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As filed with the Securities and Exchange Commission on January 14, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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MI ENTERTAINMENT CORP.
(Exact name of Registrant as specified in its charter)
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Delaware 7999 98-0208374
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
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285 West Huntington Drive
Arcadia, California 90017
(626) 574-7233
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Frank De Marco, Jr.
285 West Huntington Drive
Arcadia, California 90017
(626) 574-7233
(Address, including zip code, and telephone number, including area code, of
agent for service)
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Copies to:
SCOTT M. FREEMAN
Sidley & Austin 875 Third Avenue New York, NY 10022 (212) 906-2000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed maximum
Proposed maximum aggregate Amount of
Title of each class Amount to be offering price offering registration
of securities to be registered registered per share(1) price fee
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<S> <C> <C> <C> <C>
Class A Subordinate Voting
Stock........................ Up to 17,700,000 shares(2) $6.90 $122,130,000 $32,242.32
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</TABLE>
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(2) Consisting of approximately 15,700,000 shares to be distributed in
connection with the partial spin-off of the registrant by Magna
International Inc. and approximately 2,000,000 shares to be offered by
certain of the registrant's shareholders.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
EXPLANATORY NOTE
The Registration Statement covers three distributions of the registrant's
Class A Subordinate Voting Stock:
. the distribution of such shares by Magna International Inc., to holders
of its Class A Subordinate Voting Shares and Class B Shares by way of
special dividend (the "Spin-Off Distribution");
. the distribution on a delayed or continuous basis of such shares upon
the redemption or exchange of certain exchangeable shares of a Canadian
subsidiary of the registrant to be distributed by Magna to certain of
its Canadian shareholders as part of the special dividend referred to
above (the "Redemption Distribution"); and
. the distribution on a delayed or continuous basis of such shares by
certain of the registrant's shareholders (the "Selling Shareholders
Distribution").
The Registration Statement contains two forms of prospectus: one to be used
in connection with the Spin-Off Distribution and Selling Shareholders
Distribution in the United States (the "U.S. Distribution") and one to be used
concurrently in connection with the Spin-Off Distribution and the Redemption
Distribution in Canada (the "Canadian Distribution"). The U.S. Prospectus and
Canadian Prospectus are identical except for the front cover page and certain
other pages, and except that the Canadian Propectus includes a "Certificate of
the Company and Promoter" and "Certificate of MI Venture (Canada) Inc." The
form of the U.S. Prospectus is included herein and is followed by the front
cover page and such other pages and certificates to be used in the Canadian
Prospectus. Each of the alternate pages for the Canadian Prospectus included
herein is labeled "Alternate Page for Canadian Prospectus".
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (SUBJECT TO COMPLETION)
DATED JANUARY 14, 2000
MI ENTERTAINMENT CORP.
Class A Subordinate Voting Stock
-----------
This prospectus relates to the distribution of approximately 20% of our
current equity in the form of shares of our Class A Subordinate Voting Stock.
On or about . , our parent company, Magna International Inc., will distribute
to holders of its Class A Subordinate Voting Shares and Class B Shares of
record on . , by way of special dividend, a total of approximately 15.7
million shares comprised of our Class A Subordinate Voting Stock and the
Exchangeable Shares described below. As a result of the special dividend, Magna
shareholders will receive, subject to certain withholding requirements in
respect of shareholders not resident in Canada, one-fifth of one share of our
Class A Subordinate Voting Stock for every one Class A Subordinate Voting Share
or Class B Share of Magna that they hold on the record date. Subject to certain
withholding requirements in respect of shareholders not resident in Canada,
Magna will concurrently distribute to those holders its regular quarterly cash
dividend of $ . per share. In this prospectus, we refer to the special
dividend and concurrent regular quarterly cash dividend as the distribution. If
you are a holder of record of Magna Class A Subordinate Voting Shares or Magna
Class B Shares on the record date, you will receive shares of our Class A
Subordinate Voting Stock automatically on the distribution date. If you are the
beneficial owner of Magna Class A Subordinate Voting Shares or Class B Shares,
you will automatically become the beneficial owner of our Class A Subordinate
Voting Stock received by the record holder of your Magna Class A Subordinate
Voting Shares or Class B Shares on the distribution date, unless you have
specifically agreed otherwise with the record holder. Magna shareholders
resident in Canada will, unless they elect otherwise, receive shares of our
Canadian subsidiary, MI Venture (Canada) Inc., in satisfaction of their
entitlement to receive shares of our Class A Subordinate Voting Stock. These
shares are exchangeable at any time for, and are intended to be economically
equivalent to, shares of our Class A Subordinate Voting Stock. We refer to
these shares as Exchangeable Shares, and we refer to our Canadian subsidiary
that will issue them as Exchangeco.
Our capital stock consists of two classes--Class A Subordinate Voting Stock
and Class B Stock. Holders of our Class A Subordinate Voting Stock are entitled
to one vote per share, holders of our Class B Stock are entitled to 20 votes
per share and all holders vote together as a single class, except where
separate class votes are required by law or by our Certificate of
Incorporation. Upon completion of the distribution, Magna will own all our
Class B Stock and certain Exchangeable Shares, but none of our Class A
Subordinate Voting Stock, which means that Magna will be entitled to exercise
approximately 99% of the total votes attached to all our outstanding stock.
Magna will therefore continue to be able to elect all our directors and
continue to control us.
We have applied to The Nasdaq Stock Market, Inc. to approve our Class A
Subordinate Voting Stock for quotation and trading on the Nasdaq National
Market under the symbol " . ". We have also applied for approval to list our
Class A Subordinate Voting Stock on The Toronto Stock Exchange under the symbol
" . " and will apply for approval to list the Exchangeable Shares under the
symbol " . ". Magna has advised us that it will not complete the distribution
until we receive these approvals.
IN REVIEWING THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE MATTERS
AFFECTING OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND THE VALUE OF
SHARES OF OUR CLASS A SUBORDINATE VOTING STOCK AND THE EXCHANGEABLE SHARES THAT
THIS PROSPECTUS DESCRIBES IN DETAIL UNDER THE HEADING "RISK FACTORS" BEGINNING
ON PAGE 16.
STOCKHOLDER APPROVAL IS NOT REQUIRED FOR THE DISTRIBUTION OR ANY OF THE OTHER
TRANSACTIONS THAT THIS PROSPECTUS DESCRIBES. WE ARE NOT ASKING YOU FOR A PROXY
AND WE REQUEST THAT YOU NOT SEND ONE TO US.
This prospectus is not an offer to sell or solicitation of an offer to buy
any securities. The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is . . Information contained herein is subject
to completion or amendment.
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TABLE OF CONTENTS
<TABLE>
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Heading Page No.
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Special Note Regarding Forward-Looking Information................... 2
Questions and Answers About the Distribution......................... 3
Summary.............................................................. 8
Risk Factors......................................................... 16
Distributing Company................................................. 23
The Special Dividend................................................. 23
Our Business......................................................... 26
Our Strategy......................................................... 33
Industry Overview.................................................... 35
Selected Financial and Operating Information......................... 39
Management's Discussion and Analysis of Financial Condition and
Operating Results................................................... 41
Quantitative and Qualitative Disclosures About Market Risk........... 51
Consolidated Capitalization.......................................... 52
Reorganization....................................................... 53
Recent Acquisitions.................................................. 56
Certain Income Tax Considerations.................................... 57
Directors and Executive Officers..................................... 65
Security Ownership of Certain Beneficial Owners and Management....... 68
Certain Relationships and Related Transactions....................... 69
Legal Proceedings.................................................... 70
Trading History and Dividend Record and Policy....................... 71
Description of Our Securities........................................ 71
Description of Exchangeable Shares................................... 74
Selling Stockholders................................................. 80
Plan of Distribution................................................. 81
Legal Matters........................................................ 81
Auditors, Transfer Agent and Registrar............................... 82
Promoter............................................................. 82
Financial Statements................................................. F-1
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included herein constitute "forward-looking statements"
within the meaning of the United States Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on certain assumptions
and analyses made by us in light of our experience and our perception of
historical trends, current conditions and expected future developments as well
as other factors we believe are appropriate in the circumstances. However,
whether actual results and developments will conform with our expectations and
predictions is subject to a number of risks and uncertainties, including but
not limited to those described below under "Risk Factors". Consequently, all
the forward-looking statements made in this prospectus are fully qualified by
this special note, and there can be no assurance that the actual results or
developments anticipated by us will be realized, or even if realized, that they
will have the expected consequences to, or effects on, us. See "Risk Factors"
below.
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QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION
Q: WHAT IS THE PURPOSE OF THE DISTRIBUTION?
A: Magna International Inc. is separating its non-automotive businesses from
its automotive businesses in a series of transactions. Magna has completed a
reorganization in which it transferred its North American and European non-
automotive assets to us in exchange for our Class B Stock. Magna also holds
Exchangeable Shares. On or about . , Magna will distribute to holders of
its Class A Subordinate Voting Shares and Class B Shares of record on . ,
by way of special dividend, approximately 15.7 million shares comprised of
our Class A Subordinate Voting Stock and Exchangeable Shares. Subject to
certain withholding requirements in respect of shareholders not resident in
Canada, Magna will concurrently distribute to its shareholders its regular
quarterly cash dividend of $ . per share of Magna. Magna will not continue
to hold any of our Class A Subordinate Voting Stock, but may continue to
hold Exchangeable Shares.
Upon completion of these transactions, you will own stock in two separately
traded public companies, Magna International Inc. (NYSE: MGA; TSE: MG.A,
MG.B) and either MI Entertainment Corp. (NASDAQ: . ; TSE: . ) or
Exchangeco (TSE: . ).
Q: WHAT WILL I RECEIVE WHEN THE SPECIAL DIVIDEND IS DISTRIBUTED?
A: Subject to certain withholding requirements in respect of shareholders not
resident in Canada, you will receive one-fifth of one share of our Class A
Subordinate Voting Stock for every one of Magna's Class A Subordinate Voting
Shares and Magna's Class B Shares that you own of record on . , rounded
down to the nearest whole share, plus an amount of cash equal to the value
of any fractional interest. If you are a Magna shareholder resident in
Canada, you will, unless you elect otherwise, receive one-fifth of one
Exchangeable Share for every one of Magna's Class A Subordinate Voting
Shares and Magna's Class B Shares that you own of record on . , rounded
down to the nearest whole share, plus an amount of cash equal to the value
of any fractional interest. The distribution will not change the number of
Class A Subordinate Voting Shares or Class B Shares of Magna that you own.
Q: WHAT WILL YOUR BUSINESS BE AFTER THE DISTRIBUTION?
A: We will continue to acquire, develop and operate horse racetracks and
related pari-mutuel wagering operations. As a complement to our horse racing
business, we will explore the development of media sports wagering
operations, including telephone account, interactive television and
Internet-based wagering, as well as certain leisure and retail-based real
estate projects on the excess land around certain of our racetracks,
possibly in conjunction with business partners and subject to regulatory
requirements. In addition, we will continue to own a real estate portfolio
which includes a "gated" residential community currently under development,
one operational golf course and related recreational facilities, a golf
course under development and other real estate. We are currently considering
a variety of options with respect to such golf courses, including direct
operation or leasing to third party operators, as well as sale and leaseback
transactions or outright sale. We intend gradually to sell the balance of
our real estate portfolio in order to provide capital to be used in our
business; accordingly, we will take steps such as servicing such land and
obtaining zoning approval to enhance the value of such properties and
increase the revenues from resale.
Q: WHAT WILL MAGNA'S BUSINESS BE AFTER THE DISTRIBUTION?
A: Magna will continue to be the largest Canadian, and one of the largest
global, independent suppliers of technologically advanced automotive
components, systems and complete modules. Magna will continue to design,
engineer and manufacture a complete range of these vehicle systems and
engineer and assemble low volume niche vehicles primarily for North American
and European original equipment manufacturers.
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Q: WHY IS MAGNA DISTRIBUTING SHARES OF YOUR CLASS A SUBORDINATE VOTING STOCK?
A: Magna's board of directors and management has determined that, because our
business is not one of Magna's core businesses, we and Magna will be better
able to develop and grow our respective businesses after we become a
separate public company.
Q: WHAT WILL BE THE IMPACT OF THE DISTRIBUTION ON MAGNA'S SHARE PRICE?
A: The prices of Magna Class A Subordinate Voting Shares and Magna Class B
Shares may decline upon completion of the distribution to the extent that
the value of shares of our Class A Subordinate Voting Stock and the
Exchangeable Shares that Magna is distributing to its shareholders has not
already been factored into the prices of Magna's shares. However, since the
separation will permit Magna to focus on its core automotive business, Magna
has advised us that its management expects prices of Magna's shares to
improve gradually over a period of time.
Q: WHAT DO I HAVE TO DO TO PARTICIPATE IN THE DISTRIBUTION?
A: If you are a registered or beneficial shareholder of Magna resident in the
United States, you do not need to do anything to participate in the
distribution. No proxy or vote is required to participate in the
distribution. You do not need to, and should not, mail in any certificates
representing Magna Class A Subordinate Voting Shares or Magna Class B Shares
in order to receive our Class A Subordinate Voting Stock in the
distribution. If you are a registered or beneficial shareholder of Magna
resident in Canada and you wish to receive Exchangeable Shares you do not
need to do anything to participate in the distribution. If you are a
registered shareholder of Magna resident in Canada and you do not wish to
receive Exchangeable Shares instead of shares of our Class A Subordinate
Voting Stock, please let Magna know by following the instructions for doing
so enclosed with this prospectus no later than . , 2000. If you are a
beneficial shareholder of Magna resident in Canada and you do not wish to
receive Exchangeable Shares instead of Class A Subordinate Voting Stock, you
should advise the registered holder of your Magna shares no later than . ,
2000.
Q: HOW WILL MAGNA DISTRIBUTE YOUR CLASS A SUBORDINATE VOTING STOCK TO ME?
A: If you are a registered holder of Magna Class A Subordinate Voting Shares or
Magna Class B Shares as of the close of business on the record date for the
distribution, Magna's distribution agent will automatically credit the
number of shares of our Class A Subordinate Voting Stock or Exchangeable
Shares to a book-entry account established to hold such stock for you,
subject to certain withholding requirements in respect of shareholders not
resident in Canada. This credit will occur on the distribution date. After
the distribution date, the distribution agent will mail you a statement of
your ownership of our Class A Subordinate Voting Stock or the Exchangeable
Shares. Following the distribution, you may retain your shares of our Class
A Subordinate Voting Stock or the Exchangeable Shares in your book-entry
account, sell them or transfer them to a brokerage or other account.
You will not receive any new stock certificates in the distribution. However,
if you are a registered holder, you may request a physical stock certificate
after you receive the statement of ownership of our Class A Subordinate
Voting Stock or the Exchangeable Shares from the distribution agent. The
statement of ownership will contain instructions on how to do this.
Q: WHAT IF I HOLD MY MAGNA SHARES THROUGH MY STOCKBROKER, A BANK OR OTHER
NOMINEE?
A: If you hold your Magna Class A Subordinate Voting Shares or Magna Class B
Shares through a stockbroker, bank or other nominee, you are probably not a
registered shareholder of record and the
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manner in which you receive our Class A Subordinate Voting Stock or the
Exchangeable Shares depends on your arrangements with the stockbroker, bank
or other nominee that holds your Magna Class A Subordinate Voting Shares or
Magna Class B Shares for you. We expect that stockbrokers and banks
generally will credit their customers' accounts with our stock on or after
the distribution date, but you will have to confirm that with your
stockbroker, bank or other nominee.
After the distribution, you may instruct your stockbroker, bank or other
nominee, subject to any arrangement you may have with that person, to
transfer your Class A Subordinate Voting Stock or Exchangeable Shares into
your own name to be held in book-entry form.
Q: WHAT ABOUT FRACTIONAL SHARES?
A: If you are the registered holder of a number of Magna Class A Subordinate
Voting Shares or Magna Class B Shares not evenly divisible by five, you
will receive cash equal to the fair market value (as determined by Magna)
of the fractional share of our Class A Subordinate Voting Stock or the
Exchangeable Shares you would have otherwise been entitled to receive in
addition to any whole shares of such Class A Subordinate Voting Stock or
Exchangeable Shares you are entitled to receive. Magna will determine the
fair market value of such fractional shares on the basis of the 10-day
weighted average trading price of our Class A Subordinate Voting Stock in
the "if, as and when issued" market prior to the distribution date.
Q: ON WHICH STOCK EXCHANGE WILL SHARES OF YOUR CLASS A SUBORDINATE VOTING
STOCK AND THE EXCHANGEABLE SHARES TRADE?
A: We have applied to The Nasdaq Stock Market, Inc. to approve our Class A
Subordinate Voting Stock for quotation and listing on the Nasdaq National
Market ("NASDAQ") under the trading symbol " . ". In addition, we have also
applied for approval to list our Class A Subordinate Voting Stock on The
Toronto Stock Exchange (the "TSE") under the trading symbol " . " and will
apply for approval to list the Exchangeable Shares under the symbol " . ".
Magna has advised us that it will not complete the distribution until we
receive these approvals.
Q: WHEN WILL I BE ABLE TO BUY AND SELL YOUR CLASS A SUBORDINATE VOTING STOCK
AND THE EXCHANGEABLE SHARES?
A: Regular trading of our Class A Subordinate Voting Stock is expected to
begin on NASDAQ and the TSE on the distribution date. Prior to that, our
Class A Subordinate Voting Stock is expected to trade on NASDAQ on an if,
as and when issued basis, beginning on the date that is two trading days
before the record date. Regular trading of the Exchangeable Shares is
expected to begin on the TSE on the distribution date. The Exchangeable
Shares and our Class A Subordinate Voting Stock will not trade on an if, as
and when issued basis on the TSE.
Q: HOW WILL I BE ABLE TO BUY AND SELL MAGNA CLASS A SUBORDINATE VOTING SHARES
BEFORE THE DISTRIBUTION DATE?
A: Magna has advised us that its Class A Subordinate Voting Shares will
continue to trade on The New York Stock Exchange (the "NYSE") on a regular
basis through the distribution date and that its Class A Subordinate Voting
Shares and Class B Shares will trade on the TSE on an "ex-dividend" basis
beginning on the date that is two trading days before the record date. Any
Magna Class A Subordinate Voting Share sold on a regular basis on the NYSE
beginning on the date that is two trading days before the record date and
ending on the distribution date (i.e., between . and . ) will be
accompanied by an attached "due bill" representing your shares of our Class
A Subordinate Voting Stock to be distributed in the distribution.
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Q: WILL MY DIVIDENDS CHANGE AS A RESULT OF THE DISTRIBUTION?
A: Before the distribution, Magna was paying a quarterly dividend of $0.25 per
Magna Class A Subordinate Voting Share and Magna Class B Share, which is
equivalent to an annual rate of $1.00 per Magna Class A Subordinate Voting
Share and Magna Class B Share. The board of directors of Magna will be
responsible for determining Magna's dividend rate and policy after the
distribution, subject to the terms of Magna's Corporate Constitution.
We do not anticipate paying any dividends until our fiscal year commencing
January 1, 2004. Our Corporate Constitution, which is set forth in our
Certificate of Incorporation, provides that holders of our Class A
Subordinate Voting Stock and Class B Stock will be entitled to receive
dividends at least equal to 10% of our after-tax profits for our fiscal
years commencing January 1, 2004 and 2005. In respect of each fiscal year
thereafter, holders of our Class A Subordinate Voting Stock and Class B
Stock will be entitled to receive dividends at least equal to the greater of
(i) 10% of our after-tax profits, and (ii) 20% of the average of our after-
tax profits for such fiscal year and the two immediately preceding fiscal
years. Our board of directors will be responsible for determining our
dividend rate and policy after the distribution, subject to the terms of our
Corporate Constitution.
Q: WILL I BE TAXED AS A RESULT OF THE DISTRIBUTION?
A: Yes. The distribution of shares of our Class A Subordinate Voting Stock will
be treated as a taxable dividend for purposes of Canadian and United States
federal income taxation. Canadian resident shareholders will be subject to
tax on the fair market value of the distribution (which will include the
fair market value of the shares of our Class A Subordinate Voting Stock or
Exchangeable Shares, as the case may be, the amount of cash in lieu of
fractional shares and the amount of the regular quarterly cash dividend).
Accordingly, Canadian resident shareholders may be liable for tax under the
Income Tax Act (Canada) without having received a cash payment sufficient to
satisfy that tax liability.
The distribution paid to non-residents of Canada will be subject to
Canadian withholding tax on its fair market value, at the time the
distribution is paid. If you are a United States resident shareholder of
Magna, the rate of Canadian withholding tax should generally be 15%, which,
subject to certain limitations, may be claimed as a credit or deduction on
your United States income tax return. This withholding tax will be
satisfied by Magna withholding the required amount from the regular
quarterly cash dividend and, if necessary, withholding some portion of the
shares of our Class A Subordinate Voting Stock otherwise distributable.
Q: WHAT WILL THE RELATIONSHIP BETWEEN YOU AND MAGNA BE AFTER THE DISTRIBUTION?
A: Upon completion of the distribution, Magna will own all our Class B Stock
(and none of our Class A Subordinate Voting Stock), which means that Magna
will be entitled to exercise approximately 99% of the total votes attached
to all our outstanding stock. Magna will therefore continue to be able to
elect all our directors and continue to control us. Magna has informed us
that it intends to convert some shares of our Class B Stock to shares of our
Class A Subordinate Voting Stock and dispose of such shares of our Class A
Subordinate Voting Stock when market conditions for doing so are favorable,
with the ultimate intention of retaining only a minority equity position.
This may occur through a combination of: (i) secondary sales by Magna of
such stock held by it; and/or (ii) the dilution of its interest through the
issuance of Class A Subordinate Voting Stock by us in connection with
capital market transactions, acquisitions and/or other investments by
business partners in us.
Magna has made a commitment to its shareholders that for a period of seven
years ending May 31, 2006, it will not without the prior consent of the
holders of a majority of Magna's Class A Subordinate Voting
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Shares: (i) make any further debt or equity investment in us or any of our
subsidiaries; or (ii) invest in any non-automotive-related businesses or
assets other than through its investment in us.
Magna is currently paying us an access fee to access our Fontana Sports
golf course and related recreational facilities for Magna-sponsored
corporate and charitable events and business development purposes. Upon
completion of our Aurora Downs golf course, Magna will pay us an annual
access fee for similar purposes. We have also granted Magna a right of
first refusal to purchase these two golf courses if we decide to sell them.
Q: WHY ARE YOU OFFERING CANADIAN SHAREHOLDERS THE ALTERNATIVE OF RECEIVING
EXCHANGEABLE SHARES OF YOUR CANADIAN SUBSIDIARY?
A: Certain Canadian resident shareholders of Magna are subject to restrictions
on their ability to hold "foreign property" under the Income Tax Act
(Canada), and may not wish to receive such shares in the distribution. By
providing Canadian holders with the alternative of receiving Exchangeable
Shares issued by one of our Canadian subsidiaries, they will have the
opportunity of receiving shares of a Canadian issuer that are not "foreign
property" under the Income Tax Act (Canada), provided the Exchangeable
Shares are listed on a prescribed stock exchange in Canada, which includes
the TSE. The Exchangeable Shares, together with ancillary rights, are
intended to be economically equivalent to shares of our Class A Subordinate
Voting Stock. If not previously converted by the holders, such Exchangeable
Shares may be redeemed by Exchangeco for an equal number of shares of our
Class A Subordinate Voting Stock on October 1, 2001 (or earlier in certain
circumstances) unless extended by us.
Q: WHOM SHOULD I CONTACT FOR FURTHER INFORMATION ON THE DISTRIBUTION?
A: If you have questions about the distribution or if you would like
additional copies of this prospectus or any other document to which this
prospectus refers, you should contact the Secretary of Magna at 337 Magna
Drive, Aurora, Ontario, Canada L4G 7K1, telephone: (905) 726-2462. This
prospectus is also available through the Internet on the Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system, which can be accessed at
www.sec.gov/edgarhp.htm for U.S. shareholders, and on the System for
Electronic Document Analysis and Retrieval (SEDAR), which can be accessed
at www.sedar.com for Canadian shareholders.
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SUMMARY
The following information is a summary only and is qualified in its entirety
by reference to, and must be read in conjunction with, the detailed information
and financial statements appearing elsewhere in this prospectus. In this
prospectus, all references to "dollars", "$" or "U.S.$" are to United States
dollars and references to "Cdn.$" or "Canadian dollars" are to Canadian
dollars.
The Company
We acquire, develop and operate horse racetracks and related pari-mutuel
wagering operations. As a complement to our horse racing business, we are
exploring the development of media sports wagering operations, including
telephone account, interactive television and Internet-based wagering, as well
as certain leisure and retail-based real estate projects on the excess land
around certain of our racetracks, possibly in conjunction with business
partners and subject to regulatory requirements. In addition, we own a real
estate portfolio which includes a "gated" residential community currently under
development, one operational golf course and related recreational facilities, a
golf course under development and other real estate. We are currently
considering a variety of options with respect to such golf courses, including
direct operation or leasing to third party operators, as well as sale and
leaseback transactions or outright sale. We intend gradually to sell the
balance of our real estate portfolio in order to provide capital to be used in
our business; accordingly, we will take steps such as servicing such land and
obtaining zoning approval to enhance the value of such properties and increase
the revenues from resale.
Pari-mutuel wagering on horse racing is pooled betting in which individuals
bet against each other as to what the outcome of a horse race will be. The
applicable racetrack operator has no interest in the order of finish in any
given race and therefore has no risk in the outcome. A percentage of the pooled
wagers is retained by the operator of the wagering facility, a portion is paid
to the applicable regulatory or taxing authorities and a portion is paid to the
racetrack's horsemen in the form of "purses" which encourage owners and
trainers to enter their horses in that track's live races. The balance of the
pooled wagers is paid to bettors as winnings. Pari-mutuel wagering on horse
racing occurs at horse racetracks on the races being conducted at such tracks
as well as at such racetracks on televised racing signals ("simulcasts")
received or "imported" by the simulcast wagering facilities located at such
tracks (collectively, "on-track wagering"). Pari-mutuel wagering on horse
racing also occurs at wagering establishments on horse races being conducted at
tracks elsewhere ("off-track wagering"). Horse racetracks generally have
simulcast wagering facilities to complement their live horse racing by enabling
their patrons to wager on horse races being held at other racetracks when there
is no live racing occurring at their tracks.
We operate five horse racetracks and have entered into a definitive
agreement to acquire one further racetrack. Each of these racetracks includes a
facility that accepts wagers on races conducted at other racetracks, the live
television broadcasts (or "simulcasts") of which are shown at our facilities.
We also broadcast, or "export", simulcasts of our races to a number of
locations across the United States, Canada, Mexico, the Caribbean region and
Australia. Our horse racing and related wagering operations include Santa Anita
Park near Los Angeles, California, Gulfstream Park near Miami, Florida, Golden
Gate Fields near San Francisco, California, Thistledown Racetrack near
Cleveland, Ohio and Remington Park in Oklahoma City. We also own San Luis Rey
Downs, a horse training track located outside of San Diego, California. We have
acquired all these racetracks since December 1998. We have also entered into a
definitive agreement to buy the assets of Great Lakes Downs racetrack in
Muskegon, Michigan, subject to obtaining the necessary regulatory and other
approvals. We expect to complete this acquisition in January 2000.
We own and operate some of the premier horse racing facilities in North
America and one of the horse racing industry's best simulcast products. For
example, Santa Anita Park has hosted the Breeders' Cup
8
<PAGE>
Championship twice since the inception of the Breeders' Cup in 1984 and
Gulfstream Park has hosted it three times, the most recent being on November 6,
1999. Furthermore, by many standard industry measures such as total "handle"
(or total amount wagered), average daily attendance, average daily handle,
average daily on-track handle and average daily off-track handle, we believe
that Santa Anita Park and Gulfstream Park are two of the top ten racetracks in
North America. With the recent acquisition of Golden Gate Fields, we believe
that we own and operate three of the top ten racetracks in North America in
terms of total handle. See "Our Business".
Our Strategy
There are four related components of our corporate strategy: (1) continuing
our consolidation of racetracks and enhancing the facilities at some of these
racetracks; (2) "bundling", or combining, our simulcast horse racing products
and marketing the signal under our own brand name; (3) leveraging our
competitive position in the horse racing industry and, ultimately, our brand
name, in expanding our distribution channels and range of sports wagering
products; and (4) developing total entertainment destinations centered on some
of our racetracks.
1. Continuing our consolidation and enhancement of racetracks--Through our
acquisitions of Santa Anita Park, Gulfstream Park, Golden Gate Fields,
Thistledown Racetrack and Remington Park, and the acquisition of Great Lakes
Downs currently in progress, we have become one of the leading consolidators
of premier horse racetracks in North America. Being an industry consolidator
means that we have acquired multiple racetracks with the objective of
maximizing administrative and cost efficiencies at those tracks. We expect
to acquire other high-quality, geographically diverse racetracks which would
increase the number of racing days we offer, distribute the races we offer
over more days in each year, expand our simulcasting content and enhance the
value of our simulcast product. In addition we have made certain
enhancements to the facilities at some of our racetracks and are also
examining further upgrades at some of our racetracks which are intended to
increase live attendance, strengthen our ability to consistently attract
some of the top horses, trainers and jockeys in North America, increase the
market for our simulcast product, improve racing conditions and help to
generate additional revenues.
2. Bundling our simulcast horse racing products and marketing the signal under
our own brand name--As a result of our racetrack consolidation strategy, we
believe that we offer one of horse racing's leading simulcast products and
we expect our position to strengthen further through future acquisitions.
The 1999 racing schedule of our racetracks consisted of 293 race days and
the 2000 racing schedule of our racetracks will consist of approximately 326
race days broadcast from six racetracks including three of the top ten U.S.
racetracks, in terms of total "handle" or total amount wagered. Over the
next few years, we intend to "bundle", or combine, the signals from our
racetracks, and possibly also signals from racetracks not owned by us, and
market this bundled simulcast product through a single signal marketed under
our own brand name.
3. Using our competitive position in the horse racing industry and our brand
name in expanding our distribution channels and range of sports wagering
products--We intend to use our competitive position in the horse racing
industry and build on the brand name recognition we expect to develop, in
order to expand the distribution channels for our simulcast product and,
ultimately, expand the range of sports wagering products we offer, possibly
in conjunction with business partners and subject to regulatory
requirements. As part of our strategy, we intend to increase the market for
our existing simulcast product by establishing telephone account,
interactive television and Internet-based wagering operations as
distribution channels for our simulcast product. We also intend to explore
the expansion of our sports wagering products to sports other than horse
racing, both in North America and in Europe, subject to regulatory
requirements.
9
<PAGE>
4. Developing total entertainment destinations centered on some of our
racetracks--We are considering developing leisure and retail-based real
estate development projects on the excess land around some of our
racetracks, possibly in conjunction with business partners. Such
developments could include multiplex theaters, retail shopping, restaurants,
hotels and entertainment themed developments and may involve the integration
of other gaming options.
See "Our Strategy" below for a more detailed discussion of our strategy.
There are a number of risks inherent in our strategy, which will take at least
several years to implement fully. See "Risk Factors" for a discussion of these
and other risks.
The Distribution
The following is a brief description of the principal terms of the
distribution.
Distributing Company.... Magna will make the distribution of shares of our
Class A Subordinate Voting Stock and the Exchangeable
Shares to holders of its Class A Subordinate Voting
Shares and Class B Shares. The Class A Subordinate
Voting Shares of Magna trade on the NYSE under the
symbol "MGA" and on the TSE under the symbol "MG.A".
The Class B Shares of Magna trade on the TSE under
the symbol "MG.B".
Reasons for the Special
Dividend................
The board of directors and management of our parent
company, Magna, have determined that it is in the
best interests of its shareholders to separate our
non-automotive assets and operations from Magna's
automotive assets and operations by distributing our
Class A Subordinate Voting Stock and Exchangeable
Shares to Magna's shareholders by way of a special
dividend. Magna has advised us that, in reaching its
decision, its board of directors and management
considered a number of factors, including that:
. the separation will permit Magna to focus on its
core automotive business;
. the separation will permit investors to choose
whether to invest in the automotive industry by
retaining or purchasing Magna shares, invest in
the sports gaming industry by retaining or
purchasing our stock, or both;
. establishing our business as a separately traded
public company will enable us to respond better to
the opportunities and challenges of the sports
gaming industry;
. in light of Magna's commitment to its shareholders
not to make any further debt or equity investment
in us or any of our subsidiaries for a period of
seven years ending May 31, 2006, establishing our
business as a separately traded public company
will facilitate our future access to capital and
will allow us to acquire further racetracks
through the issuance of our publicly-traded stock;
and
. as a public company, we will be better able to
develop profit-based compensation programs for our
management and employees.
10
<PAGE>
Securities and Cash to
be Distributed..........
On or about . , Magna will distribute to holders of
its Class A Subordinate Voting Shares and Class B
Shares of record on . , approximately 15.7 million
shares comprised of our Class A Subordinate Voting
Stock and Exchangeable Shares. Subject to certain
withholding requirements in respect of shareholders
not resident in Canada Magna will concurrently
distribute to those holders its regular quarterly
cash dividend of $ . per Magna share. Canadian
shareholders will be entitled to receive Exchangeable
Shares in satisfaction of their right to receive
shares of our Class A Subordinate Voting Stock, and
will be deemed to have elected this alternative
unless they notify Magna (or the registered
shareholder, in the case of shares held beneficially
and not of record) of their desire to the contrary.
Distribution Ratio...... You will receive one-fifth of one share of our Class
A Subordinate Voting Stock or Exchangeable Share for
each Magna Class A Subordinate Voting Share or Magna
Class B Share that you own of record as of the close
of business on the record date, provided that no
fractional interests are to be distributed to any
shareholder of record. If you are the registered
holder of a number of Magna Class A Subordinate
Voting Shares or Magna Class B Shares not evenly
divisible by five, you will receive cash equal to the
fair market value (as determined by Magna) of the
fractional share of our Class A Subordinate Voting
Stock you would have otherwise been entitled to
receive in addition to any whole shares of Class A
Subordinate Voting Stock you are entitled to receive.
Record Date............. . (5:00 p.m., New York time).
Distribution Date....... . (4:59 p.m., New York time). On the distribution
date, Magna's distribution agent will credit the
whole shares of our Class A Subordinate Voting Stock
or Exchangeable Shares that you receive in the
distribution to your new book-entry account or to
your stockbroker, bank or other nominee if you are
not a registered holder of record, but are a
beneficial owner, of Magna Class A Subordinate Voting
Shares or Magna Class B Shares on the record date.
Distribution Agent...... Before the distribution, Magna will appoint Montreal
Trust Company of Canada as its distribution agent for
the distribution.
Trading Market and There has been no market for our Class A Subordinate
Symbol.................. Voting Stock or the Exchangeable Shares. We have
applied to NASDAQ to approve our Class A Subordinate
Voting Stock for quotation and trading under the
symbol " . ". We have also applied for approval to
list our Class A Subordinate Voting Stock on the TSE
under the symbol " . " and will apply for approval to
list the Exchangeable Shares under the symbol " . ".
Magna has advised us that it will not complete the
distribution until we receive these approvals.
Certain Income Tax
Considerations..........
You should carefully read the information under the
heading "Certain Income Tax Considerations" which
qualifies the information set out below.
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<PAGE>
Canadian residents: The distribution will be treated
for Canadian tax purposes as a taxable dividend
received from a taxable Canadian corporation. The
amount of the dividend will be the fair market value
of the Class A Subordinate Voting Stock or
Exchangeable Shares, as the case may be, at the time
the distribution is made, the amount of cash in lieu
of fractional shares and the amount of the regular
quarterly cash dividend. Magna will make a
determination of such fair market value as of the
distribution date.
Accordingly, Canadian resident shareholders may be
liable for tax under the Income Tax Act (Canada)
without having received a cash payment sufficient to
satisfy that tax liability. If a shareholder sells
Class A Subordinate Voting Stock or Exchangeable
Shares, as the case may be, in order to satisfy such
liability, there is no assurance that the shareholder
will realize the price per share at which the Class A
Subordinate Voting Stock or Exchangeable Shares, as
the case may be, are valued for the purposes of
calculating the amount of the special dividend for
tax purposes.
Non-residents of Canada: The distribution will be
treated as a dividend for Canadian and United States
federal income tax purposes. A non-resident of Canada
who receives the distribution will be subject to
Canadian withholding tax at a rate of 25% on the fair
market value of the special distribution and 25% of
the cash dividend at the time the distribution is
paid, subject to reduction by an applicable tax
treaty, which, in the case of the Canada-United
States Income Tax Convention, generally results in a
reduction to 15%, which amount, subject to certain
limitations, may be claimed as a credit or deduction
on your United States federal income tax return. Such
withholding tax liability will be satisfied by Magna
withholding the appropriate amount from the
concurrent Magna quarterly cash dividend otherwise
payable and, if necessary, withholding some portion
of the shares of our Class A Subordinate Voting Stock
otherwise distributable.
Physical Share If you are a registered holder of Magna Class A
Certificate............. Subordinate Voting Shares or Magna Class B Shares,
you may request a physical stock certificate for the
shares of our Class A Subordinate Voting Stock or
Exchangeable Shares that you receive in the
distribution after you receive your statement of
stock ownership from the distribution agent.
Risk Factors............ You should carefully consider the matters discussed
under the heading "Risk Factors" beginning on page 16
of this prospectus.
Relationship with Magna
After the
Distribution............
Upon completion of the distribution, Magna will own
all our Class B Stock and certain Exchangeable
Shares, but none of our Class A Subordinate Voting
Stock, which means that Magna will be entitled to
exercise approximately 99% of the total votes
attached to all our outstanding stock. Magna will
therefore continue to be able to elect all our
directors and continue to control us. Magna has
informed us that it
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<PAGE>
intends to convert some shares of our Class B Stock
to shares of our Class A Subordinate Voting Stock and
dispose of such shares of our Class A Subordinate
Voting Stock when market conditions for doing so are
favorable, with the ultimate intention of retaining
only a minority equity position. This may occur
through a combination of: (i) secondary sales by
Magna of such stock held by it; and/or (ii) the
dilution of its interest through the issuance of
Class A Subordinate Voting Stock by us in connection
with capital market transactions, acquisitions and/or
other investments by business partners in us.
Magna has made a commitment to its shareholders that
for a period of seven years ending May 31, 2006, it
will not without the prior consent of the holders of
a majority of Magna's Class A Subordinate Voting
Shares: (i) make any further debt or equity
investment in us or any of our subsidiaries; or (ii)
invest in any non-automotive-related businesses or
assets other than through its investment in us.
Magna is currently paying us an access fee to access
our Fontana Sports golf course and related
recreational facilities for Magna-sponsored corporate
and charitable events and business development
purposes. Upon completion of our Aurora Downs golf
course, Magna will pay us an annual access fee for
similar purposes. We have also granted Magna a right
of first refusal to purchase these two golf courses
if we decide to sell them.
