SCHEDULE 14A
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 1
4a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
CHURCHILL DOWNS INCORPORATED
..............................................................................
(Name of Registrant as Specified In Its Charter)
Alexander M. Waldrop, Senior Vice President, Administration
General Counsel and Secretary
..............................................................................
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
........................................................................
2) Aggregate number of securities to which transaction applies:
........................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
........................................................................
4) Proposed maximum aggregate value of transaction:
........................................................................
5) Total fee paid:
........................................................................
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
........................................................................
2) Form, Schedule or Registration Statement No.:
........................................................................
3) Filing Party:
........................................................................
4) Date Filed:
........................................................................
CHURCHILL DOWNS INCORPORATED
700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 19, 1997
TO THE SHAREHOLDERS OF
CHURCHILL DOWNS INCORPORATED:
Notice is hereby given that the Annual Meeting of Shareholders of
Churchill Downs Incorporated (the "Company"), a Kentucky corporation, will be
held at Churchill Downs Sports Spectrum, 4520 Poplar Level Road, Louisville,
Kentucky, on Thursday, June 19, 1997, at 10:00 a.m., E.D.T. for the following
purposes:
I. To elect four (4) Class I Directors for a term of three (3)
years (Proposal No. 1);
II. To approve amending the Company's Articles of Incorporation to
increase the percentage of shareholders required to call a special meeting of
the Company's shareholders (Proposal No. 2);
III. To approve or disapprove the minutes of the 1996 Annual
Meeting of Shareholders, approval of which does not amount to ratification of
actions taken at such meeting (Proposal No.3); and
IV. To transact such other business as may properly come before
the meeting or any adjournment thereof, including matters incident to its
conduct.
The close of business on April 18, 1997, has been fixed as the record
date for the determination of the shareholders entitled to notice of and to vote
at the meeting, and only shareholders of record at that time will be entitled to
notice of and to vote at the meeting and at any adjournments thereof.
Shareholders who do not expect to attend the meeting in person are
urged to sign, date and promptly return the Proxy that is enclosed herewith.
By Order of the Board of Directors.
ALEXANDER M. WALDROP
SENIOR VICE PRESIDENT, ADMINISTRATION,
GENERAL COUNSEL AND SECRETARY
May 12, 1997
CHURCHILL DOWNS INCORPORATED
700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 19, 1997
The enclosed Proxy is being solicited by the Board of Directors of
Churchill Downs Incorporated (the "Company") to be voted at the 1997 Annual
Meeting of Shareholders to be held on Thursday, June 19, 1997, at 10:00 a.m.,
E.D.T. (the "Annual Meeting"), at the Churchill Downs Sports Spectrum, 4520
Poplar Level Road, Louisville, Kentucky, and any adjournments thereof. This
solicitation is being made primarily by mail and at the expense of the Company.
Certain officers and directors of the Company and persons acting under their
instruction may also solicit Proxies on behalf of the Board of Directors by
means of telephone calls, personal interviews and mail at no additional expense
to the Company. The Proxy and this Proxy Statement are being sent to
shareholders on or about May 12, 1997.
VOTING RIGHTS
Only holders of record of the Company's Common Stock, No Par Value
("Common Stock"), on April 18, 1997, are entitled to notice of and to vote at
the Annual Meeting. On that date, 3,654,263 shares of Common Stock were
outstanding and entitled to vote. Each shareholder has one vote per share on all
matters coming before the Annual Meeting, other than the election of directors.
In the election of directors, a shareholder is entitled by Kentucky law to
exercise "cumulative" voting rights; that is, the shareholder is entitled to
cast as many votes as equals the number of shares owned by the shareholder
multiplied by the
1
number of directors to be elected and may cast all such votes for a single
nominee or distribute them among the nominees in any manner that the shareholder
desires. Shares represented by proxies received may be voted cumulatively (see
"Election of Directors"). Under the Company's Articles of Incorporation and
Bylaws and the Kentucky statutes, abstentions and broker non-votes on any matter
are not counted in determining the number of votes required for the election of
a director or passage of any matter submitted to the shareholders. Abstentions
and broker non-votes are counted for purposes of determining whether a quorum
exists.
If the enclosed Proxy is properly executed and returned prior to the
Annual Meeting, the shares represented thereby will be voted as specified
therein. IF A SHAREHOLDER DOES NOT SPECIFY OTHERWISE, THE SHARES REPRESENTED BY
THE SHAREHOLDER'S PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED
BELOW UNDER "ELECTION OF DIRECTORS," FOR APPROVAL OF THE PROPOSED AMENDMENT TO
THE COMPANY'S ARTICLES OF INCORPORATION, FOR APPROVAL OF THE MINUTES OF THE 1996
ANNUAL MEETING OF SHAREHOLDERS AND ON SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF.
REVOCATION OF PROXY
A proxy may be revoked at any time before the shares it represents are
voted by giving written notice of revocation to the Secretary of the Company and
such revocation shall be effective for all votes after receipt.
2
COMMON STOCK OWNED BY CERTAIN PERSONS
The following table sets forth information concerning the
beneficial ownership of the Common Stock as of April 16, 1997, by [i] the only
persons known by the Board of Directors to own beneficially more than five
percent (5%) of the Common Stock and [ii] the Company's directors and executive
officers as a group. Except as otherwise indicated, the persons named in the
table have sole voting and investment power with respect to all of the shares of
Common Stock shown as beneficially owned by them.
SHARES
NAME AND ADDRESS BENEFICIALLY
OF BENEFICIAL OWNER(1) OWNED % OF CLASS
---------------------- ------------ -----------
Darrell R. Wells
4350 Brownsboro Road
Suite 310
Louisville, Kentucky 40207 232,930(2)(3) 6.4%
Charles W. Bidwill, Jr.
911 Sunset Road
Winnetka, Illinois 60093 223,259(2)(3) 6.1%
23 Directors and Executive
Officers as a Group 1,154,913(2)(3)(4) 31.6%
- ---------------
(1) Until April 15, 1997, certain shareholders of the Company were parties to
the Third Supplemental Stockholder Agreement (the "Third Stockholder
Agreement"). Pursuant to certain federal securities laws, the parties to
the Third Stockholder Agreement could have been collectively considered a
"group" and therefore could have been deemed a "person" known by management
of the Company to own beneficially more than 5% of the shares of Common
Stock of the Company. The Third Stockholder Agreement expired on April 15,
1997, in accordance with its terms. Certain shareholders of the Company
propose to enter into a Fourth Supplemental Stockholder Agreement with
terms substantially similar to the Third Stockholder Agreement (the "Fourth
Stockholder Agreement"). Shareholders holding 900,000 shares of the
Company's Common Stock must be signatories before the Fourth Stockholder
Agreement becomes effective. As of April 16, 1997, shareholders holding
641,676 shares of the Company's Common Stock have become signatories to the
Fourth Stockholder Agreement and, therefore, the Fourth Stockholder
Agreement is not yet effective. If the Fourth Stockholder Agreement becomes
effective, each shareholder who becomes a party to the Fourth Stockholder
Agreement will agree that until April 15, 1998, such shareholder will not
sell, transfer, assign or otherwise dispose of shares of Common Stock
beneficially owned or acquired by such shareholder without first offering
to sell such Common Stock to the Company and to all other signatories to
the Fourth Stockholder Agreement on the same terms and conditions as in an
offer received from a third party by such shareholder. If effective, the
Fourth Stockholder Agreement will provide for proration of the shares
offered by the selling shareholder in the event that more than one of the
signatories to the Fourth Stockholder Agreement desires to purchase the
shares offered by such selling shareholder. The Third Stockholder Agreement
provided and, if effective, the Fourth Stockholder Agreement will provide
that Common Stock may be transferred by the parties to the Agreement,
without offering such Common Stock to the
3
Company and to all other signatories, [i] pursuant to an offer to purchase
not less than all of the outstanding shares of the Common Stock that the
Board of Directors has recommended and that an independent financial
advisor retained by the Company has determined is fair to the Company's
shareholders from a financial point of view; [ii] by gift, will or pursuant
to the laws of descent and distribution; [iii] by pledge to a financial
institution; [iv] if the transfer is by operation of law; or [v] in a small
transaction which is defined to be a transfer in any single calendar month
of 3,000 shares or less of the Common Stock. The Third Stockholder
Agreement did not and, if effective, the Fourth Stockholder Agreement will
not restrict the rights of any shareholder who is a party thereto to vote
the Common Stock, to receive cash or stock dividends, to receive shares of
Common Stock in a stock split, or to sell or dispose of shares of Common
Stock except as specifically set forth in such agreement. The Company has
approved and if the Fourth Stockholder Agreement is effective will become a
third party beneficiary of the Fourth Stockholder Agreement.
