10-K 1 g66605e10-k.txt FAIR GROUNDS CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 2000 Commission file number 0-7607 ---------------- ------ FAIR GROUNDS CORPORATION ------------------------ (Exact name of registrant as specified in its charter) Louisiana 72-0361770 ------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1751 Gentilly Blvd., New Orleans LA 70119 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code 504/944-5515 --------------------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- NOT APPLICABLE NONE Securities registered pursuant to Section 12 (g) of the Act: Common Stock, No Par Value -------------------------- (Title of Class) Indicate by a check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant was $3,594,800 computed by reference to the price at which the equity sold on December 20, 2000. The number of shares outstanding of the issuer's single class of common stock was 2,194 as of January 25, 2001. DOCUMENTS INCORPORATED BY REFERENCE 2 TABLE OF CONTENTS

3 PART I ITEM 1. BUSINESS GENERAL OVERVIEW OF BUSINESS Fair Grounds Corporation (the "Company"), which was incorporated in 1941, is the owner of the Fair Grounds Race Course in New Orleans, Louisiana, at which thoroughbred horse racing, off-track betting and video poker gaming are conducted. The Fair Grounds Race Course currently is in its 129th racing season, making it the third oldest thoroughbred racing track in the United States. In addition to its live racing operations, the Company operates four off-track betting facilities, referred to herein as tele-tracks, at locations in St. Bernard, Jefferson, St. John and LaFourche Parishes, Louisiana, as well as a tele-track facility located at the Fair Grounds Race Course. The Company is planning to open a new tele-track in Jefferson Parish during the second quarter of fiscal 2001. Through Finish Line Management Corporation ("Finish Line"), an affiliate, the Company operates five tele-track facilities in Terrebonne, St. Tammany and Jefferson Parishes, Louisiana. At each location, the Company makes available pari-mutuel wagering and food and beverage services to the public and receives revenues from such services. Video poker wagering is conducted at all locations other than the two facilities located in St. Tammany Parish. The Company conducts its annual live racing meet and operates its tele-tracks for off-track betting pursuant to the rules and under the authority of the Louisiana State Racing Commission (the "Racing Commission"), a statutory body, the members of which are appointed by the Governor of Louisiana. The Company's live races are simulcasted to its tele-tracks and to other facilities located both inside and outside Louisiana. The Company's fiscal year ends on October 31; accordingly, unless otherwise indicated, references herein to a year mean the fiscal year which ended in the calendar year to which reference is made. For example, references to "fiscal 2000" means the fiscal year ended October 31, 2000. On December 15, 2000, the Company effected a 1 for 200 reverse stock split. All share and per share data have been adjusted to reflect the reverse stock split for all periods reported. Fractional shares resulting from the reverse stock split are not reflected as being cashed out until after December 15, 2000. DESCRIPTION OF BUSINESS Live Racing Meet Live Racing at the Fair Grounds Race Course. Annually, upon application and after hearing, the Racing Commission grants to each of the horse racing tracks operating in Louisiana certain dates during which live racing meets may be conducted. Currently four licensees, including the Company, operate live racing meets in Louisiana at various times during the year. The Company's live racing meet is conducted annually at the Fair Grounds Race Course generally from Thanksgiving Day to late March. One other track in Louisiana, Delta Downs, conducts its live racing meet during that same time period. Such track is smaller and is located approximately two hundred miles from New Orleans. Delta Downs also simulcasts to and allows wagering to be accepted on its live races at the tele-tracks to which the Company simulcasts its live races and at which wagering on the Company's live races is accepted. 1 4 The Company's live racing meet for the fiscal year ended October 31, 2000 was conducted over 88 racing days. Total paid attendance at the Fair Grounds Race Course during the live racing meet was 162,090 in fiscal 2000 compared to 177,693 in fiscal 1999 and 189,439 in fiscal 1998. The total on-track handle, which is the amount of money handled during the live racing meet through the Company's mutuel machines at the Fair Grounds Race Course, was $26,136,189 in fiscal 2000, $27,412,562 in fiscal 1999 and $25,789,351 in fiscal 1998. See "Sources of Revenue." During its annual live racing meet, the Company attracts thoroughbred horses from racing stables located in Louisiana and from nationally known racing stables in Kentucky and elsewhere. Approximately 35% of the thoroughbred starters at the Fair Grounds Race Course during its live racing meet are Louisiana-bred. The live racing meet features races with guaranteed purses in excess of $250,000 and purses averaging approximately $22,000 per race. For the fiscal year ending October 31, 2001, the Racing Commission granted the Company a license to conduct its live racing meet during the period from November 23, 2000 through March 26, 2001, a total of 88 racing days, with live racing being conducted generally five days a week (Thursday through Monday) and with ten to eleven races during each racing day. Simulcasting of Live Races. In addition to conducting live horse racing during the live racing meet, the Company simulcasts its live races to, and allows wagering to be accepted at, the tele-tracks which it operates in St. Bernard, St. John, Jefferson and LaFourche Parishes, Louisiana, the tele-tracks which are licensed to the Company and operated by Finish Line, and tele-tracks operated by the other horse racing tracks in Louisiana. The Company also simulcasts live races to certain other wagering facilities located outside of Louisiana. The Company has continued to experience significant increases in the demand for the Company's races from out-of-state markets. Total handle from such out-of-state markets during the fiscal 2000 racing season was approximately $366 million, a 14% increase over the previous racing season. The Company earns a net commission (after payment of purses) of approximately 1.5% of the out-of-state handle. Off-Track Betting Ownership and Operation of Tele-Track Facilities. Louisiana authorizes off-track wagering and regulates the licensure by the Racing Commission of tele-tracks, the ownership of such facilities, the commissions which can be earned on wagers and other related matters. In 1988 each horse racing track then operating in Louisiana was granted a license to operate tele-tracks at its racetrack and also within a 55-mile radius of its racetrack, provided that the voters of the parish where the tele-track was to be located approved the establishment of such a facility. When two pari-mutuel racetracks are located within the same 55-mile radius, any tele-tracks opened in such areas are to be jointly owned unless one of the eligible racetracks does not wish to participate. The Company and Jefferson Downs Corporation ("Jefferson Downs"), which is an affiliate of the Company and which through 1992 conducted live racing at a facility located approximately 12 miles west of the Fair Grounds Race Course, are parties to an agreement, entered into in 1992 when Jefferson Downs ceased its live racing, pursuant to which the Company, through Finish Line, operates the tele-tracks formerly operated by Jefferson Downs. Total paid attendance at the Company's tele-tracks (excluding the former Jefferson Downs tele-tracks) during the fiscal year ended October 31, 2000 was 332,919 compared to 379,910 during fiscal 1999 and 391,271 during fiscal 1998, and the total off-track handle at such facilities during the 2000 fiscal year was $96,204,844 compared to $98,852,338 in fiscal 1999 and $93,921,423 in fiscal 1998. See 2 5 "Sources of Revenue" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company is a party to a Management Agreement (the "Management Agreement") with Finish Line pursuant to which Finish Line operates the tele-track facilities owned by Jefferson Downs and transferred to the Company effective in May 1993. The Management Agreement is for a term of ten years, which commenced on November 1, 1992, with the option granted to Finish Line to extend the term for two additional five-year periods. Pursuant to the Management Agreement, Finish Line has the exclusive responsibility for the direction, supervision, management and operation of such facilities, collects all monies from such operation and pays all expenses in connection therewith. The Company receives 0.1% of the gross pari-mutuel handle at such facilities, and Finish Line is to receive monthly compensation equal to the difference between the gross receipts collected at such facilities less all expenses (including the guaranteed payment to the Company) paid by Finish Line. In addition, Finish Line is to indemnify the Company for, among other things, all obligations under the leases assigned by Jefferson Downs to the Company. A portion of the handle generated at these tele-tracks is set aside to supplement purses for live racing at the Fair Grounds Race Course. See "Purse Supplements," below. Simulcasting to Tele-Track Facilities. When a live racing meet is not in progress at the Fair Grounds Race Course, horse races are simulcasted from other tracks then conducting live racing in Louisiana, as well as from various race tracks throughout the United States hosting races of national prominence, to the Company's tele-tracks, to the tele-track facility located at the Fair Grounds Race Course and to other off-track tele-tracks. The Company generally is required to make payments in the form of host track fees and purse supplements to those tracks conducting live races which are simulcasted to the Company's tele-tracks. The Company's tele-tracks generally are open daily, depending on patron demands and race offerings, for afternoon and evening racing programs which are simulcasted to the tele-tracks. Purse Supplements. A portion of the handle generated at tele-track facilities is required by Louisiana law to be set aside and used to supplement purses at live racing facilities. Purse supplements are computed on a sliding scale of 5.5%, 6% and 6.5% on the tele-tracks' daily handle plus an additional 1.5% of all "exotic" wagers at tele-track facilities. Purse supplements of 6.5% of handle are required on all wagers when off-track betting is conducted at the racing facility of the primary licensee. Breakage and Uncashed Mutuel Tickets. Race tracks and tele-tracks are allowed to retain breakage, which is the residual amount remaining in the betting pool after winnings are paid out to the nearest dime; however, one-half of such revenue must be paid out as purses. During fiscal 2000, the Company's revenue from breakage was $642,167 compared to $698,018 in fiscal 1999 and $518,822 in fiscal 1998. Race tracks are also allowed to retain the proceeds from uncashed winning pari-mutuel tickets, up to $250,000 for each live or simulcasted meet, with the excess to be remitted to the State of Louisiana. During the fiscal year ended October 31, 2000, the Company retained approximately $497,249 in proceeds of such uncashed mutuel tickets as compared to approximately $540,124 in fiscal 1999 and $476,740 in fiscal 1998. 3 6 Telephone and Internet Wagering Louisiana has recently enacted legislation that will permit the Company to accept telephone and Internet wagers. The Company has recently begun to accept telephone wagers and anticipates installing systems to accept Internet wagering during fiscal 2001. The Company is optimistic about the long term benefits of telephone and Internet wagering. Video Poker Operations Louisiana permits pari-mutuel facilities to install and operate an unlimited number of video poker machines. Other types of businesses in Louisiana, such as bars, truck stops and restaurants, are permitted to operate video poker machines but are restricted in the number of machines they may operate. See "Regulation." The owners of pari-mutuel wagering facilities such as the Company are required to set aside one-half of the net revenues from such devices in excess of certain amounts and use such amounts which are set aside to supplement purses for live racing or, if live racing is not then being conducted, to place such amounts in an interest-bearing account and utilize them to supplement purses during the next live racing meet. Any such funds which are earned from devices located at a tele-track are to be used for purse supplements by the owner of the tele-track or, if it is jointly owned, to be divided among the owners in proportion to their ownership interests. The Company, Jefferson Downs and Finish Line entered into an agreement in February 1992 with Video Services, Inc. ("VSI"), whereby VSI was granted the exclusive right and license by the Company to install, maintain and operate video draw poker devices at the Fair Grounds Race Course and Jefferson Downs Race Course and at the tele-tracks operated by the Company, Jefferson Downs and Finish Line. Such agreement was for an initial term of five years, with an option by VSI to extend the term for an additional five years, which option was exercised. Pursuant to such agreement, the Company receives a percentage of the revenues from the operation of the devices installed at the Company's facilities, such percentage being calculated on the basis of the average amount collected daily from each device during each month, after the payment of prizes, taxes and fees. See "Sources of Revenue." The devices installed by VSI pursuant to such agreement remain the property of VSI. As of October 31, 2000, there were a total of 335 devices in operation at the Company's facilities (not including tele-tracks operated by Finish Line). In addition, there were a total of 335 devices at the tele-tracks operated by Finish Line as of October 31, 2000. The Company receives purse supplements from the tele-tracks operated by Finish Line, which includes the tele-tracks formerly owned by Jefferson Downs. The agreement also provides for the Company and Finish Line to share in an annual promotional fee of $270,000 paid by VSI. During fiscal 2000, by agreement between the Company and Finish Line, the total amount of such promotional fee was retained by the Company. Of such amount, $135,000 was set aside for purse supplements to be paid during the Company's 2000-2001 racing meet. SOURCES OF REVENUE Income from Wagering The principal component of the Company's revenue is generated from pari-mutuel wagering, both on-track and off-track. In pari-mutuel wagering on horses, those who wager on the first, second and third place horses share the total stakes, or pool, less a percentage retained by the Company. The 4 7 term "pool" means the total amount wagered to win (first place), to place (second place), or to show (third place) on every horse in a given race, or exacta, quinella and trifecta wagers on certain combinations of horses. Under the pari-mutuel system, bettors wager against each other and not against the racing facility, which has no interest in which horse wins or loses. Racing facilities are authorized under Louisiana law to retain a stated percentage of the total money handled through the mutuel machines located at such racing facilities and their tele-tracks on each racing day. Mutuel commissions range from 17% to 25% of money handled depending upon the type of wager. For the fiscal year ended October 31, 2000, the Company received pari-mutuel commissions and related income of $25.8 million compared to $26.5 million for fiscal 1999 and $24.7 million for fiscal 1998. Total commission income (less pari-mutuel taxes) was $22.7 million for fiscal 2000, $23.2 for fiscal 1999 and $21.6 million for fiscal 1998. The Company also receives, during its live racing meet, a percentage of the handle from all tele-tracks and racing facilities to which its races are simulcasted, paid in the form of host track fees as compensation for the simulcasting of its races to such facilities. The Company also pays host track fees to other racing facilities for the simulcasting of races to the Company's tele-tracks. For the fiscal year ended October 31, 2000, the Company received host track fees of $11.4 million and paid host track fees of $3.1 million. During fiscal 1999 the Company received host track fees of $10.3 million and paid host track fees of $3.2 million, and during fiscal 1998 the Company received host track fees of $7.1 million and paid host track fees of $2.8 million. Income from Video Poker Operations For the fiscal year ended October 31, 2000, revenue from video poker operations was $2.9 million compared to $3.0 million in fiscal 1999 and $2.9 million in fiscal 1998. As previously described, there were a total of 335 devices in operation at the Company's facilities (not including the tele-tracks operated by Finish Line) as