CHURCHILL DOWNS INCORPORATED
700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 17, 1999
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 17, 1999, at 10:00 a.m., E.D.T. for the following
purposes:
I. To elect five (5) Class III Directors for a term of three (3)
years(Proposal No.1);
II. To approve amending the Company's Articles of Incorporation to
increase the number of authorized shares of the Company's Common Stock from
20,000,000 to 50,000,000 shares (Proposal No. 2);
III. To approve or disapprove the minutes of the 1998 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 20, 1999, 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.
REBECCA C. REED
Senior Vice President,
General Counsel and Secretary
April 28, 1999
CHURCHILL DOWNS INCORPORATED
700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
PROXY STATEMENT
Annual Meeting of Shareholders To Be Held on June 17, 1999
The enclosed Proxy is being solicited by the Board of Directors (the
"Board of Directors") of Churchill Downs Incorporated (the "Company") to be
voted at the 1999 Annual Meeting of Shareholders to be held on Thursday, June
17, 1999, 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 April 28, 1999.
Voting Rights
Only holders of record of the Company's Common Stock, No Par Value
("Common Stock"), on April 20, 1999, are entitled to notice of and to vote at
the Annual Meeting. On that date, 7,525,041 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 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 SHAREHOLDERDOES 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
1
APPROVAL OF THE PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION,
FOR APPROVAL OF THE MINUTES OF THE 1998 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.
Common Stock Owned by Certain Persons
The following table sets forth information concerning the beneficial
ownership of the Common Stock as of April 15, 1999, 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 Owned % of Class
Darrell R. Wells
4350 Brownsboro Road
Suite 310
Louisville, Kentucky 40207 479,310(1)(2) 6.4%
Charles W. Bidwill, Jr.
911 Sunset Road
Winnetka, Illinois 60093 440,680(2) 5.9%
27 Directors and Executive
Officers as a Group 2,586,640(2)(3) 34.4%
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(1) Of the total shares listed above, Mr. Wells disclaims beneficial ownership
of 44,800 shares held by The Wells Foundation, Inc., of which he is a
trustee and of 284,880 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.
(2) See "Executive Officers of the Company," "Election of Directors," and
"Continuing Directors," below.
(3) Includes 273,400 shares issuable under currently exercisable options.
2
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. The Company is required to disclose in this Proxy
Statement any failure to file or late filings of such reports. For the Company's
prior fiscal year, based solely on its review of the forms filed with the SEC,
the Company believes that all filing requirements applicable to its directors,
executive officers and ten percent (10%) beneficial owners were satisfied.
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 15, 1999(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 86,560 1.2%
60 Board since 1992
Thomas H. Meeker President and Chief Executive Officer 172,313 42.3%
55 since 1984; Director since 1995
Vicki L. Baumgardner Vice President, Finance and Treasurer 15,306(5) .2%
47 since February 1993; Controller from
1989 to February 1993
David E. Carrico Senior Vice President, Sales since 22,120(6) .3%
48 December 1996; Senior Vice President,
Administration from June 1994 to
December 1996; Vice President of
Marketing from 1990 to June 1994
Robert L. Decker Executive Vice President and Chief 2,000 *
51 Financial Officer since January 1999;
Senior Vice President, Finance and
Development, and Chief Financial Officer
from March 1997 to December 1998
3
Common Stock of the
Company Beneficially Owned
as of April 15, 1999(1)(2)
Position(s) With Company
Name and Age and Term of Office Amount % of Class
Dan L. Parkerson Senior Vice President, Property Management 22,400(7) .3%
56 since January 1999; Senior Vice President,
Live Racing from December 1996 to
December 1998; General Manager from June
1991 to December 1998
Rebecca C. Reed Senior Vice President, General Counsel and 485 *
41 Secretary since January 1999; Associate
General Counsel and Assistant Secretary
from January 1998 to December 1998;
Corporate Counsel from January 1994 to
December 1997
Donald R. Richardson Senior Vice President, Racing since January 2,742(8) *
53 1999; Vice President, Racing from September
1994 to December 1998; Stakes Coordinator
from August 1990 to August 1994
Jeffrey M. Smith President, Churchill Downs Management 28,576(9) .4%
46 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
Karl F. Schmitt, Jr. Senior Vice President, Communications 15,426(10) .2%
46 since March 1998; Vice President, Corporate
Communications since 1990
Alexander M. Waldrop Senior Vice President and General Manager 28,382(11) .4%
42 since January 1999; Senior Vice President,
Administration from December 1996 to December
1998; Senior Vice President from June 1994
to December 1996; General Counsel and
Secretary from August 1992 to December 1998
- ------------------
*Less than 0.1%
(1) See the Tables on Option Grants in Last Fiscal Year and Aggregate
Year-End Option Values under "Executive Compensation" below for a
discussion of stock options granted by the Board of Directors to
executive officers during 1998.
(2) No executive officer shares voting or investment power with respect to
his or her beneficially owned shares, except that Mr. Meeker shares
investment and voting power with respect to 26,908 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 144,400 shares issuable under currently exercisable options.
4
(5) Includes 15,000 shares issuable under currently exercisable options.
(6) Includes 21,500 shares issuable under currently exercisable options.
(7) Includes 21,500 shares issuable under currently exercisable options.
(8) Includes 2,600 shares issuable under currently exercisable options.
(9) Includes 28,000 shares issuable under currently exercisable options.
(10) Includes 15,000 shares issuable under currently exercisable options.
(11) Includes 28,000 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 September, 1987 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.
Election of Directors
(Proposal No. 1)
At the Annual Meeting, shareholders will vote to elect five (5) persons
to serve in Class III of the Board of Directors to hold office for a term of
three (3) years expiring at the 2002 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. At its
meeting on June 18, 1998, the Board of Directors amended the Company's Bylaws to
establish the number of directors at thirteen (13), with four (4) directors in
each of Class I and Class II and with five (5) directors in Class III.
