plan or other enterprise, (iii) an individual who formerly was a director or officer of the Company or who, while a director or officer, occupied at the request of the Company any of the other positions referred to in clause (ii) of this sentence, and (iv) the estate, personal representative, heirs, executors and administrators of a director or officer of the Company or other person referred to herein. Service as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise controlled by the Company shall be deemed service at the request of the Company. A director or officer shall be deemed to be serving an employee benefit plan at the Company's request if such person's duties to the Company also impose duties on, or otherwise involve services by, such person to the plan or to participants in or beneficiaries of the plan. Section 13.1-704(B) of the Virginia Stock Corporation Act provides that a corporation may provide indemnification and make provision for advances and reimbursement of expenses so long as the party who is seeking indemnification, advances or reimbursement did not commit willful misconduct or a knowing violation of criminal law. As provided in Section 7 of the Underwriting Agreement, the Underwriter has agreed, under certain conditions, to indemnify the Company, each of its directors, each of its officers who has signed the Registration Statement and each person who controls the Company within the meaning of the Securities Act of 1933, against certain civil liabilities, including certain civil liabilities under the Act. The Company intends to purchase directors and officers liability insurance in the amount of $5 million. Item 15. Recent Sales of Unregistered Securities. Since the formation of Colonial Downs Holdings, Inc. in November 1996, the Company has issued and sold the following unregistered securities: The Company will issue an aggregate of 750,000 shares of Class A Common Stock and 2,250,000 shares of Class B Common Stock to CD Entertainment Ltd., the shareholders of Stansley Management Corp. and the shareholders of Stansley Racing in exchange for their interests in those entities. No underwriters were engaged in connection with the foregoing sales and/or issuances of securities. Such sales were made in reliance upon the exemption from the registration provisions of the Securities Act set forth in Rule 701 thereunder permitting unregistered sales to employees and consultants, and/or Section 4(2) thereof as transactions not involving a public offering, the respective purchasers thereof having acquired such shares for their respective accounts without a view to the distribution thereof. II-2 Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits Exhibit Number Description 1.1 Form of Underwriting Agreement 2.1 Agreement of Reorganization dated February 12, 1997 3.1 Amended and Restated Articles of Incorporation of Colonial Downs Holdings, Inc. 3.2 Amended and Restated By-laws of Colonial Downs Holdings, Inc. 4.1 Stock certificate representing Colonial Downs Holdings, Inc. Common Stock 5.1 Opinion of Hogan & Hartson L.L.P. regarding the validity of the Common Stock being registered +10.1 Management and Consulting Agreement 10.2 Amended and Restated Performance Guarantee Agreement +10.3 Form of Deed for Track site 10.4 Construction Agreement +10.5 Development Agreement +10.6 Hubbing Agreement +10.7 VHHA SWF Agreement +10.8 VaHBPA SWF Agreement 10.9 Form of Convertible Subordinated Note 10.10 Forms of Employment Agreements +10.11 Form of Stansley Consulting Agreement 10.12 Amended and Restated Promissory Note to CD Entertainment Ltd. 10.13 Agreement for Interim Financing 10.14 Registration Rights Agreement 10.15 Form of Amended and Restated Food and Beverages Concessions Agreement +10.16 Form of 1997 Stock Option Plan 10.17 Agreement for Provision of Credit 11.1 Statement regarding computation of net income per share 21.1 Subsidiaries of the Registrant 23.1 Consent of Hogan & Hartson L.L.P. (included in exhibit 5.1) 23.2 Consent of BDO Seidman, LLP +24.1 Power of attorney +27.1 Financial Data Schedule +99.1 Consents of persons named as directors ============= + Filed previously (b) Financial Statement Schedules The financial statement schedules required to be filed as part of this Registration Statement are listed on the attached Index to Financial Statement Schedules. All other schedules have been omitted because they are inapplicable or the information is provided in the Financial Statements including the Notes thereto included in the Prospectus. II-3 Item 17. Undertakings. The undersigned Registrant hereby undertakes to provide to the Underwriter at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant under the provisions referred to in Item 14 of this Registration Statement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the County of New Kent, Virginia, on the 7th day of March, 1997. COLONIAL DOWNS HOLDINGS, INC. By: /s/ Jeffrey P. Jacobs ------------------------------ Jeffrey P. Jacobs Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment to Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Capacity Date -------- ---- /s/ Jeffrey P. Jacobs Chairman of the Board March 7th, 1997 - -------------------------- and Chief Executive Officer Jeffrey P. Jacobs /s/ Arnold W. Stansley* Secretary and Director March 7th, 1997 - -------------------------- Arnold W. Stansley /s/ Robert H. Hughes Chief Financial Officer March 7th, 1997 - -------------------------- Robert H. Hughes /s/ Michael D. Salmon Controller March 7th, 1997 - -------------------------- Michael D. Salmon * By Jeffrey P. Jacobs, Attorney-in-Fact II-5 EXHIBIT INDEX Exhibit Number Description Page Number - -------------- ----------- ----------- 1.1 Form of Underwriting Agreement 2.1 Agreement of Reorganization dated February 12, 1997 3.1 Amended and Restated Articles of Incorporation of Colonial Downs Holdings, Inc. 3.2 Amended and Restated By-laws of Colonial Downs Holdings, Inc. 4.1 Stock certificate representing Colonial Downs Holdings, Inc. Common Stock 5.1 Opinion of Hogan & Hartson L.L.P. regarding the validity of the Common Stock being registered +10.1 Management and Consulting Agreement 10.2 Amended and Restated Performance Guarantee Agreement +10.3 Form of Deed for Track site 10.4 Construction Agreement +10.5 Development Agreement +10.6 Hubbing Agreement +10.7 VHHA SWF Agreement +10.8 VaHBPA SWF Agreement 10.9 Form of Convertible Subordinated Note 10.10 Forms of Employment Agreements +10.11 Form of Stansley Consulting Agreement 10.12 Amended and Restated Promissory Note to CD Entertainment Ltd. 10.13 Agreement for Interim Financing 10.14 Registration Rights Agreement 10.15 Form of Amended and Restated Food and Beverages Concessions Agreement +10.16 Form of 1997 Stock Option Plan 10.17 Agreement for Provision of Credit 11.1 Statement regarding computation of net income per share 21.1 Subsidiaries of the Registrant 23.1 Consent of Hogan & Hartson L.L.P. (included in exhibit 5.1) 23.2 Consent of BDO Seidman, LLP +24.1 Power of attorney +27.1 Financial Data Schedule +99.1 Consents of persons named as directors ============= + Filed previously EX-1.1 2 UNDERWRITING AGREEMENT COLONIAL DOWNS HOLDINGS, INC. (a Virginia corporation) 4,250,000 Shares of Class A Common Stock (Par Value $.01 Per Share) UNDERWRITING AGREEMENT March , 1997 FRIEDMAN, BILLINGS, RAMSEY & CO., INC. as Representative of the several Underwriters Potomac Tower 1001 Nineteenth Street North Arlington, Virginia 22209 Ladies and Gentlemen: Colonial Downs Holdings, Inc., a corporation organized and existing under the laws of the Commonwealth of Virginia (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several underwriters named in Schedule I hereto (the "Underwriters") an aggregate of 4,250,000 shares (the "Firm Shares") of its Class A common stock, par value $.01 per share (the "Class A Common Stock") and proposes to grant to the Underwriters an option to purchase, for the sole purpose of covering over-allotments in connection with the sale of such shares, up to an additional 637,500 shares (the "Option Shares") of Class A Common Stock. The Firm Shares and any Option Shares purchased by the Underwriters are referred to herein as the "Shares". The Shares are more fully described in the Registration Statement referred to below. This is to confirm the agreement concerning the purchase of the Shares from the Company by the Underwriters. At or prior to the Closing Date (as hereinafter defined), the Company, Colonial Downs, L.P. ("Colonial LP"), Stansley Racing Corp. ("Stansley Racing"), and certain partners and shareholders of such entities will complete a series of transactions described in each of the Preliminary Prospectus and the Prospectus (as each is hereinafter defined) under the heading "The Reorganization." As a result of these transactions, among other things, the Company will acquire direct or indirect ownership of 100% of the capital stock of Stansley Racing and 100% of the partnership interests in Colonial LP and, through Colonial LP and Stansley Racing, will own the ownership and operation licenses for the horse racing track located in New Kent County, Virginia and the satellite wagering facilities in Richmond and Chesapeake, Virginia, the land on which the racetrack is being constructed, the racetrack facilities and infrastructure, and various other assets, all as described in the Prospectus. As used herein, the term "Reorganization" shall mean the occurrence of all the events described in the Prospectus under the heading "The Reorganization" and the other transactions related thereto. As used herein, references to subsidiaries of the Company refer to the entities in which the Company will own, directly or indirectly, a majority of the outstanding shares of capital stock immediately following consummation of the Reorganization. As used in this Agreement, "Effective Time" shall mean the date and the time as of which the registration statement, or the most recent post-effective amendment thereto, if any, was declared effective by the Securities and Exchange Commission (the "Commission"); "Effective Date" shall mean the date of the Effective Time; "preliminary prospectus" shall mean each prospectus included in such registration statement, or amendments thereof, before it became effective under the Securities Act of 1933, as amended (the "Act") and any prospectus filed with the Commission by the Company with the consent of the representative ("Representative") pursuant to Rule 424(a) of the rules and regulations of the Commission thereunder (the "Regulations"); "Registration Statement" shall mean such registration statement, as amended at the Effective Time, including all information contained in the final prospectus filed with the Commission pursuant to Rule 424(b) of the Regulations in accordance with Section 6(a) hereof and deemed to be a part of the registration statement as of the Effective Time pursuant to paragraph (b) of Rule 430A of the Regulations; and "Prospectus" shall mean such final prospectus, as first filed with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Regulations. 1. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Underwriters that: (a) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement, and may have filed an amendment or amendments thereto, on Form S-1 (No. 333-18295), for the registration of the Shares under the Securities Act of 1933, as amended (the "Act") and such registration statement as amended, has been declared effective by the Commission. (b) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will, when they become effective or are filed with the Commission, as the case may be, conform in all material respects to the requirements of the Securities Act and the Regulations and do not and will not, as of the applicable effective date (as to the Registration Statement and any amendment thereto) contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and as of the applicable filing date and on the Closing Date and the Option Closing Date (each as hereinafter defined) (as to the Prospectus and any amendment or supplement thereto) contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. No representation and warranty is made in this subsection (b), however, with respect to any information contained in or omitted from the Registration Statement or the Prospectus or any related preliminary prospectus or any amendment thereof or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through you as herein stated expressly for use in connection with the preparation thereof (that information being limited to that described in the last sentence of Section 7(b) hereof). (c) BDO Seidman, LLP, who have certified the financial statements and supporting schedules included in the Registration Statement, are independent public accountants as required by the Act and the Regulations. (d) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as set forth therein, there has been no material adverse change in the business, prospects, properties, operations, condition (financial or other) or results of operations of the Company and its subsidiaries taken as a whole, whether or not arising from transactions in the ordinary course of business, and since the date of the latest balance sheet presented in the Registration Statement and the Prospectus, neither the Company nor any of its subsidiaries has incurred or undertaken any liabilities or obligations, direct or contingent, which are material to the Company and its subsidiaries taken as a whole, except for liabilities or obligations which are reflected in the Registration Statement and the Prospectus. (e) This Agreement and the transactions contemplated herein have been duly and validly authorized by the Company and this Agreement has been duly and validly executed and delivered by the Company. (f) The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not (i) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default or trigger any acceleration, redemption or repayment right) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any agreement, instrument, franchise, license or permit to which the Company or any of its subsidiaries is a party or by which any of them or their respective properties or assets may be bound or (ii) violate or conflict with any provision of the articles of incorporation, by-laws, certificate of limited partnership or agreement of limited partnership (as applicable) of the Company or any of its subsidiaries or any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets (including without limitation the Virginia Racing Commission). No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets (including without limitation the Virginia Racing Commission) is required for the execution, delivery and performance of this Agreement or the consummation by the Company of the transactions contemplated hereby, including the issuance, sale and delivery of the Shares hereunder, except the registration under the Act of the Shares and such consents, approvals, authorizations, orders, registrations, filings, qualifications, licenses and permits as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters or as will have been obtained on or prior to the Closing Date. Neither the Company nor any of its subsidiaries is in violation of its articles of incorporation, by-laws, certificate of limited partnership or agreement of limited partnership (as applicable), or any agreement, instrument, franchise, license or permit to which the Company or any of its subsidiaries is a party or by which any of them or their respective properties or assets may be bound or any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets except for any such violation which would not individually or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (g) All of the outstanding shares of Common Stock are duly authorized and validly issued, fully paid and nonassessable and were not issued in violation of or subject to any preemptive or similar rights. The Shares, when issued and delivered by the Company in accordance with this Agreement against payment therefor as set forth herein, will be duly authorized and validly issued, fully paid and nonassessable, and will not have been issued in violation of any preemptive or similar rights. The Company has an authorized and outstanding capitalization as set forth in the Prospectus. The authorized capital stock of the Company conforms to the descriptions thereof contained in the Prospectus. Except as described in the Prospectus, no dividend or distribution of any kind on any class of capital stock of the Company or any subsidiary has been declared, paid or made. The outstanding shares of capital stock or partnership interests, as applicable, of each subsidiary have been duly authorized, validly issued and are fully paid and nonassessable and were not issued in violation of preemptive or similar rights and, upon consummation of the Reorganization, will be owned directly or indirectly by the Company, free and clear of any lien, encumbrance, claim, security interest, restriction on transfer, stockholders' agreement, voting trust or other defect of title whatsoever (other than restrictions imposed under the Virginia Racing Act). (h) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation or limited partnership, as applicable, in good standing under the laws of its jurisdiction of organization. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries has all requisite corporate or partnership power and authority, and all necessary consents, approvals, authorizations, orders, registrations, qualifications, licenses and permits of and from all public, regulatory or governmental agencies and bodies (including without limitation the Virginia Racing Commission), to own, lease and operate its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus, other than any such consent, approval, authorization, order, registration, qualification, license, or permit the lack of which would not, individually or in the aggregate, have a material adverse effect on the Company and its subsidiaries taken as a whole, and no such consent, approval, authorization, order, registration, qualification, license or permit contains a materially burdensome restriction not adequately disclosed in the Registration Statement and the Prospectus. (i) Except as described in the Prospectus, there is no litigation or governmental proceeding to which the Company or any of its subsidiaries is a party or to which any property of the Company or any of its subsidiaries is subject or which is pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries which might result in any material adverse change in the business, prospects, properties, operations, condition (financial or other) or results of operations of the Company and its subsidiaries taken as a whole or which is required to be disclosed in the Registration Statement and the Prospectus. (j) Neither the Company nor any of its subsidiaries nor any of their respective directors, officers or controlling persons has taken or will take, directly or indirectly, any action designed to cause or result in, or which constitutes or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company to facilitate the sale or resale of the Shares. (k) The financial statements, including the notes thereto, included in the Registration Statement and the Prospectus present fairly the financial position of the Company as of the dates indicated and the results of its operations and cash flows for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the financial statement schedules included in the Registration Statement present fairly the information required to be stated therein. (l) Except as described in the Prospectus, no holder of securities of the Company has any rights to the registration under the Act of securities of the Company. (m) Neither the Company nor any of its subsidiaries is, and upon consummation of the transactions contemplated hereby will be, an "investment company" under the Investment Company Act of 1940. (n) Except as described in the Prospectus, there are no business relationships or related party transactions required to be disclosed therein by Item 404 of Regulation S-K of the Regulations. There are no contracts or agreements which are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits thereto which have not been so described or filed. (o) Except as described in the Prospectus, there are no agreements, arrangements or understandings between the Company and any person that would give rise to a valid claim against the Company, the Representative or any Underwriter for a broker's commission, finder's fee or similar payment in connection with the purchase and sale of the Shares hereunder. (p) The Company and its subsidiaries have good and marketable title to all real property and other property and assets owned by them, in each case free of any liens, claims, encumbrances or defects in title that would materially affect the value or use thereof as contemplated by the Company, except as described in the Prospectus; and the Company and its subsidiaries hold all real and personal property leased by them under valid and enforceable leases with no exceptions that would materially interfere with the use thereof except as described in the Prospectus. (q) Except as described in the Prospectus, (i) there has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any of its subsidiaries (or, to the knowledge of the Company, any of their predecessors owned, leased or operated by the Company or any of its subsidiaries in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require any removal, remedial or other response action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or response action which would not have singularly or in the aggregate with all such violations and response actions, a material adverse effect on the Company and its subsidiaries taken as a whole; (ii) there has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any of its subsidiaries (or, to the knowledge of the Company, any of their predecessors in interest) at or upon any property owned by anyone else in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require any removal, remedial or other response action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or response action which would not have singularly or in the aggregate with all such violations and response actions, a material adverse effect on the Company and its subsidiaries taken as a whole; and (iii) there has been no spill, discharge, leak, emission, injection, escape, placement, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by the Company or any of its subsidiaries or with respect to which the Company or any of its subsidiaries has knowledge, except for any such spill, discharge, leak, emission, injection, escape, placement, dumping or release which would not singularly or in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. As used in this paragraph, the terms "hazardous wastes," "toxic wastes," "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection. The Company is not aware of any factual circumstances or pending investigation which could reasonably be expected to lead to a claim of any such violation. (r) The Commission has not issued an order preventing or suspending the use of the Registration Statement or any Prospectus. (s) Each preliminary prospectus and the Prospectus as originally filed or as part of any amendment to the Registration Statement, or filed pursuant to Rule 424(b) under the Act, was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (t) The Company and its subsidiaries have filed all federal, state and foreign income and other tax returns required to be filed by them, and have paid all taxes due in respect of such returns, other than any returns or taxes, the failure to file or pay which would not, individually or in the aggregate, have a material adverse effect on the Company and its subsidiaries taken as a whole. (u) The Company and its subsidiaries are in compliance with the provisions of Section 517.075 of the Florida statutes and the rules and regulations thereunder, or are exempt from the requirements thereof. 2. Purchase, Sale and Delivery of the Shares. (a) On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter and each Underwriter, severally and not jointly, agree to purchase from the Company, at a purchase price per share of $ _______, the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I plus any additional number of Shares which such Underwriter may become obligated to purchase pursuant to the provisions of Section 9 hereof. Payment of the purchase price for, and delivery of certificates for, the Shares shall be made at the offices of Friedman, Billings, Ramsey & Co., Inc., Potomac Tower, 1001 19th Street North, 18th Floor, Arlington, Virginia 22209, or at such other place as shall be agreed upon by you and the Company, at 10:00 A.M. Eastern time on March , 1997 (unless postponed in accordance with the provisions of Section 9 hereof) or such other time as shall be agreed upon by you and the Company (such time and date of payment and delivery being herein called the "Closing Date"). Payment shall be made to the Company by wire transfer of immediately available funds to an account previously designated in writing to you by the Company, against delivery to you or a representative designated by you in writing for the respective accounts of the Underwriters of certificates for the Shares to be purchased by them. Certificates for the Shares shall be registered in such name or names and in such authorized denominations as you may request in writing at least two full business days prior to the Closing Date. The Company will permit you to examine and package such certificates for delivery at least one full business day prior to the Closing Date. (b) In addition, the Company hereby grants to the Underwriters the option to purchase up to an aggregate of 637,500 Option Shares at the same purchase price per share to be paid by the Underwriters to the Company for the Firm Shares as set forth in this Section 2, for the sole purpose of covering over-allotments in the sale of Firm Shares by the Underwriters. This option may be exercised at any time, in whole or in part, on or before the thirtieth day following the date hereof, by written notice by you to the Company. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time, as reasonably determined by you, when the Option Shares are to be delivered (such date and time being herein sometimes referred to as the "Option Closing Date"); provided, however, that the Option Closing Date shall not be earlier than the Closing Date or earlier than the second full business day after the date on which the option shall have been exercised nor later than the eighth full business day after the date on which the option shall have been exercised (unless such time and date are postponed in accordance with the provisions of Section 9 hereof). Certificates for the Option Shares shall be registered in such name or names and in such authorized denominations as you may request in writing at least two full business days prior to the Option Closing Date. The Company will permit you to examine and package such certificates for delivery at least one full business day prior to the Option Closing Date. The number of Option Shares to be sold to each Underwriter shall be the number which bears the same ratio to the aggregate number of Option Shares being purchased as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number increased as set forth in Section 9 hereof) bears to 4,250,000, subject, however, to such adjustments to eliminate any fractional shares as you in your sole discretion shall make. Payment for the Option Shares shall be made by wire transfer of immediately available funds to an account previously designated in writing to you by the Company against delivery of the certificates for the Option Shares to you or a representative designated by you in writing for the respective accounts of the Underwriters. 3. Offering. It is understood that the Underwriters propose to offer the Shares for sale to the public upon the terms set forth in the Prospectus. 4. Covenants of the Company. The Company covenants and agrees with the Underwriters that: (a) The Company will prepare the Prospectus in a form approved by you and file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act. The Company will notify you immediately (and, if requested by you, will confirm such notice in writing) (i) when any amendments to the Registration Statement become effective, (ii) of any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for any additional information, (iii) of the mailing or the delivery to the Commission for filing of any amendment of or supplement to the Registration Statement or the Prospectus, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or of the initiation, or the threatening, of any proceedings therefor, (v) of the receipt of any comments from the Commission, and (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for that purpose. If the Commission shall propose or enter a stop order at any time, the Company will make every reasonable effort to prevent the issuance of any such stop order and, if issued, to obtain the lifting of such order as soon as possible. The Company will not file any amendment to the Registration Statement or any amendment of or supplement to the Prospectus to which you shall reasonably object in writing after being timely furnished in advance a copy thereof. (b) If any time when a prospectus relating to the Shares is required to be delivered under the Act any event shall have occurred as a result of which the Prospectus as then amended or supplemented includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it shall be necessary at any time to amend or supplement the Prospectus or Registration Statement to comply with the Act or the Regulations, the Company will notify you promptly and prepare and file with the Commission an appropriate amendment or supplement (in form and substance satisfactory to you) which will correct such statement or omission and will use its best efforts to have any amendment to the Registration Statement declared effective as soon as possible. (c) The Company will promptly deliver to you two signed copies of the Registration Statement, including exhibits and all amendments thereto, and the Company will promptly deliver to each of the Underwriters such number of copies of any preliminary prospectus, the Prospectus, the Registration Statement, and all amendments of and supplements to such documents, if any, as you may reasonably request. The copies of the Registration Statement, the Prospectus, and each amendment and supplement thereto delivered to you will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR except to the extent permitted by Regulation S-T. (d) The Company will endeavor in good faith, in cooperation with you, at or prior to the time of effectiveness of the Registration Statement, to qualify the Shares for offering and sale under the securities laws relating to the offering or sale of the Shares of such jurisdictions as you may designate and to maintain such qualification in effect for so long as required for the distribution thereof; except that in no event shall the Company be obligated in connection therewith to qualify as a foreign corporation or to execute a general consent to service of process. (e) The Company will make generally available (within the meaning of Section 11(a) of the Act) to its security holders and to you as soon as practicable, but not later than 45 days after the end of its fiscal quarter in which the first anniversary date of the effective date of the Registration Statement occurs, an earnings statement (in form complying with the provisions of Rule 158 of the Regulations) covering a period of at least twelve consecutive months beginning after the effective date of the Registration Statement. (f) During the period ending on the later of (i) 180 days following the consummation of the Offering and (ii) the date on which the Company has four satellite wagering facilities (excluding satellite wagering facility operations at the track) in operation, the Company will not, without your prior written consent, issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any Class A Common Stock (or any securities convertible into, exercisable for or exchangeable for Class A Common Stock, other than options issued pursuant to the Company's Stock Option Plan), and the Company will obtain the undertaking of each of its officers and directors and such of its stockholders as have been heretofore designated by you and listed on Schedule II attached hereto not to engage in any of the aforementioned transactions on their own behalf, other than the Company's sale of Shares hereunder, the Company's issuance of Class A Common Stock upon the exercise of presently outstanding stock options or warrants and the conversion of outstanding convertible securities. (g) During a period of three years from the Effective Date; the Company will furnish to you copies of (i) all reports to its stockholders, (ii) all public reports, financial statements and proxy or information statements filed by the Company with the Commission or any national securities exchange and (iii) from time to time such other information concerning the Company as you may reasonably request. (h) The Company will apply the proceeds from the sale of the Shares as set forth under "Use of Proceeds" in the Prospectus. (i) The Company will use its best efforts to cause the Shares to be authorized for quotation on The NASDAQ National Market. (j) The Company will file with the Commission such reports on Form SR as may be required pursuant to Rule 463 of the Regulations. 5. Payment of Expenses. Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, the Company hereby agrees to pay all costs and expenses incident to the performance of the obligations of the Company hereunder, including those in connection with (i) preparing, printing, duplicating, filing and distributing the Registration Statement, as originally filed and all amendments thereof (including all exhibits thereto), any preliminary prospectus, the Prospectus and any amendments or supplements thereto (including, without limitation, fees and expenses of the Company's accountants and counsel), the underwriting documents (including this Agreement and the agreement among underwriters and all other documents related to the public offering of the Shares (including those supplied to the Underwriters in quantities as hereinabove stated), (ii) the issuance, transfer and delivery of the Shares to the Underwriters, including any transfer or other taxes payable thereon, (iii) the qualification of the Shares under state or foreign securities or Blue Sky laws, including the costs of printing and mailing a preliminary and final "Blue Sky Survey" and the fees of counsel for the Underwriters and such counsel's disbursements in relation thereto, (iv) quotation of the Shares on The NASDAQ National Market, (v) filing fees of the Commission and the National Association of Securities Dealers, Inc., (vi) the cost of printing certificates representing the Shares and (vii) the cost and charges of any transfer agent or registrar. 6. Conditions of Underwriters' Obligations. The obligations of the Underwriters to purchase and pay for the Firm Shares and the Option Shares, as provided herein, shall be subject to the accuracy of the representations and warranties of the Company herein contained, as of the date hereof and as of the Closing Date (for purposes of this Section 6 "Closing Date" shall refer to the Closing Date for the Firm Shares and the "Option Closing Date" shall refer to the closing date for the Option Shares), to the performance by the Company of its obligations hereunder, and to the following additional conditions: (a) The Prospectus shall have been filed with the Commission in a timely fashion in accordance with Section 4(a) hereof; and, at or prior to the Closing Date no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof shall have been issued and no proceedings therefor shall have been initiated or threatened by the Commission. (b) At the Closing Date you shall have received the opinion of Hogan & Hartson L.L.P., special counsel for the Company, dated the Closing Date, addressed to the Underwriters and in form and substance satisfactory to you, to the effect that: (i) The Company was incorporated, and is validly existing and in good standing as of a date reasonably close to the Closing Date, under the laws of the Commonwealth of Virginia. The Company has the corporate power and authority, under its Amended and Restated Articles of Incorporation, Amended and Restated By-laws and the Virginia Stock Corporation Act, to own, lease and operate its current properties and to conduct its business as described in the Prospectus. (ii) When issued in accordance with the provisions of this Agreement, the Shares will be validly issued, fully paid and non-assessable and will not have been issued in violation of any preemptive or similar right. The form of certificate evidencing the Shares complies with the applicable requirements of the Virginia Stock Corporation Act and the Company's Amended and Restated By-laws. (iii) The Registration Statement has become effective under the Act, the required filings of the Prospectus pursuant to Rule 424(b) promulgated pursuant to the Act have been made in the manner and within the time period required by Rule 424(b) and, to our knowledge, no stop order suspending the effectiveness of the Registration Statement or suspending or preventing the use of the Prospectus has been issued and no proceedings for that purpose have been instituted or are threatened by the Commission. (iv) The Registration Statement and the Prospectus (except for the financial statements and supporting schedules included therein, as to which we express no opinion) comply as to form on the Effective Date and the Closing Date in all material respects with the requirements of the Act and the Regulations. (v) The information in the Prospectus under the captions "Description of Capital Stock" and "Shares Eligible for Future Sale," to the extent that such information constitutes matters of law or legal conclusions, has been reviewed by us, and fairly present the information called for with respect to such matters or conclusions. The Shares conform to the description thereof set forth in the Prospectus under the caption "Description of Capital Stock - Class A Common Stock." (vi) The execution, delivery and performance as of the date hereof by the Company of the Agreement do not violate the Virginia Stock Corporation Act or the Amended and Restated Articles of Incorporation or Amended and Restated Bylaws of the Company. (vii) No approval or consent of, or registration or filing with, the Commission or the Virginia Corporation Commission is required to be obtained or made by the Company in connection with the execution, delivery and performance as of the date hereof by the Company of this Agreement, other than (x) such as may be required by state securities or Blue Sky law (as to which such counsel need express no opinion) and (y) such as have been made or obtained on or before the Closing Date. (viii) The Shares have been authorized for inclusion in The NASDAQ National Market. (ix) Neither the Company nor any of its subsidiaries is, after giving effect to the Reorganization and the consummation of the transactions contemplated hereby, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. In rendering such opinion, such counsel may (i) state that its opinion is based, as to matters of law, solely on the applicable provisions of the federal securities laws of the United States of America and the corporate laws of the Commonwealth of Virginia; and (ii) rely, as to matters of act, on certificates of responsible officers of the Company or its subsidiaries to the extent such counsel deems proper and certificates or other written statements of officers of public agencies, without independent investigation, provided that copies of such certificates or other written statements are furnished to counsel for the Underwriters. Such opinion shall also include a statement to the effect that (x) during the course of the preparation of the Registration Statement, such counsel participated in conferences with officers and other representatives of the Company, with representatives of the independent public accountants of the Company and with you and your representatives and (y) while such counsel does not assume responsibility for the accuracy, completeness, or fairness of the statements in the Registration Statement or Prospectus, such counsel may state on the basis of these conferences and its activities as counsel to the Company in connection with the Registration Statement that no facts have come to its attention which cause it to believe that (i) the Registration Statement, at the Effective Time, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or that the Prospectus, as of the Closing Date, contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, (ii) there are any legal or governmental proceedings pending or threatened against the Company that are required to be disclosed in the Registration Statement or the Prospectus, other than those disclosed therein, or (iii) there are any contracts or documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or referred to therein or so filed, provided that in making the foregoing statements, such counsel shall not be required to express any views as to the financial statements and schedules and other financial and statistical information and data included in or omitted from the Registration Statement or the Prospectus. (c) At the Closing Date you shall have received the opinion of Hirschler, Fleischer, Weinberg, Cox & Allen, counsel for the Company, dated the Closing Date, addressed to the Underwriters and in form and substance reasonably satisfactory to you, to the effect that: (i) Each of the Company and its subsidiaries has been duly organized and is validly existing as a corporation or limited partnership, as applicable, and is in good standing under the laws of its jurisdiction of organization. Each of the Company and its subsidiaries is duly qualified and in good standing as a foreign corporation or limited partnership, as applicable, in each jurisdiction, if any, in which the character or location of its properties (owned, leased or licensed) or the nature or conduct of its business makes such qualification necessary, except for those failures to be so qualified or in good standing which will not in the aggregate have a material adverse effect on the Company and its subsidiaries taken as a whole. Each of the Company and its subsidiaries has all requisite corporate authority to own, lease and license its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus. The Reorganization has become effective in accordance with the Agreement and Plan of Reorganization All of the issued and outstanding capital stock or partnership interests of each subsidiary of the Company have been duly authorized and validly issued and are fully paid nonassessable and to such counsel's knowledge (A) such shares of capital stock or partnership interests were not issued in violation of any preemptive or similar rights, and (B) no options, warrants or other rights to purchase or acquire shares of capital stock, partnership interests or other equity interests of the Company or its subsidiaries, or any right or interest convertible into or exchangeable for any of the foregoing are outstanding, except as described in the Registration Statement and the Prospectus. (ii) The Company has an authorized capital stock as set forth in the Registration Statement and the Prospectus. All of the outstanding shares of Common Stock are duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights. The Common Stock conforms to the descriptions thereof contained in the Registration Statement and the Prospectus. (iii) This Agreement has been duly authorized, executed and delivered by the Company. (iv) There is no litigation or governmental or other action, suit, proceeding or investigation before any court or before or by any public, regulatory or governmental agency or body pending or, to such counsel's knowledge, threatened against, or involving the properties or business of, the Company or any of its subsidiaries, which is of a character required to be disclosed in the Registration Statement and the Prospectus which has not been properly disclosed therein. (v) The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby by the Company do not and will not (A) conflict with or result in a breach of any of the terms and provisions of, or constitute a default (or an event which with notice or lapse of time, or both, would constitute a default) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any agreement, instrument, franchise, license or permit known to such counsel to which the Company or any of its subsidiaries is a party or by which any of such entities or their respective properties or assets may be bound or (B) violate or conflict with any provision of the certificate of incorporation or by-laws or limited partnership agreement of any of its subsidiaries, or, to the knowledge of such counsel, any judgment, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets (including without limitation the Virginia Racing Commission). No consent, approval, authorization, order, registration, filing, qualification, license or permit of or with any court or any public, governmental, or regulatory agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets (including without limitation the Virginia Racing Commission) is required for the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby, except for (1) such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters (as to which such counsel need express no opinion) and (2) such as have been made or obtained under the Act. (vi) The statements under the captions "Risk Factors," "The Reorganization," "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview," "Business -- The Track and Track Facilities," "Business -- Satellite Wagering Facilities," "Business -- Simulcasting," "Business -- Live Racing," "Business -- Purse Structure and Guarantees," "Business -- The Company's Licenses," "Business -- Virginia-Maryland Thoroughbred Racing Circuit," "Business -- Legal Proceeding," "Certain Transactions," "Description of Certain Indebtedness," and "Underwriting" in the Prospectus, and Items 14 and 15 of Part II of the Registration Statement, insofar as such statements constitute a summary of legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings. (vii) Delivery of certificates for the Shares will transfer valid and marketable title thereto to each Underwriter that has purchased such Shares in good faith and such counsel is not aware, after due inquiry, of any adverse claim with respect thereto, and such Shares are free and clear of all liens, encumbrances and claims. (viii) To the knowledge of such counsel, after due inquiry, no holder of any security of the Company has or will have any right to require registration of any security of the Company under the Act by virtue of the transactions contemplated by this Agreement. (ix) Colonial Downs, L.P., as owner, and Stansley Racing Corp., as operator, each holds valid and existing licenses, respectively, under the Virginia Racing Act, and approvals by the Virginia Racing Commission, to conduct thoroughbred and standardbred horse racing with parimutuel wagering, and own and operate satellite wagering facilities, as described in the Registration Statement and the Prospectus, each of which licenses and approvals are in full force and effect; the direct and indirect ownership of the capital stock of the Company as described in the Prospectus does not violate or conflict with the Virginia Racing Act; no proceeding, investigation or inquiry is pending or to such counsel's knowledge threatened to modify, suspend or revoke any of such licenses and approvals; and except as disclosed in the Registration Statement and the Prospectus, to the knowledge of such counsel, no change in any law or regulation is pending which could reasonably be expected to have a material adverse effect on the Company and its subsidiaries. (x) The Underwriters are not required to be licensed or approved by the Virginia Racing Commission as a result of the execution of this Agreement or the consummation of the transactions contemplated hereby. (xi) Such opinion shall also include a statement to the effect that (x) during the course of the preparation of the Registration Statement, such counsel participated in conferences with officers and other representatives of the Company, with representatives of the independent public accountants of the Company and with you and your representatives and (y) while such counsel does not assume responsibility for the accuracy, completeness, or fairness of the statements in the Registration Statement or Prospectus, such counsel may state on the basis of these conferences and its activities as counsel to the Company in connection with the Registration Statement that no facts have come to its attention which cause it to believe that (i) the Registration Statement, at the Effective Time, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or that the Prospectus, as of the Closing Date, contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, (ii) there are any legal or governmental proceedings pending or threatened against the Company that are required to be disclosed in the Registration Statement or the Prospectus, other than those disclosed therein, or (iii) there are any contracts or documents of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or referred to therein or so filed, provided that in making the foregoing statements, such counsel shall not be required to express any views as to the financial statements and schedules and other financial and statistical information and data included in or omitted from the Registration Statement or the Prospectus. (d) All proceedings taken in connection with the sale of the Firm Shares and the Option Shares as herein contemplated shall be reasonably satisfactory in form and substance to you and to Underwriters' counsel, and the Underwriters shall have received from said Underwriters' counsel a favorable opinion, dated as of the Closing Date with respect to the issuance and sale of the Shares, the Registration Statement and the Prospectus and such other related matters as you may reasonably require, and the Company shall have furnished to Underwriters' counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. (e) At the Closing Date you shall have received a certificate of the Chief Executive Officer and the Chief Financial Officer of the Company, dated the Closing Date to the effect that (i) the condition set forth in subsection (a) of this Section 6 has been satisfied, (ii) as of the date hereof and as of the Closing Date the representations and warranties of the Company set forth in Section 1 hereof are accurate, (iii) as of the Closing Date the obligations of the Company to be performed hereunder on or prior thereto have been duly performed and (iv) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, the Company and its subsidiaries have not sustained any material loss or interference with their respective businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding, and there has not been any material adverse change in the business prospects, properties, operations, condition (financial or otherwise), or results of operations of the Company and its subsidiaries taken as a whole, except in each case as described in or contemplated by the Prospectus. (f) At the time this Agreement is executed and at the Closing Date, you shall have received letters, from BDO Seidman, LLP, independent public accountants for the Company, dated, respectively, as of the date of this Agreement and as of the Closing Date addressed to the Underwriters and in form and substance satisfactory to you, to the effect that: (i) they are independent public accountants with respect to the Company within the meaning of the Act and the Regulations and stating that the answer to Item 10 of the Registration Statement is correct insofar as it relates to them; (ii) stating that, in their opinion, the audited consolidated financial statements of the Company, and schedules and notes thereto, included in the Registration Statement and the Prospectus and reported on by them comply as to form in all material respects with the applicable accounting requirements of the Act and the applicable published rules and regulations of the Commission thereunder; (iii) on the basis of procedures consisting of a reading of the latest available unaudited consolidated financial statements of the Company and its subsidiaries, a reading of the minutes of meetings and consents of the stockholders and boards of directors of the Company and its subsidiaries and the committees of such boards subsequent to December 31, 1996, inquiries of officers and other employees of the Company and its subsidiaries who have responsibility for financial and accounting matters of the Company and its subsidiaries with respect to transactions and events subsequent to December 31, 1996 and other specified procedures and inquiries to a date not more than five days prior to the date of such letter, nothing has come to their attention that would cause them to believe that: (A) the unaudited consolidated financial statements and schedules of the Company and its subsidiaries presented in the Registration Statement and the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the applicable published rules and regulations of the Commission thereunder or that such unaudited financial statements are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement and the Prospectus; (B) with respect to the period subsequent to December 31, 1996, there were, as of the date of the most recent available monthly consolidated financial statements of the Company and its subsidiaries, if any, and as of a specified date not more than five days prior to the date of such letter, any changes in the capital stock or long-term indebtedness of the Company or any decrease in the net current assets or stockholders' equity of the Company, in each case as compared with the amounts shown in the most recent balance sheet presented in the Registration Statement and the Prospectus, except for changes or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter; or (C) that during the period from December 31, 1996 to the date of the most recent available monthly consolidated financial statements of the Company and its subsidiaries, if any, and to a specified date not more than five days prior to the date of such letter, there was any decrease, as compared with the corresponding period in the prior fiscal year, in total revenues, or total or per share net income, except for decreases which the Registration Statement and the Prospectus disclose have occurred or may occur or which are set forth in such letter; and (iv) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, and other financial information pertaining to the Company and its subsidiaries set forth in the Registration Statement and the Prospectus, which have been specified by you prior to the date of this Agreement, to the extent that such amounts, numbers, percentages, and information may be derived from the general accounting and financial records of the Company and its subsidiaries or from schedules furnished by the Company, and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries, and other appropriate procedures specified by you set forth in such letter, and found them to be in agreement. (g) Prior to the Closing Date the Company shall have furnished to you such further information, certificates and documents as you may reasonably request. (h) You shall have received from each person who is a director or officer of the Company or such stockholder as have been heretofore designated by you and listed on Schedule II hereto an agreement in the form attached as Appendix A hereto. (i) At the Closing Date, the Shares shall have been approved for quotation on The NASDAQ National Market. (j) The Company shall have obtained a letter of credit having a maximum available amount of at least $6.5 million as described in the Prospectus upon terms and conditions reasonably satisfactory to FBR and all conditions to drawing thereunder (other than delivery of drawing certificates and drafts to be presented at the time of each drawing) shall have been satisfied. (k) Immediately prior to the Closing, CD Entertainment, Ltd shall have purchased and the Company shall have issued a convertible subordinated note in the principal amount of $5.5 million upon the terms and conditions described in the Prospectus. (l) The Reorganization shall have been consummated as described in the Prospectus. If any of the conditions specified in this Section 6 shall not have been fulfilled when and as required by this Agreement, or if any of the certificates, opinions, written statements or letters furnished to you or to Underwriters' Counsel pursuant to this Section 6 shall not be in all material respects reasonably satisfactory in form and substance to you and to Underwriters' Counsel, all obligations of the Underwriters hereunder may be canceled by you at, or at any time prior to, the Closing Date and the obligations of the Underwriters to purchase the Option Shares may be canceled by you at, or any time prior to, the Option Closing Date. Notice of such cancellation shall be given to the company in writing, or by telephone, telex or telegraph, confirmed in writing. 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any and all losses, liabilities, claims, damages and expenses whatsoever as incurred (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), joint or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Shares, as originally filed or any amendment thereof, or any related preliminary prospectus or the Prospectus, or in any supplement thereto or amendment thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent but only to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein (it being understood that such information is limited to the information described in the last sentence of Section 7(b) hereof) provided further, that the foregoing indemnity with respect to any preliminary prospectus shall not inure to the benefit of any Underwriter from whom the person asserting any such loss, claim, damage or liability purchased the Shares which are the subject thereof if such person did not receive a copy of the Prospectus (or the Prospectus as supplemented) at or prior to the confirmation of the sale of such Shares to such person in any case where such delivery is required by the Act and the untrue statement or omission of a material fact contained in such preliminary prospectus was corrected in the Prospectus (or the Prospectus as supplemented) and such Prospectus or supplement was prepared with the consent of the Representative and furnished to the Underwriters prior to the Closing Date (or the Option Closing Date), unless such failure resulted from the Company's failure to comply with Section 4(b) hereof. This indemnity agreement will be in addition to any liability which the Company may otherwise have including under this Agreement. (b) Each Underwriter severally, and not jointly, agrees to indemnify and hold harmless the Company, each of the directors of the Company, each of the officers of the Company who shall have signed the Registration Statement, and each other person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against any losses, liabilities, claims, damages and expenses whatsoever as incurred (including but not limited to attorneys' fees and any and all expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all amounts paid in settlement of any claim or litigation), jointly or several, to which they or any of them may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages or expenses (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Shares, as originally filed or any amendment thereof, or any related preliminary prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through you expressly for use therein. This indemnity will be in addition to any liability which any Underwriter may otherwise have including under this Agreement. The Company acknowledges that the statements set forth in the last paragraph of the cover page, the stabilization language on the inside of the front cover page and the statements under the caption "Underwriting" (to the extent such statements relate to the Underwriters) in the Prospectus constitute the only information furnished in writing by or on behalf of any Underwriter expressly for use in the registration statement relating to the Shares as originally filed or in any amendment thereof, any related preliminary prospectus or the Prospectus or in any amendment thereof or supplement thereto, as the case may be. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify each party against whom indemnification is to be sought in writing of the commencement thereof (but the failure so to notify an indemnifying party shall not relieve it from any liability which it may have under this Section 7). In case any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party or parties shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such indemnified party or parties. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Representative shall have the right to employ a single counsel to represent jointly the Representative and those other Underwriters and their respective officers, employees and controlling persons who may be subject to liability arising out f any claim in respect of which indemnity may be sought by the Underwriters against the Company under this Section 7 if, in the reasonable judgment of the Representative, it is advisable for the Representative and those Underwriters, officers, employees and controlling persons to be jointly represented by separate counsel, and in the event the fees and expenses of such separate counsel shall be paid by the Company. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld or delayed), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld or delayed), but if action is settled with the consent of the indemnifying party or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. 8. Contribution. In order to provide for contribution in circumstances in which the indemnification provided for in Section 7 hereof is for any reason held to be unavailable from any indemnifying party or is insufficient to hold harmless a party indemnified thereunder, the Company and the Underwriters shall contribute to the aggregate losses, claims, damages, liabilities and expenses of the nature contemplated by such indemnification provision (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting in the case of losses, claims, damages, liabilities and expenses suffered by the Company any contribution received by the Company from persons, other than the Underwriters, who may also be liable for contribution, including persons who control the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, officers of the Company who signed the Registration Statement and directors of the Company) as incurred to which the Company and one or more of the Underwriters may be subject, in such proportions as is appropriate to reflect the relative benefits received by the Company and the Underwriters from the offering of the Shares or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in Section 7 hereof, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company and the Underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as (x) the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and (y) the underwriting discounts and commissions received by the Underwriters, respectively, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Company and of the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this Section 8, no person guilty of such fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 8, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. For purposes of this Section 8, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to this Section 8. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties, notify each party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 8 or otherwise. No party shall be liable for contribution with respect to any action or claim settled without its consent; provided, however, that such consent was not unreasonably withheld. 9. Default by an Underwriter. (a) If any Underwriter or Underwriters shall default in its or their obligation to purchase Firm Shares or Option Shares hereunder, and if the Firm Shares or Option Shares with respect to which such default relates do not (after giving effect to arrangements, if any, made by you pursuant to subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares or Option Shares, to which the default relates shall be purchased by the non-defaulting Underwriters in proportion to the respective proportions which the numbers of Firm Shares set forth opposite their respective names in Schedule I hereto bear to the aggregate number of Firm Shares set forth opposite the names of the non-defaulting Underwriters. (b) In the event that such default relates to more than 10% of the Firm Shares or Option Shares, as the case may be, you may in your discretion arrange for yourself or for another party or parties (including any non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm Shares or Option Shares, as the case may be, to which such default relates on the terms contained herein. In the event that within five calendar days after such a default you do not arrange for the purchase of the Firm Shares or Option Shares, as the case may be, to which such default relates as provided in this Section 9, this Agreement or, in the case of a default with respect to the Option Shares, the obligations of the Underwriters to purchase and of the Company to sell the Option Shares shall thereupon terminate, without liability on the part of the Company with respect thereto (except in each case as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in this Agreement shall relieve a defaulting Underwriter or Underwriters of its or their liability, if any, to the other Underwriters and the Company for damages occasioned by its or their default hereunder. (c) In the event that the Firm Shares or Option Shares to which the default relates are to be purchased by the non-defaulting Underwriters, or are to be purchased by another party or parties as aforesaid, you or the Company shall have the right to postpone the Closing Date or Option Closing Date, as the case may be for a period, not exceeding five business days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus or in any other documents and arrangements, and the Company agrees to file promptly any amendment or supplement to the Registration Statement or the Prospectus which in the opinion of the Underwriters' Counsel, may thereby be made necessary or advisable. The term "Underwriter" as used in this Agreement shall include any party substituted under this Section 9 with like effect as it if had originally been a party to this Agreement with respect to such Firm Shares and Option Shares. 10. Survival of Representations and Agreements. All representations and warranties, covenants and agreements of the Underwriters and the Company contained in this Agreement, including the agreements contained in Section 5, the indemnity agreements contained in Section 7 and the contribution agreements contained in Section 8, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any controlling person thereof or by or on behalf of the Company, any of its officers and directors or any controlling person thereof, and shall survive delivery of and payment for the Shares to and by the Underwriters. The representations contained in Section 1 and the agreements contained in Sections 5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement, including termination pursuant to Section 9 or 11 hereof. 11. Effective Date of Agreement; Termination. (a) This Agreement shall become effective, upon the execution of this Agreement. Until this Agreement becomes effective as aforesaid, it may be terminated by the Company by notifying you or by you notifying the Company. Notwithstanding the foregoing, the provisions of this Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in full force and effect. (b) You shall have the right to terminate this Agreement at any time prior to the Closing Date or the obligations of the Underwriters to purchase the Option Shares at any time prior to the Option Closing Date, as the case may be, if (A) any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, the market for the Company's securities or securities in general; or (B) if trading on the New York or American Stock Exchanges shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, on the New York or American Stock Exchanges by the New York or American Stock Exchanges or by order of the Commission or any other governmental authority having jurisdiction; or (C) if a banking moratorium has been declared by a state or federal authority or if any new restriction materially adversely affecting the distribution of the Firm Shares or the Option Shares, as the case may be, shall have become effective; or (D) (i) if the United States becomes engaged in hostilities or there is an escalation of hostilities involving the United States or there is a declaration of a national emergency or war by the United States or (ii) if there shall have been such change in political, financial or economic conditions if the effect of any such event in clause (b)(D)(i) or (b)(D)(ii) as in your judgment makes it impracticable or inadvisable to proceed with the offering, sale and delivery of the Firm Shares or the Option Shares, as the case may be, on the terms contemplated by the Prospectus. (c) Any notice of termination pursuant to this Section 11 shall be by telephone, telex, or telegraph, confirmed in writing by letter. (d) If this Agreement shall be terminated pursuant to any of the provisions hereof (otherwise than pursuant to (i) notification by you as provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if the sale of the Shares provided for herein is not consummated because any condition to the obligations of the Underwriters set forth herein is not satisfied or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof, the Company will, subject to demand by you, reimburse the Underwriters for all out-of-pocket expenses (including the fees and expenses of their counsel), incurred by the Underwriters in connection herewith. 12. Notice. All communications hereunder, except as may be otherwise specifically provided herein, shall be in writing and, if sent to any Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed in writing, to such Underwriter c/o Friedman, Billings, Ramsey & Co., Inc., Potomac Tower, 1001 19th Street North, 18th Floor, Arlington, Virginia 22209, Attention: James Kleeblatt; if sent to the Company, shall be mailed, delivered, or telegraphed and confirmed in writing to the Company, 3610 N. Courthouse Road, Providence Forge, Virginia 23140, Attention: Jeffrey P. Jacobs, Chairman and Chief Executive Officer. 13. Parties. This Agreement shall inure solely to the benefit of, and shall be binding upon, the Underwriters and the Company and the controlling persons, directors, officers, employees and agents referred to in Section 7 and 8, and their respective successors and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained. The term "successors and assigns" shall not include a purchaser, in its capacity as such, of Shares from any of the Underwriters. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia but without regard to such jurisdiction's principles of conflicts of law. If the foregoing correctly sets forth the understanding between you and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, COLONIAL DOWNS HOLDINGS, INC. By: ___________________________________ Name: Title: Accepted as of the date first above written FRIEDMAN, BILLINGS, RAMSEY & CO., INC. By: ___________________________________ Name: Title On behalf of themselves and the other Underwriters named in Schedule I hereto. SCHEDULE I Number of Firm Name of Underwriter Shares to be Purchased Friedman, Billings, Ramsey & Co., Inc. Total......................................................4,250,000 SCHEDULE II Lock-up Agreements [Form of Lock-up Agreement] , 1996 Colonial Downs Holdings, Inc. 3610 N. Courthouse Road Providence Forge, Virginia 23140 Friedman, Billings, Ramsey & Co., Inc. Potomac Tower 1001 Nineteenth Street North Arlington, Virginia 22209 Dear Sirs: The undersigned understands that Friedman, Billings, Ramsey & Co., Inc. as representative (the "Representative") of the several underwriters (the "Underwriters") propose to enter into an underwriting agreement (the "Underwriting Agreement") with Colonial Downs Holdings, Inc. (the "Company"), providing for the initial public offering (the "Initial Public Offering") by the Underwriters, including the Representatives, of Class A common stock of the Company (the "Class A Common Stock"). In consideration of the Underwriters' agreement to purchase and undertake the Initial Public Offering, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned agrees that, without the prior written consent of the Representative, the undersigned will not offer, sell, contract to sell or otherwise dispose of any shares of Class A Common Stock (including, without limitation, Class A Common Stock of the Company which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and Class A Common Stock which may be issued upon exercise of a stock option or warrant) or any securities convertible into or exercisable or exchangeable for such Class A Common Stock, except to the Underwriters pursuant to the Underwriting Agreement, for a period ending on the later of (i) 180 days following the consummation of the Initial Public Offering and (ii) the date on which the Company has four satellite wagering facilities (excluding satellite wagering facility operations at the track) in operation. Any shares of Class A Common Stock received pursuant to the Company's Stock Option Plan are subject to the restrictions mentioned in this paragraph for a period ending on the later of (i) 180 days following the consummation of the Initial Public Offering and (ii) the date on which the Company has four satellite wagering facilities (excluding satellite wagering facility operations at the track) in operation. The undersigned understands that the Company, the Underwriters and the Representative will proceed with the Initial Public Offering in reliance on this Lock-up Agreement. The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this letter agreement, and that, upon request, the undersigned will execute any additional documents necessary or desirable in connection with the enforcement hereof. All authority herein conferred or agreed to be conferred all survive the death or incapacity of the undersigned and any obligations of the undersigned shall be binding upon the heirs, personal representatives, successors, and assigns of the undersigned. Very truly yours, ________________________________________ (Signature) ________________________________________ (Name - Please Type) ________________________________________ ________________________________________ (Address) ________________________________________ (Social Security or Taxpayer Identification No.) Number of shares of Common Stock owned or subject to warrants, options, or convertible securities: _____________________________ _____________________________ _____________________________ EX-2.1 3 PLAN OF ACQUISITION, REORGANIZATION Exhibit 2.1 PLAN AND AGREEMENT OF REORGANIZATION THIS PLAN AND AGREEMENT OF REORGANIZATION (the "Agreement") is made as of February 12, 1997, among CD ENTERTAINMENT, LTD., an Ohio limited liability company ("CD Entertainment"), COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation ("Holdings"), COLONIAL DOWNS, L.P., a Virginia limited partnership (the "Partnership"), JAMES L. LEADBETTER ("Leadbetter"), STANSLEY MANAGEMENT CORP., a Virginia corporation ("SMC"), STANSLEY RACING CORP., a Virginia corporation ("Stansley Racing Corp.") and ARNOLD W. STANSLEY ("Stansley"). W I T N E S S E T H: WHEREAS, the Virginia Racing Commission has granted the Partnership and Stansley Racing Corp. exclusive licenses to own and operate a pari-mutuel horse racing facility in New Kent County, Virginia and several satellite wagering facilities; WHEREAS, Holdings has been formed to consolidate the ownership management, financing and operation of such facilities; and the parties wish to set forth their agreement regarding the manner for achieving consolidation NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: I. REORGANIZATION STEPS The parties hereto shall be reorganized and interests within such parties shall be transferred and acquired as provided below in this Section I. A. Merger of SMC. Pursuant to Section 13.1-716 et seq. of the Virginia Code of 1950, as amended, SMC shall merge into Holdings which shall be the surviving corporation. Under such merger, Holdings shall acquire all of SMC's assets and assume all of SMC's liabilities, and in exchange therefor Holdings shall issue 750,000 shares of Class A Common Stock and 749,900 shares of Class B Common Stock of Holdings to the shareholders of SMC in proportion to their relative shares of SMC stock which shall be surrendered and canceled. B. Transfer by CD Entertainment. CD Entertainment shall transfer all of its partnership interest in the Partnership to Holdings, and in exchange therefor Holdings shall issue 1,500,000 shares of Class B Common Stock of Holdings to CD Entertainment. C. Transfer by Leadbetter and Stansley. Leadbetter and Stansley shall transfer all of their shares of Stansley Racing Corp. stock to Holdings, and in exchange therefor Holdings shall issue 50 shares of Class B Common Stock of Holdings to Leadbetter and 50 shares of Class B Common Stock of Holdings to Stansley. D. Cancellation of Existing Shares. The shares of Common Stock of Holdings held by each of CD Entertainment and Stansley prior to reorganization described herein shall be canceled. E. Issue by the Partnership. The Partnership shall issue to Stansley Racing Corp. an interest in one percent of the Partnership's profits. In exchange therefor Stansley Racing Corp. shall be admitted to the Partnership as the Partnership's sole general partner. F. Ownership of the Partnership. As a result of the transactions described in Section I.A, I.B, I.C and I.D hereof, Holdings shall own directly all of the limited partner interests in the Partnership and shall own indirectly through Stansley Racing Corp. the sole general partner interest in the Partnership. G. Land. Holdings shall acquire the approximately 345 acre tract of land located in New Kent County, Virginia now owned by Delmarva Properties, Inc. and Chesapeake Forest Products Company, and shall develop the land in accordance with the provisions of all agreements and laws to which it is subject. Holdings and the Partnership shall enter into a lease of the land for a period of 99 years at a market rental rate. H. Public Offering. Immediately following the completion of the foregoing transactions, Holdings shall conduct an initial public offering of its stock in accordance with a registration statement filed with the United States Securities and Exchange Commission. II. IMPLEMENTATION A. Closing. Closing of the transactions described in Sections I.A through I.G hereof shall occur upon one day's notice by Holdings to the other parties hereto and closing of the public offering shall occur immediately thereafter. B. Action. Each of the parties hereto agrees to take the action with regard to itself described in Section I hereof in reliance on each other party's agreement to do the same. Each of the parties shall take such further action as is necessary to carry out such transactions in accordance with all laws to which it is subject. C. Termination. This Agreement shall terminate and be of no further force or effect if the transactions set forth in Sections I.A through I.G have not occurred on or before May 1, 1997. III. GENERAL PROVISIONS A. Virginia Law. This Agreement and the parties' rights and obligations hereunder shall be construed and governed under the law of the Commonwealth of Virginia other than its provisions regarding conflicts of law. B. Parties Bound. This Agreement shall be binding on and shall inure to the benefit of the parties' successors in interest. C. Entire Agreement. This Agreement contains the parties' entire understanding regarding the subject matter hereof and supersedes all prior and contemporaneous agreements regarding the subject matter hereof. D. Amendment. This Agreement may be modified only by a written document signed by all of the parties hereto. E. Counterpart. This Agreement may be signed in counterpart. Together, all signed counterparts shall constitute a single agreement notwithstanding that not all parties may have signed the same counterpart. WITNESS the following signatures: CD ENTERTAINMENT, LTD., an Ohio limited liability company By: Jacobs Entertainment Ltd., Manager By: /s/ Jeffrey P. Jacobs -------------------------- Jeffrey P. Jacobs, Manager 1231 Main Avenue Cleveland, Ohio 44113 COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation By: /s/ Jeffrey P. Jacobs ------------------------------ Jeffrey P. Jacobs, Chairman and Chief Executive Officer COLONIAL DOWNS, L.P., a Virginia limited partnership By: CD Entertainment, Ltd. an Ohio limited liability company, General Partner By: Jacobs Entertainment, Ltd., Manager By: /s/ Jeffrey P. Jacobs -------------------------- Jeffrey P. Jacobs, Manager 1231 Main Avenue Cleveland, Ohio 44113 By: Stansley Management Corp., a Virginia corporation, General Partner By: /s/ Arnold W. Stansley ----------------------------- Arnold W. Stansley, President 3610 N. Courthouse Rd. P.O. Box 456 Providence Forge, VA 23140 /s/ James M. Leadbetter - --------------------------- James M. Leadbetter A. C. Leadbetter & Son, Inc. 110 Arco Drive Toledo, Ohio 43607 STANSLEY MANAGEMENT CORP., a Virgnia corporation By: /s/ Arnold W. Stansley ----------------------------- Arnold W. Stansley, President 3610 N. Courthouse Rd. P.O. Box 456 Providence Forge, Virginia 23140 STANSLEY RACING CORP., a Virginia corporation By: /s/ Arnold W. Stansley ----------------------------- Arnold W. Stansley, President 3610 N. Courthouse Rd. P.O. Box 456 Providence Forge, Virginia 23140 /s/ Arnold W. Stansley - ------------------------------- Arnold W. Stansley 3610 N. Courthouse Rd. P.O. Box 456 Providence Forge, Virginia 23140 EX-3.1 4 ARTICLES OF INCORPORATION Exhibit 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF COLONIAL DOWNS HOLDINGS, INC. By unanimous consent in writing dated the 10th day of February, 1997, the Board of Directors of Colonial Downs Holdings, Inc. (the "Corporation"), found that the following proposed Amendment to and Restatement of the Articles of Incorporation of the Corporation was in the best interests of the Corporation, and directed that it be submitted to a vote of the shareholders. The Amended and Restated Articles of Incorporation, as proposed by the Board of Directors (the "Board") and set forth below, were unanimously approved and adopted by the shareholders of the Corporation by consent in writing dated the 10th day of February, 1997. A. Corporate Name. The name of the corporation is Colonial Downs Holdings, Inc. (the "Corporation"). B. Purposes and Powers. The purpose for which the Corporation is formed is to engage in any lawful business. In addition, the Corporation shall have the same powers as an individual to do all things necessary or convenient to carry out its business and affairs. C. Authorized Stock. The aggregate number of shares which the Corporation shall have authority to issue, and the par value per share, are as follows: Class Par Number and Series Value of Shares ---------- ----- --------- Class A Common $.01 12,000,000 Class B Common $.01 3,000,000 Preferred $.01 2,000,000 No holders of any class or series of stock shall have the preemptive right to acquire unissued shares of any class or series of stock of the Corporation. The Class A Common Stock and the Class B Common Stock are collectively referred to as the "Common Stock." D. Class A Common Stock. Voting Rights. Each holder of the Class A Common Stock shall be entitled to attend all special and annual meetings of the shareholders of the Corporation, together with the holders of all other classes of stock entitled to attend and vote at such meetings, to vote upon any matter or thing (including, without limitation, the election of one or more directors) properly considered and acted upon by the shareholders. Holders of the Class A Common Stock are entitled to one vote per share. Liquidation Rights. In the event of any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of the Class A Common Stock, and holders of any class or series of stock entitled to participate therewith, shall become entitled to participate in the distribution of any assets of the Corporation remaining after the Corporation shall have paid, or provided for payment of, all debts and liabilities of the Corporation and after the Corporation shall have paid, or set aside for payment to the holders of any class of stock having preference over the Class A Common Stock in the event of dissolution, liquidation or winding up the full preferential amounts (if any) to which they are entitled. The holders of Class A Common Stock and Class B Common Stock shall participate equally, on a per share basis, in any such distribution of such assets. Dividends. Dividends may be paid on the Class A Common Stock and on any class or series of stock entitled to participate therewith when and as declared by the Board; provided that holders of the Class A Common Stock and Class B Common Stock will be entitled to participate equally, on a per share basis, in any dividend or other distribution declared or made by the Board in respect of the Common Stock. No dividend or other distribution shall be declared or made in respect of the Class A Common Stock unless at such time an equal (on a per share basis) dividend or distribution is declared and made in respect of the Class B Common Stock. E. Class B Common Stock. Voting Rights. Each holder of the Class B Common Stock shall be entitled to attend all special and annual meetings of shareholders of the Corporation, together with the holders of all other classes of stock entitled to attend and vote at such meetings, to vote upon any matter or thing (including without limitation, the election of one or more directors) properly considered and acted upon by the shareholders. Holders of the Class B Common Stock are entitled to five (5) votes per share generally, other than votes, approvals, or other consensual rights with respect to (i) a merger, consolidation, or other business combination of the Corporation or any of its material subsidiaries, (ii) a sale of all or substantially all of the assets of the Corporation or any of its material subsidiaries, or (iii) amendments to the Corporation's Articles of Incorporation, as amended from time to time, or Bylaws, as amended from time to time, that alter or affect the voting rights of the holders of Class B Common Stock as to which, in each case, each holder of Class B Common Stock will be entitled to one vote per share. Liquidation Rights. In the event of any dissolution, liquidation or winding up of the Corporation, whether voluntary or involuntary, the holders of the Class B Common Stock, and the holders of any class or series of stock entitled to participate therewith shall become entitled to participate in the distribution of any assets of the Corporation remaining after the Corporation shall have paid, or provided for payment of all debts and liabilities of the Corporation and after the Corporation shall have paid, or set aside for payment, to the holders of any class of stock having preference over the Class B Common Stock in the event of dissolution, 2 liquidation or winding up the full preferential amounts (if any) to which they are entitled. The holders of Class A Common Stock and Class B Common Stock shall participate equally, on a per share basis, in any such distribution of any such assets. Dividends. Dividends may be paid on the Class B Common Stock, and any class or series of stock entitled to participate therewith when and as declared by the Board; provided that Holders of the Class A Common Stock and Class B Common Stock will be entitled to participate equally, on a per share basis, in any dividend or other distribution declared or made by the Board in respect of the Common Stock. No dividend or other distribution shall be declared or made in respect of the Class B Common Stock unless at such time an equal (on a per share basis) dividend or distribution is declared and made in respect of the Class A Common Stock. Conversion into Class A Common Stock. Each holder of Class B Common Stock may, at its option, at any time convert any or all shares of Class B Common Stock of such holder into the same number of shares of Class A Common Stock upon presentation of certificates evidencing such shares of Class B Common Stock to the Corporation's stock transfer agent accompanied by a written conversion request. Restrictions on Transfer. The Class B Common Stock may not be sold, assigned, pledged, hypothecated, or otherwise transferred to any person or entity other than any of CD Entertainment Ltd., Jeffrey P. Jacobs, or members of Mr. Jacobs' immediate family. A legend to such effect shall appear on each certificate evidencing shares of Class B Common Stock. F. Preferred Stock. The Board of Directors is authorized to have the Corporation issue one or more series of shares of Preferred Stock, and to provide for the designation, preferences, limitations and relative rights thereof. The Board of Directors can fix and determine, among other things: (i) whether the shares of such class or series shall have voting rights, in addition to any voting rights provided by law, and if so, the terms of such voting rights; (ii) the rate or rates (which may be fixed or variable) at which dividends, if any, are payable on such series; (iii) whether the shares of such series shall be subject to redemption or repurchase by the Corporation; (iv) the amount or amounts payable upon shares of such series upon and rights of the holders of such series in, the voluntary or involuntary liquidation, dissolution or winding up, or any distribution of the assets of the Corporation, whether the shares of such series shall be subject to the operation of a retirement or sinking fund, and if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the repurchase or redemption of the shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof; and (v) whether the shares of such series shall be convertible into, or exchangeable for, shares of stock of any other securities (including Common Stock) and, if so, the price or prices or the rate or rates of conversion or exchange. G. Certain Charter and Statutory Provisions. The number of Directors constituting the Board of Directors shall be not less than four nor greater than nine, as determined by resolution of the Board of Directors from time to time. The terms of the Directors shall be staggered by dividing the total number of Directors into three classes, as nearly equal in 3 number as the total number of Directors constituting the Board then permits, with any Director or Directors in excess of the number divisible by three being assigned to Class 3 and Class 2, as the case may be. The terms of Directors in Class 1 shall expire at the first annual shareholders' meeting after their election (or until their respective successors are duly elected and qualified or until their earliest death, resignation, or removal); the terms of the Directors in Class 2 shall expire at the second annual shareholders' meeting after their election (or until their respective successors are duly elected and qualified or until their earliest death, resignation, or removal); and the terms of the Directors in Class 3 shall expire at the third annual shareholders' meeting after their election (or until their respective successors are duly elected and qualified or until their earliest death, resignation, or removal). Upon the expiration of the initial staggered term of each director, directors shall be chosen for a term of three years to succeed those whose terms expire. H. Limitation on Liability. In any proceeding brought in the right of the Corporation or by or on behalf of shareholders of the Corporation, the damages assessed against an officer or director arising out of a single transaction, occurrence, or course of conduct shall not exceed one dollar, unless the officer or director engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities law, including without limitation, any claim of unlawful insider trading or manipulation of the market for any security. I. Repurchase Stock under the Virginia Horse Racing Act. The Corporation may purchase, upon a vote of a majority of its shareholders, at fair market value, as reasonably determined by the Board of Directors, any or the entire interest of any shareholder who is or becomes unqualified for such position under Section 59.1-379 of the Code of Virginia of 1950, as the same may be amended from time to time. J. Indemnification of Directors, Officers and Others. 1. Indemnification. The Corporation shall indemnify an individual who entirely prevails in the defense of any proceeding to which he was a party because he is or was a director of the Corporation against reasonable expenses incurred by him in connection with the proceeding. The Corporation shall also indemnify an individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding if: (1) he conducted himself in good faith; and (2) he believed: (a) in the case of conduct in his official capacity with the Corporation, that his conduct was in its best interests; and (b) in all other cases, that his conduct was at least not opposed to its best interests; and (3) in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. 4 A director's conduct with respect to an employee benefit plan for a purpose he believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement that his conduct was at least not opposed to the best interests of the Corporation. The termination of a proceeding by judgment, order, settlement, or conviction is not, of itself, determinative that the director did not meet the standard of conduct described in this Paragraph J of these Articles. Notwithstanding the foregoing, the Corporation shall not indemnify a director under this Paragraph J of these Articles: (1) in connection with a proceeding by or in the right of the Corporation in which the director is adjudged liable to the Corporation; or (2) in connection with any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he is adjudged liable on the basis that personal benefit was improperly received by him. Indemnification granted under this Paragraph J of these Articles in connection with a proceeding by or in the right of the Corporation is limited to reasonable expenses incurred in connection with the proceeding. The definitions as set forth in Section 13.1-696 of the Code of Virginia of 1950, as amended, as in effect from time to time, shall apply with respect to this Paragraph J. 2. Advance for Expenses. The Corporation shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if: (a) the director furnishes the Corporation a written statement of his good faith belief that he has met the standard of conduct described in Section 1; (b) the director furnishes the Corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct (which undertaking shall be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment); and (c) a determination is made that the facts then known to those making the determination would not preclude indemnification under Article 10 of the Virginia Stock Corporation Act or Section 1 hereof. 3. Determination and Authorization of Indemnification. The Corporation shall not indemnify a director under Section 1 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances 5 because he has met the standard of conduct set forth in Section 1. The determination shall be made: (a) by the Board of Directors by a majority vote of a quorum consisting of directors not at the time parties to the proceeding; (b) if such a quorum cannot be obtained, by majority vote of a committee duly designated by the Board of Directors (in which directors who are parties may participate in such designation), consisting solely of two or more directors not at the time parties to the proceeding; (c) by special legal counsel: (i) selected by the Board of Directors or its committee in the manner prescribed in subsection (a) or (b) above; (ii) if such a quorum of the Board of Directors cannot be obtained and such a committee cannot be designated, selected by a majority vote of the full Board of Directors, in which directors who are parties may participate in such selection; or (d) by the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination. Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection (c) of this Section 3 to select counsel. If a majority of the directors of the Corporation has changed after the date of the alleged conduct giving rise to a claim for indemnification, the determination that indemnification is permissible and the authorization of indemnification and evaluation as to the reasonableness of expenses in a specific case shall, at the option of the person claiming indemnification, be made by special legal counsel agreed upon by the Board of Directors and such person. 4. Indemnification of Officers, Employees, Agents and Others. Each officer and employee of the Corporation shall be entitled to indemnification and advance expenses to the same extent as a director. The Corporation may, to a lesser extent or to the same extent that the Corporation is required to provide indemnification and make advances for expenses to its directors, provide indemnification and make advances and reimbursements for expenses to its agents, the directors, officers, employees and agents of its subsidiaries and predecessor entities, and any person 6 serving any other legal entity in any capacity at the request of the Corporation, and may contract in advance to do so. The determination that indemnification under this paragraph is permissible, the authorization of such indemnification and the evaluation as to the reasonableness of expenses in a specific case shall be made as authorized from time to time by general or specific action of the Board of Directors, which action may be taken before or after a claim for indemnification is made, or as otherwise provided by law. 5. Insurance. The Corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee or agent of the Corporation, or who, while a director, officer, employee or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against liability asserted against or incurred by him in that capacity or arising from his status as a director, officer, employee or agent, whether or not the Corporation would have power to indemnify him against the same liability under Section 1. 6. Application. Indemnity hereunder shall continue as to a person who has ceased to have the capacity referred to above and shall inure to the benefit of the heirs, executors and administrators of such a person. DATED: February 27, 1997 Jeffrey P. Jacobs, Chairman and CEO EX-3.2 5 AMENDED AND RESTATED BYLAWS COLONIAL DOWNS HOLDINGS, INC. AMENDED AND RESTATED BYLAWS ****************************** ARTICLE I OFFICES 1. Principal Office. The principal office of the corporation shall be in the County of New Kent, Commonwealth of Virginia, but the corporation may conduct its business or open branch offices within or without the Commonwealth as the Board of Directors deems advisable. ARTICLE II SHAREHOLDERS 2. Place of Meeting. Meetings of the shareholders shall be held at the principal office of the corporation or at such other place, within or without the Commonwealth of Virginia, as may be designated by the Board of Directors and set forth in the notice of the meeting. 3. Annual Meeting. Commencing with the year 1998, the annual meeting of the shareholders of the corporation shall be held on or about the fourth day in May of each year (and if such date is a legal holiday, on the next business day), or such other date as the Board of Directors may resolve, for the purpose of electing a Board of Directors and transacting such other business as may properly come before the meeting. 4. Special Meetings. Special meetings of the shareholders may be called by the Board of Directors, the Chairman of the Board of Directors, the President, the Secretary or, in the case the corporation has thirty-five or fewer shareholders, if the holders of at least twenty percent (20%) of all votes entitled to be cast on any issue proposed to be considered at the meeting sign, date and deliver to the corporation's Secretary one or more written demands for such a meeting describing the purpose or purposes for which the meeting is to be held. 5. Action without Meeting. Action required or permitted to be taken by the Virginia Stock Corporation Act (the "Act") at a shareholders' meeting may be taken without a meeting and without action by the Board of Directors if the action is taken by all the shareholders entitled to vote on the action. The action shall be evidenced by one or more written consents describing the action taken, signed by all the shareholders entitled to vote on the action and delivered to the Secretary of the corporation for inclusion in the minutes or filing with the corporate records. Any action taken by unanimous written consent shall be effective according to its terms when all consents are in possession of the corporation. A shareholder may withdraw 8 his consent only by delivering a written notice of withdrawal to the corporation prior to the time that all consents are in the possession of the corporation. Action taken under this Section 5 of these bylaws is effective as of the date specified in the consent provided the consent states the date of execution by each shareholder. A consent signed under this Section 5 of these bylaws has the effect of a unanimous vote of voting shareholders and may be described as such in any document filed with the Virginia State Corporation Commission under the Act. If the Act or these bylaws requires notice of proposed action to be given to nonvoting shareholders, if any, and the action is to be taken by unanimous consent of the voting shareholders written notice of the proposed action at least ten (10) days before the action is taken. The notice shall contain or be accompanied by the same material that would have been required to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to the shareholders for action. 6. Notice of Meeting. The corporation shall notify shareholders of the date, time and place of each annual and special shareholders' meeting. Such notice shall be given no less than ten (10) nor more than sixty (60) days before the meeting date except that notice of a shareholders' meeting to act on an amendment of the Articles of Incorporation, a plan of merger or share exchange, a proposed sale of all or substantially all of the assets of the corporation, otherwise than in the usual and regular course of business, or the dissolution of the corporation shall be given not less than twenty-five (25) nor more than sixty (60) days before the meeting date, which notice shall be accompanied by a copy of the proposed amendment, plan of merger, share exchange or dissolution or agreement pursuant to which the proposed sale will be effected. The corporation is required to give notice only to shareholders entitled to vote at the meeting and notice of an annual meeting need not state the purpose or purposes for which the meeting is called. Notice of a special meeting, however, shall state the purpose or purposes for which the meeting is called. If an annual or special meeting is adjourned to a different date, time or place, notice need not be given if the new date, time or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or shall be fixed under Section 8 of these bylaws, however, notice of the adjourned meeting shall be given under this Section 6 of these bylaws to persons who are shareholders as of the new record date. Notwithstanding the foregoing, no notice of a shareholders' meeting need be given to a shareholder if (i) an annual report and proxy statements for two (2) consecutive annual meetings of shareholders or (ii) all, and at least two (2), checks in payment of dividends or interest on securities during a twelve (12) month period, have been sent by first-class United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, and were returned undeliverable. The obligation of the corporation to give notice of shareholders' meetings to any such shareholder shall be reinstated once the corporation shall have received a new address for such shareholder for entry on its stock transfer books. 7. Waiver of Notice. A shareholder may waive any notice required by the Act, the Articles of Incorporation or these bylaws before or after the date and time of the meeting that is 9 the subject of such notice. The waiver shall be in writing, be signed by the shareholder entitled to the notice and be delivered to the Secretary of the corporation for inclusion in the minutes or filing with the corporate records. A shareholder's attendance at a meeting: (1) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and (2) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. 8. Determination of Shareholders of Record. The Board of Directors may fix in advance the record date in order to make a determination of shareholders entitled to notice of, or to vote at, any meeting of the shareholders or any adjournment thereof, to receive payment of any dividend or distribution, to demand a special meeting, to take action without a meeting or to make a determination of shareholders for any other proper purpose. A record date fixed under this Section 8 of these bylaws may not be more than seventy (70) days before the meeting or action requiring a determination of shareholders. If not otherwise fixed by the Board of Directors, the record date for determining shareholders entitled to (i) notice of and to vote at a shareholders' meeting is the close of business on the day before the effective date of the notice to shareholders, (ii) receive payment of any dividend or distribution, other than a distribution involving a repurchase or acquisition of shares by the corporation, is the date the Board of Directors authorizes the dividend or distribution, (iii) demand a special meeting is the date the first shareholder signs the demand and (iv) take action without a meeting is the date the first shareholder signs the consent. A determination of shareholders entitled to notice of, or to vote at, a shareholders' meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it shall do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. 9. Shareholders' List for Meeting. The officer or agent having charge of the stock transfer books of the corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, with the address of and the number of shares held by each. The list shall be arranged by voting group and within each voting group, if more than one, by class or series of shares. For a period of ten (10) days prior to the meeting, the list of shareholders shall be kept on file at the registered office of the corporation or at its principal office or at the office of its transfer agent or registrar and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof. The original share transfer books shall be prima facie 10 evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. The right of the holder of shares of the corporation whose securities are registered under the Securities Exchange Act of 1934, as amended, to inspect such list prior to a meeting of shareholders shall be subject to the limitations set forth in Section 13.1-771.C. of the Code of Virginia of 1950, as amended (the "Code"), and Section 51 of these bylaws. If the requirements of this Section 9 of these bylaws have not been substantially complied with, the meeting shall, on the demand of any shareholder in person or by proxy, be adjourned until the requirements are met. Refusal or failure to prepare or make available the shareholders' list does not affect the validity of any action taken at the meeting prior to the making of any such demand, but any action taken by the shareholders after the making of any such demand shall be invalid and without effect. 10. Voting Entitlement of Shares. Unless otherwise provided in these bylaws or required under the Act, all shareholders of Common Stock, regardless of the class of stock, will vote as a single group. Except as otherwise provided in this Section 10 of these bylaws with respect to the election of directors and in Section 13.1-662 of the Code, each outstanding share of Class A Common Stock is entitled to one vote on each matter voted on at a shareholders' meeting. In the election of directors each outstanding share of Class A Common Stock is entitled to one vote for as many persons as there are directors to be elected at that time and for whose election the shareholder has a right to vote. No cumulative voting shall be permitted. Except as otherwise provided in this Section 10 of these bylaws with respect to the election of directors and in Section 13.1-662 of the Code or in the Articles of Incorporation, each outstanding share of Class B Commons Stock is entitled to five votes on each matter voted on at a shareholders' meeting, except with respect to any vote, approval, or other consensual right with respect to (i) a merger, consolidation, or other business combination of the Corporation or any of its material subsidiaries, (ii) a sale of all or substantially all of the assets of the Corporation or any of its material subsidiaries, or (iii) amendments to the Corporation's Articles of Incorporation, as amended from time to time, or bylaws, as amended from time to time, that alter or affect the voting rights of the holders of Class B Common Stock as to which, in each case, each holder of Class B Common Stock will be entitled to one vote per share. In the election of directors each outstanding share of Class B Common Stock is entitled to five votes (cast as a single bloc per share) for as many persons as there are directors to be elected at that time and for whose election the shareholder has a right to vote. No cumulative voting shall be permitted. 11. Proxies. A shareholder may vote his shares in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for him by signing an appointment form, either personally or by his attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent authorized to tabulate votes. An appointment is valid for eleven (11) months unless a longer period is expressly provided in the appointment form. An appointment of a proxy is revocable by the shareholder unless the appointment is coupled with 11 an interest. An appointment made irrevocable by being coupled with an interest is revoked when such interest is extinguished. The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the Secretary or other officers or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if he did not know of its existence when he acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares. 12. Corporation's Acceptance of Votes. If the name signed on a vote, consent, waiver or proxy appointment corresponds to the name of a shareholder, the corporation, if acting in good faith, is entitled to accept the vote, consent, waiver or proxy appointment and give it effect as the act of the shareholder. If the name signed on a vote, consent, waiver or proxy appointment does not correspond to the name of its shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver or proxy appointment and give it effect as the act of the shareholder in accordance with Section 13.1-665 of the Code. The corporation is entitled to reject a vote, consent, waiver or proxy appointment if the Secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder. Section 13.1-665 of the Code, as may be in effect from time to time, shall apply with respect to any matters not specifically set forth in this Section 12. 13. Quorum and Voting Requirements for Voting Groups. Shares entitled to vote as a separate voting group, in the case of multiple voting groups, may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the Articles of Incorporation or the Act provides otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum for action on that matter. Less than a quorum may adjourn a meeting. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or shall be set for that adjourned meeting. If a quorum exists, action on a matter, other than the election of directors, is approved if the votes cast favoring the action exceed the votes cast opposing the action, unless the Articles of Incorporation or the Act requires a greater number of affirmative votes. Directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. 12 14. Action by Single and Multiple Voting Groups. If the Articles of Incorporation or the Act provides for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group as provided in Section 13 of these bylaws. ARTICLE III DIRECTORS 15. Number and Election. The Board of Directors shall consist of a minimum of four (4) and a maximum of nine (9) persons as the Board may establish by resolution from time to time. Except for the initial directors who will have been named in the Articles of Incorporation or elected at the organizational meeting of directors or incorporators, directors shall be elected as follows, or at any special meeting of the shareholders called for such purpose. The terms of the directors shall be staggered by dividing the total number of directors into three classes, as nearly in equal in number as the total number of Directors constituting the Board then permits, with any Director or Directors in excess of the number divisible by three being assigned to Class 3 and Class 2, as the case may be. The terms of Directors in Class 1 shall expire at the first annual shareholders' meeting after their election (or until their respective successors or duly elected and qualified or until their earlier death, resignation, or removal); the terms of the directors in Class 2 shall expire at the second annual shareholders' meeting after their election; and the terms of the directors in Class 3 shall expire at the third annual shareholders' meeting after their election (or until their respective successors or duly elected and qualified or until their earlier death, resignation, or removal). Upon the expiration of the initial staggered term of each director, directors shall be chosen for a term of three years. Any Director may be removed from office at a meeting called expressly for that purpose by the vote of shareholders holding not less than a majority of the shares entitled to vote at an election of Directors. No individual shall be named or elected as a director without his prior consent. 16. Election of Directors by Certain Classes of Shareholders. If the Articles of Incorporation authorize dividing the stock into classes, the Articles of Incorporation may also authorize the election of all or a specified number of directors by the holders of one (1) or more authorized classes of stock. Each class, or classes, of stock entitled to elect one (1) or more directors is a separate voting group for purposes of election of directors. 17. Terms of Office. The terms of the initial directors of the corporation expire at the first shareholders' meeting at which directors are elected. The terms of all other directors expire as provided in Section 15 hereof. A decrease in the number of directors does not shorten an incumbent director's term. The term of a director elected by the Board of Directors to fill a vacancy shall be the unexpired term of the director who created the vacancy. Despite the expiration of a director's term, he continues to serve until his successor is elected and qualifies or until there is a decrease in the number of directors. 18. Resignation. A director may resign at any time by delivering written notice to the Board of Directors, the President or the Secretary. A resignation is effective when the notice is delivered, unless the notice specifies a later effective date. If a resignation is made effective at 13 a later date, the Board of Directors may fill the pending vacancy before the effective date, provided, however, the successor may not take office until the effective date. 19. Removal. The shareholders may remove one (1) or more directors with or without cause, unless the Articles of Incorporation provide that directors may be removed only with cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. A director may be removed if the number of votes cast to remove him constitutes a majority of the votes entitled to be cast at an election of directors of the voting group or voting groups by which such director was elected. A director may be removed by the shareholders only at a meeting called for the purpose of removing him and the meeting notice must state that the purpose, or one of the purposes, of the meeting is removal of the director. 20. Vacancy. If a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors: (1) the shareholders may fill the vacancy; (2) the Board of Directors may fill the vacancy; or (3) if the directors remaining in office constitute fewer than a quorum of the Board, they may fill the vacancy by the affirmative vote of a majority of directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of that voting group are entitled to fill the vacancy if it is to be filled by the shareholders. A vacancy that will occur at a specific later date, by reason of a resignation effective at a later date under Section 18 of these bylaws or otherwise, may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs. A vacancy shall be deemed to exist whenever the number of directors then in office is less than the maximum number permitted under these bylaws. 21. Compensation. Directors shall not receive a stated salary for their services, but directors may be paid a fixed sum and expenses for attendance at any regular or special meeting of the Board of Directors or any meeting of any committee. A director may serve or be employed by the corporation in any other capacity and receive compensation therefor. 22. Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place, in or out of the Commonwealth of Virginia, as the Board of Directors may designate from time to time. A regular meeting of the Board of Directors shall be held immediately after the annual meeting of the shareholders. Unless changed, that regular meeting shall be held in New Kent County, Virginia. Special meetings may be called by the 14 Board of Directors, the President or the Secretary by giving reasonable notice of the time and place thereof. The Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. 23. Action Without Meeting. Action required or permitted by the Act to be taken at a Board of Directors meeting may be taken without a meeting if the action is taken by all members of the Board. The action shall be evidenced by one or more written consents stating the action taken, signed by each director either before or after the action taken, and included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this Section 23 of these bylaws is effective when the last director signs the consent unless the consent specifies a different effective date, in which event the action taken is effective as of the date specified therein, provided the consent states the date of execution by each director. A consent signed under this Section 23 of these bylaws has the effect of a meeting vote and may be described as such in any document. 24. Notice of Meetings. Regular meetings of the Board of Directors may be held without notice of the date, time, place or purpose of the meeting. Special meetings of the Board of Directors may be called by resolution of the Board of Directors or any officer or director by giving reasonable notice of the time and place thereof. The notice need not describe the purpose of the special meeting. 25. Waiver of Notice. A director may waive any notice required by the Act, the Articles of Incorporation or these bylaws before or after the date and time stated in the notice, and such waiver shall be equivalent to such notice having been given. Except as provided in the following paragraph, the waiver shall be in writing, signed by the director entitled to the notice and filed with the minutes or corporate records. A director's attendance at or participation in a meeting waives any required notice to him of the meeting unless the director at the beginning of the meeting or promptly upon his arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. 26. Quorum and Voting. A quorum of the Board of Directors consists of: (1) a majority of the fixed number of directors if the corporation has a fixed board size; or 15 (2) a majority of the number of directors prescribed, or if no number is prescribed the number in office immediately before the meeting begins, if the corporation has a variable-range sized board. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors unless the Articles of Incorporation require the vote of a greater number. A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless: (1) he objects at the beginning of the meeting, or promptly upon his arrival, to holding it or transacting specified business at the meeting; or (2) he votes against, or abstains from, the action taken. Whenever the Act requires the Board of Directors to recommend or approve any proposed corporate act, such recommendation or approval shall not be required if the proposed corporate act is adopted by the unanimous consent of shareholders. 27. Committees. The Board of Directors may create one or more committees, including an Executive Committee, and appoint members of the Board of Directors to serve on them. Each committee may have two or more members, who serve at the pleasure of the Board of Directors. The creation of a committee and appointment of members to it shall be approved by the greater number of (i) a majority of all the directors in office when the action is taken or (ii) the number of directors required by the Articles of Incorporation or these bylaws to take action under Section 26 of these bylaws. Sections 22 through 26 of these bylaws, which govern meetings, action without meetings, notice and waiver of notice and quorum and voting requirements of the Board of Directors, apply to committees and their members as well. To the extent specified by the Board of Directors or in the Articles of Incorporation or these bylaws, each committee may exercise all of the authority permitted to be exercised by the Board of Directors, except that a committee may not: (1) approve or recommend to shareholders action that is required to be approved by shareholders; (2) fill vacancies on the Board or on any of its committees; (3) amend Articles of Incorporation pursuant to Section 13.1-706 of the Code; (4) adopt, amend or repeal the bylaws; (5) approve a plan of merger not requiring shareholder approval; 16 (6) authorize or approve a dividend or distribution, except according to a general formula or method prescribed by the Board of Directors; or (7) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee, or a senior executive officer of the corporation, to do so within limits specifically prescribed by the Board of Directors. The creation of, delegation of authority to, or action by a committee does not alone constitute compliance by a director with the standards of conduct described in Section 13.1-690 of the Code and Section 28 of these bylaws. 28. General Standards of Conduct. A director shall discharge his duties as a director, including his duties as a member of a committee, in accordance with his good faith business judgment of the best interests of the corporation. A director shall not be liable for any action taken as a director, or any failure to take any action, if he performs the duties of his office in compliance with Section 13.1-690 of the Code. 29. Director Conflict of Interests. A conflict of interests transaction is a transaction with the corporation in which a director or the corporation has a direct or indirect personal interest. A conflict of interests transaction shall not be voidable by the corporation solely because of the director's interest in the transaction if any one of the following is true in accordance with Section 13.1-691 of the Code: (1) the material facts of the transaction and the director's interest were disclosed or known to the Board of Directors or a committee of the Board of Directors and the Board of Directors or committee authorized, approved or ratified the transaction; (2) the material facts of the transaction and the director's interest were disclosed to the shareholders entitled to vote and they authorized, approved or ratified the transaction; or (3) the transaction was fair to the corporation. ARTICLE IV OFFICERS 30. Officers. As a minimum, the officers of the corporation shall be a President and a Secretary, each of whom shall be appointed by the Board of Directors at its regular meeting following the annual meeting of the shareholders. The Board of Directors may appoint such other officers , including, but not limited to, a Chief Executive Officer and Chairman of the Board, and assistant officers and fill any vacancy at any regular or special meeting of the Board of Directors. A duly appointed officer may appoint one or more officers or assistant officers as may be authorized by these bylaws or the Board of Directors. The same individual may 17 simultaneously hold more than one office. Each officer shall be appointed to hold office until the next succeeding regular meeting of the Board of Directors following the annual meeting of the shareholders, or for such longer or shorter terms as the Board of Directors may specify, and until his successor shall have been elected or such earlier time as he shall resign, die or be removed. Each officer shall have the authority and perform the duties set forth in these bylaws or, to the extent consistent with these bylaws, the duties prescribed by the Board of Directors or by direction of an officer authorized by the Board of Directors to prescribe the duties of other officers. 31. Chairman. The Chairman shall preside at all meetings of the Board of Directors and shareholders and shall have the power to call special meetings of the shareholders and Directors for any purpose. 32. Chief Executive Officer ("CEO"). The CEO shall be responsible for the implementation of the policies adopted by the Board of Directors and shall have general supervision of the business of the Corporation, except as may be limited by the Board of Directors, the Articles of Incorporation, or these Bylaws. The CEO may hire, appoint and discharge, subject to the approval of the Board of Directors, employees and agents of the corporation and fix their compensation; may make and sign deeds, leases, contracts and agreements in the name and on behalf of the corporation; and shall have power to carry into effect all directions of the Board of Directors. 33. President. If these is no CEO, the President shall have the same duties, authority and obligations as the CEO. If these is a CEO, the President shall supervise and control the day-to-day activities of the Corporation and shall have such other duties as are incidental to his office, except as may be limited by the Board of Directors, the Articles of Incorporation, or these Bylaws. The President may hire, appoint, and discharge, subject to the approval of the Board of Directors, employees and agents of the Corporation and fix their compensation; may make and sign deeds, leases, contracts, and agreements in the name and on behalf of the Corporation; and shall have power to carry into effect all directions of the Board of Directors. 34. Secretary. The Secretary shall be the ex-officio clerk of the Board of Directors, shall have the power to call special meetings of the shareholders and directors for any purpose and shall give, or cause to be given, notices of all meetings of shareholders and directors, and all other notices required by these bylaws or by law. The Secretary shall record the proceedings of the meetings of the shareholders and directors in a book kept for that purpose and shall keep the seal of the corporation and attach it to all documents requiring such impression unless some other officer is designated to do so by the Board of Directors. The Secretary shall have responsibility for authenticating records of the corporation and shall perform such other duties as may be assigned from time to time by the Board of Directors. 35. Vice President. There may be one or more Vice Presidents who shall exercise all of the functions of the President during the absence or incapacity of the latter and such other duties as may be assigned from time to time by the Board of Directors. 18 36. Treasurer. There may be a Treasurer who shall keep or cause to be kept full and accurate books of account, render a financial statement showing all transactions of the Treasurer and the financial condition of the corporation as may be required by the Board of Directors or the President and perform such other duties as may be assigned from time to time by the Board of Directors. 37. Assistant Secretary. There may be one or more Assistant Secretaries who shall exercise all of the functions of the Secretary during the absence or incapacity of the latter and such other duties as may be assigned from time to time by the Board of Directors. 38. Other Officers. There may be one or more Assistant Vice Presidents or Assistant Treasurers and other officers and assistant officers who shall perform such duties as may be assigned from time to time by the Board of Directors. 39. Salaries. The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors unless otherwise delegated to the President by the Board of Directors. 40. Resignation and Removal. An officer may resign at any time by delivering notice to the corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a resignation is made effective at a later date and the corporation accepts the future effective date, it may fill the pending vacancy before the effective date if the successor does not take office until the effective date. The Board of Directors may remove any officer at any time with or without cause and any officer or assistant officer, if appointed by another officer, may likewise be removed by such officer. ARTICLE V INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS 41. Indemnification. The corporation shall indemnify an individual who entirely prevails in the defense of any proceeding to which he was a party because he is or was a director of the corporation against reasonable expenses incurred by him in connection with the proceeding. The corporation shall also indemnify an individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding if: (1) he conducted himself in good faith; and (2) he believed: (a) in the case of conduct in his official capacity with the corporation, that his conduct was in its best interests; and (b) in all other cases, that his conduct was at least not opposed to its best interests; and 19 (3) in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. A director's conduct with respect to an employee benefit plan for a purpose he believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement that his conduct was at least not opposed to the best interests of the corporation. The termination of a proceeding by judgment, order, settlement or conviction is not, of itself, determinative that the director did not meet the standard of conduct described in this Section 41 of these bylaws. Notwithstanding the foregoing, the corporation shall not indemnify a director under this Section 41 of these bylaws: (1) in connection with a proceeding by or in the right of the corporation in which the director is adjudged liable to the corporation; or (2) in connection with any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he is adjudged liable on the basis that personal benefit was improperly received by him. Indemnification granted under this Section 41 of these bylaws in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding. The definitions as set forth in Section 13.1-696 of the Code, as in effect from time to time, shall apply with respect to Sections 41 through 46 of these bylaws. 42. Advance for Expenses. The corporation shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if: (1) the director furnishes the corporation a written statement of his good faith belief that he has met the standard of conduct described in Section 41 of these bylaws; (2) the director furnishes the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct (which undertaking shall be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment); and (3) a determination is made that the facts then known to those making the determination would not preclude indemnification under Article 10 of the Act or this Article V of these bylaws. 20 43. Determination and Authorization of Indemnification. The corporation shall not indemnify a director under this Article V of these bylaws unless authorized in the specific case after a determination has been made that indemnification of the director is required under this Article V of these bylaws because he has met the standard of conduct set forth hereunder. The determination shall be made: (1) by the Board of Directors by a majority vote of a quorum consisting of directors not at the time parties to the proceeding; (2) if such a quorum cannot be obtained, by majority vote of a committee duly designated by the Board of Directors (in which directors who are parties may participate in such designation), consisting solely of two or more directors not at the time parties to the proceeding: (3) by special legal counsel: (a) selected by the Board of Directors or its committee in the manner prescribed in subsection (1) or (2) above; (b) if such a quorum of the Board of Directors cannot be obtained; and such a committee cannot be designated, selected by a majority vote of the full Board of Directors, in which directors who are parties may participate in such selection; or (4) by the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination. Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, except that if the determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection (3) of this Section 43 to select counsel. 44. Indemnification of Officers, Employees, Agents and Others. Each officer, employee and agent of the corporation shall be entitled to indemnification and advance expenses to the same extent as to a director. 45. Insurance. The corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee or agent of the corporation, or who, while a director, officer, employee or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against liability asserted against or incurred by him in that capacity or arising from his status as a director, officer, employee or agent, whether or not the corporation would have power to indemnify him against the same liability under Section 41 of these bylaws. 21 46. Application. The corporation shall have power to make any further indemnity, including advance of expenses, to any director, officer, employee or agent that may be authorized by the Articles of Incorporation or any bylaw made by the shareholders or any resolution adopted, before or after the event, by the shareholders, except an indemnity against his gross negligence or willful misconduct. Unless the Articles of Incorporation or any such bylaw or resolution provide otherwise, any determination as to any further indemnity shall be made in accordance with Section 43 of these bylaws. Each such indemnity may continue as to a person who has ceased to have the capacity referred to above and may inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE VI CERTIFICATES OF STOCK 47. Form and Content. Each stock certificate shall state on its face the name of the corporation and that it is organized under the law of Commonwealth of Virginia, the name of the person to whom issued and the number and class of stock and the designation of the series, if any, the certificate represents. If the corporation is authorized to issue different classes of stock or different series within a class, the designations, relative rights, preferences and limitations applicable to each class and the variations in rights, preferences and limitations determined for each series (and the authority of the Board of Directors to determine variations for future series) shall be summarized on the front or back of each certificate for stock of such class or series. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge. Each stock certificate shall be signed by the President and the Secretary or an Assistant Secretary and shall bear the corporate seal or its facsimile. The signatures of the officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the corporation or an employee of the corporation. 48. Fractional Shares. The corporation may, if authorized by the Board of Directors, issue fractions of a share or pay in money the value of fractions of shares, arrange for disposition of fractional shares by the shareholders or issue scrip in registered or bearer form entitling the holder to receive a full share upon surrendering enough scrip to equal a full share. Each certificate representing scrip shall be conspicuously labeled "Scrip" and shall contain the information required by Section 47 of these bylaws. The holder of a fractional share is entitled to exercise the rights of a shareholder, including the right to vote, to receive dividends and to participate in the assets of the corporation upon dissolution. The holder of scrip is not entitled to any of these rights unless the scrip provides for them. The Board of Directors may authorize the issuance of scrip subject to any condition considered desirable by it, including that the scrip will become void if not exchanged for full shares before a specified date and that the shares for which the scrip is exchangeable may be sold by the corporation and the proceeds paid to the scrip holders. 22 When the corporation is to pay in money the value of fractions of a share, such value shall be determined by the Board of Directors. A good faith judgment of the Board of Directors as to the value of a fractional share is conclusive. 49. Lost Certificates. The Board of Directors may direct new certificates to be issued in place of any lost or destroyed certificate or certificates previously issued by the corporation if the person or persons who claim the certificate or certificates make an affidavit stating that the certificates of stock have been lost or destroyed. When authorizing the issuance of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificates, or the legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the corporation a bond or other form of indemnification, in such sum, and with or without surety, as the Board of Directors may direct, to indemnify the corporation against any claim that may be made against the corporation with respect to the certificate or certificates alleged to have been lost or destroyed. 50. Transfer of Stock. Upon surrender to the corporation, or to the transfer agent of the corporation, if any, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction upon its books. 51. Registered Shareholders. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the owner thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person. The corporation shall not be liable for registering any transfer of shares which are registered in the name of a fiduciary unless done with actual knowledge that the fiduciary is committing a breach of obligation as fiduciary in making the transfer, or unless done with actual knowledge of such facts that the corporation's action in registering the transfer amounts to bad faith. ARTICLE VII RECORDS AND REPORTS 52. Corporate Records. The corporation shall keep as permanent records its Articles of Incorporation or restated Articles of Incorporation and all amendments thereto and bylaws or restated bylaws and all amendments thereto currently in effect, all written communications to shareholders generally, annual reports filed with the Virginia State Corporation Commission, minutes of all meetings of its shareholders and Board of Directors, a record of all actions taken by the shareholders or Board of Directors without a meeting and a record of all actions taken by a committee of the Board of Directors in place of the Board of Directors on behalf of the corporation. The corporation shall maintain appropriate accounting records. The corporation or its agent shall maintain the names and business addresses of its officers and directors and a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class and series, if any, of shares showing the number 23 and class and series, if any, of shares held by each. The corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time. 53. Inspection of Records by Shareholders. Subject to Section 13.1-772.C. of the Code, a shareholder of the corporation or his agent or attorney is entitled to inspect and copy (at his expense), during regular business hours at the corporation's principal office, any of the records of the corporation described in Section 13.1-770.E. of the Code if he gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy. A shareholder of the corporation or his agent or attorney is entitled to inspect and copy (at his expense), during regular business hours at a reasonable location specified by the corporation, any of the records of the corporation described in Section 13.1-771.B. of the Code if the shareholder meets the requirements set forth in Section 13.1-771.C. of the Code and gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy such records. 54. Financial Statements for Shareholders. If requested in writing by any shareholder, the corporation shall furnish the shareholder with the financial statements for the most recent fiscal year, which may be consolidated or combined statements of the corporation and one or more of its subsidiaries, as appropriate, that include a balance sheet as of the end of the fiscal year, an income statement for that year and a statement of changes in shareholders' equity for the year unless that information appears elsewhere in the financial statements. If financial statements are prepared for the corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared on that basis. If the annual financial statements are reported upon by a public accountant, his report must accompany them. If the annual financial statements are not reported upon by a public accountant, the President or the person responsible for the corporation's accounting records shall provide the shareholder with a statement of the basis of accounting used in preparation of the annual financial statements and a description of any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year. 24 ARTICLE VIII MISCELLANEOUS 55. Control Share Acquisitions. The corporation is authorized to redeem shares of its Common Stock acquired in a control share acquisition in accordance with Section 13.1-728.7 of the Code. 56. Registered Office and Agent. The corporation shall at all times have a registered office and a registered agent. 57. Seal. The seal of the corporation shall be a flat faced circular die containing the word "SEAL" in the center and the name of the corporation or an appropriately abbreviated name around the circumference. 58. Amendment of Bylaws. The corporation's Board of Directors may amend or repeal the corporation's bylaws except to the extent that: (1) the Articles of Incorporation or the Act reserve this power exclusively to the shareholders; (2) the shareholders in adopting or amending particular bylaws provide expressly that the Board of Directors may not amend or repeal that bylaw; (3) a corporation's shareholders may amend or repeal the corporation's bylaws even though the bylaws also may be amended or repealed by its Board of Directors. 59. General. Any matters not specifically covered by these bylaws shall be governed by the applicable provisions of the Code in force at the time. The foregoing Amended and Restated Bylaws for Colonial Downs Holdings, Inc. have been approved and adopted pursuant to a Consent of Directors in Lieu of Special Meeting dated February 11, 1997. COLONIAL DOWNS HOLDINGS, INC. /s/ Arnold W. Stansley --------------------------------- Arnold W. Stansley, Secretary EX-4.1 6 STOCK CERTIFICATE NUMBER SHARES A COLONIAL DOWNS HOLDINGS, INC. INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA CLASS A COMMON STOCK CUSIP 19564H 10 0 SEE REVERSE SIDE FOR CERTAIN DEFINITIONS OR OTHER LEGENDS This Certifies That is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE, OF COLONIAL DOWNS HOLDINGS, INC. transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed or assigned. This Certificate and the shares represented hereby are subject to the Laws of the Commonwealth of Virginia, and to the provisions of the Amended and Restated Articles of Incorporation and Amended and Restated By-Laws of the Corporation as stated or hereafter amended. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. [In the printed version the Corporate Seal of Colonial Downs Holdings, Inc. appears here.] Dated: SECRETARY CHAIRMAN COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE COLONIAL DOWNS HOLDING, INC. A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS APPLICABLE TO EACH CLASS OF SHARES AND THE VARIATIONS IN RIGHTS. PREFERENCES AND LIMITATIONS DETERMINED FOR EACH CLASS (AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS OF FUTURE CLASSES OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE) WILL BE FURNISHED, WITHOUT CHARGE, TO ANY SHAREHOLDER UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION. The following abbreviations, when used in the inscription on the face of this certificate, shall be constructed as though they were written out in full according to applicable laws and regulations: TEN COM as tenants in common UNIF GIFT MIN ACT *.......Custodian..... (Cust) (Minor) TEN ENT as tenants by the entireties under Uniform Transfer to Minors JT TEN as joint tenants with right of survivorship and not as tenants Act............................. in common (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED_______________________HEREBY SELL, ASSIGN AND TRANSFER UNTO PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- ------------------------------------------------- Please Print or Typewrite Name and Address, including Postal Zip Code Assignee - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - --------------------------------------------------------------------------shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint--------------------------------------------- - ----------------------------------------------------------------------Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated ---------------------------- ----------------------------------------- NOTICE: THE SIGNATURE(S) SHOULD BE GUARANTEED AND MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THIS In Presence of CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. - ---------------------------------- EX-5.1 7 OPINION LETTER Exhibit 5.1 [LETTERHEAD OF HOGAN & HARTSON, L.L.P.] March 7, 1997 Board of Directors Colonial Downs Holding, Inc. 3610 N. Courthouse Road Providence Forge, VA 23140 Ladies and Gentlemen: We are acting as special counsel to Colonial Downs Holding, Inc., a Virginia corporation (the "Company"), in connection with its registration statement on Form S-1 as amended (the "Registration Statement") filed with the Securities and Exchange Commission relating to the proposed public offering of up to 4,887,500 shares (including up to 637,500 shares as to which the Company has granted an option solely to cover overallotments) of the Company's Class A common stock, par value $.01 per share, all of which shares (the "Shares") are to be sold by the Company. This opinion letter is furnished to you at your request to enable you to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. ss. 229.601(b)(5), in connection with the Registration Statement. For purposes of this opinion letter, we have examined copies of the following documents: 1. An executed copy of the Registration Statement and all the amendments thereto filed on or before this date. 2. The Amended and Restated Articles of Incorporation of the Company, as certified by the Secretary of the Company on March 6, 1997 as then being complete, accurate and in effect, filed as Exhibit 3.1 to the Registration Statement (the "Amended Charter"). 3. The Bylaws of the Company, as certified by the Secretary of the Company on the date hereof as then being complete, accurate and in effect. 4. The Plan and Agreement of Reorganization dated as of February 12, 1997, filed as Exhibit 2.1 to the Registration Statement. 5. The proposed form of Underwriting Agreement among the Company and the several Underwriters to be named therein, for whom Friedman, Billings, Ramsey & Co., Inc. will act as representative, filed as Exhibit 1.1 to the Registration Statement (the "Underwriting Agreement"). 