of October 31, 2000. Other Sources of Revenue Additional revenue to the Company is generated from program sales, admission charges collected by the racing facility and tele-tracks, parking, and food and beverage services, all of which are operated directly by the Company. Pursuant to its agreement with the publisher of the Daily Racing Form, the Company is the wholesaler for sales of the Daily Racing Form in the greater New Orleans area. For two weekends each year, after the Company's live racing meet has concluded, the infield of the Fair Grounds Race Course is used by a non-profit organization in New Orleans to host a Jazz and Heritage Festival. As compensation for the use of its facilities, the Company receives all revenues from certain beverage concessions during the Jazz and Heritage Festival. The Company and the sponsor of the Jazz and Heritage Festival are parties to an agreement for the use of the Company's facilities through the year 2001. Revenues from the 2000 Festival were $1.8 million, compared to $1.2 million from the 1999 Festival and $1.4 million from the 1998 Festival. Seasonality The Company's business is seasonal, and the Company has received and should continue to receive a majority of its revenues during the first and second quarters of its fiscal year when its 5 8 live racing meet is held. Although live racing is conducted only during the first and second quarters of each fiscal year, the Company's tele-tracks are operated year-round, enabling the Company to earn revenues throughout the fiscal year but on a smaller scale in the third and fourth quarters than in the first and second quarters of its fiscal year. In addition, video poker operations are conducted year-round; however, revenue from video poker operations generally is higher during the months when live racing is conducted at the Company's race track since attendance there is higher during such period. For information regarding the Company's operating revenues, income or loss from operations, other income, net income or loss and total assets, see "Selected Financial Data." COMPETITION The Company faces competition from other companies in the gaming industry, including those which offer pari-mutuel wagering. Activities which compete or which have the potential for competing with the Company's racing facility, tele-tracks and video poker operations include other horse racing tracks and tele-tracks, riverboat and dockside gambling, casinos operated on Indian reservations, a land-based casino in New Orleans, state-sponsored lotteries and video poker in restaurants, bars, hotels and truck stops. All such activities are present in the State of Louisiana, the Mississippi Gulf Coast area or elsewhere in the State of Mississippi. In recent years, the growth of gaming in the United States has been reflected in various forms, including riverboats, dockside gaming facilities, Native American gaming ventures, land-based casinos, state-sponsored lotteries, and expanded off-track wagering opportunities. The impact of the lottery, video poker, and casinos or riverboats on live racing in Louisiana has been felt by all of the existing tracks. Additional forms of gaming which may be introduced in the future, as well as future expansions, additions and enhancements to existing facilities by the Company's competitors, could result in additional funds being directed away from the Company's on-track and off-track facilities. Horse Racing The Company's racing facility and tele-tracks compete for patrons with a number of sporting events and leisure time and entertainment activities in the New Orleans area and throughout Louisiana, including race tracks and tele-tracks owned and operated by three other licensees. The Company also competes with other race tracks in Louisiana and throughout the United States in securing high caliber thoroughbred horses to run at the Company's race track. The Company believes that it provides high quality horse racing at the Fair Grounds Race Course. Other Forms of Legalized Gaming Louisiana Lottery. A state-wide lottery began operations in Louisiana in September 1991. The Company believes that at its inception the Louisiana lottery contributed significantly to a decline in the Company's average daily pari-mutuel handle (consisting of both on-track and off-track wagering); however, the Company believes that the lottery has had little impact during the last several fiscal years. 6 9 Casino Gambling. A number of dockside casinos are currently operating in or near Biloxi, Mississippi, located on the Mississippi Gulf Coast approximately 60 miles east of New Orleans. In addition, a substantial number of dockside gaming facilities are in operation. The Louisiana Riverboat Economic Development and Gaming Control Act, which became effective in July 1991, approved the conduct of riverboat gaming activities on 12 separate waterways in Louisiana. The legislation authorizes the issuance of up to 15 licenses to operate riverboat casinos within the State, with no more than six in any one Parish. As of January 1, 2001, 14 licenses had been granted and there were 13 licensed riverboats in operation in Louisiana, 3 of which were operating in the New Orleans area. In 1992, the Louisiana legislature approved a single land-based casino to be developed in downtown New Orleans. Such legislation provided that the casino is to be the only such authorized casino in the State of Louisiana. The City of New Orleans awarded contracts for the development and operation of such casino project, and in May 1995 temporary gambling operations commenced and construction on the permanent casino facility was begun. The temporary gambling operations and construction were halted in the Fall of 1995 when the developer of the casino filed for bankruptcy. Construction of the land-based casino was started again in 1998 and the land-based casino opened in late October 1999 under the name "Harrah's New Orleans." In January 2001, the owner and operator of Harrah's New Orleans filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. Video Poker Operations. As described herein, pari-mutuel facilities may have an unlimited number of video poker devices at such facilities. Any person who has been granted a license to sell alcoholic beverages for consumption on the premises may be granted a license for the placement of devices on such premises; however, with the exception of pari-mutuel facilities and truck stop facilities, a licensee may not have more than three such devices. Truck stop facilities may have no more than 50 devices. Devices which are placed in restaurants are to be operated only in designated areas which are separate from the dining areas of such restaurants. The Company believes that there are numerous establishments throughout the New Orleans area at which video poker devices are located; however, the Company does not believe that the placement of such devices at such other establishments has had a material adverse effect on the revenue which has been generated from the operation of such devices at the Company's racetrack and tele-tracks. REGULATION The Company's operation of pari-mutuel wagering at its racetrack and tele-tracks is subject to extensive regulation pursuant to Louisiana law and the rules and regulations of the Racing Commission which govern, among other things, (i) the awarding of licenses for the conduct of live racing meets; (ii) the conduct of thoroughbred horse racing; (iii) the types of wagering which may be offered by the Company and other pari-mutuel facilities; and (iv) the disposition of revenue generated from wagering. Off-track wagering is also regulated by the Racing Commission. Such legislation, and subsequent regulations adopted by the Racing Commission, govern the ownership and operation of off-track wagering facilities, the commissions which facilities may earn on wagers and the amounts which must be set aside as purse supplements, as described elsewhere herein. The Company's video poker operations are subject to regulation under the Video Draw Poker Devices Control Law by the gaming enforcement division of the Louisiana State Police. Such legislation describes the specifications which must 7 10 be met before devices can be utilized in Louisiana, and also sets forth certain licensing, accounting and reporting requirements. EMPLOYEES During its live racing season, the Company, through a wholly-owned subsidiary, employs approximately 805 persons. At all other times, the Company employs approximately 400 persons. ITEM 2. PROPERTIES The Company owns its racetrack site which consists of approximately 145 acres of land situated within a fenced area adjacent to Gentilly Boulevard in the New Orleans city limits and within a ten-minute drive from downtown New Orleans. Located on such property is a one-mile oval, sandy loam race track and a seven-furlong turf track inside the main track. The Company owns the new grandstand facility and the tele-track facility described herein. The new facility is a multi-tiered concrete and steel structure, with a total seating capacity for approximately 5,000 people. The size of the new facility, together with the adjacent tele-track building, is approximately 217,000 square feet in the aggregate. There is general seating in a bleacher area in the front of the grandstand with reserved seating, including the new clubhouse area, located in tiered areas above the grandstand. In a significant change from the design of the old building, the paddock is located in the middle of and behind the grandstand and may be viewed through a glass area from all levels of the facility. The Company also owns 50 modern concrete barns with supporting buildings and facilities which are located on the property and are capable of quartering approximately 2,000 horses. There is an all-concrete parking lot which can accommodate approximately 4,000 vehicles within the fenced area. The Company leases the facilities for its off-track tele-tracks under lease agreements which contain various terms, except for the new location for the LaPlace, Louisiana tele-track which is owned by the Company. The tele-tracks formerly licensed to Jefferson Downs and now licensed to the Company are also leased; however, as described herein, Finish Line has agreed to indemnify the Company for, among other things, all obligations under the leases assigned by Jefferson Downs to the Company. The Company has an agreement with Autotote Limited ("Autotote") pursuant to which Autotote provides the Company with wagering services, including totalisator, computer and related services. The Company pays Autotote a percentage of the total pari-mutuel handle and also pays Autotote certain equipment and contingent rental fees in connection with leasing certain equipment from Autotote. See Note 7 of Notes to the Financial Statements included elsewhere herein for a description of the Company's lease obligations. 8 11 ITEM 3. LEGAL PROCEEDINGS The following is a brief description of the litigation that is pending or was terminated during the fourth quarter of fiscal 2000: In 1996, a suit was filed in U.S. District Court in Baton Rouge by Livingston Downs Racing Association ("Livingston") naming the Company and other defendants in an antitrust/civil RICO suit alleging the Company participated in a conspiracy to prevent the plaintiff from entering the live racing, off-track betting and video poker markets. The Company filed a motion for summary judgment in late 1998 but that motion has not been decided by the U.S. District Court. Livingston had previously filed a series of other legal actions against the Company which were resolved in the Company's favor. Management believes that Livingston's claims in this case are without merit. However, there is no assurance that the Company will successfully defend all of Livingston's claims. Because the amount in question has not yet been determined but could be substantial and because there is no assurance that there will be insurance coverage or that it will be adequate, as discussed below, the failure of the Company to prevail in this lawsuit could have a material adverse effect on the Company's operations, financial condition and cash flows. In a declaratory judgment action related to the Livingston suit brought by insurers for the Company and several of its affiliates, which case has been consolidated with the suit filed by Livingston, on January 14, 1999 the U.S. District Court granted the Company's motion for summary judgment, finding that coverage exists under certain of the Company's insurance policies for claims asserted by Livingston and that the insurers have a duty to defend. The insurers have filed a motion for new trial that is pending in the U.S. District Court. There is no assurance that the motion for new trial will be denied or, if denied, that the decision of the U. S. District Court will be affirmed on appeal or that the insurance policies will provide sufficient coverage to indemnify the Company fully. A suit was filed in 1996 in the 19th Judicial District Court in Louisiana by the Louisiana Horsemen's Benevolent and Protective Association ("LHBPA"), an association of horsemen organized to promote the dissemination of information on issues critical to horsemen and the exchange of ideas and information, against the Company, the State of Louisiana, and all other pari-mutuel wagering facilities operating in Louisiana. The LHBPA is seeking a larger portion of video poker proceeds on the grounds that the State of Louisiana and the horse racing tracks in Louisiana have misinterpreted a Louisiana statute specifying the amount of revenues from video poker machines at pari-mutuel wagering facilities that are to be used as purse supplements. A motion for summary judgment seeking dismissal of this action was filed in April 1999 and is pending before the court. On August 8, 2000, the court denied a motion for summary judgment filed by another pari-mutuel wagering facility. In the process of denying that motion, the court indicated that it appeared that the pari-mutuel wagering facilities were improperly deducting tax payments in calculating the amount of revenues to be used in determining purse supplements. Notwithstanding such indication by the court, management believes that the Company is in compliance with the Louisiana statute and the guidelines established by the Louisiana State Police Gaming Division, which regulates compliance with the State of Louisiana video poker law, and that the Company has sufficient defenses to all claims. However, there is no assurance that the Company will successfully defend the LHBPA's claims. Because the amount in question could be substantial, the failure by the Company to prevail in this lawsuit could have a material adverse effect on the Company's operations, financial condition and cash flows. 9 12 Except as described above, there are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company is a party or of which any of its property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT In accordance with Instruction 3 to Item 401(b) of Regulation S-K, the following information is submitted concerning the executive officers of the Company: BRYAN G. KRANTZ, age 40, is President, General Manager and a director of the Company and has served in those capacities since 1990. Mr. Krantz is also President of Finish Line Management Corporation, which operates certain off-track betting facilities in Louisiana. MARIE G. KRANTZ, age 65, is Chairman of the Board of Directors and Treasurer of the Company and has served in those capacities since 1990. Ms. Krantz is also Secretary/Treasurer of Finish Line Management Corporation. MERVIN MUNIZ, JR., age 58, is Director of Racing and Racing Secretary and has served in those capacities since prior to 1990. GORDON M. ROBERTSON, age 60, is Chief Financial Officer of the Company and has served in those capacities since 1990. DAVID R. SHERMAN, age 48, is Secretary of the Company and has served in that capacity since 2000. No family relationships exist between or among any nominee, director or executive officer of the Company, except that Bryan G. Krantz is the son of Marie G. Krantz. The officers of the Company are elected annually by the Board of Directors of the Company at the first meeting of the Board held after the annual meeting of shareholders. 10 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common shares are traded in the over-the-counter market and are quoted in the "pink sheets" promulgated by the National Quotation Bureau, Inc. and are qualified for listing on the OTC Bulletin Board under the symbol "FGRD". Trading in the Company's common shares has been sporadic and relatively inactive for many years. The following chart sets forth the range of the high and low bid quotations for the common shares of the Company for each period indicated. The following bid quotations have been adjusted to give effect to the 1 for 200 reverse stock split that was effected on December 15, 2000. The quotations represent prices between dealers and do not include retail markups, markdowns, commissions or other adjustments and may not represent actual transactions. The information presented was obtained from Dorsey & Company, a broker-dealer located in New Orleans, Louisiana.