(2) Of the total shares listed above, Mr. Wells disclaims beneficial ownership
of 22,400 shares held by The Wells Foundation, Inc., of which he is a
trustee and of 135,791.90 shares held by The Wells Family Partnership, of
which he is the Managing General Partner. Mr. Wells shares voting and
investment power with respect to all shares attributed to him in the above
table. Mr. Bidwill shares voting and investment power with respect to 2,919
shares beneficially owned by him.
(3) See "Executive Officers of the Company," "Election of Directors," and
"Continuing Directors," below.
(4) Includes 94,200 shares issuable under currently exercisable options.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors, executive officers and persons who beneficially own more
than ten percent (10%) of the Company's Common Stock file certain reports with
the Securities and Exchange Commission ("SEC") with regard to their beneficial
ownership of the Common Stock. Pursuant to applicable SEC regulations, the
signatories to the Third Stockholder Agreement were also required to file such
reports with the SEC. See Footnote (1) above for a discussion of the terms of
the Third Stockholder Agreement. The Company is required to disclose in this
Proxy Statement any failure to file or late filings of such reports. During the
Company's prior fiscal year, Mr. Dennis D. Swanson, a director of the Company,
and Clay Kenan Kirk and Sarah Kenan Kennedy, both signatures to the Third
Stockholder Agreement, each made a late filing of one (1) report. The required
reports were subsequently filed for each person. Based solely on its review of
the forms filed with the SEC, the Company believes that all other filing
requirements applicable to its directors, executive officers and ten percent
(10%) beneficial owners were satisfied.
4
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers, as listed below, are elected annually to
their executive offices and serve at the pleasure of the Board of Directors.
COMMON STOCK OF THE COMPANY
BENEFICIALLY OWNED AS OF
APRIL 16, 1997(1)(2)
---------------------------
POSITION(S) WITH COMPANY
NAME AND AGE AND TERM OF OFFICE AMOUNT % OF CLASS
------------ ------------------------ ------ ----------
William S. Farish (3) Director since 1985; Chairman of the 43,280 1.2%
58 Board since 1992
Thomas H. Meeker President and Chief Executive Officer 68,676(4) 1.9%
53 since 1984; Director since 1995
Vicki L. Baumgardner Vice President, Finance and Treasurer 5,153(5) .1%
45 since February 1993; Controller from
1989 to February 1993
David E. Carrico Senior Vice President, Sales since 7,060(6) .2%
46 December 1996; Senior Vice President,
Administration from June 1994 to
December 1996; Vice President of
Marketing from 1990 to June 1994
Robert L. Decker Senior Vice President, Finance and 0 *
49 Development, and Chief Financial Officer
since March 1997
Dan L. Parkerson Senior Vice President, Live Racing since 7,200(7) .2%
54 December 1996; General Manager since
June 1991; Vice President of Operations
from 1990 to February, 1991
Jeffrey M. Smith President, Churchill Downs Management 10,349(8) .3%
44 Company since January 1993; Senior
Vice President, Planning and Development from
February 1993 to December 1996; Senior Vice
President, Finance from 1991 to February 1993;
Treasurer from 1986 to February 1993; Vice
President, Finance from 1990 to 1991
5
Alexander M. Waldrop Senior Vice President, Administration since 10,136(9) .3%
40 December 1996; Senior Vice President
since June 1994; General Counsel and
Secretary since August 1992
- ------------------
*Less than 0.1%
(1) See the Tables on Option Grants in Last Fiscal Year, Aggregate
Year-End Option Values and Ten-Year Option Repricings under "Executive
Compensation" below for a discussion of stock options granted by the
Board of Directors to executive officers during 1996.
(2) No executive officer shares voting or investment power with respect to
his or her beneficially owned shares.
(3) Mr. Farish does not serve full-time as an executive officer of the
Company and is not compensated as an officer of the Company.
(4) Includes 55,700 shares issuable under currently exercisable options.
(5) Includes 5,000 shares issuable under currently exercisable options.
(6) Includes 6,750 shares issuable under currently exercisable options.
(7) Includes 6,750 shares issuable under currently exercisable options.
(8) Includes 10,000 shares issuable under currently exercisable options.
(9) Includes 10,000 shares issuable under currently exercisable options.
From January, 1993, until joining the Company, Mr. Decker was employed
as the Vice President of Finance of The Americas Hilton International Company, a
subsidiary of Ladbroke Group PLC, a full service hotel and gaming enterprise.
From August, 1984 to January, 1993, Mr. Decker was the Vice President of Finance
and Chief Financial Officer of Ladbroke Racing Corporation, an owner and
operator of thoroughbred, harness and greyhound racetracks, and off-track
betting systems in the United States. Mr. Waldrop was employed as an attorney
with the Louisville law firm of Wyatt, Tarrant & Combs, which firm serves as
primary outside counsel to the Company, from August, 1985, until his employment
by the Company.
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ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Annual Meeting, shareholders will vote to elect four (4)
persons to serve in Class I of the Board of Directors to hold office for a term
of three (3) years expiring at the 2000 Annual Meeting of Shareholders and
thereafter until their respective successors shall be duly elected and
qualified.
The Articles of Incorporation of the Company provide that the Board of
Directors shall be composed of not less than nine (9) nor more than twenty-five
(25) members, the exact number to be established by the Board of Directors, and
further provide for the division of the Board of Directors into three (3)
approximately equal classes, of which one (1) class is elected annually. The
Board of Directors previously established the Board at thirteen members: four
(4) directors in Class I, five (5) directors in Class II, and four (4) directors
in Class III.
At the Annual Meeting, the four (4) persons named in the following
table will be nominated on behalf of the Board of Directors for election as
directors in Class I. All of the nominees currently serve as Class I directors
of the Company and all of the nominees have agreed to serve if reelected. Under
cumulative voting, the four nominees receiving the highest number of votes will
be elected.