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<PAGE>
Selected Financial and Operating Information
The following table sets forth certain of our consolidated and pro forma
consolidated financial data as at and for the periods indicated. The selected
consolidated financial data as at and for the nine months ended September 30,
1999 have been derived from our Unaudited Consolidated Financial Statements as
at and for the nine months ended September 30, 1999, which, in the opinion of
management, include all adjustments (consisting of normal recurring accruals)
necessary to present fairly the information set forth therein. Results for the
nine months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the full year. The selected consolidated
financial data as at and for the three years ended July 31, 1998 and the
five month period ended December 31, 1998 have been derived from and should be
read in conjunction with our Audited Consolidated Financial Statements for the
three-year period ended July 31, 1998 and the five-month period ended December
31, 1998. The pro forma selected consolidated financial data for the year ended
December 31, 1998 and nine months ended September 30, 1999 have been derived
from and should be read in conjunction with our Pro Forma Consolidated
Financial Statements as at and for the nine months ended September 30, 1999 and
the year ended December 31, 1998. The selected financial and operating
information should also be read in conjunction with the section entitled
"Management's Discussion and Analysis of Financial Condition and Operating
Results" included in this prospectus.
Income Statement Data(1)
<TABLE>
<CAPTION>
Pro Forma
Nine Months Pro Forma Nine Months Five Months
Ended Year Ended Ended Ended Years Ended July 31,
September 30, December 31, September 30, December 31, ------------------------------------------
1999 1998 1999 1998 1998 1997 1996 1995 1994
------------- ------------ ------------- ------------ ------- ------- ------- ------- ------
(in thousands of U.S. dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Racetrack............ $127,584 $149,585 $58,954 $ 3,952 $ -- $ -- $ -- $ -- $ --
Real estate.......... 12,167 21,239 12,167 6,597 20,486 15,276 2,460 1,166 121
-------- -------- ------- ------- ------- ------- ------- ------- ------
Total revenue........ 139,751 170,824 71,121 10,549 20,486 15,276 2,460 1,166 121
Costs and Expenses
Racetrack costs and
expenses............ 98,451 126,278 46,292 3,625 -- -- -- -- --
Real estate costs and
expenses............ 12,496 27,355 12,496 8,462 25,864 13,879 4,613 2,713 277
Depreciation and
amortization........ 12,912 18,852 4,676 1,649 1,852 1,824 330 21 22
Interest expense
(income), net....... 717 1,615 264 1,221 1,380 955 (59) (26) 156
-------- -------- ------- ------- ------- ------- ------- ------- ------
Income (loss) before
income taxes........ 15,175 (3,276) 7,393 (4,408) (8,610) (1,382) (2,424) (1,542) (334)
======== ======== ======= ======= ======= ======= ======= ======= ======
Net income (loss).... $ 7,621 $ (5,739) $ 3,000 $(4,231) $(8,610) $(1,382) $(2,424) $(1,542) (334)
======== ======== ======= ======= ======= ======= ======= ======= ======
Earnings (loss) per
share of Class A
Subordinate Voting,
Class B and
Exchangeable Stock
Basic and
diluted(2).......... $ 0.10 $ (0.07) $ 0.04 $ (0.05) $ (0.11) $ (0.02) $ (0.03) $ (0.02) $(0.00)
======== ======== ======= ======= ======= ======= ======= ======= ======
Average number of
shares Class A
Subordinate Voting,
Class B and
Exchangeable Stock
outstanding during
the period
(in thousands):
Basic and
diluted(2).......... 80,198 80,198 78,535 78,535 78,535 78,535 78,535 78,535 78,535
======== ======== ======= ======= ======= ======= ======= ======= ======
</TABLE>
- --------
(1) We prepare our financial statements in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP") which differ in certain
respects from accounting principles generally accepted in Canada ("Canadian
GAAP"). For a discussion of the principal
14
<PAGE>
differences between U.S. GAAP and Canadian GAAP, see Note 15, "Canadian
Generally Accepted Accounting Principles", to our Audited Consolidated
Financial Statements.
(2) On December 30, 1999, Magna completed the reorganization described in this
prospectus. As part of the reorganization, our capital structure was
established creating Class A Subordinate Voting Stock with one vote per
share and Class B Stock with 20 votes per share. As of December 30, 1999,
63,712,141 shares of our Class B Stock, 1,662,890 shares of our Class A
Subordinate Voting Stock and 14,823,187 Exchangeable Shares were issued and
outstanding. Our historical basic and diluted earnings (loss) per share has
been calculated assuming that 78,535,328 shares of our Class B Stock and
Exchangeable Shares and none of our Class A Subordinate Voting Stock were
issued and outstanding at the beginning of the periods presented. Our pro
forma basic and diluted earnings (loss) per share has been calculated
assuming that 63,712,141 shares of our Class B Stock, plus 14,823,187
Exchangeable Shares exchangeable into 14,823,187 shares of our Class A
Stock and 1,662,890 shares of our Class A Subordinate Voting Stock (issued
in connection with the acquisitions of the Thistledown and Golden Gate
Fields racetracks) were issued and outstanding at the beginning of the
periods presented.
Balance Sheet Data(1)
<TABLE>
<CAPTION>
Pro Forma July 31,
September 30, September 30, December 31, -----------------------------------------
1999 1999 1998 1998 1997 1996 1995 1994
------------- ------------- ------------ -------- -------- ------- ------- -------
(in thousands of U.S. dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............. $ 63,158 $ 23,544 $ 17,503 $ 295 $ 220 $ 133 $ 521 $ 1,338
Note receivable from
Magna................... -- 146,862 -- -- -- -- -- --
Total assets............. 736,716 693,455 364,142 184,802 113,175 76,219 51,636 28,770
Total debt(2)............ 47,423 65,333 32,335 19,495 18,938 22,614 12 --
Magna's net
investment/shareholder's
equity.................. 553,570 545,888 302,502 158,275 87,917 49,985 48,166 27,226
</TABLE>
- --------
(1) We prepare our financial statements in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP") which differ in certain
respects from accounting principles generally accepted in Canada ("Canadian
GAAP"). For a discussion of the principal differences between U.S. GAAP and
Canadian GAAP, see Note 15, "Canadian Generally Accepted Accounting
Principles", to our Audited Consolidated Financial Statements.
(2) Total debt includes Bank indebtedness, Long-term debt (including Long-term
debt due within one year) and Note payable to Magna.
The matters discussed under the heading "Reorganization" below may
materially affect the comparability of some of the foregoing selected financial
data. Accordingly, please refer to such section for details of the terms of the
Reorganization.
15
<PAGE>
RISK FACTORS
In reviewing this prospectus, you should carefully consider the following
factors. The most significant risks and uncertainties we face are described
below, but other risks and uncertainties that are not known to us or that we
currently believe are not material or that are similar to those faced by other
companies in our industry may also have a material adverse effect on our
financial condition or results of operations. In addition, our actual results
could differ materially from those anticipated in forward-looking statements
contained in this prospectus as a result of various risks, including those
discussed below and elsewhere in this prospectus. Please refer to "Special Note
Regarding Forward-Looking Information" on page 2 of this prospectus.
If any of the following risks actually occur, our business, financial
condition and results of operations could be materially and adversely affected.
In this case, the trading price of shares of our Class A Subordinate Voting
Stock and the Exchangeable Shares could decline substantially, and you may lose
all or part of the value of the shares of our Class A Subordinate Voting Stock
or the Exchangeable Shares being distributed to you.
General risks regarding our business
We have a history of losses and we anticipate losses in the near future on
certain of the racetracks we are in the process of acquiring
We have experienced cumulative consolidated net losses since inception
totaling approximately $14.8 million for periods up to September 30, 1999.
Certain of the racetracks we have acquired or are in the process of acquiring
have historically operated at a loss and may do so in the future.
We have not been in existence for long and do not plan to pay dividends
until fiscal year 2004, if at all
We have only recently been incorporated and we have a very short history of
operations and earnings. See "Selected Financial and Operating Information" and
our Pro Forma Consolidated Financial Statements and Consolidated Financial
Statements, together with the notes thereto, appearing elsewhere in this
prospectus. We have not paid any dividends to date, we do not plan to pay any
dividends until our fiscal year commencing January 1, 2004 and we cannot give
any assurance that we will be in a position to pay dividends then, or
thereafter. See "Description of Our Securities--Corporate Constitution".
We depend on our new members of senior management and other key personnel
We will be highly dependent on the services of members of our senior
management, most of whom have only recently been hired by us and therefore have
not established a track record of working together successfully. We also depend
on the local management of our racetracks and other operating units. The loss
of the services of any of these individuals could have a material adverse
effect on our business, financial condition and results of operations.
Our stock price may be volatile
Shares of our Class A Subordinate Voting Stock and the Exchangeable Shares
have not previously traded. The price of shares of our Class A Subordinate
Voting Stock and the Exchangeable Shares may be volatile in the future,
particularly shortly after the distribution, when some of Magna's institutional
shareholders may sell their holdings of our stock because they:
. are prohibited from investing in a company with a significantly smaller
market capitalization;
. cannot hold stock of a gaming company; or
. do not want to hold our stock for any other reason.
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<PAGE>
In addition, the following factors may have a significant effect on the
market price of our Class A Subordinate Voting Stock and Exchangeable Shares:
fluctuations in our operating profits; the announcement of new wagering and
gaming opportunities by us or our competitors; the passage of legislation
affecting horse racing or gaming; developments affecting the horse racing or
gaming industries generally; sales of substantial amounts of our Class A
Subordinate Voting Stock or Exchangeable Shares; and sales by Magna of our
Class A Subordinate Voting Stock held by it, as a result of its stated
intention to reduce its majority equity position in us. Moreover, publicly-held
horse racing and gaming companies have experienced price and trading volume
fluctuations that are often unrelated to such companies' financial condition
and results of operations. A shift away from investor interest in gaming
companies in general could have a material adverse effect on the market price
of our Class A Subordinate Voting Stock and the Exchangeable Shares, regardless
of our financial condition and results of operations.
We may not be able to obtain financing or may only be able to obtain it on
unfavorable terms
We may require additional financing in order to expand our operations. It is
possible that such financing will not be available or, if available, will not
be available on terms which are favorable to us. In addition, Magna has made a
commitment to its shareholders that it will not, for a period of seven years
ending May 31, 2006, without the prior consent of the holders of a majority of
Magna's Class A Subordinate Voting Shares, make any further debt or equity
investment in us or any of our subsidiaries. See "Certain Relationships and
Related Transactions--Relationship with Magna".
Our relationship with Magna is not at "arm's length"
Our relationship with Magna is not at arm's length. Upon completion of the
distribution, Magna will own all our Class B Stock and certain Exchangeable
Shares, but none of our Class A Subordinate Voting Stock which means that Magna
will be entitled to exercise approximately 99% of the total votes attached to
all our outstanding stock. Magna will therefore continue to be able to elect
all our directors and will continue to control us. Therefore, Magna will
continue to be able to cause us to effect certain corporate transactions
without your consent, subject to applicable law. In addition, Magna will
continue to be able to cause or prevent a change in our control. In some cases,
the interests of Magna may not be the same as those of other stockholders, and
conflicts of interest may arise after the completion of the distribution that
may be resolved in a manner detrimental to us.
For example, Magna has entered into arrangements with us so as to ensure
their access to the Fontana Sports and Aurora Downs golf courses and related
recreational facilities in return for an agreed upon fee. These access
arrangements are scheduled to expire five years after their effective dates.
These arrangements may not be renewed by Magna after their expiration or could
be amended or terminated prematurely by Magna. The early termination, amendment
or non-renewal of these access arrangements could have a material adverse
effect on our financial condition and results of operations. We have also
granted Magna a right of first refusal to purchase these golf courses if we
decide to sell them. We are currently considering a variety of options with
respect to such golf courses, including direct operation or leasing to third
party operators, as well as sale and leaseback transactions (which would
require that Magna not exercise its right of first refusal) or outright sale.
Gaming Risks
Our gaming activities are extensively regulated and this could adversely
affect our growth prospects
Our existing live racing, pari-mutuel wagering and other operations are
contingent upon the continued governmental approval of such operations as forms
of legalized gaming. All our current and proposed operations are subject to
extensive regulations which are described in more detail under "Industry
Overview--Key Characteristics of the Industry--Government Regulation", and
could be subjected at any time to additional or more restrictive regulations,
or banned entirely.
17
<PAGE>
As of the date of this prospectus, we have obtained all governmental
licenses, registrations, permits and approvals necessary for the operation of
our gaming facilities. However, we may be unable to maintain our existing
licenses. The loss of our licenses, registrations, permits or approvals may
materially limit the number of races we conduct and could have a material
adverse effect on our financial condition and results of operations. In
addition, we currently devote significant financial and management resources to
complying with the various governmental regulations to which our operations are
subject. Any significant increase in governmental regulation could materially
adversely affect our financial condition and results of operations.
Moreover, any future expansion of our gaming operations will likely require
additional licenses, registrations, permits and approvals. The licensing
process can be both lengthy and costly and there is no assurance of success.
For example, we recently entered into an agreement to acquire the assets of
Great Lakes Downs. This acquisition is subject to a number of regulatory
proceedings, including licensing approvals from the Office of the Racing
Commissioner of the Michigan Department of Agriculture. Although we anticipate
obtaining all required regulatory approvals in late January 2000, we cannot
assure you that all such regulatory approvals will be obtained and therefore
that this acquisition will be successfully completed.
The high degree of regulation in the gaming industry is a significant
obstacle to our growth strategy, especially with respect to telephone account,
interactive television and Internet-based sports betting. Telephone account and
interactive television-based betting from home may currently be conducted only
through "hubs" located in eight states (although the Los Angeles County
District Attorney has recently challenged the ability of California residents
to conduct account wagering through such hubs). Our expansion opportunities in
this area may be limited unless more states change their laws to permit
telephone account and interactive television-based betting. Wagering over the
Internet is also subject to extensive legal restriction. The United States
Congress is currently considering enacting the Internet Gambling Prohibition
Act, also known as the "Kyl Bill", which would amend the Interstate Wire Act to
make it clear that persons engaged in the United States in the business of
betting or wagering through the Internet as well as casual bettors who
knowingly use a communication facility for betting or gambling over the
Internet can be fined or imprisoned. Internet service providers would be
required to block-out gambling sites and would be subject to state and federal
authority. The Kyl Bill would permit telephone account, interactive television
and Internet-based account wagering on horse racing, but not other sports. A
similar piece of legislation was recently introduced in the House of
Representatives by Rep. Bob Goodlatte (R. Va.). We cannot predict the final
disposition of either such piece of legislation.
Implementation of some of the recommendations of the National Gambling
Impact Study Commission could adversely affect our growth prospects and the
gambling industry in general
In August 1996, the United States Congress established the National Gambling
Impact Study Commission (the "NGISC") to conduct a comprehensive study of the
social and economic effects of the gambling industry in the United States, to
review existing federal, state and local policy and practices with respect to
the legalization or prohibition of gambling activities, to formulate and
propose changes in such policies and practices and to recommend legislation and
administrative actions for such changes. The NGISC issued its report containing
its findings and conclusions, together with recommendations for legislation and
administrative actions, on June 18, 1999. Some of the recommendations issued by
the NGISC include:
. prohibiting Internet gambling which is not already authorized within the
United States or among parties in the United States and any foreign
jurisdiction;
. limiting the expansion of gambling into homes through such mediums as
account wagering;
. banning betting on collegiate and amateur athletic events where
currently legal; and
. refusing the introduction of casino-style gambling into pari-mutuel
facilities for the primary purpose of saving a pari-mutuel facility that
the market has determined no longer serves the community or for the
purpose of competing with other forms of gaming.
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The recommendations made by the NGISC could result in the enactment of new
laws and/or the adoption of new regulations which would materially adversely
impact the gambling industry in general and thus would materially adversely
affect our growth prospects. We are unable at this time to determine the
ultimate disposition of the NGISC's recommendations.
We face significant competition from operators of other racetracks and
other forms of gaming
We face significant competition in each of the jurisdictions in which we
have gaming operations and this competition is expected to intensify as new
gaming operators enter our markets and existing competitors expand their
operations and consolidate management of multiple racetracks. Several of our
competitors, including Churchill Downs Inc., have substantially greater name
recognition, management and financial resources. We also compete for customers
with other sports, entertainment and gaming operators, including such
competitors as Caesars World, Inc., which operates numerous casinos, as well as
state governments and native American groups. Competition in the gaming
industry is expected to increase due to limited opportunities for future growth
in new markets. If we lose customers for any reason, including the factors
discussed below, our financial condition or results of operations may be
materially adversely affected.
In addition, Florida tax laws currently discourage the three Miami-area
racetracks from scheduling concurrent races. We expect that a new tax structure
will eliminate this deterrent in 2001. As a result, Gulfstream Park racetrack
may face direct competition from other Miami-area racetracks in the future.
Such competition could have a material adverse effect on our financial
condition and results of operations.
State and provincial lotteries benefit from numerous distribution channels,
including supermarkets and convenience stores, as well as from frequent and
extensive advertising campaigns. We do not have the same access to the gaming
public or the advertising resources available to state and provincial
lotteries.
Declining on-track attendance and increasing competition in simulcasting
may adversely affect our financial results
There has been a general decline in the number of people attending and
wagering at live horse races at North American racetracks due to a number of
factors, including increased competition from other forms of gaming,
unwillingness of customers to travel a significant distance to racetracks, the
increasing availability of off-track wagering and other factors. The declining
attendance at live horse racing events has prompted racetracks to increasingly
rely on revenues from simulcasting and off-track wagering. The industry-wide
focus on simulcasting and off-track wagering has increased competition among
racetracks for outlets to simulcast their live races. A decline in consumer
interest in horse racing, a continued decrease in attendance and on-track
wagering or increased competition in the simulcast wagering market could have a
material adverse effect on our financial condition and results of operations.
We currently face significant competition from Internet and on-line
wagering
Although we currently do not operate any Internet or online gaming services,
we currently face significant competition from operators of those gaming
services. Internet and online gaming services allow their customers to wager on
a wide variety of sporting events from home. Unlike Internet and on-line gaming
operators, our business requires significant and on-going capital expenditures
in order to continue operations and in order to expand. We currently cannot
offer the diverse gaming options offered by Internet and on-line gaming
operators and face significantly greater costs in operating our business. Our
inability to compete successfully with these operators could materially
adversely affect our financial condition and results of operations.
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Expansion of gaming conducted by California native American tribes may have
a material adverse effect on us
In November 1998, California voters passed Proposition 5, a ballot
initiative that would have allowed native American tribes to conduct various
gaming activities including pari-mutuel wagering, gambling, banked card games,
and lotteries. On August 23, 1999, the California Supreme Court overturned
Proposition 5 on the basis that the initiative violated the state constitution.
The California state government recently reached agreements with California
native American tribes to permit a doubling of the number of gaming machines
currently operated by such tribes, as well as the introduction of slot machines
and poker and blackjack tables on California native reserves. The governor of
California, the state legislature and these native American tribes will jointly
sponsor a constitutional amendment which California voters will vote on in
March 2000. The expansion of gaming conducted by California native American
tribes may have a material adverse effect on our financial condition and
results of operations.
If a U.S. federal gaming tax is introduced, our financial results may be
adversely affected
From time to time, U.S. legislators have proposed the imposition of a U.S.
federal tax on gross gambling revenues. The imposition of any such tax could
have a material adverse effect on our financial condition and results of
operations.
Our profitability may be adversely affected if we are unable to integrate
recent racetrack acquisitions, which comprise all our horse racing
operations, and to complete and integrate future acquisitions
Our racetrack operations have been acquired very recently. The acquisition
of Santa Anita Park was completed in December 1998 and the acquisition of
Gulfstream Park was completed in September 1999. The acquisition of Remington
Park and Thistledown Racetrack was completed in November 1999 and the
acquisition of Golden Gate Fields was completed in December 1999. In addition,
we expect to complete the acquisition of Great Lakes Downs in late January
2000. These operations have been operating independently in the past under
different management. Integrating these recently acquired businesses into our
operations will require a significant dedication of management resources and an
expansion of our information systems. This dedication may distract us from our
day-to-day operations which could result in less efficient and more costly
operations as well as a failure of our management to focus on other important
issues.
We also plan to continue pursuing acquisition opportunities and we may issue
our Class A Subordinate Voting Stock as full or partial consideration in
connection with such acquisitions. Our future profitability will depend to some
degree upon the ability of our management to identify, complete and integrate
commercially viable acquisitions. We cannot give any assurance to you that we
will successfully complete and integrate any such acquisitions. Furthermore, to
the extent that we issue any shares of our Class A Subordinate Voting Stock in
connection with any such acquisitions, the percentage of our voting stock that
you own will decrease.
Some of our employees are unionized and one of the collective agreements
governing some of our employees is subject to renewal in 2000
As of October 31, 1999, we employed approximately 839 employees,
approximately 294 of whom are represented by a union. Our contract with the
Service Employees International Union, Local 280, which represents
approximately 400 pari-mutuel employees at Santa Anita Park during our racing
season, will expire on July 24, 2000. Although we expect that we will be able
to negotiate a new union contract with Local 280 through the collective
bargaining process, we cannot guarantee that we will be able to negotiate a
satisfactory contract. If we are unable to negotiate a satisfactory union
contract, some of our employees may commence a strike and any such strike, if
commenced, may have a material adverse effect on our financial condition and
results of operations.
Our operating results may be impacted by inclement weather and may
fluctuate seasonally
We experience significant fluctuations in quarterly and annual operating
results due to seasonality and other factors. We have a limited number of live
racing days at each of our racetracks and the number of live
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racing days varies from year to year. The number of live racing days we have
directly affects our operating results. A significant decrease in the number of
live races could have a material adverse effect on our financial condition and
results of operations. Our live racing schedule also dictates that we will earn
a substantial portion of our net earnings in the first quarter of each year
which is when The Santa Anita Meet and the annual meet at Gulfstream Park
occur, as well as the fourth quarter of each year, which is when The Oak Tree
Meet and one of the two annual meets at Golden Gate Fields occur.
Since horse racing is conducted outdoors, unfavorable weather conditions,
including excessive heat, coolness or rain, may cause races to be canceled or
may reduce attendance. Since a substantial portion of our gaming expenses are
fixed, the loss of scheduled racing days could have a material adverse effect
on our financial condition or results of operations.
Our primary horse racetrack assets are concentrated in California and are
subject to earthquake risks
Two of our primary assets, Santa Anita Park and Golden Gate Fields, are
located in California and are therefore subject to earthquake risks. Since the
structures at our California racetracks are low-rise buildings, the risk of
earthquake damage is not considered to be high and, as a result, we do not
maintain earthquake insurance on such structures. We currently maintain fire
insurance for fire risks, including those resulting from earthquakes, subject
to certain policy limits and deductibles. There can be no assurance that
earthquakes or the fires often caused by earthquakes will not seriously damage
our California racetracks and related properties or that the recoverable amount
of insurance proceeds will be sufficient to cover reconstruction costs and
other losses suffered fully. If an uninsured or underinsured loss occurs, we
could lose anticipated income and cash flows from our California racetracks.
Real Estate Ownership and Development Risks
Owning and developing real estate subjects us to a variety of risks
inherent in the industry
All real estate investments are subject to risks such as general economic
conditions (including the availability and cost of financing), local real
estate conditions (such as an over-supply of residential, office, retail space
or warehousing or a reduction in demand for real estate in the area),
governmental regulation (such as taxation of property and environmental
legislation) and the attractiveness of properties to potential purchasers or
tenants. Each segment of the real estate industry is capital intensive and
therefore sensitive to interest rates. Further significant expenditures,
including property taxes, mortgage payments, maintenance costs, insurance costs
and related charges, must be made throughout the period of ownership of real
property and during the period of making improvements to the property. Further,
governments can, under eminent domain laws, take real property. Such taking may
be for less compensation than the owner of the property believes it is worth.
We may not be able to sell some of our real estate when we need to or at
the price we want
At times, it may be difficult for us to dispose of certain types of real
estate. The costs of holding real estate are high and, during a recession, we
may be faced with ongoing expenditures with little prospect of earning revenue
on our real estate properties. If we have inadequate cash reserves, we may have
to dispose of properties at prices which are substantially below the price we
desire, and in some cases, below the price we originally paid for the
properties.
We require government approvals for some of our properties which may take a
long time to obtain or which may not be granted
Some of our properties will require zoning and other approvals from local
government agencies. For example, our applications for re-zoning land in
Aurora, Canada and Ebreichsdorf, Austria are currently being considered. The
process of obtaining such approvals may take many months and there can be no
assurance that
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we will obtain the necessary approvals for either of those lands or any other
lands. Holding costs accrue while regulatory approvals are being sought and
delays can render a project economically unfeasible. Furthermore, in the case
of the land held by us in Aurora, Canada, the transfer of such land to us is
conditional on obtaining certain severance and other approvals. We cannot give
any assurance that we will obtain such approvals and thus we cannot give any
assurance that we will ultimately acquire such land.
We may not be able to complete expansion projects successfully
We intend to develop our racetracks further and possibly expand our gaming
activities. Numerous factors, including regulatory and financial constraints,
could cause us to alter, delay or abandon our existing plans. If we proceed to
develop new facilities or enhance our existing facilities, we face numerous
risks that could require substantial changes to our plans, including time
frames or projected budgets. These risks include the inability to secure all
required permits and the failure to resolve potential land use issues, as well
as risks typically associated with any construction project, including possible
shortages of materials or skilled labor, unforseen engineering or environmental
problems, delays and work stoppages, weather interference and unanticipated
cost overruns. For example, Santa Anita Park recently completed upgrades to its
facilities and is considering more upgrades in the future. See "Our Business--
Horse Racing and Pari-Mutuel Wagering--Santa Anita Park". The disruption caused
by these upgrades has reduced the amount of wagering at Santa Anita Park's
simulcast wagering facilities and attendance at the 1999 Oak Tree Meet. Even if
completed, our expansion projects may not be successful, which could have a
material adverse effect on our financial condition and results of operations.
We face strict environmental regulation and may be subject to liability for
environmental damage that we did not cause
Various environmental laws and regulations in the United States, Canada and
Europe impose liability on us as a current or previous owner and manager of
real property, for the cost of maintenance, removal and remediation of certain
hazardous materials released or deposited on or in properties now or previously
owned or managed by us or disposed of in other locations. Our ability to sell
properties with contamination or hazardous or toxic substances or borrow using
such property as collateral may also be adversely affected. We cannot give you
any assurance that all circumstances giving rise to exposure under
environmental laws are currently known to us. Changes to environmental laws and
regulations, resulting in more stringent terms of compliance, could have a
material adverse impact on our results of operations and financial condition.
Year 2000 Readiness
The Year 2000 issue could affect our operations and financial results
Certain computer software and microprocessors use two digits rather than
four digits to define the applicable year. Any computer programs that have
date-sensitive software and microprocessors may recognize a date using "00" as
a year other than the year 2000. This phenomenon (the "Year 2000 Issue") could
cause a disruption of our operations, including among other things,
interruptions in pari-mutuel wagering.
We believe that every reasonable effort has been made to resolve the Year
2000 Issue and to mitigate its potential effects on our business. Based on our
current assessment, we believe that the Year 2000 Issue has not, and will not
have a material adverse impact on our results of operations and financial
condition but, given the inherent complexities of the issue, there can be no
assurance of this.
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DISTRIBUTING COMPANY
Our parent company, Magna, is one of the most diversified automotive
suppliers in the world and designs, develops and manufactures automotive
systems, assemblies and components and engineers and assembles complete
vehicles, primarily for sale to original equipment manufacturers of cars and
light trucks in North America, Europe, Mexico, South America and Asia. Magna's
products include:
. exterior decorative systems;
. interior products including complete seats, instrument and door panel
systems and sound insulation;
. formed and welded metal parts and assemblies;
. sunroofs;
. mirrors;
. latching systems and window regulator systems;
. electro-mechanical devices and assemblies and navigation systems;
. a variety of plastic parts, including body panels and fascias through
Decoma International Inc.;
. various engine, powertrain and fueling and cooling components through
Tesma International Inc.; and
. a variety of drivetrain components and complete vehicle engineering and
assembly.
Magna has over 54,000 employees in 164 manufacturing operations and 30
product development and engineering centres in 19 countries.
THE SPECIAL DIVIDEND
Background and Reasons for the Special Dividend
The board of directors and management of our parent company, Magna, have
determined that it is in the best interests of its shareholders to separate our
non-automotive assets and operations from Magna's automotive assets and
operations by distributing our Class A Subordinate Voting Stock and
Exchangeable Shares to Magna's shareholders by way of a special dividend. Magna
has advised us that, in reaching its decision, its board of directors and
management considered a number of factors, including that:
. the separation will permit Magna to focus on its core automotive
business;
. the separation will permit investors to choose whether to invest in the
automotive industry by retaining or purchasing Magna shares, invest in
the sports gaming industry by retaining or purchasing our stock, or
both;
. establishing our business as a separately traded public company will
enable us to respond better to the opportunities and challenges of the
sports gaming industry;
. in light of Magna's commitment to its shareholders not to make any
further debt or equity investment in us or any of our subsidiaries for a
period of seven years ending May 31, 2006, establishing our business as
a separately traded public company will facilitate future access to
capital and will allow us to acquire further racetracks through the
issuance of our publicly-traded stock; and
. as a public company, we will be better able to develop profit-based
compensation programs for our management and employees.
Description of the Special Dividend
Magna publicly indicated to its shareholders that it would distribute a
portion of our stock to its shareholders. Magna intends to declare on or about
. to holders of Magna's Class A Subordinate Voting Shares and Class B Shares
of record on . , a special dividend payable in our Class A Subordinate Voting
Stock or Exchangeable Share, on the basis of one-fifth of one share of our
Class A Subordinate Voting Stock or Exchangeable Shares for each Magna Class A
Subordinate Voting Share or Magna Class B Share held.
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Magna expects to distribute approximately 15.7 million shares comprised of our
Class A Subordinate Voting Stock and Exchangeable Shares. Subject to certain
withholding requirements in respect of shareholders not resident in Canada,
Magna will concurrently distribute to those holders its regular quarterly cash
dividend of $ . per share of Magna.
As part of the distribution, we will be adopting a book-entry stock transfer
and registration system for our Class A Subordinate Voting Stock and the
Exchangeable Shares. Magna's distribution agent will credit the shares of our
Class A Subordinate Voting Stock and Exchangeable Shares distributed on the
distribution date to book-entry accounts established for all record holders of
our Class A Subordinate Voting Stock and the Exchangeable Shares. Following the
distribution, the distribution agent will mail an account statement to each
such holder stating the number of shares of our Class A Subordinate Voting
Stock or Exchangeable Shares distributed to that holder in the distribution.
After the distribution, registered holders of our Class A Subordinate Voting
Stock or Exchangeable Shares may request a transfer of their stock to a
brokerage or other account or physical stock certificates for their stock,
which will no longer be maintained in a book-entry account.
If you hold your Magna Class A Subordinate Voting Shares or Class B Shares
through a stockbroker, bank or other nominee, the distribution agent will
transfer our Class A Subordinate Voting Stock or Exchangeable Shares to the
registered holders of record whom we expect will make arrangements to credit
your account with shares of our Class A Subordinate Voting Stock or
Exchangeable Shares. Magna anticipates that stockbrokers and banks generally
will credit their customers' accounts with shares of our Class A Subordinate
Voting Stock or Exchangeable Shares on the distribution date.
Subject to certain withholding requirements in respect of non-residents of
Canada, you will receive one-fifth of one share of our Class A Subordinate
Voting Stock or Exchangeable Share for each Magna Class A Subordinate Voting
Share or Magna Class B Share that you own of record as of the close of business
on the record date, provided that no fractional interests are to be distributed
to any shareholder of record. If you are the registered holder of a number of
Magna Class A Subordinate Voting Shares or Magna Class B Shares not evenly
divisible by five, you will receive cash equal to the fair market value (as
determined by Magna) of the fractional share of our Class A Subordinate Voting
Stock you would have otherwise been entitled to receive in addition to any
whole shares of Class A Subordinate Voting Stock you are entitled to receive.
Magna will determine the fair market value of such fractional shares on the
basis of the 10-day weighted average trading price of our Class A Subordinate
Voting Stock in the "if, as and when issued" market prior to the
distribution date.
Magna shareholders resident in Canada may elect to receive Exchangeable
Shares of Exchangeco in satisfaction of their entitlement to receive shares of
our Class A Subordinate Voting Stock. Each Exchangeable Share may be exchanged
by the holder at any time for, and, together with certain ancillary rights, is
intended to be the economic equivalent of, a share of our Class A Subordinate
Voting Stock. See "Description of the Exchangeable Shares". Registered holders
of Magna shares resident in Canada will be deemed to have elected to receive
Exchangeable Shares in satisfaction of their entitlement to receive shares of
our Class A Subordinate Voting Stock unless they specifically advise Magna to
the contrary prior to . , 2000 by following the instructions for doing so
enclosed with this prospectus.
Withholding Tax Liability of Non-Residents of Canada
A non-resident of Canada, for purposes of the Income Tax Act (Canada), will
be subject to Canadian withholding tax on the fair market value of the
distribution. (See "Certain Income Tax Considerations--Certain Canadian Federal
Income Tax Considerations"). The fair market value of the distribution will
include the fair market value of the shares of our Class A Subordinate Voting
Stock, the amount of cash in lieu of fractional shares and the amount of the
regular quarterly cash dividend. Magna will determine the fair market value of
our Class A Subordinate Voting Stock at the time of distribution on the basis
of the 10-day weighted average trading price in the "if, as and when issued"
market prior to the distribution date. In order to satisfy
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this withholding tax liability, Magna will withhold from non-residents of
Canada the appropriate amount of the regular quarterly cash dividend otherwise
payable which it intends to pay concurrently with the special dividend and, if
necessary, will also withhold some portion of the shares of our Class A
Subordinate Voting Stock otherwise distributable. That portion of the shares of
our Class A Subordinate Voting Stock that will be withheld (the "Withheld
Shares") will be that number of shares having a fair market value at the time
the distribution is paid, as determined by Magna in the manner described above,
equal to any shortfall in the amount that Magna is required to remit to Revenue
Canada in respect of its withholding tax obligation relating to the
distribution, after taking into account the amount of cash withheld from the
regular quarterly cash dividend otherwise payable. In any event, the number of
Withheld Shares will not exceed 25% of the shares of our Class A Subordinate
Voting Stock that would otherwise be distributed to a non-resident holder.
Magna will remit to Revenue Canada, on behalf of such non-resident holder, the
appropriate amount of cash withheld from the regular quarterly cash dividend
together with an amount of cash equal to the fair market value of any Withheld
Shares.
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OUR BUSINESS
We acquire, develop and operate horse racetracks and related pari-mutuel
wagering operations. As a complement to our horse racing business, we are
exploring the development of media sports wagering operations, including
telephone account, interactive television and Internet-based wagering, as well
as certain leisure and real estate projects on the excess land around certain
of our racetracks, possibly in conjunction with business partners and subject
to regulatory requirements. In addition, we own a real estate portfolio which
includes a "gated" residential project under development, one operational golf
course and related recreational facilities, one golf course under development
and other real estate. We are currently considering a variety of options with
respect to such golf courses, including direct operation or leasing to third
party operators, as well as sale and leaseback transactions (which would
require that Magna not exercise its right of first refusal) or outright sale.
We intend gradually to sell the balance of our real estate portfolio in order
to provide capital to be used in our business; accordingly, we will take steps
such as servicing our land and obtaining zoning approval to enhance the value
of such properties and increase the revenues from resale. A brief description
of our horse racing business and real estate portfolio follows. In addition,
please refer to the Pro Forma Consolidated Financial Statements and
Consolidated Financial Statements, and the notes thereto, found below in this
prospectus.
Pari-mutuel wagering on horse racing is pooled betting in which individuals
bet against each other as to what the outcome of a horse race will be. The
racetrack operator has no interest in the order of finish in any given race and
therefore has no risk in the outcome. A percentage of the pooled wagers is
retained by the operator of the wagering facility, a portion is paid to the
regulatory or taxing authorities and a portion is paid to the racetrack's
horsemen in the form of "purses" which encourage owners and trainers to enter
their horses in that track's live races. The balance of the pooled wagers is
paid to bettors as winnings. Pari-mutuel wagering on horse racing occurs at
horse racetracks on the races being conducted there as well as at those
racetracks on televised racing signals ("simulcasts") received or "imported" by
the simulcast wagering facilities located at the tracks (collectively, "on-
track wagering"). Pari-mutuel wagering on horse racing also occurs at wagering
establishments on horse races being conducted at tracks elsewhere ("off-track
wagering"). Horse racetracks generally have simulcast wagering facilities to
complement their live horse racing by enabling their patrons to wager on horse
races being held at other racetracks.
Horse Racing and Pari-Mutuel Wagering
We operate five horse racetracks and have entered into a definitive
agreement to acquire one further racetrack. Each of these racetracks includes a
facility that accepts wagers on races conducted at other racetracks, the live
television signals (or "simulcasts") of which are shown at our facilities. We
also broadcast, or "export", simulcasts of our races to a number of locations
across the United States, Canada, Mexico, the Caribbean region and Australia.
Our horse racing and related wagering operations include Santa Anita Park near
Los Angeles, California, Gulfstream Park near Miami, Florida, Golden Gate
Fields, near San Francisco, California, Thistledown Racetrack near Cleveland,
Ohio and Remington Park in Oklahoma City, Oklahoma. We also own San Luis Rey
Downs, a horse training track located outside of San Diego, California. We have
acquired all these racetracks since December 1998. We have also entered into a
definitive agreement to buy the assets and assume certain liabilities of Great
Lakes Downs, Inc. and Great Lakes Downs Cafe, Inc., which operate the Great
Lakes Downs racetrack in Muskegon, Michigan, subject to obtaining the necessary
regulatory and other approvals. We expect to complete this acquisition in late
January 2000.
We own and operate some of the premier horse racing facilities in North
America and one of the horse racing industry's best simulcast products. For
example, Santa Anita Park has hosted the Breeders' Cup twice since the
inception of the Breeders' Cup in 1984 and Gulfstream Park has hosted it three
times, the most recent being on November 6, 1999. Furthermore, by many standard
industry measures such as total "handle" (or total amount wagered), average
daily attendance, average daily handle, average daily on-track handle and
average daily off-track handle, we believe that Santa Anita Park and Gulfstream
Park are two of the top ten racetracks
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in North America. With the recent acquisition of Golden Gate Fields, we believe
that we own and operate three of the top ten racetracks in North America in
terms of total handle.
Santa Anita Park
Santa Anita Park is one of the premier horse racetracks in North America.
Santa Anita Park was the site of the Breeders' Cup in both 1986 and 1993. Santa
Anita Park is situated on approximately 300 acres of land, located in the City
of Arcadia, California, approximately 14 miles northeast of Los Angeles. Over
10 million people are located within a 30 mile radius of Santa Anita Park,
providing us with one of North America's largest target populations for live
and simulcast horse racing. Santa Anita Park was opened for thoroughbred horse
racing in 1934 and The Santa Anita Meet has been held at Santa Anita Park each
year since its founding, except for three years during World War II. The Santa
Anita Meet runs through the prime winter racing season, commencing December 26
and running into late April each year. In addition, we lease Santa Anita Park
to Oak Tree Racing Association which hosts The Oak Tree Meet from the end of
September through early November of each year. As a result, Santa Anita Park
has one of the longest racing schedules of the top North American tracks,
totaling approximately 115 days each year. There are generally eight races
scheduled per live racing day during the week and nine or ten races per live
racing day on the weekends. Santa Anita Park's average daily attendance in 1998
was approximately 12,000 patrons per live racing day, representing one of the
highest average daily attendance figures of all North American racetracks
during that year.