6. Resolutions of the Directors of the Company adopted by unanimous consent as certified by the Secretary of the Company as being complete, accurate and in effect, relating to the issuance and sale of the Shares and arrangements in connection therewith. In our examination of the aforesaid documents, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity, accuracy and completeness of all documents submitted to us, and the conformity with the original documents of all documents submitted to us as certified, telecopied, photostatic, or reproduced copies. This opinion letter is given, and all statements herein are made, in the context of the foregoing. This opinion letter is based as to matters of law solely on the Stock Corporation Act of the Commonwealth of Virginia. We express no opinion herein as to any other laws, statutes, regulations, or ordinances. Based upon, subject to and limited by the foregoing, we are of the opinion that following (i) final action of an Officer or Director of the Company approving the price of the Shares, (ii) execution and delivery by the Company of the Underwriting Agreement, (iii) effectiveness of the Registration Statement, (iv) the effectiveness of the reorganization pursuant to the Plan and Agreement of Reorganization, (v) issuance of the Shares pursuant to the terms of the Underwriting Agreement and (vi) receipt by the Company of the consideration for the Shares specified in the action of an Officer or Director of the Company referred to above in (i), the Shares will be validly issued, fully paid and nonassessable under the Stock Corporation Act of the Commonwealth of Virginia. We assume no obligation to advise you of any changes in the foregoing subsequent to the delivery of this opinion letter. This opinion letter has been prepared solely for your use in connection with the filing of the Registration Statement on the date of this opinion letter and should not be quoted in whole or in part or otherwise be referred to, nor filed with or furnished to any governmental agency or other person or entity, without the prior written consent of this firm. We hereby consent to the filing of this opinion letter as Exhibit 5.1 to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the prospectus constituting a part of the Registration Statement. In giving this consent, we do not thereby admit that we are an "expert" within the meaning of the Securities Act of 1933, as amended. Very truly yours, HOGAN & HARTSON L.L.P. EX-10.2 8 AMENDED PERFORMANCE GUARANTEE AGREEMENT AMENDED AND RESTATED PERFORMANCE GUARANTEE AGREEMENT This Amended and Restated Performance Guarantee Agreement, dated as of February 27, 1997 (the "Agreement"), amends and restates the Performance and Guarantee Agreement, dated as of the 1st day of January, 1995, by and between the VIRGINIA RACING COMMISSION, a Commission of the Commonwealth of Virginia ("Commission"), and COLONIAL DOWNS, L.P., a Virginia limited partnership ("Colonial Downs"). RECITALS WHEREAS, Pursuant to its "Case Decision Regarding Licensure for the Ownership and Operation of a Horse Racing Facility" of October, 1994 (the "Award"), the Commission awarded to Colonial Downs, an owner's license and to Stansley Racing Corp., a Virginia corporation ("Stansley Racing"), an operator's license to, respectively, own and operate a horse racing facility (sometimes, the "Track") in New Kent County, Virginia; and WHEREAS, paragraph 109 of the Award obliges Colonial Downs to: . . . furnish, not later than January 1, 1995, a performance guarantee of not less than one million dollars ($1,000,000) in form and manner acceptable to the Commission, upon the occurrence of any of the following: a. Failure to construct, complete and open for the racing the facilities by December 1, 1995. b. Failure to construct, complete and open for racing the outer turf course by June 1, 1997. Forfeiture shall not be required if the occurrences 1 subparagraphs a. or b. above result solely from an act of God, act of war, terrorism or other force majeure, which cause is beyond the control of the licensee; WHEREAS, the Virginia Jockey Club, a rejected applicant for an owner's and operator's license, appealed (the "Appeal") the Award, and such Appeal was not conclusively and finally resolved until May 17, 1996 (the "Appeal Conclusion Date"); WHEREAS, the Commission at its July 17, 1996 meeting authorized a track design for Colonial Downs that alleviated the need for an outer-turf course; and WHEREAS, the parties desire by this Agreement to establish the terms and conditions pursuant to which the Commission shall be entitled to draw, as liquidated damages, monies from the performance guarantee Sum, as such term is defined herein. 26 AGREEMENT: NOW THEREFORE, in consideration of the Award, the above recitals, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Colonial Downs and the Commission agree as follows: A. The Guarantee Colonial Downs is held and firmly bound unto the Commission in the sum of ONE MILLION AND NO/100 Dollars ($1,000,000.00) (the "Sum") as its performance guarantee, from which liquidated damages shall be paid, as provided herein, to the Commission upon the failure to construct, complete and open the Track for racing, consistent with the architectural drawings approved by the Commission, within fourteen (14) months of the date of the Appeal Conclusion Date. The occurrence of such failure shall constitute a "Default" hereunder, except as otherwise provided in Section C herein. B. Liquidated Damages The parties agree that time is of the essence with regard to opening the Track for racing and Colonial Downs acknowledges that its failure to complete the Track within the time period set forth herein will result in significant damages to the Commonwealth of Virginia, including but not limited to lost tax revenues and fees. Colonial Downs acknowledges further that such damages are difficult to determine, but are nonetheless real. Accordingly, for each day after the deadlines specified in Section A above, and subject to the allowable delays specified in Section C hereof, that Colonial Downs fails to complete and open the Track for racing, the Commission shall be entitled to a payment of $5,000 per day, up to an aggregate amount equal to the Sum, as liquidated damages. Colonial Downs agrees that such per day liquidated damages are reasonable, and not a penalty, based upon the facts and circumstances as of the date hereof with due regard to future expectations. Colonial Downs hereby expressly waives, and releases the Commission from, all claims and defenses to the effect that the liquidated damages are unreasonable, are a penalty, or constitute anything other than a reasonable, bargained for determination of liquidated damages. C. Allowable Delays. 1. Unavoidable Delays. A Default shall not be deemed to have occurred and payment of liquidated damages shall not be required if the delays specified in Section A of this Agreement occur solely as a result of the following cause or causes, individually or in combination, and such cause or causes are beyond the ability of Colonial Downs to overcome through the exercise of reasonable diligence: a. Acts of God; 27 b. Delay caused by acts or neglect of the Commission or the Commonwealth in issuing required permits or other administrative approvals regarding Colonial Downs' facility; c. Acts of war or terrorism; d. Strikes or labor disputes affecting the Track: e. Materially adverse weather conditions at the Track Site not reasonably anticipated; f. Fire or other unavoidable casualties at the Track Site; g. Colonial Downs' inability to obtain materials or unavailability of specified materials where there are no reasonable substitutes available or no alternative methods or means available of obtaining such materials on a timely basis; h. Construction delays caused by subsurface or otherwise concealed physical conditions at the Track site differing materially from those indicated in the plans and specifications, or from those originally encountered, which were not ascertainable by Colonial Downs prior to the Award; i. Delays authorized or consented to in writing by the Commission, which authorization or consent is in the Commission's sole, unfettered discretion to grant or deny; j. Delays attributable to legal actions initiated by Colonial Downs to require Delmarva Properties, Inc. or Chesapeake Forest Products, Co. to deliver the real estate for the Track to Colonial Downs following the Appeal Conclusion Date, provided that Colonial Downs has taken all actions reasonably available to it, including the filing and aggressive prosecution of legal action, to compel Delmarva Properties or Chesapeake Forest Products, Co. to deliver such real estate sufficiently in advance of the time period set forth in Section A of this Performance Guarantee Agreement to allow Colonial Downs to comply with such time period; k. Delays caused solely by the failure of any governmental agency, department, or organization to timely issue building permits or other construction-related permits that could not be secured prior to the date hereof or to timely perform inspections that cannot be completed prior to construction on matters necessary for the proper execution and completion of the work necessary to build or complete the Track, provided that Colonial Downs has taken all actions reasonably available to it, including the filing and aggressive prosecution of legal action, to compel such agencies, departments, or organizations to issue such permits and to timely perform such inspections sufficiently in advance of the time period set forth in 28 Section A of this Performance Guarantee Agreement to allow Colonial Downs to comply with such time period; or 1. Delays caused solely by the failure of the Commonwealth of Virginia, New Kent County, Virginia, Virginia Power, or Chesapeake Corporation and its subsidiaries to construct, complete, and/or maintain facilities ancillary to the Track (such as roads or other related infrastructure) which are necessary for Colonial Downs or Stansley Racing to fulfill their respective obligations under the Award, provided that Colonial Downs has taken all actions reasonably available to it, including the filing and aggressive prosecution of legal action, to compel such entities to construct, complete and/or maintain such facilities sufficiently in advance of the time period set forth in Section A of this Performance Guarantee Agreement to allow Colonial Downs to comply with such time period. The deadline specified in Section A of this Agreement shall be suspended for each day that a delay specified in this Section C occurs and continues, provided that Colonial Downs exercises all reasonable diligence during such time to overcome the delay. 2. Claims of Delays. Colonial Downs' claim, if any, for a suspension of the deadline for the reasons set forth in this Section C must be made in writing to the Commission not more than five days after Colonial Downs has notice of the delay (the "Initial Claim"). Thereafter, Colonial Downs must submit a report (the "Initial Report") providing full details and supporting documentation with regard to the cause of the delay within 15 days of the Initial Claim to the Commission. If either the Initial Claim or the Initial Report is not filed with the Commission in writing within the time periods specified, the claim for delay shall be waived. If the cause for the delay is a continuing one, then only one claim is necessary, provided that Colonial Downs shall provide the Commission with written reports regarding the status of the delay and all efforts being made to overcome the delay every seven days following the Initial Report. Colonial Downs' Initial Report and all subsequent reports shall include an estimate of the probable effect of the delay on the progress of the work and the projected schedule for opening the Track. D. Form of the Performance Guarantee 1. Letters of Credit. The Sum shall be in the form of an irrevocable letter of credit or letters of credit (the "Irrevocable Letters of Credit") in favor of the Commission, drawn on a bank or banks acceptable to the Commission. Copies of the Irrevocable Letters of Credit currently in force are attached hereto as Exhibit A. 2. Drawing on the Sums. Pursuant to the terms hereof, the Commission shall be entitled to draw upon the Irrevocable Letters of Credit as liquidated damages upon the occurrence or continuance of a Default, after accounting for allowable delays under Section C hereof, and the giving of five days prior written notice to Colonial Downs of the Commission's intention to draw down such amounts. Five days after giving such notice, and provided that Colonial Downs has not delivered a written objection to the Commission and the issuers of said letters of credit during such period, the Commission shall be entitled to recover such liquidated damages by 29 drawing the amount thereof from the Irrevocable Letters of Credit in such order and in such manner as the Commission in its sole discretion shall decide, including but not limited to drawing such liquidated damages from time to time as any Default continues, or in one lump sum upon completion of the Track after any such Default. If Colonial Downs objects to the Commission's intention to draw down such amounts, the parties shall meet within ten (10) days of the date of such objection to resolve their differences In the event the parties are unable to resolve their differences within such ten-day period, the Commission may draw down the liquidated damages from the letters of credit for each day of the claimed delay as provided herein, and in the event Colonial Downs provides written notice of its intention to file a declaratory judgment action regarding the dispute, the Commission shall hold such funds in escrow for ten days or until there is a final resolution of such action, whichever occurs later. 3. Expiration of Letters of Credit. In the event that any Irrevocable Letter of Credit is not replaced or extended at least thirty (30) days prior to the expiration date appearing on its face, the Commission may draw down such letter of credit upon five days' prior written notice to Colonial Downs. Any funds drawn down under such expiring Irrevocable Letter of Credit shall be held by the Commission in escrow in an interest-bearing account and may be drawn upon in accordance with the requirements, including notice requirements to Colonial Downs, of Section D.2. hereof. E. Miscellaneous 1. Disputes. In the event an action is filed to construe, interpret or enforce this Agreement or any provision or section thereof, or to declare the parties' rights and/or obligations hereunder, including but not limited to an action to determine whether the Track is properly complete and open for racing, an action to determine whether a basis of delay claimed by Colonial Downs constitutes an allowable delay and as set forth in Section C hereof, or an action to determine whether the Commission may properly draw down the Irrevocable Letters of Credit as provided in Section D hereof., and to the extent the Commission substantially prevails in such action, the Commission shall be entitled to reimbursement of its attorney's fees and costs from Colonial Downs, which amount shall be in excess of and in addition to the Sum. 2. Definitions. The terms of this Performance Guarantee shall have the definitions ascribed to them in the Award, except for those terms specifically defined herein. 3. Award Rescinded. If, as a result of any appeal of the Award, the Award is overturned or rescinded by a court or by the Commission at the direction of a court such that the licenses granted by the Award shall no longer be held by Colonial Downs or Stansley Racing, as the case may be, this Performance Guarantee shall thereupon automatically become null and void and the Sum and any collateral on deposit with the Commission in respect of the Sum shall thereupon be returned promptly to Colonial Downs. 4. Severability. To the extent any provision of this Agreement is prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition 30 or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement, which shall remain in full force and effect. 5. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Virginia without giving effect to the conflict of laws principles thereof. 6. Entire Agreement/Modification. This Agreement constitutes the entire agreement between the parties relating to the Performance Guarantee as required by Paragraph 109 of the Award and sets forth in their entirety the obligations and duties of the parties with respect thereto. This Agreement may not be modified unless the modification is set forth in writing signed by all parties hereto. 7. Binding Effect. All of the terms of this Agreement shall be binding upon, and inure to the benefit of and be enforceable by the respective heirs, successors and assigns of the Commission and Colonial Downs. 8. Execution and Counterparts. This Agreement may be executed in two or more counterparts, which when so executed shall constitute one in the same Agreement. 31 9. Full Authority. Each signatory hereto warrants, represents and agrees that such signatory has all necessary authority to agree and enter into this Agreement. WITNESS the following signatures: COLONIAL DOWNS, L.P., a Virginia limited partnership By: Stansley Management Corp., a general partner By: /s/ Brett Lee Stansley ---------------------------------- Brett Lee Stansley, Vice President By: CD Entertainment Ltd., a general partner By: /s/ Jeffrey P. Jacobs ------------------------------------ Jeffrey P. Jacobs, manager of Jacobs Entertainment Ltd., its manager Receipt of the sum is hereby acknowledged and the terms of the above Performance Guarantee are hereby approved and agreed to. VIRGINIA RACING COMMISSION By: _______________________________ Name:_______________________________ Title:______________________________ EXHIBIT A Form of Letter of Credit EX-10.4 9 MATERIAL CONTRACTS Exhibit 10.4 Standard Form of Agreement Between Owner and Construction Manager where the Construction Manager is also the Constructor AIA Document A121/CMc and AGC Document 565 - Electronic Format AGREEMENT made as of the 10th day of February in the year of 1997 (In words, indicate day, month and year) BETWEEN the Owner: (Name and address) Colonial Downs, L.P., a Virginia limited partnership 3610 N. Courthouse Road Post Office Box 456 Providence Forge, VA 23140 and the Construction Manager: Norglass, Inc. (Name and address) Post Office Box 173 New Kent, Virginia 23124 THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS COMPLETION OR MODIFICATION. AUTHENTICATION OF THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401. The 1987 Edition of AIA Document A201, General Conditions of the Contract for Construction, is referred to herein. This Agreement requires modification if other general conditions are utilized. Portions of this document are derived from AIA Document A111, Standard Form of Agreement Between the Owner and Contractor where the Basis of Payment is the Cost of the Work Plus a Fee, copyright 1920. 1925. 1951. 1958. 1961. 1963. 1967. 1974. 1978. copyright 1987 by The American Institute of Architects; other portions are derived from AGC Document Document 500. Copyright 1980 by The Associated General Contractors of American. Material in this document differing from that found in AIA Document A111 and AGC Document 500 is copyrighted 1991 by The American Institute of Architects and The Associated General Contractors of America. Reproduction of the material herein or substantial quotation of its provisions without written permission of AIA and AGC violates the copyright laws of the United States and will subject the violator to legal prosecution. The Project is: Colonial Downs horse racetrack in New Kent County, Virginia (Name, address and brief description) The Architect is: See Section II.D.1 of the attached Contract Amendment #1. (Name and address) The Owner and Construction Manager agree as set forth below. See Contract Amendment #1 attached hereto and made a part hereof. In the event of any conflict between the agreement and the Amendment, the Amendment shall be controlling. TABLE OF CONTENTS ARTICLE 1 GENERAL PROVISIONS 1.1 Relationship of Parties 1.2 General Conditions ARTICLE 2 CONSTRUCTION MANAGER'S RESPONSIBILITIES 2.1 Preconstruction Phase 2.2 Guaranteed Maximum Price Proposal and Contract Time 2.3 Construction Phase 2.4 Professional Services 2.5 Unsafe Materials ARTICLE 3 OWNER'S RESPONSIBILITIES 3.1 Information and Services 3.2 Owner's Designated Representative 3.3 Architect 3.4 Legal Requirements ARTICLE 4 COMPENSATION AND PAYMENTS FOR PRECONSTRUCTION PHASE SERVICES 4.1 Compensation 4.2 Payments ARTICLE 5 COMPENSATION FOR CONSTRUCTION PHASE SERVICES 5.1 Compensation 5.2 Guaranteed Maximum Price 5.3 Changes in the Work ARTICLE 6 COST OF THE WORK FOR CONSTRUCTION PHASE 6.1 Costs To Be Reimbursed 6.2 Costs Not To Be Reimbursed 6.3 Discounts, Rebates and Refunds 6.4 Accounting Records ARTICLE 7 CONSTRUCTION PHASE 7.1 Progress Payments 7.2 Final Payment ARTICLE 8 INSURANCE AND BONDS 8.1 Insurance Required of the Construction Manager 8.2 Insurance Required of the Owner 8.3 Performance Bond and Payment Bond ARTICLE 9 MISCELLANEOUS PROVISIONS 9.1 Dispute Resolution for the Preconstruction Phase 9.2 Dispute Resolution for the Construction Phase 9.3 Other Provisions ARTICLE 10 TERMINATION OR SUSPENSION 10.1 Termination Prior to Establishing Guaranteed Maximum Price 10.2 Termination Subsequent to Establishing Guaranteed Maximum Price 10.3 Suspension ARTICLE 11 OTHER CONDITIONS AND SERVICES Attachments: AMENDMENT NO. 1 to Agreement Between Owner and Construction Manager Exhibit A List of Drawings and Specifications Exhibit B Budget Exhibit C Schedule STANDARD FORM OF AGREEMENT BETWEEN OWNER AND CONSTRUCTION MANAGER WHERE THE CONSTRUCTION MANAGER IS ALSO THE CONSTRUCTOR ARTICLE 1 GENERAL PROVISIONS 1.1 RELATIONSHIP OF PARTIES The Construction Manager accepts the relationship of trust and confidence established with the Owner by this Agreement, and covenants with the Owner to furnish the Construction Manager's reasonable skill and judgment and to cooperate with the Architect in furthering the interests of the Owner. The Construction Manager shall furnish construction administration and management services and use the Construction Manager's best efforts to perform the Project in an expeditious and economical manner consistent with the interests of the Owner. The Owner shall endeavor to promote harmony and cooperation among the Owner, Architect, Construction Manager and other persons or entities employed by the Owner for the Project. 1.2 GENERAL CONDITIONS For the Construction Phase, the General Conditions of the Contract shall be the 1987 Edition of AIA Document A201. General Conditions of the Contract for Construction, which is incorporated herein by reference. For the Preconstruction Phase, or in the event that the Preconstruction and Construction Phases proceed concurrently, AIA Document A201 shall apply to the Preconstruction Phase only as specifically provided in this Agreement. The term "Contractor" as used in AIA Document A201 shall mean the Construction Manager. ARTICLE 2 CONSTRUCTION MANAGER'S RESPONSIBILITIES The Construction Manager shall perform the services described in this Article. The services to be provided under Paragraphs 2.1 and 2.2 constitute the Preconstruction Phase services. If the Owner and Construction Manager agree, after consultation with the Architect, the Construction Phase may commence before the Preconstruction Phase is completed, in which case both phases shall proceed concurrently. 2.1 PRECONSTRUCTION PHASE 2.1.1 PRELIMINARY EVALUATION The Construction Manager shall provide a preliminary evaluation of the Owner's program and Project budget requirements, each in terms of the other. 2.1.2 CONSULTATION The Construction Manager with the Architect shall jointly schedule and attend regular meetings with the Owner and Architect. The Construction Manager shall consult with the Owner and Architect regarding site use and improvements, and the selection of materials, building systems and equipment. The Construction Manager shall provide recommendations on construction feasibility; actions designed to minimize adverse effects of labor or material shortages; time requirements for procurement, installation and construction completion: and factors related to construction cost including estimates of alternative designs or materials, preliminary budgets and possible economies. 2.1.3 PRELIMINARY PROJECT SCHEDULE When Project requirements described in Subparagraph 3.l.l have been sufficiently identified, the Construction Manager shall prepare, and periodically update, a preliminary Project schedule for the Architect's review and the Owner's approval. The Construction Manager shall obtain the Architect's approval of the portion of the preliminary Project schedule relating to the performance of the Architect's services. The Construction Manager shall coordinate and integrate the preliminary Project schedule with the services and activities of the Owner, Architect and Construction Manager. As design proceeds, the preliminary Project schedule shall be updated to indicate proposed activity sequences and durations, milestone dates for receipt and approval of pertinent information, submittal of a Guaranteed Maximum Price proposal, preparation and processing of shop drawings and samples, delivery of materials or equipment requiring long-lead time procurement. Owner's occupancy requirements showing portions of the Project having occupancy priority, and proposed date of Substantial Completion. If preliminary Project schedule updates indicate that previously approved schedules may not be met, the Construction Manager shall make appropriate recommendations to the Owner and Architect. 2.1.4 PHASED CONSTRUCTION The Construction Manager shall make recommendations to the Owner and Architect regarding the phased issuance of Drawings and Specifications to facilitate phased construction of the Work, if such phased construction is appropriate for the Project, taking into consideration such factors as economies, time of performance, availability of labor and materials and provisions for temporary facilities. 2.1.5 PRELIMINARY COST ESTIMATES 2.1.5.1 When the Owner has sufficiently identified the Project requirements and the Architect has prepared other basic design criteria, the Construction Manager shall prepare, for the review of the Architect and approval of the Owner, a preliminary cost estimate utilizing area, volume or similar conceptual estimating techniques. 2.1.5.2 When Schematic Design Documents have been prepared by the Architect and approved by the Owner, the Construction Manager shall prepare for the review of the Architect and approval of the Owner, a more detailed estimate with supporting data. During the preparation of the Design Development Documents, the Construction Manager shall update and refine this estimate at appropriate intervals agreed to by the Owner, Architect and Construction Manager. 2.1.5.3 When Design Development Documents have been prepared by the Architect and approved by the Owner, the Construction Manager shall prepare a detailed estimate with supporting data for review by the Architect and approval by the Owner. During the preparation of the Construction Documents, the Construction Manager shall update and refine this estimate at appropriate intervals agreed to by the Owner, Architect and Construction Manager. 2.1.5.4 If any estimate submitted to the Owner exceeds previously approved estimates or the Owner's budget, the Construction Manager shall make appropriate recommendations to the Owner and Architect. 2.1.6 SUBCONTRACTORS AND SUPPLIERS The Construction Manager shall seek to develop subcontractor interest in the Project and shall furnish to the Owner and Architect for their information a list of possible subcontractors, including suppliers who are to furnish materials or equipment fabricated to a special design, from whom proposals will be requested for each principal portion of the Work. The Architect will promptly reply in writing to the Construction Manager if the Architect or Owner know of any objection to such subcontractor or supplier. The receipt of such list shall not require the Owner or Architect to investigate the qualifications of proposed subcontractors or suppliers, nor shall it waive the right of the Owner or Architect later to object to or reject any proposed subcontractor or supplier. 2.1.7 LONG-LEAD TIME ITEMS The Construction Manager shall recommend to the Owner and Architect a schedule for procurement of long-lead time items which will constitute part of the Work as required to meet the Project schedule. If such long-lead time items are procured by the Owner, they shall be procured on terms and conditions acceptable to the Construction Manager. Upon the Owner's acceptance of the Construction Manager's Guaranteed Maximum Price proposal, all contracts for such items shall be assigned by the Owner to the Construction Manager, who shall accept responsibility for such items as if procured by the Construction Manager. The Construction Manager shall expedite the delivery of long-lead time items. 2.1.8 EXTENT OF RESPONSIBILITY The Construction Manager does not warrant or guarantee estimates and schedules except as may be included as part of the Guaranteed Maximum Price. The recommendations and advice of the Construction Manager concerning design alternatives shall be subject to the review and approval of the Owner and the Owner's professional consultants. It is not the Construction Manager's responsibility to ascertain that the Drawings and Specifications are in accordance with applicable laws, statutes, ordinances, building codes, rules and regulations. However, if the Construction Manager recognizes that portions of the Drawings and Specifications are at variance therewith, the Construction Manager shall promptly notify the Architect and Owner in writing. 2.1.9 EQUAL EMPLOYMENT OPPORTUNITY AND AFFIRMATIVE ACTION The Construction Manager shall comply with applicable laws, regulations and special requirements of the Contract Documents regarding equal employment opportunity and affirmative action programs. 2.2 GUARANTEED MAXIMUM PRICE PROPOSAL AND CONTRACT TIME 2.2.1 When the Drawings and Specifications are sufficiently complete, the Construction Manager shall propose a Guaranteed Maximum Price, which shall be the sum of the estimated Cost of the Work and the Construction Manager's Fee. 2.2.2 As the Drawings and Specifications may not be finished at the time the Guaranteed Maximum Price proposal is prepared, the Construction Manager shall provide in the Guaranteed Maximum Price for further development of the Drawings and Specifications by the Architect that is consistent with the Contract Documents and reasonably inferable therefrom. Such further development does not include such things as changes in scope, systems, kinds and quality of materials, finishes or equipment, all of which, if required, shall be incorporated by Change Order. 2.2.3 The estimated Cost of the Work shall include the Construction Manager's contingency, a sum established by the Construction Manager for the Construction Manager's exclusive use to cover costs arising under Subparagraph 2.2.2 and other costs which are properly reimbursable as Cost of the Work but not the basis for a Change Order. 2.2.4 BASIS OF GUARANTEED MAXIMUM PR1CE The Construction Manager shall include with the Guaranteed Maximum Price proposal a written statement of its basis, which shall include: .1 A list of the Drawings and Specifications, including all addenda thereto and the Conditions of the Contract, which were used in preparation of the Guaranteed Maximum Price proposal. .2 A list of allowances and a statement of their basis. .3 A list of the clarifications and assumptions made by the Construction Manager in the preparation of the Guaranteed Maximum Price proposal to supplement the information contained in the Drawings and Specifications. .4 The proposed Guaranteed Maximum Price, including a statement of the estimated cost organized by trade categories, allowances, contingency, and other items and the fee that comprise the Guaranteed Maximum Price. .5 The Date of Substantial Completion upon which the proposed Guaranteed Maximum Price is based, and a schedule of the Construction Documents issuance dates upon which the date of Substantial Completion is based. 2.2.5 The Construction Manager shall meet with the Owner and Architect to review the Guaranteed Maximum Price proposal and the written statement of its basis. In the event that the Owner or Architect discovers any inconsistencies or inaccuracies in the information presented, they shall promptly notify the Construction Manager, who shall make appropriate adjustments to the Guaranteed Maximum Price proposal, its basis or both. 2.2.6 Unless the Owner accepts the Guaranteed Maximum Price proposal in writing on or before the date specified in the proposal for such acceptance and so notifies the Construction Manager, the Guaranteed Maximum Price proposal shall not be effective without written acceptance by the Construction Manager. 2.2.7 Prior to the Owner's acceptance of the Construction Manager's Guaranteed Maximum Price proposal and issuance of a Notice to Proceed, the Construction Manager shall not incur any cost to be reimbursed as part of the Cost of the Work, except as the Owner may specifically authorize in writing. 2.2.8 Upon acceptance by the Owner of the Guaranteed Maximum Price proposal, the Guaranteed Maximum Price and its basis shall be set forth in Amendment No. l. The Guaranteed Maximum Price shall be subject to additions and deductions by a change in the Work as provided in the Contract Documents and the date of Substantial Completion shall be subject to adjustment as provided in the Contract Documents. 2.2.9 The Owner shall authorize and cause the Architect to revise the Drawings and Specifications to the extent necessary to reflect the agreed-upon assumptions and clarifications contained in Amendment No. 1. Such revised Drawings and Specifications shall be furnished to the Construction Manager in accordance with schedules agreed to by the Owner, Architect and Construction Manager. The Construction Manager shall promptly notify the Architect and Owner if such revised Drawings and Specifications are inconsistent with the agreed-upon assumptions and clarifications. 2.2.10 The Guaranteed Maximum Price shall include in the Cost of the Work only those taxes which are enacted at the time the Guaranteed Maximum Price is established. 2.3 CONSTRUCTION PHASE 2.3.1 GENERAL 2.3.1.1 The Construction Phase shall commence on the earlier of: (1) the Owner's acceptance of the Construction Manager's Guaranteed Maximum Price proposal and issuance of a Notice to Proceed, or (2) the Owner's first authorization to the Construction Manager to: (a) award a subcontract, or (b) undertake construction Work with the Construction Manager's own forces, or (c) issue a purchase order for materials or equipment required for the Work. 2.3.2 ADMINISTRATION 2.3.2.1 Those portions of the Work that the Construction Manager does not customarily perform with the Construction Manager's own personnel shall be performed under subcontracts or by other appropriate agreements with the Construction Manager. The Construction Manager shall obtain bids from Subcontractors and from suppliers of materials or equipment fabricated to a special design for the Work from the list previously reviewed and, after analyzing such bids, shall deliver such bids to the Owner and Architect. The Owner shall then determine, with the advice of the Construction Manager and subject to the reasonable objection of the Architect, which bids will be accepted. The Owner may designate specific persons or entities from whom the Construction Manager shall obtain bids; however, if the Guaranteed Maximum Price has been established, the Owner may not prohibit the Construction Manager from obtaining bids from other qualified bidders. The Construction Manager shall not be required to contract with anyone to whom the Construction Manager has reasonable objection. 2.3.2.2 If the Guaranteed Maximum Price has been established and a specific bidder among those whose bids are delivered by the Construction Manager to the Owner and Architect (1) is recommended to the Owner by the Construction Manager; (2) is qualified to perform that portion of the Work; (3) has submitted a bid which conforms to the requirements of the Contract Documents without reservations or exceptions, but the Owner requires that another bid be accepted, then the Construction Manager may require that a change in the Work be issued to adjust the Contract Time and the Guaranteed Maximum Price by the difference between the bid of the person or entity recommended to the Owner by the Construction Manager and the amount of the subcontract or other agreement actually signed with the person or entity designated by the Owner. 2.3.2.3 Subcontracts and agreements with suppliers furnishing materials or equipment fabricated to a special design shall conform to the payment provisions of Subparagraphs 7.1.8 and 7.1.9 and shall not be awarded on the basis of cost plus a fee without the prior consent of the Owner. 2.3.2.4 The Construction Manager shall schedule and conduct meetings at which the Owner, Architect, Construction Manager and appropriate Subcontractors can discuss the status of the Work. The Construction Manager shall prepare and promptly distribute meeting minutes. 2.3.2.5 Promptly after the Owner's acceptance of the Guaranteed Maximum Price proposal, the Construction Manager shall prepare a schedule in accordance with Paragraph 3.10 of AIA Document A201, including the Owner's occupancy requirements. 2.3.2.6 The Construction Manager shall provide monthly written reports to the Owner and Architect on the progress of the entire Work. The Construction Manager shall maintain a daily log containing a record of weather. Subcontractors working on the site, number of workers, Work accomplished, problems encountered and other similar relevant data as the Owner may reasonably require. The log shall be available to the Owner and Architect. 2.3.2.7 The Construction Manager shall develop a system of cost control for the Work, including regular monitoring of actual costs for activities in progress and estimates for uncompleted tasks and proposed changes. The Construction Manager shall identify variances between actual and estimated costs and report the variances to the Owner and Architect at regular intervals. 2.4 PROFESSIONAL SERVICES The Construction Manager shall not be required to provide professional services which constitute the practice of architecture or engineering, unless such services are specifically required by the Contract Documents for a portion of the Work or unless the Construction Manager has specifically agreed in writing to provide such services. In such event, the Construction Manager shall cause such services to be performed by appropriately licensed professionals. 2.5 UNSAFE MATERIALS In addition to the provisions of Paragraph 10.1 in AIA Document A201, if reasonable precautions will be inadequate to prevent foreseeable bodily injury or death to persons resulting from a material or substance encountered but not created on the site by the Construction Manager, the Construction Manager shall, upon recognizing the condition, immediately stop Work in the affected area and report the condition to the Owner and Architect in writing. The Owner, Construction Manager and Architect shall then proceed in the same manner described in Subparagraph 10.1.2 of AIA Document A201. The owner shall be responsible for obtaining the services of a licensed laboratory to verify the presence or absence of the material or substance reported by the Construction Manager and, in the event such material or substance is found to be present, to verify that it has been rendered harmless. Unless otherwise required by the Contract Documents, the Owner shall furnish in writing to the Construction Manager and Architect the names and qualifications of persons or entities who are to perform tests verifying the presence or absence of such material or substance or who are to perform the task of removal or safe containment of such material or substance. The Construction Manager and Architect will promptly reply to the Owner in writing stating whether or not either has reasonable objection to the persons or entities proposed by the Owner. If either the Construction Manager or Architect has an objection to a person or entity proposed by the Owner, the Owner shall propose another to whom the Construction Manager and Architect have no reasonable objection. ARTICLE 3 OWNER'S RESPONSIBILITIES 3.1 INFORMATION AND SERVICES 3.1.1 The Owner shall provide full information in a timely manner regarding the requirements of the Project, including a program which sets forth the Owner's objectives, constraints and criteria, including space requirements and relationships, flexibility and expandability requirements, special equipment and systems, and site requirements. 3.1.2 The Owner, upon written request from the Construction Manager, shall furnish evidence of Project financing prior to the start of the Construction Phase and from time to time thereafter as the Construction Manager may request. Furnishing of such evidence shall be a condition precedent to commencement or continuation of the Work. 3.1.3 The Owner shall establish and update an overall budget for the Project, based on consultation with the Construction Manager and Architect, which shall include contingencies for changes in the Work and other costs which are the responsibility of the Owner. 3.1.4 STRUCTURAL AND ENVIRONMENTAL TESTS, SURVEYS AND REPORTS In the Preconstruction Phase, the Owner shall furnish the following with reasonable promptness and at the Owner's expense, and the Construction Manager shall be entitled to rely upon the accuracy of any such information, reports, surveys, drawings and tests described in Clauses 3.1.4.1 through 3.1.4.4, except to the extent that the Construction Manager knows of any inaccuracy: 3.1.4.1 Reports, surveys, drawings and tests concerning the conditions of the site which are required by law. 3.1.4.2 Surveys describing physical characteristics, legal limitations and utility locations for the site of the Project, and a written legal description of the site. The surveys and legal information shall include, as applicable, grades and lines of streets, alleys, pavements and adjoining property and structures; adjacent drainage, rights-of-way, restrictions, easements, encroachments, zoning, deed restrictions, boundaries and contours of the site: locations, dimensions and necessary data pertaining to existing buildings, other improvements and trees; and information concerning available utility services and lines, both public and private, above and below grade, including inverts and depths. All information on the survey shall be referenced to a project benchmark. 3.1.4.3 The services of geotechnical engineers when such services are requested by the Construction Manager. Such services may include but are not limited to test borings, test pits, determinations of soil bearing values, percolation tests, evaluations of hazardous materials, ground corrosion and resistivity tests, including necessary operations for anticipating subsoil conditions, with reports and appropriate professional recommendations. 3.1.4.4 Structural, mechanical, chemical, air and water pollution tests, tests for hazardous materials, and other laboratory and environmental tests, inspections and reports which are required by law. 3.1.4.5 The services of other consultants when such services are reasonable required by the scope of the Project and are requested by the Construction Manager. 3.2 OWNER'S REPRESENTATIVE DESIGNATED The Owner shall designate in writing a representative who shall have express authority to bind the Owner with respect to all matters requiring the Owner's approval or authorization. This representative shall have the authority to make decisions on behalf of the Owner concerning estimates and schedules, construction budgets, and changes in the Work, and shall render such decisions promptly and furnish information expeditiously, so as to avoid unreasonable delay in the services or Work of the Construction Manager. 3.3 ARCHITECT The Owner shall retain an Architect to provide the Basic Services, including normal structural, mechanical and electrical engineering services, other than cost estimating services, described in the edition of AIA Document B141 current as of the date of this Agreement. The Owner shall authorize and cause the Architect to provide those Additional Services described in AIA Document B141 requested by the Construction Manager which must necessarily be provided by the Architect for the Preconstruction and Construction Phases of the Work. Such services shall be provided in accordance with time schedules agreed to by the Owner, Architect and Construction Manager. Upon request of the Construction Manager, the Owner shall furnish to the Construction Manager a copy of the Owner's Agreement with the Architect, from which compensation provisions may be deleted. 3.4 LEGAL REQUIREMENTS The Owner shall determine and advise the Architect and Construction Manager of any special legal requirements relating specifically to the Project which differ from those generally applicable to construction in the jurisdiction of the Project. The Owner shall furnish such legal services as are necessary to provide the information and services required under Paragraph 3.1. ARTICLE 4 COMPENSATION AND PAYMENTS FOR PRECONSTRUCTION PHASE SERVICES The Owner shall compensate and make payments to the Construction Manager for Preconstruction Phase services as follows: 4.1 COMPENSATION 4.1.1 For the services described in Paragraphs 2.1 and 2.2 the Construction Manager's compensation shall be calculated as follows: (State basis of compensation, whether a stipulated sum, multiple of Direct Personnel Expense, actual cost, etc. Include a statement of reimbursable cost items as applicable.) Included in Article 5 4.1.2 Compensation for Preconstruction Phase services shall be equitably adjusted if such services extend beyond from the date of this Agreement or if the originally contemplated scope of services is significantly modified. Included in Article 5 4.1.3 If compensation is based on a multiple of Direct Personnel Expense, Direct Personnel Expense is defined as the direct salaries of the Construction Manager's personnel engaged in the Project and the portion of the cost of their mandatory and customary contributions and benefits related thereto, such as employment taxes and other statutory employee benefits, insurance, sick leave, holidays, vacations, pensions and similar contributions and benefits. 4.2 PAYMENTS 4.2.1 Payments shall be made monthly following presentation of the Construction Manager's invoice and, where applicable, shall be in proportion to services performed. 4.2.2 Payments are due and payable thirty (30) days from the date the Construction Manager's invoice is received by the Owner. Amounts unpaid after the date on which payment is due shall bear interest at the rate entered below, or in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. (Insert rate of interest agree upon.) prime plus 2% (Usury laws and requirements under the Federal Truth in Lending Act, similar state and local consumer credit laws and other regulations at the Owner's and Construction Manager's principal places of business, the location of the Project and elsewhere may affect the validity of this provision. Legal advice should be obtained with respect to deletions or modifications, and also regarding requirements such as written disclosures or waivers.) ARTICLE 5 COMPENSATION FOR CONSTRUCTION PHASE SERVICES The Owner shall compensate the Construction Manager for Construction Phase services as follows: 5.1 COMPENSATION 5.1.1 For the Construction Manager's performance of the Work as described in Paragraph 2.3, the Owner shall pay the Construction Manager in current funds the Contract Sum consisting of the Cost of the Work as defined in Article 7 and the Construction Manager's Fee determined as follows: $2,000,000. (State a lump sum, percentage of actual Cost of the Work or other provision for determining the Construction Manager's Fee, and explain how the Construction Manager's Fee is to be adjusted for changes in the Work.) 5.2 GUARANTEED MAXIMUM PRICE 5.2.1 The sum of the Cost of the Work and the Construction Manager's Fee are guaranteed by the Construction Manager not to exceed the amount provided in Amendment No. 1, subject to additions and deductions by changes in the Work as provided in the Contract Documents. Such maximum sum as adjusted by approved changes in the Work is referred to in the Contract Documents as the Guaranteed Maximum Price. Costs which such fee is to be paid as outlined in Section II.D.4 would cause the Guaranteed Maximum Price to be exceeded shall be paid by the Construction Manager without reimbursement by the Owner. (Insert specific provisions if the Construction Manager is to participate in any savings.) 5.3 CHANGES IN THE WORK 5.3.1 Adjustments to the Guaranteed Maximum Price on account of changes in the Work subsequent to the execution of Amendment No. 1 may be determined by any of the methods listed in Subparagraph 7.3.3 of AIA Document A201. 5.3.2 In calculating adjustments to subcontracts (except those awarded with the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and "fee" as used in Clause 7.3.3.3 of AIA Document A201 and the terms "costs" and "a reasonable allowance for overhead and profit" as used in Subparagraph 7.3.6 of AIA Document A201 shall have the meanings assigned to them in that document and shall not be modified by this Article 5. Adjustments to subcontracts awarded with the Owner's prior consent on the basis of cost plus a fee shall be calculated in accordance with the terms of those subcontracts. 5.3.3 In calculating adjustments to the Contract. the terms "cost" and "costs" as used in the above-referenced provisions of AIA Document A201 shall mean the Cost of the Work as defined in Article 6 of this Agreement and the terms "and a reasonable allowance for overhead and profit" shall mean the Construction Manager's Fee as defined in Subparagraph 5.l.l of this Agreement. 5.3.4 If no specific provision is made in Subparagraph 5.1.1 for adjustment of the Construction Manager's Fee in the case of changes in the Work, or if the extent of such changes is such, in the aggregate, that application of the adjustment provisions of Subparagraph 5.1.1 will cause substantial inequity to the Owner or Construction Manager, the Construction Manager's Fee shall be equitably adjusted on the basis of the fee established for the original work. ARTICLE 6 COST OF THE WORK FOR CONSTRUCTION PHASE 6.1 COSTS TO BE REIMBURSED 6.1.1 The term "Cost of the Work" shall mean costs necessarily incurred by the Construction Manager in the proper performance of the Work. Such costs shall be at rates nor higher than those customarily paid at the place of the Project except with prior consent of the Owner. The Cost of the Work shall include only the items set forth in this Article 6. 6.1.2 LABOR COSTS .1 Wages of construction workers directly employed by the Construction Manager to perform the construction of the Work at the site or, with the Owner's agreement, at off-site workshops. .2 Wages or salaries of the Construction Manager's supervisory and administrative personnel when stationed at the site with the Owner's agreement. (If it is intended that the wages or salaries of certain personnel stationed at the Construction Manager's principal office or offices other than the site office shall be included in the Cost of the Work, such personnel shall be identified below.) .3 Wages and salaries of the Construction Manager's supervisory or administrative personnel engaged, at factories, workshops or on the road, in expediting the production or transportation of materials or equipment required for the Work, but only for that portion of their time required for the Work. .4 Costs paid or incurred by the Construction Manager for taxes, insurance, contributions, assessments and benefits required by law or collective bargaining agreements, and, for personnel not covered by such agreements, customary benefits such as sick leave, medical and health benefits, holidays, vacations and pensions, provided that such costs are based on wages and salaries included in the Cost of the Work under Clauses 6.1.2.1 through 6.1.2.3. 6.1.3 SUBCONTRACT COSTS Payments made by the Construction Manager to Subcontractors in accordance with the requirements of the subcontracts. 6.1.4 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED CONSTRUCTION .1 Costs, including transportation, of materials and equipment incorporated or to be incorporated in the completed construction. .2 Costs of materials described in the preceding Clause 6.1.4.1 in excess of those actually installed but required to provide reasonable allowance for waste and for spoilage. Unused excess materials, if any, shall be handed over to the Owner at the completion of the Work or, at the Owner's option, shall be sold by the Construction Manager; amounts realized, if any, from such sales shall be credited to the Owner as a deduction from the Cost of the Work. 6.1.5 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FAC1LITIES AND RELATED ITEMS .1 Costs, including transportation, installation, maintenance, dismantling and removal of materials, supplies, temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Construction Manager at the site and fully consumed in the performance of the Work; and cost less salvage value on such items if not fully consumed, whether sold to others or retained by the Construction Manager. Cost for items previously used by the Construction Manager shall mean fair market value. .2 Rental charges for temporary facilities, machinery, equipment, and hand tools not customarily owned by the construction workers, which are provided by the Construction Manager at the site, whether rented from the Construction Manager or others, and costs of transportation, installation, minor repairs and replacements, dismantling and removal thereof. Rates and quantities of equipment rented shall be subject to the Owner's prior approval. .3 Costs of removal of debris from the site. .4 Reproduction costs, costs of telegrams, facsimile transmissions and long-distance telephone calls. postage and express delivery charges. telephone service at the site and reasonable petty cash expenses of the site office. .5 That portion of the reasonable travel and subsistence expenses of the Construction Manager's personnel incurred while traveling in discharge of duties connected with the Work. 6.1.6 MISCELLANEOUS COSTS .1 That portion directly attributable to this Contract of premiums for insurance and bonds. (If charges for self insurance are to be included, specify the basis of reimbursement.) .2 Sales, use or similar taxes imposed by a governmental authority which are related to the Work and for which the Construction Manager is liable. .3 Fees and assessments for the building permit and for other permits, licenses and inspections for which the Construction Manager is required by the Contract Documents to pay. .4 Fees of testing laboratories for tests required by the Contract Documents. except those related to nonconforming Work other than that for which payment is permitted by Clause 6.1.8.2. .5 Royalties and license fees paid for the use of a particular design, process or product required by the Contract Documents; the cost of defending suits or claims for infringement of patent or other intellectual property rights arising from such requirement by the Contract Documents; payments made in accordance with legal judgments against the Construction Manager resulting from such suits or claims and payments of settlements made with the Owner's consent; provided, however, that such costs of legal defenses, judgments and settlements shall not be included in the calculation of the Construction Manager's Fee or the Guaranteed Maximum Price and provided that such royalties, fees and costs are not excluded by the last sentence of Subparagraph 3.17.1 of AIA Document A201 or other provisions of the Contract Documents. .6 Data processing costs related to the Work. .7 Deposits lost for causes other than the Construction Manager's negligence or failure to fulfill a specific responsibility to the Owner set forth in this Agreement. .8 Legal, mediation and arbitration costs, other than those arising from disputes between the Owner and Construction Manager, reasonably incurred by the Construction Manager in the performance of the Work and with the Owner's written permission, which shall not be unreasonably withheld. .9 Expenses incurred in accordance with the Construction Manager's standard personnel policy for relocation and temporary living allowances of personnel required for the Work, in case it is necessary to relocate such personnel from distant locations. 6.1.7 OTHER COSTS .1 Other costs incurred in the performance of the Work if and to the extent approved in advance in writing by the Owner. 6.1.8 EMERGENCIES AND REPAIRS TO DAMAGED OR NONCONFORMING WORK The Cost of the Work shall also include costs described in Subparagraph 6.1.1 which are incurred by the Construction Manager: .1 In taking action to prevent threatened damage, injury or loss in case of an emergency affecting the safety of persons and property, as provided in Paragraph 10.3 of AIA Document A201. .2 In repairing or correcting damaged or nonconforming Work executed by the Construction Manager or the Construction Manager's Subcontractors or suppliers, provided that such damaged or nonconforming Work was not caused by the negligence or failure to fulfill a specific responsibility to the Owner set forth in this Agreement of the Construction Manager or the Construction Manager's foremen, engineers or superintendents, or other supervisory, administrative or managerial personnel of the Construction Manager, or the failure of the Construction Manager's personnel to supervise adequately the Work of the Subcontractors or suppliers, and only to the extent that the cost of repair or correction is not recoverable by the Construction Manager from insurance, Subcontractors or suppliers. 6.1.9 The costs described in Subparagraphs 6.l.l through 6.1.8 shall be included in the Cost of the Work notwithstanding any provision of AIA Document A201 or other Conditions of the Contract which may require the Construction Manager to pay such costs, unless such costs are excluded by the provisions of Paragraph 6.2. 6.2 COSTS NOT TO BE REIMBURSED 6.2.1 The Cost of the Work shall not include: .1 Salaries and other compensation of the Construction Manager's personnel stationed at the Construction Manager's principal office or offices other than the site office, except as specifically provided in Clauses 6.1.2.2 and 6.1.2.3. .2 Expenses of the Construction Manager's principal office and offices other than the site office except as specifically provided in Paragraph 6.1. .3 Overhead and general expenses, except as may be expressly included in Paragraph 6.1. .4 The Construction Manager's capital expenses, including interest on the Construction Manager's capital employed for the Work. .5 Rental costs of machinery and equipment, except as specifically provided in Subparagraph 6.1.5.2. .6 Except as provided in Clause 6.1.8.2. costs due to the negligence of the Construction Manager or to the failure of the Construction Manager to fulfill a specific responsibility to the Owner set forth in this Agreement. .7 Costs incurred in the performance of Preconstruction Phase Services. .8 Except as provided in Clause 6.1.7.1. any cost not specifically and expressly described in Paragraph 6.1. .9 Costs which would cause the Guaranteed Maximum Price to be exceeded. 6.3 DISCOUNTS, REBATES AND REFUNDS 6.3.1 Cash discounts obtained on payments made by the Construction Manager shall accrue to the Owner if (1) before making the payment, the Construction Manager included them in an Application for Payment and received payment therefor from the Owner, or (2) the Owner has deposited funds with the Construction Manager with which to make payments; otherwise, cash discounts shall accrue to the Construction Manager. Trade discounts, rebates, refunds and amounts received from sales of surplus materials and equipment shall accrue to the Owner, and the Construction Manager shall make provisions so that they can be secured. 6.3.2 Amounts which accrue to the Owner in accordance with the provisions of Subparagraph 6.3.1 shall be credited to the Owner as a deduction from the Cost of the Work. 6.4 ACCOUNTING RECORDS 6.4.1 The Construction Manager shall keep full and detailed accounts and exercise such controls as may be necessary for proper financial management under this Contract; the accounting and control systems shall be satisfactory to the Owner. The Owner and the Owner's accountants shall be afforded access to the Construction Manager's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda and other data relating to this Project, and the Construction Manager shall preserve these for a period of three years after final payment, or for such longer period as may be required by law. ARTICLE 7 CONSTRUCTION PHASE 7.1 PROGRESS PAYMENTS 7.1.1 Based upon Applications for Payment submitted to the Architect by the Construction Manager and Certificates for Payment issued by the Architect, the Owner shall make progress payments on account of the Contract Sum to the Construction Manager as provided below and elsewhere in the Contract Documents. 7.1.2 The period covered by each Application for Payment shall be one calendar month ending on the last day of the month. 7.1.3 Provided an Application for Payment is received by the Architect not later than the fifteenth (15th) day of a month, the Owner shall make payment to the Construction Manager not later than the fifteenth (15th) day of the next month. If an Application for Payment is received by the Architect after the application date fixed above, payment shall be made by the Owner not later than thirty (30) days after the Architect receives the Application for Payment. 7.1.4 With each Application for Payment, the Construction Manager shall submit payrolls, petty cash accounts, receipted invoices or invoices with check vouchers attached, and any other evidence required by the Owner or Architect to demonstrate that cash disbursements already made by the Construction Manager on account of the Cost of the Work equal or exceed (1 ) progress payments already received by the Construction Manager; less (2) that portion of those payments attributable to the Construction Manager's Fee; plus (3) payrolls for the period covered by the present Application for Payment. 7.1.5 Each Application for Payment shall be based upon the most recent schedule of values submitted by the Construction Manager in accordance with the Contract Documents. The schedule of values shall allocate the entire Guaranteed Maximum Price among the various portions of the Work, except that the Construction Manager's Fee shall be shown as a single separate item. The schedule of values shall be prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Construction Manager's Applications for Payment. 7.1.6 Applications for Payment shall show the percentage completion of each portion of the Work as of the end of the period covered by the Application for Payment. The percentage completion shall be the lesser of (1) the percentage of that portion of the Work which has actually been completed or (2) the percentage obtained by dividing (a) the expense which has actually been incurred by the Construction Manager on account of that portion of the Work for which the Construction Manager has made or intends to make actual payment prior to the next Application for Payment by (b) the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. 7.1.7 Subject to other provisions of the Contract Documents, the amount of each progress payment shall be computed as follows: .1 Take that portion of the Guaranteed Maximum Price properly allocable to completed Work as determined by multiplying the percentage completion of each portion of the Work by the share of the Guaranteed Maximum Price allocated to that portion of the Work in the schedule of values. Pending final determination of cost to the Owner of changes in the Work, amounts not in dispute may be included as provided in Subparagraph 7.3.7 of AIA Document A201, even though the Guaranteed Maximum Price has not yet been adjusted by Change Order. .2 Add that portion of the Guaranteed Maximum Price properly allocable to materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work or, if approved in advance by the Owner, suitably stored off the site at a location agreed upon in writing. .3 Add the Construction Manager's Fee, less retainage of See Contract Amendment #1 percent (%). The Construction Manager's Fee shall be computed upon the Cost of the Work described in the two preceding Clauses at the rate stated in Subparagraph 5.1.1 or, if the Construction Manager's Fee is stated as a fixed sum in that Subparagraph, shall be an amount which bears the same ratio to that fixed-sum Fee as the Cost of the Work in the two preceding Clauses bears to a reasonable estimate of the probable Cost of the Work upon its completion. .4 Subtract the aggregate of previous payments made by the Owner. .5 Subtract the shortfall, if any, indicated by the Construction Manager in the documentation required by Subparagraph 7.1.4 to substantiate prior Applications for Payment, or resulting from errors subsequently discovered by the Owner's accountants in such documentation. .6 Subtract amounts, if any, for which the Architect has withheld or nullified a Certificate for Payment as provided in Paragraph 9.5 of AIA Document A201. 7.1.8 Except with the Owner's prior approval, payments to Subcontractors shall be subject to retention of not less than ten percent (10%). The Owner and the Construction Manager shall agree upon a mutually acceptable procedure for review and approval of payments and retention for subcontracts. 7.1.9 Except with the Owner's prior approval, the Construction Manager shall not make advance payments to suppliers for materials or equipment which have not been delivered and stored at the site. 7.1.10 In taking action on the Construction Manager's Applications for Payment, the Architect shall be entitled to rely on the accuracy and completeness of the information furnished by the Construction Manager and shall not be deemed to represent that the Architect has made a detailed examination, audit or arithmetic verification of the documentation submitted in accordance with Subparagraph 7.1.4 or other supporting data; that the Architect has made exhaustive or continuous on-site inspections or that the Architect has made examinations to ascertain how or for what purposes the Construction Manager has used amounts previously paid on account of the Contract. Such examinations, audits and verifications, if required by the Owner, will be performed by the Owner's accountants acting in the sole interest of the Owner. 7.2 FINAL PAYMENT 7.2.1 Final payment shall be made by the Owner to the Construction Manager when (1) the Contract has been fully performed by the Construction Manager except for the Construction Manager's responsibility to correct nonconforming Work, as provided in Subparagraph 12.2.2 of AIA Document A201, and to satisfy other requirements, if any, which necessarily survive final payment; (2) a final Application for Payment and a final accounting for the Cost of the Work have been submitted by the Construction Manager and reviewed by the Owner's accountants; and (3) a final Certificate for Payment has-then been issued by the Architect; such final payment shall be made by the Owner not more than 30 days after the issuance of the Architect's final Certificate for Payment, or as follows: 7.2.2 The amount of the final payment shall be calculated as follows: .1 Take the sum of the Cost of the Work substantiated by the Construction Manager's final accounting and the Construction Manager's Fee; but not more than the Guaranteed Maximum Price. .2 Subtract amounts, if any, for which the Architect withholds, in whole or in part, a final Certificate for Payment as provided in Subparagraph 9.5.1 of AIA Document A201 or other provisions of the Contract Documents. .3 Subtract the aggregate of previous payments made by the Owner. If the aggregate of previous payments made by the Owner exceeds the amount due the Construction Manager, the Construction Manager shall reimburse the difference to the Owner. 7.2.3 The Owner's accountants will review and report in writing on the Construction Manager's final accounting within 30 days after delivery of the final accounting to the Architect by the Construction Manager. Based upon such Cost of the Work as the Owner's accountants report to be substantiated by the Construction Manager's final accounting, and provided the other conditions of Subparagraph 7.2.1 have been met, the Architect will, within seven days after receipt of the written report of the Owner's accountants, either issue to the Owner a final Certificate for Payment with a copy to the Construction Manager, or notify the Construction Manager and Owner in writing of the Architect's reasons for withholding a certificate as provided in Subparagraph 9.5.1 of AIA Document A201. The time periods stated in this Paragraph 7.2 supersede those stated in Subparagraph 9.4.1 of AIA Document A201. 7.2.4 If the Owner's accountants report the Cost of the Work as substantiated by the Construction Manager's final accounting to be less than claimed by the Construction Manager, the Construction Manager shall be entitled to proceed in accordance with Article 9 without a further decision of the Architect. Unless agreed to otherwise, a demand for mediation or arbitration of the disputed amount shall be made by the Construction Manager within 60 days after the Construction Manager's receipt of a copy of the Architect's final Certificate for Payment. Failure to make such demand within this 60-day period shall result in the substantiated amount reported by the Owner's accountants becoming binding on the Construction Manager. Pending a final resolution of the disputed amount, the Owner shall pay the Construction Manager the amount certified in the Architect's final Certificate for Payment. 7.2.5 If, subsequent to final payment and at the Owner's request, the Construction Manager incurs costs described in Paragraph 6.1 and not excluded by Paragraph 6.2 (1) to correct nonconforming Work, or (2) arising from the resolution of disputes, the Owner shall reimburse the Construction Manager such costs and the Construction Manager's Fee, if any, related thereto on the same basis as if such costs had been incurred prior to final payment, but not in excess of the Guaranteed Maximum Price. If the Construction Manager has participated in savings, the amount of such savings shall be recalculated and appropriate credit given to the Owner in determining the net amount to be paid by the Owner to the Construction Manager. ARTICLE 8 INSURANCE AND BONDS 8.1 INSURANCE REQUIRED OF THE CONSTRUCTION MANAGER During both phases of the Project, the Construction Manager shall purchase and maintain insurance as set forth in Paragraph 11.1 of AIA Document A201. Such insurance shall be written for not less than the following limits, or greater if required by law: 8.1.1 Workers' Compensation and Employers' Liability meeting statutory limits mandated by State and Federal laws. If (1) limits in excess of those required by statute are to be provided or (2) the employer is not statutorily bound to obtain such insurance coverage or (3) additional coverages are required, additional coverages and limits for such insurance shall be as follows: See Contract Amendment #1. 8.1.2 Commercial General Liability including coverage for Premises - Operations. Independent Contractors' Protective, Products - Completed Operations, Contractual Liability, Personal Injury, and Broad Form Property Damage (including coverage for Explosion, Collapse and Underground hazards): See Contract Amendment #1. $ Each Occurrence $ General Aggregate $ Personal and Advertising Injury $ Products - Completed Operations Aggregate .1 The policy shall be endorsed to have the General Aggregate apply to this Project only. .2 Products and Completed Operations insurance shall be maintained for a minimum period of at least year(s) after either 90 days following Substantial Completion or final payment, whichever is earlier. .3 The Contractual Liability insurance shall include coverage sufficient to meet the obligations in AIA Document A201 under Paragraph 3.18. 8.1.3 Automobile Liability (owned, non-owned and hired vehicles) for bodily injury and property damage: See Contract Amendment #1. $ Each Accident 8.1.4 Other coverage: See Contract Amendment #1. (If Umbrella Excess Liability coverage is required over the primary insurance or retention, insert the coverage limits. Commercial General Liability and Automobile Liability limits may be attained by individual policies or by a combination of primary policies and Umbrella and/or Excess Liability policies.) 8.2 INSURANCE REQUIRED OF THE OWNER See Contract Amendment #1 During both phases of the Project. The Owner shall purchase and maintain liability and property insurance. including waivers of subrogation, as set forth in Paragraphs 11.2 and 11.3 of AIA Document A201. Such insurance shall be written for not less than the following limits, or greater if required by law: 8.2.1 Property Insurance. See Contract Amendment #1. $ Deductible Per Occurrence $ Aggregate Deductible 8.2.2 Boiler and Machinery insurance with a limit of: $ See Contract Amendment #1. (If not a blanket policy, list the objects to be insured.) 8.3 PERFORMANCE BOND AND PAYMENT BOND See Contract Amendment #1. 8.3.1 The Construction Manager See Contract Amendment #1. (Insert "shall" or "shall not") furnish bonds covering faithful performance of the Contract and payment of obligations arising thereunder. Bonds may be obtained through the Construction Manager's usual source and the cost thereof shall be included in the Cost of the Work. The amount of each bond shall be equal to percent (%) of the Contract Sum. 8.3.2 The Construction Manager shall deliver the required bonds to the Owner at least three days before the commencement of any Work at the Project site. See Contract Amendment #1. ARTICLE 9 MISCELLANEOUS PROVISIONS 9.1 DISPUTE RESOLUTION FOR THE PRECONSTRUCTION PHASE 9.1.1 Claims, disputes or other matters in question between the parties to this Agreement which arise prior to the commencement of the Construction Phase or which relate solely to the Preconstruction Phase services of the Construction Manager or to the Owner's obligations to the Construction Manager during the Preconstruction Phase, shall be resolved by mediation or by arbitration. 9.1.2 Any mediation conducted pursuant to this Paragraph 9.1 shall be held in accordance with the Construction Industry Mediation Rules of the American Arbitration Association currently in effect, unless the parties mutually agree otherwise. Demand for mediation shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. Any demand for mediation shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for mediation be made after the date when institution of legal or equitable proceedings based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. 9.1.3 Any claim, dispute or other matter in question not resolved by mediation shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect unless the parties mutually agree otherwise. 9.1.4 Demand for arbitration shall be filed in writing with the other party to this Agreement and with the American Arbitration Association. A demand for arbitration may be made concurrently with a demand for mediation and shall be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based upon such claim, dispute or other matter in question would be barred by the applicable statute of limitations. 9.1.5 No arbitration arising out of or relating to the Contract Documents shall include, by consolidation or joinder or in any other manner, the Architect, the Architect's employees or consultants, except by written consent containing specific reference to the Agreement and signed by the Architect, Owner, Construction Manager and any other person or entity sought to be joined. No arbitration shall include, by consolidation or joinder or in any other manner, parties other than the Owner, Construction Manager, a separate contractor as described in Article 6 of AIA Document A201 and other persons substantially involved in a common question of fact or law whose presence is required if complete relief is to be accorded in arbitration. No person or entity other than the Owner or Construction Manager or a separate contractor as described in Article 6 of AIA Document A201 shall be included as an original third party or additional third party to an arbitration whose interest or responsibility is insubstantial. Consent to arbitration involving an additional person or entity shall not constitute agreement to arbitration of a dispute not described in such consent or with a person or entity not named or described therein. The foregoing agreement to arbitrate and other agreements to arbitrate with an additional person or entity duly consented to by parties to this Agreement shall be specifically enforceable under applicable law in any court having jurisdiction thereof. 9.1.6 The award rendered by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. 9.2 DISPUTE RESOLUTION FOR THE CONSTRUCTION PHASE 9.2.1 Any other claim, dispute or other matter in question arising out of or related to this agreement or breach thereof shall be settled in accordance with Article 4 of AIA Document A201, except that in addition to and prior to arbitration, the parties shall endeavor to settle disputes by mediation in accordance with the Construction Industry Mediation Rules of the American Arbitration Association currently in effect unless the parties mutually agree otherwise. Any mediation arising under this Paragraph shall be conducted in accordance with the provisions of Subparagraphs 9.1.2 and 9.1.3. 9.3 OTHER PROVISIONS 9.3.1 Unless otherwise noted, the terms used in this Agreement shall have the same meaning as those in the 1987 Edition of AIA Document A201, General Conditions of the Contract for Construction. 9.3.2 EXTENT OF CONTRACT This Contract, which includes this Agreement and the other documents incorporated herein by reference, represents the entire and integrated agreement between the Owner and Construction Manager and supersedes all prior negotiations, representations or agreements, either written or oral. This Agreement may be amended only by written instrument signed by both the Owner and Construction Manager. If anything in any document incorporated into this Agreement is inconsistent with this Agreement, this Agreement shall govern. 9.3.3 OWNERSHIP AND USE OF DOCUMENTS The Drawings, Specifications and other documents prepared by the Architect, and copies thereof furnished to the Construction Manager, are for use solely with respect to this Project. They are not to be used by the Construction Manager, Subcontractors, Sub-subcontractors or suppliers on other projects, or for additions to this Project outside the scope of the Work, without the specific written consent of the Owner and Architect. The Construction Manager, Subcontractors. Sub-subcontractors and suppliers are granted a limited license to use and reproduce applicable portions of the Drawings, Specifications and other documents prepared by the Architect appropriate to and for use in the execution of their Work under the Contract Documents. 9.3.4 GOVERNING LAW The Contract shall be governed by the law of the place where the Project is located. 9.3.5 ASSIGNMENT The Owner and Construction Manager respectively bind themselves, their partners, successors, assigns and legal representatives to the other party hereto and to partners, successors, assigns and legal representatives of such other party in respect to covenants, agreements and obligations contained in the Contract Documents. Neither party to the Contract shall assign the Contract as a whole without written consent of the other. If either party attempts to make such an assignment without such consent, that party shall nevertheless remain legally responsible for all obligations under the Contract. ARTICLE 10 TERMINATION OR SUSPENSION 10.1 TERMINATION PRIOR TO ESTABLISHING GUARANTEED MAXIMUM PRICE 10.1.1 Prior to execution by both parties of Amendment No. 1 establishing the Guaranteed Maximum Price, the Owner may terminate this Contract at any time without cause, and the Construction Manager may terminate this Contract for any of the reasons described in Subparagraph 14.1.1 of AIA Document A201. 10.1.2 If the Owner or Construction Manager terminates this Contract pursuant to this Paragraph 10.1 prior to commencement of the Construction Phase, the Construction Manager shall be equitably compensated for Preconstruction Phase services performed prior to receipt of notice of termination; provided, however, that the compensation for such services shall not exceed the compensation set forth in Subparagraph 4.1.1. 10.1.3 If the Owner or Construction Manager terminates this Contract pursuant to this Paragraph 10.1 after commencement of the Construction Phase, the Construction Manager shall, in addition to the compensation provided in Subparagraph 10.1.2. be paid an amount calculated as follows: .1 Take the Cost of the Work incurred by the Construction Manager. .2 Add the Construction Manager's Fee computed upon the Cost of the Work to the date of termination at the rate stated in Paragraph 5.1 or, if the Construction Manager's Fee is stated as a fixed sum in that Paragraph, an amount which bears the same ratio to that fixed-sum Fee as the Cost of Work at the time of termination bears to a reasonable estimate of the probable Cost of the Work upon its completion. .3 Subtract the aggregate of previous payments made by the Owner on account of the Construction Phase. The Owner shall also pay the Construction Manager fair compensation, either by purchase or rental at the election of the Owner, for any equipment owned by the Construction Manager which the Owner elects to retain and which is not otherwise included in the Cost of the Work under Clause 10.1.3.1. To the extent that the Owner elects to take legal assignment of subcontracts and purchase orders (including rental agreements), the Construction Manager shall, as a condition of receiving the payments referred to in this Article 10, execute and deliver all such papers and take all such steps, including assignment of such subcontracts and contractual rights of the Construction Manager, as the Owner may require for the purpose of fully vesting in the Owner the rights and benefits of the Construction Manager under such subcontracts or purchase orders. Subcontracts, purchase orders and rental agreements entered into by the Construction Manager with the Owner's written approval prior to the execution of Amendment No. 1 shall contain provisions permitting assignment to the Owner as described above. If the Owner accepts such assignment, the Owner shall reimburse or indemnify the Construction Manager with respect to all costs arising under the subcontract, purchase order or rental agreement except those which would not have been reimbursable as Cost of the Work if the contract had not been terminated. If the Owner elects not to accept the assignment of any subcontract, purchase order or rental agreement which would have constituted a Cost of the Work had this agreement not been terminated, the Construction Manager shall terminate such subcontract, purchase order or rental agreement and the Owner shall pay the Construction Manager the costs necessarily incurred by the Construction Manager by reason of such termination. 10.2 TERMINATION SUBSEQUENT TO ESTABLISHING GUARANTEED MAXIMUM PRICE Subsequent to execution by both parties of Amendment No.1, the Contract may be terminated as provided in Article 14 of AIA Document A201. 10.2.1 In the event of such termination by the Owner, the amount payable to the Construction Manager pursuant to Subparagraph 14.1.2 of AIA Document A201 shall not exceed the amount the Construction Manager would have been entitled to receive pursuant to Subparagraphs 10.1.2 and 10.1.3 of this Agreement. 10.2.2 In the event of such termination by the Construction Manager, the amount to be paid to the Construction Manager under Subparagraph 14.1.2 of AIA Document A201 shall not exceed the amount the Construction Manager would be entitled to receive under Subparagraphs 10.1.2 or 10.1.3 above, except that the Construction Manager's Fee shall be calculated as if the Work had been fully completed by the Construction Manager, including a reasonable estimate of the Cost of the Work for Work not actually completed. 10.3 SUSPENSION The Work may be suspended by the Owner as provided in Article 14 of AIA Document A201; in such case, the Guaranteed Maximum Price, if established, shall be increased as provided in Subparagraph 14,3.2 of AIA Document A201 except that the term "cost of performance of the Contract" in that Subparagraph shall be understood to mean the Cost of the Work and the term "profit" shall be understood to mean the Construction Manager's Fee as described in Subparagraphs 5.1.1 and 5.3.4 of this Agreement. ARTICLE 11 OTHER CONDITIONS AND SERVICES This Agreement entered into as of the day and year first written above. OWNER: CONSTRUCTION MANAGER: COLONIAL DOWNS, L.P., a Virginia NORGLASS, Inc. limited partnership By: By: /s/ JAMES LEADBETTER Date: February 11, 1997 Date: February 11, 1997 ATTEST: ATTEST: /s/ EXHIBIT A [LIST OF DRAWS AND SPECIFICATION] EXHIBIT B COLONIAL DOWNS CONSTRUCTION BUDGET RECAP SCOPE REDUCTION AREA QUOTE ADJUSTMENTS TO QUOTES ---- ----- --------------------- Site Improvements 8,361,758 Grandstand 9,590,426 Track 2,624,484 Site Buildings 6,023,332 Grandstand Finishes (by Owner) 750,000 ---------- PROJECT TOTAL 27,350,000 ========== Revised Sub Proposals 27,350,000 General Conditions 1,050,000 Norglass Fee 2,000,000 Contingency -0- ---------- PROJECT TOTAL 30,400,000 Delmarva Deductions (900,000) ---------- TOTAL 29,500,000 ========== Approved and Accepted this 11th day of February 1997 by and between: Norglass, Inc. Colonial Downs, L.P. /s/ JAMES LEADBETTER -------------------------- COLONIAL DOWNS CONSTRUCTION BUDGET SITE IMPROVEMENT