7
NOMINEES FOR ELECTION AS DIRECTORS
Common Stock Of The Company
Beneficially Owned As Of
April 16, 1997(3)
---------------------------
Name, Age And Principal Occupation (1) And
Positions With Company Certain Directorships (2) Amount % Of Class
- ---------------------- ---------------------------- ------ ----------
CLASS I - TERMS EXPIRING IN 2000
William S. Farish President, W. S. Farish & Company (Trust 43,280 1.2%
58 management company) and Owner and Chief
Director since 1985; Executive Officer, Lane's End Farm
Chairman since 1992 (Thoroughbred breeding and racing); Director,
Breeders' Cup Limited and Keeneland
Association, Incorporated; Vice Chairman and
Steward, Jockey Club; Chairman, American
Horse Council
G. Watts Humphrey, Jr. President, G. W. H. Holdings, Inc. (Private 18,000 .5%
52 investment company); Chief Executive Officer,
Director since 1995 The Conair Group, Inc. (Plastics machinery
equipment company), MetalTech L.P. , NexTech,
L.P., GalvTech, L.P. (Metals manufacturing and
distribution companies) and Centria
(Manufacturing and erector of metal building
systems); Chairman - Fourth District, Federal
Reserve Bank of Cleveland; Ex-Officio
Chairman, The Society of Plastics Industry, Inc.;
Director, The Blood Horse, Inc. (Chairman) and
Keeneland Association, Incorporated; Treasurer,
Breeders' Cup Limited; Steward, Jockey Club
Arthur B. Modell Owner and President, Baltimore Ravens Football 1,000 *
71 Company, Inc. (Professional football team)
Director since 1985
Dennis D. Swanson President and General Manager, WNBC-TV 0 *
59 (Television station); Former President, ABC
Director since 1996(4) Sports, Inc. (from January 1986 to May 1996);
Chairman, Foundation for Minority Interests in
Media, Inc. and Resource Development Board,
College of Communications, University of
Illinois at Champaign-Urbana
- ---------------
*Less than 0.1%
(1) Except as otherwise indicated, there has been no change in principal
occupation or employment during the past five years.
(2) Directorships in companies with a class of securities registered
pursuant to the Securities Exchange Act of 1934 or companies
registered under the Investment Company Act of 1940 and, in the case
of certain nominees, other directorships considered significant by
them.
(3) No nominee shares voting or investment power of his beneficially owned
shares.
8
(4) During 1995, Daniel M. Galbreath, a director in Class I, passed away.
The Board of Directors appointed Dennis D. Swanson to fill this vacant
seat until the expiration of the then current term. The Board of
Directors is now nominating Mr. Swanson for election as a Class I
director.
The Board of Directors has no reason to believe that any of the
nominees will be unavailable to serve as a director. If any nominee should
become unavailable before the Annual Meeting, the persons named in the enclosed
Proxy, or their substitutes, reserve the right to vote for substitute nominees
selected by the Board of Directors. In addition, if any shareholder(s) shall
vote shares cumulatively or otherwise for the election of a director or
directors other than the nominees named above, or substitute nominees, or for
less than all of them, the persons named in the enclosed Proxy or their
substitutes, or a majority of them, reserve the right to vote cumulatively for
some number less than all of the nominees named above or any substitute
nominees, and for such of the persons nominated as they may choose.
CONTINUING DIRECTORS
The following table sets forth information relating to the Class II
and Class III directors of the Company who will continue to serve as directors
until the expiration of their respective terms of office, and the Directors
Emeriti, and the beneficial ownership of Common Stock by such directors.
9
Common Stock Of The Company
Beneficially Owned As Of
April 16, 1997(3)
-----------------------------
Name, Age And Principal Occupation (1) And
Positions With Company Certain Directorships (2) Amount % Of Class
- ---------------------- ----------------------------- ------ ----------
CLASS II-TERMS EXPIRING IN 1998
Catesby W. Clay Chairman, Kentucky River Coal Corporation (Coal 30,290 .8%
73 land lessor); President, Runnymede Farm, Inc.
Director since 1953 (Thoroughbred breeding); Director, Kent-Mar Corp.
(President), KRCC Oil & Gas Co., Inc., University
of Kentucky Mining Engineering Foundation;
Director and President, Foundation for Drug-Free
Youth
J. David Grissom Chairman, Mayfair Capital, Inc. (Private investment 10,050 .3%
58 firm); Director, Providian Corporation, LG&E
Director since 1979 Energy Corporation and Regal Cinemas, Inc.;
Chairman, Centre College Board of Trustees
Seth W. Hancock Partner and Manager, Claiborne Farm, and 142,825 3.9%
47 President, Hancock Farms, Inc. (Thoroughbred
Director since 1973 breeding and farming); Vice President and Director,
Clay Ward Agency, Inc. (Equine insurance);
Director, Hopewell Company and Keeneland
Association, Incorporated
Frank B. Hower, Jr. Retired; Former Chairman and Chief Executive 1,040 *
68 Officer, Liberty National Bancorp, Inc., Liberty
Director since 1979 National Bank & Trust Company of Louisville;
Director, Banc One Kentucky Corporation, Bank
One, Kentucky, NA, American Life and Accident
Insurance Company, Anthem, Inc., Regional Airport
Authority of Louisville and Jefferson County,
Kentucky Historical Society and Actors Theatre of
Louisville; Member, Board of Trustees, Centre
College, J. Graham Brown Foundation and
University of Louisville
10
Common Stock Of The Company
Beneficially Owned As Of
April 16, 1997(3)
Name, Age And Principal Occupation (1) And
Positions With Company Certain Directorships (2) Amount % Of Class
- ---------------------- ------------------------------- ------ ----------
W. Bruce Lunsford Chairman, President and Chief Executive Officer, 100,030 2.7%
49 Vencor, Inc. (Intensive care hospitals and nursing
Director since 1995 homes); Director, Atria Communities, Inc.
(Chairman); ResCare, Inc., National City Bank,
Kentucky (Executive Committee), National City
Corporation, Kentucky Economic Development
Corporation (Chairman); Member, Board of
Trustees, Bellarmine College and Centre College
CLASS III - TERMS EXPIRING IN 1999
Charles W. Bidwill, Jr. Chairman of the Board, National Jockey Club 223,259 6.1%
68 (Operator of Sportsman's Park Racetrack); Former
Director since 1982 President and General Manager, National Jockey
Club (until December 31, 1995); Director, Orange
Park Kennel Club, Associated Outdoor Clubs (Tampa
Greyhound Track), Bayard Raceways and Caterers of
North Florida, Jacksonville Kennel Club, Big
Shoulders Fund, Archdiocese of Chicago, SPECIA
Children's Charities
Thomas H. Meeker President and Chief Executive Officer of the 68,676(4) 1.9%
53 Company; Director, Anderson Park, Inc. (Chairman),
Director since 1995; Thoroughbred Racing Association of North America,
President and Chief Inc. (Executive Committee), Equibase Company,
Executive Officer PNC Bank, Kentucky, Inc. (Chairman, Audit and
since 1984 Loan Committees), and Alliant Health System, Inc.
(Executive Committee); Member, Board of Trustees,
Centre College
11
Common Stock Of The Company
Beneficially Owned As Of
April 16, 1997 (3)
---------------------------
Name, Age And Principal Occupation (1) And
Positions With Company Certain Directorships (2) Amount % Of Class
- ---------------------- ---------------------------- ------ ----------
Carl F. Pollard Owner, Hermitage Farm since 1995 (Thoroughbred 73,040 1.9%
58 breeding); Former Chairman of the Board, Columbia
Director since 1985 Healthcare Corporation; President and Chief
Operating Officer (1991-March 1993), Humana Inc.;
Director, National City Bank, Kentucky and Nexstar
Pharmaceuticals, Inc.; President and Director,
Kentucky Derby Museum Corporation
Darrell R. Wells General Partner, Security Management Company 232,930 6.4%
54 (Investments); Director, First Security Trust
Director since 1985 Company, Commonwealth Bancshares, Citizens
Financial Corporation, Commonwealth Bank &
Trust Company and Jundt Growth Fund
DIRECTORS EMERITI (5)
John W. Barr, III Retired; Former Chairman, National City Bank, 2,000 .1%
76 Kentucky, Inc.; Director, Kitchen Kompact
Director from 1979 to Company; Director, Speed Museum, Cave Hill
1993; Cemetery, Boy Scouts of America and American
Director Emeritus since Printing House for the Blind
1993
Louis J. Herrmann, Jr. Owner, Louis Herrmann Auto Consultant 50,265 1.4%
77 Incorporated (Automobile sales); Director,
Director from 1968 to Southeastern Financial Services, Inc.
