-----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, ND08ohNUWmrzp178rCQnqt2sQaq0ah1+YWOvby5XsajPlTXARYJ+wpSI9k60r3W8 0IiHuNVgVH7EU8qn8EDhaw== 0001024739-97-000737.txt : 19971117 0001024739-97-000737.hdr.sgml : 19971117 ACCESSION NUMBER: 0001024739-97-000737 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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] IRS NUMBER: 541826807 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22213 FILM NUMBER: 97721650 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 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _________to _________. Commission file number: 333-18295 COLONIAL DOWNS HOLDINGS, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Virginia 54-1826807 --------------------------------- --------------------------------- (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 10515 Colonial Downs Parkway New Kent, Virginia 23124 ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (804) 966-7223 3610 North Courthouse Rd., Providence Forge, Virginia ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Applicable only to corporate issuers: As of November 12, 1997, the number of shares outstanding of the Company's Class A Common Stock was 5,000,000 shares and of the Company's Class B Common Stock 2,250,000 shares. ================================================================================ FORM 10 - Q COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES INDEX PART 1 - FINANCIAL INFORMATION Page Item 1. - Financial Statements ----- Consolidated Balance Sheets - 3 September 30, 1997 (unaudited) and December 31, 1996 Consolidated Statements of Earnings (Loss) - 4 Three months and nine months ended September 30, 1997 and 1996 (unaudited) Consolidated Statement of Shareholders' Equity - 5 Nine months ended September 30, 1997 (unaudited) Consolidated Statements of Cash Flows - 6 Nine months ended September 30, 1997 and 1996 (unaudited) Notes to Consolidated Financial Statements 7-12 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 13-17 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 18 Item 5 - Other Information 19 Item 6 - Exhibits and Reports on Form 8-K 19 COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited) September 30, December 1997 1996 ------------ --------- Assets Current Cash and cash equivalents $9,036 $1,380 Restricted cash - purses & awards 5,132 338 Accounts receivable 1,017 39 Prepaid expenses 352 9 ------ ------- Total current assets 15,537 1,766 Property and equipment Land 2,028 800 Building and leasehold improvements 46,171 2,596 Equipment, furnishings and fixtures 3,099 888 Refundable advance - land 5,000 - Construction in progress 1,816 5,080 ----- ------ 58,114 9,364 Less accumulated depreciation 373 126 ----- ----- Net property and equipment 57,741 9,238 Other Licensing costs and other assets 1,182 1,333 Less accumulated amortization 306 161 ----- ------ Total other 876 1,172 ----- ------ Total assets $74,154 $12,176 ======== ======== Liabilities and Stockholders' Equity Current Liabilities Notes payable - stockholders $- $1,638 Current maturities of long-term debt and capital lease obligations 1,407 48 Accounts payable 13,372 3,566 Accrued expenses 1,221 480 Purses due horsemen 5,205 1,957 Income taxes payable 367 - ------ ------- Total current liabilities 21,572 7,689 Long term liabilities Long term debt and capital lease obligations, net of current maturities 4,244 42 Notes payable - stockholders 5,500 3,449 Refundable advance - land 5,000 - ------ ------- Total long term liabilities 14,744 3,491 ------ ------- Total liabilities 36,316 11,180 Stockholders' 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; 5,000,000 and 750,000 shares outstanding, 50 8 Class B, $.01 par value, 3,000,000 shares authorized; 2,250,000 shares outstanding 23 23 Additional paid-in capital 37,784 1,966 Retained earnings (deficit) (19) (1,001) ------ ------- Total stockholders' equity 37,838 996 ------ -------- Total liabilities & stockholders' equity $74,154 $12,176 ========= ======== See accompanying notes to consolidated financial statements 3 CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------ ------ ------ ------ Revenues Pari-mutuel commissions $5,959 $1,915 $15,631 $5,231 Other 1,194 147 1,983 473 ------ ------ ------- ------ Total revenues 7,153 2,062 17,614 5,704 ------ ------ ------- ------ Direct operating expenses Purses, fees and pari-mutuel taxes 2,158 150 6,035 1,539 Simulcast and other direct expenses 4,485 1,608 9,471 3,262 ------ ----- ------- ----- Total direct operating expenses 6,643 1,758 15,506 4,801 General and administrative expenses 625 456 1,350 1,223 ------ ------ ------ ----- Total expenses 7,268 2,214 16,856 6,024 ------ ----- ------ ----- Earnings (loss) from operations (115) (152) 758 (320) Other income (expense) Interest expense (32) (63) (116) (94) Interest income 268 2 707 6 ------ ----- ------ ----- Total other income (expense) 236 (61) 591 (88) ------ ----- ------ ------ Earnings (loss) before income taxes 121 (213) 1,349 (408) Taxes on income (41) - (367) - ------ ------ ------ ------ Net earnings (loss) $80 $(213) $982 $(408) ------ ------ ------ ------ Earnings (loss) per share data: Earnings (loss) per share $0.01 $(0.07) $0.16 $(0.14) ------ ------ ----- ------- Weighted average number of shares outstanding 7,250 3,000 6,051 3,000 ====== ====== ===== =======
See accompanying notes to consolidated financial statements 4 COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited)
Common Stock --------------------------------------------------- Additional Retained Class A Class B Paid-in Earnings Shares Amounts Shares Amounts Capital (Deficit) Total ---------- --------- ---------- ---------- -------- --------- --------- Balance, at January 1, 1997 750,000 $8 2,250,000 $23 $1,966 $(1,001) $996 Issuance of common stock 4,250,000 42 - - 35,818 - 35,860 Net income for the nine months ended September 30, 1997 - - - - - 982 982 ---------- --------- ----------- ---------- -------- -------- -------- Balance at September 30, 1997 5,000,000 $50 2,250,000 $23 $37,784 $(19) $37,838 ========== ========= =========== ========== ======== ======== ========
See accompanying notes to consolidated financial statements. 5 COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS) (Unaudited)
Nine months ended September 30, 1997 1996 ---------- --------- Cash flows from operating activities Net earnings (loss) $982 $(408) Adjustments to net earnings (loss) Depreciation and amortization 392 181 (Increase) decrease in accounts receivable and other assets (1,321) (11) Increase (decrease) in accounts payable and income taxes payable 2,484 384 Increase (decrease) in accrued expenses and other 711 316 ----- ---- Net cash provided by operating activities 3,248 462 ------ ---- Investing activities Purchases of property and equipment and construction in progress (43,750) (2,486) Increase (decrease) in accounts payable for property, equipment 7,689 (900) and construction Investment in other assets (151) (298) ------- ------- Net cash absorbed by investing activities (36,212) (3,684) ------- ------- Financing activities Net proceeds from stock offering 36,192 2,000 Proceeds from long-term debt and capital leases 5,561 5 Proceeds from stockholder notes payable 2,051 273 Funding of purse account promissory notes (1,546) - Proceeds from purse account promissory notes - 927 Payments on stockholders' advances and notes payable (1,638) - ------- ----- Net cash provided by financing activities 40,620 3,205 ------- ----- Net increase (decrease) in cash and cash equivalents 7,656 (17) Cash and cash equivalents, beginning of period 1,380 330 -------- ------- Cash and cash equivalents, end of period $9,036 $313 ========== ========
At September 30, 1997 and 1996, $11,005,000 and $230,000, respectively, were due vendors for property and equipment purchases. Non cash activities For the nine months ended September 30, 1997, approximately $332,000 of previously paid finance paid in capital. See accompanying notes to consolidated financial statements. 6 Colonial Downs Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 1. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the following entities of Colonial Downs Holdings, Inc. (collectively, the "Company"), which are 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 as of December 31, 1993. All significant intercompany accounts and transactions have been eliminated. The Company's initial public offering ("IPO") became effective on March 17, 1997. The Company sold 4,250,000 shares of its common stock raising $35.9 million (net of expenses) which is being used to develop, construct, and operate a pari-mutuel horse racing facility and up to six satellite wagering facilities in Virginia. The financial information has been prepared in accordance with the Company's customary accounting practices and has not been audited. In the opinion of management, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature. The foregoing interim results are not necessarily indicative of the results of operation for the full year ending December 31, 1997. 7 Restricted Cash and Purses Due Horsemen The Company has agreements with the Virginia Horseman's Benevolent and Protective Association, Inc. and the Virginia Harness Horse Association (collectively the "Associations") which require it to fund specified amounts based on handle to restricted cash accounts to be used for live racing purses. As of September 30, 1997 approximately $5,132,000 was held in the restricted cash accounts, which, along with approximately $73,000 of funds to be remitted, equals the amounts due for purses as of September 30, 1997. Construction in Progress Construction in progress is recorded at cost and includes capitalized costs such as interest, architectural, contractor, and engineering fees. Approximately $400,000 of interest expense was capitalized during the nine months ended September 30, 1997 in connection with the construction of the racetrack and the Hampton and Brunswick racing centers. In March, 1997, the Company purchased land in Hampton, Virginia for approximately $1.1 million to construct its third racing center. The estimated total cost of the racing center is $3.9 million including land. As of September 30, 1997, $1.4 million has been recorded as construction in progress for this project, not including the land. In June, 1997, the Company purchased land in Brunswick County for approximately $135,000 to construct its fourth racing center. The estimated total cost of this racing center is $1.3 million including land. As of September 30, 1997, $.4 million has been recorded as construction in progress for this project, not including the land. The Company expects to open both facilities late in the fourth quarter of 1997. Income Taxes 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 provisions have 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' activity began March 18, 1997 and the income tax from such time forward has been provided for in the statements. 8 2. Management and Consulting Agreement with Maryland - Virginia Racing Circuit The Company entered into a consulting agreement with the Maryland - Virginia Racing Circuit, Inc. an affiliate of the Maryland Jockey Club ("MJC"). Pursuant to the agreement, MJC suspends live racing at Pimlico and Laurel racetracks during the Company's live thoroughbred racing meet and assists in managing the thoroughbred racing meet at the Company's racetrack. Under this agreement, the Company has recorded approximately $1.8 million in consulting expenses for the nine months ended September 30, 1997. 3. Land Conveyance and Land Development In March 1997, the land required to build the racetrack in New Kent County was conveyed to the Company, at no cost to the Company other than the payment of transfer and filing fees and taxes, by Chesapeake Forest Products Company ("Chesapeake Forest"), the previous owner. Under the deed, the land is subject to reversion to Chesapeake Forest if the Company fails to complete, open and operate for three years a racetrack licensed by the Virginia Racing Commission. Further, the deed restricts use of the property to operation of a horse racetrack and certain ancillary activities. The land was recorded at its fair value which the Company estimates to be approximately $5,000,000. Due to the retention of a reversionary interest by Chesapeake Forest, the land was recorded as a refundable advance with an offsetting liability. The refundable advance will be reclassified to land and the corresponding liability will be reclassified to additional paid-in capital when the likelihood for reversion is remote. 9 4. Notes Payable - Stockholders, Long - Term Debt and Capital Lease Obligations Notes payable and capital lease obligations consist of the following:
September 30, December 31, ------------- ------------ 1997 1996 ---- ---- Notes Payable - Stockholders Current: Note payable to CD Entertainment Ltd. bearing interest at LIBOR plus 2%, with a maximum borrowings of $5,000,000, unsecured.... $ - $ 1,388 Note payable to Stockholder, maturing January 1997, non-interest bearing, unsecured......................................................... - 175 Note payable to Norglass, Inc., maturing January 1997, non-interest bearing, unsecured......................................................... 75 ------- ------- Total Current $ - $ 1,638 ======= ======= Long - Term: Convertible subordinated note to CD Entertainment Ltd., maturing March 2000 with interest payable quarterly at a rate of 7.25%; collateralized by a second deed of trust on the racetrack facility...... $ 5,500 $ - Note payable to CD Entertainment Ltd. maturing January 1998 bearing interest at LIBOR plus 2%; collateralized by land & building......... - 3,000 Note payable to Norglass, Inc., maturing March 1998, non-interest bearing, unsecured......................................................... - 237 Note payable to stockholder, maturing March 1998, non-interest bearing, unsecured......................................................... 212 ------- ------- Total Long - Term $ 5,500 $ 3,449 ======= ======= Long -Term Debt & Capitalized Lease Obligations Construction loan facility of $10,000,000, collateralized by the racetrack and related equipment, with quarterly principal payments of $500,000 commencing April 1, 1998 and the remaining principal due June 30, 2000, bearing interest at prime plus 1.5% (10.0% at September 30, 1997). The loan has two one year extension options... $ 4,358 $ - Construction loan, collateralized by certain lighting equipment, with monthly principal payments of $15,000 and the remaining principal due August 21, 1999 bearing interest at prime plus 1%. (9.5% at September 30, 1997)........................................... 885 - Installment notes and capitalized leases collateralized by certain vehicles, machinery, and equipment, maturing at various dates, primarily March 1997 through September 2000, at interest rates ranging from 3% to 12%............................................ 388 70 Demand note payable to a Bank, with interest payable at prime plus 2% (10.5% at November 30, 1997); unsecured..................... 20 20 ------ ------ Total 5,651 90 Less: Current Portion (1,407) (48) ------- ------ Net Long - Term Debt and Capitalized Lease Obligations $ 4,244 $ 42 ======= ======
10 Colonial Downs, L.P. (the "Partnership"), a subsidiary of the Company entered into a $10 million Construction Loan Agreement (the "Construction Facility") with PNC Bank, National Association ("PNC") and a $5 million Revolving Line of Credit Agreement ("Revolving Credit Facility") with PNC as of June 26, 1997. Proceeds of the Construction Facility will be used for the construction of Colonial Downs' racetrack in New Kent County, Virginia. Proceeds of the Revolving Credit Facility will be available for working capital needs and other general Company purposes. Amounts outstanding under each credit facility bear interest at the rate of PNC's prime plus one and one-half percent (1.5%) or LIBOR plus three percent (3%), at the Company's option. Each facility has a term of three (3) years subject to two one-year extensions at the option of the Company provided that certain financial covenants are satisfied. At September 30, 1997, $4,358,000 had been borrowed under the Construction Facility. No amounts had been borrowed under the Revolving Credit Facility. The Company and the Partnership also are party to a $900,000 loan from Citizens and Farmers Bank (the "C&F Loan"). The loan is governed by a Business Loan Agreement and secured by the Track's lighting equipment pursuant to a Commercial Security Agreement. At September 30, 1997 the Company had borrowed $900,000 under the C&F Loan. 5. Related Party Transactions 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 racing centers. Under the agreement, Virginia Concessions, L.L.C. pays rent to the Company based on gross sales. This rental income for the Company for the nine months ended September 30, 1997 was $118,000. In April 1997, the Company entered into a management agreement to manage Virginia Concessions in return for the net income (or losses) from the operation of the food and beverage concessions. Norglass, Inc., an affiliate of a shareholder, is engaged as the general contractor to construct the racetrack and related facilities in New Kent County, Virginia. The contract value with Norglass, Inc. for the facility is $29.5 million. Norglass, Inc. has also been engaged to perform construction management related to the satellite facilities. Total racetrack construction cost paid to Norglass, Inc. was approximately $26.5 million through September 30, 1997. Norglass, Inc. receives a fee of $2 million under the racetrack construction contract and reimbursement of up to $1 million for certain out - of - - pocket expenses. In addition, Norglass, Inc. has been paid approximately $3.3 million in construction cost related to the SWFs. 11 In November 1997, Norglass, Inc. filed liens against the Company for a total of approximately $11.9 million. It appears the Company has paid approximately $5.1 million directly to the subcontractors of the $11.9 million claimed by Norglass, and the Company believes it has substantial defenses and possible offsets to the remaining amount. The contract between the Company and Norglass is a fixed price contract for $29.5 million and the Norglass claim exceeds the amount remaining to be paid under the contract. The contract with Norglass provides for disputes to be resolved by arbitration by the American Arbitration Association (AAA). In accordance with the contract, the Company has filed a demand for arbitration with the AAA to resolve the dispute. The Company is required under its loan agreement to either pay, bond or contest the liens by November 26, 1997. The Company is contesting these liens through arbitration. Although the arbitration process stays enforcement of the liens, the Company's lender may, at its option, require the Company to provide additional collateral during the pendency of the arbitration. The Company agreed to pay Premier One Development Co. ("Premier"), a company affiliated with CD Entertainment Ltd., a shareholder of the Company, a fee of $250,000 (of which $125,000 was paid in 1996, $32,000 in March 1997 and $93,000 in April 1997) for services related to the construction of the racetrack and the development of the racing centers. The Company also agreed to pay Premier an annual fee of $226,000 during the period October 1, 1997 to September 30, 1998 for research, development and acquisition services relating to new opportunities for the Company. The $10,000,000 construction loan credit facility is guaranteed by an officer, director and shareholder of the Company as well as a member of his immediate family. The Company is obligated to pay an annual guarantee fee of the greater of (i) three percent (3%) of the average outstanding balance of the credit facility or (ii) $50,000 to an affiliate of the officer, director and shareholder guarantor. 6. Earnings per share Earnings per share for the three and nine months ended September 30, 1997 and September 30, 1996 was computed by dividing the net income by the weighted average number of shares outstanding during the periods. (Prior to the reorganization of the Company effective March 12, 1997, the private owners of the Company held partnership interests which were converted to 3,000,000 shares of stock as part of the reorganization). No outstanding stock options were exercisable as of September 30, 1997 and therefore, they were not included in this calculation. Additionally, shares issuable upon the conversion of an outstanding convertible subordinated promissory note were excluded from the earnings per share calculation since the conversion price exceeded the average market price for the nine month period ended September 30, 1997. 12 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition 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 currently operates SWFs in Chesapeake and Richmond, Virginia and has received licenses to own and operate facilities in each of Hampton and Brunswick County, Virginia. The Company plans to conduct thoroughbred and standardbred ("harness") horse racing at its racetrack located in New Kent County, Virginia (the "Track"). The Company's inaugural thoroughbred meet opened on September 1, 1997 with thirty (30) days of live racing taking place before the meet ended on October 12, 1997. The Company also conducts 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. The Company has also increased its revenues by entering into agreements to simulcast races run at the Track to out-of-state racetracks, SWFs, casinos, and other gaming facilities. The Company's goal is to establish the Track as one of the premier venues for thoroughbred and standardbred horse racing in the eastern United States by attracting high quality horses and offering an appealing environment for racing participants and customers. The Company believes that its average purses are 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. This enables the Company to attract high quality horses, trainers, and jockeys to its meets. For the first nine months of 1997, total assets increased from $12,176,000 at December 31, 1996 to $74,154,000 at September 30, 1997 largely as result of the closing of the Company's IPO and the construction of the racetrack and the Hampton and Brunswick satellite wagering facilities. Additionally the Company took title to the real estate upon which the racetrack is being constructed. (The value of such property is treated as a refundable advance until such time as the likelihood of reversion to the property's grantor is remote. See footnote 3 to the financial statements). 