CONTRACTS ITEMS NOT IN BALANCE TO FINISH ESTIMATE TO DATE SITE BID IN SITE BIDS -------- ------- -------- ------------ 02270 Soil/Environmental 335,000 106,338 143,662 85,000 Environment Compliances 250,000 106,338 143,662 NW 14 Mitigation 85,000 85,000 02102 Clearing & Grubbing 278,205 268,020 02103 Site 175,620 176,020 02104 Barns 70,585 60,000 02105 Select Cutting (164) 32,000 32,000 02210 Site Grading+/-1' 1,868,500 1,530,385 102,640 256,000 02111 Site Earthwork(Less Barns) 1,500,000 1,397,360 102,640 02112 Sit Topsoil/Seeding 112,500 133,025 02113 Barn Area (incl. Fine Grading) 256,000 256,000 02220 Grandstand Pad 110,244 86,244 24,000 02221 Structural Fill Pad 110,244 86,244 24,000 Backfill & Excavation In 02221 02223 Roads 1,431,550 382,410 1,049,140 02224 Racetrack Entrance Road 351,900 351,900 02225 North Entrance Road 542,900 542,900 02226 Service Road 428,650 382,410 46,240 02227 Barn Area Road 108,100 108,100 02240 Soil Stabilization Moved to Track Budget 03118 Drilled Piers & Footings In 03111 02700 Site Utilities 2,148,300 1,948,300 02710 Water 578,000 578,000 02720 Sanitary Sewer 537,600 537,600 02730 Storm Sewer GS & Parking 313,950 313,950 02735 Storm Sewer Barns 418,750 418,750 02750 Underground Power 200,000 NIC Underground Power-Barns 100,000 100,000 02610 Parking Lots 996,670 996,670 02611 Stone Base 462,500 462,500 02612 Asphalt Paving (3,000) 482,170 482,170 02525 Curb & Gutter 52,000 52,000 03121 Walks 94,080 94,080 03124 Concrete Apron (4") 182,250 182,250 02980 Landscaping NIC 02830 Fencing 237,000 237,000 02831 Perimeter Security (13,000') 100,000 100,000 02832 Paddock Security (1,000') in above 02833 Maintenance Security (2,000') in above 04245 Decorative & Entrance/Valet 137,000 137,000 16520 Lighting 16521 Parking Area NIC 16522 Barn Area NIC Site Total 7,681,799 2,373,397 507,302 4,611,440
COLONIAL DOWNS CONSTRUCTION BUDGET SITE IMPROVEMENT EXISTING SITEWORK Contracts to Date 2,373,397 Items Not in Site Contract 507,302 Pending C.O. (Track Subgrade) 295,808 --------- Existing Subtotal 3,176,507 PROJECTED SITE PROPOSAL (INCL. A & B BARN AREA) Site Utilities & Dirtwork Proposal 2,698,646 Track Drainage In Track Budget Items Not Covered in Rogers Proposal Surveying NIC Testing (Zannino) 75,000 --------- Revised Rodgers Site Proposal 2,773,646 ========= BLACKTOP & MISC. (HENRY S. BRANSCOME, INC.) Full Depth Paving 1,961,905 --Includes road to "B" barn area Concrete (220,000sf) (RODGERS) Needs Curb & Gutter -- Deduct Stone on Rear Road Walks 342,700 Apron In Walks Loading Dock In Walks Stone Base Apron No Stone Base Loading Dock No Stone Base Stone Walks 52,000 Stripping 55,000 --------- Site Black Top Proposal 2,411,605 ========= SITE RECAP Existing Subtotal 3,176,507 Revised Rodgers Site Proposal 2,773,646 Site Black Top Proposal 2,411,605 --------- Revised Site Cost 8,361,758 ========= COLONIAL DOWNS CONSTRUCTION BUDGET GRANDSTAND BUILDING Code Scope Reduction SCOPE REDUCTION QUOTE ADJUSTMENTS TO QUOTES ----- --------------------- 03100 Concrete 922,390 AGM 03111 Foundation 281,265 Dixie 03112 Retaining Walls 178,725 AGM 03101 Slab on Grade (100) 187,415 AGM 03102 Slab on Deck (200) 54,290 AGM 03103 Slab on Deck (300) 102,338 AGM 03104 Slab on Deck (400) 94,557 AGM 03105 Slab on Deck (500) 03106 Pour Stairs 20,000 AGM Ramps & Misc. 3,800 AGM 04100 Masonry 389,406 04243 Exterior Walls 389,406 Haymore Patio Pavers In Above 05100 Steel 1,802,940 05110 Structural 1,468,000 Liphart 05300 Decking In Above 05712 Stairs & Misc. Steel 334,940 Glanville 05720 Brass Railings See Owner Allowance 06100 Rough Carpentry In Dryvit 06220 Millwork 06400 Finish Carpentry See Owner Allowance 07100 Roofing/Weatherproofing 437,345 07500 EPDM Roofing 171,700 National 07610 Ornamental Roofing 241,400 Baker 07555 Waterproofing @ Basement 9,245 07460 Siding in 07610 07920 Caulking / Sealing 15,000 08100 Doors 89,000 08110 Wood /Metal Doors 89,000 J.S. Archer 08360 O/H Doors In Above 08800 Windows- Glass & Glazing 387,937 Raymac 09000 Finishes 1,297,364 09250 Drywall 988,843 Accent Design 07240 Dryvit 123,636 Accent Design 09120 Acoustical Ceilings See Owner Allowance 09650 VCT See Owner Allowance 09680 Carpet See Owner Allowance 09900 Painting See Owner Allowance 09950 Wall Covering See Owner Allowance 09960 Exterior Trim & Labor 184,885 Edon Corp. COLONIAL DOWNS CONSTRUCTION BUDGET GRANDSTAND BUILDING
SCOPE REDUCTION QUOTE ADJUSTMENTS TO QUOTES ----- --------------------- 10000 Specialties 60,863 10160 Toilet Partitions 27,153 Roanoke Eng. 10450 Turnstiles (10) 24,000 10800 Toilet Accessories 9,710 Roanoke Eng. 11000 Equipment 3,000 11160 Dock Leveler 3,000 Kelly Mfg. 12000 Furnishings 80,569 12710 Theater Chairs 65,300 Brownson Equip. 12750 Grandstand Seats In Above 12751 Bleachers 15,269 All Star Bleachers 13000 Special Construction 13800 Vault NIC 13850 Tote Installation NIC 14000 Conveying Systems 359,900 14200 Elevators 127,260 Montgomery Kone 14300 Escalators 232,640 Montgomery Kone 15000 Mechanical 2,388,395 15400 Plumbing 455,000 Riddelberger 15500 Fire Protection 218,000 15600 HVAC 1,715,395 Riddelberger Completed Aug. 1, 1997 16000 Electrical 995,000 Northside Electric No Feeds to Track Lighting. Incl. (3) 3" empty conduits for rooftop track lighting. 16100 TOTE ELECTRICAL POWER 25,000 Grandstand Total 9,239,109 Grandstand Total 9,239,109 Potential Adjustments Liphart Requested Changes 350,000 Add'l Liphart Changes (IN ABOVE) Elevator C.O. 1,317 Adjusted Total 9,590,426
COLONIAL DOWNS CONSTRUCTION BUDGET TRACK Rodgers Adjustments to Quotes ------- --------------------- Track Surface 2,376,883 Includes drainage/4" cushion/100% track Track Drainage 247,601 Infield Pond (In Site Overflow Environmental) Total 2,624,484 Adjusted Track Total 2,624,484 COLONIAL DOWNS CONSTRUCTION BUDGET SITE BUILDINGS Scope Reduction Code Quote Adjustments to Quotes - ---- ----- --------------------- 41000 Barns 4,296,236 41100 Horse Stables 41200 Receiving Barn 42000 Paddock 529,200 Jockey's Quarters 7,440 sf 409,200 $55.00/sf Allowance Viewing Stalls (24) 12x12 120,000 $5,000/Stall Allowance State Testing Stalls NIC 43000 Dormitories (4) 403,200 80 units @ $5,000 ea. 44000 Isolation Building 20,080 Treatment/Holding Building In 42000 45000 Barn Area Buildings 40,000 Security Building 10,000 Blacksmith In Barns Restrooms/Bath 30,000 Bulk Manure Storage NIC 46000 Maintenance Building 75,000 47000 Post Mortem Building 15,806 48000 Horsemen's Building 596,310 $55.00/sf Allowance Building 10,842 sf 596,310 Kitchen Allowance NIC 49000 Misc. Pads 17,500 Tote Board Pad 10,000 Viewing Circle @ Paddock NIC Helicopter Pad 7,500 Winners Circle NIC 51000 General Admission (2) see 04245 52000 Valet Parking see 04245 54000 Tents 30,000 55000 Out Buildings (2) NIC Site Buildings Total 6,023,332 Site Building Total 6,023,332 Potential Adjustments Adjusted Total 6,023,332 EXHIBIT C [PRELIMINARY CONSTRUCTION SCHEDULE] CONTRACT AMENDMENT #1 This is Amendment #1, pursuant to paragraph 2.2 of the Agreement of even date herewith, to the STANDARD FORM OF AGREEMENT BETWEEN THE OWNER AND CONSTRUCTION MANAGER WHERE THE CONSTRUCTION MANAGER IS ALSO THE CONSTRUCTOR (AIA Document A121/CMc and AGC Document 565) by and between Colonial Downs, Limited Partnership ("Owner") and Norglass, Inc. ("Norglass") dated February 11, 1997 ("Main Contract"). WHEREAS, the Owner and Norglass are executing a contract for the construction of the Colonial Downs Racetrack in New Kent County, Kentucky, Virginia, and WHEREAS, the Owner and Norglass accept the terms of the Main Contract, together with General Conditions of the Contract for Construction (AIA Document A201) ("General Conditions"), and WHEREAS, the parties wish to clarify certain provisions of said Main Contract and General Conditions and certain other matters, W I T N E S S E T H: I. BASIC CONTRACT. The Owner and Norglass hereby accept and affirm the terms of the Main Contract and General Conditions, as amended herein II. CONTRACT CLARIFICATIONS. Notwithstanding anything to the contrary in the Main Contract and the General Conditions, the Parties agree to the following. To the extent that there is a conflict between the Main Contract and General Conditions, on one hand, and this Amendment, on the other, this Amendment shall control. A. Pre-Construction Complete. The parties agree that pre-construction activities and drawings and specifications for the track, barn area, parking lots, and grandstand are substantially complete and form the basis of the agreement between the parties. A list of such drawings and specifications as attached as Exhibit A. B. Guaranteed Maximum Price. The parties agree that the Guaranteed Maximum Price for the project shall be $29,500,000, as provided below (and further reflected in the Norglass budget attached as Exhibit B. Norglass shall prepare and submit to the Owner by February 21, 1997 a final budget in detail, satisfactory to the Owner. 1. Site Work to Date/Misc. Site Work $ 2,670,000 2. Earthwork/Underground Utilities 2,775,000 3. Dirt and Turf Track (including drainage) 2,625,500 4. Misc. Site Work 507,000 5. Full Depth Paving -- Roads and Parking Lots/concrete 2,410,000 Less: Delmarva Contribution (900,000) 6. Barns (1,000) 4,300,000 7. Concrete Pads/Tents 47,500 8. Grandstand -- Shell & Core 9,590,000 ----------- Guaranteed Amount 24,025,000 9. Grandstand -- Interior Finish 740,000 10. Paddock, Horsemen, Dorms (28,500) 1,525,000 11. Other Outbuildings 150,000 ----------- Allowance Amount 2,425,000 11. General Conditions (fixed amount) 1,050,000 12. Norglass Fee (fixed amount) 2,000,000 ----------- $29,500,000 =========== C. Guaranteed Amount. Norglass agrees to perform the work outlined in items 1-8 for the guaranteed amount of $24,025,000. In addition, Norglass agrees to act as construction manager for the entire project and to guarantee the general conditions (as further defined below) in the amount of $1,050,000. This amount shall increase in the amount equal to $1,500 for each day that the completion date is properly extended beyond August 31, 1997. Prior to February 21, 1997, Norglass shall provide to Owner a detailed breakdown of general conditions. D. General Conditions. The payment for general condition includes but is not limited to the following: i. All Norglass personnel working on the project for work outlined above, including but not limited to wages, taxes, FICA, insurance, fringe benefits, travel and living expenses. ii. All job-site facilities and equipment, including but not limited to vehicles, office trailers, telephones, computers, fax machines, furniture, etc., requires by Norglass. iii. All job-site consumables, including but not limited to office supplies, gasoline, and potable water. iv. All job-site service costs, including but not limited to trailers, telephone service, security monitoring, toilets, UPS, blueprints and other reproduction services, debris disposal, etc. v. All outside services required for completion of the job, including estimating, accounting, snow removal, cleaning services. vi. All general liability and builder's risk insurance. Such insurance shall be to the satisfaction of the Owner and project lender. Norglass shall prepare and submit to the Owner by February 21, 1997 a schedule of such insurance. Furthermore, Norglass represents that builder's risk and general liability insurance are in effect on the date of this contract. vii. All general building permits, including those for the grandstand, barns, site, and various outbuildings. General conditions shall not include legal expenses, cost of outside professional services, tests, advertising, or financing fees which are not represented by Norglass nor required for completion of the work. 1. Acceptance of Drawings. The guaranteed amounts are based on the drawings and specifications, referred to in section II.A., of Paul Deeley (grandstand), Frank Neal (structural), Hanover Engineering (MEP), Resource International (Civil/Site), and Joe King (Track) as they exist at the date of this contract and may be reasonably be completed. Norglass acknowledges that certain aspects of the drawings and specifications are in preliminary form and further agrees to bear the responsibility to construct the improvements, including all aspects of the work not specifically indicated on the drawings or specifications to the extent that such work is required to complete the work and obtain a certificate of occupancy and was reasonably necessary for operation and forseeable for construction; or reasonably inferable from the contract documents. 2. Subcontractors. The selection of the general contractors for the Site and Barns and the major subcontractors for the Grandstand -- Shell and Core are subject to the approval of the Owner. These underlying contracts shall be between Norglass and the general/subcontractor and shall be in substantially the same form as AIA Document 101 (stipulated sum), as amended. Such subcontracts shall contain language substantially the same as the last sentence of Section 1 above. 3. Contingency. The contingency, if any, may be used for construction of changes in scope or the work or work which was not reasonably foreseen or inferable as part of the guaranteed amount with the Owner's prior written approval. Unused funds in the contingency fund shall belong to the Owner. 4. Norglass Fee. The fee to Norglass shall be $2,000,000 and covers all of its work (excluding the SWFs), including pre-construction services, under the contract related to this project. On approved changes orders, Norglass shall be entitled to a 5% fee and no increase in General Conditions for the first $1,000,000 of changes, if any. The fee shall be paid as follows: 50% pro rata every 30 days 25% upon the issuance of a certificate of occupancy for the 4th satellite wagering facility in the state of Virginia but no later than December 31, 1997; and 25% upon the issuance of a certificate of occupancy for the 6th satellite wagering facility in the state of Virginia but no later than December 31, 1998. Such amount shall constitute retainage on the fee portion of the contract. E. Allowance Amount. Norglass and the Owner's representative shall coordinate the construction of the Outbuildings and Interior Finish work. The contract amount set forth above for such work shall not be guaranteed by Norglass. However, the preparation of drawings and specifications and construction of such work shall be preformed as follows: 1. Interior. The interior drawings and specifications, including the coordination with AUTOTOTE and TELEVIEW, shall be prepared by Creative Industries, Inc. The construction of the interior finish shall be performed by a local general contractor selected, with the advice of Norglass, by the Owner. 2. Outbuildings. The floor plans and equipment drawings for the Paddock, Horsemen's Building, Dormitories, and other outbuildings are to be prepared by a creative Industries, Inc. The construction of the Outbuildings shall be performed by a local design/build general contractor(s) or pre-engineered building firm selected, with the advice of Norglass, by the Owner. F. Completion Dates. Norglass shall adnere to the schedule attached as Exhibit C and complete the project in a manner sufficient to obtain certificates of occupancy for the structures referenced herein and to conduct live racing. 1. Critical Milestones as part of that schedule, the following dates are critical completion dates to which Norglass agrees to adhere: If the Contract Completion Date Is Awarded by: --------------- -------------- Site Work to Date/ Misc. Site Work July 15, 1997 February 19, 1997 Site Work/Tracks to Complete June 29, 1997 February 19, 1997 Barns (1,000) June 15, 1997 February 19, 1997 Concrete Pads/Tents June 29, 1997 February 19, 1997 Grandstand - Shell June 29, 1997 February 19, 1997 Grandstand - First Floor June 29, 1997 February 19, 1997 Grandstand - Second - Fourth Floors August 1, 1997 February 19, 1997 2. Bond. In order to ensure timely completion, the work of all subcontracts, at the election of the Owner, is to be 100% bonded. Such cost shall be added to the cost of the work. 3. Fee Reduction. Norglass' Fee shall be reduced by $5,000 per day for each day after August 31, 1997 the track is completed. G. Testing. Norglass shall arrange and pay for all testing required in all relevant specifications. Such testing shall be conducted by an independent organization and the results of such testing shall be provided in a timely fashion to the owner when completed. Prior to February 21, 1997, Norglass shall provide Owner with an outline of the required testing and its plan for implementing such testing. H. Manpower. Norglass shall employ such sufficient manpower and supervision in order to ensure that these completion dates are satisfied. Prior to February 21, 1997 Norglass shall provide to the Owner a written plan, subject to Owner approval, for doing so. I. Ingress/Egress. Contractor acknowledges that it has developed a plan for ingress and egress and is aware of the planned work by the county on I-55 and agrees such plan for ingress and egress and the county work shall not be a basis for claiming an increase in the price of the work or delay. J. Engineering. The Owner shall provide control points and benchmarks for the work. All other engineering and survey work shall be the responsibility of Norglass. K. Prior Written Approval of Changes. All proposed changes in the work, including the substitution of materials, otherwise required by the drawings and specifications, are subject to the prior written approval of the Owner. L. Site Control. Norglass shall be in control of the site and is responsible for all aspects of the project, including, but not limited to, normal weather (average of last three years' conditions), schedule, safety, delivery of materials but excluding the procurement of furniture, fixtures and equipment. If adverse weather conditions are the basis for a claim for additional time or an increase in the cost of the work, such claim shall be documented by data substantiated that weather conditions were abnormal for the period of time and could not have been reasonably anticipated, and that the weather conditions had an adverse impact on the scheduled construction. Such claim may be approved only in writing by Owner. In addition, Norglass shall be responsible for and bear the cost for noise, dust and fume (except manure) mitigation or abatement, traffic control and worker parking and behavior on site to the reasonable satisfaction of the Owner, but only to the extent that such noise, dust, fumes, traffic, parking, or behavior interferes with the work or neighbors' right to quiet enjoyment of their privacy. M. Applications for Payment. Monthly applications for payment shall be detailed, in AIA 6702 form or the substantial equivalent, and be accompanied by supporting invoices for the current request and lien waivers from the prior request and such other information as the Owner and project lender may reasonably require. N. Retainage. Retention shall be 10% for the entire project (except the fee as previously discussed) and be released upon substantial completion of the work and preparation of a punchlist for the Owner. Owner shall withhold 150% of the amount necessary, as determined by the Owner, to complete the punchlist. O. Labor Laws. Norglass shall be responsible for the compliance with all applicable federal, state, and local labor laws, rules and regulations. P. Reporting Requirements. Norglass shall: 1. Status Report. Provide a weekly status report covering status of activities, manpower summary, changes in budget and status of the schedule, the form of which shall be to the reasonable satisfaction of the Owner. 2. Meeting. Attend a weekly Owner meeting; and conduct a weekly subcontractor meeting and provide the Owner minutes from such meeting. 3. Reporting Requirements. Norglass shall provide the Owner with the following: a. A daily log and a monthly log b. Change order, submittal and RFI logs, as appropriate c. Subcontracts for the work, with contract clarifications, appropriate budget, and general condition information attached d. Request for change orders shall include a breakdown of labor, materials, equipment and general conditions and profit and overhead. Change orders will only be granted to the extent that they represent work that was neither foreseeable nor inferable from the drawings. e. Norglass shall also provide all required information and submittals to the Virginia Racing Commission and all appropriate governmental bodies. IV. SITE WORK CONTRACT. The base bid for the site work shall provide that the contractor shall be responsible for the following: A. All seeding and erosion control measurements, generally as per the drawings and specifications, required to meet EPA rules and regulations. B. Replacement of topsoil as necessary to complete the job. C. Site sanitary and drinking water required by the workforce. D. De-watering as required to complete the work by the schedule dates. Such base bid shall specifically exclude: A. Rock Excavation B. Removal and replacement of unsuitable material, the existence of which was not known or which was not reasonable discoverable or the existence of which should have been known by the Contractor prior to commencing the work; or was known to the Contractor as of the date of this contract. V. OWNER REPRESENTATIVE. Owner shall appoint a representative to administer this contract. VI. SCOPE OF WORK. Owner reserves the right to reduce the scope of the work for the project. Norglass fee shall not be reduced by any such scope reductions. VII. NOTICE TO PROCEED. From and after the date of this contract, work shall proceed only pursuant to a written notice to proceed, outlining the details of the work to proceed and the cost thereof, issued by the Owner. VIII. FINANCING CONTINGENCY. The Owner reserves the right to cancel this contract until such time as financing in irrevocably committed, evidence of which shall be provided to Norglass by March 31, 1997. IX. SWF CONSTRUCTION. Norglass shall act as the construction manager for each of the first six satellite wagering facilities owned and operated by the Owner in the state of Virginia, including those in Chesapeake and Richmond. Norglass shall be paid 10% of the cost of the hard construction costs. Norglass shall bid the work either, at the election of the Owner, to local general contractors, in total, or to subtrades in a manner satisfactory to the Owner in its complete discretion. X. SAVINGS. The Owner shall be entitled to 100% of the savings from the project. Approval and Accepted this 11th day of February 1997 by and between: Norglass, Inc. Colonial Downs, L.P. /s/ - ----------------------------- ----------------------------- General Conditions of the Contract for Construction AIA Document A201 - Electronic Format 1987 EDITION TABLE OF ARTICLES 1. GENERAL PROVISIONS 2. OWNER 3. CONTRACTOR 4. ADMINISTRATION OF THE CONTRACT 5. SUBCONTRACTORS 6. CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS 7. CHANGES IN THE WORK 8. TIME 9. PAYMENTS AND COMPLETION 10. PROTECTION OF PERSONS AND PROPERTY 11. INSURANCE AND BONDS 12. UNCOVERING AND CORRECTION OF WORK 13. MISCELLANEOUS PROVISIONS 14. TERMINATION OR SUSPENSION OF THE CONTRACT THIS DOCUMENT HAS IMPORTANT LEGAL CONSEQUENCES; CONSULTATION WITH AN ATTORNEY IS ENCOURAGED WITH RESPECT TO ITS MODIFICATION. AUTHENTICATION OF THIS ELECTRONICALLY DRAFTED AIA DOCUMENT MAY BE MADE BY USING AIA DOCUMENT D401. This document has been approved and endorsed by the Associated General Contractors of America. Copyright 1911, 1915,1918, 1925, 1927, 1951, 1958, 1961, 1963, 1967, 1970, 1976, 1987 by The American Institute of Architects, 1735 New York Avenue N.W., Washington, DC 20006-5292. Reproduction of the material herein or substantial quotation of its provisions without written permission of the AIA violates the copyright laws of the United States and will be subject to legal prosecutions. INDEX Acceptance of Nonconforming Work Acceptance of Work Access to Work Accident Prevention Acts and Omissions Addenda Additional Costs, Claims for Additional Inspections and Testing Additional Time, Claims for ADMINISTRATION OF THE CONTRACT Advertisement or Invitation to Bid Aesthetic Effect Allowances All-risk Insurance Applications for Payment Approvals Arbitration Architect Architect, Definition of Architect, Extent of Authority Architect, Limitations of Authority and Responsibility Architect's Additional Services and Expenses Architect's Administration of the Contract Architect's Approvals Architect's Authority to Reject Work Architect's Copyright Architect's Decisions Architect's Inspections Architect's Instructions Architect's Interpretations Architect's On-Site Observations Architect's Project Representative Architect's Relationship with Contractor Architect's Relationship with Subcontractors Architect's Representations Architect's Site Visits Asbestos Attorneys' Fees Award of Separate Contracts Award of Subcontracts and Other Contracts for Portions of the Work Basic Definitions Bidding Requirements Boiler and Machinery Insurance Bonds, Lien Bonds, Performance and Payment Building Permit Capitalization Certificate of Substantial Completion Certificates for Payment Certificates of Inspection, Testing or Approval Certificates of Insurance Change Orders Change Orders, Definition of Changes CHANGES IN THE WORK Claim, Definition of Claims and Disputes Claims and Timely Assertion of Claims Claims for Additional Cost Claims for Additional Time Claims for Concealed or Unknown Conditions Claims for Damages Claims Subject to Arbitration Cleaning Up Commencement of Statutory Limitation Period Commencement of the Work, Conditions Relating to Commencement of the Work, Definition of Communications Facilitating Contract Administration Completion, Conditions Relating to COMPLETION, PAYMENTS AND Completion, Substantial Compliance with Laws Concealed or Unknown Conditions Conditions of the Contract Consent, Written CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS Construction Change Directive, Definition of Construction Change Directives Construction Schedules, Contractor's Contingent Assignment of Subcontracts Continuing Contract Performance Contract, Definition of CONTRACT, TERMINATION OR SUSPENSION OF THE Contract Administration Contract Award and Execution, Conditions Relating to Contract Documents, The Contract Documents, Copies Furnished and Use of Contract Documents, Definition of Contract Performance During Arbitration Contract Sum Contract Sum, Definition of Contract Time Contract Time, Definition of CONTRACTOR Contractor, Definition of Contractor's Bid Contractor's Construction Schedules Contractor's Employees Contractor's Liability Insurance Contractor's Relationship with Separate Contractors and Owner's Forces Contractor's Relationship with Subcontractors Contractor's Relationship with the Architect Contractor's Representations Contractor's Responsibility for Those Performing the Work Contractor's Review of Contract Documents Contractor's Right to Stop the Work Contractor's Right to Terminate the Contract Contractor's Submittals Contractor's Superintendent Contractor's Supervision and Construction Procedures Contractual Liability Insurance Coordination and Correlation Copies Furnished of Drawings and Specifications Correction of Work Cost, Definition of Costs Cutting and Patching Damage to Construction of Owner or Separate Contractors Damage to the Work Damages, Claims for Damages for Delay Date of Commencement of` the Work, Definition of Date of Substantial Completion, Definition of Day, Definition of Decisions of the Architect Decisions to Withhold Certification Defective or Nonconforming Work, Acceptance, Rejection and Correction of Defective Work, Definition of Definitions Delays and Extensions of Time Disputes Documents and Samples at the Site Drawings, Definition of Drawings and Specifications, Use and Ownership of Duty to Review Contract Documents and Field Conditions Effective Date of Insurance Emergencies Employees, Contractor's Equipment, Labor, Materials and Execution and Progress of the Work Execution, Correlation and Intent of the Contract Documents Extensions of Time Failure of Payment by Contractor Failure of Payment by Owner Faulty Work (See Defective or Nonconforming Work) Final Completion and Final Payment Financial Arrangements, Owner's Fire and Extended Coverage Insurance GENERAL PROVISIONS Governing Law Guarantees (See Warranty and Warranties) Hazardous Materials Identification of Contract Documents Identification of Subcontractors and Suppliers Indemnification Information and Services Required of the Owner Injury or Damage to Person or Property Inspections Instructions to Bidders Instructions to the Contractor Insurance Insurance, Boiler and Machinery Insurance, Contractor's Liability Insurance, Effective Date of Insurance, Loss of Use Insurance, Owner's Liability Insurance, Property Insurance, Stored Materials INSURANCE AND BONDS Insurance Companies, Consent to Partial Occupancy Insurance Companies, Settlement with Intent of the Contract Documents Interest Interpretation Interpretations, Written Joinder and Consolidation of Claims Required Judgment on Final Award Labor and Materials, Equipment Labor Disputes Laws and Regulations Liens Limitation on Consolidation or Joinder Limitations, Statutes of Limitations of Authority Limitations of Liability Limitations of Time, General Limitations of Time, Specific Loss of Use Insurance Material Suppliers Materials, Hazardous Materials, Labor, Equipment and Means, Methods, Techniques, Sequences and Procedures of Construction Minor Changes in the Work MISCELLANEOUS PROVISIONS Modifications, Definition of Modifications to the Contract Mutual Responsibility Nonconforming Work, Acceptance of Nonconforming Work, Rejection and Correction of Notice Notice, Written Notice of Testing and Inspections Notice to Proceed Notices, Permits, Fees and Observations, Architect's On-Site Observations, Contractor's Occupancy On-Site Inspections by the Architect On-Site Observations by the Architect Orders, Written OWNER Owner, Definition of Owner, Information and Services Required of the Owner's Authority Owner's Financial Capability Owner's Liability Insurance Owner's Loss of Use Insurance Owner's Relationship with Subcontractors Owner's Right to Carry Out the Work Owner's Right to Clean Up Owner's Right to Perform Construction and to Award Separate Contracts Owner's Right to Stop the Work Owner's Right to Suspend the Work Owner's Right to Terminate the Contract Ownership and Use of Architect's Drawings, Specifications and Other Documents Partial Occupancy or Use Patching, Cutting and Patents, Royalties and Payment, Applications for Payment, Certificates for Payment, Failure of Payment Final Payment Bond, Performance Bond and Payments, Progress PAYMENTS AND COMPLETION Payments to Subcontractors PCB Performance Bond and Payment Bond Permits, Fees and Notices PERSONS AND PROPERTY, PROTECTION OF Polychlorinated Biphenyl Product Data, Definition of Product Data and Samples, Shop Drawings Progress and Completion Progress Payments Project, Definition of the Project Manual, Definition of the Project Manuals Project Representatives Property Insurance PROTECTION OF PERSONS AND PROPERTY Regulations and Laws Rejection of Work Releases of Waivers and Liens Representations Representatives Resolution of Claims and Disputes Responsibility for Those Performing the Work Retainage Review of Contract Documents and Field Conditions by Contractor Review of Contractor's Submittals by Owner and Architect Review of Shop Drawings, Product Data and Samples by Contractor Rights and Remedies Royalties and Patents Rules and Notices for Arbitration Safety of Persons and Property Safety Precautions and Programs Samples, Definition of Samples, Shop Drawings, Product Data and Samples at the Site, Documents and Schedule of Values Schedules, Construction Separate Contracts and Contractors Shop Drawings, Product Data and Samples Site, Use of Site Inspections Site Visits, Architect's Special Inspections and Testing Specifications, Definition of the Specifications, The Statute of Limitations Stopping the Work Stored Materials Subcontractor, Definition of SUBCONTRACTORS Subcontractors, Work by Subcontractual Relations Submittals Subrogation, Waivers of Substantial Completion Substantial Completion, Definition of Substitution of Subcontractors Substitution of the Architect Substitutions of Materials Sub-subcontractor, Definition of Subsurface Conditions Successors and Assigns Superintendent Supervision and Construction Procedures Surety Surety, Consent of Surveys Suspension by the Owner for Convenience Suspension of the Work Suspension or Termination of the Contract Taxes Termination by the Contractor Termination by the Owner for Cause Termination of the Architect Termination of the Contractor TERMINATION OR SUSPENSION OF THE CONTRACT Tests and Inspections TIME Time, Delays and Extensions of Time Limits, Specific Time Limits on Claims Title to Work UNCOVERING AND CORRECTION OF WORK Uncovering of Work Unforeseen Conditions Unit Prices Use of Documents Use of Site Values, Schedule of Waiver of Claims: Final Payment Waiver of Claims by the Architect Waiver of Claims by the Contractor Waiver of Claims by the Owner Waiver of Liens Waivers of Subrogation Warranty and Warranties Weather Delays When Arbitration May Be Demanded Work, Definition of Written Consent Written Interpretations Written Notice Written Orders GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION ARTICLE 1 GENERAL PROVISIONS 1.1 BASIC DEFINITIONS 1.1.1 THE CONTRACT DOCUMENTS The Contract Documents consist of the Agreement between Owner and Contractor (hereinafter the Agreement), Conditions of the Contract (General, Supplementary and other Conditions), Drawings, Specifications, addenda issued prior to execution of the Contract, other documents listed in the Agreement and Modifications issued after execution of the Contract. A Modification is (1) a written amendment to the Contract signed by both parties, (2) a Change Order, (3) a Construction Change Directive or (4) a written order for a minor change in the Work issued by the Architect. Unless specifically enumerated in the Agreement, the Contract Documents do not include other documents such as bidding requirements (advertisement or invitation to bid. Instructions to Bidders, sample forms, the Contractor's bid or portions of addenda relating to bidding requirements). 1.1.2 THE CONTRACT The Contract Documents form the Contract for Construction. The Contract represents the entire and integrated agreement between the parties hereto and supersedes prior negotiations, representations or agreements, either written or oral. The Contract may be amended or modified only by a Modification. The Contract Documents shall not be construed to create a contractual relationship of any kind (1) between the Architect and Contractor, (2) between the Owner and a Subcontractor or Sub-subcontractor or (3) between any persons or entities other than the Owner and Contractor. The Architect shall, however, be entitled to performance and enforcement of obligations under the Contract intended to facilitate performance of the Architect's duties. 1.1.3 THE WORK The term "Work" means the construction and services required by the Contract Documents, whether completed or partially completed, and includes all other labor, materials, equipment and services provided or to be provided by the Contractor to fulfill the Contractor's obligations. The Work may constitute the whole or a part of the Project. 1.1.4 THE PROJECT The Project is the total construction of which the Work performed under the Contract Documents may be the whole or a part and which may include construction by the Owner or by separate contractors. 1.1.5 THE DRAWINGS The Drawings are the graphic and pictorial portions of the Contract Documents, wherever located and whenever issued, showing the design, location and dimensions of the Work, generally including plans, elevations, sections, details, schedules and diagrams. 1.1.6 THE SPEC1FICATIONS The Specifications are that portion of the Contract Documents consisting of the written requirements for materials, equipment, construction systems, standards and workmanship for the Work, and performance of related services. 1.1.7 THE PROJECT MANUAL The Project Manual is the volume usually assembled for the Work which may include the bidding requirements, sample forms, Conditions of the Contract and Specifications. 1.2 EXECUTION, CORRELATION AND INTENT 1.2.1 The Contract Documents shall be signed by the Owner and Contractor as provided in the Agreement. If either the Owner or Contractor or both do not sign all the Contract Documents, the Architect shall identify such unsigned Documents upon request. 1.2.2 Execution of the Contract by the Contractor is a representation that the Contractor has visited the site, become familiar with local conditions under which the Work is to be performed and correlated personal observations with requirements of the Contract Documents. 1.2.3 The intent of the Contract Documents is to include all items necessary for the proper execution and completion of the Work by the Contractor. The Contract Documents are complementary, and what is required by one shall be as binding as if required by all; performance by the Contractor shall be required only to the extent consistent with the Contract Documents and reasonably inferable from them as being necessary to produce the intended results. 1.2.4 Organization of the Specifications into divisions, sections and articles, and arrangement of Drawings shall not control the Contractor in dividing the Work among Subcontractors or in establishing the extent of Work to be performed by any trade. 1.2.5 Unless otherwise stated in the Contract Documents, words which have well-known technical or construction industry meanings are used in the Contract Documents in accordance with such recognized meanings. 1.3 OWNERSHIP AND USE OF ARCHITECT'S DRAWINGS, SPECIFICATIONS AND OTHER DOCUMENTS 1.3.1 The Drawings, Specifications and other documents prepared by the Architect are instruments of the Architect's service through which the Work to be executed by the Contractor is described. The Contractor may retain one contract record set. Neither the Contractor nor any Subcontractor, Sub-subcontractor or material or equipment supplier shall own or claim a copyright in the Drawings, Specifications and other documents prepared by the Architect, and unless otherwise indicated the Architect shall be deemed the author of them and will retain all common law, statutory and other reserved rights, in addition to the copyright. All copies of them, except the Contractor's record set, shall be returned or suitably accounted for to the Architect, on request, upon completion of the Work. The Drawings, Specifications and other documents prepared by the Architect, and copies thereof furnished to the Contractor, are for use solely with respect to this Project. They are not to be used by the Contractor or any Subcontractor, Sub- subcontractor or material or equipment supplier on other projects or for additions to this Project outside the scope of the Work without the specific written consent of the Owner and Architect. The Contractor, Subcontractors, Sub-subcontractors and material or equipment suppliers are granted a limited license to use and reproduce applicable portions of the Drawings, Specifications and other documents prepared by the Architect appropriate to and for use in the execution of their Work under the Contract Documents. All copies made under this license shall bear the statutory copyright notice, if any, shown on the Drawings, Specifications and other documents prepared by the Architect. Submittal or distribution to meet official regulatory requirements or for other purposes in connection with this Project is not to be construed as publication in derogation of the Architect's copyright or other reserved rights. 1.4 CAPITALIZATION 1.4.1 Terms capitalized in these General Conditions include those which are (1) specifically defined, (2) the titles of numbered articles and identified references to Paragraphs, Subparagraphs and Clauses in the document or (3) the titles of other documents published by the American Institute of Architects. 1.5 INTERPRETATION 1.5.1 In the interest of brevity the Contract Documents frequently omit modifying words such as "all" and "any" and articles such as "the" and "an," but the fact that a modifier or an article is absent from one statement and appears in another is not intended to affect the interpretation of either statement. ARTICLE 2 OWNER 2.1 DEFINITION 2.1.1 The Owner is the person or entity identified as such in the Agreement and is referred to throughout the Contract Documents as if singular in number. The term "Owner" means the Owner or the Owner's authorized representative. 2.1.2 The Owner upon reasonable written request shall furnish to the Contractor in writing information which is necessary and relevant for the Contractor to evaluate, give notice of or enforce mechanic's lien rights. Such information shall include a correct statement of the record legal title to the property on which the Project is located, usually referred to as the site, and the Owner's interest therein at the time of execution of the Agreement and, within five days after any change, information of such change in title, recorded or unrecorded. 2.2 INFORMATION AND SERVICES REQUIRED OF THE OWNER 2.2.1 The Owner shall, at the request of the Contractor, prior to execution of the Agreement and promptly from time to time thereafter, furnish to the Contractor reasonable evidence that financial arrangements have been made to fulfill the Owner's obligations under the Contract. [Note: Unless such reasonable evidence were furnished on request prior to the execution of the Agreement, the prospective contractor would not be required to execute the Agreement or to commence the Work. 2.2.2 The Owner shall furnish surveys describing physical characteristics, legal limitations and utility locations for the site of the Project, and a legal description of the site. 2.2.3 Except for permits and fees which are the responsibility of the Contractor under the Contract Documents, the Owner shall secure and pay for necessary approvals, easements, assessments and charges required for construction, use or occupancy of permanent structures or for permanent changes in existing facilities. 2.2.4 Information or services under the Owner's control shall be furnished by the Owner with reasonable promptness to avoid delay in orderly progress of the Work. 2.2.5 Unless otherwise provided in the Contract Documents, the Contractor will be furnished, free of charge, such copies of Drawings and Project Manuals as are reasonably necessary for execution of the Work. 2.2.6 The foregoing are in addition to other duties and responsibilities of the Owner enumerated herein and especially those in respect to Article 6 (Construction by Owner or by Separate Contractors), Article 9 (Payments and Completion) and Article 11 (Insurance and Bonds). 2.3 OWNER'S RIGHT TO STOP THE WORK 2.3.1 If the Contractor fails to correct Work which is not in accordance with the requirements of the Contract Documents as required by Paragraph 12.2 or persistently fails to carry out Work in accordance with the Contract Documents, the Owner, by written order signed personally or by an agent specifically so empowered by the Owner in writing, may order the Contractor to stop the Work, or any portion thereof, until the cause for such order has been eliminated; however, the right of the Owner to stop the Work shall not give rise to a duty on the part of the Owner to exercise this right for the benefit of the Contractor or any other person or entity, except to the extent required by Subparagraph 6.1.3. 2.4 OWNER'S RIGHT TO CARRY OUT THE WORK 2.4.1 If the Contractor defaults or neglects to carry out the Work in accordance with the Contract Documents and fails within a seven-day period after receipt of written notice from the Owner to commence and continue correction of such default or neglect with diligence and promptness, the Owner may after such seven-day period give the Contractor a second written notice to correct such deficiencies within a second seven-day period. If the Contractor within such second seven-day period after receipt of such second notice fails to commence and continue to correct any deficiencies, the Owner may, without prejudice to other remedies the Owner may have, correct such deficiencies. In such case an appropriate Change Order shall be issued deducting from payments then or thereafter due the Contractor the cost of correcting such deficiencies, including compensation for the Architect's additional services and expenses made necessary by such default, neglect or failure. Such action by the Owner and amounts charged to the Contractor are both subject to prior approval of the Architect. If payments then or thereafter due the Contractor are not sufficient to cover such amounts, the Contractor shall pay the difference to the Owner. ARTICLE 3 CONTRACTOR 3.1 DEFINITION 3.1.1 The Contractor is the person or entity identified as such in the Agreement and is referred to throughout the Contract Documents as if singular in number. The term "Contractor" means the Contractor or the Contractor's authorized representative. 3.2 REVIEW OF CONTRACT DOCUMENTS AND FIELD CONDITIONS BY CONTRACTOR 3.2.1 The Contractor shall carefully study and compare the Contract Documents with each other and with information furnished by the Owner pursuant to Subparagraph 2.2.2 and shall at once report to the Architect errors, inconsistencies or omissions discovered. The Contractor shall not be liable to the Owner or Architect for damage resulting from errors, inconsistencies or omissions in the Contract Documents unless the Contractor recognized such error, inconsistency or omission and knowingly failed to report it to the Architect. If the Contractor performs any construction activity knowing it involves a recognized error, inconsistency or omission in the Contract Documents without such notice to the Architect, the Contractor shall assume appropriate responsibility for such performance and shall bear an appropriate amount of the attributable costs for correction. 3.2.2 The Contractor shall take field measurements and verify field conditions and shall carefully compare such field measurements and conditions and other information known to the Contractor with the Contract Documents before commencing activities. Errors, inconsistencies or omissions discovered shall be reported to the Architect at once. 3.2.3 The Contractor shall perform the Work in accordance with the Contract Documents and submittals approved pursuant to Paragraph 3.12. 3.3 SUPERVISION AND CONSTRUCTION PROCEDURES 3.3.1 The Contractor shall supervise and direct the Work, using the Contractor's best skill and attention. The Contractor shall be solely responsible for and have control over construction means, methods, techniques, sequences and procedures and for coordinating all portions of the Work under the Contract, unless Contract Documents give other specific instructions concerning these matters. 3.3.2 The Contractor shall be responsible to the Owner for acts and omissions of the Contractor's employees, Subcontractors and their agents and employees, and other persons performing portions of the Work under a contract with the Contractor. 3.3.3 The Contractor shall not be relieved of obligations to performing the Work in accordance with the Contract Documents either by activities or duties of the Architect in the Architect's administration of the Contract, or by tests, inspections or approvals required or performed by persons other than the Contractor. 3.3.4 The Contractor shall be responsible for inspection of portions of Work already performed under this Contract to determine that such portions are in proper condition to receive subsequent Work. 3.4 LABOR AND MATERIALS 3.4.1 Unless otherwise provided in the Contract Documents, the Contractor shall provide and pay for labor, materials, equipment, tools, construction equipment and machinery, water, heat, utilities, transportation, and other facilities and services necessary for proper execution and completion of the Work, whether temporary or permanent and whether or not incorporated or to be incorporated in the Work. 3.4.2 The Contractor shall enforce strict discipline and good order among the Contractor's employees and other persons carrying out the Contract. The Contractor shall not permit employment of unfit persons or persons not skilled in tasks assigned to them. 3.5 WARRANTY 3.5.1 The Contractor warrants to the Owner and Architect that materials and equipment furnished under the Contract will be of good quality and new unless otherwise required or permitted by the Contract Documents, that the Work will be free from defects not inherent in the quality required or permitted, and that the Work will conform with the requirements of the Contract Documents. Work not conforming to these requirements, including substitutions not properly approved and authorized, may be considered defective. The Contractor's warranty excludes remedy for damage or defect caused by abuse, modifications not executed by the Contractor, improper or insufficient maintenance, improper operation, or normal wear and tear under normal usage. If required by the Architect, the Contractor shall furnish satisfactory evidence as to the kind and quality of materials and equipment. 3.6 TAXES 3.6.1 The Contractor shall pay sales, consumer, use and similar taxes for the Work or portions thereof provided by the Contractor which are legally enacted when bids are received or negotiations concluded, whether or not yet effective or merely scheduled to go into effect. 3.7 PERMITS, FEES AND NOTICES 3.7.1. Unless otherwise provided in the Contract Documents, the Contractor shall secure and pay for the building permit and other permits and governmental fees, licenses and inspections necessary for proper execution and completion of the Work which are customarily secured after execution of the Contract and which are legally required when bids are received or negotiations concluded. 3.7.2 The Contractor shall comply with and give notices required by laws, ordinances, rules, regulations and lawful orders of public authorities bearing on performance of the Work. 3.7.3. It is not the Contractor's responsibility to ascertain that the Contract Documents are in accordance with applicable laws, statutes, ordinances, building codes, and rules and regulations. However, if the contractor observes that portions of the Contract Documents are at variance therewith, the Contractor shall promptly notify the Architect and Owner in writing, and necessary changes shall be accomplished by appropriate Modification. 3.7.4 If the Contractor performs Work knowing it to be contrary to laws, statutes, ordinances, building codes, and rules and regulations without such notice to the Architect and Owner, the Contractor shall assume full responsibility for such Work and shall bear the attributable costs. 3.8 ALLOWANCES 3.8.1 The Contractor shall include in the Contract Sum all allowances stated in the Contract Documents. Items covered by allowances shall be supplied for such amounts and by such persons or entities as the Owner may direct, but the Contractor shall not be required to employ persons or entities against which the Contractor makes reasonable objection. 3.8.2 Unless otherwise provided in the Contract Documents: .1 materials and equipment under an allowance shall be selected promptly by the Owner to avoid delay in the Work; .2 shall cover the cost to the Contractor of materials and equipment delivered at the site and all required taxes, less applicable trade discounts; .3 Contractor's costs for unloading and handling at the site, labor, installation costs, overhead, profit and other expenses contemplated for stated allowance amounts shall be included in the Contract Sum and not in the allowances; .4 whenever costs are more than or less than allowances, the Contract Sum shall be adjusted accordingly by Change Order. The amount of the Change Order shall reflect (1) the difference between actual costs and the allowances under Clause 3.8.2.2. and (2) changes in Contractor's costs under Clause 3.8.2.3. 3.9 SUPERINTENDENT 3.9.1 The Contractor shall employ a competent superintendent and necessary assistants who shall be in attendance at the Project site during performance of the Work. The superintendent shall represent the Contractor, and communications given to the superintendent shall be as binding as if given to the Contractor. Important communications shall be confirmed in writing. Other communications shall be similarly confirmed on written request in each case. 3.10 CONTRACTOR'S CONSTRUCTION SCHEDULES 3.10.1 The Contractor, promptly after being awarded the Contract, shall prepare and submit for the Owner's and Architect's information a Contractor's construction schedule for the Work. The schedule shall not exceed time limits current under the Contract Documents, shall be revised at appropriate intervals as required by the conditions of the Work and Project, shall be related to the entire Project to the extent required by the Contract Documents, and shall provide for expeditious and practicable execution of the Work. 3.10.2 The Contractor shall prepare and keep current, for the Architect's approval, a schedule of submittals which is coordinated with the Contractor's construction schedule and allows the Architect reasonable time to review submittals. 3.10.3 The Contractor shall conform to the most recent schedules. 3.11 DOCUMENTS AND SAMPLES AT THE SITE 3.11.1 The Contractor shall maintain at the site for the Owner one record copy of the Drawings, Specifications, addenda, Change Orders and other Modifications, in good order and marked currently to record changes and selections made during construction, and in addition approved Shop Drawings, Product Data, Samples and similar required submittals. These shall be available to the Architect and shall be delivered to the Architect for submittal to the Owner upon completion of the Work. 3.12 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES 3.12.1 Shop Drawings are drawings, diagrams, schedules and other data specially prepared for the Work by the Contractor or a Subcontractor, Sub-subcontractor, manufacturer, supplier or distributor to illustrate some portion of the Work. 3.12.2 Product Data are illustrations, standard schedules, performance charts, instructions, brochures, diagrams and other information furnished by the Contractor to illustrate materials or equipment for some portion of the Work. 3.12.3 Samples are physical examples which illustrate materials, equipment or workmanship and establish standards by which the Work will be judged. 3.12.4 Shop Drawings, Product Data, Samples and similar submittals are not Contract Documents. The purpose of their submittal is to demonstrate for those portions of the Work for which submittals are required the way the Contractor proposes to conform to the information given and the design concept expressed in the Contract Documents. Review by the Architect is subject to the limitations of Subparagraph 4.2.7. 3.12.5 The Contractor shall review, approve and submit to the Architect Shop Drawings, Product Data, Samples and similar submittals required by the Contract Documents with reasonable promptness and in such sequence as to cause no delay in the Work or in the activities of the Owner or of separate contractors. Submittals made by the Contractor which are not required by the Contract Documents may be returned without action. 3.12.6 The Contractor shall perform no portion of the Work requiring submittal and review of Shop Drawings, Product Data, Samples or similar submittals until the respective submittal has been approved by the Architect. Such Work shall be in accordance with approved submittals. 3.12.7 By approving and submitting Shop Drawings, Product Data, Samples and similar submittals, the Contractor represents that the Contractor has determined and verified materials, field measurements and field construction criteria related thereto, or will do so, and has checked and coordinated the information contained within such submittals with the requirements of the Work and of the Contract Documents. 3.12.8 The Contractor shall not be relieved of responsibility for deviations from requirements of the Contract Documents by the Architect's approval of Shop Drawings, Product Data, Samples or similar submittals unless the Contractor has specifically informed the Architect in writing of such deviation at the time of submittal and the Architect has given written approval to the specific deviation. The Contractor shall not be relieved of responsibility for errors or omissions in Shop Drawings, Product Data, Samples or similar submittals by the Architect's approval thereof. 3.12.9 The Contractor shall direct specific attention, in writing or on resubmitted Shop Drawings, Product Data, Samples or similar submittals, to revisions other than those requested by the Architect on previous submittals. 3.12.10 Informational submittals upon which the Architect is not expected to take responsive action may be so identified in the Contract Documents. 3.12.11 When professional certification of performance criteria of materials, systems or equipment is required by the Contract Documents, the Architect shall be entitled to rely upon the accuracy and completeness of such calculations and certifications 3.13 USE OF SITE 3.13.1 The Contractor shall continue operations at the site to areas permitted by law, ordinances, permits and the Contract Documents and shall not unreasonably encumber the site with materials or equipment. 3.14 CUTT1NG AND PATCHING 3.14.1 The Contractor shall be responsible for cutting, fitting or patching required to complete the Work or to make its parts fit together properly. 3.14.2 The Contractor shall not damage or endanger a portion of the Work or fully or partially completed construction of the Owner or separate contractors by cutting, patching or otherwise altering such construction, or by excavation. The Contractor shall not cut or otherwise alter such construction by the Owner or a separate contractor except with written consent of the Owner and of such separate contractor; such consent shall not be unreasonably withheld. The Contractor shall not unreasonably withhold from the Owner or a separate contractor the Contractor's consent to cutting or otherwise altering the Work. 3.15 CLEANING UP 3.15.1 The Contractor shall keep the premises and surrounding area free from accumulation of waste materials or rubbish caused by operations under the Contract. At completion of the Work the Contractor shall remove from and about the Project waste materials, rubbish, the Contractor's tools, construction equipment, machinery and surplus materials. 3.15.2 If the Contractor fails to clean up as provided in the Contract Documents, the Owner may do so and the cost thereof shall be charged to the Contractor. 3.16 ACCESS TO WORK 3.6.1 The Contractor shall provide the Owner and Architect access to the Work in preparation and progress wherever located. 3.17 ROYALTIES AND PATENTS 3.17.1 The Contractor shall pay all royalties and license fees. The Contractor shall defend suits or claims for infringement of patent rights and shall hold the Owner and Architect harmless from loss on account thereof, but shall not be responsible for such defense or loss when a particular design, process or product of a particular manufacturer or manufacturers is required by the Contract Documents. However, if the Contractor has reason to believe that the required design, process or product is an infringement of a patent, the Contractor shall be responsible for such loss unless such information is promptly furnished to the Architect. 3.18 INDEMNIFICATION 3.18.1 To the fullest extent permitted by law, the Contractor shall indemnify and hold harmless the Owner, Architect, Architect's consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, but only to the extent caused in whole or in part by negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them, or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Paragraph 3.18. 3.18.2 In claims against any person or entity indemnified under this Paragraph 3.18 by an employee of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under this Paragraph 3.18 shall nor be limited by a limitation on amount or type of damages, compensation or benefits payable by or for the Contractor or a Subcontractor under workers' or workmen's compensation acts, disability benefit acts or other employee benefit acts. 3.18.3 The obligations of the Contractor under this Paragraph 3.18 shall not extend to the liability of the Architect, the Architect's consultants, and agents and employees of any of them arising out of (1) the preparation or approval of maps, drawings, opinions, reports, surveys, Change Orders, designs or specifications, or (2) the giving of or the failure to give directions or instructions by the Architect, the Architect's consultants, and agents and employees of any of them provided such giving or failure to give is the primary cause of the injury or damage. ARTICLE 4 ADMINISTRATION OF THE CONTRACT 4.1 ARCHITECT 4.1.1 The Architect is the person lawfully licensed to practice architecture or an entity lawfully practicing architecture identified as such in the Agreement and is referred to throughout the Contract Documents as if singular in number. The term "Architect" means the Architect or the Architect's authorized representative. 4.1.2 Duties, responsibilities and limitations of authority of the Architect as set forth in the Contract Documents shall not be restricted, modified or extended without written consent of the Owner, Contractor and Architect. Consent shall not be unreasonably withheld. 4.1.3 In case of termination of employment of the Architect, the Owner shall appoint an Architect against whom the Contractor makes no reasonable objection and whose status under the Contract Documents shall be that of the former architect. 4.1.4 Disputes arising under Subparagraphs 4.1.2 and 4.1.3 shall be subject to arbitration. 4.2 ARCHITECT'S ADMINISTRATION OF THE CONTRACT 4.2.1 The Architect will provide administration of the Contract as described in the Contract Documents, and will be the Owner's representative (1) during construction, (2) until final payment is due and (3) with the Owner's concurrence, from time to time during the correction period described in Paragraph 12.2. The Architect will advise and consult with the Owner. The Architect will have authority to act on behalf of the Owner only to the extent provided in the Contract Documents, unless otherwise modified by written instrument in accordance with other provisions of the Contract. 4.2.2 The Architect will visit the site at intervals appropriate to the stage of construction to become generally familiar with the process and quality of the completed Work and to determine in general if the Work is being performed in a manner indicating that the Work, when completed, will be in accordance with the Contract Documents. However, the Architect will not be required to make exhaustive or continuous on-site inspections to check quality or quantity of the Work. On the basis of on-site observations as an architect, the Architect will keep the Owner informed of progress of the Work, and will endeavor to guard the Owner against defects and deficiencies in the Work. 4.2.3 The Architect will not have control over or charge of and will not be responsible for construction means, methods, techniques, sequences or procedures, or for safety precautions and programs in connection with the Work, since these are solely the Contractor's responsibility as provided in Paragraph 3.3. The Architect will not be responsible for the Contractor's failure to carry out the Work in accordance with the Contract Documents. The Architect will not have control over or charge of and will not be responsible for acts or omissions of the Contractor, Subcontractors, or their agents or employees, or of any other persons performing portions of the Work. 4.2.4 Communications Facilitating Contract Administration. Except as otherwise provided in the Contract Documents or when direct communications have been specially authorized, the Owner and Contractor shall endeavor to communicate through the Architect. Communications by and with the Architect's consultants shall be through the Architect. Communications by and with Subcontractors and material suppliers shall be through the Contractor. Communications by and with separate contractors shall be through the Owner. 4.2.5 Based on the Architect's observations and evaluations of the Contractor's Applications for Payment, the Architect will review and certify the amounts due the Contractor and will issue Certificates for Payment in such amounts. 4.2.6 The Architect will have authority to reject Work which does not conform to the Contract Documents Whenever the Architect considers it necessary or advisable for implementation of the intent of the Contract Documents, the Architect will have authority to require additional inspection or testing of the Work in accordance with Subparagraphs 13.5.2 and 13.5.3, whether or not such Work is fabricated, installed or completed. However, neither this authority of the Architect nor a decision made in good faith either to exercise or not to exercise such authority shall give rise to a duty or responsibility of the Architect to the Contractor, Subcontractors, material and equipment suppliers, their agents or employees, or other persons performing portions of the Work. 4.2.7 The Architect will review and approve or take other appropriate action upon the Contractor's submittals such as Shop Drawings, Product Data and Samples, but only for the limited purpose of checking for conformance with information given and the design concept expressed in the Contract Documents. The Architect's action will be taken with such reasonable promptness as to cause no delay in the Work or in the activities of the Owner, Contractor or separate contractors, while allowing sufficient time in the Architect's professional judgement to permit adequate review. Review of such submittals is not conducted for the purpose of determining the accuracy and completeness of other details such as dimensions and quantities, or for substantiating instructions for installation or performance of equipment or systems, all of which remain the responsibility of the Contractor as required by the Contract Documents. The Architect's review of the Contractor's submittals shall not relieve the Contractor of the obligations under Paragraphs 3.3, 3.5 and 3.12. The Architect's review shall not constitute approval of safety precautions or, unless otherwise specifically stated by the Architect, of any construction means, methods, techniques, sequences or procedures. The Architect's approval of a specific item shall not indicate approval of an assembly of which the item is a component. 