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EXHIBIT 2.1
LEASE AGREEMENT
between
CITY OF LOUISVILLE, KENTUCKY
Lessor
and
CHURCHILL DOWNS INCORPORATED
Lessee
Dated as of January 1, 2002
This Instrument Prepared by:
/s/ JOHN S. EGAN
John S. Egan
FROST BROWN TODD LLC
400 W. Market Street, 32nd Flr.
Louisville, Kentucky 40202
(502) 589-5400
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TABLE OF CONTENTS
1. DEFINED
TERMS..........................................................3
2. GRANT AND TERM OF
LEASE................................................3
3.
RENT...................................................................4
4. OPTION TO
PURCHASE.....................................................5
5. TITLE, USE AND QUIET
ENJOYMENT.........................................8
6. COVENANT FOR OPERATION AND
MAINTENANCE.................................8
7.
INSURANCE..............................................................9
8. TAXES AND OTHER GOVERNMENT
CHARGES....................................10
9. CONDEMNATIONS;
CASUALTY...............................................11
10. ALTERATIONS AND
ADDITIONS.............................................13
11. NON-PROJECT PROPERTY; REMOVAL OF PROPERTY FROM THE
PROJECT............13
12.
DEFAULT...............................................................14
13. WAIVER OF
REQUIREMENTS................................................15
14.
NOTICES...............................................................15
15. CONSTRUCTION OF
LEASE.................................................17
16.
CAPTIONS..............................................................17
17. ASSIGNMENT/BINDING ON
SUCCESSORS......................................17
18. SHORT FORM
LEASE......................................................18
19. ESTOPPEL
CERTIFICATES.................................................18
20. CONSENT TO ADDITIONAL
MORTGAGES.......................................19
21.
SEVERABILITY..........................................................20
22. FURTHER
ASSURANCES....................................................20
23. GOVERNING
LAW.........................................................20
24. ENTIRE
AGREEMENT......................................................20
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25.
COUNTERPARTS..........................................................20
26.
MISCELLANEOUS.........................................................20
27. NO PERSONAL
LIABILITY.................................................21
28.
PREPAYMENT............................................................21
29. OTHER LESSOR
EXPENSES.................................................21
30. LIMITATION OF LIABILITY OF
LESSOR.....................................21
31. NO PERSONAL
RECOURSE..................................................21
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LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), dated as of January 1, 2002,
between
the CITY OF LOUISVILLE, KENTUCKY, a municipality and political
subdivision of
the Commonwealth of Kentucky, having an address at 601 West
Jefferson Street,
Louisville, Kentucky 40202 ("Lessor") and CHURCHILL DOWNS
INCORPORATED, a
Kentucky corporation, having an address at 700 Central Avenue,
Louisville,
Kentucky 40208-1200 ("Lessee"):
WHEREAS, Lessee is in the process of expanding and renovating
the
historic racetrack facility known as "Churchill Downs Racetrack"
(the
"Facility") located at 700 Central Avenue, Louisville, Kentucky
(the "Site");
WHEREAS, the Project (as defined in the Loan Agreement, defined
below)
as proposed by Lessee will be utilized to make horseracing,
entertainment,
dining, pari-mutuel wagering and other recreational activities
available to the
public, and the racetrack facility, as improved by the Project,
will be a
"recreation park" within the meaning of Chapter 103 of the
Kentucky Revised
Statutes (the "Act");
WHEREAS, Lessor has determined that the Project will enhance
Churchill
Downs Racetrack as a unique asset of Lessor, will create and
preserve jobs for
the community (both during construction and thereafter during
operation of the
Project) and will increase tax revenues for Lessor;
WHEREAS, Lessee has requested that Lessor issue industrial
building
revenue bonds under the Act in order to provide financing for
the Project;
WHEREAS, Lessor has determined that the issuance of
industrial
building revenue bonds in connection with the Project will
promote the economic
development of Lessor
