CONVERTIBLE SUBORDINATED NOTE
$5,500,000 Providence Forge, Virginia
March __, 1997
FOR VALUE RECEIVED, the receipt and adequacy of which is hereby
acknowledged, Colonial Downs Holdings, Inc., a Virginia corporation with its
principal office located at ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇ (the "Maker"), hereby promises to pay to the order of CD Entertainment
Ltd. (the "Holder"), with its principal office located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, the principal sum of Five Million Five Hundred Thousand
Dollars ($5,500,000), or so much thereof as shall have been advanced by the
Holder at any time and not hereafter repaid, together with interest thereon from
the date hereof until payment in full at the Charged Rate (as defined below).
1. Payment of Principal. All principal outstanding hereunder shall be due in one
payment, in full, on March 31, 2000. Principal of and interest on this Note are
payable in lawful money of the United States of America at the Holder's address
stated above, or at such other place as the Holder shall designate to the Maker
in writing.
2. Interest.
a. All principal outstanding hereunder shall bear interest at a rate of
seven and one-quarter percent (7.25%) per annum. Interest shall be payable on
the last day of each calendar quarter and, in the event of a permitted
prepayment, on the date of such prepayment.
b. Any amount not paid when due under this Note, whether at the date
scheduled for payment or earlier upon acceleration, shall bear interest until
paid in full at a rate per annum equal to eleven and one-quarter percent
(11.25%) (the "Default Rate").
3. Facility Fee. The Maker shall pay to the Holder an annual facility fee (the
"Facility Fee") equal to the Holder's out-of-pocket costs (payable to unrelated
and unaffiliated third parties) incurred in connection with extending the funds
represented hereby to the Maker. The Holder shall provide evidence reasonably
satisfactory to the Maker of such expenses. The Facility Fee shall be due and
payable to the Holder on the date hereof and on the same day of each subsequent
year until this Note is paid in full.
4. Security. This Note is to be secured by a second deed of trust on the Maker's
racetrack facility located in New Kent County, Virginia.
5. Subordination.
a. The payment of principal and interest on this Note (including, for
all purposes of these subordinate terms, all premiums, if any, and other amounts
payable on or in respect thereof) is expressly made subordinate and subject in
right of payment to the prior payment of all indebtedness (including principal,
interest, premium, if any, and other amounts payable on or in respect thereof)
for the construction and completion of the Maker's racetrack in New Kent County,
Virginia, and the acquisition, construction, renovation and equipping of
satellite wagering facilities, among other uses, incurred by the Maker and
referred to as the "Bank Credit Facility" in the Registration Statement on Form
S-1 relating to the initial public offering of the Maker's Class A Common Stock
and any renewal, refunding, or extension of such indebtedness (such
indebtedness, the "Senior Indebtedness").
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b. In the event of (i) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relating to the Maker or to its creditors as
such, or to its assets, or (ii) any liquidation, dissolution or other winding up
of the Maker, whether partial or complete and whether voluntary or involuntary
and whether involving insolvency or bankruptcy, or (iii) any assignment for the
benefit of creditors or any other marshalling of assets and liabilities of the
Maker, then and in any such event the holders of the Senior Indebtedness, shall
be entitled to receive payment in full of all amounts due or to become due on or
in respect of all Senior Indebtedness before the Holder shall be entitled to
receive any payment on account of this Note.
c. In the event and during the continuation of any default in the
payment when due of any principal of or interest on or any other amount payable
in respect of any Senior Indebtedness, unless and until such payment shall have
been made, then no payment shall be made by the Maker, on or in respect of this
Note.
6. Prepayment. Subject to Subsection 8.c., the Maker may prepay this Note at any
time upon thirty (30) days' prior written notice to the Holder at a price equal
to the principal amount outstanding hereunder, plus interest accrued thereon
through the date of such prepayment.