1994; Secretary-
Treasurer from
1985 to 1986;
Director Emeritus since
1994
Stanley F. Hugenberg, Jr. President, Jackantom Sales Company 3,670 .1%
79 (Manufacturers' representative); Member, Board of
Director from 1982 to Trustees, J. Graham Brown Foundation
1992;
Director Emeritus since
1992
William T. Young Chairman, W.T. Young, Inc. (Warehousing); Owner, 114,660 3.1%
79 Overbrook Farm (Thoroughbred breeding); Director,
Director from 1985 to Columbia/HCA Healthcare Corporation
1992;
Director Emeritus since
1992
12
- ---------------
*Less than 0.1%
(1) Except as otherwise indicated, there has been no change in principal
occupation or employment during the past five years.
(2) Directorships in companies with a class of securities registered pursuant
to the Securities Exchange Act of 1934 or companies registered under the
Investment Company Act of 1940 and, in the case of certain directors, other
directorships considered significant by them.
(3) No director shares voting or investment power of his beneficially owned
shares, except that Messrs. Bidwill, Clay, Hancock, Herrmann and Wells
share with others the voting and investment power with respect to 2,919
shares, 27,290 shares, 106,325 shares, 10,200 shares, 232,930 shares,
respectively, and Mr. Lunsford shares investment power with respect to
10,000 shares. Of the total shares listed, Mr. Clay specifically disclaims
beneficial ownership of 10,950 shares owned by the Agnes Clay Pringle Trust
of which he is a trustee; Mr. Hancock specifically disclaims beneficial
ownership of 79,200 shares owned by the A.B. Hancock Jr. Marital Trust of
which he is the trustee, of 9,030 shares owned by the Waddell Walker
Hancock II Trust of which he is a trustee, of 9,030 shares owned by the
Nancy Clay Hancock Trust of which he is a trustee and of 6,043.33 shares
held by the ABC Partnership of which he is a general partner; and Mr. Wells
disclaims beneficial ownership of 22,400 shares held by The Wells
Foundation, Inc., of which he is a trustee, and of 135,791.90 shares held
by The Wells Family Partnership, of which he is the Managing General
Partner.
(4) Includes 55,700 shares issuable under currently exercisable options.
(5) Directors Emeriti are entitled to attend meetings of the Board of Directors
but do not have a vote on matters presented to the Board. The Bylaws
provide that once a director is 72 years of age, he may not stand for
re-election but shall assume Director Emeriti status as of the annual
meeting following his current term of service as a director. The Chairman
of the Board may continue to serve as a director notwithstanding this
provision.
COMPENSATION AND COMMITTEES OF THE BOARD OF DIRECTORS
Four (4) meetings of the Board of Directors were held during the
last fiscal year. Directors other than Directors Emeriti are paid $750 for each
meeting of the Board that they attend, and directors who do not reside in
Louisville are reimbursed for their travel expenses. In addition, all directors,
other than Directors Emeriti, receive an annual retainer of $3,000 per year and
directors who serve as committee chairmen receive an additional $1,000 for a
total retainer of $4,000 per year. The Chairman of the Board receives an
additional $1,000 for a total retainer of $5,000 per year. Directors Emeriti are
not paid any compensation for attending meetings. They are entitled to have
their expenses reimbursed.
The Company has four (4) standing Committees: the Executive,
Audit, Compensation and Racing Committees. No Director Emeritus serves on any
Board committee. The Executive Committee is authorized, subject to certain
limitations set forth in the Company's Bylaws, to exercise the authority of the
Board of Directors between Board meetings. Twelve
13
(12) meetings of the Executive Committee (of which Messrs. Bidwill, Farish,
Grissom and Pollard are members) were held during the last fiscal year. The
Audit Committee is responsible for annually examining the financial affairs of
the Company, including consultation with the Company's auditors. One (1) meeting
of the Audit Committee (of which Messrs. Farish, Humphrey, Pollard and Wells are
members) was held during the last fiscal year. The Compensation Committee
administers the Company's Supplemental Benefit Plan, any incentive compensation
plan, the 1993 Stock Option Plan and the 1995 Employee Stock Purchase Plan, and
reviews and recommends actions regarding executive compensation. Two (2)
meetings of the Compensation Committee (of which Messrs. Farish, Hower,
Lunsford, Modell and Wells are members) were held during the last fiscal year.
The Racing Committee is responsible for the Company's contracts and relations
with horsemen, jockeys and others providing horse racing related services. The
Racing Committee (of which Messrs. Clay, Farish, Hancock and Pollard are
members) held one (1) meeting during the last fiscal year. Directors are paid
$500 for each committee meeting they attend other than meetings held by
telephone. The Company does not have a standing nominating committee. All
directors serving as Class I, II or III directors, except Mr. Modell, attended
at least seventy-five percent (75%) of the meetings of the Board of Directors
and the meetings of the committees on which they served.
PROPOSED AMENDMENT TO THE
COMPANY'S ARTICLES OF INCORPORATION
(PROPOSAL NO. 2)
On June 13, 1996, the Board of Directors of the Company adopted a
resolution instructing the Company's management to aggressively pursue
alternative forms of gaming at its racetrack facilities in Louisville, Kentucky.
The Board of Directors believes that if the Company
14
succeeds in obtaining alternative forms of gaming, as a result of potential
perceived increases in value, the Company may become a more attractive target
for unsolicited third party takeover attempts. Accordingly, the Board of
Directors believes that it is appropriate and prudent to review measures to
guard against unsolicited takeover attempts and which encourage potential
acquirors to negotiate with the Board of Directors on any potential acquisition.
As of the date hereof, the Company's management has no knowledge of any specific
efforts to accumulate the Company's Common Stock, to obtain control of the
Company or to remove incumbent management.
At its March 20, 1997 meeting, the Board of Directors adopted a
resolution recommending that the Company's shareholders approve an amendment to
the Company's Articles of Incorporation by adding the new Article XII set forth
below increasing the percentage of shares held necessary to call a special
meeting of shareholders from thirty-three and one-third percent (33 1/3%) to
sixty-six and two-third percent (66 2/3%). The Board of Directors believes that
the current threshold, which requires holders of at least thirty-three and
one-third percent (33 1/3%) of all votes entitled to be cast on a proposed issue
in order to call a special meeting of shareholders, establishes too low a
threshold and exposes the Company to the cost of preparing for a special
shareholders' meeting without a showing of substantial support by the
shareholders. The Board of Directors believes that the decision whether to hold
such a meeting should properly rest with the holders of at least sixty-six and
two-third percent (66 2/3%) of all votes entitled to be cast on a proposed issue
and with the Board of Directors. The current Articles of Incorporation and
Bylaws of the Company contain other provisions which could be viewed as
discouraging takeovers, including a staggered Board of Directors, authorized but
15
unissued preferred stock with respect to which the Board of Directors retains
the power to determine voting rights, and procedures to be complied with in
order for a matter to be properly before a meeting of shareholders. Under
Kentucky law, shareholders of the Company have cumulative voting rights in the
election of directors. The adoption of this proposed amendment to the Articles
of Incorporation of the Company may render more difficult or discourage certain
transactions such as a tender offer or proxy contest but the Board of Directors
believes that encouraging potential acquirors to negotiate with the Board of
Directors on any potential acquisition is in the best interest of the Company.