Santa Anita Park had one of the highest total handles of all North American
racetracks in 1998, generating approximately $1.1 billion in wagers in such
year. In addition, Santa Anita Park's simulcast program generates significant
demand from other racetracks and off-track wagering establishments, generating
an average of approximately $7.0 million in off-track handle during each racing
day in 1998. Santa Anita Park exports its simulcast signal to approximately
1,000 off-track wagering facilities in 23 countries, including the United
States, Canada and Mexico. During periods in which there is no live racing,
Santa Anita Park operates as an off-track wagering facility where customers can
attend and wager on races via television from other California racetracks as
well as two racing programs from either New York, Florida, Kentucky or New
Orleans.
Santa Anita Park's facilities currently include a large art deco style
grandstand structure with seating for approximately 19,000 patrons as well as
standing room for additional patrons, a one-mile oval dirt track as well as a
natural turf course, stalls for approximately 2,000 horses and parking
facilities sufficient to accommodate approximately 20,000 cars. The grandstand
facilities include a clubhouse, a general admission area, and food and beverage
facilities, which range from fast food stands to restaurants, both at outdoor
terrace tables and indoor dining areas. The grounds surrounding the grandstand
are extensively landscaped and contain a European-style paddock and infield
accommodations, including picnic facilities for special groups and the general
public.
In December 1999, we completed an extensive capital renovation program at
Santa Anita Park in order to enhance our patrons' entertainment experience. The
improvements to Santa Anita Park include: the construction of a fully enclosed
750 seat restaurant and bar that will be used for racing and group functions
throughout the year; the installation of a large format light emitting diode
(LED) screen in the infield track area for racing patrons and for use by the
restaurant and bar to promote non-racing events, such as the Super Bowl, the
World Cup and other similar events; improvements to the Winners' Circle and
trackside apron to provide patrons with better views of the track; upgrades to
the grandstand to current seismic code requirements; completion of fire safety
installations as required by the Fire Marshall; and the initiation of
improvements to the entrance way and parking lot of the racetrack. These
renovations cost approximately $45.0 million. We are also considering a number
of other upgrades to further strengthen Santa Anita Park's ability to attract
top horses, trainers and jockeys, and to enable us to expand the market for
Santa Anita Park's simulcast signal.
We are also currently considering a variety of themed entertainment and
retail-based development proposals for approximately 85 acres of available land
at Santa Anita Park, some of which could be developed in conjunction with
business partners. Such development would be intended to further enhance the
total
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entertainment experience at Santa Anita Park, attract new patrons from diverse
demographic backgrounds and strengthen the loyalty of existing patrons. These
proposals are only in their preliminary stages, as any development of this
nature would require the preparation of detailed feasibility studies and
business plans and extensive consideration by our management of all relevant
issues. If any proposal turns out to be commercially viable after such a
detailed review, additional time would be required to obtain the necessary
regulatory approvals, negotiate with potential business partners and obtain the
necessary project financing.
Gulfstream Park
Gulfstream Park is also one of the premier horse racing and pari-mutuel
wagering facilities in North America. Gulfstream Park is located on
approximately 255 acres of land in the cities of Hallandale and Aventura,
between Miami and Ft. Lauderdale in Florida. The Miami/Ft. Lauderdale area is
home to approximately 3.3 million people, thus providing Gulfstream Park with a
sizeable target market for live racing and off-track wagering. Gulfstream Park
first opened in February 1939 and has operated each year since with the
exception of the four years from 1940 to 1943. The annual meet at Gulfstream
Park lasts for approximately 63 days each year and is held between early
January and mid-March in each year. In addition, the Breeders' Cup has been
held at Gulfstream Park three times--in 1989 and 1992, and most recently on
November 6, 1999. There are generally eleven races scheduled on each racing day
during the week and 11 or 12 races scheduled on each racing day during the
weekend. In 1998, Gulfstream Park's average daily attendance was approximately
8,400 patrons per live racing day.
Gulfstream Park ranked as one of the five highest North American racetracks
in average daily off-track handle in 1998, generating an average daily off-
track handle of approximately $8.4 million in off-track wagers during each live
racing day in 1998. Gulfstream Park also had one of the highest total handles
of all North American racetracks in 1998, generating approximately $660 million
in wagers in that year. Gulfstream Park exports its simulcast program to
approximately 11 million people at approximately 800 off-track wagering
facilities in the United States, Canada, the Caribbean region and Mexico. Total
weekly viewership of Gulfstream Park's major racing events, including through
cable shows and satellite feeds, is estimated by us to be approximately 55
million.
Gulfstream Park's facilities currently include a grandstand with seating for
approximately 14,500 patrons, a clubhouse with seating for an additional 5,800
patrons, a one-mile main track, a seven-eighths mile turf track, stalls for
approximately 1,450 horses and parking for approximately 14,000 cars. The
grandstand consists of three levels of seating, a rooftop restaurant, casual
restaurants, snack bars and liquor bars. There are also three gourmet dining
rooms in the clubhouse. Gulfstream Park includes approximately 50 acres of land
which we are considering developing.
Golden Gate Fields
Golden Gate Fields racetrack is one of the premier horse racing and pari-
mutuel wagering facilities in North America in terms of total handle. During
1998, Golden Gate Fields generated revenues of $25.7 million. Golden Gate
Fields is located on approximately 181 acres of land in the Cities of Albany
and Berkeley, California, approximately 8 miles from downtown Oakland and
approximately 11 miles from San Francisco. Golden Gate Fields' racing season
consists of two meets, one of which runs for 60 days from late March to mid-
June each year and the other of which runs for approximately 45 days from mid-
November of each year to mid-January of the following year. This racing
schedule complements Santa Anita Park's racing schedule by adding racing days
between the end of The Oak Tree Meet and the beginning of The Santa Anita Meet.
Golden Gate Fields had one of the ten highest total handles of all North
American racetracks in 1998, generating approximately $610 million in wagers in
1998. Golden Gate Fields' simulcast program also generates strong demand from
other racetracks and off-track wagering facilities, generating approximately
$360 million in off-track handle in 1998. Golden Gate Fields exports its
simulcast program to approximately 559 sites in the United States, Canada,
Mexico, Jamaica and Panama. In addition, we recently commenced exporting Golden
Gate Fields' simulcast program to Australia and the Dominican Republic. Over
2.5 million people are located
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within a 30 mile radius of Golden Gate Fields, thus providing a large target
market for live and simulcast horse racing.
Golden Gate Fields' facilities currently consist of a one-mile main track
and a nine-tenths mile turf course, stalls for over 1,400 horses, a main
grandstand with seating for approximately 8,000 patrons, a clubhouse with
seating for approximately 5,250 patrons and a turf club with seating for
approximately 1,500 patrons and parking for over 8,500 cars. Golden Gate Fields
also has over 700 closed-circuit television monitors to show races, odds,
probable payoffs, results and the previous day's races.
Thistledown Racetrack
Thistledown Racetrack is located on approximately 125 acres in North
Randall, Ohio, 10 miles southeast of downtown Cleveland. Thistledown has one of
the longest racing seasons of all North American racetracks, consisting of 187
racing days each year between mid-March and early December, encompassing the
Summit, Thistledown, Randall and Cranwood meets. In 1998, Thistledown generated
a total handle of approximately $230 million. Simulcasts from Thistledown are
exported to approximately 45 other racetracks in the United States and one race
each year is simulcast to Canada. Annually, Thistledown hosts the Ohio Derby,
which is the premier graded stakes race in Ohio and is one of the top three-
year old horse races in the United States. Prior to our acquisition of
Thistledown Racetrack, the simulcast product from Thistledown had not been
given the exposure necessary in order to generate growth in Thistledown's
attendance and handle. We intend to package the signal from Thistledown with
the signals from our other racetracks and market this "bundled" package under
our own brand name. We expect that this will result in an increase in the
number of off-track sites Thistledown's racing signal is exported to and growth
in Thistledown's handle, especially as we expand our distribution channels, and
that it will also enhance the quality of horse racing offered at Thistledown.
Thistledown's facilities include a grandstand with seating for approximately
16,000 patrons, a luxury suite for corporate and group events, a one-mile oval
track, stalls for approximately 1,500 horses and parking for approximately
2,000 cars. Thistledown also owns the rights to an additional 57 racing days
plus a further 30 winter racing days which it uses entirely to host
simulcasting at other Ohio racetracks in exchange for a percentage of the
handle on such races.
Remington Park Racetrack
Remington Park racetrack is situated on approximately 370 acres in Oklahoma
City, Oklahoma. Remington Park offers a total of 122 live racing days during
each year. The racing schedule consists of two meets, including a 40-day
Quarter Horse meet from April to mid-June and an 82-day thoroughbred meet
running four or five days per week, from August to December. In 1998, Remington
Park generated a total handle of approximately $178 million. Simulcasts from
Remington Park are exported to approximately 35 other racetracks in the United
States. As with Thistledown Racetrack, the simulcast product from Remington
Park has not been given the exposure necessary to generate growth in Remington
Park's attendance and handle. We expect that through bundling of Remington
Park's signal with the signals from our other racetracks, we will be able to
increase the number of off-track sites Remington Park's racing signal is
exported to and Remington Park's handle, especially as we expand our
distribution channels, and enhance the quality of horse racing offered at
Remington Park. Remington Park's facilities include a grandstand with seating
for approximately 20,000 patrons, 21 luxury suites for corporate and group
events, a one-mile dirt track, a seven-eighths mile turf course, stalls for
approximately 1,300 horses and parking facilities sufficient to accommodate
approximately 8,000 cars. The property on which Remington Park is located is
leased from Oklahoma Zoological Trust under a lease which extends through 2013,
with options to renew for five 10-year periods.
San Luis Rey Downs
We own San Luis Rey Downs, a horse boarding and training center located on
approximately 200 acres of land outside of San Diego, California. Due to its
proximity to Santa Anita Park, San Luis Rey Downs supplements Santa Anita
Park's facilities by providing thoroughbred stabling and training facilities
which we
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believe will enable us to continue to attract some of the top horses in North
America. San Luis Rey Downs can also provide overflow capacity for horses at
Santa Anita Park in the event of any renovation of Santa Anita Park's barns,
thereby ensuring minimal disruption to our live racing events at Santa Anita
Park.
Great Lakes Downs Acquisition
We have entered into an Asset Purchase Agreement dated as of December 24,
1999 with Great Lakes Downs, Inc. and Great Lakes Downs Cafe, Inc. to acquire
the assets and assume certain liabilities of Great Lakes Downs racetrack in
Muskegon, Michigan for a purchase price of approximately $1.7 million, payable
by the issuance of 246,287 shares of our Class A Subordinate Voting Stock.
Great Lakes Downs is situated on approximately 85 acres in Muskegon,
Michigan, approximately 35 miles from Grand Rapids. Great Lakes Downs, which
commenced operations in January 1999, offers a total of 134 live racing days
beginning in late April and ending in early November of each year. In 1999,
Great Lakes Downs generated a total handle of approximately $55 million.
Simulcasts from Great Lakes Downs are exported to approximately 45 other
racetracks in the United States. We anticipate that as the simulcast signal
from Great Lakes Downs is bundled with the simulcast signals from our other
racetracks, Great Lakes Downs will become a good regional track in terms of
handle. Great Lakes Downs' facilities include a grandstand with capacity for
approximately 7,500 patrons, a 5/8 mile dirt track, stalls for approximately
920 horses and parking facilities sufficient to accommodate approximately 2,000
cars.
Media Sports Wagering
Media sports wagering is a term used to refer to sports wagering conducted
through a variety of different media, including telephone account, interactive
television and Internet-based wagering. We are currently exploring expansion
into each of these areas, possibly in conjunction with business partners and
subject to regulatory approvals (see "Risk Factors--Gaming Risks--Our gaming
activities are extensively regulated and this could adversely affect our growth
prospects"), in order to expand the market for our simulcast horse racing
product. In the future, we may build on the experience we develop in horse
racing by expanding our operations to include sports wagering on other sports
as well.
Telephone Account Wagering
We are currently considering the establishment of a telephone account
wagering operation, possibly in conjunction with business partners and subject
to regulatory approval. Once established, such a system would involve patrons
opening an account with our strategic partner and depositing funds into this
account through the use of debit or credit cards. Patrons would then place
wagers over the telephone on horse races offered at our racetracks and on horse
races simulcast by other racetracks to our simulcast wagering facilities.
Wagers placed by patrons could not exceed the amounts on deposit in their
accounts and winnings would be credited to patrons' accounts and would be
available for future wagers. We would derive revenues from our share of the
wagers placed as well as fees charged to patrons for the service.
We expect that telephone account wagering will make wagering on horse racing
more convenient for our patrons and expand the market for our simulcast product
by enabling us to fully utilize an important distribution channel for our horse
racing product. A telephone account operator must be licensed and a telephone
account wagering "hub" or base must be established in any one of eight states
in which telephone account wagering is permitted (Connecticut, Kentucky,
Maryland, Nevada, New York, Ohio, Oregon and Pennsylvania). Once an operator
has obtained the required licenses and established a hub, the operator may
accept wagers from patrons living in such eight states and in other states.
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Internet and Interactive Television-Based Wagering
We are exploring the potential of Internet and interactive television-based
wagering on horse racing and possibly other sporting events, possibly in
conjunction with business partners and subject to regulatory approval.
Interactive television-based wagering involves the transmission of horse
racing-related television programming through cable or satellite delivery into
the homes of subscribers. These subscribers are able to use interactive "real-
time" television-based technology, generally through a remote controlled set-
top box, to wager on the live horse races being shown in the program. In order
to place wagers, patrons must deposit money with the sponsoring racetrack
through the use of debit or credit cards. We would derive revenue from our
patrons' subscriptions and our share of the wagers placed on the races
broadcast.
Interactive television-based wagering would allow us to increase the market
for our simulcast product by utilizing an important distribution channel for
this product. We currently have the non-exclusive right to broadcast races from
Santa Anita Park and Golden Gate Fields, although races from Gulfstream Park
are subject to an exclusive contract with TVG until 2003. Commencing in 2003,
we will have the exclusive right to broadcast races from both Santa Anita Park,
Gulfstream Park and Golden Gate Fields, three of the most sought-after racing
signals in North America. Interactive television-based wagering would
significantly enhance our ability to cross promote our live horse racing and we
expect it would enable us to attract new patrons to horse racing and cultivate
their loyalty. We would aim to show full racing cards and to develop an
appealing, convenient and easy-to-use format which would provide a fresh new
look for horse racing. Furthermore, we would aim to broadcast the programming
we develop for interactive television-based wagering through a variety of
sources, including satellite television, cable television and the Internet. As
our operations expand, we would apply the experience we gain in interactive
television-based wagering on horse races in expanding to wagering in other
sports.
Due to the growth of the Internet as a medium of both communication and
commerce, we are exploring the possibility of establishing an Internet-based
gaming service, possibly in conjunction with a strategic partner and subject to
regulatory approval. Establishing such a service would enable us to increase
the market for our simulcast product by maximizing the opportunities presented
by the Internet as a distribution channel for our live horse racing product. It
would also enable us to achieve economies of scale since the programming we
would aim to broadcast on the Internet would be the same as that produced for
our interactive television-based wagering. As with interactive television-based
wagering, we would expect to develop a competitive position on the strength of
our live horse racing product and we would expect this competitive position to
strengthen by 2003 when we will have the exclusive right to broadcast races
from Santa Anita Park, Gulfstream Park and Golden Gate Fields. As our
operations expand, we would likely be able to apply the experience we gain in
Internet-based wagering on horse races to other sports.
Real Estate Portfolio
We currently own a portfolio of real estate properties in North America and
Europe, including a "gated" residential community currently under development,
one operational golf course and related recreational facilities, a golf course
under development and other real estate. We intend gradually to sell the
balance of our real estate portfolio in order to provide capital to be used in
our horse racing business; accordingly, we will take steps such as servicing
such land and obtaining zoning approval to enhance the value of such properties
and increase the revenues from resale.
Our real estate portfolio includes land currently being developed in Austria
and undeveloped and partially developed land in both Austria and Canada. We are
currently developing a gated residential community, known as Fontana, situated
amidst the Fontana Sports golf course and related recreational facilities owned
and operated by us. This residential development consists of approximately 50
acres and is located in Oberwaltersdorf, Austria, approximately 15 miles south
of Vienna. The Fontana residential development is being developed in two phases
into a luxury residential community consisting of 250 apartment units and
100 single family homes. We expect to complete the second phase of the Fontana
residential project by 2006. We also own approximately 1,000 acres of
undeveloped land in Ebreichsdorf, Austria located approximately 15 miles south
of Vienna which includes a golf course leased to a third party. In addition,
our real estate
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portfolio includes approximately 270 acres of mixed-use land adjacent to the
existing headquarters of Magna in Aurora, Canada, approximately 30 miles north
of Toronto. Part of the Aurora property could be sold to a developer of a
gated residential golf course community, while other parts could be sold to
developers of retail, office, commercial, light industrial and other
developments. We are currently servicing, improving and seeking zoning for
some of these properties in order to enhance their value on resale.
Our real estate portfolio also includes two golf courses, Fontana Sports
which is in operation and located in Oberwaltersdorf, Austria and Aurora Downs
which is being completed in Aurora, Canada. Fontana Sports is a semi-private
sports facility adjacent to the Fontana residential community. The Fontana
Sports facility includes an 18-hole golf course, tennis club, fitness facility
and a restaurant. Aurora Downs is a private 18-hole golf course under
development and is adjacent to the lands we own in Aurora, Canada. Doug
Carrick, one of Canada's leading golf course architects, designed both Fontana
Sports and Aurora Downs. We expect that Aurora Downs will officially open in
May 2001. We expect that amenities will include a clubhouse with a restaurant,
a members' lounge, a spa and a pro shop. Our parent company, Magna, is
currently paying us an annual access fee pursuant to an arrangement effective
as of March 1, 1999 to access the Fontana Sports facility for Magna-sponsored
corporate and charitable events as well as for business development purposes.
Upon completion of Aurora Downs, Magna will pay us an annual access fee to use
Aurora Downs for Magna-sponsored corporate and charitable events and business
development purposes. These access arrangements are scheduled to expire five
years after their effective dates. We have also granted Magna a right of first
refusal to purchase these golf courses, if we decide to sell them. We are
currently considering a variety of options with respect to our golf courses,
including direct operation or leasing to third party operators, as well as
sale and leaseback transactions (which would require that Magna not exercise
its right of first refusal) or outright sales. See "Certain Relationships and
Related Transactions".
We also hold some of the land adjacent and in close proximity to both of
the above described golf courses and we expect that the ultimate resale value
of such adjacent and proximate lands will be significantly enhanced through
the presence of these golf courses.
Finally, we own a portfolio of other real estate in Austria, Canada and the
United States. We are currently servicing, improving and seeking zoning for
some of these properties in order to enhance their value on resale. We intend
to dispose of these properties gradually as market conditions permit.
For financial information on our operating segments see Note 10 to the
Consolidated Financial Statements.
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OUR STRATEGY
There are four related components of our strategy: (1) continuing our
consolidation of racetracks and enhancing the facilities at some of these
racetracks; (2) "bundling", or combining, our simulcast horse racing products
and marketing the signal under our own brand name; (3) leveraging our
competitive position in the horse racing industry and, ultimately, our brand
name, in expanding our distribution channels and range of sports wagering
products; and (4) developing total entertainment destinations centered on some
of our racetracks.
1.Continuing our consolidation and enhancement of racetracks
Through our acquisitions of Santa Anita Park, Gulfstream Park, Golden Gate
Fields, Thistledown Racetrack and Remington Park, and the acquisition of Great
Lakes Downs currently in progress, we have become one of the leading
consolidators of premier horse racetracks in North America. Being an industry
consolidator means that we have acquired multiple racetracks with the objective
of maximizing administrative and cost efficiencies at those tracks. We expect
to acquire other high-quality, geographically diverse racetracks which would
increase the number of racing days we offer, distribute the races we offer over
more days in each year, expand our simulcasting content and enhance the value
of our simulcast product. Through our ownership of multiple racetracks, we
expect that we will be able to achieve cost efficiencies in administration,
purchasing and other areas, which will have a positive impact on our financial
condition and results of operations. In addition, we expect to be able to offer
advertisers and sponsors higher value advertising and cross-promotional
marketing opportunities, signage rights at our racetracks, and ultimately,
"virtual signage", or electronic advertising and marketing space on an Internet
website, Internet distribution channel and interactive television channel.
In addition, we have made certain enhancements to the facilities at Santa
Anita Park, including construction of a 750 seat restaurant and bar,
installation of a large format LED screen in the infield track area, upgrades
to the grandstand and trackside apron and improvements to the Winners' Circle.
We are also examining further upgrades at some of our other racetracks which
are intended to increase live attendance, strengthen our ability to
consistently attract some of the top horses, trainers and jockeys in North
America, increase the market for our simulcast product, improve racing
conditions and help to generate additional revenues per visitor.
2.Bundling our simulcast horse racing products and marketing the signal under
our own brand name
As a result of our racetrack consolidation strategy, we believe that we
offer one of horse racing's leading simulcast products and we expect our
position to strengthen further through future acquisitions. The 1999 racing
schedule of our racetracks consisted of 293 race days and the 2000 racing
schedule of our racetracks will consist of approximately 326 race days
broadcast from six racetracks including three of the top ten U.S. racetracks,
in terms of total handle. Over the next few years, we intend to "bundle", or
combine, the signals from our racetracks, and possibly also signals from
racetracks not owned by us, and market this bundled simulcast product through a
single signal marketed under our own brand name. This bundling would offer off-
track wagering facilities importing our signal greater convenience and lower
operating costs and would offer our wagering patrons more convenient access to
our complete simulcast product. We expect that bundling would also increase the
exposure of, and the handle at, our smaller racetracks, thereby increasing the
revenues available to us to further enhance the quality of the horse racing we
offer at such tracks through more attractive purses and enhanced facilities.
Bundling would also enhance our identity as an owner of some of the premier
horse racetracks in North America and a provider of one of the industry's
leading simulcast products. This branding would also enable us to cultivate a
loyal customer base for both our live racing and simulcast product.
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3. Using our competitive position in the horse racing industry and our brand
name in expanding our distribution channels and range of sports wagering
products
We intend to use our competitive position in the horse racing industry and
build on the brand name recognition we expect to develop, in order to expand
the distribution channels for our simulcast product and, ultimately, diversify
the sports wagering products we offer, possibly in conjunction with business
partners and subject to regulatory requirements. As part of our strategy, we
intend to increase the market for our existing simulcast product by
establishing telephone account, interactive television and Internet-based
wagering operations as distribution channels for our simulcast product. We also
intend to explore the expansion of our sports wagering products to sports other
than horse racing, both in North America and in Europe, through various
distribution channels, including telephone account, interactive television and
Internet-based wagering, subject to regulatory requirements. If we pursue such
expansion, we expect that we would be able to cross-sell new sports wagering
products to our existing patrons. We expect that our branding strategy would
create merchandising, licensing and marketing opportunities that would
contribute to our revenues. More importantly, we expect that our strategy would
reinforce our ability to offer advertisers and sponsors higher value
advertising, marketing and signage opportunities.
4.Developing total entertainment destinations centered on some of our horse
racetracks
We are considering developing leisure and retail-based real estate
development projects on the excess land around some of our racetracks, possibly
in conjunction with business partners. Such developments could include
multiplex theaters, retail shopping, restaurants, hotels and entertainment
themed developments. Subject to regulatory approval, these developments may
also involve the integration of other gaming options, including video lottery
terminals or similar gaming devices, which we expect would increase customer
attendance at our horse racetracks. These developments would be intended to
create total entertainment destinations centered on our horse racetracks and
could enhance the status of such racetracks, expand the demographic diversity
of our patrons, attract new pari-mutuel wagering customers and provide
additional revenue sources from our existing customer base.
There are a number of risks inherent in our strategy, which will take at
least several years to implement fully. See "Risk Factors" for a discussion of
these and other risks.
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INDUSTRY OVERVIEW
Horse Racing and Pari-Mutuel Wagering
Background
Pari-mutuel wagering on horse racing is the largest form of pari-mutuel
wagering and a significant segment of the gaming industry generally. Pari-
mutuel wagering is currently authorized in 43 states in the United States, all
provinces of Canada and approximately 100 other countries in the world.
According to the National Gambling Impact Study Commission's report issued on
June 18, 1999, the total amount wagered on horse racing in the United States in
1997 was approximately $15 billion, of which approximately $11.8 billion, or
approximately 79%, resulted from off-track wagering. We expect that off-track
wagering will experience continued growth due to the increase of wagering
opportunities offered by the establishment of additional simulcast facilities,
as well as the anticipated growth of telephone account, interactive television
and Internet-based wagering.
Over the past 20 years, live attendance at, and on-track wagering on, horse
races at racetracks in the United States declined due to a number of factors,
including increased competition from other forms of gaming, the desire by
patrons to have more convenient access to horse racing and other factors. This
decline in live attendance resulted in a declining "handle", or amount wagered,
and resulted in track owners offering smaller purses for horse races. As purses
became smaller, the quality of horses being attracted to racetracks declined
and live attendance decreased further. In the 1980s, technological advances and
legislative changes facilitated the growth of simulcasting and off-track
wagering. These changes significantly increased the market for horse racing
products. The rise of off-track wagering has resulted in larger pools of wagers
on horse races and has more than off-set the decline in on-track wagering due
to declining live attendance. This in turn has resulted in larger purses being
offered, better quality horses being attracted to races and increased interest
in horse racing and pari-mutuel wagering.
Companies involved in pari-mutuel wagering on horse races derive pari-mutuel
revenues from wagers placed on: (1) live races conducted on their own tracks;
(2) simulcast races imported by the simulcast wagering facilities at the
racetrack; and (3) simulcasts exported to other racetracks. Other related
revenues are derived from fees charged to other racetracks in connection with
the exporting of simulcasts to such racetracks, the sale of racing dates to
other racetracks within the same state, fees charged for telephone account
betting and interactive television-based wagering services. Non-gaming revenues
are derived from admission and parking fees, concessions, sale of racing
programs, merchandising, group sales and corporate events.
Key Characteristics of the Industry
The horse racing industry is currently characterized by four key aspects:
(i) industry consolidation, (ii) expansion of simulcasting and off-track
wagering, (iii) competition from other forms of gambling and entertainment and
(iv) government regulation.
Industry Consolidation
The horse racing industry is a highly fragmented industry with relatively
few high-quality racetracks and relatively few operators owning more than two
facilities. The limited supply of high-quality horse racetracks in North
America is due primarily to the high cost of constructing new racetracks and
the difficulty in obtaining financing. As a result, relatively few racetracks
have been built in the past 30 years. This trend is expected to continue as
small and medium size racetrack operators will likely continue to have
difficulty obtaining financing for such developments.
Since live attendance at horse racetracks has been declining in North
America in recent years, racetrack operators have had to increase the
efficiency of their track management and maximize revenues from simulcast
operations and off-track wagering. These factors have contributed to
consolidation in the ownership and
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management of some of the premier racetracks in the United States. We own and
operate Santa Anita Park, Gulfstream Park, Golden Gate Fields, Thistledown
Racetrack and Remington Park, and we have entered into a definitive agreement
to acquire the assets and assume certain liabilities of Great Lakes Downs.
Similarly, our principal competitor, Churchill Downs Inc., operates a number of
racetracks, including Churchill Downs Racetrack in Louisville, Kentucky, home
of the Kentucky Derby, as well as Hollywood Park in Inglewood, California,
Calder Race Course in Miami, Florida, Ellis Park in Henderson, Kentucky and
Hoosier Park in Anderson, Indiana. Churchill Downs has publicly stated its
intention to continue to acquire more tracks and seek to acquire the rights to
simulcast races conducted at other tracks.
Expansion of Simulcasting and Off-Track Wagering
Simulcasting involves the import of a televised signal from a live horse
racing event to an on-track simulcast wagering facility, as well as the export
of a televised racing signal from a live horse racing event to an off-track
wagering facility for a fee. Off-track facilities which import simulcasts
select simulcast products from various racetracks in order to create a program
of horse races for its patrons. Such off-track wagering facilities receive a
percentage of each wager placed and must pay a simulcasting fee consisting of a
percentage of each wager placed as compensation to the racetrack from which the
simulcast signal is imported. Off-track wagering facilities must import high-
quality racing simulcasts in order to maximize their revenues and, as a result,
operators of the premier racetracks exporting their racing signals experience
strong demand for simulcasts of their races. Racetracks exporting their signals
negotiate their simulcasting fee on the basis of the strength of the demand for
their simulcast races.
The growth in simulcasting and off-track wagering has been particularly
beneficial to operators of the premier racetracks which have multiple races and
large purses, but has not been of benefit to small and medium sized racetracks.
Operators of multiple racetracks are able to "bundle" the signals from races at
their various racetracks and sell such bundled signals as a package to off-
track wagering facilities. This has the effect of generating greater revenues
for such racetracks, thus enabling larger purses and higher quality racing to
be offered, even at the smaller racetracks owned by such operators. It is
expected that operators of the premier racetracks will continue to increase
their revenues at the expense of small and medium size operators.
Competition from Other Forms of Gaming and Entertainment
Gambling in casinos, riverboats and bingo halls, as well as through state
and provincial lotteries, has increased in recent years, thereby reducing some
revenues which had previously been directed at horse racing. Similarly,
alternative sources of entertainment, such as attendance at or wagering on
professional sports events, also create competition by diverting gaming
revenues to such other forms of activity.
Government Regulation
Horse racing is a highly regulated industry. Individual states control the
operations of racetracks located within such states with the aim of protecting
the public from unfair and illegal gambling practices, extracting taxes,
licensing racetracks and operators and preventing organized crime from
involvement in the industry. Although the specific form may vary, all states
that regulate horse racing do so through a horse racing commission or other
state gambling regulatory authority. Regulatory authorities perform background
checks on all racetrack owners prior to granting the necessary operating
licenses to such persons. Horse owners, trainers, jockeys, drivers, stewards,
judges and backstretch personnel are also subject to licensing by state
authorities. State regulation of horse races extends to virtually every aspect
of racing and usually extends to such details as the presence and placement of
specific race officials, such as timers, placing judges, starters and patrol
judges.
In addition to state regulation of horse racing, the United States
government regulates horse racing through the Interstate Horse Wagering Act of
1978 and the Interstate Wire Act of 1961. As a result of these two statutes,
racetracks can commingle wagers from different racetracks and wagering
facilities and broadcast horse racing events to other licensed establishments.
Furthermore, under the authority provided by these statutes,
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<PAGE>
eight states (Connecticut, Kentucky, Maryland, Nevada, New York, Ohio, Oregon
and Pennsylvania) have permitted the pari-mutuel industry to broadcast races
into homes and have permitted account wagering.
We must satisfy the licensing requirements of various regulatory authorities
in each state where we maintain racetracks and carry on business, including The
California Horse Racing Board, the Nevada Gaming Commission, the Florida
Department of Business and Professional Regulation Division of Pari-Mutuel
Wagering, the Oklahoma Horse Racing Commission, the Ohio State Racing
Commission and, upon completion of the acquisition of the assets of Great Lakes
Downs, the Office of the Racing Commissioner of the Michigan Department of
Agriculture. As part of this regulation, licenses to conduct live horse racing
and to participate in simulcast wagering must be obtained annually and there is
no assurance that such licenses will be granted.
In California, The California Horse Racing Board is responsible for
regulating the form of wagering, the length and conduct of meets and the
distribution of the pari-mutuel wagers within the limits set by the California
legislature. The California Horse Racing Board has annually licensed one of our
subsidiaries, Los Angeles Turf Club, Incorporated, and Oak Tree Racing
Association ("Oak Tree") to conduct racing meets at Santa Anita Racetrack. At
present, the California Horse Racing Board has not licensed other thoroughbred
racetracks in Southern California to conduct racing during these meets.
However, night harness racing and night quarterhorse meets are conducted at
other racetracks in Southern California during portions of these meets. The
California Horse Racing Board also licenses the operations of Golden Gate
Fields. Our financial condition and results of operations could be materially
adversely affected by legislative changes or action by The California Horse
Racing Board which would increase the number of competitive racing days, reduce
the number of racing days available to us and Oak Tree, or authorize other
forms of wagering.
In Florida, the Division of Pari-Mutuel Wagering considers applications for
annual licenses for thoroughbred, standardbred and quarter horse races. Tax
laws in Florida currently discourage the three Miami-area racetracks from
applying for race dates outside of their traditional racing season. Currently,
the race dates for the Miami-area racetracks do not overlap. As of July 1,
2001, we expect that a new tax structure will eliminate this deterrent. As a
result, Gulfstream Park racetrack may face direct competition from other Miami-
area racetracks in the future. Such competition could have a material adverse
effect on our financial condition and results of operations.
In Ohio, the Ohio State Racing Commission approves annual licenses for
thoroughbred, standardbred and quarter horse races. The Ohio State Racing
Commission has not licensed any other operators of thoroughbred racetracks in
the Cleveland area to conduct racing during Thistledown Racetrack's meets.
However, the Ohio State Racing Commission has licensed an operator of a night
harness racing track in the Cleveland area to conduct night harness racing.
In Oklahoma, the Oklahoma Horse Racing Commission approves annual licenses
for thoroughbred, standardbred and quarter horse races. There are currently no
racetracks other than Remington Park in the state of Oklahoma.
Media Sports Wagering
Telephone Account Wagering
Telephone account wagering involves the placing of wagers on live horse
racing events over the telephone. Currently, only eight states permit telephone
account wagering: Connecticut, Kentucky, Maryland, Nevada, New York, Ohio,
Oregon and Pennsylvania. According to the NGISC's June 1999 report, the amount
wagered through telephone account wagering systems in the United States in 1998
was approximately $550 million.
Licensed operators of telephone account wagering must open a "hub" in one of
the eight states in which such wagering is legal, establish accounts for
patrons (who pay their wagers through debit or credit cards) and
37
<PAGE>
receive wagers from such patrons. States permitting telephone account wagering
allow telephone account wagering facilities to accept wagers placed by patrons
residing in such states as well as in states where telephone account wagering
is not permitted.
Interactive Television-Based Wagering
Interactive television-based wagering involves the transmission of horse
racing-related television programming through cable or satellite delivery into
the homes of subscribers. These subscribers are able to use interactive "real-
time" television-based technology to wager on the live horse races being shown
in the program. In order to place wagers, patrons must deposit money with the
sponsoring racetrack through the use of debit or credit cards. Currently, the
same eight states which permit telephone account wagering also permit
interactive television-based wagering. The horse racetrack exporting its live
racing signal is entitled to a simulcast fee based on in-home wagers placed on
its races. There are risks associated with offering interactive television-
based wagering, including those described above in "Risk Factors--Gaming
Risks--Our gaming activities are extensively regulated and this could adversely
affect our growth prospects".
Internet Wagering
The proliferation of personal home computers and increased confidence in
conducting on-line commercial transactions, together with the growth of
Internet gambling opportunities, has resulted in an environment which we
believe is conducive to rapid growth of Internet-based wagering. The NGISC's
June 1999 report estimates that there are over 250 on-line casinos, 64
lotteries, 20 bingo games and 139 sports books offering gambling over the
Internet. The Internet gaming market is estimated to have doubled from
approximately $445 million in 1997 to over $900 million in 1998, according to
Interactive Gaming News, an Internet gaming publication.
The Internet gaming opportunity is significant for several reasons. First,
the Internet operates worldwide and is ideally suited for gaming, which is also
recognized worldwide as a source of entertainment. Second, Internet gaming
provides access to a younger, better-educated segment of the population. Third,
Internet gaming offers a high level of convenience to patrons, in terms of the
ease with which patrons can access races, the audio and visual presentation of
the races and the ease and relative security of placing wagers over secure data
lines. Finally, Internet gaming involves lower investments and operating
expenses than traditional forms of gaming. However, there are risks associated
with offering Internet wagering, including those described above in "Risk
Factors--Gaming Risks--Our gaming activities are extensively regulated and this
could adversely affect our growth prospects".
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<PAGE>
SELECTED FINANCIAL AND OPERATING INFORMATION
The following table sets forth certain of our consolidated and pro forma
consolidated financial data as at and for the periods indicated. The selected
consolidated financial data as at and for the nine months ended September 30,
1999 have been derived from our Unaudited Consolidated Financial Statements as
at and for the nine months ended September 30, 1999, which, in the opinion of
management, include all adjustments (consisting of normal recurring accruals)
necessary to present fairly the information set forth therein. Results for the
nine months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the full year. The selected consolidated
financial data as at and for the three years ended July 31, 1998 and the five
month period ended December 31, 1998 have been derived from and should be read
in conjunction with our Audited Consolidated Financial Statements for the
three-year period ended July 31, 1998 and the five-month period ended December
31, 1998. The pro forma selected consolidated financial data for the year ended
December 31, 1998 and nine months ended September 30, 1999 have been derived
from and should be read in conjunction with our Pro Forma Consolidated
Financial Statements as at and for the nine months ended September 30, 1999 and
the year ended December 31, 1998. The selected financial and operating
information should also be read in conjunction with the section entitled
"Management's Discussion and Analysis of Financial Condition and Operating
Results" included in this prospectus.
Income Statement Data(1)
<TABLE>
<CAPTION>
Pro Forma
Nine Months Pro Forma Nine Months Five Months
Ended Year Ended Ended Ended Years Ended July 31,
September 30, December 31, September 30, December 31, ------------------------------------------
1999 1998 1999 1998 1998 1997 1996 1995 1994
------------- ------------ ------------- ------------ ------- ------- ------- ------- ------
(in thousands of U.S. dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Racetrack............ $127,584 $149,585 $58,954 $ 3,952 $ -- $ -- $ -- $ -- $ --
Real estate.......... 12,167 21,239 12,167 6,597 20,486 15,276 2,460 1,166 121
-------- -------- ------- ------- ------- ------- ------- ------- ------
Total revenue........ 139,751 170,824 71,121 10,549 20,486 15,276 2,460 1,166 121
Costs and Expenses
Racetrack costs and
expenses............ 98,451 126,278 46,292 3,625 -- -- -- -- --
Real estate costs and
expenses............ 12,496 27,355 12,496 8,462 25,864 13,879 4,613 2,713 277
Depreciation and
amortization......... 12,912 18,852 4,676 1,649 1,852 1,824 330 21 22
Interest expense
(income), net........ 717 1,615 264 1,221 1,380 955 (59) (26) 156
-------- -------- ------- ------- ------- ------- ------- ------- ------
Income (loss) before
income taxes......... 15,175 (3,276) 7,393 (4,408) (8,610) (1,382) (2,424) (1,542) (334)
======== ======== ======= ======= ======= ======= ======= ======= ======
Net income (loss)..... $ 7,621 $ (5,739) $ 3,000 $(4,231) $(8,610) $(1,382) $(2,424) $(1,542) (334)
======== ======== ======= ======= ======= ======= ======= ======= ======
Earnings (loss) per
share of Class A
Subordinate Voting,
Class B and
Exchangeable Stock
Basic and
diluted(2).......... $ 0.10 $ (0.07) $ 0.04 $ (0.05) $ (0.11) $ (0.02) $ (0.03) $ (0.02) $(0.00)
======== ======== ======= ======= ======= ======= ======= ======= ======
Average number of
shares of Class A
Subordinate Voting,
Class B and
Exchangeable Stock
outstanding during
the period
(in thousands):
Basic and
diluted(2).......... 80,198 80,198 78,535 78,535 78,535 78,535 78,535 78,535 78,535
======== ======== ======= ======= ======= ======= ======= ======= ======
</TABLE>
- --------
(1) We prepare our financial statements in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP") which differ in certain
respects from accounting principles generally accepted in Canada
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<PAGE>
("Canadian GAAP"). For a discussion of the principal differences between
U.S. GAAP and Canadian GAAP, see Note 15, "Canadian Generally Accepted
Accounting Principles", to our Audited Consolidated Financial Statements.