7. Covenants. So long as any indebtedness under this Note remains outstanding,
the Maker shall not, without the prior written consent of the Holder:
a. other than in connection with Maker's initial public offering of
shares of Class A Common Stock and the Maker's Stock Option Plan, authorize,
issue, or enter into any agreement providing for the issuance (contingent or
otherwise) of (i) any notes or debt securities containing equity features
(including, without limitation, any notes or debt securities convertible into or
exchangeable for capital stock or other equity securities issued in connection
with the issuance of capital stock or other equity securities or containing
profit participation features) or (ii) any capital stock or other equity
securities (or any securities convertible into or exchangeable for any capital
stock or other equity securities); provided that the Maker may, without the
Holder's consent, issue up to an aggregate of 100,000 shares of its Common
Stock;
b. merge or consolidate with any person or permit any subsidiary to
merge or consolidate with any person (other than a wholly owned subsidiary);
provided that a subsidiary may merge with another person so long as after such
merger, the Maker or any of its consolidated subsidiaries directly or indirectly
owns at least 80% of the (i) capital stock of the surviving corporation
possessing the right to vote for the election of directors and (ii) number of
shares of the common stock of the surviving corporation then outstanding;
c. sell, lease, or otherwise dispose of, or permit any subsidiary to
sell, lease, or otherwise dispose of, more than 50% of the assets of the Maker
and its consolidated subsidiaries (computed on the basis of book value,
determined in accordance with generally accepted accounting principles
consistently applied, or fair market value);
d. issue or sell any shares of the capital stock, or rights to acquire
shares of the capital stock, of any subsidiary to any person (other than the
Holder or a permitted assignee of the Holder) if immediately after such issuance
or sale, the Maker or any of its consolidated subsidiaries directly or
indirectly owns less than 80% of the (i) capital stock possessing the right to
vote for the election of directors and (ii) the number of shares of the common
stock of any subsidiary then outstanding;
e. liquidate, dissolve, or effect a recapitalization or reorganization
in any form of transaction (including, without limitation, any reorganization
into a limited liability company or into partnership or other noncorporate
form); or
f. make any amendment to the Articles of Incorporation or the Maker's
bylaws or file a resolution of the Board of Directors with the Virginia State
Corporation Commission containing any provisions which would increase the number
of authorized shares of common stock of the Maker or adversely affect or
otherwise impair the rights of the Holder.
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8. Conversion.
a. All or any portion of the unpaid principal balance shall be
convertible into shares of Class B Common Stock of the Maker, $.01 par value per
Share (the "Class B Common Stock") at any time upon the election of the Holder,
subject to obtaining the approval, if any is required, of the Virginia Racing
Commission (the "Commission"). The number of shares of Class B Common Stock into
which this Note may be converted ("Conversion Shares") shall be determined by
dividing the amount of the then-unpaid principal balance of this Note by 122% of
the initial public offering price per share of the Maker's Class A Common Stock
(the "Conversion Price"). The maximum number of Conversion Shares into which
this Note may be converted is 450,820, subject to adjustment as provided in
paragraph 9 below.
b. Any Conversion Shares shall have the registration rights set forth
in the Registration Agreement among the Maker, the Holder, and certain
shareholders of the Maker to be executed and delivered at the closing of the
initial public offering of the Maker's Class A Common Stock.
▇. ▇▇▇▇▇▇ may convert all or any portion of the unpaid principal
balance of this Note into Conversion Shares at any time prior to maturity of
this Note or upon notice of the Maker's intent to prepay this Note. Conversion
of this Note shall be effected by delivery of written notice by mail, postage
prepaid, or by carrier, to the Maker at its principal corporate office, of the
election to convert the same specifying the principal amount of this Note being
converted and the name in which the certificates evidencing the Conversion
Shares shall be issued, accompanied by this Note. To the extent that the entire
unpaid balance of this Note is not being converted, the Maker and the Holder
shall each credit the Note on its books to the extent of the principal being
converted by the Holder into Conversion Shares.
d. No fractional share of Class B Common Stock shall be issued upon
conversion of this Note. In lieu of the Maker issuing any fractional share to
the Holder upon the conversion of this Note, the Maker shall pay, in cash, to
the Holder the amount of outstanding principal that is applicable to such
fractional share.