13 Total liabilities increased during the same period from $11,180,000 at December 31, 1996 to $36,316,000 at September 30, 1997. The increase in liabilities is mainly attributable to the entry of the contribution of land to the Company by Chesapeake Forest Products Company as a refundable advance (see footnote 3 to the financial statements), long term borrowings, an increase in purses due horsemen, and an increase in accounts payable due to the construction and operation of the Track. Results of Operations Three months ended September 30, 1997 compared to three months ended September 30, 1996 Total revenue increased by approximately $5.1 million or 243% from $2.1 million for the three months ended September 30, 1996 to $7.2 million for the three months ended September 30, 1997. This increase was attributable to the operation of the live thoroughbred meet and two satellite wagering facilities, Chesapeake and Richmond, during the three months ended September 30, 1997 versus only the Chesapeake facility, which opened February 17, 1996, being in operation for the three months ended September 30, 1996. Total operating expenses increased by approximately $5.1 million or 232% from $2.2 million for the three months ended September 30, 1996 to $7.3 million for the three months ended September 30, 1997. The increase in operating expenses resulted from operating the live thoroughbred meet and two satellite wagering facilities in 1997 versus one satellite wagering facility in 1996. For the three months ended September 30, 1997 compared to the three months ended September 30, 1996, other income increased $297,000 to $236,000 comprised primarily of interest income which, increased $266,000 to $268,000 as a result of investing the IPO proceeds. For the three months ended September 30, 1997 compared to the three months ended September 30, 1996, the loss from operations decreased by approximately $37,000 from a loss of ($152,000) to a loss of ($115,000) due to the factors described above. Net earnings increased by approximately $293,000 from a loss of ($213,000) to net earnings of $80,000 for the three months ended September 30, 1997 due to the factors described above. Income tax expense increased from $0 to $41,000 due to the increase in net income for the period. 14 Nine months ended September 30, 1997 compared to nine months ended September 30, 1996 Total revenue increased by approximately $11.9 million or 209% from $5.7 million for the nine months ended September 30, 1996 to $17.6 million for the nine months ended September 30, 1997. This increase was attributable to the operation of the live thoroughbred meet and two satellite wagering facilities, Chesapeake and Richmond, during the nine months ended September 30, 1997 versus only the Chesapeake facility, which opened February 17, 1996, being in operation for the nine months ended September 30, 1996. Total operating expenses increased by approximately $10.9 million or 182% from $6.0 million for the nine months ended September 30, 1996 to $16.9 million for the nine months ended September 30, 1997. The increase in operating expenses resulted from operating the live thoroughbred meet and two satellite wagering facilities in 1997 versus one satellite wagering facility in 1996. For the nine months ended September 30, 1997 compared to the nine months ended September 30, 1996, other income, comprised primarily of interest income, increased $679,000 due to earnings from investing the IPO proceeds. For the nine months ended September 30, 1997 compared to the nine months ended September 30, 1996, earnings from operations increased by approximately $1,078,000 from a loss of ($320,000) to earnings of $758,000 due to the factors described above. Net earnings increased by approximately $1,390,000 from a loss of ($408,000) to net earnings of $982,000 for the nine months ended September 30, 1997 due to the factors described above. Income tax expense increased from $0 to $367,000 due to the increase in net income for the period. Liquidity and Capital Resources The Company's primary sources of liquidity and capital resources have been stockholders loans, long-term debt and proceeds from the initial public offering of the Company's common stock. During the nine months ended September 30, 1997, the Company's cash position increased by approximately $7.6 million from $1.4 million at December 31, 1996 to $9.0 million at September 30, 1997 as a result of approximately $36.2 million in proceeds from the stock offering, a $2.0 million increase in stockholder notes payable, a $7.6 million increase in accounts payable for purchases of property, equipment and construction, a $3.2 million increase from operating activities and a $5.5 million increase in other debt offset primarily by $43.8 million of cash absorbed by construction in progress and purchases of property and equipment, $1.6 million cash absorbed for repayment of stockholder's note payable, and $1.5 million of cash absorbed funding purse account promissory notes. For the nine months ended September 30, 1996 the Company's cash position decreased approximately $.02 million. 15 Net cash provided by operating activities for the nine months ended September 30, 1997 totaled approximately $3.2 million. This was a result of net earnings and depreciation, $1.4 million, an increase in accounts payable, purses payable and accrued expenses of $3.1 million offset by an increase in accounts receivable and other assets of $1.3 million. For the nine months ended September 30, 1996, net cash provided by operations was $.5 million. Cash flows used in investing activities totaled approximately $ 36.2 million for the nine months ended September 30, 1997 as compared to $3.7 million for the nine months ended September 30, 1996. Capital expenditures made in the nine months ended September 30, 1997 were primarily for the purchase of land and beginning construction of the Hampton satellite facility ($2.6 million), the purchase and the development of the Brunswick property ($.5 million) and for the continued construction of the race track in New Kent County ($40.7 million). In addition, the other assets increased $.1 million during this period. These investing activities were offset by a $7.7 million increase in accounts payable for purchases of property, equipment and construction. For the nine months ended September 30, 1996, cash flows used in investing activities total approximately $3.7 million. Capital expenditures were primarily for the build out and equipping of the Chesapeake satellite wagering facility ($2.5 million), a decrease in account payable ($.9 million), and an increase in other assets ($.3 million). Cash flows from financing activities for the nine months ended September 30, 1997 totaled approximately $ 40.6 million. This was primarily the result of the stock offering of 4,250,000 shares of common stock, which provided proceeds of approximately $36.2 million, and net increased stockholder loans of $.4 million and long term debt of $5.5 million offset by $1.5 million in funding of purse account promissory notes. For the nine months ended September 30, 1996 cash flows from financing activities was approximately $ 3.2 million primarily from increased stockholder loans and proceeds from purse account promissory notes. The remaining proceeds from the stock offering and from existing credit facilities will be used to complete construction of the Hampton satellite facility (approximately $1.2 million), and complete construction of the Brunswick County satellite facility (approximately $.8 million). The Hampton satellite facility is currently under construction and is projected to open in the fourth quarter of this year. Construction of the Brunswick is currently underway and expected also to open late in the fourth quarter of this year. The Company believes that the cash on hand, cash generated from operations, and the above credit facilities will be sufficient to fund its anticipated future cash requirements. 16 Seasonality The Company's revenues and net income may fluctuate from quarter to quarter for a variety of reasons. For example, 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 and the Breeder's Crown in November. Forward Looking Statements Statements regarding the anticipated opening of additional satellite wagering facilities, scheduling of the thoroughbred and harness meets, and certain other statements contained in this quarterly report are 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 potential risks, uncertainties and factors include, but are not limited to, risks of construction delays, including unforeseen environmental, engineering or geological problems, governmental regulation, including licensing of additional satellite wagering facilities, approval by the Virginia Racing Commission of thoroughbred and harness dates for 1998, competition with other sporting events and forms of entertainment, and the success of planned advertising, marketing and promotional efforts. 17 Part II - Other Information Item 1 - Legal Proceedings On November 14, 1997, the Company filed for arbitration of disputes with Norglass, Inc., general contractor for the construction of the racetrack and related facilities, in response to filings of mechanic's liens aggregating approximately $11.9 million. Pursuant to the terms of the construction contract, all disputes are to be settled by arbitration pursuant to the rules of the American Arbitration Association. Norglass, Inc. is an affiliate of James M. Leadbetter, who holds more than 5% of the stock of the Company. 18 Item 5 - Other Information The Company was selected to host the Breeder's Crown, a prestigious series of harness races, to be held in November 1998. The Breeder's Crown is the standardbred horse industry's equivalent of thoroughbred racing's Breeder's Cup. In November 4, 1997 referenda, voters in Roanoke, Fredericksburg and Martinsville declined to permit the locating of a satellite facility in those principalities. The Company intends to seek referenda in other Virginia localities. Item 6 - Exhibits and Reports on Form 8-K (a) - Exhibits 10.12 Promissory Note dated August 21, 1997 payable to Citizens and Farmers Bank in the original principal amount of $900,000. 10.13 Business Loan Agreement dated August 21, 1997 among the Company, the Partnership and Citizens and Farmers Bank. 10.14 Commercial Security Agreement dated August 21, 1997 among the Company, the Partnership and Citizens and Farmers Bank. 10.15 Subordination Agreement (Lighting) dated August 18, 1997 among CD Entertainment, the Company, Colonial Downs, L.P. and David F. Belkowitz and James W. Theobald. 11. Earnings Per Share (See Part I, Item I) 27. Financial Data Schedule for the period ending September 30, 1997. (b) - Reports on Form 8-K On September 23, 1997, the Company filed a report on Form 8-K reporting that the Virginia Racing Commission (the "Commission") had unconditionally released the $1.0 million letter of credit that it held to secure the Company's performance guarantee. Under the performance guarantee, the Commission was entitled to draw $5,000 per day in penalties from the Company for every day after July 17, 1997 that the track was not open for live racing. The Company also reported that the opening dates for the Brunswick and Hampton Racing Centers had been delayed from the September 1997 dates previously reported. No other reports on Form 8-K were filed during the period. 19 Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Colonial Downs Holdings, Inc. Date: November 14, 1997 /s/ O. James Peterson, III ----------------------------- O. James Peterson, III, President and Chief Operating Officer Date: November 14, 1997 /s/ Ian M. Stewart ----------------------------- Ian M. Stewart, Vice President and Chief Financial Officer 20 EX-10.12 2 PROMISSORY NOTE PROMISSORY NOTE
- -------------------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials - -------------------------------------------------------------------------------------------- $900,000.00 08-21-1997 08-21-1999 9008949 208 9008949 gs196 - -------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - --------------------------------------------------------------------------------------------