The Company is a party to a Stock Purchase Agreement dated as of March
28, 1998 (the "Stock Purchase Agreement"), between the Company and TVI Corp.,
under which the Company acquired all of the shares of the stock of Racing
Corporation of America from TVI Corp. as of April 21, 1998. The Stock Purchase
Agreement provides that, at the regular meeting of the Board of Directors in
June of 1998, Daniel Harrington, President of TVI Corp., would be nominated to
serve as a director of the Company in the class of directors deemed appropriate
by the Company, subject to reelection of Mr. Harrington (or a substitute nominee
reasonably acceptable to the Company) by the shareholders of the Company at the
next annual meeting of the shareholders of the Company if TVI Corp. continues to
then hold 200,000 shares of the Company's Common
5
Stock and subject to the fiduciary obligations of the directors of the Company
in nominating such person for election as a director.
At the Annual Meeting, the five (5) persons named in the following table
will be nominated on behalf of the Board of Directors for election as directors
in Class III. All of the nominees currently serve as Class III directors of the
Company and all of the nominees have agreed to serve if reelected. Under
cumulative voting, the five (5) nominees receiving the highest number of votes
will be elected.
Nominees for Election as Directors
Common Stock of the
Company Beneficially Owned
as of April 15, 1999(3)
Name, Age and
Positions with Principal Occupation (1) and
Company Certain Directorships (2) Amount % of Class
Class III - Terms Expiring in 2002
Charles W. Bidwill, Jr. Chairman of the Board, National Jockey Club 440,680 5.9%
70 (Operator of Sportsman's Park Racetrack); For
Director since 1982 mer President and General Manager, National
Jockey Club (until December 31, 1995);
Director,Orange Park Kennel Club, Associated
Outdoor Clubs (Tampa Greyhound Track),
Bayard Race ways and Caterers of North Florida,
Jacksonville Kennel Club, Big Shoulders Fund
Archdiocese of Chicago, Cristo Rey Jesuit
High School
Daniel P. Harrington President and Chief Executive Officer, HTV 200,000 2.7%
43 Industries, Inc.(private holding company with
Director since 1998 diversified business interests); Former
Chairman and President, Ellis Park Race
Course, Inc. (1993 to 1998); Trustee, V & V
Foundation
Thomas H. Meeker President and Chief Executive Officer of the 172,313(4) 2.3%
55 Company; Director, Anderson Park, Inc. (Chair
Director since 1995; man), Thoroughbred Racing Association of North
President and Chief America, Inc., Equibase Company, PNC Bank,
Executive Officer Kentucky, Inc., National Thoroughbred Racing
since 1984 Association, Norton Healthcare, Inc.
(Executive Committee); Member, Board of
Trustees, Centre College
6
Common Stock of the
Company Beneficially Owned
as of April 15, 1999(3)
Name, Age and
Positions with Principal Occupation (1) and
Company Certain Directorships (2) Amount % of Class
Carl F. Pollard Owner, Hermitage Farm since 1995 (Thorough 143,080 1.9%
60 bred breeding); Former Chairman of the Board,
Director since 1985 Columbia Healthcare Corporation; President
and Chief Operating Officer (1991-March 1993),
Humana Inc.; Director, National City Bank,
Kentucky (Executive Committee), Breeders' Cup
Limited, Kentucky Derby Museum Corporation,
Nexstar Pharmaceuticals, Inc. (formerly
Vestar); Trustee, Thoroughbred Owners and
Breeders Association
Darrell R. Wells General Partner, Security Management Company 479,310 6.4%
56 (Investments); Director, First Security Trust
Director since 1985 Company, Commonwealth Bancshares, Citizens
Financial Corporation, Commonwealth Bank &
Trust Company and Jundt Growth Fund
- --------------
* 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, except that Mr. Meeker shares with others the voting and
investment power with respect to 26,908 shares; Mr. Wells shares
voting and investment power with respect to 479,310 shares; and Mr.
Harrington shares voting and investment power with respect to 200,000
shares. Mr. Wells specifically disclaims beneficial ownership of 44,800
shares held by the Wells Foundation, Inc., of which he is a trustee, and
of 284,880 shares held by The Wells Family Partnership, of which he is
the Managing General Partner. Mr. Harrington specifically disclaims
beneficial ownership of 200,000 shares held by TVI Corp.
(4) Includes 144,400 shares issuable under currently exercisable options.
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 I and
Class II directors of the Company who will continue to serve as directors until
the expiration of their respective terms
7
of office, and the Directors Emeriti, and the beneficial ownership of Common
Stock by such Directors.
Common Stock of the
Company Beneficially Owned
as of April 15, 1999(3)
Name, Age and
Positions with Principal Occupation (1) and
Company Certain Directorships (2) Amount % of Class
Class I - Terms Expiring in 2000
William S. Farish President, W. S. Farish & Company (Trust man 86,560 1.2%
60 agement company) and Owner and Chief Execu
Director since 1985; tive Officer, Lane's End Farm (Thoroughbred
Chairman since 1992 breeding and racing); Director, Add-Vision,
Breeders' Cup Limited and Keeneland Associa
tion, Incorporated; Vice Chairman and Steward,
Jockey Club; Chairman, American Horse Council
G. Watts Humphrey, Jr. President, G. W. H. Holdings, Inc. (Private 36,000 .5%
54 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 Cleve land; Director, The
Blood Horse, Inc.(Chairman) and Keeneland
Association, Incorporated; Director and
Treasurer, Breeders' Cup Limited
Arthur B. Modell Owner and President, Baltimore Ravens Football 2,000 *
73 Company, Inc. (Professional football team)
Director since 1985
Dennis D. Swanson President and General Manager, WNBC-TV 0 *
61 (Television station); Co-Chairman, NBC Olym
Director since 1996 pics; Former President, ABC Sports, Inc. (from
January 1986 to May 1996); Chairman, Founda
tion for Minority Interests in Media, Inc. and
Resource Development Board, College of Com
munications, University of Illinois at Champaign-
Urbana
Class II - Terms Expiring in 2001
J. David Grissom Chairman, Mayfair Capital, Inc. (Private 20,100 .3%
60 investment firm) ; Director, Providian
Director since 1979 Financial Corporation, and L G & E Energy
Corporation; Chairman, Centre College Board
of Trustees
8
Common Stock of the
Company Beneficially Owned
as of April 15, 1999(3)
Name, Age and
Positions with Principal Occupation (1) and
Company Certain Directorships (2) Amount % of Class
Seth W. Hancock Partner and Manager, Claiborne Farm, and 285,650 3.8%
49 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 2,080 *
70 Officer, Liberty National Bancorp, Inc.,
Director since 1979 Liberty National Bank & Trust Company o
Louisville; Director, Banc One Kentucky
Corporation, Bank One, Kentucky, NA, American
Life and Accident Insurance Company, and
Anthem, Inc.; Member, Board of Trustees, J.