e. At its expense, the Maker shall, as soon as practicable thereafter,
issue and deliver to such the Holder at such principal office a certificate or
certificates for the number of Conversion Shares to which the Holder shall be
entitled upon such conversion (bearing such legends as are required by
applicable state and federal securities and other laws in the opinion of counsel
to the Maker), together with any other securities and property to which the
Holder is entitled upon such conversion under the terms of this Note, including
a check payable to the Holder for any cash amounts payable as described above
and for all interest on the converted principal amount hereof accrued and unpaid
as of the date of conversion. Such conversion shall be deemed to have been made
on the date of delivery of the notice of conversion, and on and after such date
the Holder of this Note entitled to receive the Conversion Shares shall be
treated for all purposes as the record holder of such Conversion Shares. Upon
conversion of this Note and delivery of the check described above, the Maker
shall be forever released from all its obligations and liabilities under this
Note to the extent of the amount of unpaid principal that the Holder has elected
to convert into Conversion Shares.
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9. Conversion Price Adjustments
a. In the event the Maker should at any time or from time to time after
the date of issuance hereof fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Class A Common Stock or Class B Common
Stock (collectively, the "Common Stock") or the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Price of this Note
shall be appropriately decreased so that the number of Conversion Shares
issuable upon conversion of this Note shall be increased in proportion to such
increase of outstanding shares.
b. If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, following the record date of such combination, the
Conversion Price for this Note shall be appropriately increased so that the
number of Conversion Shares issuable on conversion hereof shall be decreased in
proportion to such decrease in outstanding shares.
c. In the event of (i) any taking by the Maker of a record of the
holders of any class of securities of the Maker for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or (ii) any capital reorganization of
the Maker, any reclassification or recapitalization of the capital stock of the
Maker or any transfer of all or substantially all of the assets of the Maker to
any other person or any consolidation or merger involving the Maker, or (iii)
any voluntary or involuntary dissolution, liquidation, or winding up of the
Maker, the Maker will mail to the Holder of this Note a notice specifying (A)
the date on which any such record is to be taken for the purpose of such
dividend, distribution, or right, and the amount and character of such dividend,
distribution, or right, (B) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation, or
winding up is expected to become effective and the record date of determining
stockholders entitled to vote thereon, and (C) the new Conversion Price after
giving effect to the adjustment event, which new Conversion Price shall
represent an appropriate increase or decrease in the Conversion Price to
preserve the proportionate amount of Conversion Shares. Such notice shall be
mailed at least twenty (20) days prior to the date described in clause (A) or
(B) above.
d. The Maker shall at all times reserve and keep available out of its
authorized but unissued shares of Class B Common Stock such number of shares
that are solely for the purpose of effecting the conversion of the Note into
such number of Conversion Shares as shall from time to time be sufficient to
effect the conversion of the Note; and if at any time the number of authorized
but unissued shares of Class B Common Stock shall not be sufficient to effect
the conversion of the entire outstanding principal amount of this Note, in
addition to such other remedies as shall be available to the Holder of this
Note, the Maker will use its best efforts to take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Class B Common Stock to such number of shares as shall be
sufficient for such purposes. Any adjustment pursuant to this paragraph 9 shall
be based upon the proportion that the maximum number of Conversion Shares into
which this Note was convertible immediately prior to the event giving rise to
such adjustment bears to the aggregate number of shares of Common Stock (or
issuable in respect of any Common Stock equivalents) outstanding immediately
prior to such event.