(2) On December 30, 1999, Magna completed the reorganization described in this
prospectus. As part of the reorganization, our capital structure was
established creating Class A Subordinate Voting Stock with one vote per
share and Class B Stock with 20 votes per share. As of December 30, 1999,
63,712,141 shares of our Class B Stock, 1,662,890 shares of our Class A
Subordinate Voting Stock and 14,823,187 Exchangeable Shares were issued
and outstanding. Our historical basic and diluted earnings (loss) per
share has been calculated assuming that 78,535,328 shares of our Class B
Stock and Exchangeable Shares and none of our Class A Subordinate Voting
Stock were issued and outstanding at the beginning of the periods
presented. Our pro forma basic and diluted earnings (loss) per share has
been calculated assuming that 63,712,141 shares of our Class B Stock, plus
14,823,187 Exchangeable Shares exchangeable into 14,823,187 shares of our
Class A Stock and 1,662,890 shares of our Class A Subordinate Voting Stock
(issued in connection with the acquisitions of the Thistledown and Golden
Gate Fields racetracks) were issued and outstanding at the beginning of
the periods presented.
Balance Sheet Data(1)
<TABLE>
<CAPTION>
Pro Forma July 31,
September 30, September 30, December 31, -----------------------------------------
1999 1999 1998 1998 1997 1996 1995 1994
------------- ------------- ------------ -------- -------- ------- ------- -------
(in thousands of U.S. dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............. $ 63,158 $ 23,544 $ 17,503 $ 295 $ 220 $ 133 $ 521 $ 1,338
Note receivable from
Magna................... -- 146,862 -- -- -- -- -- --
Total assets............. 736,716 693,455 364,142 184,802 113,175 76,219 51,636 28,770
Total debt(2)............ 43,423 65,333 32,335 19,495 18,938 22,614 12 --
Magna's net
investment/shareholder's
equity.................. 553,570 545,888 302,502 158,275 87,917 49,985 48,166 27,226
</TABLE>
- --------
(1) We prepare our financial statements in accordance with U.S. generally
accepted accounting principles ("U.S. GAAP") which differ in certain
respects from accounting principles generally accepted in Canada
("Canadian GAAP"). For a discussion of the principal differences between
U.S. GAAP and Canadian GAAP, see Note 15, "Canadian Generally Accepted
Accounting Principles", to our Audited Consolidated Financial Statements.
(2) Total debt includes Bank indebtedness, Long-term debt (including Long-term
debt due within one year) and Note payable to Magna.
The matters discussed under the heading "Reorganization" below may
materially affect the comparability of some of the foregoing selected
financial data. Accordingly, please refer to such section for details of the
terms of the Reorganization.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND OPERATING RESULTS
The following discussion of our financial condition and operating results
should be read in conjunction with the Pro Forma Consolidated Financial
Statements, Unaudited Consolidated Financial Statements and Audited
Consolidated Financial Statements included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve significant risks
and uncertainties. Our actual results could differ materially from those
projected in or contemplated by the forward-looking statements due to a number
of factors, including, but not limited to those described under "Risk Factors"
elsewhere in this prospectus. See "Special Note Regarding Forward-Looking
Information" in this prospectus.
Overview
We acquire, develop and operate horse racetracks and related pari-mutuel
wagering operations. As a complement to our horse racing business, we are
exploring the development of media sports wagering operations, including
telephone account, interactive television and Internet-based wagering, as well
as certain leisure and retail-based real estate projects on the excess land
around certain of our racetracks, possibly in conjunction with business
partners and subject to regulatory requirements. In addition, we own a real
estate portfolio which includes a "gated" residential community currently under
development, one operational golf course and related recreational facilities, a
golf course under development and other real estate. We are currently
considering a variety of options with respect to such golf courses, including
direct operation or leasing to third party operators, as well as sale and
leaseback transactions or outright sale. We intend gradually to sell the
balance of our real estate portfolio in order to provide capital to be used in
our business; accordingly, we will take steps such as servicing such land and
obtaining zoning approval to enhance the value of such properties and increase
the revenues from resale.
Racetrack operations
We acquired Santa Anita Park located in Arcadia, California, approximately
14 miles northeast of Los Angeles, one of the premier horse racetracks in North
America, in December 1998. Santa Anita Park operates through the prime winter
racing season, commencing December 26 and running into late April each year. In
addition, we lease Santa Anita Park to Oak Tree Racing Association which hosts
The Oak Tree Meet from the end of September through early November of each
year.
On September 1, 1999, we acquired Gulfstream Park, also one of the premier
horse racetracks and pari-mutuel wagering facilities in North America and the
host site of the Breeders' Cup held November 6, 1999, located in the cities of
Hallandale and Aventura, Florida, between Miami and Fort Lauderdale. Gulfstream
Park operates through early January to mid-March of each year.
On November 12, 1999, we acquired the Thistledown and Remington Park
racetracks in North Randall, Ohio and Oklahoma City, Oklahoma, respectively.
Thistledown has one of the longest racing seasons of all North American
racetracks, consisting of 187 racing days each year between mid-March and early
December of each year. Remington Park offers both a 40-day Quarter Horse meet
from mid-April to mid-June and an 82-day Thoroughbred Horse meet from mid-
August to early December of each year. The aggregate purchase price was $24.0
million, of which $19.5 million was paid in cash and $4.5 million was paid
through the issuance of 650,695 shares of our Class A Subordinate Voting Stock.
On December 10, 1999, we acquired the Golden Gate Fields racetrack in Albany
and Berkeley, California, approximately 8 miles from downtown Oakland and
approximately 11 miles from San Francisco. The purchase price was $87.0
million, of which $60.0 million was paid in cash, $7.0 million was paid through
the issuance of 1,012,195 shares of our Class A Subordinate Voting Stock and
$20.0 million was paid by way of an interest-free promissory note, $10.0
million of which matures on the first anniversary of the date of closing and
$5.0 million of which matures on the second and third anniversaries. Golden
Gate Field's racing season
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<PAGE>
consists of two meets, one of which runs from late March to mid-June and the
other of which runs from mid-November to mid-January of each year.
Finally, we have entered into an agreement with Great Lakes Downs, Inc. and
Great Lakes Downs Cafe, Inc. to acquire the assets and assume certain
liabilities of Great Lakes Downs racetrack in Muskegon, Michigan for a purchase
price of $1.7 million, payable by the issuance of 246,287 shares of our Class A
Subordinate Voting Stock. Great Lakes Downs, which began operations in January
1999, offers a total of 134 live racing days beginning in April and ending in
November of each year. We expect to complete this acquisition in late January
2000.
We refer you to our Pro Forma Consolidated Financial Statements which
consolidate on a pro forma basis the acquisitions of Santa Anita Park,
Gulfstream Park, Thistledown, Remington Park and Golden Gate Fields with our
operations as at and for the nine months ended September 30, 1999 and the
twelve months ended December 31, 1998. On a pro forma basis, our revenues
increased by $68.6 million and our net income increased by $4.6 million for the
nine months ended September 30, 1999 resulting in total pro forma consolidated
revenues of $139.8 million and net income of $7.6 million. On a pro forma
basis, our revenues increased by $145.6 million and our net loss was reduced by
$4.7 million for the twelve months ended December 31, 1998, resulting in total
pro forma consolidated revenues of $170.8 million and a net loss of
$5.7 million.
Because of the seasonal nature of our racetrack business, revenues and
operating results for any interim quarter are not indicative of the revenues
and operating results for the year. Our live racing schedule also dictates that
we earn a substantial portion of our net earnings in the first quarter of each
year which is when The Santa Anita Park Meet and the annual meet at Gulfstream
Park occur as well as the fourth quarter of each year, which is when The Oak
Tree Meet and one of the two annual meets at Golden Gate Fields occurs.
Our primary sources of racetrack revenues are commissions earned from pari-
mutuel wagering. Pari-mutuel wagering on horse racing is pooled betting in
which individuals bet against each other as to what the outcome of a horse race
will be. We have no interest in the order of finish in any given race and
therefore have no risk in the outcome. A percentage of the pooled wagers is
retained by us. Our share of pari-mutuel wagering revenues is based on pre-
determined percentages of various categories of the pooled wagers at our
racetracks. The pre-determined percentages are set by state regulators. Pari-
mutuel wagering on horse racing occurs at horse racetracks on the races being
conducted at such tracks as well as at such racetracks on televised racing
signals ("simulcasts") received or "imported" by the simulcast wagering
facilities located at such tracks (collectively, "on-track wagering"). Pari-
mutuel wagering on horse racing also occurs at wagering establishments on horse
races being conducted at tracks elsewhere ("off-track wagering"). Our
racetracks have simulcast wagering facilities to complement our live horse
racing by enabling our patrons to wager on horse races being held at other
racetracks when there is no live racing occurring at our racetracks. We also
generate non-wagering revenues consisting primarily of food and beverages,
programs, admissions, parking, and other amounts.
Real estate operations
We are currently developing a gated residential community, known as Fontana,
situated amidst a golf course and related recreational facilities owned and
operated by us. This residential development consists of approximately 50 acres
and is located in Oberwaltersdorf, Austria, approximately 15 miles south of
Vienna. The Fontana residential development is being developed in two phases
into a luxury residential community consisting of 250 apartment units and 100
single-family homes. We expect to complete the second phase of the Fontana
residential project by 2006. We hold two golf courses, Fontana Sports, which is
part of the Fontana residential development property and is in operation, and
Aurora Downs in Aurora, Canada which is currently under construction. We are
currently considering a variety of options with respect to such golf courses,
including direct operation or leasing to third party operators, as well as sale
and leaseback transactions (which would require that Magna not exercise its
right of first refusal) or outright sale. We intend gradually to sell the
42
<PAGE>
balance of our real estate portfolio, excluding lands adjacent to our
racetracks, in order to provide capital to be used in our business;
accordingly we are currently servicing, improving and seeking zoning for some
of these properties in order to enhance their value on resale.
Results of operations
Nine month periods ended September 30, 1999 and 1998
Racetrack operations
Revenues from our racetrack operations were $59.0 million for the nine
month period ended September 30, 1999. Santa Anita Park and San Luis Rey Downs
contributed revenues of $58.5 million and $0.5 million, respectively. No
revenues were earned at Gulfstream Park during the nine month period ended
September 30, 1999, since the racetrack's operations are only reflected in our
consolidated results from the date of acquisition, September 1, 1999, and no
racing occurred in the month of September 1999. We earned no revenues from our
racetrack operations in the comparable 1998 period as Santa Anita Park, San
Luis Rey Downs and Gulfstream Park were acquired in December 1998, May 1999
and September 1999, respectively.
In the current period, our share of total pari-mutuel wagering revenues for
Santa Anita Park was $40.2 million and non-wagering revenues at Santa Anita
Park were $18.3 million.
We derive our pari-mutuel wagering revenues at Santa Anita Park from the
following primary sources:
(a) Live race days
. wagers made by patrons at Santa Anita Park on races held at Santa
Anita Park;
. wagers made by patrons at Santa Anita Park on imported simulcast
signals for races held at other tracks in Southern California,
Northern California and at tracks out-of-state;
. wagers made by patrons at Southern California Off-track Wagering,
Inc. ("SCOTWINC") sites on exported simulcast signals for races held
at Santa Anita Park and on races held at tracks in Northern
California and on races held at tracks out-of-state in each case when
the Santa Anita Park or Oak Tree meets are operating; and
. wagers made by patrons at an out-of-state site on exported simulcast
signals for races held at Santa Anita Park.
(b) Non-live race days
. we participate in the revenues of SCOTWINC sites - SCOTWINC is an
organization formed by representatives of the racing associations,
fairs and satellite wagering facilities of Southern California to
promote off-track wagering and to equitably divide expenses
associated with off-track betting. We also receive a percentage of
the net profit of SCOTWINC - this helps defray the costs of off-track
wagering, such as pari-mutuel departments, television and satellite
costs, and supplies. The excess SCOTWINC funds that are not
distributed are split equally between the track and the horsemen.
Santa Anita owns 27% of the stock of SCOTWINC.
The distribution of pari-mutuel wagering for the nine months ended
September 30, 1999 is summarized below (in millions except number of live race
days):
<TABLE>
<CAPTION>
Nine months ended
September 30, 1999
------------------
<S> <C>
Total live race day handle................................... $857.2
======
Number of live race days..................................... 81
======
Our share of live race day handle............................ $ 35.9
Our share of non-live race day handle and other.............. 4.3
------
Total pari-mutuel wagering revenue........................... $ 40.2
======
</TABLE>
43
<PAGE>
Our total handle has been positively impacted by the development of SCOTWINC
and betting at Santa Anita Park on out-of-state races. With the exception of
1997, total wagering has shown an increase since 1994.
Our share of pari-mutuel handle improved in 1999 primarily as a result of
recent changes in the allocation of the handle. On August 11, 1998, the
California Senate passed Bill Number SB27, which gave racetracks in California
a reduction in the state license fees to be paid from the handle and permission
to import up to 20 races per day from out-of-state. The reduction in the amount
of handle allocated to the state resulted in an increase in allocation to us as
well as to purses. The permission to import out-of-state races is significant,
as previously, the only imported races which were wagered on in California were
from outside the U.S., primarily Hong Kong and Australia.
Racetrack costs and expenses were $46.3 million. Santa Anita Park,
Gulfstream and San Luis Rey Downs incurred costs and expenses of $45.3 million,
$0.5 million and $0.5 million, respectively. The major components of Santa
Anita Park costs and expenses were payroll costs ($27.2 million) and marketing
and advertising costs ($5.0 million) representing approximately 70% of our
total costs. Gulfstream Park costs and expenses were minimal during the nine
month period ended September 30, 1999, since the racetrack's costs are only
reflected in our consolidated results from the date of acquisition, September
1, 1999, and no racing occurred in the month of September 1999. With the
acquisition of Gulfstream Park, Thistledown, Remington Park and Golden Gate
Fields, we intend to continue to implement our strategy which includes the
consolidation of our racetrack acquisitions with the objective of maximizing
administrative and other cost efficiencies at our racetracks.
Real estate operations
Revenues from our real estate operations were $12.2 million for the nine
month period ended September 30, 1999 compared to $17.2 million for the nine
month period ended September 30, 1998. The decrease is primarily attributable
to a reduction in housing activity at the Fontana residential development which
is nearing completion of the first phase of a two phase development plan.
Partially offsetting the decrease in revenues was increased membership and
other usage revenue at Fontana Sports, including $1.6 million related to
Magna's access fee agreement with Fontana Sports which commenced March 1, 1999.
We also generated increased rental revenues on certain properties acquired
during the comparative period. Revenues from our remaining real estate
operations were substantially unchanged.
Real estate costs and expenses were $12.5 million for the nine month period
ended September 30, 1999 compared to $21.9 million for the nine month period
ended September 30, 1998. The reduction is attributable to the decrease in
housing activity at the Fontana residential development. In addition, we
incurred costs in the nine month period ended September 30, 1998 related to the
potential development of a theme park on approximately 670 acres of our land in
Ebreichsdorf near Vienna, Austria which was acquired by us during the year
ended July 31, 1997. Costs included consultants' fees associated with
feasibility studies, alternative theme park designs, market analysis,
presentation brochures, site models and alternative site investigations. In May
1999, we announced that we were unable to obtain the various permits and
approvals that would have been required to potentially develop this property as
a theme park. As a result, we are re-assessing the potential uses for the
property. Costs incurred in the nine month period ended September 30, 1999 were
substantially reduced.
Costs and expenses of our remaining real estate operations were
substantially unchanged.
Depreciation and amortization
Depreciation and amortization increased by $2.9 million to $4.7 million for
the nine month period ended September 30, 1999, primarily as a result of
depreciation related to our acquisitions of Santa Anita Park on December 10,
1998, San Luis Rey Downs on May 1, 1999 and Gulfstream Park on September 1,
1999 and a full nine months of depreciation on properties acquired in calendar
1998. As of September 30, 1999, certain properties have been classified as
available for sale and depreciation has ceased on such properties.
44
<PAGE>
Interest expense, net
Our net interest expense decreased by $0.9 million to $0.3 million for the
nine month period ended September 30, 1999 compared to the nine month period
ended September 30, 1998, primarily as a result of higher interest income. The
increase in interest income is attributable to intercompany interest earned on
our note receivable from Magna.
Income tax provision
We recorded an income tax provision of $4.4 million on pre-tax income of
$7.4 million for the nine month period ended September 30, 1999 compared to nil
on a pre-tax loss of $7.6 million for the nine month period ended September 30,
1998. Our income tax provision relates solely to the income of our racetrack
operations. The losses of our other operations have not been tax benefited for
accounting purposes.
Five month periods ended December 31, 1998 and 1997
Racetrack operations
Revenues from our racetrack operations were $4.0 million for the five month
period ended December 31, 1998, all of which related to the operations of Santa
Anita Park. There were only five racing days during the five month period ended
December 31, 1998 as the Santa Anita Park meet did not commence until December
26, 1998. We earned no revenues from our racetrack operations in the comparable
1997 period as Santa Anita Park was acquired in December 1998.
Our share of pari-mutuel wagering was $2.5 million and non-wagering revenues
were $1.4 million. The distribution of pari-mutuel wagering for the last five
racing days of 1998 is summarized below (in millions except number of live race
days):
<TABLE>
<CAPTION>
Five racing
days ended
December 31,
1998
------------
<S> <C>
Total live race day handle......................................... $61.4
=====
Number of live race days........................................... 5
=====
Our share of live race day handle.................................. $ 2.2
Our share of non-live race day handle and other.................... 0.3
-----
Total pari-mutuel wagering revenue................................. $ 2.5
=====
</TABLE>
Racetrack costs and expenses were $3.6 million, all of which related to our
operation of Santa Anita Park. The major components of the Santa Anita Park's
costs and expenses were payroll costs ($1.8 million) and marketing and
advertising costs ($0.3 million) representing approximately 58% of our total
costs.
Real estate operations
Revenues from our real estate operations were $6.6 million for the five
month period ended December 31, 1998 compared to $5.8 million for the five
month period ended December 31, 1997. The increase in revenues is primarily
attributable to rental revenues earned on recently acquired properties.
Revenues from the Fontana residential development, Fontana Sports and other
real estate operations were substantially unchanged between the periods.
Real estate costs and expenses were $8.5 million for the five month period
ended December 31, 1998 compared to $7.0 million for the five-month period
ended December 31, 1997. The increase in costs and expenses is attributable to
a change in the mix between apartment and housing sales at the Fontana
residential development. The costs and expenses of our remaining real estate
operations were substantially unchanged between the periods.
45
<PAGE>
Depreciation and amortization
Depreciation and amortization increased by $0.9 million to $1.6 million for
the five month period ended December 31, 1998, primarily as a result of
depreciation related to our acquisition of Santa Anita Park on December 10,
1998 and a full five months of depreciation on properties acquired in calendar
1998.
Interest expense, net
Our net interest expense increased by $0.7 million to $1.2 million for the
five month period ended December 31, 1998 compared to the five month period
ended December 31, 1997. The increase in interest expense is primarily
attributable to an increase in interest bearing borrowings from Magna to
finance the acquisition of Santa Anita Park. Such borrowings were converted to
equity in 1999.
Income tax recovery
We recorded an income tax recovery of $0.2 million on a pre-tax loss of $4.4
million for the five month period ended December 31, 1998 compared to nil on a
pre-tax loss of $2.4 million for the five month period ended December 31, 1997.
Our income tax recovery relates solely to the losses of Santa Anita Park from
the date of acquisition to December 31, 1998. The losses of our other
operations have not been tax benefited for accounting purposes. The tax
benefits of certain of these losses have been utilized by Magna and are not
available to us and valuation allowances have been recorded against the
remaining tax loss carryforward benefits.
Years ended July 31, 1998 and 1997
Real estate operations
Revenues from our real estate operations were $20.5 million for the year
ended July 31, 1998 compared to $15.3 million for the year ended July 31, 1997.
Substantially all of the increase is attributable to an increase in housing
activity at the Fontana residential development and increased membership and
usage at Fontana Sports. Revenues from our remaining real estate operations
were substantially unchanged.
Real estate costs and expenses were $25.9 million for the year ended July
31, 1998 compared to $13.9 million for the year ended July 31, 1997. The
increase relates to costs and expenses at the Fontana residential development
and Fontana Sports. In addition, we incurred costs in the year ended July 31,
1998 related to the potential development of a theme park on approximately 670
acres of our land in Ebreichsdorf near Vienna, Austria. We acquired this
property during the year ended July 31, 1997. Costs in the acquisition year
were insignificant.
Depreciation and amortization
Depreciation and amortization was substantially unchanged between the years
ended July 31, 1998 and 1997.
Interest expense, net
Our net interest expense increased by $0.4 million to $1.4 million for the
year ended July 31, 1998 compared to the year ended July 31, 1997. The increase
is attributable to an increase in external debt and interest bearing debt due
to Magna related to properties acquired in the years ended July 31, 1998 and
1997.
Income tax recovery
We did not record a tax benefit on pre-tax losses of $8.6 million and $1.4
million for the years ended July 31, 1998 and 1997, respectively. The tax
benefits of certain of these losses have been utilized by Magna and are not
available to us and valuation allowances have been recorded against the
remaining tax loss carryforward benefits.
46
<PAGE>
Years ended July 31, 1997 and 1996
Real estate operations
Revenues from our real estate operations were $15.3 million for the year
ended July 31, 1997 compared to $2.5 million for the year ended July 31, 1996.
The year ended July 31, 1997 was the first year of substantial sales activity
at the Fontana residential development and at Fontana Sports.
Real estate costs and expenses were $13.9 million for the year ended July
31, 1997 compared to $4.6 million for the year ended July 31, 1996. The
increase in costs and expenses is primarily attributable to building activity
at the Fontana residential development and the opening of Fontana Sports.
Depreciation and amortization
Depreciation and amortization increased by $1.5 million to $1.8 million for
the year ended July 31, 1997 compared to the year ended July 31, 1996,
primarily as a result of the opening of Fontana Sports.
Interest expense, net
Our net interest expense was $1.0 million for the year ended July 31, 1997
compared to net interest income of $0.1 million for the year ended July 31,
1996. The $1.1 million increase in interest expense is attributable to external
debt associated with the Fontana residential development and Fontana Sports,
which debt was drawn late in the year ended July 31, 1996, and an increase in
interest bearing debt due to Magna.
Income tax recovery
We did not record any tax benefit on pre-tax losses of $1.4 million and $2.4
million for the years ended July 31, 1997 and 1996, respectively. The tax
benefits of certain of these losses have been utilized by Magna and are not
available to us and valuation allowances have been recorded against the
remaining tax loss carryforward benefits.
Liquidity and Capital Resources
With the exception of the nine month period ended September 30, 1999, we
have generated negative cash flow from operations since inception. We have
financed our operations primarily through contributions by our sole
shareholder, Magna. Magna has made a commitment to its shareholders that for a
period of seven years ending May 31, 2006, it will not without the prior
consent of the holders of a majority of Magna's Class A Subordinate Voting
Shares:
(i) make additional debt or equity investments in us or any of our
subsidiaries; or
(ii) invest in any non-automotive related businesses or assets other than
through its investment in us.
Given the above-described commitment by Magna to its shareholders, we will
be required to fund our own operations.
At September 30, 1999, we had cash and cash equivalents (including our note
receivable from Magna less our note payable to Magna) net of debt, of $105.1
million and total shareholder's equity of $545.9 million.
On November 12, 1999, we acquired the Thistledown and Remington Park
racetracks for a total purchase price of $24.0 million. Of the total purchase
price, $19.5 million was paid in cash and $4.5 million was paid through the
issuance of 650,695 shares of our Class A Subordinate Voting Stock.
On December 10, 1999, we also acquired the Golden Gate Fields racetrack for
a total purchase price of $87 million. Of the total purchase price, $60.0
million was paid in cash, $7.0 million was paid through the issuance of
1,012,195 shares of our Class A Subordinate Voting Stock and $20.0 million was
paid by way of
47
<PAGE>
an interest-free promissory note, $10.0 million of which matures on the first
anniversary of the date of closing and $5.0 million of which matures on the
second and third anniversaries.
After giving pro forma effect, as of September 30, 1999, to the various
transactions described above and in the notes to the Pro Forma Consolidated
Financial Statements, we had cash and cash equivalents, net of debt of $15.7
million and total shareholder's equity of $553.6 million.
On December 22, 1999, we successfully completed the negotiation of two
credit facilities--a $63 million three year term loan facility and a
$10 million revolving operating line of credit, both of which would bear
interest at rates ranging between the U.S. Prime Rate and LIBOR plus 2.2% per
annum.
As of September 30, 1999, our real estate portfolio totals $441.8 million.
Included in this amount are properties available for sale totaling $81.2
million and properties under or held for development totaling $173.3 million,
components of which could be made available for sale. In addition, revenue
producing properties total $168.1 million and include the Fontana Sports
facilities and horse racing facilities at Santa Anita Park, Gulfstream Park,
and San Luis Rey Downs. We are currently considering a variety of options with
respect to our golf courses, including direct operation or leasing to third
party operators, as well as sale and leaseback transactions (which would
require that Magna not exercise its right of first refusal) or outright sales.
Excluding the costs of the acquisitions described earlier, we currently
anticipate capital expenditures of approximately $20.0 million during the
remaining three months of 1999. Most of the capital expenditures relate to
completion of the capital renovation program at Santa Anita Park and completion
of Aurora Downs.
We believe that our current cash resources, together with cash flow from
operations from our racetrack activities, cash available under the credit
facilities described above and cash proceeds to be realized upon sale of a
portion of our real estate portfolio will be sufficient to finance our capital
expenditure and acquisition program during the next year. However, we can
provide no assurance that we will not be required to seek additional capital at
an earlier date. We may, from time to time, seek additional debt and/or equity
financing through public or private sources. If additional funds are raised or
future acquisitions are effected by issuing our shares, you will experience
dilution of your interest. There is no assurance that adequate debt and/or
equity financing will be available to us as needed or, if available, on terms
acceptable to us. If adequate financing is not available, our business,
financial condition and results of operations could be materially adversely
effected.
Operating activities
Cash provided by (used in) operations was $1.2 million, $(1.3) million,
$(7.9) million, $(3.9) million and $(3.6) million for the nine month period
ended September 30, 1999, the five month period ended December 31, 1998, and
the years ended July 31, 1998, 1997, and 1996, respectively. Cash provided by
operations in the nine month period ended September 30, 1999 is a result of
cash generated by our Santa Anita Park operations of $6.1 million, offset by
cash usages at our other operations. For all periods prior to January 1, 1999,
we incurred losses resulting in negative cash flow from operations.
Investing activities
Cash used in investing activities was $269.0 million, $136.7 million, $72.6
million, $43.6 million and $25.1 million for the nine month period ended
September 30, 1999, the five month period ended December 31, 1998, and the
years ended July 31, 1998, 1997, and 1996, respectively.
During the nine month period ended September 30, 1999, $87.6 million was
used for business acquisitions, consisting of $81.2 million to acquire
Gulfstream Park and $6.4 million to acquire the real estate assets of San Luis
Rey Downs, and $33.7 was spent on real estate property additions which include
spending on the capital renovation program at Santa Anita Park. In addition,
$146.9 million was loaned to Magna and is reflected as a note receivable as at
September 30, 1999. The note is due on demand and bears interest at the U.S.
Prime Rate less 1% per annum. During the five month period ended December 31,
1998, $118.6 million was used to acquire Santa Anita Park and related real
estate and $17.9 million was spent on real estate property
48
<PAGE>
additions which include land and related development spending in connection
with the Aurora Downs project. During the year ended July 31, 1998, $72.5
million was spent on real estate property additions primarily in Austria and
Canada. During the year ended July 31, 1997, real estate property additions
totaled $41.5 million including the purchases of a 250 hectare parcel of land
near Vienna, Austria and various other properties in Canada. During the year
ended July 31, 1996, $24.2 million was spent on real estate property additions
including development costs at Fontana Sports.
Financing activities
Cash provided by financing activities was $273.8 million, $155.2 million,
$80.6 million, $47.6 million and $28.4 million for the nine month period ended
September 30, 1999, the five month period ended December 31, 1998, and the
years ended July 31, 1998, 1997, and 1996, respectively. Cash provided by
financing activities has been primarily through contributions by Magna. On
September 1, 1999, Magna invested an additional $250.0 million in cash, by way
of equity contribution, in the Company. Of this amount, $146.9 million was
loaned back to Magna as described above. Also during the nine month period
ended September 30, 1999, Magna provided financing of $35.2 million through a
short-term note. Other sources of cash include a bank term line of credit for
240 million Austrian Schillings ($18.8 million), short term debt of $6.8
million assumed on the acquisition of Gulfstream Park, and mortgages with
various Austrian banks and local governments totaling $5.9 million at September
30, 1999. The bank term line of credit was used to finance the Fontana
residential and Fontana Sports developments, and is repayable in six annual
installments of 40 million Austrian Schillings, which began July 31, 1997. The
short term debt assumed on the acquisition of Gulfstream Park is repayable on
February 16, 2000. The mortgages arose during the year ended July 31, 1998 and
are repayable over various periods to the year 2037.
Outlook
Through the implementation of our strategy, we have become one of the
leading consolidators of premier racetracks in North America. We expect that
the ownership of multiple racetracks will result in cost efficiencies in
administration, purchasing and other areas. We expect growth in the revenues of
our racetracks through an increase in our simulcast programming to telecast
horse racing throughout the year and the bundling of simulcast signals from all
of our racetracks. The bundling of our simulcast signals will increase the
exposure of, and the handle at, our smaller racetracks, thereby increasing the
revenues available to us to further enhance the quality of the horse racing we
offer at such tracks.
We intend to market our bundled simulcast product through a single signal
marketed under the MI Entertainment Corp. brand name. In addition, we intend to
explore the expansion of our sports wagering products to sports other than
horse racing as we expand our involvement in telephone account, interactive
television and Internet-based wagering, possibly in conjunction with strategic
partners and subject to regulatory approval. Finally, we expect that our role
as a horse racing industry consolidator and our branding strategy will open up
potentially lucrative merchandising, licensing and marketing opportunities
which will increase our revenues.
We currently own a diverse portfolio of real estate properties in North
America and Europe. We intend to complete the second phase of the Fontana
residential property development by 2006 and complete the Aurora Downs golf
course by May 2001. We expect that the Aurora Downs golf course and Fontana
Sports facility will significantly enhance the resale value of lands adjacent
to both of these facilities. We intend to sell some of our real estate
properties as market conditions permit and are taking steps to maximize the
revenues derived from these properties on future resale. Our ability to sell
these properties will be enhanced by a number of factors including the current
positive economic climate which is producing strong levels of economic activity
and job creation and low interest rates both generally and in the regions in
which we hold such real estate. In addition, we believe the location of such
real estate enhances our ability to sell. However, notwithstanding the above,
there can be no assurance that we will be successful in our efforts to sell
these properties.
For further information as to our business outlook, see "Our Strategy" in
this prospectus.
49
<PAGE>
Year 2000 Issue
Certain computer software and microprocessors use two digits rather than
four digits to define the applicable year. Any computer programs that have
date-sensitive software and microprocessors may recognize a date using "00" as
a year other than the year 2000. This phenomenon (the "Year 2000 Issue") could
cause a disruption of our operations, including among other things,
interruptions in pari-mutuel wagering.
The total cost of our remediation to address the Year 2000 Issue is
currently estimated to have been $1.388 million, of which $1.338 million was
capitalized and the remainder expensed. Of these amounts, $1.142 million was
incurred through September 30, 1999, of which $1.122 million was capitalized
and the remainder was expensed. Substantially all of the remaining expenditures
were made prior to December 31, 1999. Further, of the total amount, $0.5
million was incurred by certain of the operations prior to their acquisition by
us.
We believe that every reasonable effort has been made to resolve the Year
2000 Issue and to mitigate its potential effects on our business. Based on our
current assessment, we believe that the Year 2000 Issue has not, and will not
have a material adverse impact on our results of operations and financial
condition but, given the inherent complexities of the issue, there can be no
assurance of this.
Accounting Developments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.133, "Accounting for Derivative Instruments"
("SFAS No. 133"). SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 requires that we recognize all derivatives either as assets or
liabilities and measure those instruments at fair market value. We have not
determined the impact, if any, of this pronouncement on our financial position
and results of operations.
50
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary exposure to market risk (or the risk of loss arising from
adverse changes in market rates and prices, such as interest rates, foreign
currency exchange rates and commodity prices) is with respect to our
investments in companies with a functional currency other than the U.S. dollar.
Fluctuations in the U.S. dollar exchange rate relative to the Canadian dollar
and Euro will result in fluctuations in shareholder's equity and comprehensive
income. We do not enter into derivative financial instruments for hedging or
trading purposes.
51
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets out our unaudited consolidated and pro forma
consolidated capitalization as at September 30, 1999 and December 15, 1999. The
table should be read in conjunction with the Unaudited Consolidated Financial
Statements and the Pro Forma Consolidated Financial Statements and related
notes found elsewhere in this prospectus.
<TABLE>
<CAPTION>
Actual Pro Forma Actual
September 30, September 30, December 15,
1999 1999 1999
------------- ------------- ------------
(in thousands of U.S. dollars)
<S> <C> <C> <C>
Short-term debt
Bank indebtedness............... $ 7,774 $ 7,774 $ 4,001
Note payable to Magna........... 35,240 -- --
Long-term debt due within one
year........................... 10,157(1) 10,157 18,531(1)(2)
Long-term debt.................... 12,162(1) 29,492(2) 20,025(1)(2)
Shareholder's Equity
Magna's net investment.......... 545,888 -- --
Share capital................... -- 553,570 553,570(3)
-------- -------- --------
Total capitalization.............. $611,221 $600,993 $596,127
======== ======== ========
</TABLE>
- --------
(1) Our actual Long-term debt (including amounts due within one year) consists
of: (i) a line of credit denominated in Austrian Schillings bearing
interest at VIBOR plus 0.625% per annum, of which $9,346,000 and $8,735,000
was drawn as at September 30, 1999 and December 15, 1999, respectively;
(ii) bank term line of credit bearing interest at LIBOR plus 1.25% per
annum, in respect of which $6,800,000 was owed at September 30, 1999 and
December 15, 1999; (iii) mortgages outstanding with various Austrian banks
and local governments bearing interest at rates ranging from 0.5% to 6.75%
per annum, in respect of which $5,896,000 and $5,465,000 was owed at
September 30, 1999 and December 15, 1999, respectively; and (iv) a term
loan bearing interest at a fixed rate of 4% per annum, in respect of which
$277,000 and $226,000 was owed at September 30, 1999 and December 15, 1999,
respectively.
(2) Our Pro Forma Long-term debt (including amounts due within one year)
includes the amounts referred to in note (1) above plus $17,330,000
representing the discounted value of the $20,000,000 non-interest bearing
note issued on the acquisition of Golden Gate Fields based on a discount
rate of 8.7%.
(3) Excluding net income earned or losses incurred or change in currency
translation adjustment, all from September 30, 1999.
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<PAGE>
REORGANIZATION
On November 5, 1999, Magna completed a reorganization of our corporate
structure (the "Reorganization") under which Magna's North American and
European non-automotive businesses and real estate assets were transferred to
us, including the following:
1. All the outstanding capital stock of The Santa Anita Companies, Inc.,
which owns all the outstanding capital stock of the Los Angeles Turf
Club, Inc., the operator of the Santa Anita Park racetrack in
California, and approximately 305 acres of related real estate.
2. All the outstanding capital stock of Magna Vierte Beteiligungs AG, which
operates the Fontana Sports golf course and related recreational
facilities and is developing the adjacent Fontana residential
development in Oberwaltersdorf, Austria.
3. All the outstanding capital stock of Magna Projektentwicklungs AG,
which, through a subsidiary, owns a parcel of land held for development
in Ebreichsdorf, Austria.
4. Rights to acquire approximately 160 acres of land and improvements in
Aurora, Ontario under a conditional sale agreement with Magna, which is
subject to the successful severance of the affected properties. An
additional 200 acres, which comprise Aurora Downs, the 18-hole golf
course currently under construction, is also subject to a conditional
sale agreement with a company associated with the members of the family
of Frank Stronach, our Chairman and Chief Executive Officer.
5. Various other parcels of land and improvements and other non-automotive
assets located in North America and Europe.
During the course of the Reorganization, Magna transferred assets and
settled certain intercompany indebtedness through the issuance of approximately
$300 million of shares of our stock. Magna also subscribed for shares of our
stock by way of a cash payment of $250 million. Our Certificate of
Incorporation was then amended to add share provisions for our Class A
Subordinate Voting Stock and Class B Stock and our outstanding stock was then
reclassified and further subdivided into shares of Class B Stock. On December
30, 1999, 14,823,187 shares of our Class B Stock held by Magna were repurchased
by us for $110,000,000. On this date, $110,000,000 was invested by Magna in
Exchangeco in return for 14,823,187 Exchangeable Shares.
On December 30, 1999, there were 63,712,141 shares of our Class B Stock,
1,662,890 shares of our Class A Subordinate Voting Stock and 14,823,187
Exchangeable Shares outstanding. In connection with our agreement to acquire
the assets and assume certain liabilities of Great Lakes Downs racetrack, we
have agreed to issue a total of 246,287 additional shares of our Class A
Subordinate Voting Stock.
Upon completion of the distribution, Magna will own all our Class B Stock,
which means that Magna will be entitled to exercise approximately 99% of the
total votes attached to all our outstanding stock. Magna will therefore
continue to be able to elect all our directors and continue to control us. See
"Corporate Structure" for a chart illustrating our corporate structure after
giving effect to the Reorganization.