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and the Commonwealth of Kentucky (the "Commonwealth"), will help
relieve
conditions of unemployment through the creation of construction
and other jobs
and will further improve the status of Churchill Downs Racetrack
as a "world
class" recreational destination, thereby helping to make Lessor
and the
Commonwealth more attractive to industry and helping to
encourage the increase
of industry in the Commonwealth;
WHEREAS, Lessor is therefore issuing its City of Louisville,
Kentucky
Taxable Industrial Building Revenue Bond, Series 2002 (Churchill
Downs
Incorporated Project), in an amount of $153,000,000, issued as a
single
draw-down Bond (the "Bond") pursuant to the Act; and
WHEREAS, pursuant to that certain Loan Agreement (the "Loan
Agreement") of even date herewith by and among Lessor, Lessee,
and Churchill
Downs Investment Company, a Kentucky corporation (the "Lender"),
Lender has
agreed to purchase the Bond of Lessor and make the Loan(s) (as
defined in the
Loan Agreement) to Lessor in accordance with the provisions of
the Loan
Agreement; and
WHEREAS, the proceeds of such Bond are and will be advanced
directly
to Lessee pursuant to the Loan Agreement and used to assist
Lessee with the
financing of certain costs of the Project; and
WHEREAS, in order to permit the issuance of the Bond under the
Act for
the purposes of financing the costs of the Project, Lessee is
simultaneously
conveying to Lessor, subject to the Existing Mortgage and the
Existing Security
Agreement, the Site on which the existing facilities are being
renovated and
expanded, together with improvements, fixtures, machinery and
equipment and
other tangible personal property now or hereafter located
thereon, and Lessor
and Lessee wish to simultaneously enter into this Lease pursuant
to which Lessee
will lease back
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such land, improvements, fixtures, machinery and equipment and
other tangible
personal property from Lessor in return for rental payments
sufficient to pay
debt service on the Bond;
WHEREAS, Lessee has agreed to make lease payments to Lessor
under this
Lease in amounts equal to the amounts due from Lessor to the
Lender under the
Bond and, pursuant to the Lease, Lessor has directed that Lessee
make payments
otherwise payable by it hereunder to Lessor directly to the
Lender; and
WHEREAS, in connection with the transactions contemplated by the
Loan
Agreement the parties hereto desire to enter into this
Lease;
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter
set forth and of the premises, the parties hereto enter into
this Lease as
follows:
1 DEFINED TERMS. All capitalized terms used and not
otherwise
defined herein shall have the respective meanings assigned
thereto in the Loan
Agreement.
2. GRANT AND TERM OF LEASE. Upon the term and conditions
hereinafter set forth and subject to the Existing Mortgage and
the Existing
Security Agreement, Lessor hereby leases to Lessee, and Lessee
leases from
Lessor, all of the following (collectively, the "Leased
Premises"): the land and
all buildings, structures, other improvements and fixtures now
standing or at
any time hereafter constructed or placed upon the Site,
including, without
limitation, all of the foregoing which are included in or
constitute a part of
the Facility (said buildings, structures, other improvements and
fixtures being
herein collectively called the "Improvements") and all
equipment, machinery,
furniture, furnishings and removable fixtures of every kind and
nature (the
"Tangible Personal Property" as more particularly described in
the Bill of Sale)
whatsoever which are now or at any time hereafter located in or
upon, or affixed
to, the Site (the description of which site is attached hereto
and made a part
hereof as EXHIBIT A hereto) and/or any
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Improvements which now or hereafter are used or useful in
connection with, or
constitute a part of, the Facility. The Leased Premises do not
include any
inventory, accounts receivable or intangible personal property.
The term (the
"Term") of this Lease shall be from January 1, 2002 to December
31, 2032.
Notwithstanding the foregoing, Lessee shall have the option at
any time during
the Term to terminate this Lease by exercising its Option to
Purchase pursuant
to Section 4 hereof; provided, however, that the indemnification
obligations
from Lessee in favor of Lessor shall survive termination of the
Lease, pursuant
to Article VI of the Loan Agreement.