As of January 25, 2001, there were approximately 73 shareholders of record of the 2,194 issued and outstanding common shares of the Company. On April 30, 1999, the Company paid a special cash dividend of $200 per share to shareholders of record at the close of business on April 15, 1999. There were no cash dividends declared or paid during fiscal 2000. The Company presently has no plans to declare any additional cash dividends. The Company is not subject to any restrictions (other than non-contractual business considerations) affecting its present or future ability to pay dividends with respect to its common shares. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 11 14 ITEM 6. SELECTED FINANCIAL DATA FAIR GROUNDS CORPORATION SELECTED FINANCIAL DATA

12 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OPERATIONS RESULTS OF OPERATIONS Fiscal 2000 Compared to Fiscal 1999 Revenues. During the fiscal years ended October 31, 2000 and 1999, the Company derived its pari-mutuel income by conducting live racing meets of 88 days during each fiscal year and in the operation of its tele-tracks for off-track wagering. During each such fiscal year, in addition to live racing conducted at the Fair Grounds Race Course in New Orleans, the Company operated tele-tracks in New Orleans at the Fair Grounds Race Course and on Bourbon Street, and at locations in Jefferson, Lafourche, St. Bernard and St. John Parishes, Louisiana. Through Finish Line Management Corporation, an affiliated company, the Company operated tele-track facilities in Terrebonne, St. Tammany, and Jefferson Parishes, Louisiana. In late July 2000, the Company closed its Bourbon Street tele-track. However, the Company believes that this closure will not have a material adverse effect on the Company's operations based upon the lack of profitability of that tele-track in the past. For the fiscal year ended October 31, 2000, the Company reported total in-state pari-mutuel wagering of $122,341,033 compared to $126,264,900 in fiscal 1999. Comparative pari-mutuel wagering and attendance figures for the fiscal years ended October 31, 2000 and 1999 are as follows:

The Company believes that the $1,276,373, or 4.6%, decrease in on-track handle is primarily due to the increased competition locally from the land-based casino which opened in October 1999 and from other simulcast signals competing with the Company's signal. The Company believes that the $2,647,494, or 2.68%, decrease in off-track handle is partially due to the relocation in May 2000 of Finish Line Management Corporation's Kenner, Louisiana tele-track facility to a new location that is approximately 10 miles from the Company's tele-track in Metairie, Louisiana. The Company is planning to open a new tele-track in 2001 in eastern part of Jefferson Parish, Louisiana and believes that the handle and attendance at that facility will partially or completely offset the decreases in handle and attendance attributable to the relocated Kenner tele-track location. The Company's lease for its La Place tele-track in St. John the Baptist Parish terminated in January 2001 and the Company is currently operating its La Place tele-track in temporary facilities on property purchased by the Company in La Place while its new tele-track is constructed. 13 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company also believes that the decline in the off-track handle is partially attributable to the closure of the Bourbon Street tele-track in July 2000. As previously reported, the tele-track had a poor operating performance for several years prior to the date of its closure. The Company believes that the $45,124,676, or 14%, increase in out-of-state handle is primarily due to the continued high quality of racing at the Fair Grounds Race Course. In addition, during the year ended October 31, 2000, the Company experienced significant handle increases from California, as the Company's races became one of the two featured simulcasts signals in that state starting in January 2000. The Company's total operating revenues for the year ended October 31, 2000 decreased $47,211, or .1%, from the prior fiscal year. The net decrease included decreases of $637,376, or 2.5%, in pari-mutuel commissions; $55,851, or 8%, in breakage; $49,676, or 2.2%, in concessions revenue; $89,521 or 12.8%, in admissions revenue; $68,836, or 2.3%, in video poker revenue; $42,875, or 7.9%, in uncashed mutual ticket revenue; and $103,720, or 7.1%, in programs and forms revenue. These decreases were almost entirely offset by the increase of $1,062,640, or 10.3%, in the Company's out-of-state handle as discussed above. Racing Expenses. Total racing expenses for the year ended October 31, 2000 increased $1,047,387, or 2.8%, over the prior fiscal year, primarily as a result of the increased out-of-state pari-mutuel activities. The increase in racing expenses was attributable to an increase of $179,160, or 1.1%, in purses, as well as increases in salaries and related taxes and benefits, contracts and services, utilities, advertising and promotion, cost of sales - concessions, repairs and maintenance and rent, partially offset by decreases in depreciation, host track fees; and miscellaneous expenses. The increase in rent was due to the increased monthly rent at the Bourbon Street tele-track location until its closure in July 2000, as well as rent payments, beginning in February 2000, for a new tele-track location to be opened in the eastern part of Jefferson Parish, Louisiana. Depreciation decreased in fiscal 2000 due to many of the leasehold improvements at the Company's tele-tracks becoming fully depreciated in the prior fiscal year. Contracts and services increased due to the Company's totalisator vendor's fees increasing in proportion to the increased out-of-state handle. General and Administrative Expenses. General and administrative expenses decreased by $632,604, or 10%, in fiscal 2000 primarily as a result of decreases in legal, audit and director fees, insurance, and office expenses, partially offset by increases in salaries and related benefits and miscellaneous expenses. Legal, audit and director fees decreased in fiscal 2000 as a result of the conclusion, prior to fiscal 2000, of most of the fire-related and certain other litigation. Other Income (Expense). Other income increased in fiscal 2000 by $1,504,150, or 377%, compared to fiscal 1999 in part as a result of a $502,519, or 40%, increase in Jazz and Heritage Festival income which was attributable to an increase in the sales prices of beverages sold at the 2000 Festival. Additionally, in fiscal 1999, a financing charge of $988,789 was incurred and paid in connection with a guarantee of corporate indebtedness; no such guarantee fee was paid in fiscal 2000. 14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Extraordinary Items. During the year ended October 31, 1999, the Company received settlement payments in connection with the fire-related litigation in the aggregate amount of $3,996,370. These proceeds were reflected in the Company's financial statements net of $1,478,657 of related taxes. In the fiscal 2000, the Company received $493,752 in connection with the fire-related litigation, which is reflected in the Company's financial statements net of $98,750 of related taxes. Income Taxes. For the year ended October 31, 2000, the income tax benefit was $1,511 compared to $236,256 in fiscal 1999. The difference between fiscal years reflects changes in pretax income between the respective fiscal years. Net Income. The Company reported net income of $94,833 for the year ended October 31, 2000 compared to net income of $1,410,133 for the year ended October 31, 1999. Fiscal 1999 Compared to Fiscal 1998 Revenues. During the fiscal years ended October 31, 1999 and 1998, the Company derived its pari-mutuel income by conducting live racing meets of 88 days during each fiscal year and in the operation of its tele-tracks for off-track wagering. During each such fiscal year, in addition to live racing conducted at the Fair Grounds race course in New Orleans, the Company operated tele-tracks in New Orleans at the Fair Grounds Race Course and on Bourbon Street, and at locations in Jefferson, Lafourche, St. Bernard and St. John Parishes, Louisiana. Through Finish Line Management Corporation, an affiliated company, the Company operated tele-track facilities in Terrebonne, St. Tammany, and Jefferson Parishes, Louisiana. For the fiscal year ended October 31, 1999, the Company reported total in-state pari-mutuel wagering of $126,264,900 compared to $119,710,774 in fiscal 1998. Comparative pari-mutuel wagering and attendance figures for the fiscal years ended October 31, 1999 and 1998 are as follows:

15 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company attributes the $1,623,211, or 6.3%, increase in the on-track handle in the 1999 fiscal year primarily to the improved quality of racing resulting from increased purses paid during the fiscal 1999 race meet. The Company believes that the $4,930,915, or 5.3%, increase in off-track handle is primarily due to the Company transmitting better simulcasting signals and to higher quality horses racing in the Company's fiscal 1999 live racing meet. The $101,577,296, or 46.2%, increase in out-of-state handle is believed to be the result of those same factors. In addition, during the fiscal 1999 race meet the Company's races were sometimes simulcasted to locations that have not generally received simulcasts of the Company's races, thus increasing the Company's simulcasting handle. Those locations received simulcasts of the Company's races during fiscal 1999 because certain other tracks were unable to conduct live racing and simulcast their races to those locations due to severe winter weather. During the fiscal year ended October 31, 1999, the Company experienced significant simulcast handle increases from California and New York. These two markets accounted for approximately $46.4 million, or 46%, of the handle increase. With the increase in total handle, the Company's operating revenues in the fiscal year ended October 31, 1999 increased by $5,009,510, or 13.6%, from the prior fiscal year. This included increases of $1,539,409, or 6.5%, in pari-mutuel commissions, $179,196, or 34.5%, in breakage, $63,384, or 13.3% in uncashed mutuel tickets, $77,285, or 3.5%, in concessions, $3,210,979, or 45.2%, in host track fees, $80,674, or 2.8%, in video poker revenues, $11,516, or 25.5%, in parking revenues, and $211,722, or 34.6%, in miscellaneous revenues. Miscellaneous revenue included approximately $150,000 of promotional fee revenues paid by third parties which advertise in the Company's racing program plus $135,000 of promotional fees paid to the Company by its video poker operator. Also included in miscellaneous revenues is group sales and special events revenues held at the Company's facilities which have continued to increase since the building of its new grandstand and clubhouse facilities. These increases were partially offset by a $55,442, or a 7.4%, decrease in admissions revenues, a $143,557, or 9%, decrease in programs and forms revenue and a $165,656 or 5.2% increase in pari-mutuel tax expense. Admissions are no longer collected at the Company's teletrack in Lafourche Parish. Programs and forms revenues have decreased as a result of a continued decline in racing form sales. Management believes racing form sales are being replaced by the sales of less expensive racing programs. In addition, some information found in these racing publications can now be obtained by the public over the internet, thus reducing the demand for program and form sales. Racing Expenses. Total racing expenses increased $3,348,937, or 10%, in the 1999 fiscal year over the prior period, primarily as a result of the increased pari-mutuel activities. This increase included an increase of $2,326,443, or 17.4%, in purses. Other increases included salaries and related taxes and benefits, contracts and services, rent, repairs and maintenance, concessions costs, advertising and promotion, and host track fees paid by the Company. These increases were partially offset by decreases in utilities, depreciation, and program paper, forms and other supplies. 16 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) General and Administrative Expenses. General and administrative expenses increased by $979,078, or 18.2%, in the 1999 fiscal year primarily as a result of performance bonuses paid in the second fiscal quarter to key personnel, increased property taxes, increased office expenses and increased legal fees relating to ongoing litigation discussed elsewhere herein. Also contributing to the higher general and administrative expenses in fiscal 1999 was a $118,000 increase in the accrual for contingent liabilities over the prior year based upon management's evaluation of outstanding contingencies at October 31, 1999. These increases were partially offset by decreases in insurance costs due to lower property and general liability premiums, and decreased contracts and services. Other Income (Expense). Other income decreased in the fiscal year ended October 31, 1999 by $1,064,260, or 72.7%, due, in part, to a $127,931 decrease in Jazz and Heritage Festival income. The decrease in Jazz and Heritage Festival income was primarily attributable to a $25,000 increase of the festival sponsorship fee paid by the Company, a decrease in infield food sales compared to the 1998 festival, and increased cost of goods sold at the 1999 festival. The decrease in other income was also attributable to the Company's payment, during the 1999 fiscal year, of a guaranty fee in the amount of $988,789 to Marie G. Krantz for her guaranty of, and pledge of personal assets to secure, the Company's reconstruction debt from 1995 through completion of construction in late 1997. No additional guaranty payments are due to Ms. Krantz, and the Company will not be making a similar guaranty payment in the 2000 fiscal year. Extraordinary Items. During the fiscal year ended October 31, 1999, the Company received settlement payments in connection with the fire related litigation previously reported in the aggregate amount of $4 million. These proceeds were reported net of related taxes of approximately $1.48 million. In the comparable prior fiscal year period, settlements totaled $9.96 million and were reported net of $3.68 million of related taxes. Income Taxes. For the fiscal year ended October 31, 1999, income tax benefit was $236,256, compared to $645,355 for fiscal 1998. The difference between periods reflects changes in pretax income and deferred tax assets and liabilities between the respective periods. Net Income. The Company reported net income of $1,410,133 for the fiscal year ended October 31, 1999 compared to $5,956,912 for the fiscal year ended October 31, 1998. The Company's net income in fiscal 1999 was significantly reduced from that in fiscal 1998 primarily due to a substantial reduction in the fire-related litigation recoveries in the 1999 fiscal year. The Company anticipates that there may be a further reduction in net income in fiscal 2000 inasmuch as the Company may not receive any significant litigation recoveries in fiscal 2000. Excluding the extraordinary items and income taxes discussed above, net income (loss) in the current fiscal year was $(1,343,836) compared to $(961,071) in the fiscal year ended October 31, 1998. 17 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES General Cash and cash equivalents increased $1,389,279 during the fiscal year ended October 31, 2000, as a result of cash provided by operating activities of $1,400,594 and cash provided by financing activities of $80,412, partially offset by cash used for investing of $91,727. The cash used for investing included barn improvements and equipment purchases made during the fiscal year. As of October 31, 2000, the Company had received cumulatively, since the December 1993 fire, approximately $48.3 million, before taxes, of insurance proceeds resulting from fire loss claims submitted to the Company's insurance carriers or in litigation settlements. The Company's new main grandstand and racing facility was substantially completed in November 1997 and was opened for the start of the Company's 1997-98 live racing meet. The total cost of constructing and furnishing the facility, including the tele-track facility at the Fair Grounds Race Course that was completed in late 1994, was in excess of $35 million. In November 1999, the Company entered into a working capital line of credit agreement with First Bank and Trust for an initial term of one year. The term of the loan agreement has been extended to November 22, 2001. The line of credit is for $2.5 million with interest on amounts outstanding at Citibank N.A.'s prime rate less 0.5% per annum or LIBOR plus 2% from time to time in effect, as selected by the Company. No amounts have been drawn down on the line of credit since it was entered into in November 1999. On April 30, 1999, the Company paid a special cash dividend of $200.00 per share to shareholders of record at the close of business on April 15, 1999. The Company presently has no plans to declare any additional cash dividends. The Company believes that the combination of existing cash, cash from future operations, funds available under its working capital line of credit, and the Company's capacity to incur short-term and long-term indebtedness, if necessary, will be sufficient to fund the Company's cash requirements for the foreseeable future, including payment of cash in lieu of fractional shares in connection with the reverse stock split and construction of the Company's new tele-track facilities. The Company has a deferred tax liability of approximately $9.28 million at October 31, 2000 arising from reinvestment of fire insurance and other litigation settlements into its new facilities within the allowable replacement period. That deferred tax liability is to be paid over approximately 36 years which is the remaining useful life of the new facilities for tax purposes. The Company currently anticipates payment of that liability with funds obtained through the sources outlined above. See Note 5, "Commitments and Contingencies" in the Notes to Financial Statements for the Years Ended October 31, 2000, 1999 and 1998 included elsewhere herein. Impact of Inflation To date, inflation has not had a material effect in the Company's operations. 18 21 FORWARD-LOOKING STATEMENTS The statements in this Annual Report that are forward-looking are based upon current expectations, and actual results may differ materially. Therefore, the inclusion of such forward-looking information should not be regarded as a representation by the Company that the objectives or plans of the Company will be achieved. Such statements include, but are not limited to, the Company's expectations regarding the source of funds for payment of its deferred tax liability, the long term benefits of telephone and Internet wagering, the Company's net income in fiscal 2000, and the adequacy of its cash, cash equivalents and borrowings available under its new working capital line of credit to fund the Company's future cash requirements. Words such as "anticipates," "believes," "expects," "intends," "estimated" and variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements contained herein involve numerous risks and uncertainties, and there are a number of factors that could cause actual results to differ materially including, but not limited to, the following: changing economic, market and business conditions, the ability of the Company to compete effectively for top horses and trainers necessary to field high-quality horse racing; the ability of the Company to grow its share of the interstate simulcast market; a substantial change in allocation of live racing days; the impact of competition from alternative gaming (including casinos and lotteries) and other sports and entertainment options in those markets in which the Company operates; and the Company's success in attracting new patrons and generating additional revenue for purses. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company utilizes an overnight sweep arrangement pursuant to which available funds are invested in daily repurchase agreements which are collateralized by U.S. government or agency securities. The Company also has deposits in U.S. Treasury money market funds which are short-term in nature and guaranteed by the U.S. government. Because of the short-term duration of the financial instruments held by the Company, management does not believe that its financial instruments are materially sensitive to changes in interest rates. ITEM 8. FINANCIAL STATEMENTS The following financial statements of the Company, including the notes thereto, and the Report of Independent Certified Public Accountants are included herewith: Report of Independent Certified Public Accountants Balance Sheets at October 31, 2000 and 1999 Statements of Operations for the Three Years Ended October 31, 2000 Statements of Changes in Stockholders' Equity for the Three Years Ended October 31, 2000 Statements of Cash Flows for the Three Years Ended October 31, 2000 19 22 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of the Fair Grounds Corporation We have audited the accompanying balance sheets of the FAIR GROUNDS CORPORATION (the "Company") as of October 31, 2000 and 1999, and the related statements of operations, of changes in stockholders' equity, and of cash flows for each of the three years in the period ended October 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years ended October 31, 2000 in conformity with generally accepted accounting principles. /s/ Rebowe & Company Metairie, Louisiana JANUARY 5, 2001 20 23 FAIR GROUNDS CORPORATION BALANCE SHEETS