The adoption of this proposed amendment to the Articles of Incorporation of the
Company requires that the number of votes cast in favor of the proposal exceed
the number of votes cast in opposition to the proposal.
The text of proposed Article XII is set forth below:
ARTICLE XII
SPECIAL MEETING OF SHAREHOLDERS
Special meetings of the shareholders of the corporation
may be called only by:
A. The Board of Directors; or
B. The holders of not less than sixty-six and two
thirds percent (66 2/3%) of all shares entitled
to cast votes on any issue proposed to be
considered at the proposed special meeting upon
such holders signing, dating and delivering to
the Corporation's Secretary one or more written
demands for the
16
meeting, including a description of the purpose
or purposes for which the meeting is to be held.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS
APPROVE THIS PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF
INCORPORATION.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under rules established by the SEC, the Compensation Committee of
the Board of Directors (the "Committee") is required to disclose: (1) the
Committee's compensation policies applicable to the Company's executive
officers; (2) the relationship of executive compensation to Company performance;
and (3) the Committee's bases for determining the compensation of the Company's
Chief Executive Officer ("CEO"), Thomas H. Meeker, for the most recently
completed fiscal year. Pursuant to these requirements, the Committee has
prepared this report for inclusion in the Proxy Statement.
The Committee consists of five (5) independent Directors, none of
whom has ever been employed by the Company. The Committee annually reviews
executive officer compensation and makes recommendations to the Board of
Directors on all matters related to executive compensation. The Committee's
authority and oversight extend to total compensation, including base salary,
annual incentive compensation and stock options for the Company's executive
officers as well as the Company's Profit Sharing Plan, Stock Option Plan and
Stock Purchase Plan. The Committee also administers the employment contract and
Supplemental Benefit Plan of the CEO. The Committee makes its compensation
recommendations to the Board of Directors after considering the recommendations
of the CEO (on all but CEO
17
compensation) and other qualified compensation consultants. The Committee also
reviews compensation data from comparable companies including those found in the
peer group performance graph (the "Performance Graph") which follows this
report.
The fundamental philosophy of the Committee is to assure that the
Company's compensation program for executive officers links pay to business
strategy and performance in a manner which is effective in attracting,
motivating and retaining key executives while also providing performance
incentives which will inure to the benefit of executive officers and
shareholders alike. The objective is to provide total compensation commensurate
with Company performance by combining salaries that are competitive in the
marketplace with incentive pay opportunities established by the Committee which
are competitive with median levels of competitors' incentive compensation. The
Committee has determined that as an executive's level of responsibility
increases, a greater portion of his or her compensation should be based upon the
Company's performance. The Committee also believes that the Company's
compensation program should include an individual performance component to
reward employees whose job performance does not directly affect revenues.
The Committee has structured executive compensation based upon
this philosophy. There are three (3) basic elements of the Company's executive
compensation program, each determined by individual and corporate performance:
(1) base salary compensation, (2) annual variable performance incentive
compensation earned under an incentive compensation plan and (3) stock option
grants made under the Company's 1993 Stock Option Plan (the "Option Plan").
18
Base salaries are targeted to be competitive with similar
positions in comparable companies. In determining base salaries, the Committee
also takes into account individual experience and performance and specific
issues particular to the Company.
The Company's incentive compensation plans have historically been
designed to provide a direct financial incentive to certain officers in the form
of annual cash and/or stock bonuses based upon the Company's performance during
the immediately preceding year. The Churchill Downs Incorporated Incentive
Compensation Plan (1993) expired as of December 31, 1995. During the three-year
term of that incentive compensation plan , the Company met the goals and bonuses
were awarded under that plan only on one occasion, despite the Company's strong
overall performance. As a result, the Committee determined that the particular
plan was not fulfilling the Committee's objectives and, during 1996, evaluated
alternative forms of incentive compensation. Based upon this evaluation, the
Company adopted the Churchill Downs Incorporated Incentive Compensation Plan
(1996) effective for the Company's 1996 fiscal year (the "1996 ICP"). The 1996
ICP provided for the award of a cash bonus based upon the Company's achievement
of earnings per share ("EPS") goals. For the Company's year ended December 31,
1996, the Committee set performance goals based upon the Company's budgeted EPS.
The Company met the EPS goal and cash bonuses were awarded under the 1996 ICP
for the Company's year ended December 31, 1996.
During the fourth quarter of 1996, the Company reorganized its
operations into profit centers and service centers (i) to better align areas
which generate revenues and those which serve a support function and (ii) to
track sources of revenues more effectively. In part, as a result of the
reorganization, the Company adopted the Churchill Downs Incorporated Incentive
19
Compensation Plan (1997), effective for the Company's fiscal years of 1997
through 2001 (the "1997 ICP"). The 1997 ICP is designed to reward employees by
providing for the award of a cash bonus if goals based upon the Company's
pre-tax earnings, as well as the performance of the employee and the center in
which the employee works, are achieved. As with the 1996 ICP, the 1997 ICP
provides for cash bonuses, rather than cash and stock bonuses. The Committee
believes that this type of incentive compensation plan better complements the
Company's Option Plan. The incentive compensation rewards shorter term
performance while the Option Plan rewards longer term performance. The Committee
believes that rewarding employees based upon these three (3) components acts as
the best way to incentivize employees.
The third component of executive compensation is the Option Plan.
The Committee believes that the granting of options to officers of the Company,
including Mr. Meeker, will further the Company's goals of attracting, motivating
and retaining employees while also providing compensation which links pay to the
Company's long-term performance. During 1996, awards under the Option Plan were
as follows: (1) Mr. Meeker was granted 55,649 nonqualified stock options and
8,051 incentive stock options ("ISOs") and (2) all other officers were granted a
total of 23,418 nonqualified stock options and 50,082 ISOs. Of these options,
92,700 are exercisable on June 2, 1997; 22,000 are exercisable on June 2, 1999,
and 22,500 are exercisable on December 18, 1999. The Option Plan provides for
cashless exercises through broker's transactions.
The Committee believes that the Option Plan is integral to a
performance based compensation package because of its reward based upon the
Company's long-term performance. The Option Plan allows the Company to further
tie compensation to performance of the
20
Company with a possibility of increasing the total compensation package of its
executives without an equivalent cash outlay by the Company.
Mr. Meeker was employed as President and Chief Executive Officer
of the Company in October 1984 under an annually renewing three-year contract.
Each year, Mr. Meeker's base salary is set by the Committee after considering
the Company's overall financial performance in light of the Company's strategic
development initiatives. For 1996, Mr. Meeker's annual base salary was set at
$260,000. The relative stability in base salary reflects the Committee's efforts
to shift a greater portion of Mr. Meeker's overall compensation to performance
based sources such as the Option Plan and other forms of incentive compensation.
COMPENSATION COMMITTEE
Frank B. Hower, Jr.