Graham Brown Foundation and University of
Louisville (Chairman)
W. Bruce Lunsford Chairman, Ventas, Inc. (Real estate 200,060 2.7%
51 investment trust); Former Chairman, President
Director since 1995 and Chief Executive Officer, Vencor, Inc.
(Intensive care hospitals and nursing homes);
Director, ResCare, Inc., National City Bank,
Kentucky (Executive Committee), National City
Corporation (Executive Committee), Kentucky
Economic Development Corporation (Chairman)
Directors Emeriti (4)
Catesby W. Clay Chairman, Kentucky River Coal Corporation 60,580 .8%
75 (Coal land lessor); President, Runnymede Farm,
Director from 1953 to Inc. (Thoroughbred breeding); Director, Kent-
1998; Director Emeritus Mar Corp. (President), KRCC Oil & Gas Co.,
since 1998 Inc., University of Kentucky Mining Engineering
Foundation; Director and President, Foundation
for Drug-Free Youth
John W. Barr, III Retired; Former Chairman, National City Bank, 4,000 .1%
78 Kentucky, Inc.; Director, Kitchen Kompact
Director from 1979 to Company; Director, Speed Museum, Cave Hill
1993; Director Emeritus Cemetery, and Boy Scouts of America
since 1993
9
Common Stock of the
Company Beneficially Owned
as of April 15, 1999(3)
Name, Age and
Positions with Principal Occupation (1) and
Company Certain Directorships (2) Amount % of Class
Louis J. Herrmann, Jr. Owner, Louis Herrmann Auto Consultant 80,130 1.1%
79 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 (Manufac- 7,340 .1%
81 turers' 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), 229,320 3.1%
81 Owner, Overbrook Farm (Thoroughbred racing
Director from 1985 and breeding); Chairman, Transylvania
to 1992; Director University; and Chairman, Shakertown at
Emeritus since 1992 Pleasant Hill Kentucky, Inc.
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*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. Clay, Hancock and Lunsford share with others the
voting and investment power with respect to 54,580 shares, 212,650 shares
and 20,000 shares, respectively. Of the total shares listed, Mr. Clay
specifically disclaims beneficial ownership of 21,900 shares owned by the
Agnes Clay Pringle Trust of which he is a trustee, Mr. Hancock specifically
disclaims beneficial ownership of 158,400 shares owned by the A.B. Hancock,
Jr. Marital Trust of which he is the trustee, of 18,060 shares owned by the
Waddell Walker Hancock II Trust of which he is a trustee, of 18,060 shares
owned by the Nancy Clay Hancock Trust of which he is a trustee and of
12,086.66 shares held by the ABC Partnership of which he is a general
partner.
(4) 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
Five (5) meetings of the Board of Directors were held during the last
fiscal year. During 1998, directors, other than Directors Emeriti, were paid
$750 for each meeting of the Board of Directors that they attended. Directors
were paid $750 for each committee meeting they attended and each teleconference
meeting in which they participated. Directors who did not reside in Louisville
were reimbursed for their travel expenses. Directors, other than Directors
Emeriti, received a retainer of $6,000 for 1998 and Directors who served as
committee chairmen received
10
an additional $2,000 for a total retainer of $8,000 for 1998. The Chairman of
the Board of Directors received an additional $5,000 for a total retainer of
$11,000 for 1998. Directors Emeriti were not paid any compensation for attending
meetings. They were 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.
Executive 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. The members of the Executive Committee for
1998 were as follows:
J. David Grissom, Chairman
William S. Farish
Charles W. Bidwill, Jr.
Carl F. Pollard
Thirteen (13) meetings of the Executive Committee were held during the last
fiscal year.
Audit Committee
The Audit Committee is responsible for annually examining the
financial affairs of the Company, including consultation with the Company's
auditors. The members of the Audit Committee for 1998 were as follows:
January 1998 - May 1998 June 1998 - December 1998
----------------------- -------------------------
Darrell R. Wells, Chairman Darrell R. Wells, Chairman
G. Watts Humphrey, Jr. Daniel P. Harrington
W. Bruce Lunsford G. Watts Humphrey, Jr.
Carl F. Pollard W. Bruce Lunsford
Carl F. Pollard
One (1) meeting of the Audit Committee was held during the last fiscal year.
Compensation Committee
The Compensation Committee administers the Company's executive
compensation plans, including its Supplemental Benefit Plan, any incentive
compensation plan, any deferred compensation plan, any stock option plan and any
employee stock purchase plan, and reviews and recommends to the Board of
Directors actions on the compensation of the Company's Chief Executive Officer.