Corporate Structure
We were incorporated on March 4, 1999 under the laws of the State of
Delaware as MI Venture Inc. Our certificate of incorporation was amended by
certificate of amendment on August 30, 1999 to reclassify our Common Stock into
Class A Common Stock and add a new class of stock designated as Class C Common
Stock. Our certificate of incorporation was further amended on November 4, 1999
to change our name to MI Entertainment Corp., add share provisions for our
Class A Subordinate Voting Stock and Class B Stock and reclassify and further
subdivide our outstanding stock into shares of Class B Stock. Our registered
and corporate office is located at 1209 Orange Street, Wilmington, Delaware,
19801 and our principal executive office is located at 285 West Huntington
Drive, Arcadia, California 90017.
53
<PAGE>
The following chart shows our organizational structure and that of our
material subsidiaries as of January 14, 2000, each of which is directly or
indirectly wholly-owned, together with the jurisdiction of incorporation of
each of the entities shown thereon.
MI Entertainment Corp.
(Delaware)
Horse Racing and Pari-Mutuel Real Estate
Wagering Operations
The Santa Anita Companies, Inc. 5321 Industries Inc.
-----
(Delaware) (Delaware)
MI Venture (Canada) Inc.
Los Angeles Turf Club, --
Inc. "Exchangeco"
- (Ontario)
(California)
Gulfstream Park Racing MI Entertainment Holding GmbH
Association, Inc. -----
(Florida) (Austria)
Pacific Racing Association Magna Vierte Beteiligungs AG
-----
(California) (Austria)
Ladbroke Land Holdings, Inc. Magna Projektentwicklungs AG
-----
(California) (Austria)
Thistledown, Inc.
--
(Ohio)
Remington Park Inc.
--
(Oklahoma)
SLRD Thoroughbred Training
Center, Inc.
--
(Delaware)
MI Racing, Inc.
--
(Delaware)
Environmental Matters
We are subject to a wide range of environmental laws and regulations imposed
by governmental authorities relating to wastewater discharge, waste management
and storage of hazardous substances. Upon completion of the distribution, we
will adopt a Health, Safety and Environmental Policy pursuant to which we will
commit to:
. conducting our operations in a manner that complies with or exceeds all
legal requirements regarding health, safety and the environment;
. regularly evaluating and monitoring past and present business activities
affecting health, safety and the environment;
. ensuring that a systematic health, safety and environmental review
program is implemented and monitored at all times for each of our
operations, with a goal of continued improvement in health, safety and
environmental matters; and
. ensuring that adequate reports on health, safety and environmental
matters are presented to our Board of Directors, at a minimum, on an
annual basis.
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<PAGE>
We are currently subject to Magna's Health, Safety and Environmental Policy,
which is substantially similar to the policy we intend to adopt.
To date, compliance with environmental laws and regulations has not had a
material adverse effect on our financial condition and results of operations,
however, changes in such governmental laws and regulations are ongoing and may
make environmental compliance increasingly expensive. We cannot predict future
costs that we may incur to meet environmental obligations.
A subsidiary of Magna has agreed to indemnify us in respect of environmental
remediation costs and expenses relating to existing conditions in certain of
our Austrian real estate properties.
Employees
As of October 31, 1999, we employed approximately 839 employees,
approximately 294 of whom are represented by a union. Since our inception, we
have not had a work stoppage. We consider our relations with our employees to
be good. We also believe that our future success will depend in part on our
continued ability to attract, integrate, retain and motivate highly qualified
technical and managerial personnel, and upon the continued service of our
senior management.
Our contract with the Service Employees International Union, Local 280,
which represents approximately 400 pari-mutuel employees at Santa Anita Park
during our racing season, will expire on July 24, 2000. We expect that we will
be able to negotiate a new union contract with Local 280 through the collective
bargaining process.
Competition
We generally do not compete directly with other racetracks or off-track
wagering facilities for customers because of geographic separation of
facilities and differences in seasonal timing of meets. In some cases, the
differences in seasonal timing of meets results from the regulatory environment
in which racetracks operate. In California, The California Horse Racing Board
has annually licensed us and Oak Tree Racing Association to conduct racing
meets at Santa Anita Park and it has not licensed other thoroughbred racetracks
in Southern California to conduct racing during these meets. However, night
harness racing and night quarterhorse meets are conducted at other racetracks
in Southern California during portions of these meets. In Florida, tax laws
currently discourage the three Miami-area racetracks from applying for race
dates outside of their traditional racing season. Currently, the race dates for
the three Miami-area racetracks do not overlap. However, commencing July 1,
2001 a new tax structure affecting Florida racetracks is expected to eliminate
this deterrent. As a result, Gulfstream Park racetrack may face direct
competition from other Miami-area racetracks in the future. We currently
compete for customers with other forms of gaming and entertainment and attempt
to attract customers by providing high quality racing in appealing facilities,
value for money spent and good customer service.
If we implement our strategy to increase the distribution channels for our
simulcast horse racing product to include telephone account, interactive
television and Internet-based wagering, we will likely face competition from
competitors with greater experience and advanced market penetration in these
distribution channels, such as TVG, which is owned by TV Guide, Inc., and The
Racing Network. TVG currently markets the signals of approximately 45
racetracks, ten of which are under exclusive contract, including the signal
from Churchill Downs' racetracks and the signals from Gulfstream Park and The
Oak Tree Meet. TVG's exclusive right to market the signals from Gulfstream Park
and The Oak Tree Meet expires in December, 2003. We expect that TVG's initial
competitive advantage may be off-set by the fact that in 2003 we will have
exclusive rights to market the signal for Santa Anita Park, Gulfstream Park and
Golden Gate Fields. In addition, we may be able to eliminate this competitive
disadvantage by pursuing this element of our strategy in conjunction with an
experienced strategic partner.
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RECENT ACQUISITIONS
A significant proportion of our assets were acquired from our parent
company, Magna, and certain of its subsidiaries on a non-arm's length basis
pursuant to the Reorganization (see "Reorganization" above). Details of the
acquisition of Santa Anita Park by certain of Magna's subsidiaries are provided
below. In addition, details of material acquisitions made by us are also
provided below:
Pursuant to an asset purchase agreement dated as of November 13, 1998, with
Meditrust Corporation, Meditrust Operating Company, The Santa Anita Companies,
Inc. and Santa Anita Enterprises, Inc. (collectively, "Meditrust"), the assets
of Santa Anita Park and the stock of Los Angeles Turf Club, Inc. were acquired
by one of Magna's subsidiaries, The Santa Anita Companies, Inc., as of December
10, 1998 and the transaction closed on December 11, 1998. The purchase price
for the assets acquired was approximately $119 million, all of which was paid
in cash. We acquired the shares of The Santa Anita Companies from Magna in the
course of the Reorganization (see "Reorganization").
Pursuant to an asset purchase agreement dated as of March 8, 1999, one of
our indirect, wholly-owned subsidiaries, SLRD Thoroughbred Training Center,
Inc. ("SLRD") agreed to acquire from San Luis Rey Downs Enterprises LLC the
assets of San Luis Rey Downs for a purchase price of approximately $6.4
million, all of which was paid in cash. This transaction was completed on May
1, 1999.
Pursuant to a stock purchase agreement dated as of June 30, 1999 between us
and Gulfstream Holdings, Inc. of Illinois ("Gulfstream Holdings") and
Gulfstream Park Racing Association Inc. ("Gulfstream Park"), we agreed to
acquire from Gulfstream Holdings all the issued and outstanding stock of
Gulfstream Park for a purchase price of $88.2 million. Gulfstream Park owns all
the assets of Gulfstream Park racetrack in Hallandale, Florida. We completed
the acquisition on September 1, 1999.
Pursuant to a stock purchase agreement dated as of October 21, 1999, we
agreed to acquire from The Edward J. DeBartolo Corporation and Oklahoma Racing
LLC, all the issued and outstanding stock of Thistledown, Inc. and Remington
Park, Inc. for a total purchase price of $24.0 million. Thistledown, Inc. owns
all the assets of Thistledown racetrack in North Randall, Ohio. Remington Park,
Inc. owns all the assets of Remington Park racetrack in Oklahoma City,
Oklahoma. Of the total purchase price of $24.0 million, the stock of
Thistledown cost $14.0 million, $9.5 million of which was paid in cash and the
balance of which was paid through the issuance of 650,695 shares of our Class A
Subordinate Voting Stock. The stock of Remington Park, Inc. cost $10.0 million,
all of which was paid in cash. We completed this acquisition on November 12,
1999.
Pursuant to a stock purchase agreement dated as of November 5, 1999, we
agreed to acquire from Ladbroke Racing Corporation, all the issued and
outstanding stock of Ladbroke Land Holdings Inc. and Pacific Racing Association
Inc. These companies collectively own and operate Golden Gate Fields racetrack
in Albany, California. The purchase price for the stock of these companies was
$87.0 million, of which $60.0 million was paid in cash, $7.0 million was paid
through the issuance 1,012,195 shares of our Class A Subordinate Voting Stock
and $20.0 million was paid by way of an interest-free promissory note, $10.0
million of which matures on the first anniversary of the date of closing and
$5.0 million of which matures on each of the second and third anniversaries. We
completed this acquisition on December 10, 1999.
Pursuant to an asset purchase agreement dated as of December 24, 1999, with
Great Lakes Downs, Inc. and Great Lakes Downs Cafe, Inc. we have agreed to
acquire the assets and assume certain liabilities of Great Lakes Downs
racetrack in Muskegon, Michigan for a purchase price of $1.7 million, payable
by the issuance of 246,287 shares of our Class A Subordinate Voting Stock. We
expect to complete this transaction in late January 2000.
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CERTAIN INCOME TAX CONSIDERATIONS
Certain Canadian Federal Income Tax Considerations
This summary is based on the current provisions of the Income Tax Act
(Canada) (the "Tax Act"), the regulations thereunder (the "Regulations"), and
the current published administrative practices of the Canada Customs and
Revenue Agency ("Revenue Canada") and the current provisions of the Canada-U.S.
Income Tax Convention (the "Tax Treaty"). This summary also takes into account
all specific proposals to amend the Tax Act and the Regulations publicly
announced prior to the date hereof (the "Draft Amendments") and assumes the
Draft Amendments will be enacted substantially as proposed, although no
assurance in this regard can be given. This summary does not otherwise take
into account or anticipate any changes in law or administrative practice,
whether by way of legislative, judicial or governmental action or
interpretation, nor does it address any provincial or foreign income tax
considerations.
This summary is of a general nature only and is not intended to be, nor
should it be construed to be, legal or tax advice to any particular holder.
Accordingly, shareholders are advised to consult their own tax advisors
concerning the income tax consequences to them of the distribution.
Residents of Canada
This portion of the summary is applicable to Magna shareholders who receive
the distribution of our Class A Subordinate Voting Stock or the Exchangeable
Shares, as the case may be, and who, for purposes of the Tax Act and at all
relevant times, are resident or deemed to be resident in Canada, will hold our
Class A Subordinate Voting Stock or Exchangeable Shares, as the case may be as
capital property, and deal at arm's length with Magna, us and Exchangeco. This
summary does not apply to a shareholder with respect to whom we are or will be
a foreign affiliate within the meaning of the Tax Act. Our Class A Subordinate
Voting Stock and the Exchangeable Shares will generally be considered to be
capital property to a holder unless such shares are held in the course of
carrying on a business of trading or dealing in securities or otherwise as part
of a business of buying and selling securities or were acquired in a
transaction or transactions considered to be an adventure in the nature of
trade. Canadian resident shareholders whose Exchangeable Shares might not
otherwise qualify as capital property may be entitled to make the irrevocable
election provided by subsection 39(4) of the Tax Act. Our Class A Subordinate
Voting Stock and the Exchangeable Shares held by certain financial
institutions, including banks, trust companies, credit unions, insurance
corporations, registered securities dealers and corporations controlled by one
or more of the foregoing, will generally not be held as capital property and
will be subject to special "mark-to-market" rules in the Tax Act not discussed
in this summary. Shareholders that are financial institutions should consult
their own tax advisors to determine the tax consequences to them of the
application of the mark-to-market rules.
For purposes of the Tax Act, all amounts relating to the acquisition,
holding or disposition of our Class A Subordinate Voting Stock must be
expressed in Canadian dollars including dividends, adjusted cost base and
proceeds of disposition; amounts denominated in United States dollars must be
converted into Canadian dollars based on the prevailing United States dollar
exchange rate generally at the time such amounts arise.
The Distribution
The distribution will be treated for the purposes of the Tax Act as a
taxable dividend received from a taxable Canadian corporation. The amount of
the distribution to holders who elect to receive our Class A Subordinate Voting
Stock will be the aggregate of the fair market value of our Class A Subordinate
Voting Stock at the time the distribution is paid, the amount of cash in lieu
of a fractional share and the amount of the regular quarterly cash dividend.
The amount of the dividend to holders who elect to receive Exchangeable Shares
will be the aggregate of the fair market value of the Exchangeable Shares and
the Automatic Exchange Right, Exchange Right and the Voting Rights
(collectively, the "Ancillary Rights") at the
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time of the distribution, any cash received in lieu of a fractional share and
the amount of the regular quarterly cash dividend. Magna will make a
determination of value for the purposes of preparing the tax information
statement in respect of the distribution which are required under the Tax Act
to be mailed by Magna to the shareholders. Magna will determine the fair market
value of the Class A Subordinate Voting Stock and Exchangeable Shares on the
basis of the 10-day weighted average trading price in the "if, as and when
issued" market for the Class A Subordinate Voting Stock prior to the
distribution date. Magna is of the view that the Ancillary Rights have only
nominal value. Any determination of value by Magna is not binding on Revenue
Canada.
For individuals, the amount of the distribution will be included in the
individual's income and will generally be subject to the gross-up and dividend
tax credit rules normally applicable to taxable dividends received from taxable
Canadian corporations.
The distribution received by a shareholder that is a corporation will
generally be included in computing its income. Such a shareholder will,
however, generally be entitled to deduct the amount of the distribution in
computing taxable income. Certain corporations may be liable under Part IV of
the Tax Act to pay a refundable tax of 33 1/3% on the distribution to the
extent that such dividend is deductible in computing the corporation's taxable
income.
Since the distribution will be treated for the purposes of the Tax Act as a
taxable dividend, shareholders may be liable for tax under the Tax Act without
having received a cash payment sufficient to satisfy such liability. If the
shareholder sells our Class A Subordinate Voting Stock or Exchangeable Shares,
as the case may be, in order to satisfy such liability, there is no assurance
that the shareholder will realize the price per share at which the our Class A
Subordinate Voting Stock or the Exchangeable Shares, as the case may be, are
valued for the purposes of calculating the amount of the distribution for tax
purposes. If a shareholder does not realize proceeds of disposition on such
sale at least equal to the amount at which the shares were valued for purposes
of calculating the amount of the dividend, however, the shareholder would
realize a capital loss on the disposition of the shares since the cost of each
such share to the shareholder will be equal to its fair market value at the
time of the distribution. The general tax treatment of capital gains and
capital losses is discussed below under the heading "Taxation of Capital Gain
or Capital Loss".
Our Class A Subordinate Voting Stock
Acquisition and Disposition of our Class A Subordinate Voting Stock
The cost of our Class A Subordinate Voting Stock acquired on the
distribution will be equal to the fair market value of our Class A Subordinate
Voting Stock at the time of distribution. A disposition or deemed disposition
of our Class A Subordinate Voting Stock by a holder will generally result in a
capital gain (or capital loss) to the extent that the proceeds of disposition,
net of any reasonable costs of disposition, exceed (or are less than) the
adjusted cost base to the holder of our Class A Subordinate Voting Stock
immediately before the disposition. The general tax treatment of capital gains
and capital losses is discussed below under the heading "Taxation of Capital
Gain or Capital Loss".
Dividends on our Class A Subordinate Voting Stock
Dividends on our Class A Subordinate Voting Stock, if any, will be required
to be included in the recipient's income for the purpose of the Tax Act. The
amount of the dividend will include any United States non-resident withholding
tax withheld on such dividends. Dividends received by a shareholder who is an
individual will not be subject to the gross-up and dividend tax credit rules
generally applicable to taxable dividends received from taxable Canadian
corporations. A shareholder that is a corporation will include such dividends
in computing its income and generally will not be entitled to deduct the amount
of such dividends in computing its taxable income. A shareholder that is a
"Canadian-controlled private corporation" (as defined in the Tax Act) may be
liable to pay an additional refundable tax of 6 2/3% on such dividends. United
States non-resident withholding tax on such dividends generally will be
eligible for foreign tax credit or deduction
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treatment where applicable under the Tax Act. See the commentary below under
the heading "Certain United States Federal Income Tax Considerations--Tax
Consequences of Ownership and Disposition of MIEC Class A Subordinate Voting
Stock by Non-U.S. Holders--Dividends with Respect to MIEC Class A Subordinate
Voting Stock".
Exchangeable Shares
Acquisition and Disposition of Exchangeable Shares
The cost of Exchangeable Shares and Ancillary Rights acquired on the
distribution will be equal to the fair market value thereof as at the time of
distribution. A disposition or deemed disposition of the Exchangeable Shares by
a holder will generally result in a capital gain (or capital loss) to the
extent that the proceeds of disposition, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base to the holder of
Exchangeable Shares immediately before the disposition. The general tax
treatment of capital gains and losses is discussed below under the heading
"Taxation of Capital Gain or Capital Loss".
Dividends on Exchangeable Shares
Dividends on the Exchangeable Shares, if any, received or deemed to be
received by a holder who is an individual, will be required to be included in
computing the holder's income and will be subject to the gross-up and dividend
tax credit rules normally applicable to taxable dividends received from a
corporation resident in Canada.
Subject to the discussion below as to the denial of the dividend deduction,
in the case of a holder that is a corporation, other than a "specified
financial institution" as defined in the Tax Act, dividends received or deemed
to be received on the Exchangeable Shares will be included in computing the
corporation's income and will generally be deductible in computing its taxable
income. In the case of a holder that is a specified financial institution, such
a dividend will be deductible in computing its taxable income only if either:
(i) the specified financial institution did not acquire the Exchangeable Shares
in the ordinary course of the business carried on by such institution; or (ii)
at the time of the receipt of the dividend by the specified financial
institution, the Exchangeable Shares are listed on a prescribed stock exchange
in Canada (which currently includes the TSE) and the specified financial
institution, either alone or together with persons with whom it does not deal
at arm's length, does not receive (or is not deemed to receive) dividends in
respect of more than 10% of the issued and outstanding Exchangeable Shares. A
corporation is a "specified financial institution" for purposes of the Tax Act
if it is a bank, a trust company, a credit union, an insurance corporation or a
corporation whose principal business is the lending of money to persons with
whom the corporation is dealing at arm's length or the purchasing of debt
obligations issued by such persons or a combination thereof, and corporations
controlled by or related to such entities.
If we or any other person with whom we do not deal at arm's length is a
specified financial institution at a point in time that a dividend is paid on
an Exchangeable Share, then subject to the exemption described below, dividends
received or deemed to be received by a holder of Exchangeable Shares that is a
corporation will not be deductible in computing taxable income but will be
fully includable in taxable income under Part I of the Tax Act. We are of the
view that neither we nor any person with which we do not deal at arm's length
nor any partnership or trust of which we or the person is a member or
beneficiary, respectively, is a specified financial institution at the current
time but there can be no assurance that this status will not change prior to
any dividend received or deemed to be received by a corporate shareholder. This
denial of the dividend deduction for a holder of Exchangeable Shares that is a
corporation will not in any event apply if, at the time a dividend is received
or deemed to be received, the Exchangeable Shares are listed on a prescribed
stock exchange (which currently includes the TSE), we are "related" to
Exchangeco for the purposes of the Tax Act and the recipient (together with
persons with whom the recipient does not deal at arm's length or any
partnership or trust of which the recipient or person is a member or
beneficiary respectively) does not receive dividends on more than 10% of the
issued and outstanding Exchangeable Shares.
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A holder of Exchangeable Shares that is a "private corporation" (as defined
in the Tax Act) or any other corporation resident in Canada and controlled or
deemed to be controlled by or for the benefit of an individual or a related
group of individuals may be liable under Part IV of the Tax Act to pay a
refundable tax of 33 1/3% on dividends received or deemed to be received on the
Exchangeable Shares to the extent that such dividends are deductible in
computing the holder's taxable income. A holder of Exchangeable Shares that is
a "Canadian-controlled private corporation" (as defined in the Tax Act) may be
liable to pay an additional refundable tax of 6 2/3% on dividends or deemed
dividends that are not deductible in computing taxable income.
The Exchangeable Shares will be "taxable preferred shares" and "short-term
preferred shares" for purposes of the Tax Act. Accordingly, Exchangeco will be
subject to a 66 2/3% tax under Part VI.I of the Tax Act on dividends paid or
deemed to be paid on the Exchangeable Shares and will be entitled to deduct 9/4
of the tax payable in computing its taxable income under Part I of the Tax Act.
Dividends received or deemed to be received on the Exchangeable Shares will not
be subject to the 10% tax under Part IV.I of the Tax Act.
Redemption or Exchange of Exchangeable Shares
On the redemption (including a retraction) of an Exchangeable Share by
Exchangeco, the holder of an Exchangeable Share will be deemed to have received
a dividend equal to the amount, if any, by which the redemption proceeds (the
fair market value at the time our Class A Subordinate Voting Stock is received
by the shareholder from Exchangeco on the redemption plus the Dividend Amount,
if any) exceeds the paid-up capital (for purposes of the Tax Act) of the
Exchangeable Shares at the time the Exchangeable Share is so redeemed. The
amount of any such deemed dividend will be subject to the tax treatment
described above under the heading "Dividends on Exchangeable Shares". On the
redemption, the holder of an Exchangeable Share will also be considered to have
disposed of the Exchangeable Share for proceeds of disposition equal to the
redemption proceeds less the amount of such deemed dividend. A holder will in
general realize a capital gain (or a capital loss) equal to the amount by which
the adjusted cost base to the holder of the Exchangeable Share is less than (or
exceeds) such proceeds of disposition. See "Taxation of Capital Gain or Capital
Loss" below. In the case of a holder of Exchangeable Shares that is a
corporation, in some circumstances the amount of any such deemed dividend may
be treated as proceeds of disposition and not as a dividend.
On the exchange of an Exchangeable Share by the holder thereof with us for
our Class A Subordinate Voting Stock, the holder will in general realize a
capital gain (or a capital loss) to the extent the proceeds of disposition of
the Exchangeable Share net of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base to the holder of the Exchangeable Share.
For these purposes, the proceeds of disposition will be the aggregate of the
fair market value, at the time of the exchange, of our Class A Subordinate
Voting Stock received on the exchange, any Dividend Amount received by the
holder as part of the exchange consideration and the amount of any cash
received in lieu of a fractional share. See "Taxation of Capital Gain or
Capital Loss" below.
Acquisition and Disposition of Our Class A Subordinate Voting Stock
The cost of our Class A Subordinate Voting Stock received on the retraction,
redemption or exchange of an Exchangeable Share will be equal to the fair
market value of our Class A Subordinate Voting Stock at the time of such event,
to be averaged with the adjusted costs base of any other of our Class A
Subordinate Voting Stock held at that time by the holder as capital property.
For the tax treatment of a disposition of or dividend on our Class A
Subordinate Voting Stock see "Our Class A Subordinate Voting Stock--Acquisition
and Disposition of Our Class A Subordinate Voting Stock and Dividends on Our
Class A Subordinate Voting Stock".
Taxation of Capital Gain or Capital Loss
Three-quarters of any capital gain (the "taxable capital gain") realized by
a holder will be included in the holder's income for the year of disposition.
Three-quarters of any capital loss so realized (the "allowable
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capital loss") may be deducted by the holder against taxable capital gains for
the year of disposition. Any excess of allowable capital losses over taxable
capital gains of the holder for the year of disposition may be carried back up
to three taxation years or forward indefinitely and deducted against net
taxable capital gains in those other years to the extent and in the
circumstances prescribed in the Tax Act.
Capital gains realized by an individual or trust, other than certain trusts,
may give rise to alternative minimum tax under the Tax Act. A holder that is a
Canadian-controlled private corporation (as defined in the Tax Act) may be
liable to pay an additional refundable tax of 6 2/3% on taxable capital gains.
If the holder of an Exchangeable Share is a corporation, the amount of any
capital loss arising on a disposition or deemed disposition of any such share
may be reduced by the amount of dividends received or deemed to have been
received by it on such share to the extent and under circumstances prescribed
by the Tax Act. Similar rules may apply where a corporation is a member of a
partnership or a beneficiary of a trust that owns Exchangeable Shares or where
a trust or partnership of which a corporation is a beneficiary or a member is a
member of a partnership or a beneficiary of a trust that owns any such shares.
Eligibility for Investment in Canada
Provided the Exchangeable Shares are listed on a prescribed stock exchange
in Canada (which currently includes the TSE), the Exchangeable Shares will be
qualified investments under the Tax Act for trusts governed by registered
retirement savings plans ("RRSPs"), registered retirement income funds
("RRIFs"), deferred profit sharing plans ("DPSPs") and registered education
savings plans ("RESPs"). The Ancillary Rights will not be qualified investments
under the Tax Act. However, Magna is of the view that the fair market value of
such rights is nominal. Based on such view, there should be no material
consequences under the Tax Act to RRSPs, RRIFs and DPSPs holding such non-
qualified investments. RESPs holding such non-qualified investments may,
however, realize adverse consequences regardless of the fair market value of
such non-qualified investments. Provided the Exchangeable Shares are listed on
a prescribed stock exchange in Canada (which currently includes the TSE), the
Exchangeable Shares will not be foreign property under the Tax Act for trusts
governed by such plans or for certain other persons to whom Part XI of the Tax
Act is applicable. The Ancillary Rights will be foreign property under the Tax
Act. However, Magna is of the view that the fair market value of such rights is
nominal.
Provided our Class A Subordinate Voting Stock are listed on a prescribed
stock exchange in Canada (which currently includes the TSE) our Class A
Subordinate Voting Stock will be qualified investments under the Tax Act for
trusts governed by RRSPs, RRIFs, DPSPs and RESPs. Our Class A Subordinate
Voting Stock will be foreign property under the Tax Act.
Non Residents of Canada
The following portion of the summary is applicable to persons who receive
the Special Dividend, who, for purposes of the Tax Act and at all relevant
times, deal at arm's length with Magna, are not and will not be resident or
deemed to be resident in Canada and do not and will not use and are not and
will not be deemed to use their Class A Subordinate Voting Stock in or in the
course of carrying on a business in Canada (each such holder referred to as a
"non-resident holder"). Special rules which are not discussed in this summary
may apply to a non-resident that is an insurer carrying on business in Canada
and elsewhere.
Special Dividend
A non-resident holder who receives the distribution will be subject to
Canadian withholding tax at a rate of 25% of the fair market value thereof at
the time of payment or crediting subject to reduction by an applicable tax
treaty. Pursuant to the provisions of the Tax Treaty, the non-resident
withholding tax is generally reduced to a rate of 15% if the beneficial owner
of the dividend is a U.S. resident. Also, dividends paid or credited to a non-
resident holder that is a tax exempt organization as described in Article XXI
of the Tax Treaty will not be subject to withholding tax.
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Magna will make a determination of the fair market value of the distribution
for the purposes of determining the amount of the withholding tax and for
preparing the information statements in respect of the distribution which are
required to be mailed by Magna to the non-resident holders. The fair market
value of the distribution will include the fair market value of the shares of
our Class A Subordinate Voting Stock, the amount of cash in lieu of fractional
shares and the amount of the regular quarterly cash dividend, including any
shares or cash withheld to satisfy any non-resident withholding tax liability.
Magna will determine the fair market value of our Class A Subordinate Voting
Stock at the time of distribution on the basis of the 10-day weighted average
trading price in the "if, as and when issued" market prior to the distribution
date. Any determination of the fair market value by Magna is not binding on
Revenue Canada. The withholding tax liability will be satisfied by Magna
withholding the appropriate amount from the Magna regular quarterly cash
dividend otherwise payable to shareholders and, if necessary, a portion of the
shares of our Class A Subordinate Voting Stock otherwise distributable. For
details with respect to the withholding of our Class A Subordinate Voting
Stock, see "The Special Dividend--Withholding Tax Liability of Non-Residents of
Canada".
Certain United States Federal Income Tax Considerations
The following describes certain U.S. federal income tax considerations of
(i) the distribution of shares of our Class A Subordinate Voting Stock to a
person that is a citizen or resident of the United States or a U.S. domestic
corporation or that otherwise is subject to U.S. federal income tax on a net
basis (a "U.S. Holder") and (ii) the ownership and disposition of shares of our
Class A Subordinate Voting Shares by a stockholder that is not a U.S. Holder (a
"Non-U.S. Holder"). This summary is based on the U.S. Internal Revenue Code of
1986, as amended (the "Code"), administrative pronouncements, judicial
decisions and existing and proposed Treasury Regulations, changes to any of
which may affect the tax consequences described herein. This summary discusses
only the principal U.S. federal income tax consequences to those beneficial
owners holding our Class A Subordinate Voting Stock as capital assets within
the meaning of Section 1221 of the Code.
Tax Treatment to U.S. Holders of the Distribution of Class A Subordinate
Voting Stock
A U.S. Holder will realize, to the extent of Magna's current and accumulated
earnings and profits, foreign source ordinary income on the receipt of shares
of our Class A Subordinate Voting Stock in an amount equal to the fair market
value of Class A Subordinate Voting Stock distributed (with the value of such
dividend computed before any reduction for any Canadian withholding tax).
Subject to the requirements and limitations imposed by the Code, a U.S. Holder
may elect to claim the Canadian tax withheld or paid with respect to the
distribution of shares of our Class A Subordinate Voting Stock as a foreign tax
credit against the U.S. federal income tax liability of the U.S. Holder. The
foreign tax credit will be allowable in respect of the distribution of our
Class A Subordinate Voting Stock only if the U.S. Holder has held Magna Class A
Subordinate Voting Shares for at least 16 days during the 30-day period
beginning 15 days before the ex-dividend date for the dividend of our Class A
Subordinate Voting Stock. The distribution of our Class A Subordinate Voting
Stock generally will constitute "passive income" or, in the case of certain
U.S. Holders, "financial services income" for U.S. foreign tax credit purposes.
U.S. Holders who do not elect to claim any foreign tax credits may claim a
deduction for Canadian income tax withheld.
Tax Treatment to Non-U.S. Holders of Owning Class A Subordinate Voting Stock
Dividends. In general, if we were to make distributions with respect to our
Class A Subordinate Voting Stock, such distributions would be treated as
dividends to the extent of our current or accumulated earnings and profits as
determined under the Code. Any distribution that is not a dividend will be
applied in reduction of the Non-U.S. Holder's basis in the Class A Subordinate
Voting Stock. To the extent the distribution exceeds such basis, the excess
will be treated as gain from the disposition of our Class A Subordinate Voting
Stock.
Dividends paid to a Non-U.S. Holder of Class A Subordinate Voting Stock
generally will be subject to withholding of U.S. federal income tax at a 30%
rate or such lower rate as may be provided by an applicable income tax treaty
between the United States and the country of which the Non-U.S. Holder is a tax
resident,
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unless (i) the dividends are effectively connected with the conduct of a trade
or business of the Non-U.S. Holder within the United States or (ii) if a tax
treaty applies, the dividends are effectively connected with the conduct of a
trade or business of the Non-U.S. Holder within the United States and
attributable to a United States permanent establishment (or a fixed base
through which certain personal services are performed) maintained by the Non-
U.S. Holder. For dividend payments made prior to the effective date of certain
pending United States Treasury Regulations, currently expected to be January 1,
2001, a Non-U.S. Holder may file IRS Form 4224, or successor form thereto, in
order to avoid withholding with respect to dividends that are effectively
connected with such Non-U.S. Holder's conduct of a trade or business in the
United States. However, for purposes of determining whether tax is to be
withheld at a rate of 30% of the gross amount of such dividends or at a reduced
rate as specified by an applicable tax treaty, we ordinarily will presume that
dividends paid to a holder with an address in a foreign country are paid to a
resident in such country absent knowledge that such presumption is not
warranted, and dividends paid to a holder with an address within the United
States generally will be presumed to be paid to a holder that is a U.S. person
and will not be subject to such withholding unless we have actual knowledge
that the holder is a Non-U.S. Holder. Under certain circumstances, a Non-U.S.
Holder is required to file IRS Form 1001, or successor form thereto, to claim
the benefit of a reduced withholding rate provided by an applicable income tax
treaty.
Dividends received by a Non-U.S. Holder that are effectively connected with
the conduct of a trade or business within the United States or, if a tax treaty
applies, are effectively connected with the conduct of a trade or business
within the United States and attributable to a U.S. permanent establishment (or
a fixed base through which certain personal services are performed), are
subject to U.S. federal income tax on a net income basis (that is, after
allowance for applicable deductions) at applicable graduated individual or
corporate rates. Any such dividends received by a Non-U.S. Holder that is a
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
A Non-U.S. Holder eligible for a reduced rate of withholding of U.S. federal
income tax may obtain a refund of any excess amounts withheld by timely filing
an appropriate claim for refund with the U.S. Internal Revenue Service.
Gain on Disposition of Class A Subordinate Voting Stock. A Non-U.S. Holder
generally will not be subject to U.S. federal income tax with respect to gain
recognized on a sale, exchange, or other disposition of Class A Subordinate
Voting Stock (including a redemption of Class A Subordinate Voting Stock
treated as a sale for federal income tax purposes) unless (i) the gain is
effectively connected with the conduct of a United States trade or business of
the Non-U.S. Holder, (ii) the Non-U.S. Holder is an individual who holds the
Class A Subordinate Voting Stock as a capital asset, is present in the United
States for 183 or more days in the taxable year of the sale or other
disposition, and either the individual has a "tax home" in the United States or
the sale is attributable to an office or other fixed place of business
maintained by the individual in the United States, or (iii) we are or have been
a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code at any time within the shorter of the five-year
period ending on the date of disposition or the Non-U.S. Holder's holding
period and certain other conditions are met. Assuming the shares of our Class A
Subordinate Voting Stock are regularly traded on an established securities
market, these conditions include your ownership of more than 5 percent of the
outstanding Class A Subordinate Voting Stock at any time during the 5-year
period ending on the date you sell any shares of your Class A Subordinate
Voting Stock.
Backup Withholding Tax and Information Reporting. Generally, we must report
to the IRS the amount of dividends paid, the name and address of the recipient,
and the amount, if any, of tax withheld. A similar report is sent to the
holder. Pursuant to tax treaties or other agreements, the IRS may make its
reports available to tax authorities in the recipient's country of residence.
Backup withholding at the rate of 31% may apply to payments subject to
information reporting (including dividends and proceeds of sale) made to
persons that fail to furnish certain identifying information in accordance with
the U.S. information reporting requirements.
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Backup withholding and information reporting will not apply to payments of
dividends on the Class A Subordinate Voting Stock or gross proceeds of a sale
of Class A Subordinate Voting Stock if (i) the beneficial owner of Class A
Subordinate Voting Stock certifies under penalty of perjury that it is a Non-
U.S. Holder (for example, by providing the payor IRS Form W-8), (ii) payment is
made to an "exempt recipient" (which term includes corporations) or (iii) an
exemption is otherwise established.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to 31% backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
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DIRECTORS AND EXECUTIVE OFFICERS
Our current directors are Messrs. J. Brian Colburn, Vincent J. Galifi, James
Nicol and Frank Stronach. Prior to the completion of the distribution we intend
to appoint the following individuals as directors.
Directors
<TABLE>
<CAPTION>
Name and Address Age Principal Occupation
---------------- --- --------------------
<C> <C> <S>
Jerry D. Campbell... 59 President and Chief Executive Officer of the Company
William Davis....... 69 Counsel, Torys
Peter George........ 56 Vice Chairman and Chief Executive Officer of Hilton
Group plc (formerly Ladbroke Group plc)
Joseph Harper....... 56 President and General Manager of Del Mar Thoroughbred
Club
J. Terrence Lanni... 56 Chairman of the Board and Chairman of the Executive
Committee of MGM Grand Inc.
Edward C. Lumley.... 59 Vice Chairman, Nesbitt Burns Inc.
Earle Mack.......... 61 Senior Partner and Chief Financial Officer of The
Mack Company
James Nicol......... 45 Vice-Chairman of the Company and Vice-Chairman of
Magna International Inc.
Gino Roncelli....... 64 Chief Executive Officer of Roncelli Plastics Inc. and
Councilman for the City of Arcadia, California
Glenn Schaeffer..... 46 President and Chief Financial Officer of Mandalay
Resort Group (formerly Circus Circus Enterprises,
Inc.)
Andrew Stronach(1).. 31 Executive Vice-President, Corporate Development of
the Company
Frank Stronach(1)... 67 Partner, Frank Stronach & Co.
Ronald Volkman...... 61 Chairman of the Board and President of ATX, Inc.
John C. York II..... 50 Executive Vice President and Senior Vice President,
Racing Operations of The Edward J. DeBartolo
Corporation
</TABLE>
- --------
(1) Mr. Andrew Stronach is the son of Mr. Frank Stronach.
The term of office for each director expires at the conclusion of the next
annual meeting of our stockholders.
All of our directors have held the principal occupations identified above
(or another position with the same employer) for not less than five years.
Mr. Campbell served as Chairman of the Board and Chief Executive Officer of
Republic Bancorp Inc. from April 1986 to December 1999. Mr. Lanni served as
Chief Executive Officer of MGM Grand Inc. from June 1995 to December 1999 and
was President and Chief Operating Officer of Caesars World Inc. from April 1991
to February 1995. Mr. Nicol has served as a Vice-Chairman of Magna since 1998,
prior to which time he served as Chairman and Chief Executive Officer of TRIAM
Automotive Inc. since February 1994. Prior to November 1992, Mr. Nicol held
various senior management positions within Magna and its subsidiaries. Mr.
Andrew Stronach has served as President of both Adena Springs Farm and Stronach
Stables since 1998 and held various senior administrative positions with both
such companies since 1995.
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Upon appointment of our proposed additional directors, we will constitute an
Audit Committee and a Corporate Governance, Human Resources and Compensation
Committee. A majority of the members of each such committee will be comprised
of independent directors.
Primary Officers
Our current officers are Messrs. Frank Stronach (Chairman of the Board),
James Nicol (President and Vice Chair), Graham Orr (Executive Vice-President
and Chief Financial Officer), Vincent Galifi (Executive Vice-President,
Finance), J. Brian Colburn (Executive Vice-President and Secretary), Lonny
Powell (Executive Vice-President, Racing Operations) and Frank De Marco Jr.
(Vice-President, Regulatory Affairs). Prior to the completion of the
distribution we intend to appoint the following individuals as officers:
<TABLE>
<CAPTION>
Name and Address Age Position with the Company and Principal Occupation
---------------- --- --------------------------------------------------
<C> <C> <S>
Jerry D. Campbell.... 59 President and Chief Executive Officer of the Company
David A. Mitchell.... 46 Executive Vice-President and Chief Financial Officer
of the Company
James Nicol.......... 45 Vice-Chairman of the Company and Vice-Chairman of
Magna (since May 1998)
Lonny T. Powell...... 40 Executive Vice-President, Racetrack Operations of
the Company and President and Chief Executive
Officer of Los Angeles Turf Club, Inc. (since July
1999)
Andrew Stronach...... 31 Executive Vice-President, Corporate Development of
the Company
Frank De Marco, Jr... 74 Vice-President, Regulatory Affairs of the Company
and Executive Director, Secretary and General
Counsel of Los Angeles Turf Club, Inc. (since April
1998)
James T. Bromby...... 40 Corporate Controller of the Company
</TABLE>
All of our officers have held the principal occupations identified above (or
another position with the same employer) for the last five years, with the
exception of Mr. Campbell, Mr. Powell, Mr. Stronach, Mr. DeMarco and
Mr. Bromby.