4.2.8 The Architect will prepare Change Orders and Construction Change Directives, and may authorize minor changes in the Work as provided in Paragraph 7.4. 4.2.9 The Architect will conduct inspections to determine the date or dates of Substantial Completion and the date of final completion, will receive and forward to the Owner for the Owner's review and records written warranties and related documents required by the Contract and assembled by the Contractor, and will issue a final Certificate for Payment upon compliance with the requirements of the Contract Documents. 4.2.10 If the Owner and Architect agree, the Architect will provide one or more project representatives to assist in carrying out the Architect's responsibilities at the site. The duties, responsibilities and limitations of authority of such project representatives shall be as set forth in an exhibit to be incorporated in the Contract Documents. 4.2.11 The Architect will interpret and decide matters concerning performance under and requirements of the Contract Documents on written request of either the Owner or Contractor. The Architect's response to such requests will be made with reasonable promptness and within any time limits agreed upon. If no agreement is made concerning the time within which interpretations required of the Architect shall be furnished in compliance with this Paragraph 4.2, then delay shall not be recognized on account of failure by the Architect to furnish such interpretations until 15 days after written request is made for them. 4.2.12 Interpretations and decisions of the Architect will be consistent with the intent of and reasonably inferable from the Contract Documents and will be in writing or in the form of drawings. When making such interpretations and decisions, the Architect will endeavor to secure faithful performance by both Owner and Contractor, will not show partiality to either and will not be liable for results of interpretations or decisions so rendered in good faith. 4.2.13 The Architect's decisions on matters relating to aesthetic effect will be final if consistent with the intent expressed in the Contract Documents. 4.3 CLA1MS AND DISPUTES 4.3.1 Definition. A Claim is a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of Contract terms, payment of money, extension of time or other relief with respect to the terms of the Contract. The term "Claim" also includes other disputes and matters in question between the Owner and Contractor arising out of or relating to the Contract. Claims must be made by written notice. The responsibility to substantiate Claims shall rest with the party making the Claim. 4.3.2 Decision of Architect. Claims, including those alleging an error or omission by the Architect, shall be referred initially to the Architect for action as provided in Paragraph 4.4. A decision by the Architect, as provided in Subparagraph 4.4.4, shall be required as a condition precedent to arbitration or litigation of a Claim between the Contractor and Owner as to all such matters arising prior to the date final payment is due, regardless of (l) whether such matters relate to execution and progress of the Work or (2) the extent to which the Work has been completed. The decision by the Architect in response to a Claim shall not be a condition precedent to arbitration or litigation in the event (1) the position of Architect is vacant, (2) the Architect has not received evidence or has failed to render a decision within agreed time limits, (3) the Architect has failed to take action required under Subparagraph 4.4.4 within 30 days after the Claim is made, (4) 45 days have passed after the Claim has been referred to the Architect or (5) the Claim relates to a mechanic's lien. 4.3.3 Time Limits on Claims. Claims by either party must be made within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later. Claims must be made by written notice. An additional Claim made after the initial Claim has been implemented by Change Order will not be considered unless submitted in a timely manner. 4.3.4 Continuing Contact Performance. Pending final resolution of a Claim including arbitration, unless otherwise agreed in writing the Contractor shall proceed diligently with performance of the Contract and the Owner shall continue to make payments in accordance with the Contract Documents. 4.3.5 Waiver of Claims: Final Payment. The making of final payment shall constitute a waiver of Claims by the Owner except those arising from: .1 liens, Claims, security interests or encumbrances arising out of the Contract and unsettled; .2 failure of the Work to comply with the requirements of the Contract Documents; or .3 terms of special warranties required by the Contract Documents. 4.3.6 Claims for Concealed or Unknown Conditions. If conditions are encountered at the site which are (1) subsurface or otherwise concealed physical conditions which differ materially from those indicated in the Contract Documents or (2) unknown physical conditions of an unusual nature, which differ materially from those ordinarily found to exist and generally recognized as inherent in construction activities of the character provided for in the Contract Documents, then notice by the observing party shall be given to the other party promptly before conditions are disturbed and in no event later than 21 days after first observance of the conditions. The Architect will promptly investigate such conditions and, if they differ materially and cause an increase or decrease in the Contractor's cost of, or time required for, performance of any part of the Work, will recommend an equitable adjustment in the Contract Sum or Contract Time, or both. If the Architect determines that the conditions at the site are not materially different from those indicated in the Contract Documents and that no change in the terms of the Contract is justified, the Architect shall so notify the Owner and Contractor in writing, stating the reasons. Claims by either party in opposition to such determination must be made within 21 days after the Architect has given notice of the decision. If the Owner and Contractor cannot agree on an adjustment in the Contract Sum or Contract Time, the adjustment shall be referred to the Architect for initial determination, subject to further proceedings pursuant to Paragraph 4.4. 4.3.7 Claims for Additional Cost. If the Contractor wishes to make Claim for an increase in the Contract Sum, written notice as provided herein shall be given before proceeding to execute the Work. Prior notice is not required for Claims relating to an emergency endangering life or property arising under Paragraph 10.3. If the Contractor believes additional cost is involved for reasons including but not limited to (1) a written interpretation from the Architect, (2) an order by the Owner to stop the Work where the Contractor was not at fault, (3) a written order for a minor change in the Work issued by the Architect, (4) failure of payment by the Owner, (5) termination of the Contract by the Owner, (6) Owner's suspension or (7) other reasonable grounds. Claim shall be filed in accordance with the procedure established herein. 4.3.8 Claims for Additional Time 4.3.8.1 If the Contractor wishes to make Claim for all increase in the Contract Time, written notice as provided herein shall be given. The Contractor's Claim shall include an estimate of cost and of probable effect of delay on progress of the Work. In the case of a continuing delay only one Claim is necessary. 4.3.8.2 If adverse weather conditions are the basis for a Claim for additional time, such Claim shall be documented by data substantiating that weather conditions were abnormal for the period of time and could not have been reasonably anticipated, and that weather conditions had an adverse effect on the scheduled construction. 4.3.9 Injury or Damage to Person or Property. If either party to the Contract suffers injury or damage to person or property because of an act or omission of the other party, of any of the other party's employees or agents, or of others for whose acts such party is legally liable, written notice of such injury or damage, whether or not insured, shall be given to the other party within a reasonable time not exceeding 21 days after first observance. The notice shall provide sufficient detail to enable the other party to investigate the matter. If a Claim for additional cost or time related to this Claim is to be asserted, it shall be filed as provided in Subparagraphs 4.3.7 or 4.3.8. 4.4 RESOLUTION OF CLAIMS AND DISPUTES 4.4.1 The Architect will review Claims and take one or more of the following preliminary actions within ten days of receipt of a Claim: (1) request additional upcoming data from the claimant, (2) submit a schedule to the parties indicating when the Architect expects to take action, (3) reject the Claim in whole or in part, stating reasons for rejection, (4) recommend approval of the Claim by the other party or (5) suggest a compromise. The Architect may also, but is not obligated to, notify the surety, if any, of the nature and amount of the Claim. 4.4.2 If a Claim has been resolved, the Architect will prepare or obtain appropriate documentation. 4.4.3 If a Claim has not been resolved, the party, making the Claim shall, within ten days after the Architect's preliminary response, take one or more of the following actions: (1) submit additional supporting data requested by the Architect, (2) modify the initial Claim or (3) notify the Architect that the initial Claim stands. 4.4.4 If a Claim has not been resolved after reconsideration of the foregoing and of further evidence presented by the parties or requested by the Architect, the Architect will notify the parties in writing that the Architect's decision will be made within seven days, which decision shall be final and binding on the parties but subject to arbitration. Upon expiration of such time period, the Architect will render to the parties the Architect's written decision relative to the Claim, including any change in the Contract Sum or Contract Time or both. If there is a surety and there appears to be a possibility of a Contractor's default, the Architect may, but is not obligated to, notify the surety and request the surety's assistance in resolving the controversy. 4.5 ARBITRATION 4.5.1 Controversies and Claims Subject to Arbitration. Any controversy or Claim arising out of or related to the Contract, or the breach thereof, shall be settled by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof, except controversies or Claims relating to aesthetic effect and except those waived as provided for in Subparagraph 4.3.5. Such controversies or Claims upon which the Architect has given notice and rendered a decision as provided in Subparagraph 4.4.4 shall be subject to arbitration upon written demand of either party. Arbitration may be commenced when 35 days have passed after a Claim has been referred to the Architect as provided in Paragraph 4.3 and no decision has been rendered. 4.5.2 Rules and Notices for Arbitration. Claims between the Owner and Contractor not resolved under Paragraph 4.4 shall, if subject to arbitration under Subparagraph 4.5.1, be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association currently in effect, unless the parties mutually agree otherwise. Notice of demand for arbitration shall be filed in writing with the other party to the Agreement between the Owner and Contractor and with the American Arbitration Association, and a copy shall be filed with the Architect. 4.5.3 Contact Performance During Arbitration. During arbitration proceedings, the Owner and Contractor shall comply with Subparagraph 4.3.4. 4.5.4 When Arbitration May Be Demanded. Demand for arbitration of any Claim may not be made until the earlier of (1) the date on which the Architect has rendered a final written decision on the Claim, (2) the tenth day after the parties have presented evidence to the Architect or have been given reasonable opportunity to do so, if the Architect has not rendered a final written decision by that date, or (3) any of the five events described in Subparagraph 4.3.2. 4.5.4.1 When a written decision of the Architect states that (1) the decision is final but subject to arbitration and (2) a demand for arbitration of a Claim covered by such decision must be made within 30 days after the date on which the party making the demand receives the final written decision, then failure to demand arbitration within said 30 days' period shall result in the Architect's decision becoming final and binding upon the Owner and Contractor. If the Architect renders a decision after arbitration proceedings have been initiated, such decision may be entered as evidence, but shall not supersede arbitration proceedings unless the decision is acceptable to all parties concerned. 4.5.4.2 A demand for arbitration shall be made within the time limits specified in Subparagraphs 4.5.1 and 4.5.4 and Clause 4.5.4.1 as applicable, and in other cases within a reasonable time after the Claim has arisen, and in no event shall it be made after the date when institution of legal or equitable proceedings based on such Claim would be barred by the applicable statute of limitations as determined pursuant to Paragraph 13.7. 4.5.5 Limitation on Consolidation or Joinder. No arbitration arising out of or relating to the Contract Documents shall include, by consolidation or joinder or in any other manner, the Architect, the Architect's employees or consultants, except by written consent containing specific reference to the Agreement and signed by the Architect, Owner, Contractor and any other person or entity sought to be joined. No arbitration shall include, by consolidation or joinder or in any other manner, parties other than the Owner, Contractor, a separate contractor as described in Article 6 and other persons substantially involved in a common question of fact or law whose presence is required if complete relief is to be accorded in arbitration. No person or entity other than the Owner, Contractor or a separate contractor as described in Article 6 shall be included as an original third party or additional third party to an arbitration whose interest or responsibility is insubstantial. Consent to arbitration involving an additional person or entity shall not constitute consent to arbitration of a dispute not described therein or with a person or entity not named or described therein. The foregoing agreement to arbitrate and other agreements to arbitrate with an additional person or entity duly consented to by parties to the Agreement shall be specifically enforceable under applicable law in any court having jurisdiction thereof. 4.5.6 Claims and Timely Assertion of Claims. A party who files a notice of demand for arbitration must assert in the demand all Claims then known to that party on which arbitration is permitted to be demanded. When a party fails to include a Claim through oversight, inadvertence or excusable neglect, or when a Claim has matured or been acquired subsequently, the arbitrator or arbitrators may permit amendment. 4.5.7 Judgment on Final Award. The award rendered by the arbitrator or arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. ARTICLE 5 SUBCONTRACTORS 5.1 DEFINITIONS 5.1.1 A Subcontractor is a person or entity who has a direct contract with the Contractor to perform a portion of the Work at the site. The term "Subcontractor" is referred to throughout the Contract Documents as if singular in number and means a Subcontractor or an authorized representative of the Subcontractor. The term "Subcontractor" does not include a separate contractor or subcontractors of a separate contractor. 5.1.2 A Sub-subcontractor is a person or entity who has a direct or indirect contract with a Subcontractor to perform a portion of the Work at the site. The term "Sub-subcontractor" is referred to throughout the Contract Documents as if singular in number and means a Sub-subcontractor or an authorized representative of the Sub-subcontractor. 5.2 AWARD OF SUBCONTRACTS AND OTHER CONTRACTS FOR PORTIONS OF THE WORK 5.2.1 Unless otherwise stated in the Contract Documents or the bidding requirements, the Contractor, as soon as practicable after award of the Contract, shall furnish in writing to the Owner through the Architect the names of persons or entities (including those who are to furnish materials or equipment fabricated to a special design) proposed to each principal portion of the Work. The Architect will promptly reply to the Contractor in writing stating whether or not the Owner or the Architect, after due investigation, has reasonable objection to any such proposed person or entity. Failure of the Owner or Architect to reply promptly shall constitute notice of no reasonable objection. 5.2.2 The Contractor shall not contract with a proposed person or entity to whom the Owner or Architect has made reasonable and timely objection. The Contractor shall not be required to contract with anyone to whom the Contractor has made reasonable objection. 5.2.3 If the Owner or Architect has reasonable objection to a person or entity proposed by the Contractor, the Contractor shall propose another to whom the Owner or Architect has no reasonable objection. The Contract Sum shall be increased or decreased by the difference in cost occasioned by such change and an appropriate Change Order shall be issued. However, no increase in the Contract Sum shall be allowed for such change unless the Contractor has acted promptly and responsively in submitting names as required. 5.2.4 The Contractor shall not change a Subcontractor, person or entity previously selected if the Owner or Architect makes reasonable objection to such change. 5.3 SUBCONTRACTUAL RELATIONS 5.3.1 By appropriate agreement, written where legally required for validity, the Contractor shall require each Subcontractor, to the extent of the Work to be performed by the Subcontractor, to be bound to the Contractor by terms of the Contract Documents, and to assume toward the Contractor all the obligations and responsibilities which the Contractor, by these Documents, assumes toward the Owner and Architect. Each subcontract agreement shall preserve and protect the rights of the Owner and Architect under the Contract Documents with respect to the Work to be performed by the Subcontractor so that subcontracting thereof will not preclude such rights, and shall allow to the Subcontractor, unless specifically provided otherwise in the subcontract agreement, the benefit of all rights, remedies and redress against the Contractor that the Contractor, by the Contract Documents, has against the Owner. Where appropriate, the Contractor shall require each Subcontractor to enter into similar agreements with Sub-subcontractors. The Contractor shall make available to each proposed Subcontractor, prior to the execution of the subcontract agreement, copies of the Contract Documents to which the Subcontractor will be bound, and, upon written request of the Subcontractor, identify to the Subcontractor terms and conditions of the proposed subcontract agreement which may be at variance with the Contract Documents. Subcontractors shall similarly make copies of applicable portions of such documents available to their respective proposed Sub- subcontractors. 5.4 CONTINGENT ASSIGNMENT OF SUBCONTRACTS 5.4.1 Each subcontract agreement for a portion of the Work is assigned by the Contractor to the Owner provided that: .1 assignment is effective only after termination of the Contract by the Owner for cause pursuant to Paragraph l4.2 and only for those subcontract agreements which the Owner accepts by notifying the Subcontractor in writing: and .2 assignment is subject to the prior rights of the surety, if any, obligated under relating to the Contract. 5.4.2 If the Work has been suspended for more than 30 days, the Subcontractor's compensation shall be equitably adjusted. ARTICLE 6 CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS 6.1 OWNERS RIGHT TO PERFORM CONSTRUCTION AND TO AWARD SEPARATE CONTRACTS 6.1.1 The Owner reserves the right to perform construction or operations related to the Project with the Owner's own forces, and to award separate contracts in connection with other portions of the Project or other construction or operations on the site under Conditions of the Contract identical or substantially similar to these including those portions related to insurance and waiver of subrogation. If the Contractor claims that delay or additional cost is involved because of such action by the Owner, the Contractor shall make such Claim as provided elsewhere in the Contract Documents. 6.1.2 When separate contracts are awarded for different portions of the Project or other construction or operations on the site, the term "Contractor" in the Contract Documents in each case shall mean the Contractor who executes each separate Owner Contractor Agreement. 6.1.3 The Owner shall provide for coordination of the activities of the Owner's own forces and of each separate contractor with the Work of the Contractor, who shall cooperate with them. The Contractor shall participate with other separate contractors and the Owner in reviewing their construction schedules when directed to do so. The Contractor shall make any revisions to the construction schedule and Contract Sum deemed necessary after a joint review and mutual agreement. The construction schedules shall then constitute the schedules to be used by the Contractor, separate contractors and the Owner until subsequently revised. 6.1.4 Unless otherwise provided in the Contract Documents, when the Owner performs construction or operations related to the Project with the Owner's own forces, the Owner shall be deemed to be subject to the same obligations and to have the same rights which apply to the Contractor under the Conditions of the Contract, including, without excluding others, those stated in Article 3, this Article 6 and Articles 10, 11 and 12. 6.2 MUTUAL RESPONSIBILITY 6.2.1 The Contractor shall afford the Owner and separate contractors reasonable opportunity for introduction and storage of their materials and equipment and performance of their activities and shall connect and coordinate the Contractor's construction and operations with theirs as required by the Contract Documents. 6.2.2 If part of the Contractor's Work depends for proper execution or results upon construction or operations by the Owner or a separate contractor, the Contractor shall, prior to proceeding with that portion of the Work, promptly report to the Architect apparent discrepancies or defects in such other construction that would render it unsuitable for such proper execution and results. Failure of the Contractor so to report shall constitute an acknowledgment that the Owner's or separate contractors' completed or partially completed construction is fit and proper to receive the Contractor's Work, except as to defects not then reasonably discoverable. 6.2.3 Costs caused by delays or by improperly timed activities or defective construction shall be borne by the party responsible therefor. 6.2.4 The Contractor shall promptly remedy damage wrongfully caused by the Contractor to completed or partially completed construction or to property of the Owner or separate contractors as provided in Subparagraph 10.2.5. 6.2.5 Claims and other disputes and matters in question between the Contractor and a separate contractor shall be subject to the provisions of Paragraph 4.3 provided the separate contractor has reciprocal obligations. 6.2.6 The Owner and each separate contractor shall have the same responsibilities for cutting and patching as are described for the Contractor in Paragraph 3.14. 6.3 OWNER'S RIGHT TO CLEAN UP 6.3.1 If a dispute arises among the Contractor, separate contractors and the Owner as to the responsibility under their respective contracts for maintaining the premises and surrounding area free from waste materials and rubbish as described in Paragraph 3.15, the Owner may clean up and allocate the cost among those responsible as the Architect determines to be just. ARTICLE 7 CHANGES IN THE WORK 7.1 CHANGES 7.1.1 Changes in the Work may be accomplished after execution of the Contract, and without invalidation the Contract, by Change Order, Construction Change Directive or order for a minor change in the Work, subject to the limitations stated in this Article 7 and elsewhere in the Contract Documents. 7.1.2 A Change Order shall be based upon agreement among the Owner, Contractor and Architect; a Construction Change Directive requires agreement by the Owner and Architect and may or may not be agreed to by the Contractor; an order for a minor change in the Work may be issued by the Architect alone. 7.1.3 Changes in the Work shall be performed under applicable provisions of the Contract Documents, and the Contractor shall proceed promptly, unless otherwise provided in the Change Order, Construction Change Directive or order for a minor change in the Work. 7.1.4 If unit prices are stated in the Contract Documents or subsequently agreed upon, and if quantities originally contemplated are so changed in a proposed Change Order or Construction Change Directive that application of such unit prices to quantities of Work proposed will cause substantial inequity to the Owner or Contractor, the applicable unit prices shall be equitably adjusted. 7.2 CHANGE ORDERS 7.2.1 A Change Order is a written instrument prepared by the Architect and signed by the Owner, Contractor and Architect, stating their agreement upon all of the following: .1 a change in the Work: .2 the amount of the adjustment in the Contract Sum, if any; and .3 the extent of the adjustment in the Contract Time, if any. 7.2.2 Methods used in determining adjustments to the Contract Sum may include those listed in Subparagraph 7.3.3. 7.3 CONSTRUCTION CHANGE DIRECTIVES 7.3.1 A Construction Change Directive is a written order prepared by the Architect and signed by the Owner and Architect, directing a change in the Work and stating a proposed basis for adjustment, if any, in the Contract Sum, or Contract Time, or both. The Owner may by Construction Change Directive, without invalidating the Contract, order changes in the Work within the general scope of the Contract consisting of additions, deletions or other revisions, the Contract Sum and Contract Time being adjusted accordingly. 7.3.2 A Construction Change Directive shall be used in the absence of total agreement on the terms of a Change Order. 7.3.3 If the Construction Change Directive provides for an adjustment to the Contract Sum, the adjustment shall be based on one of the following methods: .1 mutual acceptance of a lump sum properly itemized and supported by sufficient substantiating data to permit evaluation: .2 unit prices stated in the Contract Documents or subsequently agreed upon; .3 cost to be determined in a manner agreed upon by the parties and a mutually acceptable fixed or percentage fee; or .4 as provided in Subparagraph 7.3.6. 7.3.4 Upon receipt of a Construction Change Directive, the Contractor shall promptly proceed with the change in the Work involved and advise the Architect of the Contractor's agreement or disagreement with the method, if any, provided in the Construction Change Directive for determining the proposed adjustment in the Contract Sum or Contract Time. 7.3.5 A Construction Change Directive signed by the Contractor indicates the agreement of the Contractor therewith, including adjustment in Contract Sum and Contract Time or the method for determining them. Such agreement shall be effective immediately and shall be recorded as a Change Order. 7.3.6 If the Contractor does not respond promptly or disagrees with the method for adjustment in the Contract Sum, the method and the adjustment shall be determined by the Architect on the basis of reasonable expenditures and savings of those performing the Work attributable to the change, including, in case of an increase in the Contract Sum, a reasonable allowance for overhead and profit. In such case, and also under Clause 7.3.3.3, the Contractor shall keep and present, in such form as the Architect may prescribe, an itemized accounting together with appropriate supporting data. Unless otherwise provided in the Contract Documents, costs for the purposes of this Subparagraph 7.3.6 shall be limited to the following: .1 costs of labor, including social security, old age and unemployment insurance, fringe benefits required by agreement or custom, and workers' or workmen's compensation insurance: .2 costs of materials, supplies and equipment, including cost of transportation, whether incorporated or consumed; .3 rental costs of machinery and equipment, exclusive of hand tools, whether rented from the Contractor or others; .4 costs of premiums for all bonds and insurance, permit fees, and sales, use or similar taxes related to the Work; and .5 additional costs of supervision and field office personnel directly attributable to the change. 7.3.7 Pending final determination of cost to the Owner, amounts not in dispute may be included in Applications for payment. The amount of credit to be allowed by the Contractor to the Owner for a deletion or change which results in a net decrease in the Contract Sum shall be actual net cost as confirmed by the Architect. When both additions and credits covering related Work or substitutions are involved in a change, the allowance for overhead and profit shall be figured on the basis of net increase, if any, with, respect to that change. 7.3.8 If the Owner and Contractor do not agree with the adjustment in Contract Time or the method for determining it, the adjustment or the method shall be referred to the Architect for determination. 7.3.9 When the Owner and Contractor agree with the determination made by the Architect concerning the adjustments in the Contract Sum and Contract Time, or otherwise reach agreement upon the adjustments, such agreement shall be effective immediately and shall be recorded by preparation and execution of an appropriate Change Order. 7.4 MINOR CHANGES IN THE WORK 7.4.1 The Architect will have authority to order minor changes in the Work not involving adjustment in the Contract Sum or extension of the Contract Time and not inconsistent with the intent of the Contract Documents. Such changes shall be effected by written order and shall be binding on the Owner and Contractor. The Contractor shall carry out such written orders promptly. ARTICLE 8 TIME 8.1 DEFINITIONS 8.1.1 Unless otherwise provided, Contract Time is the period of time. including authorized adjustments, allotted in the Contract Documents for Substantial Completion of the Work. 8.1.2 The date of commencement of the Work is the date established in the Agreement. The date shall not be postponed by the failure to act of the Contractor or of persons or entities for whom the Contractor is responsible. 8.1.3 The date of Substantial Completion is the date certified by the Architect in accordance with Paragraph 9.8. 8.1.4 The term "day" as used in the Contract Documents shall mean calendar day unless otherwise specifically determined. 8.2 PROGRESS AND COMPLETION 8.2.1 Time limits stated in the Contract Documents are of the essence of the Contract. By executing the Agreement the Contractor confirms that the Contract Time is a reasonable period for performing the Work. 8.2.2 The Contractor shall not knowingly, except by agreement or instruction of the Owner in writing, prematurely commence operations on the site or elsewhere prior to the effective date of insurance required by Article II to be furnished by the Contractor. The date of commencement of the Work shall not be changed by the effective date of such insurance. Unless the date of commencement is established by a notice to proceed given by the Owner, the Contractor shall notify the Owner in writing not less than five days or other agreed period before commencing the Work to permit the timely filing of mortgages, mechanic's liens and other security interests. 8.2.3 The Contractor shall proceed expeditiously with adequate forces and shall achieve Substantial Completion within the Contract Time. 8.3 DELAYS AND EXTENSIONS OF TIME 8.3.1 If the Contractor is delayed at any time in progress of the Work by an act or neglect of the Owner or Architect, or of an employee of either, or of a separate contractor employed by the Owner, or by changes ordered in the Work, or by labor disputes, fire, unusual delay in deliveries, unavoidable casualties or other causes beyond the Contractor's control, or by delay authorized by the Owner pending arbitration, or by other causes which the Architect determines may justify delay, then the Contract Time shall be extended by Change Order for such reasonable time as the Architect may determine. 8.3.2 Claims relating to time shall be made in accordance with applicable provisions of Paragraph 4.3. 8.3.3 This Paragraph 8.3 does not preclude recovery of damages for delay by either party under other provisions of the Contract Documents. ARTICLE 9 PAYMENTS AND COMPLETION 9.1 CONTRACT SUM 9.1.1 The Contract Sum is stated in the Agreement and, including authorized adjustments, is the total amount payable by the Owner to the Contractor for performance of the Work under the Contract Documents. 9.2 SCHEDULE OF VALUES 9.2.1 Before the first Application for Payment, the Contractor shall submit to the Architect a schedule of values allocated to various portions of the Work, prepared in such form and supported by such data to substantiate its accuracy as the Architect may require. This schedule, unless objected to by the Architect, shall be used as a basis for reviewing the Contractor's Applications for payment. 9.3 APPLICATIONS FOR PAYMENT 9.3.1 At least ten days before the date established for each progress payment, the Contractor shall submit to the Architect an itemized Application for Payment for operations completed in accordance with the schedule of values. Such application shall be notarized, if required, and supported by such data substantiating the Contractor's right to payment as the Owner or Architect may require, such as copies of requisitions from Subcontractors and material suppliers, and reflecting retainage if provided for elsewhere in the Contract Documents. 9.3.1.1 Such applications may include requests for payment on account of changes in the Work which have been properly authorized by Construction Change Directives but not yet included in Change Orders. 9.3.1.2 Such applications may not include requests for payment of amounts the Contractor does not intend to pay to a Subcontractor or material supplier because of a dispute or other reason. 9.3.2 Unless otherwise provided in the Contract Documents, payments shall be made on account of materials and equipment delivered and suitably stored at the site for subsequent incorporation in the Work. If approved in advance by the Owner, payment may similarly be made for materials and equipment suitably stored off the site at a location agreed upon in writing. Payment for materials and equivalent stored on or off the site shall be conditioned upon compliance by the Contractor with procedures satisfactory to the Owner to establish the Owner's title to such materials and equipment or otherwise protect the Owner's interest, and shall include applicable insurance, storage, and transportation to the site for such materials and equipment stored off the site. 9.3.3 The Contractor warrants that title to all Work severed by an Application for payment will pass to the Owner no later than the time of payment. The Contractor further warrants that upon submittal of an Application for payment all Work for which Certificates for Payment have been previously issued and payments received from the Owner shall, to the belief, be free and clear of liens, claims, security interests or encumbrances favor of the Contractor, Subcontractors, material suppliers, or other persons or entities making a claim by reason of having provided, materials and equipment relating to the Work. 9.4 CERTIFICATES FOR PAYMENT 9.4.1 The Architect will, within seven days after receipt of the Contractor's Application for Payment, either issue to the Owner a Certificate for Payment, with a copy to the Contractor, for such amount as the Architect determines is properly due, or notify the Contractor and Owner in writing of the Architect's reasons for withholding certification in whole or in part as provided in Subparagraph 9.5.1. 9.4.2 The issuance of a Certificate for Payment will constitute a representation by the Architect to the Owner, based on the Architect's observations at the site and the data comprising the Application for Payment, that the Work has progressed to the point indicated and that, to the best of the Architect's knowledge, information and belief, quality of the Work is in accordance with the Contract Documents, the foregoing representations are subject to an evaluation of the Work for conformance with the Contract Documents upon Substantial Completion, to results of subsequent tests and inspections, to minor deviations from the Contract Documents correctable prior to completion and to specific qualifications expressed by the Architect. The issuance of a Certificate for Payment will further constitute a representation that the Contractor is entitled to payment in the amount certified. However, the issuance of a Certificate for Payment will not be a representation that the Architect has (1) made exhaustive or continuous on-site inspections to check the quality or quantity of the Work, (2) reviewed construction means, methods, techniques, sequences or procedures, (3) reviewed copies of requisitions received from Subcontractors and material suppliers and other data requested by the Owner to substantiate the Contractor's right to payment or (4) made examination to ascertain how or for what purpose the Contractor has used money previously paid on account of the Contract Sum. 9.5 DECISIONS TO WITHHOLD CERTIFICATION 9.5.1 The Architect may decide not to certify payment and may withhold a Certificate for Payment in whole or in part, to the extent reasonably necessary to protect the Owner, if in the Architect's opinion the representations to the Owner required by Subparagraph 9.4.2 cannot be made. If the Architect is unable to certify payment in the amount of the Application, the Architect will notify the Contractor and Owner as provided in Subparagraph 9.4.1. If the Contractor and Architect cannot agree on a revised amount, the architect will promptly issue Certificate for Payment the amount for which the Architect is able to make such representations to the Owner. The Architect may also decide not to certify payment or, because of subsequently discovered evidence or subsequent observations, may nullify the whole or a part of a Certificate for Payment previously issued, to such extent as may be necessary in the Architect's opinion to protect the Owner from loss because of: .1 defective Work not remedied: .2 third party claims filed or reasonable evidence indicating probable filing of such claims; .3 failure of the Contractor to make payments properly to Subcontractors or for labor, materials or equipment; .4 reasonable evidence that the Work cannot be completed for the unpaid balance of the Contract Sum: .5 damage to the Owner or another contractor: .6 reasonable evidence that the Work will not be completed within the Contract Time, and that the unpaid balance would not be adequate to cover actual or liquidated damages for the anticipated delay; or .7 persistent failure to carry out the Work in accordance with the Contract Documents. 9.5.2 When the above reasons for withholding certification are removed, certification will be made for amounts previously withheld. 9.6 PROGRESS PAYMENTS 9.6.1 After the Architect has issued a Certificate for Payment, the Owner shall make payment in the manner and within the time provided in the Contract Documents, and shall so notify the Architect. 9.6.2 The Contractor shall promptly pay each Subcontractor, upon receipt of payment from the Owner, out of the amount paid to the Contractor on account of such Subcontractor's portion of the Work, the amount to which said Subcontractor is entitled, reflecting percentages actually retained from payments to the Contractor on account of such Subcontractor's portion of the Work. The Contractor shall, by appropriate agreement with each Subcontractor, require each Subcontractor to make payments to Sub-subcontractors in similar manner. 9.6.3 The Architect will, on request, furnish to a Subcontractor, if practicable, information regarding percentages of completion or amounts applied for by the Contractor and action taken thereon by the Architect and Owner on account of portions of the Work done by such Subcontractor. 9.6.4 Neither the Owner nor Architect shall have an obligation to pay or to see to the payment of money to a Subcontractor except as may otherwise be required by law. 9.6.5 Payment to material suppliers shall be treated in a manner similar to that provided in Subparagraphs 9.6.2, 9.6.3 and 9.6.4. 9.6.6 A Certificate for Payment, a progress payment, or partial or entire use or occupancy of the Project by the Owner shall not constitute acceptance of Work not in accordance with the Contract Documents. 9.7 FAILURE OF PAYMENT 9.7.1 If the Architect does not issue a Certificate for Payment, through no fault of the Contractor, within seven days after receipt of the Contractor's Application for Payment, or if the Owner does not pay the Contractor within seven days after the date established in the Contract Documents the amount certified by the Architect or awarded by arbitration, then the Contractor may, upon seven additional days' written notice to the Owner and Architect, stop the Work until payment of the amount owing has been received. The Contract Time shall be extended appropriately and the Contract Sum shall be increased by the amount of the Contractor's reasonable costs of shut-down, delay and start-up, which shall be accomplished as provided in Article 7. 9.8 SUBSTANTIAL COMPLETION 9.8.1 Substantial Completion is the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so the Owner can occupy or utilize the Work for its intended use. 9.8.2 When the Contractor considers that the Work, or a portion thereof which the Owner agrees to accept separately, is substantially complete, the Contractor shall prepare and submit to the Architect a comprehensive list of items to be completed or corrected. The Contractor shall proceed promptly to complete and correct items on the list. Failure to include an item on such list does not alter the responsibility of the Contractor to complete all Work in accordance with the Contract Documents. Upon receipt of the Contractor's list, the Architect will make an inspection to determine whether the Work or designated portion thereof is substantially complete. If the Architect's inspection discloses any item, whether or not included on the Contractor's list, which is not in accordance with the requirements of the Contract Documents, the Contractor shall, before issuance of the Certificate of Substantial Completion, complete or correct such item, upon notification by the Architect. The Contractor shall then submit a request for another inspection by the Architect to determine Substantial Completion. When the Work or designated portion thereof is substantially complete, the Architect will prepare a Certificate of Substantial Completion which shall establish the date of Substantial Completion, shall establish responsibilities of the Owner and Contractor for security, maintenance, heat, utilities, damage to the Work and insurance, and shall fix the time within which the Contractor shall finish all items on the list accompanying the Certificate. Warranties required by the Contract Documents shall commence on the date of Substantial Completion of the Work or designated portion thereof unless otherwise provided in the Certificate of Substantial Completion. The Certificate of Substantial Completion shall be submitted to the Owner and Contractor for their written acceptance of responsibilities assigned to them in such Certificate. 9.8.3 Upon Substantial Completion of the Work or designated portion thereof and upon application by the Contractor and certification by the Architect, the Owner shall make payment, reflecting adjustment in retainage, if any, for such Work or portion thereof as provided in the Contract Documents. 9.9 PARTIAL OCCUPANCY OR USE 9.9.1 The Owner may occupy or use any completed or partially completed portion of the Work at any stage when such portion is designated by separate agreement with the Contractor, provided such occupancy or use is consented to by the insurer as required under Subparagraph 11.3.11 and authorized by public authorities having jurisdiction over the Work. Such partial occupancy or use may commence whether or nor the portion is substantially complete, provided the Owner and Contractor have accepted in writing the responsibilities assigned to each of them the payments, retainage if any, security, maintenance, heat, utilities, damage to the Work and insurance, and have agreed in writing concerning the period for correction of the Work and commencement of warranties required by the Contract Documents. When the Contractor considers a portion substantially complete, the Contractor shall prepare and submit a list to the Architect as provided under Subparagraph 9.8.2. Consent of the Contractor to partial occupancy or use shall not be unreasonably withheld. The stage of the progress of the Work shall be determined by written agreement between the Owner and Contractor or, if no agreement is reached, by decision of the Architect. 9.9.2 Immediately prior to such partial occupancy or use, the Owner, Contractor and Architect shall jointly inspect the area to be occupied or portion of the Work to be used in order to determine and record the condition of the Work. 9.9.3 Unless otherwise agreed upon, partial occupancy or use of a portion or portions of the Work shall not constitute acceptance of Work not complying with the requirements of the Contract Documents. 9.10 FINAL COMPLETION AND FINAL PAYMENT 9.10.1 Upon receipt of written notice that the Work is ready for final inspection and acceptance and upon receipt of a final Application for Payment, the Architect will promptly make such inspection and, when the Architect finds the Work acceptable under the Contract Documents and the Contract fully performed, the Architect will promptly issue a final Certificate for Payment stating that to the best of the Architect's knowledge, information and belief, and on the basis of the Architect's observations and inspections, the Work has been completed in accordance with terms and conditions of the Contract Documents and that the entire balance found to be due the Contractor and noted in said final Certificate is due and payable. The Architect's final Certificate for Payment will constitute a further representation that conditions listed in Subparagraph 9.10.2 as precedent to the Contractor's being entitled to final payment have been fulfilled. 9.10.2 Neither final payment nor any remaining retained percentage shall become due until the Contractor submits to the Architect (1) an affidavit that payrolls, bills for materials and equipment, and other indebtedness connected with the Work for which the Owner or the Owner's property might be responsible or encumbered (less amounts withheld by Owner) have been paid or otherwise satisfied. (2) a certificate evidencing that insurance required by the Contract Documents to remain in force after final payment is currently in effect and will not be concealed or allowed to expire until at least 30 days' prior written notice has been given to the Owner, (3) a written statement that the Contractor knows of no substantial reason that the insurance will not be renewable to cover the period required by the Contract Documents, (4) consent of surety, if any, to final payment and (5) if required by the Owner, other data establishing payment or satisfaction of obligations, such as receipts, releases and waivers of liens, claims, security interests or encumbrances arising out of the Contract, to the extent and in such form as may be designated by the Owner. If a Subcontractor refuses to furnish a release or waiver required by the Owner, the Contractor may furnish a bond satisfactory to the Owner to indemnify the Owner against such lien. If such lien remains unsatisfied after payments are made, the Contractor shall refund to the Owner all money that the Owner may be compelled to pay in discharging such lien, including all costs and reasonable attorney's fees. 9.10.3 If after Substantial Completion of the Work, final completion thereof is materially delayed through no fault of the Contractor or by issuance of Change Orders affecting final completion, and the Architect so confirms, the Owner shall, upon application by the Contractor and certification by the Architect, and without termination the Contract, make payment of the balance due for that portion of the Work fully completed and accepted. If the remaining balance for Work not fully completed or corrected is less than retainage stipulated in the Contract Documents, and if bonds have been furnished, the written consent of surety to payment of the balance due for that portion of the Work fully completed and accepted shall be submitted by the Contractor to the Architect's prior to certification of such payment. Such payment shall be made under terms and conditions governing final payment, except that it shall not constitute a waiver of claims. The making of final payment shall constitute a waiver of claims by the Owner as provided in Subparagraph 4.3.5. 9.10.4 Acceptance of final payment by the Contractor, a Subcontractor or material supplier shall constitute a waiver of claims by that payee except those previously made in writing and identified by that payee as unsettled at the time of final Application for Payment. Such waivers shall be in addition to the waiver described in Subparagraph 4.3.5. ARTICLE 10 PROTECTION OF PERSONS AND PROPERTY 10.1 SAFETY PRECAUTIONS AND PROGRAMS 10.1.1 The Contractor shall be responsible for initiating, maintaining and supervising all safety precautions and programs in connection with the performance of the Contract. 10.1.2 In the event the Contractor encounters on the site material reasonably believed to be asbestos or polychlorinated biphenyl (PCB) which has not been rendered harmless, the Contractor shall immediately stop Work in the area affected and report the condition to the Owner and architect in writing. The Work in the affected area shall not thereafter be resumed except by written agreement of the Owner and Contractor if in fact the material is asbestos or polychlorinated biphenyl (PCB) and has not been rendered harmless. The Work in the affected area shall be resumed in the absence of asbestos or polychlorinated biphenyl (PCB), or when it has been rendered harmless, by written agreement of the Owner and Contractor, or in accordance with final determination by the Architect on which arbitration has not been demanded, or by arbitration under Article 4. 10.1.3 The Contractor shall not be required pursuant to Article 7 to perform without consent any Work relating to asbestos or polychlorinated biphenyl (PCB). 10.1.4 To the fullest extent permitted by law, the Owner shall indemnify and hold harmless the Contractor, Architect, Architect's consultants and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from performance of the Work in the affected area if in fact the material is asbestos or polychlorinated biphenyl (PCB) and has not been rendered harmless, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself) including loss of use resulting therefrom, but only to the extent caused in whole or in part by negligent acts or omissions of the Owner, anyone directly or indirectly employed by the Owner or anyone for whose acts the Owner may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. Such obligation shall not be construed to negate, abridge, or reduce other rights or obligations of indemnity which would otherwise exist as to a party or person described in this Subparagraph 10.1.4. 10.2 SAFETY OF PERSONS AND PROPERTY 10.2.1 The Contractor shall take reasonable precautions for safety of, and shall provide reasonable protection to prevent damage, injury or loss to: .1 employees on the Work and other persons who may be affected thereby: .2 the Work and materials and equipment to be incorporated therein, whether in storage on or off the site, under care, custody or control of the Contractor or the Contractor's Subcontractors or Sub-subcontractors; and .3 other property at the site or adjacent thereto, such as trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, relocation or replacement in the course of construction. 10.2.2 The Contractor shall give notices and comply with applicable laws, ordinances, rules, regulations and lawful orders of public authorities bearing on safety of persons or property or their protection from damage, injury or loss. 10.2.3 The Contractor shall erect and maintain, as required by existing conditions and performance of the Contract, reasonable safeguards for safety and protection, including posting danger signs and other warnings against hazards, promulgating safety regulations and notifying owners and users of adjacent sites and utilities. 10.2.4 When use or storage of explosives or other hazardous materials or equipment or unusual methods are necessary for execution of the Work, the Contractor shall exercise utmost care and carry on such activities under supervision of properly qualified personnel. 10.2.5 the Contractor shall promptly remedy damage and loss (other than damage or loss insured under property insurance required by the Contract Documents) to property preferred to in Clauses 10.2.1.2 and 10.2.1.3 caused in whole or in part by the Contractor, a Subcontractor, a Sub-subcontractor, or anyone directly or indirectly employed by any of them, or by anyone for whose acts they may be liable and for which the Contractor is responsible under Clauses 10.2.1.2 and 10.2.1.3, except damage or loss attributable to acts or omissions of the Owner or Architect or anyone directly or indirectly employed by either of them, or by anyone or whose acts either of them may be liable, and not attributable to the fault or negligence of the Contractor. The foregoing obligations of the Contractor are in addition to the Contractor's obligations under Paragraph 3.18. 10.2.6 The Contractor shall designate a responsible member of the Contractor's organization at the site whose duty shall be the prevention of accidents. This person shall be the Contractor's superintendent unless otherwise designated by the Contractor in writing to the Owner and Architect. 10.2.7 The Contractor shall not load or permit any part of the construction or site to be loaded so as to endanger its safety. 10.3 EMERGENCIES 10.3.1 In an emergency affecting safety of persons or property, the Contractor shall act, at the Contractor's discretion, to prevent threatened damage, injury or loss. Additional compensation or extension of time claimed by the Contractor on account of an emergency shall be determined as provided in Paragraph 4.3 and Article 7. ARTICLE 11 INSURANCE AND BONDS 11.1 CONTRACTOR'S LIABILITY INSURANCE 11.1.1 The Contractor shall purchase from and maintain in a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located such insurance as will protect the Contractor from claims set forth below which may arise out of or result from the Contractor's operations under the Contract and for which the Contractor may be legally liable, whether such operations be by the Contractor or by a Subcontractor or by anyone directly or indirectly employed by any of them, or by anyone for whose acts any of them may be liable. .1 claims under workers' or workmen's compensation, disability benefit and other similar employee benefit acts which are applicable to the Work to be performed: .2 claims for damages because of bodily injury, occupational sickness or disease, or death of the Contractor's employees; .3 claims for damages because of bodily injury, sickness or disease, or death of any person other than the Contractor's employees; .4 claims for damages insured by usual personal injury liability coverage which are sustained (1) by a person as a result of an offense directly or indirect related to employment of such person by the Contractor, or (2) by another person; .5 claims for damages, other than to the Work itself, because of injury to or destruction of tangible property, including loss of use resulting therefrom; .6 claims for damages because of bodily injury, death of a person or property damage arising out of ownership, maintenance or use of a motor vehicle; and .7 claims involving contractual liability insurance applicable to the Contractor's obligations under Paragraph 3.18. 11.1.2 The insurance required by Subparagraph 11.1.1 shall be written for not less than limits of liability specified in the Contract Documents or required by law, whichever coverage is greater. Coverage, whether written on an occurrence or claims made basis, shall be maintained without interruption from date of commencement of the Work until date of final payment and termination of any coverage required to be maintained after final payment. 11.1.3 Certificates of Insurance acceptable to the Owner shall be filed with the Owner prior to commencement of the Work. These Certificates and the insurance policies required by this Paragraph 11.1 shall contain a provision that coverage afforded under the policies will not be canceled or allowed to expire until at least 30 days' prior written notice has been given to the Owner. If any of the foregoing insurance coverages are required to remain in force after final payment and are reasonably available, all additional certificate evidencing continuation of such coverage shall be submitted with the final Application for Payment as required by Subparagraph 9.10.2. Information concerning reduction of coverage shall be furnished by the Contractor with reasonable promptness in accordance with the Contractor's information and belief. 11.2 OWNER'S LIABILITY INSURANCE 11.2.1 The Owner shall be responsible for purchasing and maintaining the Owner's usual liability insurance. Optionally, the Owner may purchase and maintain other insurance for self-protection against claims which may arise from operations under the Contract, the Contractor shall not be responsible for purchasing and maintaining this optional Owner's liability insurance unless specifically inquired by the Contract Documents. 11.3 PROPERTY INSURANCE 11.3.1 Unless otherwise provided, the Owner shall purchase and maintain, in a company or companies lawfully authorized to do business in the jurisdiction in which the Project is located, property insurance in the amount of the initial Contract Sum as well as subsequent modifications thereto for the entire Work at the site on a replacement cost basis without voluntary deductibles. Such property insurance shall be maintained, unless otherwise provided in the Contract Documents or otherwise agreed in writing by all persons and entities who are beneficiaries of such insurance, until final payment has been made as provided in Paragraph 9.10 or until no person or entity other than the Owner has an insurable interest in the property required by this Paragraph 11.3 to be covered, whichever is earlier. This insurance shall include interests of the Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work. 11.3.l.1 Property insurance shall be on an all-risk policy form and shall insure against the perils of fire and extended coverage and physical loss or damage including, without duplication of coverage, theft, vandalism, malicious mischief, collapse, false-work, temporary buildings and debris removal including demolition occasioned by enforcement of any applicable legal requirements, and shall cover reasonable compensation for Architect's services and expenses required as a result of such insured loss. Coverage for other perils shall not be required unless otherwise provided in the Contract Documents. 11.3.1.2 If the Owner does not intend to purchase such property insurance required by the Contract and with all of the coverages in the amount described above, the Owner shall so inform the Contractor in writing prior to commencement of the Work. The Contractor may then effect insurance which will protect the interests of the Contractor, Subcontractors and Sub-subcontractors in the Work, and by appropriate Change Order the cost thereof shall be charged to the Owner. If the Contractor is damaged by the failure or neglect of the Owner to purchase or maintain insurance as described above, without so notifying the Contractor, then the Owner shall bear all reasonable costs properly attributable thereto. 11.3.1.3 If the property insurance requires minimum deductibles and such deductibles are identified in the Contract Documents, the Contractor shall pay costs not covered because of such deductibles. If the Owner or insurer increases the required minimum deductibles above the amounts so identified or if the Owner elects to purchase this insurance with voluntary deductible amounts, the Owner shall be responsible for payment of the additional costs not covered because of such increased or voluntary deductibles. If deductibles are not identified in the Contract Documents, the Owner shall pay costs not covered because of deductibles. 11.3.1.4 Unless otherwise provided in the Contract Documents, this property insurance shall cover portions of the Work stored off the site after written approval of the Owner at the value established in the approval, and also portions of the Work in transit. 11.3.2 Boiler and Machinery Insurance. The Owner shall purchase and maintain boiler and machinery insurance required by the Contract Documents or by law, which shall specifically cover such insured objects during installation and until final acceptance by the Owner; this insurance shall include interests of the Owner, Contractor, Subcontractors and Sub-subcontractors in the Work, and the Owner and Contractor shall be named insureds. 11.3.3 Loss of Use Insurance. The Owner, at the Owner's option, may purchase and maintain such Insurance as will insure the Owner against loss of use of the Owner's property due to fire or other hazards. however caused. The Owner waives all rights of action against the Contractor for loss of use of the Owner's property, including consequential losses due to fire or other hazards however caused. 11.3.4 If the Contractor requests in writing that insurance for risks other than those described herein or for other special hazards be included in the property insurance policy, the Owner shall, if possible, include such insurance, and the cost thereof shall be charged to the Contractor by appropriate Change Order. 11.3.5 If during the Project construction period the Owner insures properties, real or personal or both, adjoining or adjacent to the site by property insurance under policies separate from those insuring the Project, or if after final payment property insurance is to be provided on the completed Project through a policy or policies other than those insuring the Project during the construction period, the Owner shall waive all rights in accordance with the terms of Subparagraph 11.3.7 for damages caused by fire or other perils covered by this separate property insurance. All separate policies shall provide this waiver of subrogation by endorsement or otherwise. 11.3.6 Before an exposure to loss may occur, the Owner shall file with the Contractor a copy of each policy that includes insurance coverages required by this Paragraph 11.3. Each policy shall contain all generally applicable conditions, definitions, exclusions and endorsements related to this Project. Each policy shall contain a provision that the policy will not be canceled or allowed to expire until at least 30 days prior written notice has been given to the Contractor. 11.3.7 Waivers of Subrogation. The Owner and Contractor waive all rights against (1) each other and any or their subcontractors, sub-subcontractors, agents and employees, each of the other, and (2) the Architect, Architect's consultants, separate contractors described in Article 6, if any, and any of their subcontractors, sub-subcontractors, agents and employees, for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 11.3 or other property insurance applicable to the Work, except such rights as they have to proceeds of such insurance held by the Owner as fiduciary. The Owner or Contractor, as appropriate, shall require of the Architect, Architect's consultants, separate contractors described in Article 6, if any, and the subcontractors, sub-subcontractors, agents and employees of any of them, by appropriate agreements, written where legally required for validity, similar waivers each in favor of other parties enumerated herein. The policies shall provide such waivers of subrogation by endorsement or otherwise. A waiver of subrogation shall be effective as to a person or entity even though that person or entity would otherwise have a duty of indemnification, contractual or otherwise, did not pay the insurance premium directly or indirectly, and whether or not the person or entity had an insurable interest in the property damaged. 11.3.8 A loss insured under Owner's property insurance shall be adjusted by the Owner as fiduciary and made payable to the Owner as fiduciary for the insureds, as their interests may appear, subject to requirements of any applicable mortgagee clause and of Subparagraph 11.3.10. The Contractor shall pay Subcontractors their just shares of insurance proceeds received by the Contractor, and by appropriate agreements, written where legally required for validity, shall require Subcontractors to make payments to their Sub-subcontractors in similar manner. 11.3.9 If required in writing by a party in interest, the Owner as fiduciary shall, upon occurrence of an insured loss, give bond for proper performance of the Owner's duties. The cost of required bonds shall be charged against proceeds received as fiduciary. The Owner shall deposit in a separate account proceeds so received, which the Owner shall distribute in accordance with such agreement as the parties in interest may reach, or in accordance with an arbitration award in which case the procedure shall be as provided in Paragraph 4.5, if after such loss no other special agreement is made, replacement of damaged property shall be covered by appropriate Change Order. 11.3.10 The Owner as fiduciary shall have power to adjust and settle a loss with insurers unless one of the parties in interest shall object in writing within five days after occurrence of loss to the Owner's exercise of this power; if such objection be, arbitrators shall be chosen as provided in Paragraph 4.5. The Owner as fiduciary shall, in that case, make settlement with insurers in accordance with directions of such arbitrators. If distribution of insurance proceeds by arbitration is required, the arbitrators will direct such distribution. 11.3.11 Partial occupancy or use in accordance with Paragraph 9.9 shall not commence until the insurance company or companies providing property insurance have consented to such partial occupancy or use by endorsement or otherwise. The Owner and the Contractor shall take reasonable steps to obtain consent of the insurance company or companies and shall, without mutual written consent, take no action with respect to partial occupancy or use that would cause cancellation, lapse or reduction of insurance. 11.4 PERFORMANCE BOND AND PAYMENT BOND 11.4.1 The Owner shall have the right to require the Contractor to furnish bonds covering faithful performance of the Contract and payment of obligations arising thereunder as stipulated in bidding requirements or specifically required in the Contract Documents on the date of execution of the Contract. 11.4.2 Upon the request of any person or entity appearing to be a potential beneficiary of bonds covering payment of obligations arising under the Contract, the Contractor shall promptly furnish a copy of the bonds or shall permit a copy to be made. ARTICLE 12 UNCOVERING AND CORRECTION OF WORK 12.1 UNCOVERING OF WORK 12.1.1 If a portion of the work is covered contrary to the Architect's request or to requirements specifically expressed in the Contract Documents, it must, if required in writing by the Architect, be uncovered for the Architect's observation and be replaced at the Contractor's expense without change in the Contract Time. 12.1.2 If a portion of the Work has been covered which the Architect's has not specifically requested to observe prior to its being covered, the Architect may request to see such Work and it shall be uncovered by the Contractor. If such Work is in accordance with the Contract Documents, costs of uncovering and replacement shall, by appropriate Change Order, be charged to the Owner. If such Work is not in accordance with the Contract Documents, the Contractor shall pay such costs unless the condition was caused by the Owner or a separate contractor in which event the Owner shall be responsible for payment of such costs. 12.2 CORRECTION OF WORK 12.2.1 The Contractor shall promptly correct Work rejected by the Architect or failing to conform to the requirements of the Contract Documents, whether observed before or after Substantial Completion and whether or not fabricated, installed or completed. The Contractor shall bear costs of correcting such rejected Work, including additional testing and inspections and compensation for the Architect's services and expenses made necessary thereby. 12.2.2 If, within one year after the date of Substantial Completion of the Work or designated portion thereof, or after the date for commencement of warranties established under Subparagraph 9.9.1, or by terms of an applicable special warranty required by the Contract Documents, any of the Work is found to be not in accordance with the requirements of the Contract Documents, the Contractor shall correct it promptly after receipt of written notice from the Owner to do so unless the Owner has previously given the Contractor a written acceptance of such condition. This period of one year shall be extended with respect to portions of Work first performed after Substantial Completion by the period of time between Substantial Completion and the actual performance of the Work. This obligation under this Subparagraph 12.2.2 shall survive acceptance of the Work under the Contract and termination of the Contract. The Owner shall give such notice promptly after discovery of the condition. 12.2.3 The Contractor shall remove from the site portions of the Work which are not in accordance with the requirements of the Contract Documents and are neither corrected by the Contractor nor accepted by the Owner. 12.2.4 If the Contractor fails to correct nonconforming Work within a reasonable time, the Owner may correct it in accordance with Paragraph 2.4. If the Contractor does not proceed with correction of such nonconforming Work within a reasonable time fixed by written notice from the Architect, the Owner may remove it and store the salvable materials or equipment at the Contractor's expense. If the Contractor does not pay costs of such removal and storage within ten days after written notice, the Owner may upon ten additional days' written notice sell such materials and equipment at auction or at private sale and shall account for the proceeds thereof, after deducting costs and damages that should have been borne by the Contractor, including compensation for the Architect's services and expenses made necessary thereby. If such proceeds of sale do not cover costs which the Contractor should have borne, the Contract Sum shall be reduced by the deficiency. If payments then or thereafter due the Contractor are not sufficient to cover such amount, the Contractor shall pay the difference to the Owner. 12.2.5 The Contractor shall bear the cost of correcting destroyed or damaged construction, whether completed or partially completed, of the Owner or separate contractors caused by the Contractor's correction or removal of Work which is not in accordance with the requirements of the Contract Documents. 12.2.6 Nothing contained in this Paragraph 12.2 shall be construed to establish a period of limitation with respect to other obligations which the Contractor might have under the Contract Documents. Establishment of the time period of one year as described in Subparagraph 12.2.2 relates only to the specific obligation of the Contractor to correct the Work, and has no relationship to the time within which the obligation to comply with the Contract Documents may be sought to be enforced, nor to the time within which proceedings may be commenced to establish the Contractor's liability with respect to the Contractor's obligations other than specifically to correct the Work. 12.3 ACCEPTANCE OF NONCONFORMING WORK 12.3.1 If the Owner prefers to accept Work which is not in accordance with the requirements of the Contract Documents, the Owner may do so instead of requiring its removal and correction, in which case the Contract Sum will be reduced as appropriate and equitable. Such adjustment shall be effected whether or not final payment has been made. ARTICLE 13 MISCELLANEOUS PROVISIONS 13.1 GOVERNING LAW 13.1.1 The Contract shall be governed by the law of the place where the Project is located. 13.2 SUCCESSORS AND ASSIGNS 13.2.1 The Owner and Contractor respectively bind themselves, their partners, successors, assigns and legal representatives to the other party hereto and to partners, successors, assigns and legal representatives of such other party in respect to covenants, agreements and obligations contained in the Contract Documents. Neither party to the Contract shall assign the Contract as a whole without written consent of the other. If either party attempts to make such an assignment without such consent, that party shall nevertheless remain legally responsible for all obligations under the Contract. 13.3 WRITTEN NOTICE 13.3.1 Written notice shall be deemed to have been duly served if delivered in person to the individual or a member of the firm or entity or to an officer of the corporation for which it was intended, or if delivered at or sent by registered or certified mail to the last business address known to the party given notice. 13.4 RIGHTS AND REMEDIES 13.4.1 Duties and obligations imposed by the Contract Documents and rights and remedies available thereunder shall be in addition to and not a limitation of duties, obligations, rights and remedies otherwise imposed or available by law. 13.4.2 No action or failure to act by the Owner, Architect or Contractor shall constitute a waiver of a right or duty afforded them under the Contract, nor shall such action or failure to act constitute approval of or acquiescence in a breach thereunder, except as may be specifically agreed in writing. 13.5 TESTS AND INSPECTIONS 13.5.1 Tests, inspections and approvals of portions of the Work required by the Contract Documents or by laws, ordinances, rules, regulations or orders of public authorities having jurisdiction shall be made at an appropriate time, unless otherwise provided, the Contractor shall make arrangements for such tests, inspections and approvals with an independent testing laboratory or entity acceptable to the Owner, or with the appropriate public authority, and shall bear all related costs of tests, inspections and approvals. The Contractor shall give the Architect timely notice of when and where tests and inspections are to be made so the Architect may observe such procedures. The Owner shall bear costs of tests, inspections or approvals which do not become requirements until after bids are received or negotiations concluded. 