The Compensation Committee consists of not fewer than two (2) directors who
11
are not officers or employees of the Company or any of its subsidiaries. The
members of the Compensation Committee for 1998 were as follows:
January 1998 - December 1998
Frank B. Hower, Jr., Chairman
W. Bruce Lunsford
Dennis D. Swanson
Darrell R. Wells
Two (2) meetings of the Compensation Committee were held during the last fiscal
year.
Racing Committee
The Racing Committee is responsible for the Company's contracts and
relations with horsemen, jockeys and others providing horse racing related
services. The members of the Racing Committee for 1998 are as follows:
January 1998 - May 1998 June 1998 - December 1998
Seth W. Hancock, Chairman Seth W. Hancock, Chairman
Catesby W. Clay G. Watts Humphrey, Jr.
G. Watts Humphrey, Jr. Carl F. Pollard
Carl F. Pollard
No meeting of the Racing Committee was held during the last fiscal year.
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
to Increase the Authorized Common Stock from
20,000,000 to 50,000,000 Shares
(Proposal No. 2)
The Company's Board of Directors has adopted and recommended to the
shareholders a proposal to amend the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock no par value from
20,000,000 to 50,000,000 shares. On April 15, 1999, there were 7,525,041 shares
of Common Stock outstanding. If the amendment is adopted, approxi mately
42,500,000 shares of Common Stock would be authorized and unissued. At December
31, 1998, there were 700,000 shares of Common Stock reserved for issuance
pursuant to the existing stock option plans of the Company. In addition, 100,000
shares are reserved for issuance pursuant to the employee stock purchase plan of
the Company. There are no preemptive rights relating to
12
the Common Stock. Except to the extent that the Company may issue shares of
Common Stock reserved therefor pursuant to its stock purchase and stock option
plans, the Company has not entered into any agreements or understandings, and
has no present plans, for the issuance of additional shares of common stock, but
desires to have such shares available for future issuances as the need may
arise. No further shareholder approval would be required prior to the issuance
of the additional shares authorized by this amendment subject, however, to the
rules of the Nasdaq Stock Market which require shareholder approval of certain
share issuances.
The Board of Directors' purpose in proposing the increase in the
number of authorized shares of Common Stock is to have shares available for
future issuances and splits from time to time as and when the Board of Directors
determines that such issuances and splits may be desirable. The additional
shares of Common Stock could be used to dilute the stock ownership of a person
seeking to obtain control of the Company or could be privately placed with
purchasers who would support the Board of Directors in opposing a hostile
takeover attempt. This proposal to amend the Articles of Incorporation is not a
response to any effort of which the Company is aware to accumulate Common Stock
or obtain control of the Company, nor is it part of a plan by management to
recommend a series of similar amendments to the Board of Directors and
shareholders. The Board of Directors does not presently contemplate recommending
the adoption of any other amendments to the Articles of Incorporation which
could be construed to affect the ability of third parties to take over or change
control of the Company.
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 unissued preferred
stock with respect to which the Board of Directors retains the power to
determine voting rights, limitations on the ability to call special meetings of
shareholders of the Company, 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 merger, tender offer or proxy contest or assumption of
control by a holder of a larger block of the Company's securities and the
removal of incumbent management, but the Board of Directors believes that
encouraging potential acquirors to negotiate with the Board of Directors on a
potential acquisition is in the best interest of the Company.
In addition to Common Stock, under the current Articles of
Incorporation of the Company the Company is authorized to issue 250,000 shares
of preferred stock, no par value per share, in series. As of April 15, 1999,
there were no such shares of preferred stock outstanding, but pursuant to a
shareholder rights plan adopted by the Company on March 19, 1998 (the "Rights
Plan"), rights have been issued to the holders of the Common Stock of the
Company pursuant to such plan entitling such holders, subject to the terms of
such plan, to acquire shares of preferred stock of the Company.
Pursuant to the Rights Plan, on March 19, 1998, the Board of
Directors declared a dividend distribution of one right (a "Right") for each
outstanding share of Common Stock to
13
shareholders of record at the close of business on March 30, 1998 (the "Record
Date"). The description and terms of the Rights are set forth in a Rights
Agreement dated as of March 19, 1998 (the "Rights Agreement") between the
Company and Fifth Third Bank, as Rights Agent.
Prior to the Distribution Date (hereinafter defined), the Rights
shall be represented by the certificates for shares of Common Stock. Separate
right certificates shall be distributed to shareholders as soon as practicable
after the Distribution Date. The Rights will expire on the tenth anniversary of
the effective date of the Rights Agreement (the "Expiration Date") unless
earlier redeemed or canceled by the Company as provided below. Initially, the
Rights will not be exercisable. The Rights will become exercisable upon the
earlier of (a) the tenth business day (or such later date as may be determined
by the Board) after such time as the Company learns that a person or group
(including any affiliate or associate of such person or group) has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding Common Stock (such person or group being called an "Acquiring
Person") unless provisions intended to prevent accidental triggering of the
Rights apply, and (b) such date, if any, as may be designated by the Board of
Directors of the Company following the commencement of, or first public
disclosure of an intention to commence, a tender or exchange offer for
outstanding Common Stock which could result in such person or group becoming the
beneficial owner of 15% or more of the outstanding Common Stock (the earlier of
such dates being called the "Distribution Date"). Each Right shall be
exercisable for 1/1,000 of a share of Series 1998 Preferred Stock (the
"Preferred Stock") (as described below) at a purchase price (the "Purchase
Price") of $80.00, subject to adjustment. Prior to the Distribution Date, the
Rights shall be transferable only with the related shares of Common Stock and
shall automatically be transferred with such shares. After the Distribution
Date, the Rights shall be separately transferable and the Company will provide
Right Certificates to all holders of Common Stock.