Mr. Campbell served as Chairman of the Board and Chief Executive Officer of
Republic Bancorp Inc. from its establishment in April 1986 to December 1999.
Mr. Campbell brings us over 32 years of executive experience, including 30
years as a chief executive officer. In addition, Mr. Campbell has approximately
25 years of experience in the horse racing industry through his involvement in
the breeding and racing of horses. Mr. Campbell is also the President and Chief
Executive Officer of Great Lakes Downs, Inc. which owns and operates Great
Lakes Downs racetrack in Muskegan, Michigan.
Mr. Mitchell served as a Senior Vice-President of Caesars World Inc. from
September 1994 to December 1999. Mr. Mitchell's primary responsibilities
included the development of major domestic and international gaming venues,
including venues in Argentina, Egypt, France, Ireland, Lebanon, Macau, Mexico,
Morocco, Phillippines, South Africa, Spain and Venezuela. Mr. Mitchell also
brings us several years of management experience in the horse racing industry.
Mr. Powell served as the President of Turf Paradise racetrack from 1994 to
1999, the President of Multnomah Greyhound Park from 1992 to 1994, Executive
Vice-President and Chief Executive Officer of Longacres Park from 1990 to 1992,
General Manager of Woodlands in 1990, Coordinator and Director of the
University of Arizona Racetrack Industry Program from 1986 to 1990 and
Assistant General Manager of Longacres Park from 1982 to 1986.
Mr. Andrew Stronach has served as President of both Adena Springs Farm and
Stronach Stables since 1998 and held various senior administrative positions
with both such companies since 1995.
Mr. De Marco has been a practicing attorney in Los Angeles County since 1951
and has been the Executive Director, General Counsel and Secretary of Los
Angeles Turf Club, Inc. since April, 1998.
Mr. Bromby has served in various capacities at Magna since 1998 and served
as Senior Manager at Coopers & Lybrand in Toronto from 1994 to 1998 and in
London, England from 1989 to 1994.
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<PAGE>
Prior to the date of this prospectus, none of our directors or officers
owned beneficially any of our Class A Subordinate Voting Stock or Class B
Stock. Following the distribution, all of our directors and officers as a group
( . persons) will beneficially own . of shares of our Class A Subordinate
Voting Stock, representing approximately . % of our Class A Subordinate Voting
Stock on a fully-diluted basis and none of our Class B Stock. See "Security
Ownership of Certain Beneficial Owners and Management".
Employment Agreements
We expect to enter into employment contracts with senior management
effective on or prior to the distribution date. These employment contracts will
generally provide for base salaries and annual bonuses (in most cases based on
a specified percentage of our pre-tax profits before profit sharing), continued
ownership of a minimum amount of our Class A Subordinate Voting Stock,
confidentiality obligations and non-competition covenants. Each such employment
contract will provide that we may terminate the senior officer's employment by
giving minimum advance written notice of termination or by paying a retiring
allowance in lieu thereof.
Once adopted, our Corporate Constitution will provide that aggregate
incentive bonuses (which may be paid in cash or deferred for payment in future
years or which may be paid in our Class A Subordinate Voting Stock) paid or
payable to senior management in respect of any fiscal year shall not exceed 6%
of our pre-tax profits before profit sharing for such fiscal year. See
"Description of Securities--Corporate Constitution" below.
We are not required to make payments under any employment contract with our
senior officers in the event of a change in control.
Stock Option Plan
We intend to adopt a stock option plan (the "Stock Option Plan") in order to
provide stock options and stock appreciation rights in respect of our Class A
Subordinate Voting Stock to our eligible senior officers and employees. Certain
persons engaged by us to provide management or consulting services to us or for
our benefit would also be eligible to receive stock options and stock
appreciation rights under the Stock Option Plan.
Under the Stock Option Plan, stock options and stock appreciation rights may
be granted in respect of a maximum of . shares of our Class A Subordinate
Voting Stock, subject to customary anti-dilution adjustments. The option price
for any option granted under the Stock Option Plan will be established at the
time of the grant, but must be at least equal to the closing price of shares of
our Class A Subordinate Voting Stock on the trading day immediately prior to
the date of the grant. Each option is exercisable in such manner as determined
at the date of grant and options will not be granted for terms exceeding 10
years. The Stock Option Plan will provide that:
(a) the number of shares of our Class A Subordinate Voting Stock reserved
for issuance pursuant to stock options granted to insiders may not
exceed 10% of our then outstanding Class A Subordinate Voting Stock and
Class B Stock;
(b) the number of shares of our Class A Subordinate Voting Stock issuable
to insiders within a one-year period may not exceed 10% of our then
outstanding Class A Subordinate Voting Stock and Class B Stock; and
(c) the number of shares of our Class A Subordinate Voting Stock issuable
to any one insider and that insider's associates within a one-year
period may not exceed 5% of our then outstanding Class A Subordinate
Voting Stock and Class B Stock.
The Stock Option Plan will be administered by the Corporate Governance,
Human Resources and Compensation Committee of our board of directors. The
option price will be payable in cash at the time of
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<PAGE>
exercise or, at the discretion of the Corporate Governance, Human Resources and
Compensation Committee, by delivery to us of other consideration or securities.
Our Corporate Governance, Human Resources and Compensation Committee may
also grant a stock appreciation right which will permit an optionee to elect to
surrender an unexercised option, or any portion thereof, and to receive from us
in exchange therefor an amount equal to the difference between the market price
and the option exercise price of shares of our Class A Subordinate Voting Stock
subject to such option. This grant may be made either at the time of the grant
of an option under the Stock Option Plan or prior to the expiry or exercise of
such option. The number of shares of our Class A Subordinate Voting Stock
subject to a stock appreciation right may not exceed the number of shares of
our Class A Subordinate Voting Stock subject to such option. In general, stock
appreciation rights will be exercisable only at such times as the options in
respect of which they are granted are exercisable. The amount payable as a
result of the exercise of a stock appreciation right may, at the discretion of
our Corporate Governance, Human Resources and Compensation Committee, be paid
in shares of our Class A Subordinate Voting Stock, cash or a combination of our
Class A Subordinate Voting Stock and cash.
No options or stock appreciation rights granted under the Stock Option Plan
will be transferable other than by will or by the laws of descent and
distribution and each option or stock appreciation right will be exercisable
during the lifetime of the holder only by him or her.
Subject to regulatory approval and (where required) stockholder approval,
our board of directors may amend, revise, suspend or discontinue the Stock
Option Plan in whole or in part. However, such amendment, revision, suspension
or discontinuance may not without the consent of a participant, alter or impair
such participant's previously granted rights under the Stock Option Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of January . , 2000 regarding
the beneficial ownership of our Class A Subordinate Voting Stock and Class B
Stock by each person known by us to own more than five percent of the issued
and outstanding shares of our Class A Subordinate Voting Stock and our Class B
Stock.
The number and percentage of shares of our stock beneficially owned are
based on:
. 1,662,890 outstanding shares of our Class A Subordinate Voting Stock
as of January . , 2000.
. 63,712,141 shares of Class B Stock outstanding as of November 5,
1999.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of
Class of Securities of Beneficial Holder Beneficial Ownership Percent of Class
- ------------------- -------------------- -------------------- ----------------
<S> <C> <C> <C>
Class B Stock........... Magna International Inc.(1)(2) 63,712,141 100%
337 Magna Drive
Aurora, Ontario
L4G 7K1
Class A Subordinate The Edward J. DeBartolo 650,695(3) 39%
Voting Stock........... Corporation
Class A Subordinate 1,012,195(4) 61%
Voting Stock........... Ladbroke Racing Corporation
</TABLE>
- --------
(1) Magna directly owns 58,499,149 (or 91.81%) of these shares of our Class B
Stock and also owns 14,823,187 Exchangeable Shares exchangeable into the
same number of shares of our Class A Subordinate Voting Stock. The
remaining shares of our Class B Stock are owned through direct or indirect
wholly
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<PAGE>
owned subsidiaries of Magna. Assuming the exercise of the Exchangeable
Shares, Magna would be entitled to vote approximately 99% of the votes
attaching to our stock.
(2) The Stronach Trust beneficially owns approximately . % of the Class B
Shares of Magna, which shares represent approximately . % of the voting
equity of Magna as of January . , 2000.
(3) Represents approximately . % of our voting equity as of January . , 2000.
(4) Represents approximately . % of our voting equity as of January . , 2000.
As of January . , 2000, none of our directors or officers owned any shares
of our Class A Subordinate Voting Stock or Class B Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Magna
Magna was incorporated under the laws of Ontario, Canada. The Class A
Subordinate Voting Shares of Magna are listed for trading on the NYSE and the
TSE. Magna's Class B Shares are listed on the TSE. Magna is currently the sole
stockholder of our Class B Stock and the Exchangeable Shares and The Edward J.
DeBartolo Corporation and Ladbroke Racing Corporation are currently the sole
holders of our Class A Subordinate Voting Stock. Upon completion of the
distribution, Magna will own all our Class B Stock (and none of our Class A
Subordinate Voting Stock), which means that Magna will be entitled to exercise
approximately 99% of the total votes attached to all our outstanding stock.
Magna will therefore continue to be able to elect all our directors and
continue to control us.
Once implemented prior to the distribution, our Corporate Constitution will
require that a minimum of two directors be individuals who are not our officers
or employees, officers or employees of any of our affiliates (including Magna),
directors of any of our affiliates (including Magna), or persons related to any
such officers, employees or directors. Our Corporate Constitution will also
require that a majority of our directors be individuals who are not our
officers or employees or individuals related to such persons. See "Description
of Securities--Corporate Constitution--Board of Directors". Policies of
applicable securities regulatory authorities also recommend that issuers
involved in a "related party transaction" have such transaction approved by a
special committee of directors, consisting only of directors who are
independent of the interested party and, in certain circumstances, that an
independent valuation and the approval of such transaction by a majority of the
disinterested stockholders be obtained. We intend to constitute such a special
committee of directors in appropriate circumstances and to comply with such
other requirements as may be opposed under applicable law.
Magna has made a commitment to its shareholders that it will not, for a
period of seven years ending May 31, 2006, without the prior consent of the
holders of a majority of Magna's Class A Subordinate Voting Shares: (i) make
any further debt or equity investment in us or any of our subsidiaries; or (ii)
invest in any non-automotive-related businesses or assets other than through
its investment in us. Magna has also stated to its shareholders that it intends
to convert some shares of our Class B Stock to shares of our Class A
Subordinate Voting Stock and dispose of additional shares of our Class A
Subordinate Voting Stock when market conditions for doing so are favorable,
with the ultimate intention of retaining only a minority equity position. This
may occur through a combination of: (i) secondary sales by Magna of such stock
held by it; and/or (ii) the dilution of its interest through the issuance of
Class A Subordinate Voting Stock by us in connection with capital market
transactions, acquisitions and/or other investments by business partners in us.
Magna's commitment is contained in a forebearance agreement dated as of . ,
2000 between us and Magna and in which Magna's shareholders are express third
party beneficiaries.
See Note 11 to the Consolidated Financial Statements regarding certain
transactions between us and Magna.
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<PAGE>
Control of the Company
After giving effect to the distribution, Magna will continue to be able to
elect all our directors and will continue to control us. Therefore, Magna will
continue to be able to cause us to effect certain corporate transactions
without the consent of our minority stockholders, subject to applicable law. In
addition, Magna will continue to be able to cause or prevent a change in our
control. The Stronach Trust controls Magna through the right to direct the
votes attaching to Class B Shares of Magna which carry a majority of the votes
attaching to the outstanding voting shares of Magna. Frank Stronach, one of our
directors, and the founder, a director and Chairman of the Board of Directors
of Magna, together with three other members of his family, are the trustees of
the Stronach Trust. Mr. Stronach is also one of the members of the class of
potential beneficiaries of the Stronach Trust.
Purchase of Land in Aurora, Canada
During the five month period ended December 31, 1998, Magna entered into an
agreement to purchase from a company associated with members of the family of
Frank Stronach, the Chairman of the Board of Magna, approximately 200 acres of
land and improvements in Aurora, Ontario for a purchase price of approximately
$11.0 million. This land is adjacent to land currently owned by Magna and other
land subject to a conditional sale agreement by Magna to us. As at September
30, 1999, Magna had paid $9.0 million to the vendor in connection with this
transaction. The rights to acquire this land and improvements, as well as golf
course construction in progress funded by Magna, have been transferred to us as
part of the Reorganization (see "Reorganization" above).
Access Fees
Pursuant to an access agreement dated as of March 1, 1999, Magna is
currently paying us an annual fee to access the Fontana Sports golf course and
related recreational facilities for Magna-sponsored corporate and charitable
events as well as for business development purposes. The access fee relating to
Fontana Sports is payable until March 1, 2004. Upon completion of Aurora Downs,
Magna will enter into an agreement to pay us an annual access fee to use Aurora
Downs for Magna-sponsored corporate and charitable events and business
development purposes. The access fee agreement relating to Aurora Downs will
expire five years from the date of such agreement. We have also granted Magna a
right of first refusal to purchase these two golf courses, if we decide to sell
them.
Purchase of Great Lakes Downs
Pursuant to a purchase agreement dated as of December 24, 1999, with Great
Lakes Downs, Inc. and Great Lakes Downs Cafe, Inc., we agreed to acquire the
assets and assume certain liabilities of Great Lakes Downs racetrack for a
purchase price of approximately $1.7 million, payable by the issuance of
246,287 shares of our Class A Subordinate Voting Stock. Mr. Jerry Campbell, one
of our proposed directors and our proposed President and Chief Executive
Officer is the principal shareholder of Great Lakes Downs, Inc.
LEGAL PROCEEDINGS
One of our subsidiaries has been named as a defendant in a class action
brought in a United States District Court by Gutwillig et al. The plaintiffs in
this class action claim unspecified compensatory and punitive damages, for
restitution and disgorgement of profits, all in relation to forced labor
performed by the plaintiffs for such subsidiary and certain other Austrian and
German corporate defendants at their facilities in Europe during World War II.
As a result of the transactions described under the heading "Reorganization"
above, we acquired the stock of such subsidiary. Under Austrian law, such
subsidiary would be jointly and severally liable for the damages awarded in
respect of this class action claim. We cannot predict the final outcome of this
class action suit, or establish a reasonable estimate of possible damages or a
range of possible damages that could be
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<PAGE>
awarded to the plaintiffs if their claims are successful. However, an Austrian
subsidiary of Magna has agreed to indemnify such subsidiary for any damages or
expenses associated with this claim.
From time to time, various routine claims incidental to our business are
made against us. None of these claims have had, and we believe that none of the
current claims, if successful, will have, a materially adverse effect upon us.
TRADING HISTORY AND DIVIDEND RECORD AND POLICY
There has been no market for the shares of our Class A Subordinate Voting
Stock or Class B Stock or for the Exchangeable Shares.
Holders of shares of our Class A Subordinate Voting Stock, our Class B Stock
and the Exchangeable Shares are entitled to receive their proportionate shares
of dividends as may be declared by our board of directors, subject to the prior
rights attaching to any other stock ranking in priority to our Class A
Subordinate Voting Stock, our Class B Stock and the Exchangeable Shares.
Subject to applicable law, we intend to pay dividends starting with the
fiscal year commencing January 1, 2004 in respect of the quarter commencing on
that date and each succeeding quarter on our Class A Subordinate Voting Stock
and our Class B Stock. We will declare future dividends on our Class A
Subordinate Voting Stock and our Class B Stock in accordance with our articles
of incorporation and our Corporate Constitution. See "Description of Our
Securities--Corporate Constitution--Dividends".
We were incorporated on March 4, 1999 and have not declared any dividends to
date.
DESCRIPTION OF OUR SECURITIES
Our authorized stock consists of 310,000,000 shares of Class A Subordinate
Voting Stock, par value $0.01, and 90,000,000 shares of Class B Stock, par
value $0.01.
Neither Delaware law nor our articles of incorporation or by-laws limit the
right of non-resident or foreign owners of our Class A Subordinate Voting Stock
or Class B Stock to hold or to vote such stock.
Class A Subordinate Voting Stock
Holders of our Class A Subordinate Voting Stock are entitled:
. to one vote for each share of Class A Subordinate Voting Stock held at
all meetings of our stockholders, excluding meetings of the holders of
another class or series of stock; holders of shares of our Class B Stock
are entitled to vote at such meetings on the basis of 20 votes per share
of Class B Stock held;
. to receive a proportionate share of dividends that may be declared by
our Board of Directors, other than certain stock dividends described
below, and subject to the prior rights of stock ranking prior to our
Class A Subordinate Voting Stock and our Class B Stock; and
. to receive a proportionate share of proceeds from the sale of our
property and net assets available for distribution in the event of our
liquidation, dissolution, winding-up or any other distribution of our
assets among our stockholders for the purpose of winding-up our affairs.
Under our articles of incorporation, our Board of Directors may declare a
simultaneous stock dividend payable on our Class A Subordinate Voting Stock in
Class A Subordinate Voting Stock and on our Class B Stock in Class A
Subordinate Voting Stock or Class B Stock (which would cause additional voting
dilution to
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<PAGE>
holders of our Class A Subordinate Voting Stock). No dividend payable in Class
B Stock may be declared on our Class A Subordinate Voting Stock.
Holders of our Class A Subordinate Voting Stock have certain additional
voting rights under our Corporate Constitution. See "Description of
Securities--Corporate Constitution" below.
Our articles of incorporation state that where such articles (including the
Corporate Constitution) require the approval of the holders of our Class A
Subordinate Voting Stock voting as a separate class, such approval means the
approval given by a majority of the votes cast at a meeting of such holders
other than the votes attaching to shares of Class A Subordinate Voting Stock
beneficially owned directly or indirectly by Magna or by any person who, by
agreement, is acting jointly with Magna or over which Magna or any such person
exercises direct or indirect control or direction. No such limitations would
apply to any other holder of shares of Class A Subordinate Voting Stock.
Class B Stock
The holders of our Class B Stock are entitled:
. to 20 votes for each share of Class B Stock held at all meetings of our
stockholders, other than meetings of the holders of another class or
series of stock; holders of our Class A Subordinate Voting Stock are
entitled to vote at such meetings on the basis of one vote per share
held;
. to receive a proportionate share of any dividends that may be declared
by our board of directors other than certain stock dividends as
described above and subject to the prior rights of stock ranking in
priority to our Class B Stock and our Class A Subordinate Voting Stock;
. to receive a proportionate share of the proceeds from the sale of our
property and net assets available for distribution in the event of our
liquidation, dissolution, winding-up or any other distribution of our
assets among our stockholders for the purpose of winding-up our affairs;
and
. from time to time, to convert the Class B Stock into Class A Subordinate
Voting Stock on a one-for-one basis. Our Class B Stock cannot be issued
without the approval by ordinary resolution of the holders of our Class
B Stock voting separately as a class, other than in connection with a
stock dividend.
Corporate Constitution
We have adopted certain organizational and operating policies and
principles, some of which will be embodied in our Corporate Constitution. Our
Corporate Constitution, which will form part of our charter documents, defines
the rights of employees and investors to participate in our profits and growth
and imposes discipline on our management. The following description summarizes
the material terms and provisions of our Corporate Constitution. These features
cannot be amended or varied without the prior approval of the holders of our
Class A Subordinate Voting Stock (other than Magna or any person who, by
agreement, is acting jointly with Magna or over which Magna or any such person
exercises direct or indirect control or direction) and our Class B Stock, each
voting as a separate class.
Board of Directors
Our Corporate Constitution provides that, unless otherwise approved by the
holders of our Class A Subordinate Voting Stock and our Class B Stock, each
voting as a separate class, a majority of the members of our Board of Directors
shall be individuals who are not our officers or employees or individuals
related to such persons and that a minimum of two directors shall be persons
who are not officers or employees of us or any of our affiliates (including
Magna) or directors of any of our affiliates (including Magna), nor persons
related to any such officers, employees or directors.
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Employee Profit Sharing Plan
Our Corporate Constitution requires that 10% of our pre-tax profits before
profit sharing for each fiscal year commencing in respect of our fiscal year
commencing January 1, 2004 be allocated to our employee profit sharing plan
and/or otherwise be distributed to our employees or the employees of our
affiliates who do not participate in a similar plan, and who do not receive
management incentive bonuses, during such year or the immediately following
fiscal year. See "Incentive Bonuses" below.
Dividends
Our Corporate Constitution provides that, commencing in respect of our
fiscal year commencing January 1, 2004, unless otherwise approved by ordinary
resolution of the holders of each of our Class A Subordinate Voting Stock and
our Class B Stock, voting as separate classes, the holders of our Class A
Subordinate Voting Stock and our Class B Stock will be entitled to receive and
we will pay, as and when declared by our Board of Directors out of funds
properly applicable to the payment of dividends, non-cumulative dividends in
respect of such fiscal years so that the aggregate of the dividends paid or
payable in respect of such year is at least equal to 10% of our after-tax
profits for our fiscal years commencing January 1, 2004 and 2005. In respect of
each fiscal year thereafter, holders of our Class A Subordinate Voting Stock
and Class B Stock will be entitled to receive dividends in respect of such
fiscal years so that the aggregate of the dividends paid or payable in respect
of such year is (i) equal to at least 10% of our after-tax profits and (ii) on
average, equal to at least 20% of our after-tax profits for such fiscal year
and the two immediately preceding fiscal years.
Authorized Capital
Except as otherwise approved by the holders of at least a majority of each
of our Class A Subordinate Voting Stock and our Class B Stock, voting as
separate classes, our Corporate Constitution prohibits: (i) an increase in the
maximum number of authorized shares of any class of our capital stock; and (ii)
the creation of any new class or series of stock having voting rights (other
than on default in the payment of dividends) or having rights to participate in
our profits (other than securities convertible into existing classes of stock
or a class or series of stock having fixed dividends or dividends determined
without regard to profits).
Social Objectives
Beginning in respect of our fiscal year commencing January 1, 2004, pursuant
to our Corporate Constitution, a maximum of 2% of our pre-tax profits for any
fiscal year shall be allocated to the promotion of certain social objectives
during such fiscal year or the immediately following fiscal year. The term
"social objectives" is defined to mean objectives which, in the sole opinion of
our executive management, are of a political, patriotic, philanthropic,
charitable, educational, scientific, artistic, social or other useful nature to
the communities in which we operate.
Incentive Bonuses
Our Corporate Constitution provides that, effective in our fiscal year
commencing January 1, 2004, incentive bonuses (which may be paid in cash or in
our Class A Subordinate Voting Stock) paid or payable to our corporate
management in respect of each fiscal year shall not exceed 6% of our pre-tax
profits before profit sharing for such fiscal year and that base salaries
payable to such corporate management shall be comparable to those in the
industry generally. "Corporate management" is defined to mean our chief
executive officer, chief operating officer, chief marketing officer and chief
administrative officer and any other employee designated by such persons from
time to time to be included within "corporate management".
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DESCRIPTION OF EXCHANGEABLE SHARES
The following is a summary of the rights, privileges, restrictions and
conditions attaching to the Exchangeable Shares of our Ontario subsidiary MI
Venture (Canada) Inc. and the terms of the Exchangeable Share Support Agreement
and the Voting and Exchange Agreement, two agreements relating to the
Exchangeable Shares to which we are a party, each dated as of December 30,
1999.
General
The Exchangeable Shares will be issued by our subsidiary MI Venture (Canada)
Inc., which we refer to throughout this prospectus as Exchangeco. The
Exchangeable Shares, together with certain ancillary rights, are intended to be
economically equivalent to the shares of our Class A Subordinate Voting Stock.
The Exchangeable Shares will be exchangeable at any time at the option of the
holder, on a one-for-one basis, for shares of our Class A Subordinate Voting
Stock. By furnishing instructions to Magna under the Voting and Exchange
Agreement, holders of the Exchangeable Shares will be able to exercise
essentially the same voting rights with respect to us as they would have if
they exchanged their Exchangeable Shares for shares of our Class A Subordinate
Voting Stock. Holders of Exchangeable Shares will also be entitled to receive
from Exchangeco dividends that are economically equivalent to any dividends
paid on shares of our Class A Subordinate Voting Stock. The Exchangeable Shares
are subject to adjustment or modification in the event of a stock split, stock
dividend or other change to our capital structure so as to maintain the one-to-
one relationship between the Exchangeable Shares and the shares of our Class A
Subordinate Voting Stock.
Voting, Dividend and Liquidation Rights
Voting Rights with Respect to Exchangeco
Except as required by law or under the Exchangeable Share Support Agreement,
the terms of the Exchangeable Shares with respect to the amendment thereof or
the Voting and Exchange Agreement, the holders of Exchangeable Shares are not
entitled to receive notice of or attend any meeting of shareholders of
Exchangeco or to vote at any such meeting.
Voting Rights with Respect to Us
Pursuant to the Voting and Exchange Agreement, each holder of an
Exchangeable Share (other than us and our subsidiaries) on the record date for
any meeting at which our stockholders are entitled to vote will be entitled to
instruct Magna, and Magna has agreed, to exercise one of the votes attached to
a share of our Class A Subordinate Voting Stock or a share of our Class B Stock
for each Exchangeable Share held by such holder. Under such agreement Magna has
agreed that, for so long as any of the Exchangeable Shares are outstanding, it
will at all times hold the power to cast an identical number of votes attaching
to our Class A Subordinate Voting Stock or Class B Stock. If we are required to
hold a class vote of our Class A Subordinate Voting Stock, Magna may not use
the voting rights attaching to any of the shares of our Class B Stock that it
holds to satisfy its obligation to cast votes as instructed by holders of
Exchangeable Shares, but may only exercise the voting rights attaching to our
Class A Subordinate Voting Stock held by it for that purpose. If necessary,
Magna will convert Class B Stock into shares of our Class A Subordinate Voting
Stock in order to have enough shares of that class available to honor all the
voting instructions that it receives. If Magna does not receive voting
instructions covering all the outstanding Exchangeable Shares, it will refrain
from exercising a number of voting rights attaching to our shares that it holds
that is equal to the number of Exchangeable Shares for which no voting
instructions were received. A holder of Exchangeable Shares may, upon request
to Magna, obtain a proxy from Magna entitling the holder to vote directly at
the relevant meeting the votes attached to our shares held by Magna to which
the Exchangeable Share holder is entitled to give Magna voting instructions.
We will send to the holders of the Exchangeable Shares, at our own expense,
the notice of each meeting at which our stockholders are entitled to vote,
together with the related meeting materials and a statement as to
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the manner in which the holder may instruct Magna to exercise voting rights or
to deliver a proxy to the holder. Such mailing shall commence on the same day
as we send such notice and materials to our stockholders. We will also send to
the holders of Exchangeable Shares copies of all information statements,
interim and annual financial statements, reports and other materials sent by us
to stockholders at the same time as such materials are sent to them. To the
extent such materials are provided to us, we will also send to the holders of
Exchangeable Shares all materials sent by third parties to our stockholders,
including dissident proxy circulars and tender and exchange offer circulars, as
soon as reasonably practicable after such materials are delivered to us.
All rights of a holder of Exchangeable Shares to instruct Magna to exercise
votes attached to shares of our stock held by Magna will cease upon the
exchange (whether by redemption, retraction or liquidation, or through the
exercise of any of the rights as described below) of all such holder's
Exchangeable Shares for shares of our Class A Subordinate Voting Stock.
In accordance with the terms of the Exchangeable Share Support Agreement, we
and our subsidiaries will not exercise any voting rights with respect to any
Exchangeable Shares held by us or our subsidiaries, although we will appoint
proxyholders with respect to such Exchangeable Shares for the sole purpose of
attending meetings of the holders of Exchangeable Shares in order to be counted
as part of the quorum for such meetings.
Dividend Rights
Holders of Exchangeable Shares will be entitled to receive, subject to
applicable law and to the next paragraph, dividends: (i) in the case of a cash
dividend declared on shares of our Class A Subordinate Voting Stock, in an
amount in cash for each Exchangeable Share corresponding to the cash dividend
declared on each of the shares of our Class A Subordinate Voting Stock; (ii) in
the case of a stock dividend declared on the shares of our Class A Subordinate
Voting Stock to be paid in shares of our Class A Subordinate Voting Stock, in
such number of Exchangeable Shares for each Exchangeable Share as is equal to
the number of shares of our Class A Subordinate Voting Stock to be paid on each
such outstanding share; or (iii) in the case of a dividend declared on the
shares of our Class A Subordinate Voting Stock in property other than cash or
shares of our Class A Subordinate Voting Stock, in such type and amount of
property as is the same as or economically equivalent to, the type and amount
of property declared as a dividend on each of the shares of our Class A
Subordinate Voting Stock. Cash dividends on the Exchangeable Shares are payable
in U.S. dollars or the Canadian dollar equivalent thereof, at the option of
Exchangeco. The declaration date, record date and payment date for dividends on
the Exchangeable Shares will be the same as the relevant date for the
corresponding dividends on the shares of our Class A Subordinate Voting Stock.
See "Trading History and Dividend Record and Policy".
In the case of a stock dividend declared on the shares of our Class A
Subordinate Voting Stock to be paid in shares of our Class A Subordinate Voting
Stock, in lieu of declaring a corresponding stock dividend on the Exchangeable
Shares, the Board of Directors of Exchangeco may, in its discretion and subject
to applicable law, subdivide, redivide or change (the "subdivision") each
Exchangeable Share on the basis that each Exchangeable Share before the
subdivision becomes a number of Exchangeable Shares as is equal to the sum of:
(i) a share of our Class A Subordinate Voting Stock; and (ii) the number of
shares of our Class A Subordinate Voting Stock to be paid as a stock dividend
on each share of our Class A Subordinate Voting Stock. In such instance, such
subdivision shall become effective on the effective date for the dividend
declared on the shares of our Class A Subordinate Voting Stock without any
further act or formality on the part of the Board of Directors of Exchangeco or
of the holders of Exchangeable Shares. No approval of the holders of
Exchangeable Shares to an amendment to the articles of Exchangeco shall be
required to give effect to such subdivision. The record date for the
determination of the holders of Exchangeable Shares entitled to receive
Exchangeable Shares in connection with any subdivision of Exchangeable Shares
and the effective date of such subdivision shall be the same dates as the
record date and payment date, respectively, for the corresponding stock
dividend declared on the shares of our Class A Subordinate Voting Stock.
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Rights Upon an Event of Insolvency
Upon the occurrence and during the continuance of an event of insolvency of
Exchangeco, each holder of Exchangeable Shares (other than us and our
subsidiaries) will be entitled to exercise an exchange right with respect to
any or all of the Exchangeable Shares held by such holder, thereby requiring us
to purchase such Exchangeable Shares from the holder of our Class A Subordinate
Voting Stock, the purchase price for which will be satisfied by the delivery of
one share of our Class A Subordinate Voting Stock. As soon as practicable
following the occurrence of an event of insolvency of Exchangeco, or any event
which may, with the passage of time and/or the giving of notice, become such an
event, we or Exchangeco will give notice thereof to each holder of Exchangeable
Shares, which notice will advise the holder of the rights described in this
paragraph. The purchase price payable by us for each Exchangeable Share
purchased under this exchange right will be the same amount as Exchangeco would
pay holders of Exchangeable Shares upon a liquidation.
Liquidation Rights with Respect to Exchangeco
In the event of the liquidation, dissolution or winding-up of Exchangeco or
any other distribution of the assets of Exchangeco among its shareholders for
the purpose of winding-up its affairs, holders of the Exchangeable Shares will
have, subject to applicable law, preferential rights to receive from Exchangeco
a specified liquidation amount (being the then current market price of a share
of our Class A Subordinate Voting Stock) for each Exchangeable Share held,
payable in shares of our Class A Subordinate Voting Stock, plus all declared
and unpaid dividends. Upon the occurrence of such liquidation, dissolution or
winding-up, we will have an overriding liquidation call right to purchase all
the outstanding Exchangeable Shares (other than Exchangeable Shares held by us
or our subsidiaries) from the holders thereof on the liquidation date for a
purchase price per share equal to the specified liquidation amount.
Liquidation Rights with Respect to Us
In order for the holders of the Exchangeable Shares to participate on a pro
rata basis with the holders of shares of our Class A Subordinate Voting Stock,
on the fifth business day prior to the effective date of our voluntary or
involuntary liquidation, dissolution or winding-up, each Exchangeable Share
(other than those held by us or our subsidiaries) will, pursuant to an
automatic exchange right under Voting and Exchange Agreement, automatically be
exchanged for a share of our Class A Subordinate Voting Stock together with an
amount of cash equal to any declared but unpaid dividends on each Exchangeable
Share. The certificates previously evidencing the Exchangeable Shares shall
automatically be deemed to evidence an equal number of shares of our Class A
Subordinate Voting Stock. Upon a holder's request and the surrender of the
Exchangeable Share certificates, we will deliver to such holder certificates
representing an equivalent number of shares of our Class A Subordinate Voting
Stock. For a description of certain of our obligations with respect to the
dividend and liquidation rights of the holders of Exchangeable Shares, see
"Description of Exchangeable Shares--Support Obligation".
Retraction
Subject to the exercise by us of our retraction call right, holders of the
Exchangeable Shares will be entitled, at any time following the effective time
of the retraction, to retract (i.e., require Exchangeco to redeem) any or all
of the Exchangeable Shares held by such holder for a retraction price per share
equal to the then current market price of a share of our Class A Subordinate
Voting Stock, which retraction price will be satisfied by the delivery of one
share of our Class A Subordinate Voting Stock, plus all declared and unpaid
dividends. Holders of the Exchangeable Shares may effect such retraction by
presenting: (i) a certificate or certificates to Exchangeco representing the
number of Exchangeable Shares the holder desires to retract; (ii) a duly
executed retraction request indicating the number of Exchangeable Shares the
holder desires to retract and the retraction date and acknowledging the
retraction call right described in the paragraph below; and (iii) such other
documents as may be required to effect the retraction of the Exchangeable
Shares.
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When a holder retracts Exchangeable Shares, we will have an overriding call
right to purchase on the retraction date all but not less than all of the
retracted shares, at a purchase price per share equal to the retraction price,
which purchase price will be satisfied by the delivery of one share of our
Class A Subordinate Voting Stock. Upon receipt of a retraction request,
Exchangeco will immediately notify us of it. We must then advise Exchangeco
within five business days as to whether we will exercise our retraction call
right. If we do not so advise Exchangeco, Exchangeco will notify the holder as
soon as possible thereafter that we will not exercise our retraction call
right. If we advise Exchangeco that we will exercise our retraction call right
within such five business-day period, then provided the retraction request is
not revoked by the holder as described below, the retraction request shall
thereupon be considered only to be an offer by the holder to sell the retracted
shares to us in accordance with our retraction call right.
A holder may revoke his or her retraction request, in writing, at any time
prior to the close of business on the business day preceding the retraction
date, in which case the retracted shares will neither be purchased by us nor be
redeemed by Exchangeco. If a holder does not revoke his or her retraction
request, on the retraction date the retracted shares will either be purchased
by us or redeemed by Exchangeco, as the case may be.
If, as a result of solvency requirements or applicable law, Exchangeco is
not permitted to redeem all retracted shares tendered by a retracting holder,
Exchangeco will redeem only those retracted shares tendered by the holder
(rounded down to a whole number of shares) as would not be contrary to such
provisions of applicable law. We will be required to purchase the retracted
shares not redeemed on the retraction date.
Redemption
Subject to applicable law and the redemption call right described in the
next paragraph, on the redemption date, Exchangeco will redeem all but not less
than all of the then outstanding Exchangeable Shares for a redemption price per
share equal to the then current market price of a share of our Class A
Subordinate Voting Stock, which redemption price will be satisfied by the
delivery of one share of our Class A Subordinate Voting Stock. together with
all declared but unpaid dividends. Exchangeco will, at least 60 days prior to
the redemption date, or such number of days as the Board of Directors of
Exchangeco may determine to be reasonably practicable under the circumstances
in respect of a redemption date arising in connection with, among other events,
a change of control of us or an event in respect of which the approval of
holders of Exchangeable Shares is required, provide the registered holders of
the Exchangeable Shares with written notice of the proposed redemption of the
Exchangeable Shares by Exchangeco or the purchase of the Exchangeable Shares by
us pursuant to the redemption call right.
We will have an overriding call right to purchase on the redemption date
all, but not less than all, of the Exchangeable Shares then outstanding (other
than Exchangeable Shares held by us and our subsidiaries) for a purchase price
per share equal to the redemption price, which purchase price will be satisfied
by the delivery of one share of our Class A Subordinate Voting Stock. Upon our
exercise of the redemption call right, holders will be obligated to sell their
Exchangeable Shares to us. If we exercise the redemption call right,
Exchangeco's right and obligation to redeem the Exchangeable Shares on the
redemption date will terminate.
Date for Redemption
Exchangeco has the right to redeem all of the Exchangeable Shares on and
after October 1, 2001, or such other date after October 1, 2001 but prior to
April 1, 2003 that the Board of Directors of Exchangeco may determine provided
that written notice of the determination of such other date is provided to
holders of the Exchangeable Shares at least 60 days before October 1, 2001.
In certain circumstances, Exchangeco has the right to require a redemption
of the Exchangeable Shares prior to the date referred to in the paragraph
above. Subject to the terms and condition of the Exchangeable Share Support
Agreement, and subject to the redemption call right, an early redemption may
occur upon:
(a) the number of Exchangeable Shares then outstanding, other than
Exchangeable Shares held by us and our subsidiaries, constitutes less
than 5% of the aggregate of the number of shares of our Class A
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Subordinate Voting Stock then outstanding and the total number of
Exchangeable Shares then outstanding (including all Exchangeable Shares
held by us and our subsidiaries);
(b) the occurrence of a change of control of us, provided that the Board of
Directors of Exchangeco determines (i) that it is not reasonably
practicable to substantially replicate the terms and conditions of the
Exchangeable Shares in connection with the change of control
transaction, and (ii) that the redemption of the Exchangeable Shares is
necessary to enable the completion of the change of control
transaction;
(c) a proposal being made for any matter relating to Exchangeco that
requires the approval of the holders of Exchangeable Shares, provided
that the Board of Directors of Exchangeco determines that it is not
reasonably practicable to accomplish the business purpose intended by
the matter (which business purpose must be bona fide and not for the
primary purpose of causing the occurrence of an early redemption) in
any other commercially reasonable manner; or
(d) the failure by the holders of the Exchangeable Shares to approve or
disapprove, as applicable, a matter relating to Exchangeco that
requires the approval of the holders of Exchangeable Shares for the
purpose of maintaining the equivalence of the Exchangeable Shares and
the shares of our Class A Subordinate Voting Stock.