William S. Farish
W. Bruce Lunsford
Arthur B. Modell
Darrell R. Wells
COMPENSATION COMMITTEE REPORT ON 1996 CANCELLATION AND REGRANT OF OPTIONS
On June 3, 1996, the Committee approved the cancellation of 80,700
existing options previously granted to the named executive officers under the
Option Plan and an immediate regrant of an equivalent number of options to
officers, including the named executive officers, exercisable beginning on June
2, 1997, with an exercise price of $38.50 per share, equal to the then fair
market value of the shares as of the date of grant. The exercise prices of the
cancelled options ranged from $46.00 to $55.00 per share.
The Committee approved the cancellation and regrant of options
because it believes that equity interests are a significant factor in the
Company's ability to attract and retain key employees that are critical to the
Company's long-range success. In reviewing the existing
21
options, the Committee determined that the exercise price of a substantial
number of such options exceeded the current trading prices of the Company's
Common Stock. The Committee recognized that replacing existing options with
exercise prices in excess of current fair market value with options at current
fair market value would provide additional incentive to employees because of the
increased potential for appreciation. After considering these matters, the
Committee determined it to be in the best interest of the Company to restore
this incentive for key employees of the Company to remain employees of the
Company and to exert their maximum efforts on behalf of the Company.
COMPENSATION COMMITTEE
Frank B. Hower, Jr.
William S. Farish
W. Bruce Lunsford
Arthur B. Modell
Darrell R. Wells
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company is unaware of any relationships among its officers and
directors which would require disclosure under this caption.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage
change in the cumulative total shareholder return on the Company's Common Stock
against the cumulative total return of each of a peer group index and the
Wilshire 5000 index for the period of approximately five (5) fiscal years
commencing January 31, 1992 and ending December 31, 1996. The period ending
December 31, 1993 represents an eleven (11) month period due to the change in
the Company's fiscal year. The companies used in the peer group index consist of
Bay Meadows Operating Co., Fair Grounds Corp., Hollywood Park Operating Co.,
International
22
Thoroughbred Breeders, Inc. and Santa Anita Operating Co., which are all of the
publicly traded companies known to the Company to be engaged primarily in
thoroughbred racing in the continental United States and to be publicly traded
for at least five (5) years. The Wilshire 5000 equity index measures the
performance of all United States headquartered equity securities with readily
available price data. The graph depicts the result of an investment of $100 in
the Company, the Wilshire 5000 index and the peer group companies. Since the
Company has historically paid dividends on an annual basis, the performance
graph assumes that dividends were reinvested annually.
1/31/92 1/31/93 12/31/93 12/31/94 12/31/95 12/31/96
Churchill Downs $100 $126 $150 $123 $99 $104
Peer Group $100 $100 $148 $98 $94 $207
Wilshire 5000 $100 $108 $116 $113 $150 $179
23
EXECUTIVE COMPENSATION
The following table sets forth the remuneration paid during the
last three (3) fiscal years by the Company to [i] Mr. Meeker, the President and
CEO of the Company, and [ii] each of the Company's four (4) most highly
compensated executive officers in fiscal year 1996 (collectively the "named
executive officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM
COMPEN-
SATION
Other Securities
Annual Underlying
Name and Position Compen- Options/SARs All Other
Principal Position Year Salary Bonus(1) sation(2) (#)(3) Compensation (4)
------------------ ---- ------ -------- --------- ------------ ----------------
Thomas H. Meeker, 1996 $260,000 $175,500 $51,406 63,700 $ 15,522
President, CEO and 1995 245,000 -0- 57,136 5,000 12,830
Director 1994 245,000 73,868 49,463 10,000 12,711
David E. Carrico, 1996 $ 95,680 $ 50,232 -0- 10,000 $ 8,742
Senior Vice President, 1995 92,000 -0- -0- 1,000 7,922
Sales 1994 86,607 21,574 -0- 1,750 7,867
Dan L. Parkerson, 1996 $ 99,840 $ 52,416 -0- 10,000 $ 9,465
Senior Vice President, 1995 96,000 -0- -0- 1,000 9,303
Live Racing and General 1994 94,108 22,512 -0- 1,750 9,188
Manager
Jeffrey M. Smith, 1996 $ 98,800 $ 51,870 -0- 13,000 $ 8,818
President - 1995 95,000 -0- -0- 1,000 9,039
Churchill Downs 1994 93,581 22,278 -0- 2,000 9,171
Management Company
Alexander M. Waldrop, 1996 $ 95,680 $ 50,232 -0- 13,000 $ 8,538
Senior Vice President, 1995 92,000 -0- -0- 1,000 8,162
Administration, General 1994 88,821 21,574 -0- 2,000 8,113
Counsel and Secretary
- --------
(1) In 1994, bonus awards were paid in cash and/or stock pursuant to the
Company's Incentive Compensation Plan then in effect. In 1996, bonuses
were paid in cash pursuant to the Company's Incentive Compensation Plan
then in effect. See "Compensation Committee Report on Executive
Compensation."
(2) Includes the expense of a Supplemental Benefit Plan of which Mr. Meeker is
currently the only participant. See the discussion regarding the
Supplemental Benefit Plan below.
24
(3) On June 3, 1996, 80,700 existing options to the named executive officers
were cancelled and an equal number of options were issued to the named
executive officers. See "Compensation Committee Report on 1996 Cancellation
and Regrant of Options" and Tables on Option Grants in Last Fiscal Year and
Ten-Year Option Repricings.
(4) Consists of life insurance premiums paid by the Company with respect to
certain term life insurance payable on the officer's death to beneficiaries
designated by him and, further, includes amounts contributed by the Company
to the officer's account under the Company's Profit Sharing Plan. Amounts
attributable to such term life insurance are as follows:
MR. MEEKER MR. CARRICO MR. PARKERSON MR. SMITH MR. WALDROP
1996 $2,592 $494 $864 $302 $290
1995 2,875 466 818 286 177
1994 2,864 247 791 278 167
Pursuant to the Company's Profit Sharing Plan, the Company matches
employees' contributions (which are limited to 10% of annual compensation
up to $9,500 for calendar year 1996) up to 2% of quarterly contributions
and also makes discretionary contributions. Amounts contributed by the
Company on behalf of the named executive officers are as follows:
MR. MEEKER MR. CARRICO MR. PARKERSON MR. SMITH MR. WALDROP
1996 $12,930 $8,248 $8,601 $8,516 $8,248
1995 9,955 7,456 8,485 8,752 7,985
1994 9,847 7,620 8,397 8,893 7,946
The following table provides information with respect to the named
executive officers concerning options granted during 1996:
OPTION GRANTS IN LAST FISCAL YEAR
% Of Total Options
Options Granted To Grant Date
Granted (#) Employees In Exercise Or Expiration Present Value
Name (1) Fiscal Year '96 (%) Base Price ($) Date ($)(5)
---- ----------- ------------------- -------------- ------------ -------------
Thomas H. Meeker (2) 57,200 41.69% $38.50 6/2/06 $601,263
6,500 4.73% $35.00 12/18/06 63,310
David E. Carrico (3) 8,000 5.83% $38.50 6/2/06 85,260
2,000 1.46% $35.00 12/18/06 19,480
Dan L. Parkerson (3) 8,000 5.83% $38.50 6/2/06 85,260
2,000 1.46% $35.00 12/18/06 19,480
Jeffrey M. Smith (4) 11,000 8.02% $38.50 6/2/06 116,430
2,000 1.46% $35.00 12/18/06 19,480
Alexander M . Waldrop (4) 11,000 8.02% $38.50 6/2/06 116,430
2,000 1.46% $35.00 12/18/06 19,480
(1) The 109,700 options granted in 1996 to the named executive officers are
composed of incentive stock options, as defined under the Internal Revenue
Code of 1986, as amended, and non-qualified stock options. The exercise
price of these options, whether incentive stock options or non-qualified
stock options, is the fair market value of the shares on the date of their
grant.