3. RENT. Until the Rent Termination Event (hereinafter
defined),
rent hereunder (the "Rent") shall be equal to the amounts
payable to the Lender
pursuant to the Bond and shall be payable in the amounts and at
the times
interest or principal is payable to Lender under the Bond. The
Bond is a
"draw-down" bond, with principal to be advanced from the Lender
to Lessee,
pursuant to the terms of the Bond. A schedule of disbursements
of principal is
to be attached to the Bond. Lessor hereby irrevocably and
unconditionally
directs Lessee to pay, as Rent, all amounts due under the Bond
directly to the
Lender, at the times and in the manner prescribed in Bond and
the Loan
Agreement. As used herein, the term "Rent Termination Event"
shall mean the
earlier of (i) the payment and performance in full of all
obligations of Lessee
under this Lease and the Loan Agreement and the other Bond
Documents or (ii) the
termination of this Lease pursuant to the proper exercise of the
Option to
Purchase, as hereinafter noted.
The obligations of Lessee to pay Rent pursuant to this Lease and
to
perform and observe the other agreements and covenants on its
part contained
herein shall be absolute and unconditional. Until such time as
the principal of,
premium, if any, and interest on the Bond and any other amounts
payable to
Lessor under any other Bond Documents shall have been fully paid
or other
provision for the payment thereof shall have been made in
accordance with the
Loan
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Agreement, Lessee (i) shall not suspend or discontinue any Rent
pursuant to this
Lease (unless consented to by the Lender), (ii) shall perform
and observe all
its other agreements contained in this Lease, and (iii) except
as provided in
Section 4 hereof, shall not terminate this Lease for any cause
including,
without limiting the generality of the foregoing, failure to
complete the
Project, failure of title of the Project or any part thereof,
any acts or
circumstances that may constitute failure of consideration,
destruction of or
damage to the Project, commercial frustration of purpose, any
change in the tax
or other laws of the United States of America or of the
Commonwealth of Kentucky
or any political subdivision thereof or any failure of Lessor to
perform and
observe any agreement, whether express or implied, or any duty,
liability or
obligation arising out of or connected with this Lease. Nothing
contained in
this Section shall be construed to release Lessor from the
performance of any of
the agreements on its part herein contained; and in the event
Lessor should fail
to perform any such agreement on its part, Lessee may institute
such action
against Lessor as Lessee may deem necessary to compel
performance so long as
such action shall be in accordance with the agreements on the
part of Lessee
contained in the preceding sentence. Lessee may, however, at its
own expense and
in its own name or in the name of Lessor, prosecute or defend
any action or
proceeding or take any other action involving third persons
which Lessee deems
reasonably necessary in order to insure completion of the
acquisition,
construction, installation and equipping of the Project or to
secure or protect
Lessor's and its respective rights of ownership, possession,
occupancy and use
of the Project, and in such event Lessor hereby agrees to
cooperate fully with
Lessee.
4. OPTION TO PURCHASE. At (i) the scheduled expiration of
the
Term of this Lease or (ii) on the first day of each month during
the Term of
this Lease Agreement, Lessee shall have the option to purchase
all or any
portion of the Leased Premises from Lessor for One Dollar
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($1.00), subject to satisfaction of the conditions set forth in
this Section 4.
The rights granted to Lessee in this Section 4 shall be deemed
the "Option to
Purchase."