Ranking
The Exchangeable Shares will be entitled to a preference over the common
shares of Exchangeco and any other shares ranking junior to the Exchangeable
Shares with respect to the payment of dividends and the distribution of assets
in the event of a liquidation, dissolution or winding-up of Exchangeco, whether
voluntary or involuntary, or any other distribution of the assets of
Exchangeco, among its shareholders for the purpose of winding-up its affairs.
Certain Restrictions
Exchangeco will not take any of the following actions without the approval
of the holders of Exchangeable Shares as set forth below under "Description of
Exchangeable Shares--Amendment and Approval":
(a) pay any dividends on the common shares of Exchangeco, or any other
shares ranking junior to the Exchangeable Shares, other than stock
dividends payable in common shares of Exchangeco, or any such other
shares ranking junior to the Exchangeable Shares, as the case may be;
(b) redeem, purchase or make any capital distribution in respect of common
shares of Exchangeco, or any other shares ranking junior to the
Exchangeable Shares;
(c) redeem or purchase any other shares of Exchangeco ranking equally with
the Exchangeable Shares with respect to the payment of dividends or any
liquidation distribution;
(d) issue any Exchangeable Shares other than: (i) pursuant to any
shareholder rights plan adopted by Exchangeco; (ii) by way of stock
dividend to the holders of Exchangeable Shares, or (iii) by way of any
subdivision described above under the heading "Description of
Exchangeable Shares--Dividend Rights"; or
(e) issue any shares of Exchangeco ranking equally with, or superior to,
the Exchangeable Shares other than by way of stock dividend to the
holders of such Exchangeable Shares.
The restrictions in clauses (a), (b), (c) and (d) above will not apply at
any time when the dividends on the outstanding Exchangeable Shares
corresponding to dividends declared and paid on the shares of our Class A
Subordinate Voting Stock from its first date of issue through such time have
been declared and paid in full.
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Amendment and Approval
The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed only with the approval
of the holders thereof. Any such approval or any other approval or consent to
be given by the holders of the Exchangeable Shares will be deemed to have been
sufficiently given if given in accordance with applicable law subject to a
minimum requirement that such approval or consent be evidenced by a resolution
passed by not less than two-thirds of the votes cast on such resolution at a
meeting of the holders of Exchangeable Shares duly called and held at which
holders of at least 25% of the then outstanding Exchangeable Shares are present
or represented by proxy. In the event that no such quorum is present at such
meeting within one-half hour after the time appointed therefor, then the
meeting will be adjourned to such place and time (not less than five days
later) as may be designated by the Chairman of such meeting. At such adjourned
meeting, the holders of Exchangeable Shares present or represented by proxy may
transact the business for which the meeting was originally called and a
resolution passed thereat by the affirmative vote of not less than two-thirds
of the votes cast on such resolution will constitute the approval or consent of
the holders of the Exchangeable Shares.
Support Obligation
Pursuant to the Exchangeable Share Support Agreement, for so long as any
Exchangeable Shares (other than Exchangeable Shares owned by us or our
subsidiaries) remain outstanding:
(a) we will not declare or pay dividends on the shares of our Class A
Subordinate Voting Stock unless Exchangeco is able to (x) declare and
pay and simultaneously declares or pays, as the case may be, an
equivalent dividend on the Exchangeable Shares or (y) subdivide and
simultaneously subdivides the Exchangeable Shares in lieu of declaring
a stock dividend;
(b) we will advise Exchangeco in advance of the declaration of any dividend
on the shares of our Class A Subordinate Voting Stock and ensure that
(x) the declaration date, record date and payment date for dividends on
the Exchangeable Shares are the same as those for the corresponding
dividend on the Shares of our Class A Subordinate Voting Stock or (y)
the record date and effective date for a subdivision of the
Exchangeable Shares in lieu of declaring a stock dividend are the same
at the record date and payment date for the corresponding stock
dividend on the shares of our Class A Subordinate Voting Stock;
(c) we will ensure that the record date for any dividend declared on the
shares of our Class A Subordinate Voting Stock is not less than 10
business days after the declaration date of such dividend;
(d) we will take all actions and do all things reasonably necessary or
desirable to enable and permit Exchangeco, in accordance with
applicable law, to pay to the holders of the Exchangeable Shares the
applicable liquidation amount, redemption price and retraction price in
the event of a liquidation, dissolution or winding-up of Exchangeco, a
retraction request by a holder of Exchangeable Shares or a redemption
of Exchangeable Shares by Exchangeco; and
(e) we will take all actions and do all things reasonably necessary or
desirable to enable and permit us in accordance with applicable law, to
perform our obligations arising upon the exercise by us of our call
rights, including the delivery of shares of our Class A Subordinate
Voting Stock in accordance with the provisions of the applicable call
right.
The Exchangeable Share Support Agreement and the terms of the Exchangeable
Shares provide that, without the prior approval of Exchangeco and the holders
of the Exchangeable Shares given in the manner set forth above under
"Description of Exchangeable Shares--Amendment and Approval", we will not issue
or distribute additional shares of our Class A Subordinate Voting Stock,
securities exchangeable for or convertible into or carrying rights to acquire
shares of our Class A Subordinate Voting Stock, rights, options or warrants to
subscribe therefore, evidences of indebtedness or other assets, to all or
substantially all holders of shares of our
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Class A Subordinate Voting Stock, nor shall we change the shares of our Class A
Subordinate Voting Stock, unless the same or an economically equivalent
distribution on or change to the Exchangeable Shares (or in the rights of the
holders thereof) is made simultaneously. The Exchangeco Board of Directors is
conclusively empowered to determine in good faith and in its sole discretion
whether any corresponding distribution on or change to the Exchangeable Shares
is the same as or economically equivalent to any proposed distribution on or
change to the shares of our Class A Subordinate Voting Stock. In the event of
any proposed tender offer, share exchange offer, issuer bid, take-over bid or
similar transaction with respect to the shares of our Class A Subordinate
Voting Stock which is recommended by our Board of Directors and in connection
with which the Exchangeable Shares are not redeemed by Exchangeco or purchased
by us pursuant to the redemption call right, we will use reasonable efforts to
take all actions necessary or desirable to enable holders of Exchangeable
Shares to participate in such transaction to the same extent and on an
economically equivalent basis as the holders of shares of our Class A
Subordinate Voting Stock.
In order to assist us to comply with our obligations under the Exchangeable
Share Support Agreement and to permit us to exercise the call rights,
Exchangeco is required to notify us of the occurrence of certain events, such
as the liquidation, dissolution or winding-up of Exchangeco, and Exchangeco's
receipt of a retraction request from a holder of Exchangeable Shares.
Under the Exchangeable Share Support Agreement, we have agreed not to
exercise any voting rights attached to the Exchangeable Shares owned by us or
any of our subsidiaries on any matter considered at meetings of holders of
Exchangeable Shares. We have also agreed to use our reasonable efforts to
enable Exchangeco to maintain a listing for the Exchangeable Shares on a
Canadian stock exchange.
With the exception of administrative changes for the purpose of adding
covenants of any or all parties, making certain necessary amendments or curing
ambiguities or clerical errors (in each case provided that our Board of
Directors and the Board of Directors of Exchangeco are of the opinion that such
amendments are not prejudicial to the interests of the holders of the
Exchangeable Shares), the Exchangeable Share Support Agreement may not be
amended without the approval of the holders of the Exchangeable Shares given in
the manner set forth above under "Description of Exchangeable Shares--Amendment
and Approval".
SELLING SHAREHOLDERS
The following table sets forth information with respect to the amount of
Class A Subordinate Voting Stock held by each of the Selling Shareholders as of
. , 2000. The Class A Subordinate Voting Stock presently held by the Selling
Shareholders may be offered from time to time in whole or in part by each
Selling Shareholder for resale pursuant to this prospectus. Once sold by such
Selling Shareholder, such Class A Subordinate Voting Stock is not thereafter
covered by this prospectus even if subsequently acquired or reacquired by a
Selling Shareholder. None of the Selling Shareholders listed below has had a
material relationship within the past three years with the Company or any of
its predecessors or affiliates, other than as a result of the Class A
Subordinate Voting Stock, except as otherwise disclosed in this prospectus. See
"Recent Acquisitions".
Class A Subordinate Voting Stock
<TABLE>
<CAPTION>
Selling Shareholders Number of Shares Held
- -------------------- ---------------------
<S> <C>
The Edward J. Bartolo Corporation......................... 650,695
Ladbroke Racing Corporation............................... 1,012,195
</TABLE>
Because the Selling Shareholders may offer all or some of the Class A
Subordinate Voting Stock that they hold pursuant to this prospectus, and
because this offering is not as of the date of this prospectus being
underwritten on a firm commitment basis, no estimate can be given as to the
amount of Class A Subordinate Voting Stock that will be held by the Selling
Shareholders after completion of this offering. See "Plan of Distribution".
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PLAN OF DISTRIBUTION
This prospectus relates to three distributions of our Class A Subordinate
Voting Stock:
. the distribution by Magna of our Class A Subordinate Voting Stock to
holders of Magna's Class A Subordinate Voting Shares and Class B Shares
by way of special dividend;
. the distribution on a delayed or continuous basis of our Class A
Subordinate Voting Shares on redemption or exchange of certain
exchangeable shares of our Canadian subsidiary to be distributed by
Magna to certain of its Canadian shareholders as part of the special
dividend referred to above; and
. the distribution on a delayed or continuous basis of our Class A
Subordinate Voting Shares by certain of our shareholders.
The first two distributions set forth above are described in "The Special
Dividend" and "Description of the Exchangeable Shares", respectively. The third
distribution is described below.
Any or all of the . shares of our Class A Subordinate Voting Stock may be
sold from time to time to purchasers directly by any of the Selling
Shareholders. Alternatively, the Selling Shareholders may from time to time
offer our Class A Subordinate Voting Stock through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Class A Subordinate Voting Stock for whom they may act as agents. The
Selling Shareholders and any such underwriters, dealers or agents that
participate in the distribution of such shares may be deemed to be
underwriters, and any profit on the sale of such shares by them and any
discounts, commissions or concessions received by them may be deemed to be
underwriting discounts and commissions under the Securities Act. At the time a
particular underwritten offering of such shares is made, to the extent
required, a supplement to this prospectus will be distributed which will set
forth the aggregate principal amount of Class A Subordinate Voting Stock being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
our Class A Subordinate Voting Stock purchased from the Selling Shareholders,
any discounts, commissions and other items constituting compensation from the
Selling Shareholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
The 1,662,890 shares of our Class A Subordinate Voting Stock held by the
Selling Shareholders may be sold from time to time in one or more transactions
at a fixed offering price, which may be changed, or at varying prices
determined at the time of sale or at negotiated prices. Such prices will be
determined by the Selling Shareholders or by agreement between the Selling
Shareholders and underwriters or dealers.
Each Selling Shareholder will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, Regulation M,
which provisions may limit the timing of purchases and sales of any of the
Class A Subordinate Voting Stock by the Selling Shareholders. All the foregoing
may affect the marketability of such shares and the ability of any person to
engage in market making activities with respect to the Class A Subordinate
Voting Stock.
LEGAL MATTERS
Certain legal matters in connection with the distribution of shares of our
Class A Subordinate Voting Stock will be passed upon by Sidley & Austin, our
United States counsel. Certain legal matters in connection with the
distribution of the Exchangeable Shares will be passed upon by Osler, Hoskin &
Harcourt LLP, our Canadian counsel.
81
<PAGE>
AUDITORS, TRANSFER AGENT AND REGISTRAR
Our auditors are Ernst & Young LLP, 2049 Century Park East, Suite 1700, Los
Angeles, California 90067.
The transfer agent and registrar for our Class A Subordinate Voting Stock is
. at its principal office in . .
PROMOTER
Since Magna took the initiative in substantially reorganizing our business
and capital, Magna may be a promoter of us, and a promoter of Exchangeco,
within the meaning of the securities laws of certain provinces of Canada. See
"Relationship with Magna", "Security Ownership of Certain Beneficial Owners and
Management", "Certain Relationships and Related Transactions" and
"Reorganization".
82
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Consolidated Financial Statements of MI Entertainment
Corp. as at and for the nine months ended September 30, 1999 and for the
year ended December 31, 1998............................................ F-2
Audited Consolidated Financial Statements of MI Entertainment Corp. as at
December 31, 1998, July 31, 1998 and 1997 and for the five month period
ended December 31, 1998 and years ended July 31, 1998, 1997 and 1996.... F-12
Audited Financial Statements of Los Angeles Turf Club, Inc. as at
December 10, 1998 and
December 31, 1997 and for the periods from January 1, 1998 through
December 10, 1998, November 6, 1997 through December 31, 1997, January
1, 1997 through November 5, 1997 and for the year ended December 31,
1996.................................................................... F-43
Audited Consolidated Financial Statements of Gulfstream Park Racing
Association, Inc. and Subsidiary as at December 31, 1998 and 1997 and
for each of the years in the three year period ended
December 31, 1998....................................................... F-58
Audited Financial Statements of Remington Park, Inc. as at December 31,
1998 and 1997 and for each of the years in the three year period ended
December 31, 1998....................................................... F-70
Audited Financial Statement of Thistledown, Inc. as at December 31, 1998
and 1997 and for each of the years in the three year period ended
December 31, 1998....................................................... F-83
Audited Combined Financial Statements of Golden Gate Fields (consisting
of Pacific Racing Association's operations subject to the licensing
provisions of the California Horse Racing Board, Ladbroke Racing
California, Inc. and Ladbroke Land Holdings, Inc. (wholly owned
subsidiaries of Ladbroke Racing Corporation)) as at December 31, 1998
and 1997 and for each of the years in the three year period ended
December 31, 1998....................................................... F-95
</TABLE>
Separate financial statements for the real estate assets acquired by The
Santa Anita Companies, Inc. from Meditrust Corporation have not been provided
as this would provide no additional information that would be useful in the
context of the Company's registration of its shares of Class A Subordinate
Voting Stock. Such real estate was leased by the previous owner to the Los
Angeles Turf Club, Inc. ("LATC"). Given the terms of the lease agreement
between LATC and the previous owner of such real estate, the financial
statements of LATC capture all of the costs of operating such real estate.
Further, the rents paid by LATC were the only revenues generated by such real
estate. Rents paid by LATC have been eliminated in the Company's pro forma
consolidated financial statements and replaced by the appropriate amount of
depreciation expense.
F-1
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma consolidated financial statements give
effect to the acquisition by the Company of the following entities in exchange
for shares of the Company's Class A Subordinate Voting Stock, cash and the
assumption of certain debt:
. Los Angeles Turf Club, Inc.
. Gulfstream Park Racing Association, Inc.
. Remington Park, Inc.
. Thistledown, Inc.
. Golden Gate Fields
The pro forma consolidated financial statements have been presented assuming
that the Reorganization (as described in the principles of consolidation note
preceding the historical consolidated financial statements of the Company and
in note 16(a) of the Company's historical consolidated financial statements)
and acquisitions above had been completed as of September 30, 1999 for the
consolidated balance sheet information and as of January 1, 1998 for the
consolidated statements of income (loss) and comprehensive income (loss).
The unaudited pro forma consolidated financial statements have been prepared
by the Company based on the historical consolidated financial statements of the
Company and the acquired entities included elsewhere in this prospectus, and
certain transactions and assumptions as described in the notes thereto.
These pro forma consolidated financial statements may not be indicative of
actual results if the transactions had been effected on the dates indicated or
which may be achieved in the future. The pro forma consolidated financial
statements and accompanying notes should be read in conjunction with the
historical consolidated financial statements of the Company and acquired
entities, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Operating Results" each of which appear
elsewhere in this prospectus.
F-2
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
MI ENTERTAINMENT CORP.
For the nine month period ended September 30, 1999 and
the year ended December 31, 1998
F-3
<PAGE>
MI ENTERTAINMENT CORP.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME
(LOSS)
for the Year Ended December 31, 1998
[Unaudited]
[U.S. dollars in thousands, except per share information]
<TABLE>
<CAPTION>
MI
Entertainment Santa
Corp. Anita LATC
Year Ended Real Adjustments Gulfstream
December 31, LATC Estate (Notes 2(a)(iii) Gulfstream Adjustments Remington
1998 (Note 2(a)(i)) (Note 2(a)(ii)) thru (vi)) (Note 2(b)(i)) (Note 2(b)(ii)) (Note 2(c)(i))
------------- -------------- --------------- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Racetrack
Wagering........ $ 2,513 $41,043 $ $ $20,919 $ $11,502
Non-wagering.... 1,439 22,119 2,729 3,990
Real estate...... 21,239
------- ------- ------- ------ ------- ------ -------
25,191 63,162 23,648 15,492
------- ------- ------- ------ ------- ------ -------
Costs and
expenses
Racetrack costs
and expenses..... 3,625 62,586 (10,184) (303) 16,392 16,994
Real estate costs
and expenses..... 27,355
Impairment of
long-lived
assets........... 2,837
Depreciation and
amortization..... 2,759 1,200 695 982 1,860 3,600 2,707
Interest expense
(income), net.... 2,075 1,089 (924) 3,308 (3,231) 2,182
------- ------- ------- ------ ------- ------ -------
35,814 64,875 (9,489) (245) 21,560 369 24,720
------- ------- ------- ------ ------- ------ -------
Income (loss)
before income
taxes............ (10,623) (1,713) 9,489 245 2,088 (369) (9,228)
Income tax
provision
(recovery)....... (177) 3,269 861 (152)
------- ------- ------- ------ ------- ------ -------
Net income
(loss)........... (10,446) (1,713) 9,489 (3,024) 1,227 (217) (9,228)
Other
comprehensive
income:
Foreign currency
translation
adjustment....... 2,866
------- ------- ------- ------ ------- ------ -------
Comprehensive
income (loss).... (7,580) (1,713) 9,489 (3,024) 1,227 (217) (9,228)
------- ------- ------- ------ ------- ------ -------
Basic and diluted
earnings (loss)
per share of
Class A
Subordinate
Voting and
Class B Stock and
Exchangeable
Shares...........
Average number of
shares of Class A
Subordinate
Voting and Class
B Stock and
Exchangeable
Shares
outstanding
during the period
[in thousands]:
Basic and
diluted......... 78,535
=======
<CAPTION>
Golden Other
Remington Thistledown Golden Gate Pro Forma Pro Forma
Adjustments Thistledown Adjustments Gate Adjustments Adjustments Consolidated
(Note 2(c)(iii)) (Note 2(d)(i)) (Note 2(d)(iii)) (Note 2(e)(i)) (Note 2(e)(iii)) (Note 2(j)) Total
---------------- -------------- ---------------- -------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue
Racetrack
Wagering........ $ $14,211 $ $17,363 $ $ $107,551
Non-wagering.... 3,469 8,288 42,034
Real estate...... 21,239
---------------- -------------- ---------------- -------------- ---------------- ----------- ------------
17,680 25,651 170,824
---------------- -------------- ---------------- -------------- ---------------- ----------- ------------
Costs and
expenses
Racetrack costs
and expenses..... 16,027 21,677 (536) 126,278
Real estate costs
and expenses..... 27,355
Impairment of
long-lived
assets........... (2,837)
Depreciation and
amortization..... 91 1,465 207 3,621 (335) 18,852
Interest expense
(income), net.... (2,308) 487 (576) 1,697 (359) (1,825) 1,615
---------------- -------------- ---------------- -------------- ---------------- ----------- ------------
(5,054) 17,979 (369) 26,995 (1,230) (1,825) 174,100
---------------- -------------- ---------------- -------------- ---------------- ----------- ------------
Income (loss)
before income
taxes............ 5,054 (299) 369 (1,344) 1,230 1,825 (3,276)
Income tax
provision
(recovery)....... (1,461) 253 (228) 202 (104) 2,463
---------------- -------------- ---------------- -------------- ---------------- ----------- ------------
Net income
(loss)........... 6,515 (552) 597 (1,546) 1,334 1,825 (5,739)
Other
comprehensive
income:
Foreign currency
translation
adjustment....... 2,866
---------------- -------------- ---------------- -------------- ---------------- ----------- ------------
Comprehensive
income (loss).... 6,515 (552) 597 (1,546) 1,334 1,825 (2,873)
---------------- -------------- ---------------- -------------- ---------------- ----------- ------------
Basic and diluted
earnings (loss)
per share of
Class A
Subordinate
Voting and
Class B Stock and
Exchangeable
Shares........... $ (0.07)
============
Average number of
shares of Class A
Subordinate
Voting and Class
B Stock and
Exchangeable
Shares
outstanding
during the period
[in thousands]:
Basic and
diluted......... 651 1,012 80,198
================ ================ ============
</TABLE>
See accompanying notes
F-4
<PAGE>
MI ENTERTAINMENT CORP.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (LOSS) AND COMPREHENSIVE INCOME
(LOSS)
for the Nine Months Ended September 30, 1999
[Unaudited]
[U.S. dollars in thousands, except per share information]
<TABLE>
<CAPTION>
MI Entertainment
Corp.
Nine Months
Ended Gulfstream Remington
September 30, Gulfstream Adjustments Remington Adjustments Thistledown
1999 (Note 2(b)(i)) (Note 2(b)(ii)) (Note 2(c)(i)) (Note 2(c)(iii)) (Note 2(d)(i))
---------------- -------------- --------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Racetrack
Wagering........ $40,156 $21,477 $ $8,071 $ $10,784
Non-wagering.... 18,798 2,553 2,192 2,654
Real estate..... 12,167
------- ------- ------- ------ ----- -------
71,121 24,030 10,263 13,438
------- ------- ------- ------ ----- -------
Costs and
expenses
Racetrack costs
and expenses.... 46,292 13,614 10,406 12,020
Real estate
costs and
expenses........ 12,496
Depreciation and
amortization.... 4,676 1,292 2,400 487 69 1,081
Interest expense
(income), net... 264 2,041 (1,980) (98) 304
------- ------- ------- ------ ----- -------
63,728 16,947 420 10,795 69 13,405
------- ------- ------- ------ ----- -------
Income (loss)
before income
taxes........... 7,393 7,083 (420) (532) (69) 33
Income tax
provision
(recovery)...... 4,393 2,810 (167) (210) 9
------- ------- ------- ------ ----- -------
Net income
(loss).......... 3,000 4,273 (253) (532) 141 24
Other
comprehensive
loss:
Foreign currency
translation
adjustment...... (3,908)
------- ------- ------- ------ ----- -------
Comprehensive
income (loss)... (908) 4,273 (253) (532) 141 24
======= ======= ======= ====== ===== =======
Basic and
diluted earnings
per share of
Class A
Subordinate
Voting and Class
B Stock and
Exchangeable
Shares..........
Average number
of shares of
Class A
Subordinate
Voting and
Class B Stock
and Exchangeable
Shares
outstanding
during the
period [in
thousands]:
Basic and
diluted......... 78,535
=======
<CAPTION>
Golden Other
Thistledown Golden Gate Pro Forma Pro Forma
Adjustments Gate Adjustments Adjustments Consolidated
(Note 2(d)(iii)) (Note 2(e)(i)) (Note 2(e)(iii)) (Note 2(j)) Total
---------------- -------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue
Racetrack
Wagering........ $ $14,202 $ $ $94,690
Non-wagering.... 6,697 32,894
Real estate..... 12,167
---------------- -------------- ---------------- ----------- ------------
20,899 139,751
---------------- -------------- ---------------- ----------- ------------
Costs and
expenses
Racetrack costs
and expenses.... 16,261 (142) 98,451
Real estate
costs and
expenses........ 12,496
Depreciation and
amortization.... 155 1,902 850 12,912
Interest expense
(income), net... (406) 1,833 (1,341) 100 717
---------------- -------------- ---------------- ----------- ------------
(251) 19,996 (633) 100 124,576
---------------- -------------- ---------------- ----------- ------------
Income (loss)
before income
taxes........... 251 903 633 (100) 15,175
Income tax
provision
(recovery)...... 105 2,336 (1,722) 7,554
---------------- -------------- ---------------- ----------- ------------
Net income
(loss).......... 146 (1,433) 2,355 (100) 7,621
Other
comprehensive
loss:
Foreign currency
translation
adjustment...... (3,908)
---------------- -------------- ---------------- ----------- ------------
Comprehensive
income (loss)... 146 (1,433) 2,355 (100) 3,713
================ ============== ================ =========== ============
Basic and
diluted earnings
per share of
Class A
Subordinate
Voting and Class
B Stock and
Exchangeable
Shares.......... $ 0.10
============
Average number
of shares of
Class A
Subordinate
Voting and
Class B Stock
and Exchangeable
Shares
outstanding
during the
period [in
thousands]:
Basic and
diluted......... 651 1,012 80,198
================ ================ ============
</TABLE>
See accompanying notes
F-5
<PAGE>
MI ENTERTAINMENT CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
as at September 30, 1999
[Unaudited]
[U.S. dollars in thousands]
<TABLE>
<CAPTION>
MI Remington Thistledown
Entertainment Remington Adjustments Thistledown Adjustments
Corp. (Note 2(c)(ii)) (Note 2(c)(iii)) (Note 2(d)(ii)) (Note 2(d)(iii))
------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ 23,544 $ 3,171 $(10,250) $ 4,624 $ (9,750)
Accounts
receivable..... 5,926 707 2,296
Inventories.... 527 160 164
Prepaid
expenses and
other.......... 3,028 222 208
Note receivable
from Magna..... 146,862
-------- -------- -------- -------- --------
179,887 4,260 (10,250) 7,292 (9,750)
Real estate
properties and
fixed assets,
net............. 451,329 8,757 9,691
Other assets,
net............. 62,239 1,323 1,832 1,134 4,143
Deferred income
taxes...........
-------- -------- -------- -------- --------
693,455 14,340 (8,418) 18,117 (5,607)
======== ======== ======== ======== ========
<CAPTION>
Golden Other Pro Forma
Golden Gate Pro Forma Consolidated
Gate Adjustments Adjustments Balance
(Note 2(e)(ii)) (Note 2(e)(iii)) (Notes 2(f) thru (i)) Sheet
--------------- ---------------- --------------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $46,731 $(106,534) $111,622 $ 63,158
Accounts
receivable..... 823 9,752
Inventories.... 851
Prepaid
expenses and
other.......... 127 3,585
Note receivable
from Magna..... (146,862)
--------------- ---------------- --------------------- ------------
47,681 (106,534) (35,240) 77,346
Real estate
properties and
fixed assets,
net............. 48,533 36,328 554,638
Other assets,
net............. 2,473 28,547 101,691
Deferred income
taxes........... 3,041 3,041
--------------- ---------------- --------------------- ------------
98,687 (41,659) (32,199) 736,716
=============== ================ ===================== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
liabilities:
Bank
indebtedness... $ 7,774 $ $ $ $
Accounts
payable........ 4,373 1,886 3,579
Accrued
salaries and
wages.......... 1,474
Refundable
deposits....... 2,092
Other accrued
liabilities.... 8,957 3,499 1,500
Income taxes
payable........ 4,878
Long-term debt
due within one
year........... 10,157
Deferred
revenue........ 4,699 518 12
Note payable to
Magna.......... 35,240
-------- -------- -------- -------- --------
79,644 5,903 5,091
-------- -------- -------- -------- --------
Long-term debt.. 12,162 61,629 (61,629)
-------- -------- -------- -------- --------
Other long-term
liabilities..... 1,317 19
-------- -------- -------- -------- --------
Deferred income
taxes........... 54,444 1,262 1,657
-------- -------- -------- -------- --------
Magna's net
investment...... 545,888
Share capital... 48,149 (48,149) 100 4,400
Deficit......... (39,731) 39,731 (49,965) 49,965
-------- -------- -------- -------- --------
545,888 8,418 (8,418) (49,865) 54,365
-------- -------- -------- -------- --------
693,455 14,340 (8,418) 18,117 (5,607)
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
liabilities:
Bank
indebtedness... $ $ $ $ 7,774
Accounts
payable........ 21,361 (20,692) 10,507
Accrued
salaries and
wages.......... 1,474
Refundable
deposits....... 2,092
Other accrued
liabilities.... 3,482 17,438
Income taxes
payable........ 4,878
Long-term debt
due within one
year........... 2,594 (2,594) 10,157
Deferred
revenue........ 5,229
Note payable to
Magna.......... (35,240)
--------------- ---------------- --------------------- ------------
27,437 (23,286) (35,240) 59,549
--------------- ---------------- --------------------- ------------
Long-term debt.. 59,591 (42,261) 29,492
--------------- ---------------- --------------------- ------------
Other long-term
liabilities..... 1,336
--------------- ---------------- --------------------- ------------
Deferred income
taxes........... 28,547 6,859 92,769
--------------- ---------------- --------------------- ------------
Magna's net
investment...... (545,888)
Share capital... 14,854 (7,854) 542,070 553,570
Deficit......... (3,195) 3,195
--------------- ---------------- --------------------- ------------
11,659 (4,659) (3,818) 553,570
--------------- ---------------- --------------------- ------------
98,687 (41,659) (32,199) 736,716
=============== ================ ===================== ============
</TABLE>
See accompanying notes
F-6
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
[Unaudited]
1. BASIS OF PRESENTATION
The pro forma consolidated balance sheet as at September 30, 1999 has been
prepared from the unaudited consolidated balance sheet of MI Entertainment
Corp. (the "Company"), the unaudited balance sheets of Remington Park, Inc.
("Remington") and Thistledown, Inc. ("Thistledown") and the unaudited combined
statement of assets and liabilities of Golden Gate Fields ("Golden Gate"), each
as at September 30, 1999. The pro forma consolidated statement of income (loss)
and comprehensive income (loss) for the nine months ended September 30, 1999
has been prepared from the unaudited consolidated statement of income (loss)
and comprehensive income (loss) of the Company, the unaudited statements of
operations and accumulated deficit of Remington and Thistledown and the
unaudited combined statement of operations of Golden Gate each for the nine
months ended September 30, 1999 and the unaudited consolidated statement of
income of Gulfstream Park Racing Association, Inc. ("Gulfstream") for the eight
months ended August 31, 1999. The pro forma consolidated statement of income
(loss) and comprehensive income (loss) for the year ended December 31, 1998 has
been prepared from the audited consolidated statements of income (loss) and
comprehensive income (loss) of the Company for the five months ended December
31, 1998 and the year ended July 31, 1998 and the unaudited consolidated
statement of income (loss) and comprehensive income (loss) for the five months
ended December 31, 1997 as well as the audited statement of operations for the
Los Angeles Turf Club, Inc. ("LATC") for the period from January 1, 1998 to
December 10, 1998 and the audited consolidated statement of income of
Gulfstream, the audited statements of operations and accumulated deficit of
Remington and Thistledown and the audited combined statement of operations of
Golden Gate each for the year ended December 31, 1998. Results of operations
for the Company for the year ended December 31, 1998 were calculated by adding
the audited results of operations for the five months ended December 31, 1998
and the year ended July 31, 1998 less the unaudited results of operations for
the five months ended December 31, 1997. These pro forma consolidated financial
statements have been prepared on the basis of the assumptions and adjustments
described in note 2 below and should be read in conjunction with the historical
financial statements of the Company, LATC, Gulfstream, Remington, Thistledown
and Golden Gate, including the related notes thereto, presented elsewhere
herein.
The pro forma consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
("U.S. GAAP") which are also in conformity, in all material respects, with
accounting principles generally accepted in Canada ("Canadian GAAP") except as
described in note 3 to these pro forma consolidated financial statements.
These pro forma consolidated financial statements are not necessarily
indicative of the financial position or results of operations that would have
resulted had the relevant transactions taken place at the respective dates
referred to below.
2. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The pro forma consolidated financial statements have been presented assuming
that the Reorganization as described elsewhere herein and the other items
described below had been completed as of January 1, 1998 for the pro forma
consolidated statements of income (loss) and comprehensive income (loss), and
as of September 30, 1999 for the pro forma consolidated balance sheet. The pro
forma consolidated financial statements give effect to the following items:
[a] The acquisition of the Santa Anita racetrack which comprises LATC and
approximately 305 acres of related real estate.
i] The Company acquired the Santa Anita racetrack on December 10, 1998.
Accordingly, the Company's financial position and results of operations
include the Santa Anita racetrack from December 10, 1998. The pro forma
consolidated statement of income (loss) and comprehensive income (loss) for
the
F-7
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
year ended December 31, 1998 includes the results of operations for LATC
from January 1, 1998 to December 10, 1998.
ii] Historically, the Santa Anita racetrack real estate was leased by
LATC. Under the lease agreement, LATC was responsible for all operating
costs associated with the real estate (including property taxes, utilities,
insurance, repairs and maintenance) and such costs are included in the LATC
statements of operations. Given that the Company acquired the Santa Anita
real estate, the historic rents paid by LATC from January 1, 1998 to
December 10, 1998 in the amount of $10,184,000 have been reversed in the
pro forma consolidated statement of income (loss) and comprehensive income
(loss) and replaced with depreciation expense of $695,000 based on the
purchase price paid by the Company for the Santa Anita real estate and the
allocation of the purchase price to land and depreciable real estate
assets.
iii] The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1998 includes
an adjustment to remove $303,000 related to expenses recorded with respect
to a defined benefit deferred compensation obligation of LATC's previous
owner. Such obligation has not been transferred to LATC or the Company.
iv] The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1998 includes
an increase in depreciation expense of $982,000 as a result of the purchase
price allocation to the assets of LATC.
v] The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1998 includes
an adjustment to remove $924,000 of interest expense on balances which were
due to the previous owner of LATC. Such balances were eliminated under the
purchase agreement and have not been replaced with other interest bearing
financing.
vi] The pro forma consolidated statement of income (loss) and
comprehensive income (loss) for the year ended December 31, 1998 has been
adjusted by $3,269,000 to reflect the tax expense, effected at a combined
federal and state tax rate of 40%, that would have been incurred on the
earnings for the year of LATC after the above noted pro forma adjustments.
[b] On September 1, 1999, the Company acquired all the outstanding capital
stock of Gulfstream for a purchase price, including estimated transaction
costs, of $89,200,000 payable in cash.
i] The pro forma consolidated statements of income (loss) and
comprehensive income (loss) for the year ended December 31, 1998 and the
nine months ended September 30, 1999 includes the results of operations of
Gulfstream for the year ended December 31, 1998 and the eight months ended
August 31, 1999, respectively.
ii] The pro forma consolidated statements of income (loss) and
comprehensive income (loss) for the year ended December 31, 1998 and the
nine months ended September 30, 1999 include adjustments that arise as a
result of the acquisition of Gulfstream on September 1, 1999 and the
application of purchase accounting. The adjustments to the results of
operations of Gulfstream for the year ended December 31, 1998 and eight
months ended August 31, 1999 are:
--additional depreciation and amortization expense of $3,600,000 and
$2,400,000, respectively, as a result of the increase in the book
value of the buildings by $19,355,000 and racing licence by
$62,527,000, based on the purchase price allocation, and accounting
policies to depreciate buildings over 40 years and amortize the
racing licence over 20 years;
--reversal of interest expense of $3,156,000 and $1,933,000,
respectively, as a result of the repayment of $48,000,000 of long-
term debt;
--reversal of long-term debt related fees (reflected in interest
expense (income), net) of $75,000 and $47,000, respectively, paid to
the former owner of Gulfstream; and
F-8
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
--reduction of the tax expense by $152,000 and $167,000, respectively,
as a result of the above noted adjustments effected at a combined
federal and state tax rate of 40%.
[c] On November 12, 1999, the Company acquired all the outstanding capital
stock of Remington for a purchase price, including estimated transaction costs,
of $10,250,000 paid in cash.
[i] The pro forma consolidated statements of income (loss) and
comprehensive income (loss) for the year ended December 31, 1998 and the
nine months ended September 30, 1999 includes the results of operations of
Remington for the same periods.
[ii] The pro forma consolidated balance sheet as at September 30, 1999
includes the financial position of Remington as at the same date.
[iii] The pro forma consolidated balance sheet as at September 30, 1999
includes an adjustment to record the application of purchase accounting to
the September 30, 1999 Remington balance sheet. Other assets (comprising
the racing licence) are increased by $1,832,000, cash and cash equivalents
are reduced by the Company's purchase price paid of $10,250,000 and the
share capital and deficit of Remington of $48,149,000 and $39,731,000 are
eliminated.
The pro forma consolidated statements of income (loss) and comprehensive
income (loss) for the year ended December 31, 1998 and the nine months
ended September 30, 1999 include adjustments that arise as a result of the
acquisition of Remington and the application of purchase accounting. The
adjustments for the year ended December 31, 1998 and nine months ended
September 30, 1999 are:
--reversal of an impairment of long-lived assets charge in the amount
of $2,837,000 and nil, respectively, as such assets for pro forma
consolidated statement of income (loss) and comprehensive income
(loss) purposes have been recorded at a value based on the Company's
purchase price paid for the acquisition of Remington effective
January 1, 1998 and not Remington's historical book value;
--additional depreciation and amortization expense of $91,000 and
$69,000, respectively, as a result of the increase in the book value
of the racing licence by $1,832,000, based on the purchase price
allocation, and an accounting policy to amortize the racing licence
over 20 years;
--reversal of interest expense of $2,308,000 and nil, respectively, as
a result of the repayment of long-term debt of $30,000,000 which was
due to the previous owner of Remington and repaid on December 1, 1998
through a capital contribution; and
--additional tax recovery of $1,461,000 and $210,000, respectively, as
a result of the above noted adjustments and the losses of Remington
being available to be applied against the earnings of Santa Anita,
Gulfstream and Golden Gate for federal income tax filing purposes,
both effected at the federal tax rate of 35%.
[d] On November 12, 1999, the Company acquired all the outstanding capital
stock of Thistledown for a purchase price, including estimated transaction
costs, of $14,250,000 of which $9,750,000 was paid in cash and $4,500,000 was
paid through the issuance of shares of the Company.
[i] The pro forma consolidated statements of income (loss) and
comprehensive income (loss) for the year ended December 31, 1998 and the
nine months ended September 30, 1999 includes the results of operations of
Thistledown for the same periods.
[ii] The pro forma consolidated balance sheet as at September 30, 1999
includes the financial position of Thistledown as at the same date.
[iii] The pro forma consolidated balance sheet as at September 30, 1999
includes an adjustment to record the application of purchase accounting to
the September 30, 1999 balance sheet. Other assets
F-9
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(comprising the racing licence) are increased by $4,143,000, cash and cash
equivalents are reduced by the Company's purchase price paid of $9,750,000,
deferred tax liabilities are increased by $1,657,000, long-term debt is
reduced by $61,629,000, the share capital and deficit of Thistledown of
$100,000 and $49,965,000, respectively, are eliminated and the issuance of
share capital of the Company in the amount of $4,500,000 is recorded.