13.5.2 If the Architect, Owner or public authorities having jurisdiction determine that portions of the Work require additional testing, inspection or approval not included under Subparagraph 13.5.l, the architect will, upon written authorization from the Owner, instruct the Contractor to make arrangements for such additional testing, inspection or approval by an entity acceptable to the Owner, and the Contractor shall give timely notice to the Architect of when and where tests and inspections are to be made so the Architect may observe such procedures. The Owner shall bear such costs except as provided in Subparagraph 13.5.3. 13.5.3 If such procedures for testing, inspection or approval under Subparagraphs 13.5.1 and 13.5.2 reveal failure of the portions of the Work to comply with requirements established by the Contract Documents, the Contractor shall bear all costs made necessary by such failure including those of repeated procedures and compensation for the Architect's services and expenses. 13.5.4 Required certificates of testing, inspection or approval shall, unless otherwise required by the Contract Documents, be secured by the Contractor and promptly delivered to the Architect. 13.5.5 If the Architect is to observe tests, inspections or approvals required by the Contract Documents, the Architect will do so promptly and, where practicable, at the normal place of testing. 13.5.6 Tests or inspections conducted pursuant to the Contract Documents shall be made promptly to avoid unreasonable delay in the Work. 11.3.6 INTEREST 13.6.1 Payments due and unpaid under the Contract Documents shall bear interest from the date payment is due at such rate as the parties may agree upon in writing or, in the absence thereof, at the legal rate prevailing from time to time at the place where the Project is located. 13.7 COMMENCEMENT OF STATUTORY LIMITATION PERIOD 13.7.1 As between the Owner and Contractor; .1 Before Substantial Completion. As to acts or failures to act occurring prior to the relevant date of Substantial Completion, any, applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of Substantial Completion; .2 Between Substantial Completion and Final Certificate for Payment. As to acts or failures to act occurring subsequent to the relevant date of Substantial Completion and prior to issuance of the final Certificate for Payment, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than the date of issuance of the final Certificate for Payment; and .3 After Final Certificate for Payment. As to acts or failures to act occurring after the relevant date of issuance of the final Certificate for Payment, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than the date of any act or failure to act by the Contractor pursuant to any warranty provided under Paragraph 3.5, the date of any correction of the Work or failure to correct the Work by the Contractor under Paragraph 12.2. or the date of actual commission of any other act or failure to perform any duty or obligation by the Contractor or Owner, whichever occurs last. ARTICLE 14 TERMINAT1ON OR SUSPENSION OF THE CONTRACT 14.1 TERMINATION BY THE CONTRACTOR 14.1.1 The Contractor may terminate the Contract if the Work is stopped for a period of 30 days through no act or fault of the Contractor or a Subcontractor, sub-subcontractor or their agents or employees or any other persons performing portions of the Work under contract with the Contractor, for any of the following reasons: .1 issuance of an order of a court or other public authority having j urisdiction; .2 an act of government, such as a declaration of national emergency, making material unavailable; .3 because the Architect has not issued a Certificate for Payment and has not notified the Contractor of the reason for withholding certification as provided in Subparagraph 9.4.1. or because the Owner has not made payment on a Certificate for Payment within the time stated in the Contract Documents; .4 if repeated suspensions, delays or interruptions by the Owner as described in Paragraph 14.3 constitute in the aggregate more than 100 percent of the total number of days scheduled for completion, or 120 days in any 365-day period, whichever is less; or .5 the Owner has failed to furnish to the Contractor promptly, upon the Contractor's request, reasonable evidence as required by Subparagraph 2.2.1. 14.1.2 If one of the above reasons exists, the Contractor may, upon seven additional days' written notice to the Owner and Architect, terminate the Contract and recover from the Owner payment for Work executed and for proven loss with respect to materials, equipment, tools, and construction equipment and machinery, including reasonable overhead, profit and damages. 14.1.3 if the Work is stopped for a period of 60 days through no act or fault of the Contractor or a Subcontractor or their agents or employees or any other persons performing portions of the Work under contract with the Contractor because the Owner has persistently failed to fulfill the Owner's obligations under the Contract Documents with respect to matters important to the progress of the Work, the Contractor may upon seven additional days' written notice to the Owner and the Architect, terminate the Contract and recover from the Owner as provided in Subparagraph 14.1.2. 14.2 TERMINATION BY THE OWNER FOR CAUSE 14.2.1 The Owner may terminate the Contract if the Contractor: .1 persistently or repeatedly refuses or fails to supply enough properly skilled workers or proper materials; .2 fails to make payment to Subcontractors for materials or labor in accordance with the respective agrements between the Contractor and the Subcontractors; .3 persistently disregards laws, ordinances, or rules, regulations or orders of a public authority having jurisdiction; or .4 otherwise is guilty of substantial breach of a provision of the Contract Documents. 14.2.2 When any of the above reasons exist, the Owner, upon certification by the Architect that sufficient cause exists to justify such action, may without prejudice to any other rights or remedies of the Owner and after giving the Contractor and the Contractor's surety, if any, seven days' written notice, terminate employment of the Contractor and may, subject to any prior rights of the surety; .1 take possession of the site and of all materials, equipment, tools, and equipment and machinery thereon owned by the Contractor; .2 accept assignment of subcontracts pursuant to Paragraph 5.4; and .3 finish the Work by whatever reasonable method the Owner may deem expedient. 14.2.3 When the Owner terminates the Contract for one of the reasons stated in Subparagraph 14.2.1. the Contractor shall not be entitled to receive further payment until the Work is finished. 14.2.4 If the unpaid balance of the Contract Sum exceeds costs of finishing the Work, including compensation for the Architect's services and expenses made necessary thereby, such excess shall be paid to the Contractor. If such costs exceed the unpaid balance, the Contractor shall pay the difference to the Owner. The amount to be paid to the Contractor or Owner, as the case may be, shall be certified by the Architect, upon application, and this obligation for payment shall survive termination of the Contract. 14.3 SUSPENSION BY THE OWNER FOR CONVENIENCE 14.3.1 The Owner may, without cause, order the Contractor in writing to suspend, delay or interrupt the Work in whole or in part for such period of time as the Owner may determine. 14.3.2 An adjustment shall be made for increases in the cost of performance of the Contract, including profit on the increased cost of performance, caused by suspension, delay or interruption. No adjustment shall be made to the extent; .1 that performance is, was or would have been so suspended, delayed or interrupted another cause for which the Contractor is responsible; or .2 that an equitable adjustment is made or denied under another provision of this Contract. 14.3.3 Adjustments made in the cost of performance may have a mutually agreed faxed or percentage fee. EX-10.9 10 CONVERTIBLE SUBORDINATED NOTE CONVERTIBLE SUBORDINATED NOTE $5,500,000 Providence Forge, Virginia March __, 1997 FOR VALUE RECEIVED, the receipt and adequacy of which is hereby acknowledged, Colonial Downs Holdings, Inc., a Virginia corporation with its principal office located at 3610 N. Courthouse Road, Providence Forge, Virginia 23140 (the "Maker"), hereby promises to pay to the order of CD Entertainment Ltd. (the "Holder"), with its principal office located at 1231 Main Avenue, Cleveland, Ohio 44113, the principal sum of Five Million Five Hundred Thousand Dollars ($5,500,000), or so much thereof as shall have been advanced by the Holder at any time and not hereafter repaid, together with interest thereon from the date hereof until payment in full at the Charged Rate (as defined below). 1. Payment of Principal. All principal outstanding hereunder shall be due in one payment, in full, on March 31, 2000. Principal of and interest on this Note are payable in lawful money of the United States of America at the Holder's address stated above, or at such other place as the Holder shall designate to the Maker in writing. 2. Interest. a. All principal outstanding hereunder shall bear interest at a rate of seven and one-quarter percent (7.25%) per annum. Interest shall be payable on the last day of each calendar quarter and, in the event of a permitted prepayment, on the date of such prepayment. b. Any amount not paid when due under this Note, whether at the date scheduled for payment or earlier upon acceleration, shall bear interest until paid in full at a rate per annum equal to eleven and one-quarter percent (11.25%) (the "Default Rate"). 3. Facility Fee. The Maker shall pay to the Holder an annual facility fee (the "Facility Fee") equal to the Holder's out-of-pocket costs (payable to unrelated and unaffiliated third parties) incurred in connection with extending the funds represented hereby to the Maker. The Holder shall provide evidence reasonably satisfactory to the Maker of such expenses. The Facility Fee shall be due and payable to the Holder on the date hereof and on the same day of each subsequent year until this Note is paid in full. 4. Security. This Note is to be secured by a second deed of trust on the Maker's racetrack facility located in New Kent County, Virginia. 5. Subordination. a. The payment of principal and interest on this Note (including, for all purposes of these subordinate terms, all premiums, if any, and other amounts payable on or in respect thereof) is expressly made subordinate and subject in right of payment to the prior payment of all indebtedness (including principal, interest, premium, if any, and other amounts payable on or in respect thereof) for the construction and completion of the Maker's racetrack in New Kent County, Virginia, and the acquisition, construction, renovation and equipping of satellite wagering facilities, among other uses, incurred by the Maker and referred to as the "Bank Credit Facility" in the Registration Statement on Form S-1 relating to the initial public offering of the Maker's Class A Common Stock and any renewal, refunding, or extension of such indebtedness (such indebtedness, the "Senior Indebtedness"). 34 b. In the event of (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relating to the Maker or to its creditors as such, or to its assets, or (ii) any liquidation, dissolution or other winding up of the Maker, whether partial or complete and whether voluntary or involuntary and whether involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Maker, then and in any such event the holders of the Senior Indebtedness, shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Indebtedness before the Holder shall be entitled to receive any payment on account of this Note. c. In the event and during the continuation of any default in the payment when due of any principal of or interest on or any other amount payable in respect of any Senior Indebtedness, unless and until such payment shall have been made, then no payment shall be made by the Maker, on or in respect of this Note. 6. Prepayment. Subject to Subsection 8.c., the Maker may prepay this Note at any time upon thirty (30) days' prior written notice to the Holder at a price equal to the principal amount outstanding hereunder, plus interest accrued thereon through the date of such prepayment. 7. Covenants. So long as any indebtedness under this Note remains outstanding, the Maker shall not, without the prior written consent of the Holder: a. other than in connection with Maker's initial public offering of shares of Class A Common Stock and the Maker's Stock Option Plan, authorize, issue, or enter into any agreement providing for the issuance (contingent or otherwise) of (i) any notes or debt securities containing equity features (including, without limitation, any notes or debt securities convertible into or exchangeable for capital stock or other equity securities issued in connection with the issuance of capital stock or other equity securities or containing profit participation features) or (ii) any capital stock or other equity securities (or any securities convertible into or exchangeable for any capital stock or other equity securities); provided that the Maker may, without the Holder's consent, issue up to an aggregate of 100,000 shares of its Common Stock; b. merge or consolidate with any person or permit any subsidiary to merge or consolidate with any person (other than a wholly owned subsidiary); provided that a subsidiary may merge with another person so long as after such merger, the Maker or any of its consolidated subsidiaries directly or indirectly owns at least 80% of the (i) capital stock of the surviving corporation possessing the right to vote for the election of directors and (ii) number of shares of the common stock of the surviving corporation then outstanding; c. sell, lease, or otherwise dispose of, or permit any subsidiary to sell, lease, or otherwise dispose of, more than 50% of the assets of the Maker and its consolidated subsidiaries (computed on the basis of book value, determined in accordance with generally accepted accounting principles consistently applied, or fair market value); d. issue or sell any shares of the capital stock, or rights to acquire shares of the capital stock, of any subsidiary to any person (other than the Holder or a permitted assignee of the Holder) if immediately after such issuance or sale, the Maker or any of its consolidated subsidiaries directly or indirectly owns less than 80% of the (i) capital stock possessing the right to vote for the election of directors and (ii) the number of shares of the common stock of any subsidiary then outstanding; e. liquidate, dissolve, or effect a recapitalization or reorganization in any form of transaction (including, without limitation, any reorganization into a limited liability company or into partnership or other noncorporate form); or f. make any amendment to the Articles of Incorporation or the Maker's bylaws or file a resolution of the Board of Directors with the Virginia State Corporation Commission containing any provisions which would increase the number of authorized shares of common stock of the Maker or adversely affect or otherwise impair the rights of the Holder. 35 8. Conversion. a. All or any portion of the unpaid principal balance shall be convertible into shares of Class B Common Stock of the Maker, $.01 par value per Share (the "Class B Common Stock") at any time upon the election of the Holder, subject to obtaining the approval, if any is required, of the Virginia Racing Commission (the "Commission"). The number of shares of Class B Common Stock into which this Note may be converted ("Conversion Shares") shall be determined by dividing the amount of the then-unpaid principal balance of this Note by 122% of the initial public offering price per share of the Maker's Class A Common Stock (the "Conversion Price"). The maximum number of Conversion Shares into which this Note may be converted is 450,820, subject to adjustment as provided in paragraph 9 below. b. Any Conversion Shares shall have the registration rights set forth in the Registration Agreement among the Maker, the Holder, and certain shareholders of the Maker to be executed and delivered at the closing of the initial public offering of the Maker's Class A Common Stock. c. Holder may convert all or any portion of the unpaid principal balance of this Note into Conversion Shares at any time prior to maturity of this Note or upon notice of the Maker's intent to prepay this Note. Conversion of this Note shall be effected by delivery of written notice by mail, postage prepaid, or by carrier, to the Maker at its principal corporate office, of the election to convert the same specifying the principal amount of this Note being converted and the name in which the certificates evidencing the Conversion Shares shall be issued, accompanied by this Note. To the extent that the entire unpaid balance of this Note is not being converted, the Maker and the Holder shall each credit the Note on its books to the extent of the principal being converted by the Holder into Conversion Shares. d. No fractional share of Class B Common Stock shall be issued upon conversion of this Note. In lieu of the Maker issuing any fractional share to the Holder upon the conversion of this Note, the Maker shall pay, in cash, to the Holder the amount of outstanding principal that is applicable to such fractional share. e. At its expense, the Maker shall, as soon as practicable thereafter, issue and deliver to such the Holder at such principal office a certificate or certificates for the number of Conversion Shares to which the Holder shall be entitled upon such conversion (bearing such legends as are required by applicable state and federal securities and other laws in the opinion of counsel to the Maker), together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Note, including a check payable to the Holder for any cash amounts payable as described above and for all interest on the converted principal amount hereof accrued and unpaid as of the date of conversion. Such conversion shall be deemed to have been made on the date of delivery of the notice of conversion, and on and after such date the Holder of this Note entitled to receive the Conversion Shares shall be treated for all purposes as the record holder of such Conversion Shares. Upon conversion of this Note and delivery of the check described above, the Maker shall be forever released from all its obligations and liabilities under this Note to the extent of the amount of unpaid principal that the Holder has elected to convert into Conversion Shares. 36 9. Conversion Price Adjustments a. In the event the Maker should at any time or from time to time after the date of issuance hereof fix a record date for the effectuation of a split or subdivision of the outstanding shares of Class A Common Stock or Class B Common Stock (collectively, the "Common Stock") or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of this Note shall be appropriately decreased so that the number of Conversion Shares issuable upon conversion of this Note shall be increased in proportion to such increase of outstanding shares. b. If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for this Note shall be appropriately increased so that the number of Conversion Shares issuable on conversion hereof shall be decreased in proportion to such decrease in outstanding shares. c. In the event of (i) any taking by the Maker of a record of the holders of any class of securities of the Maker for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (ii) any capital reorganization of the Maker, any reclassification or recapitalization of the capital stock of the Maker or any transfer of all or substantially all of the assets of the Maker to any other person or any consolidation or merger involving the Maker, or (iii) any voluntary or involuntary dissolution, liquidation, or winding up of the Maker, the Maker will mail to the Holder of this Note a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend, distribution, or right, and the amount and character of such dividend, distribution, or right, (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation, or winding up is expected to become effective and the record date of determining stockholders entitled to vote thereon, and (C) the new Conversion Price after giving effect to the adjustment event, which new Conversion Price shall represent an appropriate increase or decrease in the Conversion Price to preserve the proportionate amount of Conversion Shares. Such notice shall be mailed at least twenty (20) days prior to the date described in clause (A) or (B) above. d. The Maker shall at all times reserve and keep available out of its authorized but unissued shares of Class B Common Stock such number of shares that are solely for the purpose of effecting the conversion of the Note into such number of Conversion Shares as shall from time to time be sufficient to effect the conversion of the Note; and if at any time the number of authorized but unissued shares of Class B Common Stock shall not be sufficient to effect the conversion of the entire outstanding principal amount of this Note, in addition to such other remedies as shall be available to the Holder of this Note, the Maker will use its best efforts to take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Class B Common Stock to such number of shares as shall be sufficient for such purposes. Any adjustment pursuant to this paragraph 9 shall be based upon the proportion that the maximum number of Conversion Shares into which this Note was convertible immediately prior to the event giving rise to such adjustment bears to the aggregate number of shares of Common Stock (or issuable in respect of any Common Stock equivalents) outstanding immediately prior to such event. 38 10. Events of Default. "Events of Default" whenever used herein means any one or more of the following defaults shall have occurred and be continuing (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law, pursuant to any judgment, decree, or order of any court or any order, rule, or regulation of any administrative or governmental body): a. Default in the payment of any installment of interest, the Facility Fee, the principal of this Note, or any other amount payable hereunder when such payment becomes due and payable, whether at maturity, by acceleration or otherwise, and such default shall continue unremedied for a period of fifteen (15) days; b. Default in the performance or breach of any other agreement, covenant, or warranty of the Maker contained in this Note, and such default or breach shall continue unremedied for a period of thirty (30) days after the date on which written notice of such default or breach, requiring the Maker to remedy the same, shall have been given to the Maker by the Holder, or such longer period, provided that the default is of a nature that cannot be remedied within thirty (30) days and the Maker has within the thirty (30) day period instituted curative action and diligently and continuously pursues such action to completion; c. The entry of a decree or order by a court having jurisdiction adjudging the Maker as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment, or composition of or in respect of the Maker under federal bankruptcy laws or any similar federal or state law for the relief of debtors ("Bankruptcy Law") or appointing a receiver, liquidator, assignee, trustee, conservator, sequestrator, or assignee in bankruptcy or insolvency of the Maker or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and such decree or order shall have continued undischarged and unstayed for a period of ninety (90) days; d. The Maker shall commence a voluntary case or shall consent to the entry of an order for relief in any involuntary case under Bankruptcy Law or shall consent to the appointment of or taking possession by a receiver, liquidator, custodian, sequestrator, trustee, or assignee of any substantial part of its property, or shall make an assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or e. There shall have occurred any circumstance or event which, upon the lapse of time, the giving of notice, or both, would constitute an event of default under the Senior Indebtedness of the Maker, except if the same is cured or waived. 39 Notwithstanding the foregoing, no Event of Default shall be deemed to have occurred if any of the foregoing defaults arises solely from the operation of the subordination provisions of Paragraph 5 of this Note, in which event interest on the outstanding principal amount hereof, accrued and unpaid interest thereon (to the extent lawful), and any unpaid fees due shall accrue at the Default Rate. Upon satisfaction of the requirements of Paragraph 5 hereof, Maker shall have the cure periods specified in this Paragraph 10 to cure any defaults. 11. Remedies. If an Event of Default occurs and is continuing (unless waived in writing by the Holder) then and in each and every case, unless the entire principal of this Note already shall have become due and payable, the Holder may, by a notice in writing to the Maker, declare the principal and the accrued interest on this Note to be immediately due and payable. The principal and accrued interest on this Note shall become and shall be immediately due and payable upon such declaration. 12. Miscellaneous a. The Maker hereby waives presentment, notice of dishonor, protest, and diligence in bringing suit against the Maker. Acceptance by the Holder of any payment which is less than the full amount then due and owing hereunder shall not constitute a waiver of the Holder's right to receive payment in full at such time or at any prior or subsequent time. The Maker consents that the time of payment may be extended an unlimited number of times before or after maturity without notice to the Maker, and that the Maker shall not be discharged by reason of any such extension or extensions of time. No delay or omission on the part of the Holder in exercising any right hereunder shall operate as a waiver of such right or any other right under this Note. A waiver on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on any future occasion. b. Notwithstanding the foregoing, if at any time implementation of any provision hereof shall cause the interest contracted for or charged herein and collectible hereunder to exceed the applicable lawful maximum rate, then the interest shall be limited to such lawful maximum. c. The Maker shall be liable for any and all costs and expenses of collection of the interest required to be paid hereunder, including, without limitation, reasonable attorneys' fees, arising by virtue of an Event of Default. d. This Note shall be subject to and construed in accordance with the laws of the Commonwealth of Virginia. If any provision herein shall be unenforceable, such unenforceable provision shall not render the remaining provisions hereof unenforceable or invalid. e. This Note shall be binding upon the Maker and the Maker may not assign its obligations hereunder without the prior written consent of the Holder. The Holder may assign its rights hereunder, in whole or in part, only to one or more corporations, limited liability companies, partnerships, trusts, or other entities which are under common control, or controlled through equity ownership and/or voting control, by the Holder or Jeffrey P. Jacobs; it being acknowledged that for purposes of this subparagraph 12(e), (i) any entity managed or controlled by Jacobs Entertainment Ltd. ("JEL") or Jeffrey P. Jacobs, or (ii) any entity in which either JEL or Jeffrey P. Jacobs is one of the trustees and/or one of the beneficiaries constitutes common control. COLONIAL DOWNS HOLDINGS, INC. By: ___________________________________ Name:__________________________________ Title:_________________________________ EX-10.10 11 EMPLOYEE AGREEMENT Exhibit 10.10 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is made as of March __, 1997, by and between COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation (the "Company"), and GILBERT SHORT ("Executive") recites and provides as follows: WHEREAS, the Company is engaged in the business of seeking opportunities for horse racing and pari-mutuel wagering in Virginia, and its subsidiaries are currently the holders of the only unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia (the "Track") and the only entities authorized to apply for licenses to own and operate satellite wagering facilities ("SWF") in Virginia; WHEREAS, the Company desires to employ Executive as Vice President of Track Operations of the Company; and WHEREAS, Executive desires to be so employed by Company on the terms and conditions hereinafter set forth; WHEREAS, through his relationship with the Company, the Executive will become acquainted with certain confidential or proprietary aspects of the Company's business, including without limitation, operating methods, marketing strategy, sponsorship and advertising agreements, design and layout of the Track facilities and potential sites for additional SWFs, and other confidential and proprietary information that constitute valuable assets of the Company and which the Company desires to protect. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company as Vice President of Track Operations. 2. Duties of the Executive. As the Vice President of Track Operations of the Company, the Executive shall faithfully serve the Company and shall at all times devote his full time, best efforts, skills, attention, and energies to the development, organization, management, and expansion of the Company's business to the utmost of the Executive's ability, and shall do and perform all such services, acts, and things connected therewith as are reasonably required and as the Company shall from time to time direct. The Executive shall not become engaged or involved in any activities or matters which may adversely affect or reflect discredit on the Company or its business, or conflict with his services to the Company. This Agreement shall not prohibit the Executive from investing personal assets in other businesses or entities that do not "compete" with the Company (as described in Section 11 of this Agreement). 3. Term. Subject to the provisions of Section 8 regarding termination, this Agreement shall remain in effect for a term of two (2) years beginning on the date hereof. This Agreement may be renewed and extended on terms and conditions mutually agreeable to the parties hereto. 4. Compensation. For all services rendered by the Executive pursuant to this Agreement, the Company shall pay the Executive a base salary of $65,000 per annum, payable in equal semi-monthly installments, or at such other times as may be mutually agreed upon by the parties. 5. Deductions. The Company is authorized to deduct from the actual compensation of the Executive such sums as may be required to be deducted or withheld under the provisions of any federal, state, or local law or regulation now in effect or hereafter put into effect during the term of this Agreement, including without limitation, social security, unemployment, and income withholding taxes. 6. Benefits. (a) The Executive shall be entitled to a paid vacation each year of two (2) weeks, the timing of which shall be subject to mutual agreement between the Company and the Executive. The Executive's attendance at trade shows, training, educational, and professional programs and meetings shall not be charged against Executive's vacation allowance. The Executive shall also be entitled to paid sick leave of five (5) days each year. (b) The Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by him in the performance of his duties hereunder. To be reimbursed, the Executive must submit written evidence of such expenses to the Company within thirty (30) days after incurring such expense. (c) The Executive shall receive such other benefits, if any, as the Company generally provides to all other Executives involved in the operations of the Company, whether now in effect or hereafter adopted, including group hospital and accidental insurance benefits and group disability insurance coverage. 7. Stock Options. In connection with Executive's employment hereunder, the Company will grant to the Executive stock options for an aggregate of 10,000 shares of Class A Common Stock (the "Stock") at an exercise price equal to the initial public offering price of the shares of Stock. Such options shall vest for 2,000 shares per year on each anniversary of the date hereof for five years. 8. Termination of Employment. (a) Upon the occurrence of any of the following events and the expiration of any required notice, this Agreement and the Executive's employment hereunder automatically shall terminate: (1) The death or bankruptcy of the Executive; (2) The Board of Director's termination of the Executive's employment at any time, "for cause" or not "for cause" (as defined below). This Agreement and the Executive's employment hereunder shall terminate upon the expiration of a period of thirty (30) days after delivery by the Company of written notice to the Executive of his termination. The phrase "for cause" shall include termination because of the Executive's personal dishonesty, incompetence, willful misconduct, censure or reprimand by any regulatory body (including the Virginia Racing Commission), breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), failure to perform assigned duties in a reasonably satisfactory manner, or material breach of any provision of this Agreement; (3) The expiration of a period of thirty (30) days after delivery by the Executive of written notice to the Company of his resignation as an Executive of the Company; or (4) The disability of the Executive. "Disability" shall mean a physical or mental disability that prevents the substantial performance by the Executive of his duties hereunder lasting for a continuous period of six (6) months or longer. The reasoned and good faith judgment of the Company's Board of Directors as to the Executive's disability shall be final and shall be based on such competent medical evidence as shall be presented to the Company's Board of Directors by the Executive or by any physician or group of physicians or other competent medical experts on behalf of the Executive and on behalf of the Company. (b) In the event the Executive voluntarily terminates his employment or has his employment terminated "for cause" under this Agreement, he shall be entitled to receive from the Company only the base salary and benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. (c) In the event the Company terminates the employment of Executive by reason of his disability, the Executive shall be entitled to receive from the Company only the base salary and benefits set forth herein that have accrued to the date of disability in full settlement of all of the Company's obligations hereunder. (d) In the event the Company terminates the employment of the Executive not "for cause", the Executive shall be entitled to three (3) months base salary as set forth herein and the benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. 9. Fiduciary Relationship. (a) The Executive as a Fiduciary. It is understood and agreed that the Executive will serve in a fiduciary capacity to the Company and, as such, will comply with the standards applicable to fiduciaries and other Executives of the Company. (b) Confidential Information and Trade Secrets. All information relating to or used in the business and operations of the Company (including, but not limited to, marketing plans, business procedures, trade secrets, patents, sources of supplies and materials, reports, memoranda, plans, documents, and the like), whether conceived, prepared, originated, developed or compiled by the Executive or by the Company prior to or during the term of this Agreement and the employment of the Executive (hereinafter "Confidential Information and Trade Secrets"), are and shall be confidential information and trade secrets which are the exclusive property of the Company, provided such information is not generally known in the horse racing industry. (c) Property of the Company. All Confidential Information and Trade Secrets as defined in this Section 9(b) are and shall be the exclusive property of the Company. (d) Nondisclosure of Confidential Information and Trade Secrets. Except in the regular course of his employment by the Company hereunder or as the Company may expressly authorize or direct in writing, the Executive shall not, during or after the termination or expiration of this Agreement, copy, reproduce, disclose or divulge to others, use or permit others to use any Confidential Information and Trade Secrets, or any records or materials relating to any such Confidential Information or Trade Secrets. The Executive further covenants and agrees that during the term of this Agreement he shall not remove from the custody and control of the Company any records of or materials relating to such Confidential Information and Trade Secrets and that upon the termination or expiration of his employment he shall deliver the same to the Company. 10. Covenant Not to Compete. (a) In consideration of the fees and benefits that he receives pursuant to this Agreement, during the term of this Agreement and for one (1) year thereafter, the Executive hereby covenants and agrees that he will not, without the prior written consent of the Company, either alone or in partnership with or in conjunction with any other person, firm, or corporation, whether as principal, agent, or shareholder (other than an entity in which Executive holds less than a five percent (5%) equity interest), directly or indirectly, participate, carry on, conduct, or be engaged in, or advise, any person, firm, corporation, or other legal entity carrying on or engaging in the horse racing business in Virginia, Maryland, West Virginia or North Carolina that competes with the business conducted by the Company on the date hereof. In addition, the Executive shall not seek to induce any of the Company' employees to leave the Company' employment to work for any entity with which he is affiliated. In addition, the Executive shall not solicit any sponsors or advertisers of the Company for the purpose of inducing, directly or indirectly, the termination of any sponsorship or advertising agreements. (b) The Executive recognizes that the Company's remedies at law may be inadequate to protect itself against a breach of this provision, and therefore agrees that injunctive or other equitable relief shall be an appropriate remedy for breach of this covenant not to compete, and shall be a remedy in addition to any and all other remedies available to the Company. (c) The parties agree that if the restrictions of this Section 10 are determined by any court of competent jurisdiction, at the time of enforcement, to be unreasonable as to the duration, scope or area of restriction, then such restrictions should be applied only to such activities and territory and only for such period of time as the court determines to be reasonable in light of all circumstances then existing. 11. Remedies. The Executive hereby represents that the services to be performed by the Executive under the terms of this Agreement are of a special, unique, extraordinary, and intellectual character, which gives them a particular value, the breach of which cannot be reasonably or adequately compensated in damages in an action at law. The Executive expressly acknowledges and agrees that the Company shall be entitled to obtain, in addition to any other rights or remedies the Company may possess, injunctive or other equitable relief to prevent a prospective or continuing breach of any provision of this Agreement by the Executive. 12. Notices. All notices or other communications required or permitted by and among the parties shall be in writing and shall be deemed to have been given, delivered or made when delivered by hand or mailed by certified or registered mail, postage prepaid, return receipt requested, and addressed either as follows or in such other manner as a party may subsequently designate to the other party in writing: If to the Company, at: Colonial Downs Holdings, Inc.. Post Office Box 456 Providence Forge, Virginia 23140 If to the Executive, at: The Executive's address as shown on the personnel records of the Company. 13. Severability. In the event any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 14. Entire Agreement. This Agreement supersedes any other agreement, whether written or oral, that may have been made or entered into by the Executive and the Company relating to the matters contemplated hereby. This Agreement constitutes the entire agreement concerning the transaction contemplated herein and there are no agreements or commitments in relation to the subject matter hereof except as set forth herein. 15. Amendments. This Agreement may be amended or supplemented at any time only in writing as may mutually be determined by the parties to be necessary, desirable, or expedient to further the purposes of this Agreement, or to clarify the intention of the parties. 16. Applicable Law. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the substantive laws of the Commonwealth of Virginia, without giving effect to conflict of law provisions and principles thereof. 17. Interpretation. When the context in which words are used in this Agreement indicates that such is the intent, words in the singular number shall include the plural, and vice versa, and words in the masculine gender shall include the feminine and neuter genders, and vice versa. 18. Titles and Headings. Titles and headings to sections and paragraphs herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 19. Binding Effect. This Agreement shall be binding upon and enforceable against the Company and its successors and assigns. 20. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary to affect any such action shall be null, void and of no effect. 21. Survival of Certain Provisions. The obligations of the parties pursuant to Sections 9, 10, and 22 of this Agreement shall survive the termination of this Agreement. 22. Consent to Service and Jurisdiction. Executive consents and agrees that the Circuit Court of the City of Richmond, Virginia and the United States District Court for the Eastern District of Virginia, or at the option of the Company, any other court located in the Commonwealth of Virginia in which it shall initiate legal or equitable proceedings and which shall have subject matter jurisdiction over the matter in controversy, shall have exclusive jurisdiction to hear and determine any claims or disputes between the Company and the Executive pertaining directly or indirectly to this Agreement or to any matter arising therefrom. The Executive expressly submits and consents in advance to such jurisdiction in any action or proceeding commenced in any such court, hereby waiving personal service or process or other papers issued therein and agreeing that service of such process or other papers may be made by registered or certified mail to the Executive. 23. Acknowledgments. Executive acknowledges that he has read this Agreement in its entirety and understands each of the provisions contained in this Agreement. Executive acknowledges that the provisions of this Agreement are reasonable and represents that he will be able to engage in other activities for the purpose of earning a livelihood should the provisions of the Agreement be enforced. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date first above written. COMPANY: COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation By: _________________________________ O. James Peterson, III, President EXECUTIVE: _________________________________ Gilbert Short EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is made as of March __, 1997, by and between COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation (the "Company"), and HUGH MELLON ("Executive") recites and provides as follows: WHEREAS, the Company is engaged in the business of seeking opportunities for horse racing and pari-mutuel wagering in Virginia, and its subsidiaries are currently the holders of the only unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia (the "Track") and the only entities authorized to apply for licenses to own and operate satellite wagering facilities ("SWF") in Virginia; WHEREAS, the Company desires to employ Executive as Controller of the Company; and WHEREAS, Executive desires to be so employed by Company on the terms and conditions hereinafter set forth; WHEREAS, through his relationship with the Company, the Executive will become acquainted with certain confidential or proprietary aspects of the Company's business, including without limitation, operating methods, marketing strategy, sponsorship and advertising agreements, design and layout of the Track facilities and potential sites for additional SWFs, and other confidential and proprietary information that constitute valuable assets of the Company and which the Company desires to protect. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company as Vice President of Marketing. 2. Duties of the Executive. As the Vice President of Marketing of the Company, the Executive shall faithfully serve the Company and shall at all times devote his full time, best efforts, skills, attention, and energies to the development, organization, management, and expansion of the Company's business to the utmost of the Executive's ability, and shall do and perform all such services, acts, and things connected therewith as are reasonably required and as the Company shall from time to time direct. The Executive shall not become engaged or involved in any activities or matters which may adversely affect or reflect discredit on the Company or its business, or conflict with his services to the Company. This Agreement shall not prohibit the Executive from investing personal assets in other businesses or entities that do not "compete" with the Company (as described in Section 11 of this Agreement). 3. Term. Subject to the provisions of Section 8 regarding termination, this Agreement shall remain in effect for a term of two (2) years beginning on the date hereof. This Agreement may be renewed and extended on terms and conditions mutually agreeable to the parties hereto. 4. Compensation. For all services rendered by the Executive pursuant to this Agreement, the Company shall pay the Executive a base salary of $60,000 per annum, payable in equal semi-monthly installments, or at such other times as may be mutually agreed upon by the parties. 5. Deductions. The Company is authorized to deduct from the actual compensation of the Executive such sums as may be required to be deducted or withheld under the provisions of any federal, state, or local law or regulation now in effect or hereafter put into effect during the term of this Agreement, including without limitation, social security, unemployment, and income withholding taxes. 6. Benefits. (a) The Executive shall be entitled to a paid vacation each year of two (2) weeks, the timing of which shall be subject to mutual agreement between the Company and the Executive. The Executive's attendance at trade shows, training, educational, and professional programs and meetings shall not be charged against Executive's vacation allowance. The Executive shall also be entitled to paid sick leave of five (5) days each year. (b) The Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by him in the performance of his duties hereunder. To be reimbursed, the Executive must submit written evidence of such expenses to the Company within thirty (30) days after incurring such expense. (c) The Executive shall receive such other benefits, if any, as the Company generally provides to all other Executives involved in the operations of the Company, whether now in effect or hereafter adopted, including group hospital and accidental insurance benefits and group disability insurance coverage. 7. Stock Options. In connection with Executive's employment hereunder, the Company will grant to the Executive stock options for an aggregate of 10,000 shares of Class A Common Stock (the "Stock") at an exercise price equal to the initial public offering price of the shares of Stock. Such options shall vest for 2,000 shares per year on each anniversary of the date hereof for five years. 8. Termination of Employment. (a) Upon the occurrence of any of the following events and the expiration of any required notice, this Agreement and the Executive's employment hereunder automatically shall terminate: (1) The death or bankruptcy of the Executive; (2) The Board of Director's termination of the Executive's employment at any time, "for cause" or not "for cause" (as defined below). This Agreement and the Executive's employment hereunder shall terminate upon the expiration of a period of thirty (30) days after delivery by the Company of written notice to the Executive of his termination. The phrase "for cause" shall include termination because of the Executive's personal dishonesty, incompetence, willful misconduct, censure or reprimand by any regulatory body (including the Virginia Racing Commission), breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), failure to perform assigned duties in a reasonably satisfactory manner, or material breach of any provision of this Agreement; (3) The expiration of a period of thirty (30) days after delivery by the Executive of written notice to the Company of his resignation as an Executive of the Company; or (4) The disability of the Executive. "Disability" shall mean a physical or mental disability that prevents the substantial performance by the Executive of his duties hereunder lasting for a continuous period of six (6) months or longer. The reasoned and good faith judgment of the Company's Board of Directors as to the Executive's disability shall be final and shall be based on such competent medical evidence as shall be presented to the Company's Board of Directors by the Executive or by any physician or group of physicians or other competent medical experts on behalf of the Executive and on behalf of the Company. (b) In the event the Executive voluntarily terminates his employment or has his employment terminated "for cause" under this Agreement, he shall be entitled to receive from the Company only the base salary and benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. (c) In the event the Company terminates the employment of Executive by reason of his disability, the Executive shall be entitled to receive from the Company only the base salary and benefits set forth herein that have accrued to the date of disability in full settlement of all of the Company's obligations hereunder. (d) In the event the Company terminates the employment of the Executive not "for cause", the Executive shall be entitled to three (3) months base salary as set forth herein and the benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. 9. Fiduciary Relationship. (a) The Executive as a Fiduciary. It is understood and agreed that the Executive will serve in a fiduciary capacity to the Company and, as such, will comply with the standards applicable to fiduciaries and other Executives of the Company. (b) Confidential Information and Trade Secrets. All information relating to or used in the business and operations of the Company (including, but not limited to, marketing plans, business procedures, trade secrets, patents, sources of supplies and materials, reports, memoranda, plans, documents, and the like), whether conceived, prepared, originated, developed or compiled by the Executive or by the Company prior to or during the term of this Agreement and the employment of the Executive (hereinafter "Confidential Information and Trade Secrets"), are and shall be confidential information and trade secrets which are the exclusive property of the Company, provided such information is not generally known in the horse racing industry. (c) Property of the Company. All Confidential Information and Trade Secrets as defined in this Section 9(b) are and shall be the exclusive property of the Company. (d) Nondisclosure of Confidential Information and Trade Secrets. Except in the regular course of his employment by the Company hereunder or as the Company may expressly authorize or direct in writing, the Executive shall not, during or after the termination or expiration of this Agreement, copy, reproduce, disclose or divulge to others, use or permit others to use any Confidential Information and Trade Secrets, or any records or materials relating to any such Confidential Information or Trade Secrets. The Executive further covenants and agrees that during the term of this Agreement he shall not remove from the custody and control of the Company any records of or materials relating to such Confidential Information and Trade Secrets and that upon the termination or expiration of his employment he shall deliver the same to the Company. 10. Covenant Not to Compete. (a) In consideration of the fees and benefits that he receives pursuant to this Agreement, during the term of this Agreement and for one (1) year thereafter, the Executive hereby covenants and agrees that he will not, without the prior written consent of the Company, either alone or in partnership with or in conjunction with any other person, firm, or corporation, whether as principal, agent, or shareholder (other than an entity in which Executive holds less than a five percent (5%) equity interest), directly or indirectly, participate, carry on, conduct, or be engaged in, or advise, any person, firm, corporation, or other legal entity carrying on or engaging in the horse racing business in Virginia, Maryland, West Virginia or North Carolina that competes with the business conducted by the Company on the date hereof. In addition, the Executive shall not seek to induce any of the Company' employees to leave the Company' employment to work for any entity with which he is affiliated. In addition, the Executive shall not solicit any sponsors or advertisers of the Company for the purpose of inducing, directly or indirectly, the termination of any sponsorship or advertising agreements. (b) The Executive recognizes that the Company's remedies at law may be inadequate to protect itself against a breach of this provision, and therefore agrees that injunctive or other equitable relief shall be an appropriate remedy for breach of this covenant not to compete, and shall be a remedy in addition to any and all other remedies available to the Company. (c) The parties agree that if the restrictions of this Section 10 are determined by any court of competent jurisdiction, at the time of enforcement, to be unreasonable as to the duration, scope or area of restriction, then such restrictions should be applied only to such activities and territory and only for such period of time as the court determines to be reasonable in light of all circumstances then existing. 11. Remedies. The Executive hereby represents that the services to be performed by the Executive under the terms of this Agreement are of a special, unique, extraordinary, and intellectual character, which gives them a particular value, the breach of which cannot be reasonably or adequately compensated in damages in an action at law. The Executive expressly acknowledges and agrees that the Company shall be entitled to obtain, in addition to any other rights or remedies the Company may possess, injunctive or other equitable relief to prevent a prospective or continuing breach of any provision of this Agreement by the Executive. 12. Notices. All notices or other communications required or permitted by and among the parties shall be in writing and shall be deemed to have been given, delivered or made when delivered by hand or mailed by certified or registered mail, postage prepaid, return receipt requested, and addressed either as follows or in such other manner as a party may subsequently designate to the other party in writing: If to the Company, at: Colonial Downs Holdings, Inc.. Post Office Box 456 Providence Forge, Virginia 23140 If to the Executive, at: The Executive's address as shown on the personnel records of the Company. 13. Severability. In the event any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 14. Entire Agreement. This Agreement supersedes any other agreement, whether written or oral, that may have been made or entered into by the Executive and the Company relating to the matters contemplated hereby. This Agreement constitutes the entire agreement concerning the transaction contemplated herein and there are no agreements or commitments in relation to the subject matter hereof except as set forth herein. 15. Amendments. This Agreement may be amended or supplemented at any time only in writing as may mutually be determined by the parties to be necessary, desirable, or expedient to further the purposes of this Agreement, or to clarify the intention of the parties. 16. Applicable Law. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the substantive laws of the Commonwealth of Virginia, without giving effect to conflict of law provisions and principles thereof. 17. Interpretation. When the context in which words are used in this Agreement indicates that such is the intent, words in the singular number shall include the plural, and vice versa, and words in the masculine gender shall include the feminine and neuter genders, and vice versa. 18. Titles and Headings. Titles and headings to sections and paragraphs herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 19. Binding Effect. This Agreement shall be binding upon and enforceable against the Company and its successors and assigns. 20. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary to affect any such action shall be null, void and of no effect. 21. Survival of Certain Provisions. The obligations of the parties pursuant to Sections 9, 10, and 22 of this Agreement shall survive the termination of this Agreement. 22. Consent to Service and Jurisdiction. Executive consents and agrees that the Circuit Court of the City of Richmond, Virginia and the United States District Court for the Eastern District of Virginia, or at the option of the Company, any other court located in the Commonwealth of Virginia in which it shall initiate legal or equitable proceedings and which shall have subject matter jurisdiction over the matter in controversy, shall have exclusive jurisdiction to hear and determine any claims or disputes between the Company and the Executive pertaining directly or indirectly to this Agreement or to any matter arising therefrom. The Executive expressly submits and consents in advance to such jurisdiction in any action or proceeding commenced in any such court, hereby waiving personal service or process or other papers issued therein and agreeing that service of such process or other papers may be made by registered or certified mail to the Executive. 23. Acknowledgments. Executive acknowledges that he has read this Agreement in its entirety and understands each of the provisions contained in this Agreement. Executive acknowledges that the provisions of this Agreement are reasonable and represents that he will be able to engage in other activities for the purpose of earning a livelihood should the provisions of the Agreement be enforced. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date first above written. COMPANY: COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation By: ________________________________ O. James Peterson, III, President EXECUTIVE: ____________________________ Hugh Mellon EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is made as of March __, 1997, by and between COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation (the "Company"), and MICHAEL D. SALMON ("Executive") recites and provides as follows: WHEREAS, the Company is engaged in the business of seeking opportunities for horse racing and pari-mutuel wagering in Virginia, and its subsidiaries are currently the holders of the only unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia (the "Track") and the only entities authorized to apply for licenses to own and operate satellite wagering facilities ("SWF") in Virginia; WHEREAS, the Company desires to employ Executive as Controller of the Company; and WHEREAS, Executive desires to be so employed by Company on the terms and conditions hereinafter set forth; WHEREAS, through his relationship with the Company, the Executive will become acquainted with certain confidential or proprietary aspects of the Company's business, including without limitation, operating methods, marketing strategy, sponsorship and advertising agreements, design and layout of the Track facilities and potential sites for additional SWFs, and other confidential and proprietary information that constitute valuable assets of the Company and which the Company desires to protect. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company as Controller. 2. Duties of the Executive. As the Controller of the Company, the Executive shall faithfully serve the Company and shall at all times devote his full time, best efforts, skills, attention, and energies to the development, organization, management, and expansion of the Company's business to the utmost of the Executive's ability, and shall do and perform all such services, acts, and things connected therewith as are reasonably required and as the Company shall from time to time direct. The Executive shall not become engaged or involved in any activities or matters which may adversely affect or reflect discredit on the Company or its business, or conflict with his services to the Company. This Agreement shall not prohibit the Executive from investing personal assets in other businesses or entities that do not "compete" with the Company (as described in Section 11 of this Agreement). 3. Term. Subject to the provisions of Section 8 regarding termination, this Agreement shall remain in effect for a term of two (2) years beginning on the date hereof. This Agreement may be renewed and extended on terms and conditions mutually agreeable to the parties hereto. 4. Compensation. For all services rendered by the Executive pursuant to this Agreement, the Company shall pay the Executive a base salary of $60,000 per annum, payable in equal semi-monthly installments, or at such other times as may be mutually agreed upon by the parties. 5. Deductions. The Company is authorized to deduct from the actual compensation of the Executive such sums as may be required to be deducted or withheld under the provisions of any federal, state, or local law or regulation now in effect or hereafter put into effect during the term of this Agreement, including without limitation, social security, unemployment, and income withholding taxes. 6. Benefits. (a) The Executive shall be entitled to a paid vacation each year of two (2) weeks, the timing of which shall be subject to mutual agreement between the Company and the Executive. The Executive's attendance at trade shows, training, educational, and professional programs and meetings shall not be charged against Executive's vacation allowance. The Executive shall also be entitled to paid sick leave of five (5) days each year. (b) The Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by him in the performance of his duties hereunder. To be reimbursed, the Executive must submit written evidence of such expenses to the Company within thirty (30) days after incurring such expense. (c) The Executive shall receive such other benefits, if any, as the Company generally provides to all other Executives involved in the operations of the Company, whether now in effect or hereafter adopted, including group hospital and accidental insurance benefits and group disability insurance coverage. 7. Stock Options. In connection with Executive's employment hereunder, the Company will grant to the Executive stock options for an aggregate of 10,000 shares of Class A Common Stock (the "Stock") at an exercise price equal to the initial public offering price of the shares of Stock. Such options shall vest for 2,000 shares per year on each anniversary of the date hereof for five years. 8. Termination of Employment. (a) Upon the occurrence of any of the following events and the expiration of any required notice, this Agreement and the Executive's employment hereunder automatically shall terminate: (1) The death or bankruptcy of the Executive; (2) The Board of Director's termination of the Executive's employment at any time, "for cause" or not "for cause" (as defined below). This Agreement and the Executive's employment hereunder shall terminate upon the expiration of a period of thirty (30) days after delivery by the Company of written notice to the Executive of his termination. The phrase "for cause" shall include termination because of the Executive's personal dishonesty, incompetence, willful misconduct, censure or reprimand by any regulatory body (including the Virginia Racing Commission), breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), failure to perform assigned duties in a reasonably satisfactory manner, or material breach of any provision of this Agreement; (3) The expiration of a period of thirty (30) days after delivery by the Executive of written notice to the Company of his resignation as an Executive of the Company; or (4) The disability of the Executive. "Disability" shall mean a physical or mental disability that prevents the substantial performance by the Executive of his duties hereunder lasting for a continuous period of six (6) months or longer. The reasoned and good faith judgment of the Company's Board of Directors as to the Executive's disability shall be final and shall be based on such competent medical evidence as shall be presented to the Company's Board of Directors by the Executive or by any physician or group of physicians or other competent medical experts on behalf of the Executive and on behalf of the Company. (b) In the event the Executive voluntarily terminates his employment or has his employment terminated "for cause" under this Agreement, he shall be entitled to receive from the Company only the base salary and benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. (c) In the event the Company terminates the employment of Executive by reason of his disability, the Executive shall be entitled to receive from the Company only the base salary and benefits set forth herein that have accrued to the date of disability in full settlement of all of the Company's obligations hereunder. (d) In the event the Company terminates the employment of the Executive not "for cause", the Executive shall be entitled to three (3) months base salary as set forth herein and the benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. 9. Fiduciary Relationship. (a) The Executive as a Fiduciary. It is understood and agreed that the Executive will serve in a fiduciary capacity to the Company and, as such, will comply with the standards applicable to fiduciaries and other Executives of the Company. (b) Confidential Information and Trade Secrets. All information relating to or used in the business and operations of the Company (including, but not limited to, marketing plans, business procedures, trade secrets, patents, sources of supplies and materials, reports, memoranda, plans, documents, and the like), whether conceived, prepared, originated, developed or compiled by the Executive or by the Company prior to or during the term of this Agreement and the employment of the Executive (hereinafter "Confidential Information and Trade Secrets"), are and shall be confidential information and trade secrets which are the exclusive property of the Company, provided such information is not generally known in the horse racing industry. (c) Property of the Company. All Confidential Information and Trade Secrets as defined in this Section 9(b) are and shall be the exclusive property of the Company. (d) Nondisclosure of Confidential Information and Trade Secrets. Except in the regular course of his employment by the Company hereunder or as the Company may expressly authorize or direct in writing, the Executive shall not, during or after the termination or expiration of this Agreement, copy, reproduce, disclose or divulge to others, use or permit others to use any Confidential Information and Trade Secrets, or any records or materials relating to any such Confidential Information or Trade Secrets. The Executive further covenants and agrees that during the term of this Agreement he shall not remove from the custody and control of the Company any records of or materials relating to such Confidential Information and Trade Secrets and that upon the termination or expiration of his employment he shall deliver the same to the Company. 10. Covenant Not to Compete. (a) In consideration of the fees and benefits that he receives pursuant to this Agreement, during the term of this Agreement and for one (1) year thereafter, the Executive hereby covenants and agrees that he will not, without the prior written consent of the Company, either alone or in partnership with or in conjunction with any other person, firm, or corporation, whether as principal, agent, or shareholder (other than an entity in which Executive holds less than a five percent (5%) equity interest), directly or indirectly, participate, carry on, conduct, or be engaged in, or advise, any person, firm, corporation, or other legal entity carrying on or engaging in the horse racing business in Virginia, Maryland, West Virginia or North Carolina that competes with the business conducted by the Company on the date hereof. In addition, the Executive shall not seek to induce any of the Company' employees to leave the Company' employment to work for any entity with which he is affiliated. In addition, the Executive shall not solicit any sponsors or advertisers of the Company for the purpose of inducing, directly or indirectly, the termination of any sponsorship or advertising agreements. (b) The Executive recognizes that the Company's remedies at law may be inadequate to protect itself against a breach of this provision, and therefore agrees that injunctive or other equitable relief shall be an appropriate remedy for breach of this covenant not to compete, and shall be a remedy in addition to any and all other remedies available to the Company. (c) The parties agree that if the restrictions of this Section 10 are determined by any court of competent jurisdiction, at the time of enforcement, to be unreasonable as to the duration, scope or area of restriction, then such restrictions should be applied only to such activities and territory and only for such period of time as the court determines to be reasonable in light of all circumstances then existing. 11. Remedies. The Executive hereby represents that the services to be performed by the Executive under the terms of this Agreement are of a special, unique, extraordinary, and intellectual character, which gives them a particular value, the breach of which cannot be reasonably or adequately compensated in damages in an action at law. The Executive expressly acknowledges and agrees that the Company shall be entitled to obtain, in addition to any other rights or remedies the Company may possess, injunctive or other equitable relief to prevent a prospective or continuing breach of any provision of this Agreement by the Executive. 12. Notices. All notices or other communications required or permitted by and among the parties shall be in writing and shall be deemed to have been given, delivered or made when delivered by hand or mailed by certified or registered mail, postage prepaid, return receipt requested, and addressed either as follows or in such other manner as a party may subsequently designate to the other party in writing: If to the Company, at: Colonial Downs Holdings, Inc.. Post Office Box 456 Providence Forge, Virginia 23140 If to the Executive, at: The Executive's address as shown on the personnel records of the Company. 13. Severability. In the event any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 14. Entire Agreement. This Agreement supersedes any other agreement, whether written or oral, that may have been made or entered into by the Executive and the Company relating to the matters contemplated hereby. This Agreement constitutes the entire agreement concerning the transaction contemplated herein and there are no agreements or commitments in relation to the subject matter hereof except as set forth herein. 15. Amendments. This Agreement may be amended or supplemented at any time only in writing as may mutually be determined by the parties to be necessary, desirable, or expedient to further the purposes of this Agreement, or to clarify the intention of the parties. 16. Applicable Law. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the substantive laws of the Commonwealth of Virginia, without giving effect to conflict of law provisions and principles thereof. 17. Interpretation. When the context in which words are used in this Agreement indicates that such is the intent, words in the singular number shall include the plural, and vice versa, and words in the masculine gender shall include the feminine and neuter genders, and vice versa. 18. Titles and Headings. Titles and headings to sections and paragraphs herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 19. Binding Effect. This Agreement shall be binding upon and enforceable against the Company and its successors and assigns. 20. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary to affect any such action shall be null, void and of no effect. 21. Survival of Certain Provisions. The obligations of the parties pursuant to Sections 9, 10, and 22 of this Agreement shall survive the termination of this Agreement. 22. Consent to Service and Jurisdiction. Executive consents and agrees that the Circuit Court of the City of Richmond, Virginia and the United States District Court for the Eastern District of Virginia, or at the option of the Company, any other court located in the Commonwealth of Virginia in which it shall initiate legal or equitable proceedings and which shall have subject matter jurisdiction over the matter in controversy, shall have exclusive jurisdiction to hear and determine any claims or disputes between the Company and the Executive pertaining directly or indirectly to this Agreement or to any matter arising therefrom. The Executive expressly submits and consents in advance to such jurisdiction in any action or proceeding commenced in any such court, hereby waiving personal service or process or other papers issued therein and agreeing that service of such process or other papers may be made by registered or certified mail to the Executive. 23. Acknowledgments. Executive acknowledges that he has read this Agreement in its entirety and understands each of the provisions contained in this Agreement. Executive acknowledges that the provisions of this Agreement are reasonable and represents that he will be able to engage in other activities for the purpose of earning a livelihood should the provisions of the Agreement be enforced. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date first above written. COMPANY: COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation By: _________________________________ O. James Peterson, III, President EXECUTIVE: _________________________________ Michael D. Salmon EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is made as of March __, 1997, by and between COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation (the "Company"), and BRETT LEE STANSLEY ("Executive") recites and provides as follows: WHEREAS, the Company is engaged in the business of seeking opportunities for horse racing and pari-mutuel wagering in Virginia, and its subsidiaries are currently the holders of the only unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia (the "Track") and the only entities authorized to apply for licenses to own and operate satellite wagering facilities ("SWF") in Virginia; WHEREAS, the Company desires to employ Executive as Vice President of Administration of the Company; and WHEREAS, Executive desires to be so employed by Company on the terms and conditions hereinafter set forth; WHEREAS, through his relationship with the Company, the Executive will become acquainted with certain confidential or proprietary aspects of the Company's business, including without limitation, operating methods, marketing strategy, sponsorship and advertising agreements, design and layout of the Track facilities and potential sites for additional SWFs, and other confidential and proprietary information that constitute valuable assets of the Company and which the Company desires to protect. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company as Vice President of Administration. 2. Duties of the Executive. As the Vice President of Administration of the Company, the Executive shall faithfully serve the Company and shall at all times devote his full time, best efforts, skills, attention, and energies to the development, organization, management, and expansion of the Company's business to the utmost of the Executive's ability, and shall do and perform all such services, acts, and things connected therewith as are reasonably required and as the Company shall from time to time direct. The Executive shall not become engaged or involved in any activities or matters which may adversely affect or reflect discredit on the Company or its business, or conflict with his services to the Company. This Agreement shall not prohibit the Executive from investing personal assets in other businesses or entities that do not "compete" with the Company (as described in Section 11 of this Agreement). 3. Term. Subject to the provisions of Section 8 regarding termination, this Agreement shall remain in effect for a term of two (2) years beginning on the date hereof. This Agreement may be renewed and extended on terms and conditions mutually agreeable to the parties hereto. 4. Compensation. For all services rendered by the Executive pursuant to this Agreement, the Company shall pay the Executive a base salary of $75,000 per annum, payable in equal semi-monthly installments, or at such other times as may be mutually agreed upon by the parties. 5. Deductions. The Company is authorized to deduct from the actual compensation of the Executive such sums as may be required to be deducted or withheld under the provisions of any federal, state, or local law or regulation now in effect or hereafter put into effect during the term of this Agreement, including without limitation, social security, unemployment, and income withholding taxes. 6. Benefits. (a) The Executive shall be entitled to a paid vacation each year of two (2) weeks, the timing of which shall be subject to mutual agreement between the Company and the Executive. The Executive's attendance at trade shows, training, educational, and professional programs and meetings shall not be charged against Executive's vacation allowance. The Executive shall also be entitled to paid sick leave of five (5) days each year. (b) The Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by him in the performance of his duties hereunder. To be reimbursed, the Executive must submit written evidence of such expenses to the Company within thirty (30) days after incurring such expense. (c) The Executive shall receive such other benefits, if any, as the Company generally provides to all other Executives involved in the operations of the Company, whether now in effect or hereafter adopted, including group hospital and accidental insurance benefits and group disability insurance coverage. 7. Stock Options. In connection with Executive's employment hereunder, the Company will grant to the Executive stock options for an aggregate of 10,000 shares of Class A Common Stock (the "Stock") at an exercise price equal to the initial public offering price of the shares of Stock. Such options shall vest for 2,000 shares per year on each anniversary of the date hereof for five years. 8. Termination of Employment. (a) Upon the occurrence of any of the following events and the expiration of any required notice, this Agreement and the Executive's employment hereunder automatically shall terminate: (1) The death or bankruptcy of the Executive; (2) The Board of Director's termination of the Executive's employment at any time, "for cause" or not "for cause" (as defined below). This Agreement and the Executive's employment hereunder shall terminate upon the expiration of a period of thirty (30) days after delivery by the Company of written notice to the Executive of his termination. The phrase "for cause" shall include termination because of the Executive's personal dishonesty, incompetence, willful misconduct, censure or reprimand by any regulatory body (including the Virginia Racing Commission), breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), failure to perform assigned duties in a reasonably satisfactory manner, or material breach of any provision of this Agreement; (3) The expiration of a period of thirty (30) days after delivery by the Executive of written notice to the Company of his resignation as an Executive of the Company; or (4) The disability of the Executive. "Disability" shall mean a physical or mental disability that prevents the substantial performance by the Executive of his duties hereunder lasting for a continuous period of six (6) months or longer. The reasoned and good faith judgment of the Company's Board of Directors as to the Executive's disability shall be final and shall be based on such competent medical evidence as shall be presented to the Company's Board of Directors by the Executive or by any physician or group of physicians or other competent medical experts on behalf of the Executive and on behalf of the Company. (b) In the event the Executive voluntarily terminates his employment or has his employment terminated "for cause" under this Agreement, he shall be entitled to receive from the Company only the base salary and benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. (c) In the event the Company terminates the employment of Executive by reason of his disability, the Executive shall be entitled to receive from the Company only the base salary and benefits set forth herein that have accrued to the date of disability in full settlement of all of the Company's obligations hereunder. (d) In the event the Company terminates the employment of the Executive not "for cause", the Executive shall be entitled to three (3) months base salary as set forth herein and the benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. 9. Fiduciary Relationship. (a) The Executive as a Fiduciary. It is understood and agreed that the Executive will serve in a fiduciary capacity to the Company and, as such, will comply with the standards applicable to fiduciaries and other Executives of the Company. (b) Confidential Information and Trade Secrets. All information relating to or used in the business and operations of the Company (including, but not limited to, marketing plans, business procedures, trade secrets, patents, sources of supplies and materials, reports, memoranda, plans, documents, and the like), whether conceived, prepared, originated, developed or compiled by the Executive or by the Company prior to or during the term of this Agreement and the employment of the Executive (hereinafter "Confidential Information and Trade Secrets"), are and shall be confidential information and trade secrets which are the exclusive property of the Company, provided such information is not generally known in the horse racing industry. (c) Property of the Company. All Confidential Information and Trade Secrets as defined in this Section 9(b) are and shall be the exclusive property of the Company. (d) Nondisclosure of Confidential Information and Trade Secrets. Except in the regular course of his employment by the Company hereunder or as the Company may expressly authorize or direct in writing, the Executive shall not, during or after the termination or expiration of this Agreement, copy, reproduce, disclose or divulge to others, use or permit others to use any Confidential Information and Trade Secrets, or any records or materials relating to any such Confidential Information or Trade Secrets. The Executive further covenants and agrees that during the term of this Agreement he shall not remove from the custody and control of the Company any records of or materials relating to such Confidential Information and Trade Secrets and that upon the termination or expiration of his employment he shall deliver the same to the Company. 10. Covenant Not to Compete. (a) In consideration of the fees and benefits that he receives pursuant to this Agreement, during the term of this Agreement and for one (1) year thereafter, the Executive hereby covenants and agrees that he will not, without the prior written consent of the Company, either alone or in partnership with or in conjunction with any other person, firm, or corporation, whether as principal, agent, or shareholder (other than an entity in which Executive holds less than a five percent (5%) equity interest), directly or indirectly, participate, carry on, conduct, or be engaged in, or advise, any person, firm, corporation, or other legal entity carrying on or engaging in the horse racing business in Virginia, Maryland, West Virginia or North Carolina that competes with the business conducted by the Company on the date hereof. In addition, the Executive shall not seek to induce any of the Company' employees to leave the Company' employment to work for any entity with which he is affiliated. In addition, the Executive shall not solicit any sponsors or advertisers of the Company for the purpose of inducing, directly or indirectly, the termination of any sponsorship or advertising agreements. (b) The Executive recognizes that the Company's remedies at law may be inadequate to protect itself against a breach of this provision, and therefore agrees that injunctive or other equitable relief shall be an appropriate remedy for breach of this covenant not to compete, and shall be a remedy in addition to any and all other remedies available to the Company. (c) The parties agree that if the restrictions of this Section 10 are determined by any court of competent jurisdiction, at the time of enforcement, to be unreasonable as to the duration, scope or area of restriction, then such restrictions should be applied only to such activities and territory and only for such period of time as the court determines to be reasonable in light of all circumstances then existing. 11. Remedies. The Executive hereby represents that the services to be performed by the Executive under the terms of this Agreement are of a special, unique, extraordinary, and intellectual character, which gives them a particular value, the breach of which cannot be reasonably or adequately compensated in damages in an action at law. The Executive expressly acknowledges and agrees that the Company shall be entitled to obtain, in addition to any other rights or remedies the Company may possess, injunctive or other equitable relief to prevent a prospective or continuing breach of any provision of this Agreement by the Executive. 12. Notices. All notices or other communications required or permitted by and among the parties shall be in writing and shall be deemed to have been given, delivered or made when delivered by hand or mailed by certified or registered mail, postage prepaid, return receipt requested, and addressed either as follows or in such other manner as a party may subsequently designate to the other party in writing: If to the Company, at: Colonial Downs Holdings, Inc.. Post Office Box 456 Providence Forge, Virginia 23140 If to the Executive, at: The Executive's address as shown on the personnel records of the Company. 13. Severability. In the event any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 14. Entire Agreement. This Agreement supersedes any other agreement, whether written or oral, that may have been made or entered into by the Executive and the Company relating to the matters contemplated hereby. This Agreement constitutes the entire agreement concerning the transaction contemplated herein and there are no agreements or commitments in relation to the subject matter hereof except as set forth herein. 15. Amendments. This Agreement may be amended or supplemented at any time only in writing as may mutually be determined by the parties to be necessary, desirable, or expedient to further the purposes of this Agreement, or to clarify the intention of the parties. 16. Applicable Law. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the substantive laws of the Commonwealth of Virginia, without giving effect to conflict of law provisions and principles thereof. 17. Interpretation. When the context in which words are used in this Agreement indicates that such is the intent, words in the singular number shall include the plural, and vice versa, and words in the masculine gender shall include the feminine and neuter genders, and vice versa. 18. Titles and Headings. Titles and headings to sections and paragraphs herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 19. Binding Effect. This Agreement shall be binding upon and enforceable against the Company and its successors and assigns. 20. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary to affect any such action shall be null, void and of no effect. 21. Survival of Certain Provisions. The obligations of the parties pursuant to Sections 9, 10, and 22 of this Agreement shall survive the termination of this Agreement. 22. Consent to Service and Jurisdiction. Executive consents and agrees that the Circuit Court of the City of Richmond, Virginia and the United States District Court for the Eastern District of Virginia, or at the option of the Company, any other court located in the Commonwealth of Virginia in which it shall initiate legal or equitable proceedings and which shall have subject matter jurisdiction over the matter in controversy, shall have exclusive jurisdiction to hear and determine any claims or disputes between the Company and the Executive pertaining directly or indirectly to this Agreement or to any matter arising therefrom. The Executive expressly submits and consents in advance to such jurisdiction in any action or proceeding commenced in any such court, hereby waiving personal service or process or other papers issued therein and agreeing that service of such process or other papers may be made by registered or certified mail to the Executive. 23. Acknowledgments. Executive acknowledges that he has read this Agreement in its entirety and understands each of the provisions contained in this Agreement. Executive acknowledges that the provisions of this Agreement are reasonable and represents that he will be able to engage in other activities for the purpose of earning a livelihood should the provisions of the Agreement be enforced. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date first above written. COMPANY: COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation By: _________________________________ O. James Peterson, III, President EXECUTIVE: __________________________ Brett Lee Stansley EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is made as of March __, 1997, by and between COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation (the "Company"), and O. JAMES PETERSON, III ("Executive") recites and provides as follows: WHEREAS, the Company is engaged in the business of seeking opportunities for horse racing and pari-mutuel wagering in Virginia, and its subsidiaries are currently the holders of the only unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia (the "Track") and the only entities authorized to apply for licenses to own and operate satellite wagering facilities ("SWF") in Virginia; WHEREAS, the Company desires to employ Executive as President and Chief Operating Officer of the Company; and WHEREAS, Executive desires to be so employed by Company on the terms and conditions hereinafter set forth; WHEREAS, through his relationship with the Company, the Executive will become acquainted with certain confidential or proprietary aspects of the Company's business, including without limitation, operating methods, marketing strategy, sponsorship and advertising agreements, design and layout of the Track facilities and potential sites for additional SWFs, and other confidential and proprietary information that constitute valuable assets of the Company and which the Company desires to protect. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company as President and Chief Operating Officer. 2. Duties of the Executive. As the President and Chief Operating Officer of the Company, the Executive shall faithfully serve the Company and shall at all times devote his full time, best efforts, skills, attention, and energies to the development, organization, management, and expansion of the Company's business to the utmost of the Executive's ability, and shall do and perform all such services, acts, and things connected therewith as are reasonably required and as the Company shall from time to time direct. The Executive shall not become engaged or involved in any activities or matters which may adversely affect or reflect discredit on the Company or its business, or conflict with his services to the Company. This Agreement shall not prohibit the Executive from investing personal assets in other businesses or entities that do not "compete" with the Company (as described in Section 11 of this Agreement). 3. Term. Subject to the provisions of Section 8 regarding termination, this Agreement shall remain in effect for a term of two (2) years beginning on the date hereof. This Agreement may be renewed and extended on terms and conditions mutually agreeable to the parties hereto. 4. Compensation. For all services rendered by the Executive pursuant to this Agreement, the Company shall pay the Executive a base salary of $200,000 per annum, payable in equal semi-monthly installments, or at such other times as may be mutually agreed upon by the parties. 5. Deductions. The Company is authorized to deduct from the actual compensation of the Executive such sums as may be required to be deducted or withheld under the provisions of any federal, state, or local law or regulation now in effect or hereafter put into effect during the term of this Agreement, including without limitation, social security, unemployment, and income withholding taxes. 6. Benefits. (a) The Executive shall be entitled to a paid vacation each year of two (2) weeks, the timing of which shall be subject to mutual agreement between the Company and the Executive. The Executive's attendance at trade shows, training, educational, and professional programs and meetings shall not be charged against Executive's vacation allowance. The Executive shall also be entitled to paid sick leave of five (5) days each year. (b) The Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by him in the performance of his duties hereunder. To be reimbursed, the Executive must submit written evidence of such expenses to the Company within thirty (30) days after incurring such expense. (c) The Executive shall receive such other benefits, if any, as the Company generally provides to all other Executives involved in the operations of the Company, whether now in effect or hereafter adopted, including group hospital and accidental insurance benefits and group disability insurance coverage. 7. Stock Options. In connection with Executive's employment hereunder, the Company will grant to the Executive stock options for an aggregate of 60,000 shares of Class A Common Stock (the "Stock") at an exercise price equal to 105% of the initial public offering price of the shares of Stock. Such options shall vest for 30,000 shares per year on each anniversary of the date hereof for five years and shall be exerciseable on and after January 2, 2002. 8. Termination of Employment. (a) Upon the occurrence of any of the following events and the expiration of any required notice, this Agreement and the Executive's employment hereunder automatically shall terminate: (1) The death or bankruptcy of the Executive; (2) The Board of Director's termination of the Executive's employment at any time, "for cause" or not "for cause" (as defined below). This Agreement and the Executive's employment hereunder shall terminate upon the expiration of a period of thirty (30) days after delivery by the Company of written notice to the Executive of his termination. The phrase "for cause" shall include termination because of the Executive's personal dishonesty, incompetence, willful misconduct, censure or reprimand by any regulatory body (including the Virginia Racing Commission), breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), failure to perform assigned duties in a reasonably satisfactory manner, or material breach of any provision of this Agreement; (3) The expiration of a period of thirty (30) days after delivery by the Executive of written notice to the Company of his resignation as an Executive of the Company; or (4) The disability of the Executive. "Disability" shall mean a physical or mental disability that prevents the substantial performance by the Executive of his duties hereunder lasting for a continuous period of six (6) months or longer. The reasoned and good faith judgment of the Company's Board of Directors as to the Executive's disability shall be final and shall be based on such competent medical evidence as shall be presented to the Company's Board of Directors by the Executive or by any physician or group of physicians or other competent medical experts on behalf of the Executive and on behalf of the Company. (b) In the event the Executive voluntarily terminates his employment or has his employment terminated "for cause" under this Agreement, he shall be entitled to receive from the Company only the base salary and benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. (c) In the event the Company terminates the employment of Executive by reason of his disability, the Executive shall be entitled to receive from the Company only the base salary and benefits set forth herein that have accrued to the date of disability in full settlement of all of the Company's obligations hereunder. (d) In the event the Company terminates the employment of the Executive not "for cause", the Executive shall be entitled to three (3) months base salary as set forth herein and the benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. 9. Fiduciary Relationship. (a) The Executive as a Fiduciary. It is understood and agreed that the Executive will serve in a fiduciary capacity to the Company and, as such, will comply with the standards applicable to fiduciaries and other Executives of the Company. (b) Confidential Information and Trade Secrets. All information relating to or used in the business and operations of the Company (including, but not limited to, marketing plans, business procedures, trade secrets, patents, sources of supplies and materials, reports, memoranda, plans, documents, and the like), whether conceived, prepared, originated, developed or compiled by the Executive or by the Company prior to or during the term of this Agreement and the employment of the Executive (hereinafter "Confidential Information and Trade Secrets"), are and shall be confidential information and trade secrets which are the exclusive property of the Company, provided such information is not generally known in the horse racing industry. (c) Property of the Company. All Confidential Information and Trade Secrets as defined in this Section 9(b) are and shall be the exclusive property of the Company. (d) Nondisclosure of Confidential Information and Trade Secrets. Except in the regular course of his employment by the Company hereunder or as the Company may expressly authorize or direct in writing, the Executive shall not, during or after the termination or expiration of this Agreement, copy, reproduce, disclose or divulge to others, use or permit others to use any Confidential Information and Trade Secrets, or any records or materials relating to any such Confidential Information or Trade Secrets. The Executive further covenants and agrees that during the term of this Agreement he shall not remove from the custody and control of the Company any records of or materials relating to such Confidential Information and Trade Secrets and that upon the termination or expiration of his employment he shall deliver the same to the Company. 10. Covenant Not to Compete. (a) In consideration of the fees and benefits that he receives pursuant to this Agreement, during the term of this Agreement and for one (1) year thereafter, the Executive hereby covenants and agrees that he will not, without the prior written consent of the Company, either alone or in partnership with or in conjunction with any other person, firm, or corporation, whether as principal, agent, or shareholder (other than an entity in which Executive holds less than a five percent (5%) equity interest), directly or indirectly, participate, carry on, conduct, or be engaged in, or advise, any person, firm, corporation, or other legal entity carrying on or engaging in the horse racing business in Virginia, Maryland, West Virginia or North Carolina that competes with the business conducted by the Company on the date hereof. In addition, the Executive shall not seek to induce any of the Company' employees to leave the Company' employment to work for any entity with which he is affiliated. In addition, the Executive shall not solicit any sponsors or advertisers of the Company for the purpose of inducing, directly or indirectly, the termination of any sponsorship or advertising agreements. (b) The Executive recognizes that the Company's remedies at law may be inadequate to protect itself against a breach of this provision, and therefore agrees that injunctive or other equitable relief shall be an appropriate remedy for breach of this covenant not to compete, and shall be a remedy in addition to any and all other remedies available to the Company. (c) The parties agree that if the restrictions of this Section 10 are determined by any court of competent jurisdiction, at the time of enforcement, to be unreasonable as to the duration, scope or area of restriction, then such restrictions should be applied only to such activities and territory and only for such period of time as the court determines to be reasonable in light of all circumstances then existing. 11. Remedies. The Executive hereby represents that the services to be performed by the Executive under the terms of this Agreement are of a special, unique, extraordinary, and intellectual character, which gives them a particular value, the breach of which cannot be reasonably or adequately compensated in damages in an action at law. The Executive expressly acknowledges and agrees that the Company shall be entitled to obtain, in addition to any other rights or remedies the Company may possess, injunctive or other equitable relief to prevent a prospective or continuing breach of any provision of this Agreement by the Executive. 12. Notices. All notices or other communications required or permitted by and among the parties shall be in writing and shall be deemed to have been given, delivered or made when delivered by hand or mailed by certified or registered mail, postage prepaid, return receipt requested, and addressed either as follows or in such other manner as a party may subsequently designate to the other party in writing: If to the Company, at: Colonial Downs Holdings, Inc.. Post Office Box 456 Providence Forge, Virginia 23140 If to the Executive, at: The Executive's address as shown on the personnel records of the Company. 13. Severability. In the event any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 14. Entire Agreement. This Agreement supersedes any other agreement, whether written or oral, that may have been made or entered into by the Executive and the Company relating to the matters contemplated hereby. This Agreement constitutes the entire agreement concerning the transaction contemplated herein and there are no agreements or commitments in relation to the subject matter hereof except as set forth herein. 15. Amendments. This Agreement may be amended or supplemented at any time only in writing as may mutually be determined by the parties to be necessary, desirable, or expedient to further the purposes of this Agreement, or to clarify the intention of the parties. 16. Applicable Law. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the substantive laws of the Commonwealth of Virginia, without giving effect to conflict of law provisions and principles thereof. 17. Interpretation. When the context in which words are used in this Agreement indicates that such is the intent, words in the singular number shall include the plural, and vice versa, and words in the masculine gender shall include the feminine and neuter genders, and vice versa. 18. Titles and Headings. Titles and headings to sections and paragraphs herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 19. Binding Effect. This Agreement shall be binding upon and enforceable against the Company and its successors and assigns. 20. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary to affect any such action shall be null, void and of no effect. 21. Survival of Certain Provisions. The obligations of the parties pursuant to Sections 9, 10, and 22 of this Agreement shall survive the termination of this Agreement. 22. Consent to Service and Jurisdiction. Executive consents and agrees that the Circuit Court of the City of Richmond, Virginia and the United States District Court for the Eastern District of Virginia, or at the option of the Company, any other court located in the Commonwealth of Virginia in which it shall initiate legal or equitable proceedings and which shall have subject matter jurisdiction over the matter in controversy, shall have exclusive jurisdiction to hear and determine any claims or disputes between the Company and the Executive pertaining directly or indirectly to this Agreement or to any matter arising therefrom. The Executive expressly submits and consents in advance to such jurisdiction in any action or proceeding commenced in any such court, hereby waiving personal service or process or other papers issued therein and agreeing that service of such process or other papers may be made by registered or certified mail to the Executive. 23. Acknowledgments. Executive acknowledges that he has read this Agreement in its entirety and understands each of the provisions contained in this Agreement. Executive acknowledges that the provisions of this Agreement are reasonable and represents that he will be able to engage in other activities for the purpose of earning a livelihood should the provisions of the Agreement be enforced. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date first above written. COMPANY: COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation By: __________________________________ Jeffrey P. Jacobs, Chairman of the Board EXECUTIVE: _________________________________ O. James Peterson, III EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT, is made as of March __, 1997, by and between COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation (the "Company"), and JEFFREY P. JACOBS ("Executive") recites and provides as follows: WHEREAS, the Company is engaged in the business of seeking opportunities for horse racing and pari-mutuel wagering in Virginia, and its subsidiaries are currently the holders of the only unlimited licenses to own and operate a horse racetrack with pari-mutuel wagering in Virginia (the "Track") and the only entities authorized to apply for licenses to own and operate satellite wagering facilities ("SWF") in Virginia; WHEREAS, the Company desires to employ Executive as Chairman of the Board and Chief Executive Officer of the Company; and WHEREAS, Executive desires to be so employed by Company on the terms and conditions hereinafter set forth; WHEREAS, through his relationship with the Company, the Executive will become acquainted with certain confidential or proprietary aspects of the Company's business, including without limitation, operating methods, marketing strategy, sponsorship and advertising agreements, design and layout of the Track facilities and potential sites for additional SWFs, and other confidential and proprietary information that constitute valuable assets of the Company and which the Company desires to protect. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment. The Company hereby employs the Executive, and the Executive hereby accepts employment with the Company as Chairman of the Board and Chief Executive Officer of the Company. 2. Duties of the Executive. As the Chairman of the Board and Chief Executive Officer of the Company, the Executive shall faithfully serve the Company and shall devote such time, effort, skills, attention, and energies as is reasonably necessary to, but not less than one-third of his full time to the development, organization, management, and expansion of the Company's business to the utmost of the Executive's ability, and shall do and perform all such services, acts, and things connected therewith as are reasonably required and as the Company shall from time to time direct. The Executive shall not become engaged or involved in any activities or matters which may adversely affect or reflect discredit on the Company or its business, or conflict with his services to the Company. This Agreement shall not prohibit the Executive from investing personal assets in other businesses or entities that do not "compete" with the Company (as described in Section 11 of this Agreement). 3. Term. Subject to the provisions of Section 8 regarding termination, this Agreement shall remain in effect for a term of two (2) years beginning on the date hereof. This Agreement may be renewed and extended on terms and conditions mutually agreeable to the parties hereto. 4. Compensation. For all services rendered by the Executive pursuant to this Agreement, the Company shall pay the Executive a base salary of $120,000 per annum, payable in equal semi-monthly installments, or at such other times as may be mutually agreed upon by the parties. 5. Deductions. The Company is authorized to deduct from the actual compensation of the Executive such sums as may be required to be deducted or withheld under the provisions of any federal, state, or local law or regulation now in effect or hereafter put into effect during the term of this Agreement, including without limitation, social security, unemployment, and income withholding taxes. 6. Benefits. (a) The Executive shall be entitled to a paid vacation each year of two (2) weeks, the timing of which shall be subject to mutual agreement between the Company and the Executive. The Executive's attendance at trade shows, training, educational, and professional programs and meetings shall not be charged against Executive's vacation allowance. The Executive shall also be entitled to paid sick leave of five (5) days each year. (b) The Company shall reimburse the Executive for all expenses reasonably and necessarily incurred by him in the performance of his duties hereunder. To be reimbursed, the Executive must submit written evidence of such expenses to the Company within thirty (30) days after incurring such expense. (c) The Executive shall receive such other benefits, if any, as the Company generally provides to all other Executives involved in the operations of the Company, whether now in effect or hereafter adopted, including group hospital and accidental insurance benefits and group disability insurance coverage. 7. Stock Options. In connection with Executive's employment hereunder, the Company will grant to the Executive stock options for an aggregate of 20,000 shares of Class A Common Stock (the "Stock") at an exercise price equal to the initial public offering price of the shares of Stock. Such options shall vest for 4,000 shares per year on each anniversary of the date hereof for five years. 8. Termination of Employment. (a) Upon the occurrence of any of the following events and the expiration of any required notice, this Agreement and the Executive's employment hereunder automatically shall terminate: (1) The death or bankruptcy of the Executive; (2) The Board of Director's termination of the Executive's employment at any time, "for cause" or not "for cause" (as defined below). This Agreement and the Executive's employment hereunder shall terminate upon the expiration of a period of thirty (30) days after delivery by the Company of written notice to the Executive of his termination. The phrase "for cause" shall include termination because of the Executive's personal dishonesty, incompetence, willful misconduct, censure or reprimand by any regulatory body (including the Virginia Racing Commission), breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), failure to perform assigned duties in a reasonably satisfactory manner, or material breach of any provision of this Agreement; (3) The expiration of a period of thirty (30) days after delivery by the Executive of written notice to the Company of his resignation as an Executive of the Company; or (4) The disability of the Executive. "Disability" shall mean a physical or mental disability that prevents the substantial performance by the Executive of his duties hereunder lasting for a continuous period of six (6) months or longer. The reasoned and good faith judgment of the Company's Board of Directors as to the Executive's disability shall be final and shall be based on such competent medical evidence as shall be presented to the Company's Board of Directors by the Executive or by any physician or group of physicians or other competent medical experts on behalf of the Executive and on behalf of the Company. (b) In the event the Executive voluntarily terminates his employment or has his employment terminated "for cause" under this Agreement, he shall be entitled to receive from the Company only the base salary and benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. (c) In the event the Company terminates the employment of Executive by reason of his disability, the Executive shall be entitled to receive from the Company only the base salary and benefits set forth herein that have accrued to the date of disability in full settlement of all of the Company's obligations hereunder. (d) In the event the Company terminates the employment of the Executive not "for cause", the Executive shall be entitled to three (3) months base salary as set forth herein and the benefits as set forth herein that have accrued to the date of termination in full settlement of all of the Company's obligations hereunder. 9. Fiduciary Relationship. (a) The Executive as a Fiduciary. It is understood and agreed that the Executive will serve in a fiduciary capacity to the Company and, as such, will comply with the standards applicable to fiduciaries and other Executives of the Company. (b) Confidential Information and Trade Secrets. All information relating to or used in the business and operations of the Company (including, but not limited to, marketing plans, business procedures, trade secrets, patents, sources of supplies and materials, reports, memoranda, plans, documents, and the like), whether conceived, prepared, originated, developed or compiled by the Executive or by the Company prior to or during the term of this Agreement and the employment of the Executive (hereinafter "Confidential Information and Trade Secrets"), are and shall be confidential information and trade secrets which are the exclusive property of the Company, provided such information is not generally known in the horse racing industry. (c) Property of the Company. All Confidential Information and Trade Secrets as defined in this Section 9(b) are and shall be the exclusive property of the Company. (d) Nondisclosure of Confidential Information and Trade Secrets. Except in the regular course of his employment by the Company hereunder or as the Company may expressly authorize or direct in writing, the Executive shall not, during or after the termination or expiration of this Agreement, copy, reproduce, disclose or divulge to others, use or permit others to use any Confidential Information and Trade Secrets, or any records or materials relating to any such Confidential Information or Trade Secrets. The Executive further covenants and agrees that during the term of this Agreement he shall not remove from the custody and control of the Company any records of or materials relating to such Confidential Information and Trade Secrets and that upon the termination or expiration of his employment he shall deliver the same to the Company. 10. Covenant Not to Compete. (a) In consideration of the fees and benefits that he receives pursuant to this Agreement, during the term of this Agreement and for one (1) year thereafter, the Executive hereby covenants and agrees that he will not, without the prior written consent of the Company, either alone or in partnership with or in conjunction with any other person, firm, or corporation, whether as principal, agent, or shareholder (other than an entity in which Executive holds less than a five percent (5%) equity interest), directly or indirectly, participate, carry on, conduct, or be engaged in, or advise, any person, firm, corporation, or other legal entity carrying on or engaging in the horse racing business in Virginia, Maryland, West Virginia or North Carolina that competes with the business conducted by the Company on the date hereof. In addition, the Executive shall not seek to induce any of the Company' employees to leave the Company' employment to work for any entity with which he is affiliated. In addition, the Executive shall not solicit any sponsors or advertisers of the Company for the purpose of inducing, directly or indirectly, the termination of any sponsorship or advertising agreements. (b) The Executive recognizes that the Company's remedies at law may be inadequate to protect itself against a breach of this provision, and therefore agrees that injunctive or other equitable relief shall be an appropriate remedy for breach of this covenant not to compete, and shall be a remedy in addition to any and all other remedies available to the Company. (c) The parties agree that if the restrictions of this Section 10 are determined by any court of competent jurisdiction, at the time of enforcement, to be unreasonable as to the duration, scope or area of restriction, then such restrictions should be applied only to such activities and territory and only for such period of time as the court determines to be reasonable in light of all circumstances then existing. 11. Remedies. The Executive hereby represents that the services to be performed by the Executive under the terms of this Agreement are of a special, unique, extraordinary, and intellectual character, which gives them a particular value, the breach of which cannot be reasonably or adequately compensated in damages in an action at law. The Executive expressly acknowledges and agrees that the Company shall be entitled to obtain, in addition to any other rights or remedies the Company may possess, injunctive or other equitable relief to prevent a prospective or continuing breach of any provision of this Agreement by the Executive. 12. Notices. All notices or other communications required or permitted by and among the parties shall be in writing and shall be deemed to have been given, delivered or made when delivered by hand or mailed by certified or registered mail, postage prepaid, return receipt requested, and addressed either as follows or in such other manner as a party may subsequently designate to the other party in writing: If to the Company, at: Colonial Downs Holdings, Inc.. Post Office Box 456 Providence Forge, Virginia 23140 If to the Executive, at: The Executive's address as shown on the personnel records of the Company. 13. Severability. In the event any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein. 14. Entire Agreement. This Agreement supersedes any other agreement, whether written or oral, that may have been made or entered into by the Executive and the Company relating to the matters contemplated hereby. This Agreement constitutes the entire agreement concerning the transaction contemplated herein and there are no agreements or commitments in relation to the subject matter hereof except as set forth herein. 15. Amendments. This Agreement may be amended or supplemented at any time only in writing as may mutually be determined by the parties to be necessary, desirable, or expedient to further the purposes of this Agreement, or to clarify the intention of the parties. 16. Applicable Law. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the substantive laws of the Commonwealth of Virginia, without giving effect to conflict of law provisions and principles thereof. 17. Interpretation. When the context in which words are used in this Agreement indicates that such is the intent, words in the singular number shall include the plural, and vice versa, and words in the masculine gender shall include the feminine and neuter genders, and vice versa. 18. Titles and Headings. Titles and headings to sections and paragraphs herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 19. Binding Effect. This Agreement shall be binding upon and enforceable against the Company and its successors and assigns. 20. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary to affect any such action shall be null, void and of no effect. 21. Survival of Certain Provisions. The obligations of the parties pursuant to Sections 9, 10, and 22 of this Agreement shall survive the termination of this Agreement. 22. Consent to Service and Jurisdiction. Executive consents and agrees that the Circuit Court of the City of Richmond, Virginia and the United States District Court for the Eastern District of Virginia, or at the option of the Company, any other court located in the Commonwealth of Virginia in which it shall initiate legal or equitable proceedings and which shall have subject matter jurisdiction over the matter in controversy, shall have exclusive jurisdiction to hear and determine any claims or disputes between the Company and the Executive pertaining directly or indirectly to this Agreement or to any matter arising therefrom. The Executive expressly submits and consents in advance to such jurisdiction in any action or proceeding commenced in any such court, hereby waiving personal service or process or other papers issued therein and agreeing that service of such process or other papers may be made by registered or certified mail to the Executive. 23. Acknowledgments. Executive acknowledges that he has read this Agreement in its entirety and understands each of the provisions contained in this Agreement. Executive acknowledges that the provisions of this Agreement are reasonable and represents that he will be able to engage in other activities for the purpose of earning a livelihood should the provisions of the Agreement be enforced. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date first above written. COMPANY: COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation By: _________________________________ O. James Peterson, III, President EXECUTIVE: ________________________________ Jeffrey P. Jacobs EX-10.12 12 AMENDED AND RESTATED PROMISORY NOTE AMENDED AND RESTATED PROMISSORY NOTE $3,500,000 March __, 1997 New Kent County, Virginia FOR VALUE RECEIVED, the undersigned, Colonial Downs, L.P., a Virginia limited partnership ("Maker"), promises to pay, without offset, to the order of CD Entertainment Ltd., an Ohio limited liability company doing business in Virginia as CD Entertainment, Ltd. L.L.C., or its affiliate as may be designated in writing (collectively, "Noteholder"), at 1231 Main Avenue, Cleveland, Ohio 44113, or at such other place as Noteholder may designate in writing the principal sum of Three Million Five Hundred Thousand Dollars ($3,500,000) (or that portion of it advanced by Noteholder), together with interest on the indebtedness evidenced by this Note as hereinafter provided. Three Million ($3,000,000) of the indebtedness evidence hereby was advanced by the Noteholder to the Maker by Promissory Note, dated July 14, 1996, which this Note amends and restates in its entirety. 1. Interest, Fees and Payment (a) The outstanding principal indebtedness as evidenced by the Note shall accrue interest from the date hereof or from the date of advance, as the case may be, until paid in full at a variable rate per annum equal to the rate of interest charged under that certain Credit Agreement dated as of July 26, 1995 (the "Credit Agreement") by and between First Bank National Association and the "Borrower" thereunder. Currently, said interest rate is Libor plus 2%. Interest rate changes will be effective for interest computation purposes as and when the interest rate changes under the Credit Agreement. Interest accrued on the Note shall be due and payable on the 1st day of each month commencing with the month following the date of advance and until the Maturity Date (as hereinafter defined). (b) Both the principal and interest hereof shall be payable in lawful money of the United States of America and immediately available funds to the Noteholder at the address of Noteholder as set forth below. The principal of this Note and all accrued but unpaid interest thereof shall be due and payable in full upon the closing of a $10,000,000.00 construction loan from PNC Bank, National Association, or Diversified Opportunities Group Ltd., to Colonial Downs Holdings, Inc. (such date being referred to as the "Maturity Date"). (c) In addition to the payment of interest and principal due hereunder, Maker shall also pay to the Noteholder any and all fees, costs and expenses incurred by the Noteholder under the Credit Agreement by virtue of making the loan evidenced by this Note. Noteholder shall provide Maker with a monthly statement indicating the amount of any interest then due and payable together with a summary of any such fees, costs and expenses. 2. Prepayment; Default (a) Maker shall have the right from time to time to prepay all or any portion of the unpaid principal hereof prior to demand, without premium of penalty, by paying the principal amounts of such prepayment and any interest thereon accrued to the date of such prepayment. (b) If default by the Maker in the payment of the indebtedness evidenced hereby when and as the same shall become due and payable shall occur, the unpaid principal and accrued interest thereon shall after the time of such default and until paid in full bear interest at the rate of 18% per annum. 3. Miscellaneous (a) No delay or omission by the Noteholder in exercising any rights or power hereunder shall impair such right or power or be a waiver of any default or an acquiescence therein. Any single or partial exercise of any such right or power shall not preclude any other or further exercise thereof or the exercise of any other right or power. No waiver shall be valid unless in writing, signed by the Noteholder, and then only to the extent specifically set forth in such writing. All remedies hereunder or by law afforded shall be cumulative and shall be available to the Noteholder until the indebtedness evidenced hereby shall be paid in full. (b) All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by messenger, transmitted by telex or telecopier (with receipt confirmed), or (in the case of domestic communications) mailed by registered or certified mail, postage prepaid or sent by overnight courier, as follows: (i) If to the Noteholder: At the most recent address provided in writing by the Noteholder to the Maker (ii) If to the Maker: Colonial Downs, L.P. 5700 Telegraph Road Toledo, Ohio 43612 (c) This Note may be assigned by the Noteholder to an entity owned or controlled by the Noteholder or Jeffrey P. Jacobs or an affiliate of either. Except as set forth above, this Note may not be assigned by either party without the prior written consent of the other party. (d) This Note shall be governed by and construed under the laws of the Commonwealth of Virginia. COLONIAL DOWNS, L.P. By: Stansley Racing Corp., general partner By: _____________________ EX-10.13 13 AGREEMENT FOR INTERIM FINANCING Exhibit 10.13 AGREEMENT FOR INTERIM FINANCING FOR COLONIAL DOWNS, L.P. THIS AGREEMENT ("Agreement") is made and entered into as of the 27th day of February, 1997 by and among CD ENTERTAINMENT LTD., an Ohio limited liability company ("CD"), and STANSLEY MANAGEMENT CORP. ("SMC"), a Virginia corporation, ARNOLD W. STANSLEY ("Stansley") and JAMES H. LEADBETTER ("Leadbetter"). RECITALS A. CD and SMC are parties to a certain Second Amended and Restated Partnership Agreement, dated as of July 14, 1996, and a First Amendment to Second Amended and Restated Partnership Agreement, also dated as of July 14, 1996 (collectively, the "Partnership Agreement"), as all of the partners of Colonial Downs, L.P., a Virginia limited partnership (the "Partnership"). B. CD and SMC also are party to an Agreement, dated July 14, 1996 (the "Provisional Financing Agreement"), that memorializes their agreement regarding (i) the conversion of certain loans from CD to the Partnership, (ii) the terms of a loan from CD to the Partnership for the acquisition and renovation of the Richmond satellite wagering facility, (iii) the Construction Contract between Norglass, Inc. and the Partnership, and (iv) certain additional loans to be made by SMC and CD to the Partnership. C. CD and SMC also are party to an Agreement, dated August 8, 1996 (the "Permanent Financing Agreement"), that memorialize their agreements regarding (i) obtaining debt and equity financing for the Partnership, (ii) the future conduct of the business of the Partnership, and (iii) the relationship of its partners. D. CD and SMC desire to memorialize their agreement regarding interim financing to be provided to the Partnership prior to the closing of the Offering and the Credit Facility as described in the Registration Statement (as defined herein) (the "Permanent Financing"). E. In connection with, and immediately prior to, the closing of the Permanent Financing, the Partnership will be reorganized (the "Reorganization"); a new holding company ("Holdings") will be established; and, through merger or exchange, Holdings will acquire, directly or indirectly, all of the interests in the Partnership and Stansley Racing Corp. (Holdings, together with its subsidiaries, is collectively hereinafter referred to as, "Colonial Downs"). F. CD and SMC also have agreed that Holdings shall conduct an initial public offering of its stock, as described in a registration statement on Form S-1 filed with the Securities and Exchange Commission on December 19, 1996, as amended by amendments filed on February 14, 1997 and February 21, 1997 (the "Registration Statement"). G. CD, Stansley and Leadbetter desire to memorialize their agreement regarding certain transfers of stock in Holdings. H. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Partnership Agreement. AGREEMENTS NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Sources and Uses of Funds. (a) The parties agree that until the closing of the Permanent Financing, Colonial Downs shall require additional funds to continue construction of the racetrack, expand its network of satellite wagering facilities, finance transactional costs associated with the Permanent Financing, pay overhead expenses and meet other similar costs. CD agrees to make available to Colonial Downs up to $10,000,000, including all equity contributions and loans made to date. Other than CD's $2,000,000 equity contributions, the outstanding balance of CD's loans to Colonial Downs shall be paid in part from the proceeds of the Offering and $3.5 million shall be paid from the proceeds of the Credit Facility. CD will provide letters of credit required to secure Colonial Downs' obligations to fund certain purse accounts pursuant to agreements with the Virginia Horsemen's Benevolent and Protective Association, Inc. ("VaHBPA") and the Virginia Harness Horse Association ("VHHA"). The amount of such letters of credit shall be deducted from the $10,000,000 commitment hereunder. CD's letters of credit shall be released upon the funding of the VaHBPA and VHHA purse accounts. (b) SMC and its shareholders shall have no further obligation to make loans to Colonial Downs and are specifically released from the obligations specified in paragraph 9 of the Provisional Financing Agreement to guarantee additional loans to Colonial Downs. (c) SMC's shareholders will remain obligated for letters of credit aggregating $200,000 currently issued to secure erosion control obligations of Colonial Downs in New Kent County, Virginia and the letters of credit aggregating $1,000,000 securing Colonial Downs' Performance Guarantee to the Virginia Racing Commission. Upon the closing of the Offering, (i) SMC's shareholders will be relieved by Colonial Downs of any further obligations for the foregoing letters of credit, if not released prior to the Offering, and (ii) Colonial Downs shall pay directly or reimburse SMC's shareholders for any letter of credit fees or other expenses of maintaining or renewing such letters of credit for the erosion control obligations of Colonial Downs or the Performance Guarantee. 2 (d) CD's loans in excess of its equity contributions and loan evidenced by a Promissory Note in the amount of $3,000,000, dated July 14, 1996, shall be memorialized by a credit line promissory note containing customary and usual terms and conditions and providing for an interest rate equal to CD's cost of funds rate, which is currently estimated to be LIBOR plus 3% per annum. The loan shall be repaid from the proceeds of the Offering, provided that at least $3.5 million of CD's loans shall remain outstanding until the closing of the Credit Facility. (e) No shareholder of Holdings shall have any personal obligation or liability with respect to the repayment of loans to CD, the release of SMC's shareholders from letters of credit, or the reimbursement of SMC's shareholders for expenses incurred in connection with such letters of credit. 2. Approval of Construction Expenditures. Expenses not made in the ordinary course of business and single expenditures in excess of $10,000 for construction at the racetrack, the Richmond satellite wagering facility, the Hampton satellite wagering facility or other facility shall be subject to the prior written approval of either Bob Hughes or Dave Grunenwald as agents of CD. 3. Timing of the Reorganization. The parties agree that the Reorganization shall not occur until immediately prior to the closing of the Offering and only with the consent of the parties hereto, which consent will not be unreasonably withheld, delayed, or conditioned. 4. Additional Loans to Colonial Downs. Immediately prior to the closing of the Offering, CD will make available to Colonial Downs a subordinated loan in the amount of $5,500,000 secured by a second deed of trust on Colonial Downs' real estate in New Kent County, Virginia. The interest rate for such loan shall be CD's cost of funds and shall have a term of three (3) years. The loan shall be evidenced by a promissory note containing customary and usual terms and conditions; and shall be secured by assets of Colonial Downs to the extent permitted by Colonial Downs' senior lenders. Such loan shall be subordinated to the Credit Facility as Colonial Downs' senior lenders may require (including extending the term thereof to a scheduled maturity occurring after the stated maturity of the Credit Facility). 5. Amendment of Prior Documents. (a) The Partnership Agreement is amended by (i) deleting the first sentence of Section 2.2 in its entirety and replacing it with the following: "CD has agreed to make a cash Capital Contribution to the Partnership of $2,000,000" and (ii) by deleting Section 2.8 in its entirety and replacing it with the following: "Intentionally Omitted." (b) Section 6(a) of the Permanent Finance Agreement is deleted in its entirety and replaced with the following: 3 Arnold W. Stansley ("Stansley") shall be relieved of all responsibility for day-to-day operations of Colonial Downs. Colonial Downs shall enter into a consulting agreement with Stansley for a term of five (5) years at $75,000 per year and containing such other terms as are mutually agreeable to CD and Stansley. Additionally, Mr. Stansley shall receive such director fees and travel allowances as are afforded other directors. (c) Upon the Reorganization of the Partnership to be effected immediately prior to the closing of the Permanent Financing, SMC shall be relieved of any obligation to pay the "Tax Amount" specified in Section 2.10 of the Partnership Agreement. (d) The parties hereto acknowledge and agree that if the Offering does not close, then the Partnership Agreement, except as amended by Section 5(a) hereof, shall remain in full force and effect. (e) In addition to the foregoing specific amendments, this Agreement is intended to supplement the Partnership Agreement, the Provisional Financing Agreement, and the Permanent Financing Agreement (collectively, the "Prior Agreements") and, to the extent that any of the provisions hereof are inconsistent with the provisions of the Prior Agreements, the provisions hereof will control. 6. Allocation of Funds if Permanent Financing does not Occur. If the Permanent Financing does not occur, and all or substantially all of the assets of Colonial Downs are sold, after repayment of all secured creditors, the proceeds from such sale shall be used to pay obligations of Colonial Downs which have been guaranteed by its partners or shareholders or for which they are otherwise personally liable. 7. Registration Rights. CD and SMC shall use their best efforts in consultation with Friedman, Billings, Ramsey & Co., Inc. to arrange for registration rights with respect to shares of stock of Holdings owned by them, as such rights are described in the final prospectus included in the Registration Statement. Such rights shall be assignable in connection with any private sale of such shares. 8. Track Concessions. Colonial Downs, SMC, and Virginia Concessions, L.L.C. agree to amend their Food and Beverage Concessions Agreement, dated as of November 2, 1995, as amended by a First Amendment, dated as of July 14, 1996 (as so amended, the "Food and Beverage Agreement"), to state that Virginia Concessions, L.L.C. shall provide food and beverage services at the racetrack. Such amendment shall provide for a commission rate of approximately 15% on a blended basis between fine dining and concessions sales when the live racing is conducted at the racetrack and shall provide for commission rates applicable to satellite wagering facilities under the Food and Beverage Agreement when live racing is not conducted at the racetrack. Further, once the track and six satellite facilities have been open and operating for twenty-four (24) months, Colonial Downs shall have the option for sixty (60) days to terminate 4 the Food and Beverage Agreement for a purchase price equal to six (6) times the net operating cash flow from the track and such satellite facilities, calculated in accordance with generally accepted accounting practices, consistently applied. Additionally, such amendment shall contain commercially reasonable terms. 9. Construction Contract. SMC and Arnold Stansley hereby designate CD to be the representative of the Partnership to negotiate with Norglass, Inc. a construction contract which incorporates the terms and conditions specified for such contract in the Provisional Financing Agreement. CD shall have full authority to negotiate, execute and deliver such agreement on behalf of the Partnership. 10. Fee to Premier Construction. Colonial Downs shall pay to Premier Development, an affiliate of CD, a fee of $250,000 from the proceeds of the Permanent Financing for services provided to the Partnership and associated out-of-pocket expenses. Such services include, but are not limited to, negotiations with Chesapeake Corporation for the timely construction of the infrastructure to support the track; the design, bidding and construction management of the track; site selection, permitting, development, renovation and construction of the Richmond, Hampton and proposed Brunswick SWF; and other real estate development matters. 11. Grant of Options. Immediately following the Reorganization, Stansley and Leadbetter will grant options to CD to acquire up to 300,000 shares in aggregate (208,200 from Stansley and 91, 800 from Leadbetter) of Class A Common Stock of Holdings at 85% of the initial offering price for the Offering. Such options shall remain outstanding for three (3) years from the date of the closing of the Offering and may be exercised all or in part. 12. Buy-Sell Agreement. Immediately following the Reorganization, Leadbetter and Stansley, as recipients of shares of Holdings from the merger of SMC, and CD, shall enter into a buy-sell agreement (the "Buy-Sell Agreement"), substantially in the form of Exhibit A hereto. 13. Benefit. This Agreement shall inure to the sole and exclusive benefit of the parties hereto and the respective successors and permitted assigns. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. 15. Use of Arbitration. If any dispute shall arise between the parties hereto, and the same is not resolved between the parties, such dispute shall be settled by arbitration pursuant to this Section 15. In such event, either party hereto may serve upon the other party a written notice demanding that the dispute be resolved pursuant to this Section 15. To the extent that any provision herein is inconsistent with any rule of the AAA, this Agreement shall prevail. The selection of arbitrators and the procedures for arbitrations shall be as provided in Section 12.3 of the Partnership Agreement; provided any such arbitration shall be completed within sixty (60) days of filing. 5 16. Amendment. This Agreement cannot be modified or amended, nor may any of the provisions hereof be waived, except in a writing signed by the parties hereto. 17. Miscellaneous. All provisions in this Agreement are severable and each valid and enforceable provision shall remain in effect and shall be binding upon the undersigned, notwithstanding that other provisions may be held by legislative or judicial process to be invalid or unenforceable. All notices, consents, demands, requests, or other communications which may or are required to be given hereunder shall be in writing and shall be sent by telefax, overnight courier, or United States mail, registered or certified, return receipt requested, postage prepaid at the address of each party hereto set forth under the party's signature hereto. Any party may change its or his address for the giving of notices, consents, demands, requests, or other communications by delivering written notice to all the parties of its or his new address for such purpose. Notices, consents, demands, requests, or other communications shall be deemed given or served on the day when sent by telefax, one business day after deposit with an overnight courier, or two business days after deposit in the United States mail. This Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall constitute one and the same agreement. 6 IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date and year first set forth above. STANSLEY MANAGEMENT CORP. By: _______________________________ Arnold W. Stansley, President 3610 N. Courthouse Rd. P. O. Box 456 Providence Forge, VA 23140 CD ENTERTAINMENT LTD. By: JACOBS ENTERTAINMENT LTD., its Manager By: __________________________ Jeffrey P. Jacobs, Manager 1231 Main Avenue Cleveland, OH 44113 The undersigned agree to the foregoing terms. ______________________________ ______________________________ Arnold W. Stansley James M. Leadbetter 7 EXHIBIT A BUY-SELL AGREEMENT THIS BUY-SELL AGREEMENT is made as of this ___ day of March, 1997 by and among ARNOLD W. STANSLEY, CD ENTERTAINMENT LTD., and JAMES M. LEADBETTER (collectively referred to herein as the "Shareholders" and individually as a "Shareholder"). WHEREAS, the Shareholders are the owners of issued and outstanding shares of Class A Common Stock and Class B Common Stock (collectively, the "Shareholder Shares") of Colonial Downs Holdings, Inc., a Virginia Company (the "Company"); and WHEREAS, the Shareholders wish to enter into an agreement with respect to the disposition of the Shareholder Shares and with respect to the disposition of shares of the Company acquired by the Shareholders hereafter (such Shareholders Shares and hereinafter acquired shares, collectively, the "Shares"). NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, it is agreed as follows: 1. General Restriction on Share Transfers. No Shareholder shall sell, transfer, assign, pledge or otherwise dispose of (whether with or without consideration and whether voluntarily or by operation of law) any interest in any Shares except pursuant to the terms and provisions of this Agreement; provided, however, that any Shareholder may, without restrictions and without notice to any other Shareholder, transfer shares by inter vivos gift or testamentary disposition to a transferring Shareholder's spouse or lineal descendants or to a trust for the benefit of such persons, to a family partnership or limited liability company consisting of the Shareholder and/or such persons if the designated transferee, heir, trust, partnership or limited liability company, upon transfer of record ownership of such Shares, agrees to be bound by the terms and provisions of this Agreement. Notwithstanding the foregoing, each Shareholder may pledge up to one-third of his Shares to secure bona fide obligations, provided that the pledgee under such pledge agrees to be bound by all the terms and conditions of this Agreement and shall take all actions required hereunder as if it were a party hereto, before seeking to foreclose on any Shares pledged. 2. Private Sale of Shares. (a) If any of Shareholder receives a bona fide written offer (the "Offer") for their Shares, he (the "Offering Shareholder") shall offer, by written notice, (the "Notice") which shall include a copy of the Offer to the other Shareholders (the "Remaining Shareholders"), pro rata based on the sum of such Remaining Shareholders' shares, the right to buy the number of Shares specified in the Offer on the terms specified in the Offer. The remaining Shareholders shall have five (5) days (the "Offer Period") from the receipt of the Notice to elect to buy all, but 8 not less than all, of his proportionate share of the Shares. If any Remaining Shareholder elects not to purchase his proportionate share, the other Remaining Shareholder also must purchase his share of the Shares from the Offering Shareholder if he wishes to exercise his rights to buy such Shares hereunder. If any remaining Shareholder elects to buy Shares subject to the Offer the closing of the sale of such Shares to the Remaining Shareholders shall occur within fifteen (15) days of the receipt of the Notice, or such later date as the parties may agree, on the terms specified in the Offer. (b) If no Remaining Shareholder elects within five (5) days of receipt of the Notice to purchase such Shares, the Offering Shareholder shall have ninety (90) days in which to sell the Shares specified in the Offer at the price specified therein and on terms no more favorable to a purchaser than those offered to the Remaining Shareholders. Any Shares not transferred within such 90-day period shall be reoffered to the Remaining Shareholders prior to any subsequent transfer. (c) The foregoing restrictions on the transfer of Shares shall not apply to any transfer of the Shares effected by Friedman, Billings, Ramsey & Co., Inc. ("Friedman, Billings) that occurs prior to the later of (i) 180 days after the closing of the underwritten, initial public offering of the Company's stock or (ii) such time as the Company is operating four (4) SWFs (exclusive of the simulcast facilities located at the track). 3. Market Transfers of Shares. (a) Should an Offering Shareholder wish to sell Shares in an open market sale of Shares, pursuant to Rule 144, promulgated under the Securities Exchange Act of 1933, or otherwise, such Shareholder, at least twenty-four (24) hours prior to entering a sell or limit order with respect to such Shares, shall offer by telecopied, written notice to the Remaining Shareholders the opportunity to buy such Shares, pro rata, at the quoted bid price one hour prior to the time the notice is sent. That notice shall specify the applicable bid price. Each remaining Shareholder shall have twenty-four (24) hours from the receipt of such notice to elect by telecopied written notice to the Offering Shareholder to purchase all or a portion of his pro rata share of the Shares. The purchase price for the Shares that any Remaining Shareholder elects to purchase shall be the greater of (i) the bid price stated in the notice or (ii) the bid price in effect within one hour prior to the time the election to purchase the Shares was sent. The closing of the purchase of such Shares will occur within three (3) days of such Remaining Shareholder's election to purchase the Shares. (b) No Shareholder shall be liable to any other shareholder for a decline in value from the time of the notice from the Offering Shareholder to the time of the notice from the Remaining Shareholder electing to purchase Shares subject to the offer, nor shall any Shareholder have the right to acquire the Shares at a price less than the bid price in effect one hour prior to the time the Offering Shareholder sent his notice. 9 (c) The Offering Shareholder shall be able to sell any Shares that the Remaining Shareholders elect not to purchase pursuant to the terms of this Section 3 on the market within the next ten (10) trading days at a price not less than ninety percent (90%) of that set forth in the Offering Shareholder's notice. 4. Registration Rights. Prior to the election to exercise any registration rights applicable to the Shares, the Shareholder desiring to exercise such registration rights shall offer by written notice to the Remaining Shareholders (unless CD Stansley, and Leadbetter all elect to exercise such registration rights) the Shares such Shareholder desires to register. The purchase price for such Shares shall be the price at which Friedman, Billings has stated to the Offering Shareholder the Shares can be sold on the market, less commissions and estimated offering expenses to be incurred by the Offering Shareholder. The Remaining Shareholders shall have fourteen (14) days in which to elect to exercise such rights and shall close on the purchase of such shares within fourteen days thereafter. 5. Legend. The Shareholders agree that there shall be placed on all certificates for Shares the following legend: Any disposition or encumbrance of the shares represented by this certificate subject to the terms and conditions of a Buy-Sell Agreement, dated as of ________, 1997, as the same may be amended from time to time, a copy of which is on file at the principal office of the Company. Each Shareholder shall cause such legend to be imprinted on certificates evidencing the Shares. 