Borrower: Colonial Downs Holdings, Inc. Lender: Citizens and Farmers Bank 3610 North Court House Road Administratlon Providence Forge, VA 23140 P. O. Box 391 802 Main Street West Point, VA 23181 ================================================================================ IMPORTANT NOTICE THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGEMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO OBTAIN A JUDGEMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE. ================================================================================ Principal Amount: $900,000.00 Date of Note: August 21, 1997 PROMISE TO PAY. Colonial Downs Holdings, Inc. ("Borrower") promises to pay to Citizens and Farmers Bank ("Lender"), or order, in lawful money ot the Untted States ot America, the principal amount ot Ntne Hundred Thousand & 00/100 Dollars (S900,000.00), together with interest on the unpaid principal balance from August 21, 1997, until paid in full. PAYMENT. SubJect to any payment changes resulting trom changes in the Index, Borrower will pay this loan in accordance with the following payment schedule: 23 consecutive monthly principal payments ol S15,000.00 each, beginning September 21, 1997, with Interest calculated on the unpaid principal balances at an Interest rate ot 1.000 percenbge points over the Index described below; 23 consecutive monthly Interest payments, beginning September 21, 1997, with Interest calculated on the unpaid prtacipal balances at an interest rate ot 1.000 percentage points over the Index described below, and 1 prlocipal and Interest payment In the Initlal amount ot S559,540.21 on August 21, 1999, with Interest calculated on the unpaid prlacipal balances at an Interest rate ot 1.000 percentage polots over the Index described below. This estimated final payment Is based on the assumption thst all payments will be made exactly as scheduled and that the Index does not change; the actual flnal payment will be tor all principal and accrued Interest not yet paid, together with any other unpaid amounts under this Note. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in wnting. Uniess otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collechon costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Pnme rate as published in the Wall Street Journal (the ~Indexn). The Index is not necessanly the lowest rate charged by Lender on its loans. If the Index becomes unavailable dunog the term of this loan, Lender may designate a substitute index after notice to Bonrower. Lender will tell 8Onrower the current Index rate upon Bonrower's request. Borrower understands that Lender may make loans based on other rates as weli. The interest rate change will not occur more often than each time Wall Street Journal Pnme Rate changes. The Index currently Is 8.500% per annum. The Interest rate or rstes to be applied to the unpaid prtncipal balance ot tints Note will be the rate or rates set forth above in the "Payment" section. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. Whenever increases occur in the interest rate, Lender, at its option, may do one or more of the following: (a) increase Bonrower's payments to ensure Borrower's loan will pay off by its onginal final matunty date, (b) increase Bonrower's payments to cover accruing interest, (c) increase the number of Bonrower's payments, and (d) continue Bonrower's payments at the same amount and increase Bonrower's final payment. PREPAYMENT; MINIMUM INTEREST CHARGE. Bonower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. In any event, even upon full prepayment of this Note, Bonower understands that Lender is entiHed to a mintmum interest charge ot S25.00. Cther than Bonower's obligation to pay any minimum interest charge, Bonower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in wndng, relieve Bonower of Bonower's obligation to continue to make payments under the payment schedule. Rather, they will reduce the pnncipal balance due and may result in Bonower making fewer payments. LATE CHARGE. If a payment is 7 days or more late, Bonower will be charged 5.000% ot the unpaid portton of the regularly scheduled payment or S1.00, whtchever is greater. DEFAULT. Bonower will be in default if any of the following happens: (a) Bonower fails to make any payment when due. (b) Bonower breaks any promise Bonower has made to Lender, or Bonower fails to comply with or to perform when due any other term, obligation, covenant, or condihon contained in this Note or any agreement related to this Note, or in any other agreement or loan Bonower has with Lender. (c) Borrower defaults under any loan, extension of credit, secunty agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may matenally affect any of Bonower's property or Bonower's ability to repay this Note or perform Bonower's obligahons under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Bonower or on Bonower's behalf is false or misleading in any matenal respect either now or at the hme made or furnished. (e) Bonower becomes insolvent, a receiver is appointed for any part of Bonower's property, Bonower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Bonower or against Bonower under any bankruptcy or insolvency laws. (f) Any creditor tnes to take any of Bonower's property on or in which Lender has a lien or secunty interest. This ir~cludes a garnishment of any of Bonower's accounts with Lender. (9) Any guarantor dies or any of the other events descnbed in this default sechon - -.curs with respect to any guarantor of this Note. (h) A material adverse change occurs in Bonower's financial conditiorl, or Lender believes the ~spect of payment or performance of the Indebtedness is impaired. RIDER'S RlGHTS. Upon default, Lender may declare the entire unpaid pnocipal balance on this Note and all accrued unpaid interest, together with !her applicable fees, costs and charges, if any, immediately due and payable, without notice, and then Bonower will pay that amount. Upon .It, including failure to pay upon final matunty, Lender, at its option, may also, if permitted under applicable law, increase the variable interest rate o,. - Note by 4.000 percentage points. The interest rate will not exceed the maximum rate permitted by applicable law. Furthermore, subject to any limit~ ~der applicable law, upon default, Bonower also agrees to pay Lender's attorneys, fees, and all of Lender's other collechon expenses, whether or not . -? is a lawsuit and including without limitation legal expenses for bankruptcy proceedings. This Note shall be governed by, construed and forcea accordance with the laws of the Commonweaith of Virginia. Lender and Bonower hereby waive the nght to any jury tnal in any achon, ~eea~- ar counterclaim brought by either party against the other. 08-21-1997 PROMISSORY NOTE Page 2 Loan No 9008949 (Continued) ================================================================================ CONFESSION OF JUDGMENT. Upon a default in payment of the Indebtedness at maturity, whether by acceleration or otherwise, Bonrower hereby irrevocably authorizes and empowers James H. Hudson, lil as Bonower's attorney-in-fact to appear in the King William County clerk's offlce and to confess judgment against Borrower for the unpaid amount of this Note as evidenced by an affidavit signed by an offlcer of Lender setting forth the amount then due, plus attorneys'fees as provided in this Note, plus costs of suit, and to release all errors, and waive all rights of appeal. If a copy of this Note, verified by an affidav~t, shall have been filed in the proceeding, it will not be necessary to file the original as a warrant of attorney. Bonower waives the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. No single exercise of the foregoing wanant and power to confess judgment will be deemed to exhaust the power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void; but the power will continue undiminished and may be exercised from time to time as Lender may elect until all amounts owing on this Note have been paid in full. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of 525.00 if Bonower makes a payment on Borrower's loan and the check or preauthonzed charge with which Borrower pays is later dishonored. RIGHT OF SETOFF. Bonower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's nght, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a secunty interest would be prohibited by law. Bonower authonzes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. COLLATERAL. This Note is secured by a Secunty Agreement from Colonial Downs Holdings, Inc. and Colonial Downs, L.P. to Lender dated August 21, 1997 on a lighting system which is more fully described in the Security Agreement. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. Ail such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the mod)fication is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: Colonial Downs Holdings, Inc. By: BORROWER: Colonial Downs Holdings, Inc. By: /s/ O. James Peterson, III [SEAL] ------------------------------- O. James Peterson, III, President EX-10.13 3 BUSINESS LOAN AGREEMENT BUSINESS LOAN AGREEMENT
- -------------------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials - -------------------------------------------------------------------------------------------- $900,000.00 08-21-1997 08-21-1999 9008949 208 9008949 gs196 - -------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - --------------------------------------------------------------------------------------------
Borrower: Colonial Downs Holdings, Inc. Lender: Citizens and Farmers Bank 3610 North Court House Road Administratlon Providence Forge, VA 23140 P. O. Box 391 802 Main Street West Point, VA 23181 ================================================================================ THIS BUSINESS LOAN AGREEMENT between Colonial Downs Holdings, Inc. ("Borrower") and Citizens and Fanmers Bank ("Lender") is made on the following terms and conditions. Borrower has received prior commercial loans trom Lender or has applied to Lender tor a commercial loan or loans and other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. All such loans and tinanciat accommodations. together with all tuture loans and financial accommodations trom Lender to Borrower, are referred to in this Agreement individually as the "Loan" and collectively as the "Loans." Borrower understands and agrees that: (a) in granting, renewing, or extending any Loan, Lender Is relying upon Bonower's representations, warranties, and agreements, as set forth in this Agreement; (b) the granting, renewing, or extending ot any Loan by Lender at all times shall be subject to Lenderis sole judgment and discretion; and (c) ali such Loans shall be and shall remain subject to the following terms and conditions ot this Agreement. TERM. This Agreement shall be effective as of August 14, 1997, and shall continue thereaHer until all Indebtedness of Bonrower to Lender has been performed in full and the parties terminate this Agreement in wnting. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise detned in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. Borrower. The word "Borrower" means Colonial Downs Holdings, Inc. and its successors and assigns. The word "Borrower" also includes, as applicable, all subsidianes and affiliates of Bonrower as provided below in the paragraph titled "Subsidianes and Affiliates." CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. Collateral. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a secunty device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. ERISA. The word "ERISA" means the Employee Retirement Income Secunty Act of 1974, as amended. Event ot Detault. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." Grantor. The word "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, and their personal representatives, successors and assigns. Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness and their personal representatives, successors and assigns. Indebtedness. The word "Indebtedness" means and includes without limitation all Loans, including all pnncipal, interest and other fees, costs and charges, if any, together with all other present and future liabilities and obligations of Bonrower, or any one or more of them, to Lender, whether direct or indirect, matured or unmatured, and whether absolute or contingent, joint, several, or joint and several, and no maHer how the same may be evidenced or shall arise. Lender. The word "Lender" means Citizens and Farmers Bank, its successors and assigns. Loan. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations descnbed herein or described on any exhibit or schedule aHached to this Agreement from time to time. Note. The word "Note" means and includes without limitation Bonrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or retnancing note or notes therefor. Permitted Liens. The words "PermiHed Liens" mean: (a) liens and secunty interests secunng Indebtedness owed by Bonrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or camers, or other like liens ansing in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money secunty interests upon or in any property acquired or held by Borrower in the ordinary cou:se of business to secure indebtedness outstanding on the date of this Agreement or permiHed to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and secunty interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and secunty interests which in the aggregate constitute an immatenal and insignidcant monetary amount with respect to the net value of Bonrower's assets. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, secunty agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafler existing, executed in connection with the Indebtedness. Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Secunty I merest. Security Interest. The words "Secunty Interest" mean and include without limitation any and all types of liens and encumbrances, whether created by law, contract, or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Loan Advance and each subsequent Loan Advance under 08-21-1997 BUSINESS LOAN AGREEMENT Page 2 Loan No 9008949 (Continued) - -------------------------------------------------------------------------------- this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. Loan Documents. Borrower shall provide to Lender in form satisfactory to Lender the following documents for the Loan: (a) the Note, (b) Security Agreements grantin, to Lender secunty interests in the Collateral, (c) Financing Statements perfecting Lenders Security Interests; (d) evidence of insurance as required below; and (e) any other documents required under this Agreement or by Lender or its counsel. Borrower's Authorization. Bonrower shall have provided in form and substance satisfactory to Lender property certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents, and such other authorizations and other documents and instruments as Lender or its counsel, in their sole discretion, may require. Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. No Event of Default. There shall not exist at the time of any advance a condition which would constitute an Event of Default under this Agreement. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: Organization. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the state of Bonrower's incorporation and is validly existing and in good standing in all states in which Borrower is doing business. Bonower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. Authorization. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed delivered or performed by Borrower, have been duly authonzed by all necessary action by Bonrower; do not require the consent or approval of any other person, regulatory authonty or governmental body; and do not conHict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. Financial Information. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no matenal adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Bonrower has no matenal contingent obligations except as disclosed in such financial statements. Legal Effect. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Bonrower enforceable against Borrower in accordance with their respective terms. Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Secunty Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Bonrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. Hazardous Substances. The terms "hazardous waste," "hazardous substance,n "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Matenals Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservahon and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in wnting, Bonower represents and warrants that: (a) During the penod of Bonrowers ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, about or from any of the properties. (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any pnor owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Bonrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Bonrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower oecomes liable for cleanup or other costs under any such laws, and b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directiv or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring pnor to Bonrower's ownership or interest in the properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive he payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. Litigatton and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. Taxes. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and ail taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Bonrower in good faith in the ordinary course of business and for which adequate reserves have been provided. Lien Priority. Unless otherwise previously disclosed to Lender in wnting, Borrower has not entered into or granted any Secunty Agreements, or permitted the filing or attachment of any Secunty Interests on or affecting any of the Collateral directly or indirectly secunng repayment of Borrower's Loan and Note, that would be pnor or that may in any way be supenor to Lendeds Security Interests and nghts in and to such Collateral. Binding Effect. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all 08-21-1997 BUSINESS LOAN AGREEMENT Page 3 Loan No 9008949 (Continued) - -------------------------------------------------------------------------------- of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all matenal respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, (iii) no steps have been taken to terminate any such plan, and (iv) there are no unfunded liabilities other than those previously disclosed to Lender in writing. Location of Borrower's Offices and Records. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 3610 North Court House Road, Providence Forge, VA 23140. Unless Borrower has designated otherwise in wnting this location is also the offlce or offlces where Bonrower keeps its records concerning the Collateral. Information. All information heretofore or contemporaneously herewith furnished by Bonrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. Survival of Representations and Warranties. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in making the above referenced Loan to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in fult force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: Litigation. Promptly inform Lender in writing of (a) all matenal adverse changes in Bonrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Bonrower or the financial condition of any Guarantor. Financial Records. Maintain its books and records in accordance with generally accepted accounting pnnciples, applied on a consistent basis and permit Lender to examine and audit Borrower's books and records at all reasonable times. Additlonal Intormation. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Bonrower's financial condition and business operations as Lender may request from time to time. Insurance. Maintain fire and other nsk insurance, public liability insurance, and such other insurance as Lender may from time to time reasonably require with respect to Bonrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from hme to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior wntten notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covenng assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the nsks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more oflen than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Bonrower. Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereaHer existing, between Bonrower and any other party and notify Lender immediately in wnting of any default in connection with any other such agreements. Loan Proceeds. Use all Loan proceeds solely for Bonrowers business operations, unless specifically consented to the contrary by Lender in wnting. Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, pnor to the date on which penalties would aKach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or orofits. Provided however, Bonrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on ~is books adequate reserves with respect to such contested assessment, tax, charge, levy, lier, or claim in accordance with generally accepted accounting practices. Bonrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropnate governmental official to deliver to Lender at any time a wriHen statement of any assessments, taxes, charges, levies, liens and claims against Borrowers properties, income, or profits. Performance. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. Operations. Maintain executive and management personnel with substantially the same qualifications and expenence as the present executive and management personnel; provide wnHen notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Amencans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Bonrower's other properties and to examine or audit Bonrower's books, accounts, and records and to make copies and memoranda of Bonrower's books, accounts, and records. If Borrower now or at any hme hereaHer maintains any records (including without limitahon computer generated records and computer software programs for the generation of such records) in the possession of a third party, Bonrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. 08-21-1997 BUSINESS LOAN AGREEMENT Page 2 Loan No 9008949 (Continued) - -------------------------------------------------------------------------------- Compliance Certificate. Unless waived in wnting by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. Environmental Compliance and Reports. Bonrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Bonrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropnate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days aHer receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. Additional Assurances. Make, execute and deliver to Lender such prom~ssory notes, mortgages, deeds of trust, security agreements, f~nanc~ng statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law, rule, regulation or guideline, or the interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except U.S. federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (a) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (b) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (c) reduce the rate of return on Lender's capital as a consequence of Lender's obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days aHer Lender's wntten demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Bonrower, which explanation and calculations shall be conclusive in the absence of manifest error. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Bonrower shall not, without the pnor wntten consent of Lender: Continuity of Operations. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) / ) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which anse solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Bonrower's outstanding shares or alter or amend Bonrower's capital structure. Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterpnse or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Bonrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Bonrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise aHempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory secunty interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Bonrower's nght, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permiHed by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: Default on Indebtedness. Failure of Borrower to make any payment when due on the Indebtedness. Other Detaults. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Bonrower. Default in Favor of Third Parties. Should Bonrower or any Grantor default under any loan, extension of credit, secunty agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may matenally affect any of Bonrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any matenal respect at the time made or furnished, or becomes false or misleading at any time thereaHer. Defective Collateralizatlon. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Secunty Agreement to create a valid and perfected Secunty Interest) at any time and for any reason. Insolvency. The dissolution or termination of Borrower's existence as a going business, or a trustee or receiver is appointed for Borrower or for all or a substantial portion of the assets of Borrower, or Bonrower makes a general assignment for the benefit of Borrower's creditors, or Bonrower hles for bankruptcy, or an involuntary bankruptcy petition is filed against Borrower and such involuntary petition remains undismissed for sixty (60) days. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, 08-21-1997 BUSINESS LOAN AGREEMENT Page 3 Loan No 9008949 (Continued) - -------------------------------------------------------------------------------- repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Bonrower's deposit accounts with Lender. Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. Change In Ownership. Any change in ownership of twenty-hve percent (25%) or more of the common stock of Borrower. Adverse Change. A matenal adverse change occurs in Bonrower's hnancial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate and, at Lender's option, all sums owing in connection with the Loans, including all pnncipal, interest, and all other fees, costs and charges, if any, will become immediately due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shali have all the nghts and remea~es provioed in the Related Documents or available at law, in equity, or otnerwise. Except as may be prohibited by applicaole law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's nght to declare a default and to exercise its nghts and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in wnting and signed by the party or parties sought to be charged or bound by the alteration or amendment. Applicable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia. Lender and Bonrower hereby waive the nght to any jury tnal in any action, proceeding, or counterclaim brought by either party against the other. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or detne the provisions of this Agreement. Consent to Loan PartIcipstion. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to pnvacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Bonrower's obligahon under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Bonrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. Costs and Expenses. Borrower agrees to pay upon demand all of Lender's out-of-pocket expenses incurred in connection with this Agreement or in connection with the Loans made pursuant to this Agreement. Subject to any limits under applicable law, if Lender hires an attorney to help enforce this Agreement or to collect any Indebtedness, Bonrower agrees to pay Lender's attorneys' fees, and all of Lender's other collection expenses, whether or not there is a lawsuit and including legal expenses for bankruptcy proceedings. Notices. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile, and shall be effective when actually delivered if hand delivered or when deposited with a nationally recognized overnight couner or deposited as certifed or registered mail in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal wntten notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Bonrower will keep Lender informed at atl times of Borrower's current address(es). Severability. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modifed, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropnate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidianes and afflliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other hnancial accommodation to any subsidiary or affiliate of Borrower. Successors and Assigns. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Bonrower shall not, however, have the nght to assign its nghts under this Agreement or any interest therein, without the prior written consent of Lender. Survival. All warranties, representations, and agreements of Borrower in this Agreement shall survive the making of the Loan or Loans contemplated hereby, and shall be deemed made and redated by Bonrower at the time of the making of each disbursement of Loan proceeds. Time Is of the Essence. Time is of the essence in the performance of this Agreement. Waiver. Indulgence by Lender with respect to any of the terms and conditions of this Agreement or the failure of Lender to exercise any of its rights under this Agreement shall not constitute a waiver thereof, and Borrower shall remain liable for the strict performance of such terms and conditions until this Agreement shall be terminated. No provision of this Agreement may be waived or mod)fied orally, but all such waivers or mod)fications shall be in wnting. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in one instance shall not constitute Lender's continuing consent in subsequent instances, and in all cases such consent may be granted or withheld in the sole discretion of Lender. 08-21-1997 BUSINESS LOAN AGREEMENT Page 4 Loan No 9008949 (Continued) - -------------------------------------------------------------------------------- BORROWER: Colonial Downs Holdings, Inc. By: /s/ O. James Peterson, III [SEAL] ------------------------------- O. James Peterson, III, President GRANTOR: Citizens and Farmers Bank By: /s/ E. B. Sullivan [SEAL] ------------------------------- Authorized Officer ================================================================================ EX-10.14 4 COMMERCIAL SECURITY COMMERCIAL SECURITY AGREEMENT
- -------------------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials - -------------------------------------------------------------------------------------------- $900,000.00 08-21-1997 08-21-1999 9008949 208 9008949 gs196 - -------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - --------------------------------------------------------------------------------------------
Borrower: Colonial Downs Holdings, Inc. Lender: Citizens and Farmers Bank 3610 North Court House Road Administratlon Providence Forge, VA 23140 P. O. Box 391 802 Main Street West Point, VA 23181 Grantor: Colonial Downs, L.P. and Colonial Downs Holdings, Inc. ================================================================================ THIS COMMERCIAL SECURITY AGREEMENT is entered into among Colonial Downs Holdings, Inc. (referred to below as "Borrower") Colonial Downs, L.P. and Colonial Downs Holdings, Inc. (referred to below individually and collectively as "Grantor"); and Cltizens and Farmers Bank (referred to below as "Lender"). For valuable consideratton, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of Amenca. Agreement. The word "Agreement" means this Commercial Security Agreement, as this Commercial Secunty Agreement may be amended or mod)fied from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time. Borrower. The word "Borrower" means each and every person or entity signing the Note, including without limitation Colonial Downs Holdings, Inc. Collateral. The word "Collateral" means the following described property of Grantor, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: All equipment and fixtures, together with the following specifically described property: All lighting equipment and fixtures to be provided by MUSCO Lighting, Inc., Including but not limited to: poles, luminaires, remote electrical enclosures, conductors inside the poles, roof-top luminlaries, photo-fintsh luminaires, switchgear, underground conduits and conductors, required control devices and generators, and all equipment specified on the attached schedule In addition, the word "Collateral~ includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter ansing, and wherever located: (a) All attachments, accessions, accessories, tools, parts, supplies, increases, and additions to and all replacements of and substitutions for any property described above. (b) All products and produce of any of the property described in this Collateral section. (c) All accounts, general intangibles, instruments, rents, monies, payments, and all other nghts, ansing out of a sale, lease, or other disposition of any of the property descnbed in this Collateral sectiom (d) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section. (e) All records and data relating to any of the property descnbed in this Collateral section, whether in the form of a wntug, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's nght, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media. Fixtures are and will be located on the following descnbed real estate: Colonial Downs race track at the southeast corner ot Interstate 64 and Virginia State Route 155, New Kent County, Virginia. Event ot Detault. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled ttEvents of Default." Grantor. The word "Grantor" means Colonial Downs, L.P. and Colonial Downs Holdings, Inc. Any Grantor who signs this Agreement, but does not sign the Note, is signing this Agreement only to grant a security interest in Grantor's interest in the Collateral to Lender and is not personally liable under the Note except as otherwise provided by contract or law (e.g., personal liability under a guaranty or as a surety). Guarantor. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommcdation parties n connection with the Indebtedness and their personal representatives, successors and assigns. Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note, including all principal, interest, and fees. costs, and expenses, if any, together with all modifications of and renewals, replacements and substitutions for any of the foregoing. tIndebtedness" a~so includes all other present and future liabilities and obligations of Borrower to Lender, whether direct or indirect, matured or unmatured, and whether absolute or contingent, joint, several or joint and several, and no matter how the same may be evidenced or shall arise. Lender. The word "Lender" means Citizens and Farmers Bank, its successors and assigns. Note. The word "Note" means the note or credit agreement dated August 21, 1997, in the principal amount of $900,000.00 from Bonower to Lender, together with all mod)fications of and renewals, replacements, and substitutions for the note or credit agreement. Related Documents. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, secunty agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereaRer existing, executed in connection with the Indebtedness. BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this Agreement or by applicable law, (a) Borrower agrees that Lender need not tell Borrower about any action or inaction Lender takes in connection with this Agreement; (b) Borrower assumes the responsibility for being and keeping informed about the Collateral; and (c) Borrower waives any defenses that may anse because of any action or inaction of Lender, including without limitation any failure of Lender to realize upon the Collateral or any delay by Lender in realizing upon the 08-21-1997 COMMERCIAL SECURITY AGREEMENT Page 2 Loan No 9008949 (Continued) - -------------------------------------------------------------------------------- Collateral; and Borrower agrees to remain liable under the Note no matter what action Lender takes or fails to take under this Agreement. GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this Agreement is executed at Borrower's request and not at the request of Lender; (b) Grantor has the full right, power and authonty to enter into this Agreement and to pledge the Collateral to Lender; (c) Grantor has established adequate means of obtaining from Bonower on a continuing basis information about Borrower's financial condition; and (d) Lender has made no representation to Grantor about Borrower or Borower's creditworthiness. GRANTOR'S WAIVERS. Grantor waives all requirements of presentment, protest, demand, and notice of dishonor or non-payment to Grantor, Borrower, or any other party to the Indebtedness or the Collateral. Lender may do any of the following with respect to any obligation of any Borrower, without first obtaining the consent of Grantor: (a) grant any extension of time for any payment, (b) grant any renewal, (c) permit any modification of payment terms or other terms, or (d) exchange or release any Collateral or other security. No such act or failure to act shall affect Lender's rights against Grantor or the Collateral. If now or hereafter (a) Bonower shall be or become insolvent, and (b) the Indebtedness shall not at all times unbl paid be fully secured by collateral pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Grantor may now have or hereafter have or acquire against Borrower, by subrogation or otherwise, so that at no time shall Grantor be or become a "creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal bankruptcy laws. RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory secunty interest in and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's nght, htle and interest in and to Grantor's accounts with Lender (whether checking, savings, or some other account), including all accounts held jointly with someone else and all accounts Grantor may open in the future, excluding, however, all IRA and Keogh accounts, and all trust accounts for which the grant of a secunty interest would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all Indebtedness against any and all such accounts. OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows: Perfection of Security Interest. Grantor agrees to execute such financing statements and to take whatever other achons are requested by Lender to perfect and contnue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituhng the Collateral, and Grantor will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Grantor hereby appoints Lender as its inevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. Lender may at any bme, and without further authonzahon from Grantor, file a carbon, photographic or other reproducton of any hnancing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfecton and the continuahon of the perfecton of Lender's secunty interest in the Collateral. Grantor promptly will notify Lender before any change in Grantor's name including any change to the assumed business names of Grantor. This Is a continuing Security Agreement and will continue In ettect even though all or any part of the Indebtedness is paid In full and even though for a period of time Borrower may not be Indebted to Lender. No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its articles or agreements relating to entity incorporation, organization or existence do not prohibit any term or condition of this Agreement. Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, the Collateral is enforceable in accordance with its terms, is genuine, and complies with applicable laws concerning form, content and manner of preparation and execution, and all persons appeanng to be obligated on the Collateral have authonty and capacity to contract and are in fact obligated as they appear to be on the Collateral. Removal of Collateral. Grantor shall keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts, the records concerning the Collateral) at Grantor's address shown above, or at such other locahons as are acceptable to Lender. Some or all of the Collateral may be located at the real property descnbed above. Except in the ordinary course of its business, including the sales of inventory, Grantor shall not remove the Collateral from its existing locations without the pnor wntten consent of Lender. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any achon which would require application for certificates of title for the vehicles outside the Commonwealth of Virginia, without the prior written consent of Lender. Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior wntten consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender. Title. Grantor represents and warrants to Lender that it holds good and marketable btle to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No hnancing statement covenng any of the Collateral is on hle in any public office other than those which reflect the secunty interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's nghts in the Collateral against the claims and demands of all other persons. Collateral Schedules and Locatlons. Insofar as the Collateral consists of equipment, Grantor shall deliver to Lender, as often as Lender shall require, such lists, descnphons, and designations of such Collateral as Lender may require to identify the nature, extent, and location of such Coliateral. Such information shall be submitted for Grantor and each of its subsidianes or related companies. Maintenance and Inspection ot Collateral. Grantor shall maintain all tangible Collateral in good condition and repair. Grantor will not commit permit damage to or destruction of the Collateral or any part of the Collateral. Lender and its designated representatives and agents shall ~ve the nght at all reasonable times to examine, inspect, and audit the Collateral wherever located. Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may with. old any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropnate proceeding to contest the oblige. on to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within hfteen (15) days, Grantor shall deposit with Lender cash, a sufflcient corporate surety bond or other security safactorory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final reverse judgement before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond shed in the contest proceedings. Compliance With Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may 08-21-1997 COMMERCIAL SECURITY AGREEMENT Page 3 Loan No 9008949 (Continued) - -------------------------------------------------------------------------------- contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized. Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any hazardous waste or substance, as those terms are dedned in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthonzation Act of 1986, Pub. L. No 99-499 ("SARA"), the Hazardous Matenals Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The terms "hazardous waste~ and "hazardous substance~ shall also include, without limitation, petroleum and petroleum by-products or any ffaction thereof and asbestos. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for hazardous wastes and substances. Grantor hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting ffom a breach of this provision of this Agreement. This obligation to indemnify shall survive the payment of the Indebtedness and the satisfaction of this Agreement. Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, thefl and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis acceptable to Lender and issued by a company or companies acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certihcates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' pnor wntten notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covenng assets in which Lender holds or is offered a secunty interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropnate, including if it so chooses "single interest insurance," which will cover only Lender's interest in the Collateral. Apptication of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor ffom the proceeds for the reasonable cost of repair or restoration If Lender does not Qonsent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months afler their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness. Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (a) the name of the insurer; (b) the nsks insured; (c) the amount of the policy; (d) the property insured; (e) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (f) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral. GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's nght to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropnate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against pnor parties, nor to protect, preserve or maintain any secunty interest given to secure the Indebtedness. EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but shall not be obligated to) discharge or pay any amounts required to be discharged or paid by Grantor under this Agreement, including without limitahon all taxes, liens, secunty interests, encumbrances, and other claims, at any time levied or placed on the Collateral. Lender also may (but shall not be obligated to) pay ail costs for insunng, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note ffom the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses shall become a part of the Indebtedness and, at Lender's option, will (a) be payable on demand, (b) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due dunng either (i) the term of any applicable insurance policy or (ii) the remaining term of the Note, or (c) be treated as a balloon payment which will be due and payable at the Note's matunty. This Agreement also will secure payment of these amounts. Such right shall be in addition to ail other rights and remedies to which Lender may be entitir ~ upon the occurrence of an Event of Default. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Defauit under this Agreement: Default on Indebtedness. Failure of Bonrower to make any payment when due on the Indebtedness. Other Defaults. Failure of Grantor or Borrower to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or failure of Borrower to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. Default in Favor of Third Parties. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may matenally affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. False Statements. Any warranty, representation or statement made or furnished to Lender by or on behalf of Grantor or Bonrower under this Agreement, the Note or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished. Defective Collateralizatlon. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral documents to create a valid and perfected security interest or lien) at any time and for any reason. Insolvency. The dissolution or termination of Grantor or Bonrower's existence as a going business, the insolvency of Grantor or Borrower, the appointment of a receiver for any part of Grantor or Bonrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor or Borrower. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or Borrower or by any governmental agency against the Collateral or any other collateral securing the Indebtedness. This includes a garnishment of any of Grantor or Borrower's deposit accounts with Lender. 