The terms of the Preferred Stock provide that each 1/1,000 of a share
of Preferred Stock is entitled to participate in dividends and other
distributions, and to vote, on an equivalent basis with one whole share of the
presently constituted Common Stock of the Company. In addition, the Preferred
Stock has certain minimum dividend and liquidation rights. The amount of
Preferred Stock issuable upon exercise of the Rights is subject to adjustment by
the Board of Directors of the Company in the event of any change in the Common
Stock or Preferred Stock, whether by reason of share dividends, share splits,
recapitalizations, mergers, consolidations, combinations or exchanges of
securities, split-ups, split-offs, spin-offs, liquidations, other similar
changes in capitalization, any distribution or issuance of assets, evidences of
indebtedness or subscription rights, options or warrants to holders of Common
Stock or Preferred Stock or otherwise.
Subject to provisions of the Rights Plan, at such time as there is an
Acquiring Person, proper provision shall be made so that the holder of each
Right will thereafter have the right to receive, upon exercise thereof, for the
Purchase Price, that number of thousandths of a share of Preferred Stock equal
to the number of shares of Common Stock which at the time of such transaction
would have a market value of twice the Purchase Price (the "flip-in"). Any
Rights that are or were beneficially owned by an Acquiring Person on or after
the Distribution Date shall become null and void. In the event the Company is
acquired in a merger or other business
14
combination by an Acquiring Person that is a publicly traded corporation or 50%
or more of the Company's assets or assets representing 50% or more of the
Company's earning power are sold, leased, exchanged or otherwise transferred (in
one or more transactions) to an Acquiring Person that is a publicly traded
corporation, each Right will entitle its holder to purchase, for the Purchase
Price, that number of common shares of such corporation which at the time of the
transaction would have a market value of twice the Purchase Price (the
"flip-over"). In the event the Company is acquired in a merger or other business
combination by an Acquiring Person that is not a publicly traded entity or 50%
or more of the Company's assets or assets representing 50% or more of the
earning power of the Company are sold, leased, exchanged or otherwise
transferred (in one or more transactions) to an Acquiring Person that is not a
publicly traded entity, each Right will entitle its holder to purchase, for the
Purchase Price, at such holder's option,
A. that number of shares of the surviving corporation in the
transaction with such entity (or, at such holder's option, of the surviving
corporation in such acquisition, which could be the Company) which at the
time of the transaction would have an aggregate book value of twice the
Purchase Price or
B. that number of shares of such entity which at the time of the
transaction would have a book value of twice the Purchase Price or
C. if such entity has affiliates which have publicly traded common
shares, that number of common shares of the affiliate with the greatest
aggregate market value on the transaction date, which at the time of the
transaction would have a market value of twice the Purchase Price.
Any Rights that are or were beneficially owned by an Acquiring Person
on or after the Distribution Date shall become null and void. The "flip-over"
provision only applies to a merger or similar business combination with an
Acquiring Person, and it does not apply to a merger or business combination with
any party which has not triggered the "flip-in" provision.
The Rights are redeemable by the Board of Directors at a redemption
price of $.01 per Right (the "Redemption Price") any time prior to the earlier
of (a) the tenth business day (or such later date as may be determined by the
Board) after such time as there becomes an Acquiring Person and (b) the
Expiration Date. Immediately upon the action of the Board electing to redeem the
Rights, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
Rights agreements generally provide a significant deterrent to
attempts to acquire control of a corporation without the approval of the board
of directors. The Rights would cause substantial dilution to a person or group
that attempts to acquire control without Board approval. The Rights, however,
should not affect any prospective offeror willing to make an offer for all
outstanding shares of the Common Stock at a fair price and otherwise in the best
interest of the Company and its shareholders as determined by the Board of
Directors or affect any prospective offeror willing to negotiate with the Board
of Directors.
15
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
complete text of the proposed amendment to the Articles of Incorporation is set
forth on Appendix A hereto; however, such text is subject to change as may be
required by the Kentucky Secretary of State.
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 is
required to disclose: (1) the Compensation Committee's compensation policies
applicable to the Company's executive officers; (2) the relationship of
executive compensation to Company performance; and (3) the Compensation
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 Compensation Committee has
prepared this report for inclusion in the Proxy Statement.
The Compensation Committee consists of four (4) independent
Directors, none of whom has ever been employed by the Company. The Compensation
Committee annually reviews executive officer compensation and makes
recommendations to the Board of Directors on all matters related to the
structure of the Company's executive compensation programs. The Compensation
Committee's authority and oversight extend to total executive compensation,
including base salaries, incentive and other compensation programs, supplemental
benefit plans, stock option plans and stock purchase plans, for the Company as
well as the administration of the employment contracts of the Company's chief
executive officer and chief financial officer. The Compensation Committee also
reviews compensation data from comparable companies.
The fundamental philosophy of the Compensation 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 and benefits that are competitive
in the marketplace with incentive opportunities established by the Compensation
Committee which are competitive with median levels of competitors' incentive
compensation. The Compensation 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 Compensation 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.
16
The Compensation 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 the Company's 1997 Incentive Compensation
Plan (the "ICP") and (3) stock option grants made under the Company's 1993 Stock
Option Plan (the "1993 Option Plan"), and stock option grants and stock
appreciation rights under the Company's 1997 Stock Option Plan (the "1997 Option
Plan") (the 1993 Option Plan and the 1997 Option Plan are, collectively, the
"Option Plans").
Base salaries are targeted to be competitive with similar positions
in comparable companies. In determining base salaries, the Compensation
Committee also takes into account individual experience and performance and
issues specific to the Company.
The ICP is designed to reward employees' short term performance by
providing for the award of a cash bonus if annual 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. The award of bonuses is based initially
on the Company's achievement of certain target pre-tax earnings goals
established by the Compensation Committee. The amount of each bonus is then
determined by the Company's performance (measured by earnings (computed before
taxes but after recognition of awards made under the ICP)), the center in which
that employee works and that employee's performance.