21 24 FAIR GROUNDS CORPORATION BALANCE SHEETS (CONTINUED)

See accompanying notes to financial statements. 22 25 FAIR GROUNDS CORPORATION STATEMENTS OF OPERATIONS

(Continued) 23 26 FAIR GROUNDS CORPORATION STATEMENTS OF OPERATIONS (CONTINUED)

(Continued) 24 27 FAIR GROUNDS CORPORATION STATEMENTS OF OPERATIONS (CONTINUED)

See accompanying notes to financial statements. 28 FAIR GROUNDS CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended October 31, 2000, 1999 and 1998

See accompanying notes to financial statements. 27 29 FAIR GROUNDS CORPORATION STATEMENTS OF CASH FLOWS

(Continued) 28 30 FAIR GROUNDS CORPORATION STATEMENTS OF CASH FLOWS (CONTINUED)

See accompanying notes to financial statements. 29 31 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business The Company conducts a live winter/spring race meet for thoroughbred horses and participates in inter-track wagering as a host track and as a receiving track. In addition, the Company currently operates five off-track betting facilities located in Southeast Louisiana, as well as a tele-track facility located at the Fair Grounds Race Course. Most of the Company's revenues and receivables are dependent on patrons of horse racing and other horse racing facilities and tele-tracks. This results in a concentration of risk and could be affected by regulations or economic conditions that impact the gaming industry. Basis of Consolidation The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiary, F. G. Staffing Services, Inc. All inter-company balances and transactions have been eliminated in consolidation. Uninsured Cash Deposits As of October 31, 2000 and 1999, the Company had deposits in various financial institutions in the aggregate of $10,263,924 and $8,622,684, respectively. In fiscal year 2000, $327,461 was FDIC insured and $9,483,301 was invested in U.S. Government Securities which are guaranteed by the Federal Government, but are not FDIC insured. The remaining deposits exceeded insured limits as of October 31, 2000 and 1999 by $453,157 and $429,267, respectively. Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and Cash Equivalents - Restricted As of October 31, 2000 and 1999, restricted cash totaled $131,068 and $125,665, respectively. The restricted cash is a security deposit for the Company's worker's compensation program. Inventory Inventory consists primarily of food and beverage items and is stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation is provided by the straight-line method. The estimated useful lives of the buildings range from 20 to 40 years. Lives of other depreciable assets range from approximately 3 to 20 years. For financial reporting purposes, 30 32 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) leasehold improvements are amortized over the lesser of the term of the related lease or the estimated useful life of the asset. Advertising Advertising costs are charged to operations when incurred. Accounts Receivable The Company has recorded accounts receivable from pari-mutuel wagering, video poker and other activities. The majority of these receivables is settled at least monthly and are considered fully collectable. Therefore, management does not consider an allowance for doubtful accounts to be necessary. Deferred Revenues Promotional fees and reserved seating deposits received by the Company are deferred and recognized as income over the duration of the racing meet. Fair Value Disclosures Financial Accounting Standards Board ("FASB") Statement No. 107, "Disclosure about Fair Value of Financial Instruments," is a part of a continuing process by the FASB to improve information on financial instruments. The following methods and assumptions were used by the Company in estimating its fair value disclosures for such financial instruments as defined by the Statement: Cash and Cash Equivalents -- The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Notes Payable -- The carrying amount of the Company's borrowings under its line of credit agreements and other long-term debt approximates fair value, based upon current interest rates. Uncashed Mutuel Tickets Holders of uncashed winning pari-mutuel tickets have until 90 days after the end of a given race meet to cash their winning tickets. Tickets that expire become revenues of the Company, up to a maximum of $250,000 per live or simulcasted race meet. Uncashed pari-mutuel tickets exceeding $250,000 per live or simulcasted race meet are remitted to the State of Louisiana. Income Taxes The Company records income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary 31 33 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. The most significant deferred taxes of the Company relates to the deferred tax gain as a result of the December 1993 fire as further discussed in Note 5. Deferred Purses Deferred purses include those amounts required by Louisiana law to be withheld from commissions, video poker revenues, or out-of-state host fees earned by a racing licensee and paid as purse supplements during the licensee's succeeding live racing meet. Net Income Per Share Net income per share is determined by dividing net income by the weighted average number of common shares outstanding during the period. Per share amounts were determined using 2,342.9 common shares outstanding. Use of Estimates Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were used. Reclassification Certain prior year accounts have been reclassified to conform to the current year presentation. This reclassification has no effect on the net income for the years ended October 31, 1999 and 1998. Reverse Stock Split On December 15, 2000, the Company effected a 1 for 200 reverse stock split. All share and per share data have been adjusted to reflect the reverse stock split for all periods reported. Fractional shares resulting from the reverse stock split are not reflected as being cashed out until after December 15, 2000. Restatement of 1998 Financial Statements The financial statements for the year ended October 31, 1998 have been restated to correct for an error in the calculation of deferred income taxes. The Company's Statement of Operations for the fiscal year ended October 31, 1998 erroneously reflected a benefit for income taxes of $3,364,232 and net income for fiscal 1998 of $8,973,671. The benefit for income taxes was primarily related to the insurance and litigation recoveries arising out of a fire at the Company's race track in 1993 and the reinvestment of those recoveries in the Company's new facilities. Had this error not occurred, 1998 net income would have been reduced by $3,016,759 ($1,276 per share), to $5,956,912 ($2,542 per share). Stockholders' equity at October 31, 1998 would have been $27,637,835 as compared to the previously reported amount of $30,654,594. The Company's financial statements as of October 31, 1998 have been restated to reflect this adjustment. 32 34 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 2 - STATEMENTS OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES Cash was paid during the following fiscal years for:

There were no noncash investing or financing activities for fiscal years ended October 31, 2000, 1999, and 1998. NOTE 3 - NOTES PAYABLE

In November 1999, the Company entered into a working capital line of credit agreement with First Bank and Trust for an initial term of one year. The term of the loan agreement has been extended to November 22, 2001. The line of credit is for $2.5 million with interest on amounts outstanding at Citibank N.A.'s prime rate less 0.5% per annum or LIBOR plus 2% from time to time in effect, as selected by the Company. No amounts had been drawn down on the line of credit as of October 31, 2000. 33 35 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 4 - INCOME TAXES The components of the income tax provision (benefit) are as follows:

Approximately $99,000, $1.5 million and $3.7 million of the deferred income tax provision is reported net of the extraordinary item - gain on fire on the Statement of Operations for the years ended October 31, 2000, 1999 and 1998, respectively. For the fiscal years ended October 31, 2000 and 1999, the tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities are presented below. There was no activity in the valuation allowance in fiscal years 2000 and 1999.