Lessee's right to exercise its Option to Purchase hereunder
is
conditioned upon satisfaction of all of the following
conditions:
(i) the absence of any default under the Insurance
Agreement (provided that any default which has been
waived by the non-defaulting party may be disregarded
for purposes of this sentence);
(ii) the payment of, or provision to Lessor of
adequate security ("adequate security" to be determined
by Lessor in its reasonable discretion) for, any fees,
expenses, claims, other amounts or payments then due to
Lessor and for other obligations incurred and to be
incurred by the Lessor in connection with the Project
or under the Loan Agreement, the Lease, the Insurance
Agreement or the other Bond Documents (provided, that,
to the extent that Lessor has any fees, expenses or
claims against Lessee for indemnification arising under
either Section 6.5 or Section 7.11 of the Loan
Agreement, Lessee will be deemed to have provided
adequate security to Lessor for such fees, expenses or
claims by providing Lessor with evidence that it is in
compliance with the requirements of Section 7 of this
Lease and the Insurance Agreement) or the other Bond
Documents;
(iii) the payment of any ad valorem taxes then due
and payable to the City, the School District, the
Commonwealth of Kentucky and other local taxing
authorities with respect to the Project;
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(iv) Lessee's delivery to Lessor of a statement in
writing from Lender acknowledging that the amounts due
under the Loan Agreement (including the Bond) have been
paid in full or forgiven; and
(v) Lessee's delivery to Lessor of at least
fifteen (15) days prior written notice stating (a) that
Lessee wishes to exercise the Option to Purchase, (b)
that the conditions for exercise of the Option to
Purchase under Section 4 of the Lease are satisfied
(acknowledging, however, that Lessor, in its reasonable
discretion, shall be entitled to determine whether in
fact such conditions have been satisfied insofar as
they affect Lessor's rights), and (c) the time, date
and place at which closing of the transfer of the title
to the Leased Premises shall occur.
If Lessee properly exercises the Option to Purchase granted
under this Section
4, and all of the foregoing conditions have been met, Lessor
shall, on the date
and at the time and place specified in Lessee's notice of
exercise, convey to
Lessee, by quitclaim deed and bill of sale with no warranties,
all of Lessor's
right, title and interest to the Leased Premises. Lessee shall
bear all cost and
expenses in connection with the preparation of the documents of
conveyance and
the delivery thereof and all fees, assessments, taxes and
charges in connection
with the conveyance of title to the Project. Notwithstanding any
of the
foregoing to the contrary, if (i) Lessee properly gives notice
of its Option to
Purchase hereunder to Lessor, (ii) all of the foregoing
conditions have been met
and (iii) Lessor fails to execute and deliver a quitclaim deed
and bill of sale
to Lessee, legal and equitable title to the Leased Premises
shall automatically
be transferred from Lessor to Lessee notwithstanding the fact
that no quitclaim
deed and no bill of sale has been executed by Lessor. It is the
intention of the
parties that at the conclusion of the Term of the Lease or at
the conclusion of
the Term of the Lease pursuant to the Option to Purchase, title
to
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the Leased Premises shall automatically be vested in Lessee,
subject to any of
the foregoing limitations to the extent applicable. Upon
conveyance of title and
payment therefor as aforesaid, this Agreement shall cease and
terminate and all
obligations of Lessee and Lessor hereunder, except obligations
pertaining to
indemnification, shall be terminated and extinguished.
5. TITLE, USE AND QUIET ENJOYMENT. Lessor covenants, warrants
and
represents that at all times prior to the expiration or other
termination of
this Lease when Lessee is not in default hereunder or under
other Bond Documents
beyond applicable grace periods, if any, the peaceable and quiet
enjoyment of
the Leased Premises by Lessee shall not be disturbed by Lessor;
provided,
however, that Lessor (in its capacity as a municipal body and
not as landlord
hereunder) shall not be prevented from enforcing, as against
Lessee or the
Leased Premises, any laws of general application heretofore or
hereafter enacted
by Lessor (in its capacity as a municipal body).
6. COVENANT FOR OPERATION AND MAINTENANCE. Lessor shall have
no
responsibility for the maintenance, operation or repair of the
Leased Premises
or any expenses associated therewith. So long as any Bond is
outstanding, Lessee
will maintain, preserve and keep the Project, or cause the
Project to be
maintained, preserved and kept, in good repair, working order
and condition and
will from time to time make or cause to be made all proper
repairs, replacements
and renewals necessary to continue to constitute the Project as
an industrial
building project under KRS Chapter 103; provided, however, that
Lessee will have
no obligation to maintain, preserve, keep, repair, replace or
renew any element
or portion of the Project (i) the maintenance, preservation,
keeping, repairing,
replacement or renewal of which becomes uneconomical to Lessee
because of damage
or destruction by a cause not within the control of Lessee, or
condemnation of
all or substantially all of th
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