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10. Events of Default. "Events of Default" whenever used herein means any one or
more of the following defaults shall have occurred and be continuing (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law, pursuant to any judgment,
decree, or order of any court or any order, rule, or regulation of any
administrative or governmental body):
a. Default in the payment of any installment of interest, the Facility
Fee, the principal of this Note, or any other amount payable hereunder when such
payment becomes due and payable, whether at maturity, by acceleration or
otherwise, and such default shall continue unremedied for a period of fifteen
(15) days;
b. Default in the performance or breach of any other agreement,
covenant, or warranty of the Maker contained in this Note, and such default or
breach shall continue unremedied for a period of thirty (30) days after the date
on which written notice of such default or breach, requiring the Maker to remedy
the same, shall have been given to the Maker by the Holder, or such longer
period, provided that the default is of a nature that cannot be remedied within
thirty (30) days and the Maker has within the thirty (30) day period instituted
curative action and diligently and continuously pursues such action to
completion;
c. The entry of a decree or order by a court having jurisdiction
adjudging the Maker as bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment, or composition of or
in respect of the Maker under federal bankruptcy laws or any similar federal or
state law for the relief of debtors ("Bankruptcy Law") or appointing a receiver,
liquidator, assignee, trustee, conservator, sequestrator, or assignee in
bankruptcy or insolvency of the Maker or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and such
decree or order shall have continued undischarged and unstayed for a period of
ninety (90) days;
d. The Maker shall commence a voluntary case or shall consent to the
entry of an order for relief in any involuntary case under Bankruptcy Law or
shall consent to the appointment of or taking possession by a receiver,
liquidator, custodian, sequestrator, trustee, or assignee of any substantial
part of its property, or shall make an assignment for the benefit of creditors,
or shall fail generally to pay its debts as they become due; or
e. There shall have occurred any circumstance or event which, upon the
lapse of time, the giving of notice, or both, would constitute an event of
default under the Senior Indebtedness of the Maker, except if the same is cured
or waived.
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Notwithstanding the foregoing, no Event of Default shall be deemed to have
occurred if any of the foregoing defaults arises solely from the operation of
the subordination provisions of Paragraph 5 of this Note, in which event
interest on the outstanding principal amount hereof, accrued and unpaid interest
thereon (to the extent lawful), and any unpaid fees due shall accrue at the
Default Rate. Upon satisfaction of the requirements of Paragraph 5 hereof, Maker
shall have the cure periods specified in this Paragraph 10 to cure any defaults.
11. Remedies. If an Event of Default occurs and is continuing (unless waived in
writing by the Holder) then and in each and every case, unless the entire
principal of this Note already shall have become due and payable, the Holder
may, by a notice in writing to the Maker, declare the principal and the accrued
interest on this Note to be immediately due and payable. The principal and
accrued interest on this Note shall become and shall be immediately due and
payable upon such declaration.
12. Miscellaneous
a. The Maker hereby waives presentment, notice of dishonor, protest,
and diligence in bringing suit against the Maker. Acceptance by the Holder of
any payment which is less than the full amount then due and owing hereunder
shall not constitute a waiver of the Holder's right to receive payment in full
at such time or at any prior or subsequent time. The Maker consents that the
time of payment may be extended an unlimited number of times before or after
maturity without notice to the Maker, and that the Maker shall not be discharged
by reason of any such extension or extensions of time. No delay or omission on
the part of the Holder in exercising any right hereunder shall operate as a
waiver of such right or any other right under this Note. A waiver on any one
occasion shall not be construed as a bar to or waiver of any such right or
remedy on any future occasion.
b. Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein and
collectible hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such lawful maximum.
c. The Maker shall be liable for any and all costs and expenses of
collection of the interest required to be paid hereunder, including, without
limitation, reasonable attorneys' fees, arising by virtue of an Event of
Default.
d. This Note shall be subject to and construed in accordance with the
laws of the Commonwealth of Virginia. If any provision herein shall be
unenforceable, such unenforceable provision shall not render the remaining
provisions hereof unenforceable or invalid.
e. This Note shall be binding upon the Maker and the Maker may not
assign its obligations hereunder without the prior written consent of the
Holder. The Holder may assign its rights hereunder, in whole or in part, only to
one or more corporations, limited liability companies, partnerships, trusts, or
other entities which are under common control, or controlled through equity
ownership and/or voting control, by the Holder or ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇; it being
acknowledged that for purposes of this subparagraph 12(e), (i) any entity
managed or controlled by ▇▇▇▇▇▇ Entertainment Ltd. ("JEL") or ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
or (ii) any entity in which either JEL or ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ is one of the
trustees and/or one of the beneficiaries constitutes common control.
COLONIAL DOWNS HOLDINGS, INC.
By: ___________________________________
Name:__________________________________
Title:_________________________________