A reconciliation of the provision (benefit) for taxes on income at the Company's federal statutory income tax rate to the tax provision (benefit) for financial reporting purposes for fiscal years ending October 31, 2000, 1999 and 1998 is as follows: 34 36 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 4 - INCOME TAXES (CONTINUED)

As of October 31, 2000, the Company has recorded a non-current deferred tax liability totaling $9,280,520 as a result of the deferred gain on the fire for income tax purposes. The Company has reinvested all fire insurance and litigation proceeds into its new facilities within the allowable replacement period, therefore deferring the gain on the involuntary conversion. As a result, the Company has a difference between the book and tax bases of such facilities. This taxable difference will reverse with the scheduled depreciation of such assets over its remaining tax life. NOTE 5 - COMMITMENTS AND CONTINGENCIES The Company has been a party to a number of legal proceedings which arose as a result of the December 1993 fire that destroyed the Company's main clubhouse and grandstand building or in connection with the Company's efforts to collect insurance proceeds after the fire. The following is a brief description of fire-related proceedings and other litigation during the fiscal year ended October 31, 2000: Fire Related Litigation The following is a brief description of the Traveler's Litigation that arose as a result of the December 1993 fire and in connection with the Company's efforts to collect insurance proceeds after the fire and that was concluded during the first nine months of fiscal 2000: On May 14, 1994, the Company filed an action in the 24th Judicial Court in the State of Louisiana against Travelers Indemnity Company of Illinois ("Travelers") and others. The Company contended that the insurance policy provided by Travelers provided the Company with blanket coverage in the amount of $24.2 million in excess of the $10 million of underlying coverage, and, accordingly, that Travelers was liable for the difference between $24.2 million and the amount previously paid by Travelers (approximately $9.5 million), plus statutory penalties of 10% of the amount not paid, interest, attorney's fees and costs. The Company further contended that the insurance agent and the insurance broker who arranged for the insurance were liable to the Company for any damages sustained including any damages sustained because the amount of coverage was less than that claimed by the Company. Travelers' position was that its liability under such policy was limited to the amount which it had previously paid. In November 1996, the Company entered into a joint settlement with the insurance agent and broker, whereby the Company received a total of $10 million from those parties. The settlement agreement included a "Mary Carter" provision whereby the insurance agent and broker became entitled to share in certain recoveries that the Company might eventually obtain on its remaining claims against Travelers. The litigation against Traveler's was concluded in January 2000 and the Company was awarded an additional $327,147 in attorneys fees, and penalties and interest, which was paid by Traveler's. Under the Mary Carter provision, the Company was entitled to retain the full amount of such payment. This recovery of $206,103 (net of 35 37 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED) $121,044 of income taxes) is shown as an extraordinary item on the Company's Statement of Operations for the year ended October 31, 2000. Other Litigation In 1996, a suit was filed in U.S. District Court in Baton Rouge by Livingston Downs Racing Association ("Livingston") naming the Company and other defendants in an antitrust/civil RICO suit alleging the Company participated in a conspiracy to prevent the plaintiff from entering the live racing, off track betting and video poker markets. The Company filed a motion for summary judgment in late 1998 but that motion has not been decided by the U.S. District Court. Livingston had previously filed a series of other legal actions against the Company which were resolved in the Company's favor. Management believes that Livingston's claims in this case are without merit. However, there is no assurance that the Company will successfully defend all of Livingston's claims. Because the amount in question has not yet been determined but could be substantial and because there is no assurance that there will be insurance coverage or that it will be adequate, as discussed below, the failure of the Company to prevail in this lawsuit could have a material adverse effect on the Company's operations, financial condition and cash flows. In a declaratory judgment action related to the Livingston suit brought by insurers for the Company and several of its affiliates, which case has been consolidated with the suit filed by Livingston, on January 14, 1999 the U.S. District Court granted the Company's motion for summary judgment, finding that coverage exists under certain of the Company's insurance policies for claims asserted by Livingston and that the insurers have a duty to defend. The insurers have filed a motion for new trial that is pending in the U.S. District Court. There is no assurance that the motion for new trial will be denied or, if denied, that the decision of the U.S. District Court will be affirmed on appeal or that the insurance policies will provide sufficient coverage to indemnify the Company fully. A suit was filed in 1996 by the Louisiana Horsemen's Benevolent and Protective Association ("LHBPA"), an association of horsemen organized to promote the dissemination of information on issues critical to horsemen and the exchange of ideas and information, against the Company, the State of Louisiana, and all other pari-mutuel wagering facilities operating in Louisiana. The LHBPA is seeking a larger portion of video poker proceeds on the grounds that the State of Louisiana and the horse racing tracks in Louisiana have misinterpreted a Louisiana statute specifying the amount of revenues from video poker machines at pari-mutuel waging facilities that are to be used as purse supplements. A motion for summary judgment seeking dismissal of this action was filed in April 1999 and is pending before the court. On August 8, 2000, the court denied a motion for summary judgment filed by another pari-mutuel wagering facility. In the process of denying that motion, the court indicated that it appeared that the pari-mutuel wagering facilities were improperly deducting tax payments in calculating the amount of revenues to be used in determining purse supplements. Notwithstanding such indication by the court, management believes that the Company is in compliance with the Louisiana statute and the guidelines established by the Louisiana State Police Gaming Division, which regulates compliance with the State of Louisiana video poker law, and that the Company has sufficient defenses to all claims. However, there is no assurance that the Company will successfully defend the LHBPA's claims. Because the amount in question could be substantial, the failure by 36 38 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 5 - COMMITMENTS AND CONTINGENCIES (CONTINUED) the Company to prevail in this lawsuit could have a material adverse effect on the Company's operations, financial condition and cash flows. In November 2000 a civil action was filed in the Civil District Court for the Parish of Orleans, Louisiana by the owner of the facility that the Company leased for its Bourbon Street tele-track facility seeking damages for failure of the Company to restore the premises to its original condition on termination of the lease. Although the case has just recently been filed and discovery has not been completed, the Company believes that it has meritorious defenses to the claims asserted and intends to vigorously defend its position in the action. There is no assurance, however, that the case will not be decided adversely to the Company. The Company also has an accrued liability of $280,000 for contingent liabilities related to certain claims outstanding as of October 31, 2000. This amount has been reported as "Other Current Liability" in the October 31, 2000 Balance Sheet. Except as described above, there are no material pending legal proceedings, other than ordinary routine litigation incidental to its business, to which the Company is a party or of which any of its property is the subject. NOTE 6 - RELATED PARTY TRANSACTIONS In April 1996, Bryan G. Krantz purchased 1,698.02 shares of the Company's stock from a Trust which had previously acquired the shares from Marie G. Krantz. A promissory note was executed by Bryan G. Krantz in favor of the Trust for $9,984,358 with interest at 5.76% per year. The note is due in April 2005 and cannot be prepaid. The note is secured by a Stock Pledge Agreement in favor of the Trust executed by Bryan G. Krantz and Marie G. Krantz, in her capacity as Voting Trustee of a Voting Trust which at the time of such purchase, and throughout the period referred to herein, held such shares. In April 1998, Bryan G. Krantz transferred said 1,698.02 shares of the Company's common stock to Finish Line Management Corporation ("Finish Line"), together with all of his interest in the Voting Trust and the voting trust certificate issued by Marie G. Krantz, as Voting Trustee, representing a beneficial interest in 1,698.02 shares of the Company's common stock. Finish Line assumed Bryan G. Krantz's indebtedness to the Trust and agreed to be bound by the Stock Pledge Agreement. Bryan G. Krantz owns 100% of the capital stock of Finish Line, having acquired from Marie G. Krantz, as Voting Trustee, in March 1998 the 66.6% of the outstanding capital stock of Finish Line not theretofore owned by him. Accordingly, the transfer of the 1,698.02 shares of common stock from Bryan G. Krantz to Finish Line did not constitute a change in beneficial ownership of said 1,698.02 shares. Marie G. Krantz, Chairman of the Board of Directors and Treasurer of the Company, has voting control, as Voting Trustee, over the 1,698.02 shares of common stock of the Company (72.27% of the outstanding common stock of the Company) owned by Finish Line. 37 39 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED) In August 1992, the Company entered into a Management Agreement with Finish Line to operate five tele-track facilities previously operated by Jefferson Downs Corporation ("Jefferson Downs"), all of the capital stock of which is owned by Marie G. Krantz and Bryan G. Krantz, for a period of ten years, commencing November 1, 1992, with the option granted to Finish Line to extend the term of the Management Agreement for two additional five year periods. The Management Agreement provides that Finish Line is to have the exclusive responsibility for the direction, supervision, management and operation of such facilities, is to collect all monies from such operation and is to pay all expenses in connection therewith. The Company receives a monthly payment of 0.1% of the gross pari-mutuel handle at such facilities plus purse supplements, and Finish Line receives monthly compensation equal to the difference between the gross receipts collected at such facilities less all expenses (including the payment to the Company described herein) paid by Finish Line. In addition, Finish Line is to indemnify the Company for, among other things, all obligations under the leases assigned by Jefferson Downs to the Company. During the fiscal years ended October 31, 2000, 1999 and 1998, the Company received $68,021, $87,530, and $90,668, respectively, from Finish Line in accordance with the Management Agreement. Accounts receivable from Finish Line were $661,033 and $774,245 at October 31, 2000 and 1999, respectively. The following table reflects the host track fees and purse supplement receipts from Finish Line for the fiscal years ended October 31, 2000, 1999, and 1998.