The third component of executive compensation is the 1993 Option Plan
and the 1997 Option Plan. The Compensation Committee believes that the granting
of options and stock appreciation rights 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 1998, all officers were granted a total
of 17,457 nonqualified stock options and 34,309 incentive stock options. All
these options are exercisable on November 18, 2001 and all were granted under
the 1997 Plan. The Option Plans provide for cashless exercises through broker's
transactions.
The Compensation Committee believes that the Option Plans are
integral to a performance based compensation package because of their reward
based upon the Company's long-term performance. The Option Plans allow the
Company to further tie compensation to performance of the 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 1998, Mr. Meeker's annual base salary was set at
$300,000. Mr. Meeker's base salary is adjusted periodically to incorporate cost
of living increases and to keep his salary competitive with similar positions in
comparable
17
companies. This approach reflects the Committee's philosophy to shift a great
portion of Mr. Meeker's overall compensation to sources based upon the Company's
overall performance.
Compensation Committee
Frank B. Hower, Jr.
W. Bruce Lunsford
Dennis D. Swanson
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 1, 1994 and ending December 31, 1998. The companies used in
the peer group index consist of Hollywood Park Operating Co., Canterbury Park
Holding Corp., Dover Downs Entertainment and Penn National Gaming, 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. Fair Grounds Corp. and International Thoroughbred
Breeders, Inc., previously a part of the peer group index, are no longer
included in the peer group because each is no longer publicly traded. The
Meditrust Companies (previously known as Santa Anita Operating Co.), also
previously a part of the peer group index, is no longer included in the peer
group because of the sale of Santa Anita Racetrack in 1998, its only
thoroughbred racing asset. 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.
18
Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98
Churchill Downs $100 82 66 69 86 131
Peer Group $100 37 38 72 87 57
Wilshire 5000 $100 97 130 155 200 243
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 1998 (collectively the "named executive
officers").
19
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
Securities
Other Underlying
Name and Annual Options/SARS All Other
Principal Position Year Salary Bonus(1) Compensation (2) (#)(3) Compensation (4)
Thomas H. Meeker, 1998 $300,000 $202,500 $55,200 18,078 $14,671
President, Chief 1997 285,000 192,370 51,406 30,000 15,125
Executive Officer 1996 260,000 175,500 51,406 127,400 15,522
and Director
Robert L. Decker, 1998 176,800 92,820 -0- 5,408 12,628
Executive Vice 1997 134,038(5) 89,250 -0- 28,000 99,157(5)
President and Chief 1996 -0- -0- -0- -0- -0-
Financial Officer
Dan L. Parkerson, 1998 110,240 54,982 -0- 1,686 13,039
Senior Vice 1997 105,763 54,259 -0- 3,768 13,087
President, Property 1996 99,840 52,416 -0- 20,000 9,465
Management
Jeffrey M. Smith, 1998 109,200 50,737 -0- 2,868 12,040
President - 1997 104,762 52,369 -0- 3,734 12,108
Churchill Downs 1996 98,800 51,870 -0- 26,000 8,818
Management
Company
Alexander M. 1998 125,000 62,125 -0- 3,199 11,887
Waldrop, Senior 1997 105,603 55,650 -0- 3,768 11,822
Vice President and 1996 95,680 50,232 -0- 26,000 8,538
General Manager
- ------------------
(1) In 1996, 1997 and 1998, bonuses were paid in cash pursuant to the Company's
Incentive Compensation Plans 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 Compensation Committee Report on
Executive Compensation above and discussion regarding the Supplemental
Benefit Plan below.
(3) On June 3, 1996, 155,400 existing options to the named executive officers,
except Mr. Decker, were canceled and an equal number of options were issued
to the named executive officers.
(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:
20
Mr. Meeker Mr. Decker Mr. Parkerson Mr. Smith Mr. Waldrop
1998 $3,168 $1,749 $1,534 $586 $408
1997 2,980 1,392 1,458 557 330
1996 2,592 -0- 864 302 290
Pursuant to the Company's Profit Sharing Plan, the Company matches
employees' contributions (which are limited to 12% of annual compensation up
to $10,000 for calendar year 1998) up to 2% of quarterly contributions and
also makes discretionary contributions. Amounts contributed by the Company,
including discretionary contributions, on behalf of the named executive
officers are as follows:
Mr. Meeker Mr. Decker Mr. Parkerson Mr. Smith Mr. Waldrop
1998 $11,503 $10,879 $11,505 $11,454 $11,479
1997 12,145 -0- 11,629 11,551 11,492
1996 12,930 -0- 8,601 8,516 8,248
(5) Mr. Decker was employed by the Company in March 1997, and his compensation
for 1997 reflects less than twelve months of service. All other compensation
for Mr. Decker during 1997 includes $97,765 of the Company's reimbursement
of relocation expenses.
The following table provides information with respect to the named executive
officers concerning options granted during 1998:
OPTION GRANTS IN LAST FISCAL YEAR
% of Total Options
Options Granted to Grant Date
Granted Employees Exercise or Expiration Present Value
Name (#)(1) Fiscal Year '98 (%)(6) Base Price ($) Date ($)(7)
---- ------- ---------------------- -------------- ---------- -------------
Thomas H. Meeker (2) 18,078 34.92% $32.50 11/17/2008 $188,287
Robert L. Decker (3) 5,408 10.45% $32.50 11/17/2008 56,329
Dan L. Parkerson (4) 1,686 3.26% $32.50 11/17/2008 17,561
Jeffrey M. Smith (4) 2,868 5.54% $32.50 11/17/2008 29,873
Alexander M. Waldrop (5) 3,199 6.18% $32.50 11/17/2008 33,320
- ------------------
(1) The 31,239 options granted in 1998 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 18,078 options granted to Mr. Meeker, 3,076 are incentive stock
options and 15,002 are non-qualified stock options, all of which vest on the
third anniversary of the date of grant (November 18, 2001). All these
options were granted under the 1997 Plan.