(2) Of the total of 63,700 options granted to Mr. Meeker in 1996, (i) 8,051 are
incentive stock options of which 2,597 options vest on the first
anniversary of the date of grant and 5,454 options vest on the third
anniversary of the date of grant, and (ii) 55,649 are non-qualified stock
options of which 48,103 options vest on the first anniversary of the date
of grant and 7,546 options vest on the third anniversary of the date of
grant.
(3) Of the total of 10,000 options granted to Mr. Carrico and Mr. Parkerson,
respectively, in 1996, (I) 6,597 are incentive stock options of which 2,597
options vest on the first anniversary of the date of grant and 4,000
options vest on the third anniversary of the date of grant, and (ii) 3,403
are non-qualified stock options which vest on the first anniversary of the
date of grant.
25
(4) Of the total of 13,000 options granted to Mr. Smith and Mr. Waldrop,
respectively, in 1996, (i) 6,597 are incentive stock options of which 2,597
options vest on the first anniversary of the date of grant and 4,000
options vest on the third anniversary of the date of grant, and (ii) 6,403
are non-qualified stock options which vest on the first anniversary of the
date of grant.
(5) The fair value of each stock option granted is estimated on the date of
grant using the Black - Scholes option-pricing model with the following
weighted-average assumptions for grants in 1996, respectively: dividend
yield of 2.1% in 1996 and ranging from 1.7% to 1.9% in 1996; risk-free
interest rates are different for each grant and range from 5.39% to 6.74%;
and the expected lives of options are different for each grant and range
from approximately 5.5 to 6.5 years, and a volatility of 18.75% for all
grants.
The following table provides information with respect to the named
executive officers concerning unexercised options held as of December 31, 1996:
AGGREGATE YEAR-END OPTION VALUES
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options Options at year
at year end (#) end ($)(1)
Shares Acquired on Exercisable / Exercisable /
Exercise Unexercisable Unexercisable
NAME (#) VALUE REALIZED ($) (#) ($)
- ---- ----------------- ------------------ ------------- -------------
Thomas H. Meeker 0 $0 0 / 78,700 $0 / $29,000
David E. Carrico 0 0 0 / 12,750 0 / 6,500
Dan L. Parkerson 0 0 0 /12,750 0 / 6,500
Jeffrey M. Smith 0 0 0 /16,000 0 / 6,500
Alexander M . Waldrop 0 0 0 / 16,000 0 / 6,500
- -----------------------------
(1) Closing bid as of the last trading day of 1996 (December 31, 1996) minus
the exercise price.
26
TEN-YEAR OPTION REPRICINGS
The following table sets forth information concerning all repricings of
stock options held by each person serving as an executive officer of the Company
at the time of the repricings during the ten-year period ended December 31,
1996.
Number of
Securities Price of Length of Original
Date Underlying Stock at Exercise New Option Term
Of Options Time of Price at Time Exercise Remaining at Date
Name Repricing Repriced Repricing Of Repricing Price Of Repricing
---- --------- -------- --------- ------------ ----- ------------
Thomas H. Meeker 6/3/96 2,597(I) $38.50 $55.00 $38.50 7 yrs., 168 days
6/3/96 48,103(N) 38.50 46.00 38.50 7 yrs., 168 days
Dan L. Parkerson 6/3/96 2,597(I) 38.50 46.00 38.50 7 yrs., 168 days
6/3/96 3,403(N) 38.50 46.00 38.50 7 yrs., 168 days
Jeffrey M. Smith 6/3/96 2,597((I) 38.50 46.00 38.50 7 yrs., 168 days
6/3/96 6,403 (N) 38.50 46.00 38.50 7 yrs., 168 days
David E. Carrico 6/3/96 2,597(I) 38.50 46.00 38.50 7 yrs., 168 days
6/3/96 3,403(N) 38.50 46.00 38.50 7 yrs., 168 days
Alexander M. Waldrop 6/3/96 2,597(I) 38.50 46.00 38.50 7 yrs., 168 days
6/3/96 6,403(N) 38.50 46.00 38.50 7 yrs., 168 days
Vicki L. Baumgardner 6/3/96 2,597(I) 38.50 46.00 38.50 7 yrs., 168 days
6/3/96 1,903(N) 38.50 46.00 38.50 7 yrs., 168 days
- ----------------
(I) - Intended to qualify as incentive stock options under the Internal Revenue
Code of 1986, as amended.
(N) - Nonqualified stock options.
The Company maintains a Supplemental Benefit Plan (the "Plan") in
which Mr. Meeker is currently the only participant. The Plan provides that if a
participant remains in the employ of the Company until age 55 or becomes totally
and permanently disabled, the participant will be paid a monthly benefit equal
to 45% of the "highest average monthly earnings," as defined in the Plan, prior
to the time of disability or age 55, reduced by certain other benefits as set
forth in the Plan, commencing on retirement (or attainment of age 55 if
disability occurs prior to said age) and continuing for life. The benefit
payable under the Plan is increased by 1% for each year the participant remains
employed by the Company after age 55, to a maximum of 55% of the highest average
monthly earnings at age 65. The Plan further provides that the monthly benefit
will be reduced by [i] 100% of the primary insurance amount under social
security payable to a participant determined as of the later of the
participant's retirement date or attainment of age 62; [ii] 100% of
27
the participant's monthly benefit calculated in the form of a life annuity under
the Company's terminated Pension Plan; [iii] 100% of the monthly income option
calculated as a life annuity from the cash surrender value of all life insurance
policies listed on a schedule attached to the participant's plan agreement; and
[iv] 100% of the employer contributions and any employee contributions up to a
maximum of $2,000 per year allocated to the participant's accounts under the
Company's Profit Sharing Plan, calculated in the form of a life annuity payable
on his retirement date. Due to these reductions, the estimated annual benefit
payable upon retirement at age 65 to Mr. Meeker under the Plan is $12,580. This
estimate is based upon the following assumptions: [i] 8% annual earnings under
the Company's Profit Sharing Plan; [ii] Mr. Meeker's salary remains constant;
and [iii] the maximum wage base for determining the Social Security offset
remains constant. In addition, Mr. Meeker will be paid the equivalent of the
cash surrender value of an insurance policy covering his life upon retirement
under the terms of the Supplemental Benefit Plan. Based upon the estimates
provided by Northwestern Mutual Life, the Company expects to provide Mr. Meeker
with an additional life income beginning at age 65 of $63,832 per year based on
premiums paid to date.
EMPLOYMENT AGREEMENT AND CHANGE IN CONTROL AGREEMENT
Mr. Meeker was employed as President and Chief Executive Officer
of the Company in October 1984 under an annually renewing three-year contract.
Mr. Meeker's compensation for 1997 includes a base salary of $280,000 per year,
reimbursement for travel and entertainment expenses (including his wife's travel
expenses on Company business), provision of an automobile, payment of dues for
one (1) country club and any other professional or business associations, and a
$250,000 life insurance policy. Mr. Meeker's employment may be terminated by the
Company prior to the expiration of his employment agreement only if he willfully
fails to perform his duties under his
28
employment agreement or otherwise engages in misconduct that injures the
Company. Pursuant to Mr. Meeker's employment agreement, in the event of both a
"change in control" of the Company and, within one (1) year of such "change in
control," either termination of Mr. Meeker's employment by the Company without
"just cause" or his resignation, the Company will pay to Mr. Meeker an amount
equal to three (3) times his average annual base salary over the prior five (5)
years. A "change in control" is defined generally to include the sale by the
Company of all or substantially all of its assets, a consolidation or merger
involving the Company, the acquisition of over 30% of the Common Stock in a
tender offer or any other change in control of the type which would be required
to be reported under the Federal securities laws; however, a "change in control"
will not be deemed to have occurred in the case of a tender offer or change
reportable under the Federal securities laws, unless it is coupled with or
followed by the election of at least one-half of the directors of the Company to
be elected at any one (1) election and the election of such directors has not
been previously approved by at least two-thirds of the directors in office prior
to such change in control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past fiscal year, the Company did not engage in any
transactions in which any director or officer of the Company had any material
interest, except as described below.