6. Termination. Unless otherwise agreed upon by the parties, this Agreement shall terminate upon the earlier of (i) the date on which the holding period under Rule 144 (d) of the Act applicable to the Shares expires (ignoring any registration of the Shareholder's Shares for public sale prior to such date), or (ii) at such time as there is only one Shareholder subject to this Agreement. 7. Notices. All notices, consents and other communications to, upon and between the respective parties hereto pursuant to the terms of the Agreement shall be in writing and shall be deemed to have been given, delivered or made (i) the day delivered by telecopy with confirmation of receipt; (ii) the day following deposit with a recognized courier for overnight delivery; or (iii) three (3) days following when mailed by registered or certified mail, postage prepaid, and return receipt requested, to a Shareholder at his address shown on the signature pages hereto. Any Shareholder may change his address for notices by giving proper notice of such change pursuant to this Section 7. 8. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. 10 9. Successor. In the case of an incapacitated or deceased Shareholder, the term "Shareholder" shall be deemed to refer to his legal guardian or personal representative when appropriate. This Agreement shall be binding on and inure to the respective benefit of the parties, their successors, estates, and personal representatives. 10. Specific Performance. Each Shareholder agrees that a remedy in money damages at law for breach of this Agreement is inadequate and that this Agreement may be enforced in equity for specific performance 11. Headings. The underlined headings herein are for convenience only and shall not affect the interpretation of this Agreement. 12. Gender. Throughout this Agreement whenever the context requires or permits, genders shall be deemed interchangeable, and the single number shall be deemed to include the plural, and vice versa. 13. Amendments. No change, modification or amendment of this Agreement shall be valid or binding upon any party hereto unless such change, modification or amendment is in writing and is signed by such party. 14. Counterparts. This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed an original but all of which shall constitute one and the same original. 15. Entire Agreement. This Agreement sets forth all of the promises, agreements, conditions and understandings between the parties respecting the subject matter hereof and supersedes all prior negotiations, conversations, discussions, correspondence, memoranda and agreements between the parties concerning such subject matter. IN WITNESS WHEREOF, the parties have executed and sealed this Agreement in more than one counterpart, each of which is an original. _____________________________ ARNOLD W. STANSLEY Address: Raceway Park 5700 Telegraph Road Toledo, Ohio 43612 Telecopier: 419-476-7979 _____________________________ JAMES M. LEADBETTER Address: 10 Arco Drive Toledo, Ohio 43607 Telecopier: 419-537-9081 CD ENTERTAINMENT LTD. By: JACOBS ENTERTAINMENT LTD., its Manager By: _________________________ Jeffrey P. Jacobs, Manager 1231 Main Avenue Cleveland, OH 44113 Telecopier: 216-861-4590 11 EX-10.14 14 REGISTRATION RIGHTS AGREEMENT Exhibit 10.14 REGISTRATION RIGHTS AGREEMENT by COLONIAL DOWNS HOLDINGS, INC. in favor of CERTAIN STOCKHOLDERS dated as of March ___, 1997 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March ___, 1997, is entered into by Colonial Downs Holdings, Inc., a Virginia corporation (the "Company") for the benefit of the holders of Registrable Securities (as defined herein) (the "Holders"). WHEREAS, in connection with the proposed initial public offering of the Company of up to 4,887,500 shares of its Class A Common Stock, par value $0.01 per share (the "Class A Common Stock"), the Company and CD Entertainment Ltd., Colonial Downs, L.P., James L. Leadbetter, Stansley Management Corp., Stansley Racing Corp. and Arnold W. Stansley (collectively, the "Colonial Parties") entered into an Agreement and Plan of Reorganization dated as of February 12, 1997 (the "Plan"), pursuant to which the Company issued to certain parties thereto an aggregate of 750,000 shares of Class A Common Stock, and 2,250,000 shares of its Class B Common Stock, par value $0.01 per share (the "Class B Common Stock," and together with the Class A Common Stock, the "Company Common Stock"), in exchange for all of the outstanding capital stock of Stansley Racing Corp. and the partnership interests in Colonial Downs L.P.; WHEREAS, in connection with the proposed initial public offering of the Company, CD Entertainment Ltd. has issued to the Company a convertible subordinated note (the "Note") in the principal amount of $5.5 million, which note may be converted in whole or in part at the the option of the holder into shares of Class B Common Stock; WHEREAS, in order to induce the Colonial Parties to enter into the Plan and CD Entertainment Ltd. to issue the Note, the Company has agreed to grant the registration rights set forth herein; WHEREAS, immediately after the issuance of the shares pursuant to the Plan, certain of the Colonial Parties receiving shares thereunder transferred a portion of the shares held by such persons, resulting in all of the outstanding capital stock of the Company being held by the Holders; NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Company agrees for the benefit of each Holder, and each Holder who at any time hereafter shall have requested inclusion of any Registrable Securities in a registration statement pursuant to this Agreement shall be deemed to have agreed, as follows: Section 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: (a) Agreement" shall have the meaning set forth in the first paragraph hereof. (b) "Class A Common Stock" shall have the meaning set forth in the second paragraph hereof. (c) "Class B Common Stock" shall have the meaning set forth in the second paragraph hereof. (d) "Closing Date" shall mean the date of the closing of the Company's initial public offering. (e) "Company" shall have the meaning set forth in the first paragraph hereof. (f) "Company Common Stock" shall have the meaning set forth in the second paragraph hereof. (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (h) "Holder" shall have mean any holder of Registrable Securities, for so long as such securities constitute Registrable Securities. (i) "Note" shall have the meaning set forth in the third paragraph hereof. (j) "Plan" shall have the meaning set forth in the second paragraph hereof. (k) "Participating Holder" shall have the meaning set forth in Section 2(a) hereof. (l) "Registrable Securities" shall mean the shares of Company Common Stock outstanding on the date hereof (other than shares issued in a public offering on the date hereof), any shares of Company Common Stock issued upon conversion of the Note, and any securities issued or issuable with respect thereto by way of conversion, exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger consolidation or other reorganization; provided, however, that the Company shall be required to register only shares of Class A Common Stock, and any shares of Class B Common Stock held by any Holder must be converted to shares of Class A Common Stock to be included in any registration statement. Any Registrable Securities shall cease to be Registrable Securities when (i) a registration statement, with respect to the sale of such securities, shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) such securities shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (iii) such securities shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered to the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, or (iv) such securities shall have ceased to be outstanding. (m) "SEC" shall mean the Securities and Exchange Commission. (n) "Securities Act" shall mean the Securities Act of 1933, as amended. (o) "Shelf Registration" shall have the meaning set forth in Section 2(a). Section 2. Registration Rights. (a) Demand Rights; Obligation to File and Maintain. At any time beginning twelve (12) months after the Closing Date, promptly upon the written request of Holders owning at least 30% of the Registrable Securities (the "Participating Holders") that the Company file a registration statement covering at least 20% of the Registrable Securities (or any lesser percentage if the anticipated aggregate offering price would exceed $10,000,000), the Company will use its best efforts to file and have declared effective with the SEC a registration statement under the Securities Act for the offering on a continuous or delayed basis in the future of all of the Registrable Securities so requested to be registered (the "Shelf Registration"). The Shelf Registration shall be on an appropriate form and the -2- Shelf Registration and any form of prospectus included therein or prospectus supplement relating thereto shall reflect such plan of distribution or method of sale as the requesting Holders may notify the Company, including, without limitation, the sale of some or all of the Registrable Securities in a public offering or, if requested by the Holders, subject to receipt by the Company of such information (including information relating to purchasers) as the Company reasonably may require, (i) in a transaction constituting an offering outside the United States which is exempt from the registration requirements of the Securities Act in which case the Company shall undertake to effect registration for the benefit of such transferee of such shares as soon as possible after the completion of such offering in order to permit such shares to be freely tradeable in the United States, (ii) in a transaction constituting a private placement under Section 4(2) of the Securities Act in connection with which the Company undertakes to register such shares after the conclusion of such placement to permit such shares to be freely tradeable by the purchasers thereof, or (iii) in a transaction under Rule 144A of the Securities Act in connection with which the Company undertakes to register such shares after the conclusion of such transaction to permit such shares to be freely tradeable by the purchasers thereof. The Company shall use its best efforts to keep the Shelf Registration continuously effective for the period beginning on the date on which the Shelf Registration is declared effective and ending on the earlier of (i) 180 days after the date of effectiveness or (ii) the date on which all of the Registrable Securities covered by the Shelf Registration are eligible for immediate sale pursuant to Rule 144 under the Securities Act. During the period during which the Shelf Registration is effective, the Company shall supplement or make amendments to the Shelf Registration, if required by the Securities Act or if reasonably requested by the Participating Holders, including to reflect any specific plan of distribution or method of sale, and shall use its reasonable best efforts to have such supplements and amendments declared effective, if required, as soon as practicable after filing. (b) Black-Out Periods. Notwithstanding anything herein to the contrary, (i) the Company shall have the right to postpone the filing of the Shelf Registration, and from time to time to require the Holders not to sell under the Shelf Registration or to suspend the effectiveness thereof, during the period starting with the date 30 days prior to the Company's good faith estimate, as certified in writing by an executive officer of the Company to the Holders, of the proposed date of filing of a registration statement or a preliminary prospectus supplement relating to an existing shelf registration statement, in either case, pertaining to an underwritten public offering of equity securities of the Company for the account of the Company, and ending on the date 90 days following the effective date of such registration statement or the date of filing of such prospectus supplement, provided that no black-out period pursuant to this clause (i) shall extend beyond 120 days from its commencement, and provided further, that the Company may not exercise its right pursuant to this clause (i) more than once in any 12-month period, and (ii) the Company shall be entitled to postpone the filing of the Shelf Registration, and from time to time to require the Holders not to sell under the Shelf Registration or to suspend the effectiveness thereof, but not for a period exceeding 90 days, if the Company determines, in its good faith judgment, that such registration, offering or continued effectiveness would interfere with any material financing, acquisition, disposition, corporate reorganization or other material transaction involving the Company or any of its subsidiaries or public disclosure thereof would be required prior to the time such disclosure might otherwise be required, or when the Company is in possession of material information that it deems advisable not to disclose in a registration statement. The Company shall give the Holders prompt notice in the event that the Company has exercised any right pursuant to this Section 2(b). (c) Number of Shelf Registrations. The Company shall be obligated to effect no more than three (3) Shelf Registrations under this Section 2, provided, however, that any subsequent Shelf Registration following the initial Shelf Registration shall require the demand of Participating -3- Holders owning a majority of the Registrable Securities then outstanding. The obligation of the Company to effect a Shelf Registration under this Section 2 shall expire upon the earlier of (i) the date on which all of the Registrable Securities have been sold by the Holders or (ii) the date on which all of the Registrable Securities are eligible for sale pursuant to Rule 144 under the Securities Act without any volume limitations. The registration rights granted pursuant to this Section 2 may not be exercised in connection with any underwritten public offering without the prior written consent of the Company as to the Holders' selected underwriter. (d) Piggyback Registration Rights. If at any time or times prior to the fifth anniversary of the Closing Date, the Company proposes to make a registered public offering of any of its securities under the Act (whether to be sold by it or by one or more third parties), the Company shall, not less than 30 days prior to the proposed filing date of the registration statement, give written notice of the proposed registration to each Holder, and at the written request of a Holder delivered to the Company within 15 days after the receipt of notice, shall include in the registration and offering, and in any underwriting of the offering, all Registrable Securities as may have been designated in the Holder's request. (e) Cutback in the Event of Underwritten Public Offering. If a registration in which any Holder has the right to participate pursuant to Section 2(d) is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing, that in their opinion the number of securities requested to be included in the registration exceeds the number which can be sold in the offering, the Company shall include in the registration (i) first, the securities of the Company proposed to be sold by the Company, and (ii) second, the Registrable Securities requested to be sold by the Holders reduced pro rata in proportion to the number of Registrable Securities owned by each Holder. If a registration in which any Holder has the right to participate pursuant to Section 2(d) is solely an underwritten secondary registration and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in the registration exceeds the number which can be sold in the offering, then the Company shall include in the offering the number of Registrable Securities owned and proposed to be sold by such Holder and by any other participants (including other Holders) proposing (and entitled) to sell shares pursuant to the registration, in proportion to the number of securities that each Holder or other participant requests to be included in such registration statement. (f) Expenses. The Company shall pay all expenses incident to the performance by it of its obligations under this Section 2, including (i) all stock exchange, SEC and state securities registration, listing and filing fees, (ii) all expenses incurred in connection with the preparation, printing and distribution of the Shelf Registration, and (iii) fees and disbursements of counsel for the Company and of the independent public accountants for the Company. The Participating Holders shall be responsible for the payment of any brokerage and sales commissions, fees and disbursements of counsel for the Participating Holders, and any transfer taxes relating to the sale or disposition of the Registrable Securities by the Participating Holders. Section 3. Registration Procedures. (a) In connection with the filing of any registration statement as provided in Section 2, the Company shall use its best efforts to, as expeditiously as reasonably practicable: (i) prepare and file with the SEC the requisite registration statement (including a prospectus therein) to effect such registration and use its best efforts to cause such registration statement to become effective, provided that before filing such registration statement or any -4- amendments or supplements thereto, the Company will furnish to the counsel selected by the majority (by number of shares) of the Participating Holders copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel before any such filing is made, and the Company will comply with any reasonable request made by such counsel to make changes in any information contained in such documents relating to the Participating Holders; (ii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until the termination of the period during which the Shelf Registration is required to be filed or kept effective; (iii) furnish to the Participating Holders such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statements (including each complete prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, including documents incorporated by reference, as the Participating Holders may reasonably request; (iv) register or qualify all Registrable Securities under such U.S. state securities or "blue sky" laws as the Participating Holders shall reasonably request, keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable the Participating Holders to consummate the disposition in such jurisdictions of the securities owned by the Participating Holders, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this paragraph be obligated to be so qualified, or to consent to general service of process in any such jurisdiction, or to subject the Company to any material tax in any such jurisdiction where it is not then so subject; (v) immediately notify the Participating Holders at any time when the Company becomes aware that a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of the Participating Holders promptly prepare and furnish to the Participating Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (vi) comply or continue to comply in all material respects with the Securities Act and the Exchange Act and with all applicable rules and regulations of the SEC, and make available to -5- its security holders, as soon as reasonably practicable, an earnings statement covering a period of at least 12 months which shall satisfy the provisions of Section 11(a) of the Securities Act; (vii) make available such access to the Company's books and records and such opportunities to discuss the business of the Company with its officers, its counsel and the independent public accountants who have certified its financial statements as shall be necessary, in the reasonable opinion of counsel for the Participating Holders, to conduct a reasonable investigation within the meaning of the Securities Act; (viii) provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; and (ix) list all Company Common Stock covered by such registration statement on any securities exchange (or the NASDAQ Stock Market) on which any of the Company Common Stock is then listed. (b) the Participating Holders shall furnish in writing to the Company such information regarding the Participating Holders (and any of their affiliates), the Registrable Securities to be sold, the intended method of distribution of such Registrable Securities, and such other information requested by the Company as is necessary for inclusion in the registration statement relating to such offering pursuant to the Securities Act and the rules of the SEC thereunder. Such writing shall expressly state that it is being furnished to the Company for use in the preparation of a registration statement, preliminary prospectus, supplementary prospectus, final prospectus or amendment or supplement thereto, as the case may be. Each Holder agrees by acquisition of the Registrable Securities that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (v) of Section 3(a), each Holder will forthwith discontinue its disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (v) of Section 3(a). Section 4. Indemnification. (a) Indemnification by the Company. In the event of any registration of any Registrable Securities of the Company under the Securities Act, the Company will, and hereby does, indemnify and hold harmless each Holder, its officers and directors and each other person who controls such Holder within the meaning of the Securities Act (collectively, the "Holder Indemnified Parties"), against any losses, claims, damages or liabilities, joint or several, to which a Holder or any such controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Company will reimburse the Holders and each of the Holder Indemnified Parties for any reasonable legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceedings; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of (y) any untrue statement or alleged untrue statement or omission or alleged omission made -6- in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by a Holder expressly for use therein, or (z) a Holder's failure to deliver an amended or supplemental Prospectus, if such loss, claim, damage, liability or expense would not have arisen had such delivery occurred. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holders or any such controlling person and shall survive the transfer of such securities by the Holders. (b) Indemnification by Holders. In the event of any registration of any Registrable Securities of the Company under the Securities Act, each Holder of such Registrable Securities will, and hereby does, indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) of this Section 4) the Company, its officers and directors and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any untrue statement or alleged untrue statement of a material fact in or omission or alleged omission to state a material fact in such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use in such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such controlling person and shall survive the transfer of such securities by the Holders. (c) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding paragraphs of this Section 4, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding paragraphs of this Section 4, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to the indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. (d) Contribution. If, for any reason, the foregoing indemnity is unavailable, or is insufficient to hold harmless an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of the expense, loss, damage or liability, (i) in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other (determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission), or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or provides a lesser sum to the indemnified party than the amount hereinafter calculated, in the proportion as is appropriate to reflect not -7- only the relative fault of the indemnifying party and the indemnified party, but also the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other, as well as any other relevant equitable considerations. No indemnified party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any indemnifying party who was not guilty of such fraudulent misrepresentation. Section 5. Covenants Relating to Rule 144. The Company will use its reasonable best efforts to file in a timely manner information, documents and reports in compliance with the Exchange Act and will, at its expense, forthwith upon the request of any Holder, deliver to such Holder a certificate, signed by the Company's principal financial officer, stating (a) the Company's name, address and telephone number (including area code), (b) the Company's Internal Revenue Service identification number, (c) the Company's SEC file number, (d) the number of shares of Company Common Stock outstanding as shown by the most recent report or statement published by the Company, and (e) whether the Company has filed the reports required to be filed under the Exchange Act for a period of at least 90 days prior to the date of such certificate and in addition has filed the most recent annual report required to be filed thereunder. If at any time the Company is not required to file reports in compliance with either Section 13 or Section 15(d) of the Exchange Act, the Company will, at its expense, forthwith upon the written request of any Holder, make available adequate current public information with respect to the Company within the meaning of paragraph (c)(2) of Rule 144 under the Securities Act. Section 6. Miscellaneous. (a) Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 6, provided receipt of copies of such counterparts is confirmed. (b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF. (c) Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and there are no agreements or understandings between the parties other than those set forth or referred to herein. This Agreement is not intended to confer upon any person not a party hereto (and their successors and assigns as provided herein) any rights or remedies hereunder. (d) Notices. All notices and other communications hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below. Notices to the Company shall be addressed to: Colonial Downs Holdings, Inc. 3610 N. Courthouse Road Providence Forge, Virginia 23140 Attention: President Telecopy Number: (804) 966-2086 -8- or at such other address and to the attention of such other person as the Company may designate by written notice to the Holders. Notices to a Holder shall be addressed to such Holder at the address appearing below such Holder's name on Schedule A. (e) Successors and Assigns. This Agreement shall be binding upon the Company and each Holder who at any time hereafter shall have requested inclusion of any Registrable Securities in a registration statement pursuant to this Agreement and shall inure to the benefit of the Company and each Holder, and, in each case, their respective successors. (f) Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the Company and approved by written consents given by Holders of a majority of the Registrable Securities. The Company may, by an instrument in writing, waive compliance by any Holder with any term or provision hereof. The Holders, by a written consent given by a majority of the Registrable Securities so affected, may waive compliance by any Holder with any term or provision hereof. Any such waiver of a breach of any term or provision hereof shall not be construed as a waiver of any subsequent breach. (g) Severability. Any provision hereof which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. (h) Headings. The Section and other headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections or other headings contained herein mean Sections or other headings of this Agreement unless otherwise stated. (i) Interpretation; Absence of Presumption. For the purposes hereof, (i) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (ii) the terms "hereof", "herein", and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, paragraph or other references are to the Sections, paragraphs, or other references to this Agreement unless otherwise specified, (iii) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified, (iv) the word "or" shall not be exclusive, and (v) provisions shall apply, when appropriate, to successive events and transactions. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted. (j) Specific Performance. Each Holder and the Company each acknowledge that, in view of the uniqueness of the parties hereto, the parties hereto would not have an adequate remedy at law for money damages in the event that this Agreement were not performed in accordance with its terms, and therefore agree that the parties hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the parties hereto may be entitled at law or in equity. -9- IN WITNESS WHEREOF, the Company has caused this Registration Rights Agreement to be executed on its behalf as of the day first above written. COLONIAL DOWNS HOLDINGS, INC. By:________________________________ Name:______________________________ Title:_____________________________ 10 EX-10.15 15 AMENDED AND RESTATED CONCESSIONS AGREEMENT AMENDED AND RESTATED FOOD AND BEVERAGE CONCESSIONS AGREEMENT THIS AMENDED AND RESTATED FOOD AND BEVERAGE CONCESSIONS AGREEMENT ("Agreement") made and entered into this ___ day of March, 1997, by and between COLONIAL DOWNS, L.P., a Virginia limited partnership and STANSLEY RACING CORP., a Virginia corporation (collectively, "Licensor"), and VIRGINIA CONCESSIONS, L.L.C., a Virginia limited liability company ("Licensee"). WITNESSETH: WHEREAS, Colonial Downs, L.P. holds a license from the Virginia Racing Commission (the "Commission") to own a pari-mutuel horse racing facility in New Kent County, Virginia (the "Racetrack"); and, WHEREAS, Stansley Racing Corp. holds a license from the Commission to operate the Racetrack; and, WHEREAS, Colonial Downs, L.P. and Stansley Racing Corp. hold licenses to own and operate, respectively, satellite pari-mutuel wagering facilities (each an "OTB") in Richmond, Chesapeake and Hampton, Virginia; and, WHEREAS, Colonial Downs, L.P. and Stansley Racing Corp. intend to apply to the Commission for licenses to own and operate, respectively, throughout Virginia the maximum number of OTBs permitted by law; and, WHEREAS, as an inducement to Licensee or Licensee's affiliate to enter into a certain Agreement to Purchase a Partnership Interest between Colonial Downs, L.P. and Licensee or Licensee's affiliate, dated November 2, 1995 (the "Purchase Agreement"), Licensor granted to Licensee certain options to manage the food and beverage concessions at certain of the OTBs, on the terms and subject to the conditions set forth in that certain Food and Beverage Concessions Agreement, dated as of November 2, 1995 (the "Prior Agreement"); and WHEREAS, the parties have amended certain provisions of the Prior Agreement and wish to set forth the terms and conditions of the management of the food and beverage concessions at the Racetrack and the OTBs, as amended, in this Agreement. NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties, intending to be legally bound, do hereby agree as follows: 18 I. PURPOSES 1.1 The purposes of this Agreement are (a) to grant an option to Licensee to manage the food and beverage concessions at (i) the Racetrack and (ii) the first six (6) OTBs that may be licensed by the Commission and developed by the Licensor and Licensee's choice of up to fifty percent (50%) of any additional OTBs that may be licensed by the Commission and developed by Licensor after the first six (6) OTBs have become operational; and, (b) to establish the respective rights and obligations of Licensor and Licensee in the management of the food and beverage concessions at the Racetrack each of Licensor's OTBs for which Licensee exercises the option granted by this Agreement. II. TERM 2.1 This Agreement shall be effective upon execution by the parties hereto, and shall continue thereafter in effect (i) for ten (10) years from the opening date of the Racetrack and (ii) for each OTB for which Licensee exercises its option, in accordance with Sections 3.1 and 3.2 hereof, for ten (10) years from the opening date of each such OTB (the "Initial Term"), unless this Agreement is terminated earlier pursuant to the provisions of Article IX hereof. 2.2 Once the Racetrack and each of the initial six (6) OTBs have been open for operations for twenty-four (24) consecutive months, Licensor shall have the option for sixty (60) days thereafter to terminate this Agreement for a fee equal to six (6) times the net operating cash flow from the Racetrack and the OTBs for the most recent twelve (12) month period, calculated in accordance with generally accepted accounting practices, consistently applied. 2.3 Within the six (6) month period prior to the end of the Initial Term for the Racetrack and for each OTB, Licensor may solicit proposals from persons other than Licensee to manage the food and beverage concessions at the Racetrack and/or such OTB, and, subject to Licensee's right of refusal as hereinafter set forth, may enter into a contract for such concession services with one of the persons submitting such a proposal; provided, however, that in the event Licensee elects in writing to match the terms of the proposal solicited by Licensor pursuant to this Section 2.3 which Licensor proposed to accept, Licensor shall extend Licensee's Initial term for a period of five (5) years (the "Extended Term"). The Extended Term shall be on the same terms and conditions as those provided in the proposal submitted to Licensor pursuant to this Section 2.3 which Licensor proposed to accept; provided, however, that the percentage utilized for the purpose of determining Licensee's rent shall be reduced by one percent (1%) from the proposal which Licensor proposed to accept. For purposes of illustration, if the rent in the proposal which Licensor proposed to accept was ten percent (10%) of Gross Sales, the rent to be paid by Licensee shall be nine percent (9%) of Gross Sales. If Licensor elects not to solicit bids from persons other than Licensee, this Agreement shall be extended for a five (5) year period on the terms and conditions set forth herein. 2.4 Anything contained herein to the contrary notwithstanding, the term of this Agreement shall not exceed fifteen (15) years from the opening date of the first OTB, at which time this 19 Agreement shall expire and be of no further effect, unless Licensor and Licensee mutually agree in writing to extend this Agreement. Upon the expiration of this Agreement pursuant to the provisions of this Section, Licensor may elect to manage the food and beverage concessions at the Racetrack and the OTBs itself, or may solicit proposals from persons other than Licensee to manage the food and beverage concessions at all or any portion of the Racetrack and such OTBs, and, subject to Licensee's rights of first refusal as hereinafter set forth, enter into a contract to provide those services with one of the persons who have submitted such a proposal. Provided, however, that if Licensor solicits proposals from persons other than Licensee to manage the concessions at the Racetrack and OTBs, Licensee shall have the right to elect in writing to match the terms of the proposal solicited by Licensor pursuant to this Section 2.4 which Licensor proposes to accept; provided, however, that the percentage utilized for the purpose of determining Licensee's rent shall be reduced by one percent (1%) from the proposal which Licensor proposed to accept. If Licensee elects to match such proposal, the term of this Agreement shall be further extended for a period to be mutually agreed upon by the parties. 2.5 Upon the termination or expiration of this Agreement, Licensee shall immediately vacate the Premises, as defined in Section 4.1, in as good order and condition as the same shall, or should have been put by Licensee, in compliance with the terms and provisions hereof, reasonable use and natural wear and tear or unavoidable casualty excepted. Upon such termination or expiration, if Licensee requests, Licensor shall purchase from Licensee all of the useable supplies and inventory of food and beverages owned by Licensee and on hand at the OTB at Licensee's cost therefor. III. LICENSEE'S OPTION RIGHTS 3.1 Licensor has granted and hereby grants to Licensee separate options to manage the food and beverage concessions at the initial six (6) OTBs developed by Licensor pursuant to licenses granted by the Commission and at Licensor's Racetrack. If more than six (6) OTB licenses are awarded to Licensor by the Commission, Licensor grants to Licensee separate options to manage the food and beverage concessions at up to fifty percent (50%) of any such additional OTBs. Subject to the limitations set forth above, Licensee shall have the right to select the additional OTBs at which it will manage the food and beverage concessions from locations determined by Licensor. 3.2 Licensor shall give written notice to Licensee of the Licensor's intention to apply for a license to develop and operate an OTB that is subject to Licensee's option rights hereunder, on or prior to the date on which the application for the license is submitted to the Commission. Within sixty (60) days after receipt of such notice, Licensee shall give written notice to Licensor exercising its option under Section 3.1 to manage the food and beverage concessions at that OTB. Licensee's failure to give written notice to Licensor within such sixty (60) day period shall constitute an election by Licensee not to exercise its option for that OTB. 20 IV. RESPONSIBILITIES OF LICENSOR 4.1 At the Racetrack and each OTB for which Licensee exercises its option pursuant to Article 3 of this Agreement, Licensee shall have the right and obligation to prepare, serve and sell, or otherwise make available, food (including hot meals) and beverages (including alcoholic beverages) for public sale and consumption on the premises of the OTB or the Racetrack, as the case may be. Licensor shall provide such kitchen and dining facilities and equipment, including facilities and equipment for serving beer, wine and liquor, (collectively referred to as the "Premises"), as may be reasonably required by Licensee to satisfy Licensee's responsibilities under Article V of this Agreement. 4.2 Licensor shall be responsible for all site-related expenses, including, but not limited to, expenses relating to updating, refurbishing, equipping, repair, replacement and maintenance of the Racetrack and each OTB for which Licensee exercises its option pursuant to Article 3 of this Agreement. Licensor shall also be responsible for all expenses of the Racetrack or the OTB, as the case may be, relating to the following: a. general advertising of the Racetrack and the OTBs; b. cleaning (other than bussing and kitchen and bar cleaning), including cleaning of all public areas at the Racetrack and the OTBs; c. linen (excluding uniforms); d. supplies, other than those incidental to bar, kitchen and service activities; e. equipping and supplying the Premises with an initial inventory of china, glassware, silverware and serving equipment reasonably sufficient to satisfy Licensee's needs; f. casualty insurance on the Racetrack and the OTBs and equipment, including kitchen and bar equipment; g. fifty percent (50%) of the premiums for liquor liability insurance, if obtained; h. gas, electricity, water, sewerage, and other utilities used at the Racetrack and the OTBs (including the Premises; i. real estate taxes and assessments; j. trash removal from the Racetrack and the OTBs; and, 21 k. equipment repair and replacement, including kitchen and beverage equipment, except where such repair or replacement is due solely to the negligence of the Licensee or its employees or agents. V. RESPONSIBILITIES OF LICENSEE 5.1 Commencing on the opening date of the Racetrack and for each OTB for which Licensee exercises its option pursuant to Article 3 of this Agreement, Licensee shall be responsible for the preparation, service and sale of all food (including hot meals) and beverages (including alcoholic beverages) for public sale and consumption on the premises of the Racetrack and the OTBs. Food and beverages served by Licensee shall be of a type and quality normally and customarily sold in similar facilities, as indicated on the menus attached as Exhibit A hereto. 5.2 Licensee shall be responsible for securing and at all times maintaining any and all permits, licenses (including licenses to serve alcoholic beverages), and other documents which may be required for Licensee to perform its obligations under this Agreement. 5.3 Licensee shall employ competent, experienced and thoroughly trained staff to properly perform Licensee's responsibilities under Section 5.1 of this Agreement. Licensee shall at all times maintain a sufficient staff to meet all the reasonable demands of the patrons of the Racetrack and the OTBs in accordance with good business standards. Licensee shall be responsible for and shall control the conduct, demeanor and appearance of its employees and agents, and upon objection from Licensor concerning the conduct, demeanor or appearance of any such person, shall immediately take all reasonable steps necessary to remove the cause of objection. 5.4 Licensee acknowledges that the prices for and quality of the food and beverages and quality of the service it provides is of the utmost importance to Licensor so that the goodwill of the patrons of the Racetrack and the OTBs may be preserved. Licensor shall have the right to approve all prices to be charged for food and beverages and all menu items to be served, which approval shall not be unreasonably withheld or delayed. Licensor and Licensee agree that the initial prices to be charged by Licensee shall be within the range of the prices shown on the menus attached hereto as Exhibit A. Provided, however, that Licensee may increase the prices for all or any portion of the food and/or beverages served by Licensee by an amount not to exceed eight percent (8%) per item (not in the aggregate) during each Contract Year without the consent of Licensor. 5.5 Licensee shall continuously operate the Premises during all hours which the Racetrack or the OTB, as the case may be, is open for business in accord with the laws of the Commonwealth of Virginia. 22 5.6 Licensee shall keep the Premises clean, neat and orderly at all times, and shall provide, at its own cost and expense, complete and proper arrangements for the sanitary handling of all trash, garbage and other refuse resulting from its operation, including cleaning of the grease trap; provided, however, that Licensor shall be responsible for the expense of providing commercial trash container and removal services from the Racetrack and the OTBs, including providing for an adequate number of outside trash containers, and the regular removal of full trash containers and replacement with empty containers, as may reasonably be required to maintain the Racetrack and the OTBs in a clean, neat, orderly, and sanitary manner. Licensee shall notify Licensor immediately whenever any maintenance of the Premises (i.e., electrical, mechanical, or structural defects or failure) are necessary for the Premises to be in proper condition and working order to allow Licensee to provide the services described in Section 5.1 herein. Licensor shall thereafter promptly perform any maintenance required. If Licensor fails to perform or diligently commence to perform such maintenance within twenty-four (24) hours after notice from Licensee, Licensee may, but is not obligated to, cause such maintenance to be performed on behalf of Licensee. Licensor shall reimburse Licensee for all reasonable costs incurred by Licensee for such maintenance or Licensee may set off such amounts against the Rents due Licensor hereunder. 5.7 Licensee shall operate its business in a careful, safe and proper manner and shall not commit or suffer waste on the Racetrack and the OTBs or the maintenance of any nuisance thereon. Licensee shall be responsible for any costs or expenses relating to the repair or replacement of any equipment required solely due to the negligence of Licensee or its employees or agents. 5.8 Licensee shall be responsible for all costs and expenses relating to the following: a. equipping and supplying the Premises with all necessary replacements of china, glassware, silverware, serving equipment, and all paper items, which are necessary or desirable to provide the services described in Section 5.1 herein; b. inventory, preparation and service of food and beverages (including alcoholic beverages); c. liability and workers' compensation insurance as required under Section 8.1 hereof; d. fifty percent (50%) of the premiums for liquor liability insurance, if obtained; e. labor costs for providing the services described in Section 5.1 above, including, but not limited to, bussing and kitchen cleaning; and, f. all overhead expenses incidental to Licensee's business activities, including, but not limited to, professional fees. 23 5.9 Licensee shall not construct, alter, add on, repair, or demolish, or make any structural or other material improvements to the Premises without the prior written consent of Licensor, which shall not be unreasonably withheld. 5.10 Licensee shall keep the Racetrack and the OTBs, and any part thereof, free and clear of (or properly bonded against within sixty (60) days' notice to Licensee of the filing of same) any and all mechanic's, materialmen's and other liens for or arising out of or in connection with work or labor done, services performed, or materials or appliances used or furnished for or in connection with any operations of Licensee pursuant to this Agreement, and shall at all time promptly pay and discharge and/or cause the discharge when due of all claims on which any such liens may or could be based and shall indemnify Licensor against all such liens and claims of liens and suits or other proceedings pertaining thereto. 5.11 Licensee agrees that Licensor, or Licensor's agents or employees, have the right to inspect the Premises at any time, but no such inspection shall unreasonably interfere with Licensee's operation and use of the Premises and the failure of Licensor to make any such inspection shall not impose any liability upon it for its failure to do so. 5.12 If Licensor provides Licensee with the appropriate equipment, Licensee shall provide Licensor with a copy of the daily register tapes for all cash registers used by Licensee at the Leased Premises at the close of business of the Racetrack and the OTBs each day. VI. RENTS 6.1 From and after the date that Licensee commences providing services at the Racetrack or any OTB pursuant to this Agreement, Licensee shall pay rents to Licensor on a monthly basis for the Racetrack and each OTB at which Licensee provides such services. The amount of rent to be paid by Licensee for the Racetrack and each OTB shall be based on a percentage of Licensee's Gross Sales at the Racetrack and OTBs during a Contract Year as follows: (i) for the Racetrack for the months in which live racing is conducted at the Racetrack, rent shall be fifteen percent (15%) of the Gross Sales; and (ii) for the Racetrack for the months in which live racing is not conducted at the Racetrack, rent shall be determined on the following graduated scale: a. ten percent (10%) of Annual Gross Sales less than or equal to $500,000.00; b. thirteen percent (13%) of Annual Gross Sales greater than $500,000.00 and less than or equal to $1,000,000.00; and, c. fifteen percent (15%) of Annual Gross Sales greater than $1,000,000.00. 24 (iii) rent for each OTB shall be determined on the following graduated scale: a. ten percent (10%) of Annual Gross Sales less than or equal to $500,000.00; b. thirteen percent (13%) of Annual Gross Sales greater than $500,000.00 and less than or equal to $1,000,000.00; and, c. fifteen percent (15%) of Annual Gross Sales greater than $1,000,000.00. 6.2 "Gross Sales" shall include all monies received by Lessee from the sale of any and all food and beverages, including fine dining, general concessions and sales of alcoholic beverages, upon the Racetrack or OTB premises, as the case may be, less the deduction of State and Federal sales and similar excise taxes, and excluding any returns, refunds or similar credits against Licensee's sales proceeds. 6.3 Licensee shall pay the rent set forth in Section 6.1 hereof to Licensor monthly on or before the tenth (10th) day of each month based on the Gross Sales generated for the immediately preceding month. 6.4 Within twenty (20) days following the end of each calendar quarter, Licensee shall calculate the Gross Sales at the Racetrack or the OTB, as the case may be, for the then current Contract Year of the Racetrack or the OTB, as the case may be, and, if appropriate, make an adjusting payment to Licensor to the extent required to ensure that the rents payable to the Licensor are in accordance with Section 6.1 hereof. For the purposes hereof, a "Contract Year" shall mean a consecutive twelve (12) month period, commencing with the start of the Licensor furnishing services to the Racetrack or an OTB, or any one (1) year anniversary date thereafter. VII. BOOKS AND RECORDS 7.1 Licensee shall keep and maintain complete and accurate books and records of all of its sales and other income, and shall make said books and records available for inspection by Licensor and its authorized agents, and the Commission and its authorized agents at all reasonable hours and at all reasonable times. Within ninety (90) days of the end of each Contract Year during the term of this Agreement, Licensee shall furnish Licensor with the certificate of its chief financial officer as to the correctness of the amount paid to Licensor as rent during the previous year. 7.2 Licensor may, but is not obligated to, cause an audit of Licensee's books and records as necessary to verify the correctness of the amount paid by Licensee to Licensor. Such audit may be conducted not more frequently than annually and shall be at the expense of Licensor. Provided, however, if the audit shows an underpayment to the Licensor of five 25 percent (5%) or more of the amount actually paid, Licensee shall reimburse Licensor for all costs and expenses incidental to such audit. VIII. GENERAL COVENANTS OF LICENSOR AND LICENSEE 8.1 Licensee shall obtain and at all times maintain in full force and effect, at its sole cost and expense, liability insurance covering all aspects of Licensee's operation (excluding, however, liquor liability insurance covered in Section 8.2 hereof) with limits of not less than $1,000,000 for bodily injury for one person, $2,000,000 for any one accident and $300,000 for property damage. Said policy of insurance shall name Licensor as an additional insured. Licensee shall also have in force such workers' compensation insurance as may be required by applicable state law. Licensee shall provide Licensor annually with certificates of insurance evidencing the required coverages and providing for Licensor to be sent all notices of cancellation. 8.2 If Licensor requests, Licensee shall maintain in full force and effect at all times, liquor liability insurance with limits, coverages, deductibles, policies and carriers reasonably acceptable to Licensor and Licensee. Said policy of insurance shall name both Licensor and Licensee as insured parties. Licensor shall reimburse Licensee fifty percent (50%) of the cost and expense of such liquor liability insurance within ten (10) days following receipt by Licensor of evidence of Licensee's payment of such premiums. If Licensor fails to reimburse Licensee within such period, Licensee may, but is not obligated to, set off such amount against the Rents due Licensor hereunder. Licensee shall provide Licensor annually with certificates of insurance evidencing the required coverages and providing for Licensor to be sent all notices of cancellation. 8.3 Licensee shall indemnify and save harmless Licensor and its directors, officers, employees and agents from all demands, claims, causes of action and judgments, and all expenses in connection therewith, resulting from any act or neglect of Licensee, or its employees, agents and contractors on or about the OTBs. This indemnity shall continue notwithstanding the termination of this Agreement with respect to any act or occurrence preceding such termination. 8.4 Licensor shall indemnify and save harmless Licensee and its directors, officers, employees and agents from all demands, claims, causes of action and judgments, and all expenses in connection therewith, resulting from any act or neglect of Licensor, or its employees, agents and contractors on or about the OTBs. This indemnity shall continue notwithstanding the termination of this Agreement with respect to any act or occurrence preceding such termination. 26 IX. DEFAULT AND TERMINATION 9.1 This Agreement may be terminated prior to the expiration of the Initial Term or any Extended Term thereafter upon the occurrence of any of the following events: A. By the written agreement of the parties hereto; B. By Licensor, if Licensee fails to pay any amounts to Licensor within five (5) days following notice from Licensor that such amounts are due; provided, however, that if Licensee fails to pay amounts to Licensor within five (5) days of when due more than twice during any Contract Year, Licensor may terminate this Agreement without further opportunity of Licensee to cure or correct such failure; C. By either party, if any license previously granted to the other party which is required to permit such party to perform its obligations hereunder is revoked or suspended for any reason and such party is legally unable to perform its obligations hereunder for a period of two (2) business days or more; D. By either party, if the other party (1) files or has filed on its behalf or against it a petition under any section or chapter of the Federal Bankruptcy Act, which is not vacated within sixty (60) days, (2) shall become insolvent or unable to pay its debts or meet its obligations, (3) has a receiver or trustee appointed for all or any portion of its assets, which appointment is not vacated within sixty (60) days, or, (4) makes an assignment to or for the benefit of creditors of all or any portion of its assets. E. By either party, if the other party fails to comply with or perform any of the terms, conditions or covenants under this Agreement to be complied with or performed by such party for more than thirty (30) days after written notice of such failure shall have been given to such party, or within such further period as is reasonably required to fully comply with or perform such term, condition or covenant. F. By Licensor, on ten (10) days' written notice to Licensee, if Licensee fails for any reason to fulfill its obligations to (i) provide bridge financing to Licensor in accordance with the provisions of Paragraph 9 of the Purchase Agreement, (ii) to purchase a partnership interest in Licensor in accordance with the terms and conditions of the Purchase Agreement, or (iii) to make its required capital contribution to Licensor in accordance with the terms and conditions of the Second Amended and Restated Limited Partnership Agreement of Licensor set forth as Exhibit A to the Purchase Agreement. Written notice of any termination of this Agreement by either party shall be given to the other party in the manner set forth herein, shall be effective on and as of the date notice is given (or such later date as may be set forth therein), and shall specify the reason for such termination. 27 9.2 In the event this Agreement is terminated for any reason, the parties agree to cooperate with each other to effect, directly or indirectly, a transfer of the liquor license(s) held by Licensee to Licensor or its designee on such terms as the parties may reasonably agree and in such a manner as to avoid, to the extent reasonably possible, any disruption of service to patrons of the Racetrack and the OTBs. X. MISCELLANEOUS 10.1 Any notices by either party to the other shall be in writing and shall be delivered personally; sent by facsimile, acknowledgement of receipt requested; sent by overnight courier service, return receipt requested; or, deposited in U.S. Mail certified mail, return receipt requested, and addressed as follows: To Licensor: Colonial Downs, L.P P. O. Box 456 Providence Forge, Virginia 23140 Facsimile: 804-966-2086 Telephone: 804-966-7223 with copies to: James L. Weinberg, Esq. Hirschler, Fleischer, Weinberg, Cox & Allen The Federal Reserve Bank Building 701 East Byrd Street Richmond, Virginia 23219 Facsimile: 804-644-0957 Telephone: 804-771-9527 To Licensee: Virginia Concessions, L.L.C. 1231 Main Avenue Cleveland, Ohio 44114 Facsimile: 216-861-6315 Telephone: 216-861-4080 with copies to: Stephen Owendoff, Esq. Hahn Loeser Parks 3300 BP America Building 200 Public Square Cleveland, Ohio 44114 Facsimile: 216-241-2824 Telephone: 216-621-0150 28 Any party may at any time change the address for notices to it by delivering, as aforesaid, a notice to the other party stating the change and setting forth the changed address. The effective date of any notice shall be the date it is personally delivered, received by telefax or courier, or three (3) days after it is deposited in the U.S. Mail in accordance with the provisions of this Section 10.1. 10.2 Nothing contained in this Agreement shall constitute or be construed to be or create a partnership or joint venture between Licensor and Licensee and, except as specifically set forth herein or otherwise agreed in writing, neither shall have the power or authority to bind or obligate the other. 10.3 This Agreement may not be changed or modified except by another agreement in writing signed by the parties hereto. 10.4 The Section numbers and headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. 10.5 This Agreement shall be binding upon and inure to the benefit of each party hereto, and its respective successors and assigns. This Agreement may not be assigned by any party without the prior written consent of the other party hereto, which consent shall not be unreasonably withheld. Provided, however, that, subject to the approval of the assignee by the Commission, Licensee may assign its rights and obligations to any affiliated entity controlling, controlled by or under common control with Licensee which is formed for the purposes of providing the concessions services contemplated herein with notice to, but not the consent of, Licensor. 10.6 This Agreement shall be deemed to have been made and shall be construed and interpreted in accordance with the laws of the State of Ohio, provided, however, that the laws of the Commonwealth of Virginia shall apply to any issues arising under the Virginia Racing Act or the rules and regulations of the Commission promulgated thereunder. 10.7 The parties acknowledge that Stansley Racing Corp. has been made a party to this Agreement solely because (i) it holds the license from the Commission to operate the Racetrack and (ii) it holds the operator's license for the OTBs located in Chesapeake, Richmond and Hampton, Virginia, and is expected to apply for OTB licenses for future OTB locations. The parties agree that all obligations of Licensor set forth in this Agreement shall be solely the obligations of Colonial Downs, L.P., except as may specifically relate to the operator's license(s) held by Stansley Racing Corp. 10.8 This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior oral and written discussions and understandings. Acceptance of, or acquiescence in, a course of performance rendered under 29 this Agreement shall not be relevant or admissible to determine the meaning of this Agreement even though the accepting or acquiescing party has knowledge of the nature of the performance and an opportunity to make objection. No representations, understandings or agreements have been made or relied upon in making of this Agreement other than those specifically set forth herein. IN WITNESS WHEREOF, Licensor and Licensee have entered into this Agreement, by and through their respective duly authorized representatives, on the day and year first above written. COLONIAL DOWNS, L.P. By: ______________________________ Arnold W. Stansley, President, Stansley Management Corp. - its General Partner By: ______________________________ Jeffrey P. Jacobs, Manager, Jacobs Entertainment Ltd., as Manager of CD Entertainment Ltd. STANSLEY RACING CORP. By: _____________________________ Arnold W. Stansley VIRGINIA CONCESSIONS, L.L.C. By: _____________________________ Jeffrey P. Jacobs 30 EX-10.17 16 AGREEMENT FOR PROVISION OF CREDIT AGREEMENT FOR PROVISION OF CREDIT THIS AGREEMENT ("Agreement") is made and entered into as of the 27th day of February, 1997 among DIVERSIFIED OPPORTUNITIES GROUP LTD., an Ohio limited liability company or its nominee as described in Section 4(b) ("Diversified"), JEFFREY P. JACOBS ("Mr. Jacobs"), CD ENTERTAINMENT LTD., an Ohio limited liability company ("CD"), and COLONIAL DOWNS HOLDINGS, INC. , a Virginia corporation ("Colonial Downs"). RECITALS WHEREAS, Colonial Downs is in the process of completing an underwritten public offering of up to 4,887,500 shares of its Class A Common Stock (the "Offering") managed by Friedman, Billings, Ramsey & Co., Inc. as a representative of the several participating underwriters (the "Representative") as described in the final prospectus with respect thereto (the "Prospectus") in order to raise approximately $42.5 million for (a) the completion and commencement of operation of a horse racetrack under construction in New Kent County Virginia, (b) the acquisition, construction, renovation, and equipping of satellite wagering facilities, (c) the repayment of certain interim financing provided by Colonial Downs' shareholders and affiliated entities, and (d) working capital and other general corporate purposes (collectively, the "Uses"); WHEREAS, to facilitate the closing of the Offering and as an inducement to the underwriters proceeding with the Offering prior to Colonial Downs securing debt financing from a financial institution, Diversified will (a) deliver to Colonial Downs prior to the closing of the Offering a bank irrevocable letter of credit in the amount of $6.5 million; (b) provide certain credit support to assist Colonial Downs to secure a loan of not less than $10 million upon certain terms and conditions as set forth herein; and (c) if such loan cannot be obtained, make a loan of not less than $10 million to Colonial Downs pursuant to the terms hereto; and WHEREAS, Mr. Jacobs has agreed to guarantee Diversified's performance hereunder. W I T N E S S E T H: NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Provision of Credit Enhancement by Diversified (a) Prior to or simultaneously with the execution of the Underwriting Agreement with respect to the Offering, Diversified will deliver to Colonial Downs a bank irrevocable letter of 12 credit in the amount of $6.5 million (the "Letter of Credit") which may be drawn upon by Colonial Downs at any time and which shall expire no earlier than the earlier to occur of execution, and delivery of, and satisfaction of all conditions to funding under either (i) the Bank Credit Facility or (ii) the Diversified Loan (each as defined below). If Colonial Downs draws upon the Letter of Credit, the terms of repayment of any such amounts shall be identical to the repayment terms of the Diversified Loan (as defined below) as provided in Section 2(b) hereof. (b) Additionally, Diversified shall provide such credit support to Colonial Downs as it shall reasonably require to obtain a loan of not less than $10 million from a financial institution (the "Bank Credit Facility"). The Bank Credit Facility will remain outstanding for a term of not less than three years (however, Colonial Downs and Diversified will use their best efforts to secure a term of four to five years); have an interest rate not to exceed LIBOR plus three percent (3%); and shall contain representations, warranties, conditions for drawings, events of default, and remedies no less favorable to Colonial Downs than would be customary for secured construction loans to creditworthy borrowers. (c) In exchange for providing such letter of credit and credit support for the Bank Credit Facility, and so long as the Letter of Credit or the Diversified credit support for the Bank Credit Facility remains outstanding, Colonial Downs shall pay an annual fee (the "Fee") on the last day of each fiscal year of Colonial Downs equal to three percent (3%) of (x) the amount of the Letter of Credit or (y) the outstanding amount of the Bank Credit Facility that is guaranteed or secured by letters of credit or the assets or credit of Diversified, as the case may be; provided, however, that with respect to the Letter of Credit, the Fee shall not be less than $50,000.00 for any fiscal year. For purposes of this calculation, the amount of such outstanding indebtedness shall be the average of such outstanding indebtedness (or, in the case of the Letter of Credit, the average of the maximum stated amount thereof) as of the first day of each month of such fiscal year. Additionally, Colonial Downs shall reimburse Diversified for its reasonable out-of-pocket expenses incurred in connection with providing the Letter of Credit and such credit support upon presentation of evidence reasonably satisfactory to Colonial Downs of such expenses. 2. Extension of Credit by Diversified. (a) In the event that Colonial Downs is unable to close on the Bank Credit Facility and satisfy all conditions precedent to funding thereon on or before September 1, 1997, Diversified shall loan to Colonial Downs on or before September 1, 1997 not less than $10 million (the "Diversified Loan). (b) The Diversified Loan shall (i) have a term of four (4) years; (ii) bear interest at a rate of not more than LIBOR plus three percent (3%); (iii) provide for payments of principal and interest based upon a fifteen-year amortization schedule, with interest only due for the first twelve months such loan is outstanding, payable monthly, and the entire balance due at maturity; and (iv) otherwise, be substantially in the form of the $5.5 million principal amount Convertible Subordinated Note from Colonial Downs to CD, as described in the Prospectus (exclusive of the 13 subordination and conversion provisions thereof). The Diversified Loan shall be secured by Colonial Downs' real estate, equipment, and other tangible and intangible assets. (c) After the closing of the Diversified Loan, Diversified shall be paid the Fee quarterly on the outstanding balance of the Diversified Loan for so long as such Loan remains outstanding. Additionally, Colonial Downs shall reimburse Diversified for its reasonable out-of-pocket expenses incurred in connection with providing such Loan upon presentation of evidence reasonably satisfactory to Colonial Downs of such expenses. 3. Colonial Down's Deferral of Reimbursement of Interim Financing; Release of Letter of Credit (a) Until the closing of the Bank Credit Facility or the Diversified Loan, as the case may be, CD shall defer repayment of the $3.5 million principal amount of loans that it has extended to Colonial Downs or Colonial Downs, L.P., a Virginia limited partnership (the "Partnership"). Accordingly, Colonial Downs agrees to amend the Promissory Note in the principal amount of $3 million, dated July 14, 1996 (the "Original Note") to provide for an increased principal amount of $3.5 million and provide for the prepayment of the Original Note, as so amended, only from the proceeds of the closing of the Bank Credit Facility or the Diversified Loan, as the case may be. The amended Original note shall continue to be secured by the deed of trust securing the payment of the Original Note shall remain in place until the amended Original Note is paid in full and interest continue to accrue and be payable thereon on a current basis. (b) Upon the closing of the Bank Credit Facility or the Diversified Loan, the Letter of Credit will be returned to Diversified and canceled. (c) Proceeds from the Bank Credit Facility or the Diversified Loan may be used for any of the Uses specified in the recitals hereto. 4. Representations and Warranties. Each of Diversified and CD represent and warrant to Colonial Downs the following: (a) Each of Diversified and CD is a limited liability company duly organized and validly existing under the laws of the State of Ohio, with the power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, delivery and performance of this Agreement have been duly authorized by its manager, which constitutes all action necessary for such execution, delivery and performance. (b) This Agreement has been duly executed and delivered by a duly authorized representative of each of Diversified and CD, and constitutes the legal and binding obligation of each, enforceable against each in accordance with its terms, except as such 14 enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' generally and by general principles of equity. (c) Neither the execution of this Agreement nor the consummation of the transactions contemplated herein will constitute or result in, whether at present or with the giving of notice and/or the passage of time, a material violation, breach or default under (1) any agreement, contract, covenant, lease, or other instrument to which either Diversified or CD is a party or by which it is bound, (2) any statute, regulation or ordinance to which the either Diversified or CD is subject or any of their assets, or (3) any judgment, order, decree or other requirement of law by which either Diversified or CD is bound. 5. Mr. Jacobs' Guarantee; Notice of Obligations (a) Mr. Jacobs absolutely and unconditionally hereby guarantees Diversified's full and timely performance of its agreements and obligations hereunder when due, including, but not limited to, the provision of the Letter of Credit and the Diversified Loan. (b) Further, Mr. Jacobs' and Diversified's obligations hereunder are unconditional and irrevocable. 6. Assignment. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the parties hereto and may not be assigned without the prior written consent of the other parties hereto; provided, however, Diversified may assign its rights and obligations hereunder, in whole or in part, to one or more corporations, limited liability companies, partnerships, trusts, or other entities which are under common control with, or controlled through equity and/or voting control by Diversified or Jeffrey P. Jacobs subject to the limitations of the Virginia Horse Racing and Pari-Mutuel Wagering Act and other applicable laws; it being acknowledged that (i) any entity managed by or controlled by Jacobs Entertainment Ltd. and/or Jeffrey P. Jacobs or (ii) any entity in which either Jacobs Entertainment Ltd. or Jeffrey P. Jacobs is one of the trustees and/or one of the beneficiaries constitutes common control. 7. Miscellaneous. Prior to the closing of the Bank Credit Facility or the Diversified Loan, as the case may be, this Agreement may not be modified or amended, nor may any of the provisions hereof be waived, except in a writing signed by the parties hereto and the Representative. All provisions in this Agreement are severable and each valid and enforceable provision shall remain in effect and shall be binding upon the undersigned, notwithstanding that other provisions may be held by legislative or judicial process to be invalid or unenforceable. In the event any provision of this Agreement is held to be invalid or unenforceable, the parties agree to modify this Agreement to effectuate the intent of the parties hereto as nearly as practicable. All notices, consents, demands, requests, or other communications which may or are required to be given hereunder shall be in writing and shall be sent by telefax, overnight courier, or United States mail, registered or certified, return receipt requested, postage prepaid at the address of 15 each party hereto set forth under the party's signature hereto. Any party may change its or his address for the giving of notices, consents, demands, requests, or other communications by delivering written notice to all the parties of its or his new address for such purpose. Notices, consents, demands, requests, or other communications shall be deemed given or served on the day when sent by telefax, one business day after deposit with an overnight courier, or two business days after deposit in the United States mail. This Agreement may be executed in two or more counterparts, each of which shall be an original but all of which together shall constitute one and the same agreement. 16 IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date and year first set forth above. DIVERSIFIED OPPORTUNITIES GROUP LTD. By: JACOBS ENTERTAINMENT LTD., its manager By: __________________________ Jeffrey P. Jacobs, Manager 1231 Main Avenue Cleveland, OH 44113 __________________________ JEFFREY P. JACOBS 1231 Main Avenue Cleveland, OH 44113 CD ENTERTAINMENT LTD. By: JACOBS ENTERTAINMENT LTD., its Manager By: __________________________ Jeffrey P. Jacobs, Manager 1231 Main Avenue Cleveland, OH 44113 COLONIAL DOWNS HOLDINGS, INC. By: _________________________________ O. James Peterson, III, President 17 EX-11.1 17 COMPUTATION OF EARNINGS PER COMMON SHARE Exhibit 11.1 Colonial Downs Holdings, Inc. Computation of Earnings Per Common Share
Year Ended December 31 ------------------------------------------------ 1996 1995 1994 1993 ---- ---- ---- ----- Earnings Net loss..................... $ (645) $ (320) $ (19) $ (17) ========== ========== ========== ========== Shares Weighted average number of common shares outstanding.. 3,000,000 3,000,000 3,000,000 3,000,000 ========== ========== ========== ========== Earnings per common share.... $ (0.22) $ (0.11) $ (0.01) $ (0.01) ========== ========== ========== ==========
Pro forma earnings per common share(1) Year Ended December 31 -------------------------- 1996 ---- Earnings Net loss..................... $ (645) Deduct interest expense applicable to outstanding shareholder debt........... $ 183 ---------- Pro forma net loss............. $ (462) ========== Shares Weighted average number of common shares outstanding.. 3,000,000 Add - shares required to repay outstanding shareholder debt of $5.1 million............... 555,847 ---------- Weighted average number of common shares outstanding as adjusted ............... 3,555,847 ========== Pro forma net loss per common share........................ $ (0.13) ========== (1) Reflects the per share data and weighted average number of shares outstanding giving effect to the issuance of only that number of shares needed to generate the portion of the net proceeds used to repay debt, and elimination of interest expense, as if the repayment had occurred at the beginning of the latest year. EX-21.1 18 SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 Subsidiaries of the Registrant Prior to the reorganization the Registrant has no Subsidiaries. Upon consummation of the reorganization, Subsidiaries of the Registrant will be: Colonial Downs, L.P., a Virginia limited partnership, a 99% limited partner interest; Stansley Racing Corp., a Virginia corporation, 100%. EX-23.2 19 CONSENT OF ACCOUNTANTS Exhibit 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS (the following is the form of the consent that BDO Seidman, LLP will be in a position to issue upon completion of the reorganization described in Note 1 to the consolidated financial statements) Colonial Downs Holdings, Inc. Providence Forge, Virginia As independent public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in or made a part of this registration statement. BDO Seidman, LLP Richmond, Virginia March 7, 1997 -----END PRIVACY-ENHANCED MESSAGE-----