(3) Of the total of 5,408 options granted to Mr. Decker in 1998, (i) 3,076 are
incentive stock options and (ii) 2,332 are non-qualified stock options, all
of which vest on the third anniversary of the date of grant (November 18,
2001) and all of which were granted under the 1997 Plan.
(4) The 1,686 options granted to Mr. Parkerson and 2,868 options granted to Mr.
Smith , which represent all of the options granted to these named executive
officers in 1998, are incentive stock options which vest on the third
anniversary of the date of grant (November 18, 2001). All of the options
granted to Mr. Parkerson and to Mr. Smith were granted under the 1997 Plan.
(5) Of the 3,199 options granted to Mr. Waldrop, 3,076 are incentive stock
options and 123 are non-qualified stock options. All these options vest on
the third anniversary of the date of grant (November 18, 2001), and all were
granted under the 1997 Plan.
(6) Although a stock option grant was made during 1998 to Richard Schnaars, who
is now no longer employed by the Company, that grant (1,912 shares
underlying the option) was canceled upon his cessation of employment, and
those shares are not included in this calculation.
21
(7) The fair market 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 1998, respectively: dividend
yield of 1.5385 % in 1998; risk-free interest rate of 5.75%; and the
expected lives of options are 6.5 years, and a volatility of 24.85% for all
grants.
The following table provides information with respect to the named
executive officers concerning unexercised options held as of December 31, 1998:
AGGREGATE YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options Options at year end
Shares Acquired on at year end (#) ($)(1)
Exercise Exercisable/ Exercisable/
Name (#) (Value Realized ($) Unexercisable Unexercisable
Thomas H. Meeker 0 $0 144,400/61,078 $1,693,812/583,906
Robert L. Decker 0 0 0/33,408 0/380,517
Dan L. Parkerson 0 0 21,500/9,454 259,290/103,238
Jeffrey M. Smith 0 0 28,000/10,602 327,320/109,731
Alexander M. Waldrop 0 0 28,000/10,967 327,320/112,412
- -----------------------------
(1) Closing bid as of the last trading day of 1998 (December 31, 1998) minus the
exercise price. The closing bid was $32.875.
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. Benefits commence at retirement on or after attainment of age
55, and continue as a 50% joint and survivor annuity. The benefit payable under
the Plan is increased by 1% for each year Mr. Meeker remains in the employment
of the Company after age 55, to a maximum benefit of 55% of the highest average
monthly earnings at age 65. The Plan further provides that the monthly benefit
will be reduced by [a] 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; [b] 100% of the
participant's monthly benefit calculated in the form of a 50% joint and survivor
annuity under the Company's terminated Pension Plan; [c] 100% of the monthly
income option calculated as a 50% joint and survivor annuity from the cash
surrender value of all life insurance policies listed on a schedule attached to
the participant's plan agreement; and [d] 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 50% joint and survivor annuity payable on his retirement date. If
Mr. Meeker retires at age 59 or later (a) the reduction for Social Security is
50% of the primary insurance amount rather than 100% of that amount; (b) the
reduction for the life annuity from the life insurance cash surrender value is
eliminated; and (c) the reduction for the life annuity from employee
contributions to the Company's Profit Sharing Plan is eliminated. The estimated
annual benefit payable at age 65 to Mr. Meeker under the Plan is $137,397. This
estimate is based upon the following assumptions: (a) 8% annual
22
earnings under the Company's Profit Sharing Plan; (b) Mr. Meeker's salary
remains constant, and (c) the maximum wage base for determining the Social
Security offset remains constant.
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 1999 includes a base salary of $312,000 per year,
reimbursement for travel and entertainment expenses (including his wife's travel
expenses on the Company's 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 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.
In March of 1997, the Company and Mr. Decker entered into an
employment agreement whereby Mr. Decker was employed as the Company's Senior
Vice President, Finance and Development, and Chief Financial Officer. As
of January 1999, Mr. Decker became the Company's Executive Vice President and
Chief Financial Officer. Mr. Decker's compensation for 1999 includes a base
salary of $183,872, reimbursement for reasonable travel and entertainment
expenses (including his wife's travel expenses on the Company's business),
provision of an automobile, payment of dues for one (1) country club and a
mutually acceptable number of professional or business clubs and associations.
The Company may terminate Mr. Decker and Mr. Decker may resign at any time. If
the Company terminates Mr. Decker without just cause, then the Company must pay
to Mr. Decker one (1) year's base salary. "Just cause" means the willful and
continued failure by Mr. Decker to substantially perform his duties, the willful
engaging by Mr. Decker in misconduct which is materially injurious to the
Company, monetarily or otherwise, or the willful violation by Mr. Decker of the
terms of his employment agreement
23
Certain Relationships and Related Transactions
During the past fiscal year, the Company did not engage in any
transactions in which any director, officer or 5% shareholder 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 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 a 14.2% owner of National Jockey Club. In
1998, 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 3.25% of its gross handle on the other
simulcast races. In 1998, 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% to 2 1/2% 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 3.0 % 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 1998, the Company and Hoosier Park
simulcasted their races to over 1,000 locations in the United States 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
24
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 16, 1999, the Board of Directors adopted
the recommendation of the Audit Committee and selected PriceWaterhouseCoopers,
formerly known as Coopers & Lybrand, L.L.P. ("Coopers"), to serve as the
Company's independent public accountants and auditors for the fiscal year ending
December 31, 1999. Coopers has served as the Company's independent public
accountants and auditors since the Company's 1990 fiscal year.
Representatives of Coopers 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.