Directors of the Company may from time to time own or have
interests in horses racing at the Company's tracks. All such races are
conducted, as applicable, under the regulations of the Kentucky Racing
Commission or the Indiana Horse Racing Commission, and no director receives any
extra or special benefit with regard to having his horses selected to run in
races or in connection with the actual running of races.
One or more directors of the Company have an interest in business
entities which contract with the Company or Hoosier Park, L.P. ("Hoosier Park"),
the Company's affiliate, for the
29
purpose of simulcasting the Kentucky Derby and other races and the acceptance of
intrastate or interstate wagers on such races. In such case, no extra or special
benefit not shared by all others so contracting with the Company is received by
any director or entity in which such director has an interest.
Mr. Charles W. Bidwill, Jr., a director and five percent (5%)
owner of the Company, is the Chairman and part owner of National Jockey Club. In
1996, National Jockey Club and the Company were parties to a simulcasting
contract whereby National Jockey Club was granted the right to simulcast the
Company's races, including the Kentucky Oaks - Grade I race and the Kentucky
Derby - Grade I race. In consideration for these rights, National Jockey Club
paid to the Company 5% of its gross handle on the Kentucky Oaks - Grade I race
and the Kentucky Derby - Grade I race and 3% of its gross handle on the other
simulcast races. In 1996, National Jockey Club and Hoosier Park were parties to
a simulcasting contract whereby National Jockey Club was granted the right to
simulcast Hoosier Park's thoroughbred races. In consideration for these rights,
National Jockey Club paid to Hoosier Park 2% of its gross handle on the
simulcast races. National Jockey Club and Hoosier Park were also parties to a
simulcasting contract whereby Hoosier Park was granted the right to simulcast
National Jockey Club's thoroughbred races. In consideration for these rights,
Hoosier Park paid to National Jockey club 3% of its gross handle on the
simulcast races. For purposes of these and other simulcast contracts, gross
handle is defined as the total amount wagered by patrons on the races at the
receiving facility less any money returned to the patrons by cancels and
refunds. These simulcast contracts are uniform throughout the industry and the
rates charged were substantially the same as rates charged to other parties who
contracted to simulcast the same races. In 1996, the Company and Hoosier Park
simulcasted their races to 996 locations in the United States
30
and selected international sites. National Jockey Club received no extra or
special benefit as a result of the Company's relationship with Mr. Bidwill.
Thomas H. Meeker, President and Chief Executive Officer of the
Company, is currently indebted to the Company in the principal amount of
$65,000, represented by his demand note bearing interest at 8% per annum
(payable quarterly) and payable in full upon termination of Mr. Meeker's
employment with the Company for any reason. This indebtedness arose in
connection with Mr. Meeker's initial employment, pursuant to the terms of which
he was granted a loan by the Company for the purpose of purchasing the Company's
Common Stock.
INDEPENDENT PUBLIC ACCOUNTANTS
At its meeting held on March 20, 1997, the Board of Directors
adopted the recommendation of the Audit Committee and selected Coopers & Lybrand
L.L.P. to serve as the Company's independent public accountants and auditors for
the fiscal year ending December 31, 1997. Coopers & Lybrand L.L.P. has served as
the Company's independent public accountants and auditors since the Company's
1990 fiscal year.
Representatives of Coopers & Lybrand L.L.P. are expected to be
present at the Annual Meeting and will be available to respond to appropriate
questions and will have the opportunity to make a statement if they desire to do
so.
31
APPROVAL OF MINUTES OF 1996 SHAREHOLDERS' MEETING
AND OTHER MATTERS (PROPOSAL NO. 3)
The Board of Directors of the Company does not know of any matters
to be presented to the Annual Meeting other than those specified above, except
matters incident to the conduct of the Annual Meeting and the approval by a
majority of the shares represented at the Annual Meeting of minutes of the 1996
Annual Meeting which approval does not amount to ratification of actions taken
thereat. If, however, any other matters should come before the Annual Meeting,
it is intended that the persons named in the enclosed Proxy, or their
substitutes, will vote such Proxy in accordance with their best judgment on such
matters.
PROPOSALS BY SHAREHOLDERS
Any shareholder proposal that may be included in the Board of
Directors' Proxy Statement and Proxy for presentation at the Annual Meeting of
Shareholders to be held in 1998 must be received by the Company at 700 Central
Avenue, Louisville, Kentucky 40208, Attention of the Secretary, no later than
January 12, 1998. BY ORDER OF THE BOARD OF DIRECTORS.
THOMAS H. MEEKER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ALEXANDER M. WALDROP
SENIOR VICE PRESIDENT, ADMINISTRATION,
GENERAL COUNSEL AND SECRETARY
Louisville, Kentucky
May 12, 1997
PLEASE SIGN AND RETURN THE ENCLOSED PROXY
IF YOU CANNOT BE PRESENT IN PERSON
32
PROXY
CHURCHILL DOWNS INCORPORATED
700 Central Avenue
Louisville, Kentucky 40208
ANNUAL MEETING OF SHAREHOLDERS - JUNE 19, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Frank B. Hower, Jr. and
W. Bruce Lunsford, and any of them, as Proxies with full power to appoint a
substitute and hereby authorizes them to represent and to vote, as designated
below, all shares of the undersigned at the Annual Meeting of Shareholders to be
held on Thursday, June 19, 1997 or any adjournment thereof, hereby revoking any
Proxy hereto fore given.
The Board of Directors unanimously recommends a vote FOR the
following proposals:
1. Election of Class I Directors (Proposal No. 1):
____ FOR all nominees listed ____ WITHHOLD AUTHORITY to
below (Except as marked to vote for all nominees listed
the contrary below) below
Class I Directors: William S. Farish, G. Watts Humphrey, Jr.,
Arthur B. Modell and Dennis D. Swanson
(INSTRUCTION: To withhold authority to vote for any individual
nominee write that nominee's name on the space provided below).
- ----------------------------------------------------------------
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2. _____ FOR ____ AGAINST ____ ABSTAIN
Proposal to approve amending the Company's Articles of
Incorporation to increase the percentage of shareholders required
to call a special meeting of the Company's shareholders (Proposal
No. 2);
3. ____ FOR ____ AGAINST ____ ABSTAIN
Proposal to approve minutes of the 1996 Annual Meeting of Share
holders, approval of which does not amount to ratification of
action taken thereat (Proposal No. 3);
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting including matters incident to
its conduct.
UNLESS CONTRARY DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSAL NO. 2 AND FOR
PROPOSAL NO. 3, AND FOR THE ELECTION OF ALL
CLASS I DIRECTORS DESIGNATED UNDER PROPOSAL
NO. 1. Please sign, date and return this
Proxy promptly in the enclosed envelope.
Dated ________________________________, 1997
=============================================
_____________________ (Please sign this Proxy exactly as
name(s) appears. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee,
guardian or other fiduciary, please give full title.)
2