Marie G. Krantz and Bryan G. Krantz each own 50% of the capital stock of Continental Advertising, Inc. ("Continental"). During the fiscal years ended October 31, 2000, 1999 and 1998, the Company made payments to Continental of $627,188, $628,365, and $502,000, respectively, to reimburse Continental for advertising expenses paid by it. Continental does not generate any net income and the Krantz's do not receive any form of compensation from it. As of October 31, 2000 and 1999, the Company was due amounts included in accounts receivable of $13,894 and $13,894 from Continental, respectively. In February 1992, the Company, Jefferson Downs and Finish Line entered into an agreement with Video Services, Inc. ("VSI"), whereby VSI was granted the exclusive right and license by the Company to install, maintain and operate video draw poker devices at the Fair Grounds Race Course, Jefferson Downs Race Course and at the tele-tracks then operated by the Company, Jefferson Downs and Finish Line. Such agreement was for an initial term of five years, with an option by VSI to extend the term for an additional five years, which option was exercised. The agreement provides that the Company is to receive a percentage of the revenues from the operation of the devices installed at the Company's facilities (not including the facilities operated for the Company by Finish Line). Such percentage is calculated on the basis of the average amount 38 40 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED) collected daily from each device during each month, after the payment of prizes, taxes and fees. One-half of the net revenues from such devices, after deduction of certain amounts, are required by state statute to be paid as purse supplements during the live racing meet. In addition, this agreement entitles the Company and Finish Line to share in a $270,000 annual promotional fee paid by VSI. In each of fiscal years 2000, 1999 and 1998, upon agreement of the Company and Finish Line, the Company received the total promotional fee of $270,000. Of this amount, $135,000 was set aside each year as purse supplements to be paid during the upcoming racing season. The video poker draw devices which have been installed and are to be installed by VSI remain the property of VSI. As of October 31, 2000, 1999 and 1998, there were a total of 335, and 337, 315 devices, respectively, in operation at all of the Company's facilities. In addition, there were a total of 335, and 345, 414 devices in operation at the Finish Line facilities as of October 31, 2000, 1999 and 1998, respectively. In March 1999, the Company, as approved by its Board of Directors, paid to Marie G. Krantz a guaranty fee in the amount of $988,789, which was computed on the basis of the Company's outstanding reconstruction indebtedness during the period set forth below, for her guaranty of, and pledge of personal assets to secure, the Company's reconstruction debt from 1995 through completion of construction in late 1997. NOTE 7 - LEASES The Company has various operating leases for the use of buildings and parking facilities to operate off-track betting facilities in Louisiana. The location, lease terms, and monthly payments are as follows:

39 41 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 7 - LEASES (CONTINUED) The tele-tracks formerly licensed to Jefferson Downs and now licensed to the Company are also leased; however, as described herein, Finish Line has agreed to indemnify the Company for, among other things, all obligations under the leases assigned by Jefferson Downs to the Company. Future obligations over the primary lease terms, not including renewal periods, of the Company's long-term leases as of October 31, 2000 are as follows:

The Company is party to an agreement with Autotote Limited to provide wagering services, including computer and all related services to carry out the totalisator function for the Company, until November 20, 2002. The Company pays Autotote Limited 0.0039% of the total on-track pari-mutuel handle, plus fixed equipment rental fees for certain equipment provided by Autotote. The minimum to be paid to Autotote Limited for each year of the agreement is $200,000. No estimates of future obligations under this agreement have been included in the above table. For the fiscal years ended October 31, 2000, 1999, and 1998, the Company incurred $200,000 in minimum rental fees and $729,900, $695,670 and $647,187, respectively, in equipment and contingent rental fees in connection with its agreement with Autotote Limited. Such rental fees were recorded as racing expenses - contracts and services. NOTE 8 - STOCK OPTIONS The Company has a stock option plan whereby all incentive stock options granted under the Plan are intended to qualify as incentive stock options under Section 422(b) of the Internal Revenue Code. Under the Plan, the option price per share must be at least equal to 100% of the fair market value per share of the common shares of the Company on the date of the grant. An aggregate of 100 common shares has been reserved for issue and may be granted up to February 28, 2001. No options were granted or exercised during fiscal years ended October 31, 2000, 1999 and 1998. No options were outstanding at October 31, 2000. NOTE 9 - DEFINED CONTRIBUTION PLAN The Company's 401(k) Plan is a defined contribution plan covering all full-time employees that have at least one year of service and are age twenty-one or older. Plan participants may contribute to the Plan, and the Company may make matching contributions subject to the provisions of the Employees Retirement Income Security Act. 40 42 FAIR GROUNDS CORPORATION NOTES TO FINANCIAL STATEMENTS For the Years Ended October 31, 2000, 1999 and 1998 NOTE 9 - DEFINED CONTRIBUTION PLAN (CONTINUED) The Company did not make any matching contributions to the Plan during the years ended October 31, 2000, 1999, and 1998. NOTE 10 - SUBSEQUENT EVENTS LaPlace Land Acquisition In November 2000, the Company acquired land located in St. John the Baptist Parish on which to construct a new location for the LaPlace, Louisiana tele-track. In January 2001, the Company's LaPlace tele-track lease was not renewed and the tele-track was moved into a temporary structure located on the newly acquired property. A temporary facility will be used until a permanent building can be constructed on the property. The temporary structure is being leased for approximately $9,000 a month over a twelve month lease term. Reverse Stock Split On November 28, 2000, the Company's shareholders approved a proposal to amend the Company's Articles of Incorporation to effect a reverse stock split of the Company's common shares. The amendment to the Articles of Incorporation became effective on December 15, 2000, and the reverse stock split was effected at a ratio of one new share for each 200 shares outstanding as of the December 15, 2000. As a result of the reverse stock split, the Company has fewer than 300 shareholders of record, and the Company has filed a Certification and Notice of Termination of Registration to deregister its common shares under the Securities Exchange Act of 1934. The deregistration of the Company's common shares will become effective March 29, 2001. The amendment to the Company's Articles of Incorporation provides that no fractional shares will be issued in connection with the reverse stock split, and that, in lieu thereof, the Company will pay to each shareholder of record on the effective date of the reverse stock split an amount in cash equal to $40.00 for each share held of record by such person immediately prior to the effectiveness of the reverse stock split that is not combined with other common shares held by such person to form one new common share of the Company. The Board estimates that the total cost to be incurred by the Company in connection with the reverse stock split for payment of cash in lieu of issuing fractional shares, including transactional expenses of approximately $190,000, will be approximately $1,265,000. The Company is financing the transaction from working capital and, if necessary, the Company's outstanding line of credit with First Bank and Trust. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 41 43 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following table shows each director of the Company, his or her age, present positions and offices with the Company, principal occupation and the name and principal business of the corporation or other organization in which such occupation has been carried on, the year he or she first became a director of the Company and directorships in certain other corporations, based upon information furnished to the Company by each director or otherwise available to the Company. Unless otherwise indicated, each director of the Company has engaged in the occupations stated below for at least the last five years. No family relationships exist between or among any director or executive officer of the Company, except that Bryan G. Krantz is the son of Marie G. Krantz.

42 44 The information relating to executive officers of the Company is set forth on page 12 of the Company's Annual Report on Form 10-K. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's directors, executive officers and holders of more than 10% of the common shares of the Company to file with the Securities and Exchange Commission (the "Commission") initial reports of ownership and reports of changes in ownership of common shares of the Company. Based upon a review of these filings and written representations from the applicable reporting persons, the Company believes that its directors and executive officers complied with all applicable Section 16(a) filing requirements during the fiscal year ended October 31, 2000, except that a Form 5 was not timely filed by Bryan G. Krantz to report two transactions. ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth certain information concerning the annual and long-term compensation for services in all capacities to the Company for the fiscal years ended October 31, 20000, October 31, 1999 and October 31, 1998 of the chief executive officer of the Company and of each other executive officer of the Company whose salary and bonus for the fiscal year ended October 31, 2000 exceeded $100,000. SUMMARY COMPENSATION TABLE

(1) Annual retainer paid to each director of the Company. DIRECTOR COMPENSATION The Company pays each director (including directors who are employees of the Company) a retainer of $3,600 annually, payable quarterly. 43 45 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information regarding the beneficial ownership of common shares of the Company, as of January 25, 2001, of (i) each person who, to the knowledge of the Company, owns beneficially more than 5% of the outstanding common shares of the Company, (ii) each director, (iii) each executive officer of the Company listed in the Summary Compensation Table and (iv) all directors and executive officers of the Company as a group. The information set forth in the following table is based upon statements filed by such persons with the Commission and information otherwise available to the Company. Unless otherwise indicated, each person has sole voting and investment power of the common shares of the Company beneficially owned by him or her.