Approval of Minutes of 1998 Shareholders' Meeting
and Other Matters (Proposal No. 3)
The Board of Directors 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 1998 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 2000 must be received by the Company at 700 Central
Avenue, Louisville, Kentucky 40208, Attention of the Secretary, no later than
December 30, 1999. Pursuant to the Company's bylaws, proposals of shareholders
intended to be presented at the Company's 2000 annual meeting of shareholders
must be received by the Company at the principal executive offices of the
Company not less than 90 nor more than 120 days prior to the anniversary date of
the immediately preceding annual meeting of shareholders. Accordingly, any
shareholder proposals intended to be presented at the 2000 annual meeting of
shareholders of the Company must be received in writing by the Company at its
principal executive offices not later than March 19, 2000, nor sooner than
February 18, 2000. Any proposal submitted before or after those dates will be
considered untimely, and management proxies will be allowed to use their
discretionary voting authority if the proposal is raised at the annual meeting.
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BY ORDER OF THE BOARD OF DIRECTORS.
THOMAS H. MEEKER
President and Chief Executive Officer
REBECCA C. REED
Senior Vice President,
General Counsel and Secretary
Louisville, Kentucky
April 28, 1999
PLEASE SIGN AND RETURN THE ENCLOSED PROXY
IF YOU CANNOT BE PRESENT IN PERSON
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APPENDIX A
ARTICLE VII
CAPITAL STOCK
The corporation shall be authorized to issue 50,000,000 shares of
common stock of no par value (the "Common Stock"), and 250,000 shares of
preferred stock of no par value in such series and with such rights, preferences
and limitations, including voting rights, as the Board of Directors may
determine (the "Preferred Stock").
A. The Common Stock. Shares of the Common Stock may be issued from time to
time as the Board of Directors shall determine and on such terms and for such
consideration as shall be fixed by the Board of Directors.
B. The Preferred Stock.
1. Shares of the Preferred Stock may be issued from time to time in
one or more series as may from time to time be determined by the Board of
Directors of the corporation. Each series shall be distinctly designated. All
shares of any one series of the Preferred Stock shall be alike in every
particular, except that there may be different dates from which dividends (if
any) thereon shall be cumulative, if made cumulative. The relative preferences,
participating, optional and other special rights of each such series, and
limitations thereof, if any, may differ from those of any and all other series
at any time outstanding. The Board of Directors of the corporation is hereby
expressly granted authority to fix by resolution or resolutions adopted prior to
the issuance of any shares of each particular series of the Preferred Stock, the
designation, relative preferences, participating, optional and other special
rights and limitations thereof, if any, of such series, including but without
limiting the generality of the foregoing, the following:
[a] The distinctive designation of, and the number of shares of the
Preferred Stock which shall constitute the series, which number may be increased
(except as otherwise fixed by the Board of Directors) or decreased (but not
below the number of shares thereof then outstanding) from time to time by action
of the Board of Directors;
[b] The rate and times at which, and the terms and conditions upon
which dividends, if any, on shares of the series may be paid, the extent of
preference or relation, if any, of such dividend to the dividends payable on any
other class or classes of stock of the corporation, or on any series of the
Preferred Stock or of any other class of stock of the corporation, and whether
such dividends shall be cumulative or non-cumulative;
[c] The right, if any, of the holders of shares of the series to
convert the same into, or exchange the same for, shares of any other class or
classes of stock of the corporation, or of any series of the Preferred Stock and
the terms and conditions of such conversion or exchange;
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[d] Whether shares of the series shall be subject to redemption and
the redemption price or prices and the time or times at which, and the terms and
conditions upon which shares of the series may be redeemed;
[e] The rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution or
sale of assets, dissolution or winding up of the corporation;
[f] The terms of the sinking fund or redemption or purchase account,
if any, to be provided for shares of the series; and
[g] The voting powers, if any, of the holders of shares of the series
which may, without limiting the generality of the foregoing, include the right,
voting as a series by itself or together with other series of the Preferred
Stock as a class, to vote more or less than one vote per share on any or all
matters voted upon by the stockholders and to elect one or more directors of the
corporation in the event there shall have been a default in the payment of
dividends on any one or more series of the Preferred Stock or under such other
circumstances and upon such conditions as the Board of Directors may fix.
C. Other Provisions.
1. The relative preferences, rights and limitations of each Series of
Preferred Stock in relation to the preferences, rights and limitations of each
other series of Preferred Stock shall, in each case, be as fixed from time to
time by the Board of Directors in the resolution or resolutions adopted pursuant
to authority granted in this Article VII, and the consent by class or series
vote or otherwise, of the holders of the Preferred Stock of such of the series
of the Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other series of
Preferred Stock whether the preferences and rights of such other series shall be
fixed by the Board of Directors as senior to, or on a parity with, the
preferences and rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in such resolution or
resolutions adopted with respect to any series of Preferred Stock that the
consent of the holders of a majority (or such greater proportion as shall be
therein fixed) of the outstanding shares of such series voting thereon shall be
required for the issuance of any or all other Series of Preferred Stock.
2. Subject to the provisions of Subparagraph 1 of this Paragraph C,
shares of any series of Preferred Stock may be issued from time to time as the
Board of Directors shall determine and on such terms and for such consideration
as shall be fixed by the Board of Directors.
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PROXY
CHURCHILL DOWNS INCORPORATED
700 Central Avenue
Louisville, Kentucky 40208
ANNUAL MEETING OF SHAREHOLDERS - JUNE 17, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Frank L. Hower, Jr. and
G. Watts Humphrey, Jr., 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 17, 1999 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 III 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 III Directors: Charles W. Bidwill, Jr., Daniel P.
Harrington, Thomas H. Meeker, Carl F. Pollard, Darrell R. Wells
(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 number of authorized shares of the Company's
Common Stock from 20,000,000 to 50,000,000 shares
(Proposal No. 2);
3. ____ FOR ____ AGAINST ____ ABSTAIN
Proposal to approve minutes of the 1998 Annual Meeting of
Shareholders, approval of which does not amount to ratification of
action taken thereat (Proposal No. 3); and
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 III DIRECTORS DESIGNATED UNDER PROPOSAL
NO. 1. Please sign, date and return this
Proxy promptly in the enclosed envelope.
Dated ________________________________, 1999
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(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.)
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