08-21-1997 COMMERCIAL SECURITY AGREEMENT Page 4 Loan No 9008949 (Continued) - -------------------------------------------------------------------------------- Events Attecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Virginia Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies: Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Borrower would be required to pay, immediately due and payable, without notice. Assemble Cottateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repcssession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession. Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in its own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice of the time after which any priva;e sale or any other intended disposition of the Collateral is to be made. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insunng, prepanog for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. Appoint Receiver. To the extent permiHed by applicable law, Lender shall have the following rights and remedies regarding the appointment of a receiver: (a) Lender may have a receiver appointed as a maHer of right, (b) the receiver may be an employee of Lender and may serve without bond, and (c) all fees of the receiver and his or her aHorney shall become part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate ffom date of expenditure until repaid. Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in its discretion transfer any Coilateral into its own name or that of its nominee and receive the payments, rents, income, and revenues therefrom and hold the same as secunty for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, seHle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent, and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Borrower for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the nghts provided in this Agreement. Borrower shall be liable for a deficiency even if the transaction descnbed in this subsection is a sale of accounts or chaHel paper. Other Rights and Remedies. Lender shall have all the nghts and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other nghts and remedies it may have available at law, in equity, or otherwise. Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by this Agreement or the Related Documents or by any other writing, shall be cumulativr and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor or Borrower under this Agreement, after Grantor or Borrower's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in wnting and signed by the party or parties sought to be charged or bound by the alteration or amendment. Appticable Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia. Lender and Grantor and Borrower hereby waive the right to any jury tnal in any action, proceeding, or counterclaim brought by either party against the other. Attorneys' Fees; Expenses. Grantor and Borrower agree that if Lender hires an attorney to help enforce this Agreement or to collect any sums owing under this Agreement, Grantor and Borrower will pay, subject to any limits under applicable law, Lender's aHorneys' fees, and all of Lender's other collection expenses, whether or not there is a lawsuit and including without limitation additional legal expenses for bankruptcy proceedings. Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or detne the provisions of this Agreement. Multiple Parties, Corporate Authority. All obligations of Grantor and Borrower under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower, and all references to Grantor shall mean each and every Grantor. This means that each of the persons signing below is responsible for all obligations in this Agreement. Notices. All notices required to be given under this Agreement shall be given in wnting, may be sent by telefacsimile, and shall be effective when actually delivered if hand delivered or when deposited with a nationally recognized overnight courier or deposited as certined or registered maiHn the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal wntten notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Grantor or Borrower, notice to any Grantor or Bonrower will constitute notice to all Grantor and Bonrowers. For notice purposes, Grantor and Bonrower will keep Lender informed at all times of Grantor and Borrower's current address(es). Power of Attorney. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (a) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become 08-21-1997 COMMERCIAL SECURITY AGREEMENT Page 5 Loan No 9008949 (Continued) - -------------------------------------------------------------------------------- due, owing or payable from the Collateral; (b) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafls or warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the Indebtedness, and the authonty hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender. Severability. If a court of competent junsdiction hnds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such funding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be mod)fied to be within the limits of enforceability or validity; however, if the offending provision cannot be so modided, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. Successor Interests. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. Waiver. Lender shall not be deemed to have waived any nghts under this Agreement unless such waiver is given in wnting and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other nght. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand stnct compliance with that provision or any other provision of this Agreement. No pnor waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's nghts or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 21,1997. BORROWER: Colonial Downs Holdings, Inc. By: /s/ O. James Peterson, III [SEAL] ------------------------------- O. James Peterson, III, President GRANTOR: Colonial Downs L.P. By: /s/ O. James Peterson, III [SEAL] ------------------------------- Stansley Racing Corp., Its General Partner by O. James Peterson, III, President Colonial Downs Holdings, Inc. By: /s/ O. James Peterson, III [SEAL] ------------------------------- O. James Peterson, III, President EX-10.15 5 SUBORDINATION AGREEMENT SUBORDINATION AGREEMENT (LIGHTING) THIS AGREEMENT, made and entered into as of the 18th day of August,1997, by and between CD ENTERTAINMENT LTD., doing business in Virginia as CD ENTERTAINMENT, LTD., L.L.C., and its successors and assigns (hereinafter called "Beneficiary"), COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation, (hereinafter called "Holdings") and COLONIAL DOWNS, L.P., a Virginia limited partnership (hereinafter called "Partnership") and DAVID F. BELKOWITZ and JAMES W. THEOBALD, either of whom may act (the "Trustees"). WITNESSETH: WHEREAS, Holdings has encumbered that certain real estate located in New Kent County, Virginia described in Schedule A attached hereto (the "Property") as security for a loan in the original principal amount of Five Million Five Hundred Thousand Dollars ($5,500,000.00) from Beneficiary to Holdings (the "Deed of Trust"); WHEREAS, Holdings and the Partnership have pledged their interest in certain lighting equipment installed on the Property and used to illuminate the racetrack surfaces to Citizens & Farmers Bank, pursuant to a UCC-1 financing statement, dated as of the date hereof (the "Lighting Pledge") for a loan in the original principal amount of Nine Hundred Thousand and No/100 Dollars ($900,000.00); and WHEREAS, the Partnership, Holdings, and Beneficiary have agreed to the following with respect to their mutual rights and obligations pursuant to the Lighting Pledge and the Deed of Trust. NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid by each party to the other and the mutual covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto covenant and agree as follows: 1. Beneficiary's interest under the Deed of Trust in and to the collateral described in the Lighting Pledge and all rights of Beneficiary thereunder shall be and are hereby declared subject and subordinate to the Lighting Pledge, the security interest it perfects in such collateral, and its terms, and the term "Lighting Pledge" as used herein, shall automatically include any amendment, supplement, modification, renewal or replacement thereof. 2. This Agreement and its terms shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, including, without limitation, any purchaser at any foreclosure sale. 3. Beneficiary hereby instructs the Trustees under the Deed of Trust to join in this Subordination Agreement. 4. The Sole Acting Trustee enters herein for the sole purpose of evidencing the Trustees' consent to the subordination of the Deed of Trust, as set forth herein. IN WITNESS WHEREOF, this Agreement has been fully executed on the day and the year first above written. CD ENTERTAINMENT LTD. By: Jacobs Entertainment Ltd., its Manager By: /s/ Jeffrey P. Jacobs --------------------------- Jeffrey P. Jacobs, Manager COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation By: /s/ Jeffrey P. Jacobs --------------------------- Jeffrey P. Jacobs, C.E.O. COLONIAL DOWNS, L.P., a Virginia limited partnership By: STANSLEY RACING CORP., its General Partner By: /s/ Jeffrey P. Jacobs --------------------------- Jeffrey P. Jacobs, C.E.O. /s/ David F. Belkowitz ----------------------------- Sole Acting Trustee STATE OF OHIO COUNTY OF CUYAHOGA, to-wit: The foregoing instrument was acknowledged before me this 18th day of August, 1997 by Jeffrey P. Jacobs, Manager of Jacobs Entertainment Ltd., on behalf of CD Entertainment Ltd., Chief Executive Officer of Colonial Downs Holdings, Inc. and Chief Executive Officer of Stansley Racing Corp. My Commission expires: January 16, 2002 /s/ Kelly A. Duzer ------------------ Notary Public COMMONWEALTH OF VIRGINIA, CITY OF RICHMOND, to-wit: The foregoing instrument was acknowledged before me this 20th day of August, 1997 by David F. Belkowitz, Sole Acting Trustee. My Commission expires: 10/31/98 /s/ Deborah L. Tiller -------------------- Notary Public SCHEDULE "A" All that certain tract or parcel of land lying and being in Cumberland District, New Kent County, Virginia, containing 345.000 acres, more or less, as depicted on "Plat of a Parcel of Land Lying South of I-64, Cumberland District, New Kent County," dated 3/18/97, made by Resource International, Ltd., signed by Howard B. Weatherford, III, Land Surveyor, a true copy of which is attached hereto and recorded herewith, and which is incorporated herein by reference for a complete and accurate description of the land conveyed hereby. Together with a perpetual non-exclusive easement of right of way typically 60 feet in width over, under and across the "60' Ingress/Egress Easement" as depicted on the aforesaid plat for the purposes of ingress from the subject land and State Route 155, as well as the placement of utilities to serve the subject land. Being the same real estate conveyed to Colonial Downs Holdings, Inc. by Deed from Chesapeake Forest Products Company, dated March 19, 1997, recorded March 20, 1997 in the Clerk's Office of the Circuit Court of New Kent County, Virginia in Deed Book 241 at page 453. EX-27 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheet, consolidated statement of operations and consoladated statements of cash flows included in the company's form 10-Q for the period ending September 30, 1997 and is qualified in its entirety by reference to such financial statements. 0001027430 Colonial Downs Holdings Inc. 1,000 U.S. Dollars 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1.000 14,168 0 1,017 0 0 15,537 58,114 373 74,154 21,572 11,151 0 0 73 37,765 74,154 0 17,614 0 16,856 0 0 116 1,349 367 982 0 0 0 982 0.16 0.16
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