* Less than 1% of Class. (a) The percentage of class beneficially owned has been computed on the basis of 2,194 common shares outstanding on January 25, 2001. (b) Bryan G. Krantz is the beneficial owner of the following common shares of the Company: 1,700 common shares held by Marie G. Krantz as Voting Trustee under the Voting Trust Agreement described below, constituting 77.48% of the common shares outstanding and 6 common shares held jointly by him and his wife, constituting less than 1% of the common shares outstanding. Finish Line Management Corporation ("Finish Line"), all the outstanding capital stock of which is beneficially owned by Mr. Krantz, holds the Voting Trust certificate respecting 1,698 common shares in the Voting Trust, and Mr. Krantz holds the Voting Trust certificate respecting 2 common shares in the Voting Trust. Mr. Krantz, as a director, executive officer and the beneficial owner of all of the outstanding capital stock of Finish Line, may be deemed to share with Ms. Krantz the power to dispose or direct the disposition of 1,698 common shares held by Ms. Krantz as Voting Trustee, the Voting Trust certificate with respect to which is held by Finish Line. In addition, Mr. Krantz has the sole power to dispose or direct the disposition of 2 common shares held by Ms. Krantz as Voting Trustee, the Voting Trust certificate with respect to which is held by him and shares with his wife the power to vote or direct the vote and to dispose or direct the disposition of the 6 common shares held jointly with her. Mr. Krantz's address is 1751 Gentilly Boulevard, New Orleans, Louisiana 70119. 44 46 (c) Marie G. Krantz is the beneficial owner of 3 common shares of the Company held directly by her, constituting less than 1% of the common shares outstanding, and she may be deemed to be the beneficial owner of the 1,700 common shares held by her as Voting Trustee under the Voting Trust Agreement described below, constituting 77.48% of the common shares outstanding. In her capacity as Voting Trustee, Ms. Krantz has the sole power to vote or direct the vote of the 1,700 common shares held by her as Voting Trustee, and, as a director and executive officer of Finish Line, she may be deemed to share with Bryan G. Krantz the power to dispose or direct the disposition of 1,698 common shares held by her as Voting Trustee, the Voting Trust certificate with respect to which is held by Finish Line. She also has the sole power to vote or direct the vote and the sole power to dispose or direct the disposition of the 3 common shares held by her directly. The Voting Trust Agreement, pursuant to which Mr. Krantz and Richard Katcher, as Trustee of the Masoni Trust, are grantors and Ms. Krantz is Voting Trustee, provides that title to the 1,700 common shares is vested in Ms. Krantz as Voting Trustee during the term of the Voting Trust and that in such capacity she may exercise all rights of a holder of common shares of the Company, including the right to vote such common shares; however, the common shares which are subject to the Voting Trust Agreement may not be transferred, sold, assigned or otherwise disposed of by Ms. Krantz during the term of the Voting Trust, other than in connection with any corporate event or action which affects common shares other than the common shares subject to the Voting Trust Agreement. The Voting Trust Agreement, which was entered into in 1993, is for an initial term of 15 years, is irrevocable during its term, and is to survive the death of the grantors thereunder. It may be extended for an additional ten years at the written request of such grantors. The 1,698 common shares as to which Mr. Krantz and Ms. Krantz may be deemed to share the power to dispose or direct the disposition and which are held by the Voting Trust are pledged, along with the Voting Trust certificate issued by the Voting Trust with respect to said 1,698 common shares, to Richard Katcher, as Trustee of the Masoni Trust, as security for the payment of a promissory note made and delivered by Mr. Krantz in April 1996, and later assumed by Finish Line. A default in the payment of said note could result in the Masoni Trust acquiring control of the Company. Ms. Krantz's address is 1751 Gentilly Boulevard, New Orleans, Louisiana 70119. (d) Bryan G. Krantz and Marie G. Krantz, who together are the beneficial owners of an aggregate of 1,709 common shares, constituting approximately 77.89% of the common shares outstanding, have reported to the Commission that they constitute a "group" within the meaning of section 13(d)(3) of the Exchange Act. By virtue of their beneficial ownership of common shares of the Company and the matters set forth in filings made by them under Section 13(d) of the Exchange Act, Ms. Krantz and Mr. Krantz may be deemed to be controlling persons of the Company. (e) See notes (b) - (d) above. The number of common shares shown as beneficially owned includes any directors qualifying shares held by each director and nominee for election as a director. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. In 1992, the Company entered into a Management Agreement (the "Management Agreement") with Finish Line Management Corporation ("Finish Line"). The Management Agreement provides that Finish Line is to operate the Company's tele-track facilities in Terrebonne, St. Tammany and Jefferson Parishes, Louisiana, which were formerly owned by Jefferson Downs, for a period of ten years, commencing November 1, 1992, with the option granted to Finish Line to extend the term of the Management Agreement for two additional five-year periods. The Management Agreement provides that Finish Line is to have the exclusive responsibility for the direction, supervision, management and operation of such facilities, is to collect all monies from such operation and is to pay all expenses in connection therewith. Pursuant to the Management Agreement, the Company receives 0.1% of the gross pari-mutuel 45 47 handle at such facilities, and Finish Line receives monthly compensation equal to the difference between the gross receipts collected at such facilities less all expenses (including the payment to the Company described above) paid by Finish Line. In addition, Finish Line is to indemnify the Company for, among other things, all obligations under the leases assigned by Jefferson Downs to the Company. During the fiscal year ended October 31, 2000, Finish Line paid the Company $68,021 under the Management Agreement, host track fees of $281,601 and purse supplements of $5,139,992. As of October 31, 2000, the Company had accounts receivable from Finish Line in the aggregate amount of $661,033. The Company has received, and expects to continue receiving, payments pursuant to the Agreement during the current fiscal year. The Company, Jefferson Downs and Finish Line are parties to an agreement with Video Services, Inc. ("VSI") whereby VSI has the exclusive right and license to install, maintain and operate video draw poker devices at the Fair Grounds Race Course and at the tele-tracks operated by the Company and Finish Line. The initial term of the Agreement, which was entered into in 1992, was five years, with an option by VSI to extend the term for an additional five years, which option has been exercised. Pursuant to such agreement, the Company receives a percentage of the revenues from the operation of the devices installed at the Company's facilities. Such percentage is calculated on the basis of the average amount collected daily from each device during each month, after the payment of prizes, taxes and fees. The devices installed by VSI pursuant to such agreement remain the property of VSI. As of October 31, 2000, there were a total of 335 devices in operation at all of the Company's facilities (excluding the tele-tracks operated for the Company by Finish Line) and 335 devices in operation at facilities managed by Finish Line, including the facilities formerly owned by Jefferson Downs. In fiscal 2000, the Company received gross video poker revenue of $2,911,599, including amounts to be paid as purse supplements totaling $1,241,047. In addition, such agreement provides that the Company, Jefferson Downs and Finish Line are entitled to receive an annual promotional allowance from VSI in the aggregate amount of $270,000, which for the fiscal year ended October 31, 2000 was paid in full to the Company, with one-half of said amount set aside for purse supplements. The agreement also provides for advances annually from VSI against future revenues of up to $1 million in the aggregate to the Company, Jefferson Downs and Finish Line. The Company received all of such advance during the year ended October 31, 2000 and has also received such an advance during the current fiscal year. The Company anticipates that it will continue to receive revenues pursuant to the agreement with VSI for the remaining term of that agreement. Marie G. Krantz is a director, the President and the owner of 66 2/3% of the outstanding common stock, and Bryan Krantz is a director, Vice President and the owner of 33 1/3% of the outstanding common stock, of Jefferson Downs. Ms. Krantz is a director and executive officer, and Mr. Krantz is a director, executive officer and the beneficial owner of all of the outstanding common stock, of Finish Line. By virtue of such positions and ownership and their positions with and relationship with such entities, the Company, Finish Line and Jefferson Downs may be deemed to be affiliates. Ms. Krantz and Mr. Krantz each own 50% of the outstanding common stock of Continental Advertising, Inc. ("Continental"), an advertising agency which provided advertising services to the Company during the last fiscal year and is continuing to provide advertising 46 48 services to the Company during the current fiscal year. During the 2000 fiscal year, the Company made payments to Continental of $627,188 to reimburse it for Company advertising expenses paid by it. As of October 31, 2000, the Company was due $13,894 from Continental. No commission or any other form of compensation is paid to the Krantzes for advertising services rendered to the Company by Continental. The Board of Directors believes that the terms of such arrangement are no less favorable to the Company than terms that would be available from unrelated third parties for comparable transactions. From time to time, persons who are officers, directors or principal shareholders of the Company own or have interests in horses racing at the Company's race track. Such races are conducted under the rules and regulations of the Louisiana Racing Commission, and no officer, director or principal shareholder receives any extra or special benefits not shared by all others so racing. 47 49 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following audited financial statements are included in Part II, Item 8:

48 50 9 * Voting Trust Agreement dated as of August 31, 1993, by and among Bryan G. Krantz and Richard Katcher, Trustee, as grantors, and Marie G. Krantz as Voting Trustee (incorporated herein by reference to Exhibit 2 to Amendment No. 3 to Schedule 13D filed by such persons on October 13, 1993). 10.1 * Net Commercial Lease Agreement dated November 10, 1988, between Pelican Homestead and Savings Association and Fair Grounds Corporation (incorporated herein by reference to Exhibit (10)(e) to the Form 10-K of the Company for the fiscal year ended October 31, 1989). 10.2 * Lease of Commercial Property dated February 1, 1989, between Mereaux and Nunez, Inc. and Fair Grounds Corporation (incorporated herein by reference to Exhibit (10)(f) to the Form 10-K of the Company for the fiscal year ended October 31, 1989). 10.3 * Lease Agreement dated March 8, 1989, between Richard F. Keyworth and Fair Grounds Corporation (incorporated herein by reference to Exhibit (10)(g) to the Form 10-K of the Company for the fiscal year ended October 31, 1989). 10.4 * Fair Grounds Corporation Stock Option Plan (incorporated herein by reference to Appendix A to the definitive Information Statement of the Company dated February 26, 1991). 10.5 * Commercial Lease Agreement dated April 1, 1991 between Blake's Superette, Inc. and Fair Grounds Corporation (incorporated herein by reference to Exhibit (10)(m) to the Form 10-K of the Company for the fiscal year ended October 31, 1991, filed on January 29, 1992). 10.6 * Lease Agreement dated November 21, 1991 between Jefferson Downs Corporation and Fair Grounds Corporation (incorporated herein by reference to Exhibit (10)(n) to the Form 10-K of the Company for the fiscal year ended October 31, 1991, filed on January 29, 1992). 10.7 * Management Agreement by and between Finish Line Management Corp. and Fair Grounds Corporation, dated October 9, 1992. (Incorporated herein by reference to Exhibit (10)(q) to the Form 10-K of the Company for the fiscal year ended October 31, 1992, filed on February 15, 1993.)

49 51 10.8 * Agreement dated February 28, 1992, by and between Video Services, Inc., Fair Grounds Corporation, Jefferson Downs Corporation and Finish Line Management Corp. (Incorporated herein by reference to Exhibit (10)(t) to the Form 10-K of the Company for the fiscal year ended October 31, 1992, filed on February 15, 1993.) 10.9 * Lease Agreement dated August 1, 1995 between Fair Grounds Corporation and Robert J. and Iris Ann Saia. (Incorporated herein by reference to Exhibit 10.9 to the Form 10-K of the Company for the fiscal year ended October 31, 1998, filed on February 11, 1999.)

* Incorporated herein by reference as indicated. 50 52 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. FAIR GROUNDS CORPORATION By: /s/ Bryan G. Krantz --------------------------------- Bryan G. Krantz, President Date: January 29, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

51 53 DIRECTORS: /s/ Richard Katcher ------------------------------- Richard Katcher Director January 29, 2001 /s/ Marie G. Krantz ------------------------------ Marie G. Krantz Director and Chairman of the Board January 29, 2001 /s/ Bryan G. Krantz ------------------------------ Bryan G. Krantz Director and President January 29, 2001 /s/ Ronald J. Maestri ------------------------------ Ronald J. Maestri Director January 29, 2001 /s/ Charmaine R. Morel ------------------------------ Charmaine R. Morel Director January 29, 2001 /s/ Wayne E. Thomas ------------------------------ Wayne E. Thomas Director January 29, 2001

FAIR GROUNDS CORP 10-K