The pro forma consolidated statements of income (loss) and comprehensive
income (loss) for the year ended December 31, 1998 and the nine months
ended September 30, 1999 include adjustments that arise as a result of the
acquisition of Thistledown and the application of purchase accounting. The
adjustments for the year ended December 31, 1998 and nine months ended
September 30, 1999 are:
--additional depreciation and amortization expense of $207,000 and
$155,000, respectively, as a result of the increase in the book value
of the racing licence by $4,143,000, based on the purchase price
allocation, and an accounting policy to amortize the racing licence
over 20 years;
--reversal of interest expense of $576,000 and $406,000, respectively,
as a result of the repayment of long-term debt of $61,629,000;
--additional tax recovery of $228,000 for the year ended December 31,
1998 as a result of the above noted adjustments effected at the
federal tax rate of 35% since state tax cannot be included in a tax
sharing arrangement; and
--additional tax expense of $105,000 for the nine months ended
September 30, 1999 as a result of the above noted adjustments
effected at a combined federal and state tax rate of 40%.
[e] On December 10, 1999, the Company acquired all the outstanding capital
stock of Golden Gate for a purchase price, including estimated transaction
costs, of $88,000,000 of which $61,000,000 was paid in cash, $7,000,000 was
paid through the issuance of shares of the Company and $20,000,000 was paid
through the issuance of a non-interest bearing note, $10,000,000 of which
matures on the first anniversary of the date of closing and $5,000,000 of which
matures on each of the second and third anniversaries.
[i] The pro forma consolidated statements of income (loss) and
comprehensive income (loss) for the year ended December 31, 1998 and the
nine months ended September 30, 1999 includes the results of operations of
Golden Gate for the same periods.
[ii] The pro forma consolidated balance sheet as at September 30, 1999
includes the financial position of Golden Gate as at the same date.
[iii] The pro forma consolidated balance sheet as at September 30, 1999
includes an adjustment to record the application of purchase accounting to
the September 30, 1999 Golden Gate balance sheet. Real estate properties
(comprising land) are increased by $36,328,000, other assets (comprising
the racing licence) are increased by $28,547,000, cash and cash equivalents
are reduced by the purchase price paid of $61,000,000 and by $45,534,000 in
respect of cash not acquired, deferred tax liabilities are increased by
$28,547,000, current liabilities are reduced by $23,286,000, long-term debt
is reduced by $59,591,000 less $17,330,000 (the discounted value of the
$20,000,000 non-interest bearing note issued on acquisition of Golden Gate
using a discount rate of 8.7%), the share capital and deficit of Golden
Gate of $14,854,000 and $3,195,000, respectively, are eliminated and the
issuance of share capital of the Company in the amount of $7,000,000 is
recorded.
The pro forma consolidated statements of income (loss) and comprehensive
income (loss) for the year ended December 31, 1998 and the nine months
ended September 30, 1999 include adjustments that arise as a result of the
acquisition of Golden Gate and the application of purchase accounting. The
adjustments for the year ended December 31, 1998 and nine months ended
September 30, 1999 are:
F-10
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
--reversal of racetrack operating costs of $536,000 and $142,000,
respectively, related to assets not acquired;
--additional depreciation and amortization expense of $1,427,000 and
$850,000, respectively, as a result of the increase in the book value
of the racing licence by $28,547,000, based on the purchase price
allocation, and accounting policies to depreciate buildings over 40
years and amortize the racing licence over 20 years;
--reversal of depreciation expense of $1,762,000 and nil, respectively,
on a prepaid lease with the previous owner of Golden Gate which was
cancelled and the value of the lease was added to assets not acquired
in 1998;
--reversal of interest expense of $3,845,000 and $3,501,000,
respectively, as a result of the elimination of long-term debt of
$59,591,000;
--reversal of interest income of $1,983,000 and $1,585,000,
respectively, as a result of the removal of cash not acquired of
$45,534,000;
--additional interest expense accrued of $1,503,000 and $575,000,
respectively, on the discounted $20,000,000 non-interest bearing note
issued;
--additional tax recovery of $38,000 for the year ended December 31,
1998 as a result of the above noted adjustments effected at the
federal tax rate of 35% since state tax can not be included in a tax
sharing arrangement, and reversal of $66,000 of state tax expense
related to operations not acquired; and
--additional tax expense of $614,000 for the nine months ended
September 30, 1999 as a result of the above noted adjustments,
effected at a combined federal and state tax rate of 40%, less
$2,336,000 of tax expense related to operations not acquired.
[f] The components included in Magna's net investment in the Company's
consolidated balance sheet as at September 30, 1999 have been separately
disclosed in their respective balance sheet lines based on the Reorganization
as defined in the historical consolidated financial statements of the Company.
[g] The pro forma consolidated balance sheet reflects the use of $81,000,000
of cash to acquire Remington, Thistledown and Golden Gate as described in items
[c][iii], [d][iii] and [e][iii] above.
[h] The repayment of the note payable to Magna of $35,240,000 representing
the short-term funding provided by Magna since March 1999, repaid by the
Company subsequent to September 30, 1999.
[i] The collection of $146,862,000 by the Company subsequent to September
30, 1999 of the note receivable due from Magna.
[j] Interest expense has been adjusted to reflect the components of Magna's
net investment as defined under the Reorganization from January 1, 1998.
3. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA
The Company's accounting policies as reflected in these pro forma
consolidated financial statements do not materially differ from Canadian GAAP
except for:
[a] For purposes of reconciling to Canadian GAAP, the Company has early
adopted the provisions of The Canadian Institute of Chartered Accountants
Handbook Section 3461 "Employee Future Benefits" on a retroactive basis.
Accordingly, net pension expense and accrued pension liabilities are the
same as those determined by the application of U.S. GAAP.
[b] Under Canadian GAAP, there is no requirement to disclose
comprehensive income (loss).
F-11
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
MI ENTERTAINMENT CORP.
For the five-month period ended December 31, 1998
and the years ended July 31, 1998, 1997 and 1996.
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholder and Directors of
MI Entertainment Corp.
We have audited the accompanying consolidated balance sheets of MI
Entertainment Corp. as of December 31, 1998, July 31, 1998 and 1997, and the
related consolidated statements of income (loss) and comprehensive income
(loss), changes in Magna's net investment and cash flows for the five-month
period ended December 31, 1998 and for each of the years in the three-year
period ended July 31, 1998. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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 consolidated financial position of MI
Entertainment Corp. at December 31, 1998, July 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the five-month
period ended December 31, 1998 and for each of the years in the three-year
period ended July 31, 1998 in conformity with accounting principles generally
accepted in the United States.
Los Angeles, California Ernst & Young LLP
November 8, 1999 Certified Public Accountants
[Except as to Note 16, which is as of January 14, 2000]
F-13
<PAGE>
MI ENTERTAINMENT CORP.
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in U.S. dollars
following accounting principles generally accepted in the United States ("U.S.
GAAP"). These policies are also in conformity, in all material respects, with
accounting policies generally accepted in Canada, except as described in note
15 to the consolidated financial statements.
Principles of Consolidation
MI Entertainment Corp. (the "Company") was formed to hold and operate all of
the non-automotive related assets (including non-automotive real estate)
currently owned by Magna International Inc. and its subsidiaries ("Magna").
Such assets were reorganized under the Company in various stages, and the
capital structure was established (see Note 16[a]), over the period to November
5, 1999 (the "Reorganization"). The Company is a wholly owned subsidiary of
Magna International Inc.
These consolidated financial statements present the historic financial
position and operating results of the assets and liabilities reorganized under
the Company on a carve out basis from Magna. To give effect to the continuity
of Magna's interest in the assets and liabilities of the Company, all assets
and liabilities have been recorded in the consolidated balance sheets at
Magna's book values and have been included from the date they were acquired by
Magna. All significant intercompany balances and transactions have been
eliminated.
The assets and liabilities reorganized under the Company include the
following:
Racetrack Operations
. All the outstanding capital stock of The Santa Anita Companies, Inc.
("SAC"). On December 10, 1998, SAC (formerly 234567 Development Inc., a
wholly owned inactive subsidiary of Magna) acquired all of the
outstanding capital stock of the Los Angeles Turf Club, Inc. ("LATC")
which operates the Santa Anita racetrack in California. SAC also acquired
305 acres of related real estate.
. All the outstanding capital stock of Gulfstream Park Racing Association,
Inc. ("Gulfstream"). Gulfstream, which operates Gulfstream Park
racetrack, is located on approximately 255 acres of land in the cities of
Hallandale and Aventura, Florida.
. The real estate assets of SLRD Thoroughbred Training Center, Inc.
("SLRD"). SLRD, a horse boarding and training center located in San Diego
California, owns approximately 202 acres of real estate.
Real Estate Operations
. All the outstanding capital stock of Magna Vierte Beteiligungs AG
("MVB"). Effective January 1, 1999, the assets and liabilities of Magna
Liegenschaftsverwaltungs GmbH ("MLV") were split into two companies.
Under the split, all of the assets, liabilities, operations and employees
of MLV were transferred to MVB except for two real estate properties and
an equivalent amount of debt financing due to Magna. The two real estate
properties not transferred to MVB were, from their original acquisition
date by MLV, leased back to Magna on a triple net lease basis such that
Magna was responsible for the operating costs related to the properties.
The assets and operations of MLV transferred to MVB include a golf course
and adjacent residential development in Oberwaltersdorf, Austria.
. All the outstanding capital stock of Magna Projektentwicklungs AG which
owns all of the outstanding capital stock of Magna
Grundstucksentwicklungs GmbH (collectively "MGE"). MGE's primary asset is
a parcel of land held for development in Ebreichsdorf, Austria.
. Land and improvements in Aurora, Ontario (the "Aurora lands") which are
subject to a conditional sale agreement by Magna to the Company. The
conditional sale agreement is subject to the successful severance of the
affected properties.
F-14
<PAGE>
. Various other parcels of land and improvements (the "vacant land
portfolio") and other non-automotive properties, including any incidental
operations associated with such properties. Two of these properties are
subject to conditional sale agreements.
. Rights to acquire, from an affiliated company (see Note 11[a]),
approximately 200 acres of land and improvements in Aurora, Ontario. An
18-hole golf course is currently under construction on the property.
Construction in progress has also been transferred to the Company,
accordingly, all such construction is reflected in the consolidated
financial statements of the Company. This project is referred to as the
Aurora Downs golf course.
The consolidated statements of income (loss) and comprehensive income (loss)
include the following: (a) the historic revenues and expenses of SAC and LATC
from December 10, 1998 and Gulfstream from September 1, 1999, representing the
dates of Magna's acquisitions of such entities; (b) the historic revenues and
expenses of MLV adjusted to exclude the rental revenues earned, depreciation
expense and interest on debt due to Magna all related to the two MLV properties
not transferred to MVB; (c) the historic revenues and expenses of MGE; and (d)
the historic revenues and expenses (which are limited to incidental costs of
ownership the most significant of which is property taxes), net of amounts
capitalized, related to the Aurora Downs golf course, the Aurora lands and the
vacant land portfolio and other non-automotive properties transferred to the
Company.
The historic administrative costs associated with managing the Aurora lands,
the vacant land portfolio and other non-automotive properties were borne by
Magna International Inc.'s real estate management division (the "Division").
The Division was also responsible for administering Magna's automotive related
real estate portfolio, none of which has been transferred to the Company. The
administrative costs of the Division include personnel costs (salary, benefits,
travel), administration office costs and other overheads. Further, the Company
has paid no fees to Magna International Inc. for services provided (including
accounting, tax, legal, treasury services and other incidental costs associated
with establishing the Company and its operations). An allocation of the
Division and Magna International Inc.'s historic administrative costs has been
included in these consolidated financial statements based on an estimate of the
services provided.
Interest expense as presented in the consolidated statements of income
(loss) and comprehensive income (loss) includes interest on external debt and
amounts due to Magna (included in Magna's net investment) held by SAC, LATC,
Gulfstream, MLV (adjusted as described above), and MGE. No interest has been
charged on Magna's net investment in the Aurora Downs golf course, the Aurora
lands and the vacant land portfolio and the other non-automotive properties
transferred to the Company. Under the Reorganization, the transfer of these
assets by Magna to the Company is by way of an equity investment.
Income taxes for SAC, LATC, Gulfstream, MVB (from January 1, 1999), MGE and
other separate tax paying legal entities at September 30, 1999 have been
recorded based on their separate tax positions using the liability method of
tax allocation. Income taxes with respect to the other components of the
consolidated statements of income (loss) and comprehensive income (loss) have
been recorded at statutory rates based on income before taxes as included in
the consolidated statements of income (loss) and comprehensive income (loss) as
though such components were separate tax paying entities. Given that the
revenues and expenses of this latter component of the consolidated statements
of income (loss) and comprehensive income (loss) have been prepared on a carve
out basis from Magna, the resulting income taxes payable and deferred income
tax assets and liabilities have been included in Magna's net investment.
Magna's net investment also includes Magna's net long term debt investments
(subsequently converted into equity investments as part of the Reorganization)
and equity investments in the Company created as part of the Reorganization,
the accumulated net income (loss) of the Company, contributions by, less
distributions to, Magna and the currency translation adjustment.
As a result of the basis of presentation described above, the consolidated
statements of income (loss) and comprehensive income (loss) may not necessarily
be indicative of the revenues and expenses that would have resulted had the
Company historically operated as a stand alone entity.
F-15
<PAGE>
As of January 14, 2000, the Company and its subsidiaries are comprised of
the following entities:
<TABLE>
<CAPTION>
% Included
----------
<S> <C>
United States
MI Entertainment Corp.......................................... 100
The Santa Anita Companies, Inc................................ 100
Los Angeles Turf Club, Inc.................................. 100
SLRD Thoroughbred Training Center, Inc........................ 100
Gulfstream Park Racing Association, Inc....................... 100
Pacific Racing Association.................................... 100
Ladbroke Land Holdings, Inc................................... 100
Remington Park, Inc........................................... 100
Thistledown, Inc.............................................. 100
MI Racing, Inc. .............................................. 100
5321 Industries Inc........................................... 100
DLR, Inc...................................................... 100
OTL, Inc...................................................... 100
Vista Hospitality, Inc........................................ 100
Canada
MI Venture (Canada) Inc........................................ 100
1207032 Ontario Inc........................................... 100
1180482 Ontario Inc............................................ 100
Europe
MI Entertainment Holding GmbH.................................. 100
Magna Ventures Management GmbH................................ 100
SDP Landholding GmbH......................................... 100
Steyr-Barter Handels GmbH................................... 100
Steyr-Industrie-Commerz und Handels GmbH................... 100
Gemeinnutzige Wohnungs-Gesellschaft,
"Steyr-Daimler-Puch" GmbH & Co. KG.......................... 100
MI Air Flugbetriebs GmbH..................................... 100
Magna Vierte Beteiligungs AG................................... 100
Magna Projektentwicklungs AG................................... 100
Magna Grundstucksentwicklungs GmbH............................ 100
</TABLE>
Magna changed its fiscal year end from July 31 to December 31, effective
December 31, 1998. The periods presented in these consolidated financial
statements conform to those presented by Magna.
Cash and Cash Equivalents
Cash and cash equivalents include cash on account, demand deposits and
short-term investments with original maturities of less than three months and
excludes outstanding cheques, which are classified as accounts payable.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" establishes accounting standards for the impairment of long-lived
assets, including real estate properties, fixed and other assets. The Company
evaluates impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
For long-lived assets not held for sale, the Company assesses the
recoverability by determining whether the carrying value of such assets can be
recovered through projected undiscounted cash flows. If the sum of
F-16
<PAGE>
expected future cash flows, undiscounted and without interest charges, is less
than net book value, the excess of the net book value over the estimated fair
value is charged to operations in the period in which such impairment is
determined by management.
When long-lived assets are identified by the Company as held for sale, the
Company discontinues depreciating the asset and the carrying value is reduced,
if necessary, to the estimated fair value less costs of disposal. Fair value is
determined based upon discounted cash flows of the assets at rates deemed
reasonable for the type of property and prevailing market conditions,
appraisals and, if appropriate, current estimated net sales proceeds from
pending offers.
Real Estate Properties
Residential development inventory
Residential development inventory is valued at cost which includes
acquisition and construction costs. Construction costs include all direct
construction costs, capitalized interest and indirect costs wholly attributable
to construction.
Revenue producing properties
Revenue producing properties are valued at cost which includes acquisition
and development costs. Development costs include all direct construction costs,
capitalized interest and indirect costs wholly attributable to development.
Buildings are depreciated on a straight-line basis over 40 years.
Properties under and held for development
Properties under and held for development are valued at cost which includes
acquisition and development costs. Development costs include all direct
construction costs, capitalized interest and indirect costs wholly attributable
to development.
Properties available for sale
Properties available for sale are valued at the lower of cost, which
includes acquisition and development costs, and fair value less costs of
disposal ("fair value"). The Company evaluates the lower of cost and fair value
whenever events or changes in circumstance indicate possible impairment.
Fixed Assets
Fixed assets are recorded at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis over the estimated useful
lives of fixed assets at annual rates of 7% to 20% for machinery and equipment
and 15% to 20% for furniture and fixtures.
Racing Licenses
Racing licenses are recorded at cost less accumulated amortization.
Amortization is provided on a straight-line basis over 20 years, representing
the estimated useful lives of such racing licenses.
Revenue Recognition
Revenues from the sale of residential development inventory are recognized
when the collection of the sale proceeds is reasonably assured and all other
significant conditions are met. Properties which have been sold, but for which
these criteria have not been satisfied, are included in residential development
inventory.
The Company records operating revenues associated with horse racing on a
daily basis, except for season admissions which are recorded ratably over the
racing season. Racetrack wagering revenues and direct operating costs are shown
net of state and local taxes, stakes, purses and awards.
F-17
<PAGE>
Golf course annual membership fee revenues are recognized as revenue ratably
over the applicable season. Member deposits received on admission to membership
to the Austrian golf course are refundable and are, therefore, not recognized
in revenues but are recorded as refundable deposits.
Deferred Revenues
Deferred revenues associated with racetrack operations consist of prepaid
admission tickets and parking, which are recognized as revenue ratably over the
period of the related race meet. Also, deferred revenue includes prepaid rent
from another thoroughbred horse racing corporation, Oak Tree Racing
Association, which utilizes the Company's racetrack for a portion of the year.
Prepaid rent is recognized over the remaining term of the lease.
Deferred revenues of the real estate operations consist of advance payments
received from the purchaser relating to new home construction.
Seasonality of Revenues
The racetrack industry is seasonal in nature. Generally, horseracing
revenues are greater in the first and fourth quarters of the calendar year than
in the second and third quarters of the calendar year. This seasonality can be
expected to cause quarterly fluctuations in revenue, profit margins and net
income.
Advertising
Costs incurred for producing and communicating advertising associated with
horse racing are generally expensed when incurred. Advertising costs for the
nine-month period ended September 30, 1999 and the five-month period ended
December 31, 1998 were $2.3 million and $0.2 million, respectively. Costs
incurred with respect to promotions for specific live race days are expensed on
the applicable race day.
Foreign Exchange
Assets and liabilities of self-sustaining foreign operations are translated
using the exchange rate in effect at the period-end and revenues and expenses
are translated at the average rate during the period. Exchange gains or losses
on translation of the Company's net equity investment in these operations are
deferred in Magna's net investment. The appropriate amounts of exchange gains
or losses accumulated in Magna's net investment are reflected in income when
there is a sale or partial sale of the Company's investment in these operations
or upon a complete or substantially complete liquidation of the investment.
Income Taxes
The Company follows the liability method of tax allocation for accounting
for income taxes. Under the liability method of tax allocation, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using
substantially enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
that affect the amounts reported and disclosed in the consolidated financial
statements. Actual results could differ from those estimates.
Interim Financial Statements
In the opinion of management, the unaudited interim consolidated financial
statements reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial
F-18
<PAGE>
position at September 30, 1999 and the results of operations and cash flows for
the nine-month periods ended September 30, 1999 and 1998, in accordance with
U.S. GAAP.
Impact of Recently Issued Accounting Standards
Under Staff Accounting Bulletin 74, the Company is required to disclose
certain information related to new accounting standards, which have not yet
been adopted due to delayed effective dates.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". This Statement is effective for the Company's first quarter ended
March 31, 2001. SFAS 133 requires that an entity recognize all derivative
instruments either as assets or liabilities and measure those instruments at
fair value. The Company has not determined the impact, if any, of this
pronouncement on its consolidated financial statements.
F-19
<PAGE>
MI ENTERTAINMENT CORP.
CONSOLIDATED BALANCE SHEETS
Incorporated under the laws of the State of Delaware
[U.S. dollars in thousands]
<TABLE>
<CAPTION>
July 31,
September 30, December 31, -----------------
Note 1999 1998 1998 1997
---- ------------- ------------ -------- --------
[unaudited]
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.. $ 23,544 $ 17,503 $ 295 $ 220
Accounts receivable........ 5,926 8,979 1,088 788
Inventories................ 527 1,050 461 438
Prepaid expenses and
other..................... 3,028 1,522 69 70
Note receivable from
Magna..................... 11 146,862
-------- -------- -------- --------
179,887 29,054 1,913 1,516
-------- -------- -------- --------
Real estate properties, net.. 3 441,797 326,690 181,003 109,500
-------- -------- -------- --------
Fixed assets, net............ 4 9,532 8,221 1,886 2,159
-------- -------- -------- --------
Other assets, net............ 5 62,239 -- -- --
-------- -------- -------- --------
Deferred income taxes........ 6 -- 177 -- --
-------- -------- -------- --------
693,455 364,142 184,802 113,175
======== ======== ======== ========
LIABILITIES AND MAGNA'S NET
INVESTMENT
Current liabilities:
Bank indebtedness.......... 7,774 11,889 165 4,277
Accounts payable........... 4,373 15,409 2,700 1,823
Accrued salaries and
wages..................... 1,474 518 410 334
Refundable deposits........ 2,092 2,008 1,695 989
Other accrued liabilities.. 8,957 6,955 2,067 1,718
Income taxes payable....... 6 4,878 -- -- --
Long-term debt due within
one year.................. 7 10,157 3,655 3,446 3,052
Deferred revenue........... 4,699 3,098 160 1,456
Note payable to Magna...... 11 35,240 -- -- --
-------- -------- -------- --------
79,644 43,532 10,643 13,649
-------- -------- -------- --------
Long-term debt............... 7 12,162 16,791 15,884 11,609
-------- -------- -------- --------
Other long-term liabilities.. 13 1,317 1,317 -- --
-------- -------- -------- --------
Deferred income taxes........ 6 54,444 -- -- --
-------- -------- -------- --------
Magna's net investment....... 545,888 302,502 158,275 87,917
-------- -------- -------- --------
$693,455 $364,142 $184,802 $113,175
======== ======== ======== ========
</TABLE>
- --------
Commitments and contingencies [notes 7, 11 and 12]
See accompanying notes
F-20
<PAGE>
MI ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN MAGNA'S NET INVESTMENT
[U.S. dollars in thousands]
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month
September 30, period ended Years ended July 31,
------------------ December 31, --------------------------
Note 1999 1998 1998 1998 1997 1996
---- -------- -------- ------------ -------- ------- -------
[unaudited]
<S> <C> <C> <C> <C> <C> <C> <C>
Magna's net investment,
beginning of period.... $302,502 $ 97,702 $158,275 $ 87,917 $49,985 $48,166
Net income (loss)....... 3,000 (7,640) (4,231) (8,610) (1,382) (2,424)
Net contribution by
Magna.................. 244,294 68,501 143,634 80,919 46,498 5,554
Change in currency
translation
adjustment............. 8 (3,908) 3,831 4,824 (1,951) (7,184) (1,311)
-------- -------- -------- -------- ------- -------
Magna's net investment,
end of period.......... $545,888 $162,394 $302,502 $158,275 $87,917 $49,985
======== ======== ======== ======== ======= =======
</TABLE>
See accompanying notes
F-21
<PAGE>
MI ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
COMPREHENSIVE INCOME (LOSS)
[U.S. dollars in thousands]
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month
September 30, period ended Years ended July 31,
--------------- December 31, --------------------------
Note 1999 1998 1998 1998 1997 1996
---------- ------ ------- ------------ -------- ------- -------
[unaudited]
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue 10, 11, 14
Racetrack
Wagering.............. 40,156 -- 2,513 -- -- --
Non-wagering.......... 18,798 -- 1,439 -- -- --
Real estate............. 12,167 17,196 6,597 20,486 15,276 2,460
------ ------- ------- -------- ------- -------
71,121 17,196 10,549 20,486 15,276 2,460
------ ------- ------- -------- ------- -------
Costs and expenses
Racetrack
Operating costs....... 42,299 -- 3,461 -- -- --
General and
administrative....... 3,993 -- 164 -- -- --
Real estate
Operating costs....... 11,197 20,968 7,293 24,778 13,232 4,084
General and
administrative....... 1,299 978 1,169 1,086 647 529
Depreciation and
amortization........... 4,676 1,737 1,649 1,852 1,824 330
Interest expense........ 7 1,259 1,177 1,236 1,399 955 116
Interest income......... 7 (995) (24) (15) (19) -- (175)
------ ------- ------- -------- ------- -------
63,728 24,836 14,957 29,096 16,658 4,884
------ ------- ------- -------- ------- -------
Income (loss) before
income taxes........... 10 7,393 (7,640) (4,408) (8,610) (1,382) (2,424)
Income tax provision
(recovery)............. 6 4,393 -- (177) -- -- --
------ ------- ------- -------- ------- -------
Net income (loss)....... 3,000 (7,640) (4,231) (8,610) (1,382) (2,424)
Other comprehensive
income (loss):
Foreign currency
translation
adjustment........... (3,908) 3,831 4,824 (1,951) (7,184) (1,311)
------ ------- ------- -------- ------- -------
Comprehensive income
(loss)................. $ (908) $(3,809) $ 593 $(10,561) $(8,566) $(3,735)
====== ======= ======= ======== ======= =======
</TABLE>
See accompanying notes
F-22
<PAGE>
MI ENTERTAINMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[U.S. dollars in thousands]
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month
September 30, period ended Years ended July 31,
----------------- December 31, -------------------------
Note 1999 1998 1998 1998 1997 1996
---- -------- ------- ------------ ------- ------- -------
[unaudited]
<S> <C> <C> <C> <C> <C> <C> <C>
Cash provided from (used
for):
OPERATING ACTIVITIES
Net income (loss)....... $ 3,000 $(7,640) $ (4,231) $(8,610) $(1,382) $(2,424)
Items not involving
current cash flows
Depreciation and
amortization.......... 4,676 1,737 1,649 1,852 1,824 330
Deferred taxes......... 6 717 -- (177) -- -- --
-------- ------- -------- ------- ------- -------
8,393 (5,903) (2,759) (6,758) 442 (2,094)
-------- ------- -------- ------- ------- -------
Changes in non-cash
items related to
operations
Residential development
inventory............. (3,958) 4,062 (1,797) (1,256) (7,620) (1,608)
Accounts receivable.... 3,112 (139) (7,285) (262) (297) (319)
Inventories............ 494 111 (570) (8) (354) (10)
Prepaid expenses and
other................. (596) (209) 244 3 (10) 20
Accounts payable....... (11,592) 853 8,526 786 693 (264)
Accrued salaries and
wages................. 923 235 84 61 195 134
Refundable deposits.... 246 488 207 654 1,140 --
Other accrued
liabilities........... 999 68 681 266 758 602
Income taxes payable... 3,363 -- -- -- -- --
Deferred revenue....... (140) (5,189) 1,381 (1,354) 1,159 (73)
-------- ------- -------- ------- ------- -------
1,244 (5,623) (1,288) (7,868) (3,894) (3,612)
-------- ------- -------- ------- ------- -------
INVESTMENT ACTIVITIES
Acquisition of
businesses............. 2 (87,579) -- (118,617) -- -- --
Real estate property
additions, net of
change in residential
development inventory.. (33,711) (63,601) (17,944) (72,460) (41,470) (24,180)
Fixed asset additions... (889) (76) (124) (183) (2,109) (939)
Increase in note
receivable from Magna.. (146,862) -- -- -- -- --
-------- ------- -------- ------- ------- -------
(269,041) (63,677) (136,685) (72,643) (43,579) (25,119)
-------- ------- -------- ------- ------- -------
FINANCING ACTIVITIES
Increase (decrease) in
bank indebtedness...... (2,489) (2,721) 11,602 (4,280) 3,716 1,322
Issues of long-term
debt................... -- 6,274 48 6,553 -- 21,491
Repayment of long-term
debt................... (3,198) (2,729) (114) (2,608) (2,638) --
Increase in note payable
to Magna............... 35,240 -- -- -- -- --
Net contribution by
Magna.................. 244,294 68,501 143,634 80,919 46,498 5,554
-------- ------- -------- ------- ------- -------
273,847 69,325 155,170 80,584 47,576 28,367
-------- ------- -------- ------- ------- -------
Effect of exchange rate
changes on cash and
cash equivalents....... (9) 6 11 2 (16) (24)
-------- ------- -------- ------- ------- -------
Net increase (decrease)
in cash and cash
equivalents during the
period................. 6,041 31 17,208 75 87 (388)
Cash and cash
equivalents, beginning
of period.............. 17,503 233 295 220 133 521
-------- ------- -------- ------- ------- -------
Cash and cash
equivalents, end of
period................. $ 23,544 $ 264 $ 17,503 $ 295 $ 220 $ 133
======== ======= ======== ======= ======= =======
</TABLE>
See accompanying notes
F-23
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company are set out
under "Significant Accounting Policies" preceding these consolidated
financial statements.
2. BUSINESS ACQUISITIONS
The following acquisitions were accounted for using the purchase method:
[a]Acquisitions in the nine-month period ended September 30, 1999
Gulfstream Park
On September 1, 1999, the Company acquired all the outstanding capital
stock of Gulfstream for a purchase price, including estimated transaction
costs, of $81.2 million (net of cash acquired of $8.0 million) payable in
cash. Gulfstream, which operates the Gulfstream Park racetrack, is located
on approximately 255 acres of land in the cities of Hallandale and
Aventura, Florida.
San Luis Rey Downs
In May 1999, the Company acquired the real estate assets of SLRD for cash
consideration of $6.4 million. SLRD, a horse boarding and training center
located in San Diego California, owns approximately 202 acres of real
estate.
The purchase price has been allocated to the assets and liabilities
acquired as follows:
<TABLE>
<CAPTION>
Gulfstream SLRD Total
---------- ------ -------
<S> <C> <C> <C>
Non-cash working capital deficit................ $(3,978) $ -- $(3,978)
Real estate properties.......................... 81,700 6,375 88,075
Fixed assets.................................... 1,643 -- 1,643
Other assets.................................... 62,543 -- 62,543
Debt due within one year........................ (6,800) -- (6,800)
Deferred income tax liabilities................. (53,904) -- (53,904)
------- ------ -------
Net assets acquired and total purchase price,
net of cash acquired........................... $81,204 $6,375 $87,579
======= ====== =======
</TABLE>
[b]Acquisition in the five-month period ended December 31, 1998
Santa Anita
In December 1998, the Company completed the acquisition of the Santa Anita
racetrack operations and approximately 305 acres of related real estate for
$17.6 million and $101.0 million, respectively, for total consideration of
$118.6 million.
F-24
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
The purchase price has been allocated to the assets and liabilities acquired
as follows:
<TABLE>
<S> <C>
Net working capital deficit..................................... $ (7,428)
Building improvements........................................... 19,804
Fixed assets.................................................... 6,513
Other long term liabilities..................................... (1,317)
--------
17,572
Land and buildings.............................................. 101,045
--------
$118,617
========
</TABLE>
Pro-forma Impact
If the acquisition of the Santa Anita racetrack and related real estate
completed during the five-month period ended December 31, 1998 had occurred
on August 1, 1997, the Company's unaudited pro forma revenue would have been
$22.0 million for the five-month period ended December 31, 1998 (for the
year ended July 31, 1998--$87.6 million) and pro forma net loss would have
been $8.5 million for the five-month period ended December 31, 1998 (for the
year ended July 31, 1998--$1.1 million net loss).
F-25
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
3. REAL ESTATE PROPERTIES
Real estate properties consist of:
<TABLE>
<CAPTION>
July 31,
September 30, December 31, ------------------
1999 1998 1998 1997
------------- ------------ -------- --------
[unaudited]
<S> <C> <C> <C> <C>
Residential development
inventory.................. $ 19,168 $ 16,573 $ 13,908 $ 12,072
-------- -------- -------- --------
Revenue producing properties
Cost
Land and improvements..... 86,499 36,850 10,981 9,901
Buildings................. 78,087 56,840 14,922 12,586
Construction in progress.. 30,972 2,814 -- 20
-------- -------- -------- --------
195,558 96,504 25,903 22,507
Accumulated depreciation
Buildings................. (4,480) (2,317) (1,608) (678)
-------- -------- -------- --------
Revenue producing
properties, net............ 191,078 94,187 24,295 21,829
-------- -------- -------- --------
Properties under and held
for development
Cost
Land and improvements..... 143,355 126,652 60,706 48,441
Buildings................. 796 517 524 --
Construction in progress.. 6,180 4,389 302 --
-------- -------- -------- --------
Properties under and held
for development............ 150,331 131,558 61,532 48,441
-------- -------- -------- --------
Properties available for
sale
Cost
Land and improvements..... 53,455 53,935 52,374 19,754
Buildings................. 28,408 30,256 28,070 6,181
Furniture and fixtures.... 1,725 1,725 1,725 1,725
-------- -------- -------- --------
83,588 85,916 82,169 27,660
Accumulated depreciation
Buildings................. (1,651) (871) (325) (79)
Furniture and fixtures.... (717) (673) (576) (423)
-------- -------- -------- --------
Properties available for
sale, net.................. 81,220 84,372 81,268 27,158
-------- -------- -------- --------
$441,797 $326,690 $181,003 $109,500
======== ======== ======== ========
</TABLE>
The classifications of properties above represent the Company's current
intentions with respect to future use (e.g. development or sale).
Depreciation has ceased on properties classified as available for sale.
F-26
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
4. FIXED ASSETS
Fixed assets consist of:
<TABLE>
<CAPTION>
July 31,
Septembert 30, December 31, --------------
1999 1998 1998 1997
-------------- ------------ ------ ------
[unaudited]
<S> <C> <C> <C> <C>
Cost
Machinery and equipment........ $9,785 $7,632 $3,036 $2,724
Furniture and fixtures......... 2,371 2,225 -- --
------ ------ ------ ------
12,156 9,857 3,036 2,724
Accumulated depreciation
Machinery and equipment........ (2,391) (1,610) (1,150) (565)
Furniture and fixtures......... (233) (26) -- --
------ ------ ------ ------
$9,532 $8,221 $1,886 $2,159
====== ====== ====== ======
</TABLE>
5. OTHER ASSETS
Other assets consist of racing licenses as follows:
<TABLE>
<CAPTION>
July 31,
September 30, December 31, -------------
1999 1999 1998 1997
------------- ------------ ------ ------
[unaudited]
<S> <C> <C> <C> <C>
Licenses
Cost................................ $62,543 $ -- $ -- $ --
Accumulated amortization............ (304) -- -- --
------- ------ ------ ------
$62,239 $ -- $ -- $ --
======= ====== ====== ======
</TABLE>
6. INCOME TAXES
[a] Income taxes for SAC, LATC, Gulfstream, MVB (from January 1, 1999), MGE
and other separate tax paying legal entities at September 30, 1999,
have been recorded based on their separate tax positions using the
liability method of tax allocation. Income taxes with respect to the
other components of the consolidated statements of income (loss) and
comprehensive income (loss) have been recorded at statutory rates based
on income before taxes as included in the consolidated statements of
income (loss) and comprehensive income (loss) as though such components
were separate tax paying entities. Given that the revenues and expenses
of this latter component of the consolidated statements of income
(loss) and comprehensive income (loss) have been prepared on a carve
out basis from Magna, the resulting income taxes payable and deferred
income tax assets and liabilities have been included in Magna's net
investment.
F-27
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
[b] The provision for income taxes differs from the expense that would be
obtained by applying United States federal statutory rates as a result
of the following:
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month
September 30, period ended Years ended July 31,
--------------- December 31, ------------------------
1999 1998 1998 1998 1997 1996
------ ------- ------------ -------- ------ ------
[unaudited]
<S> <C> <C> <C> <C> <C> <C>
Expected provision
(recovery):
Federal statutory
income tax rate
(35%)................ $2,588 $(2,674) $(1,543) $ (3,014) $ (484) $ (848)
State income tax...... 630 -- -- -- -- --
Losses not benefited.. 1,174 2,674 1,366 3,014 484 848
Foreign rate
differentials........ (10) -- -- -- -- --
Other................. 11 -- -- -- -- --
------ ------- ------- -------- ------ ------
Income tax provision
(recovery)........... $4,393 $ -- $ (177) $ -- $ -- $ --
====== ======= ======= ======== ====== ======
</TABLE>
The income tax provision relates entirely to the income of SAC and LATC
less losses generated by Gulfstream and certain other U.S. legal
entities. Other components of the Company are in a loss position. The
tax benefits of certain of these losses have been utilized by Magna and
are not available to the Company. However, the future tax benefits of
the income tax loss carryforwards of MVB (from January 1, 1999), MGE
and other separate tax paying entities at September 30, 1999 are
available to the Company. These losses amount to $7.1 million of which
$0.5 million expire in the year 2006 and the remainder have no expiry
date.
[c] The details of income (loss) before income taxes by jurisdiction are as
follows:
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month
September 30, period ended Years ended July 31,
---------------- December 31, -------------------------
1999 1998 1998 1998 1997 1996
------- ------- ------------ ------- ------- -------
[unaudited]
<S> <C> <C> <C> <C> <C> <C>
United States..... $10,721 $ (193) $ (540) $ (243) $ (92) $ (211)
Foreign........... (3,328) (7,447) (3,868) (8,367) (1,290) (2,213)
------- ------- ------- ------- ------- -------
$ 7,393 $(7,640) $(4,408) $(8,610) $(1,382) $(2,424)
======= ======= ======= ======= ======= =======
</TABLE>
F-28
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
[d] The details of the income tax provision (recovery) are as follows:
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month Years ended
September 30, period ended July 31,
--------------December 31, --------------
1999 1998 1998 1998 1997 1996
------- ------------------ ---- ---- ----
[unaudited]
<S> <C> <C> <C> <C> <C> <C>
Current provision
United States.................... $ 3,676 $ -- $ -- $-- $-- $--
Foreign.......................... -- -- -- -- -- --
------- ----- ----- ---- ---- ----
3,676 -- --- -- -- --
------- ----- ----- ---- ---- ----
Deferred provision
United States.................... 717 -- (177) -- -- --
Foreign.......................... -- -- -- -- -- --
------- ----- ----- ---- ---- ----
717 -- (177) -- -- --
------- ----- ----- ---- ---- ----
$ 4,393 $ -- $(177) $-- $-- $--
======= ===== ===== ==== ==== ====
</TABLE>
[e] Deferred income taxes have been provided on temporary differences,
which consist of the following:
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month Years ended
September 30, period ended July 31,
---------------- December 31, ----------------
1999 1998 1998 1998 1997 1996
----------- ---- ------------ ---- ---- ----
[unaudited]
<S> <C> <C> <C> <C> <C> <C>
Tax depreciation in excess
of book depreciation..... $ 540 $-- $ -- $-- $-- $--
Tax benefit of loss
carryforwards............ (1,174) (587) (451) (689) (45) --
Utilization of loss
carryforwards............ 177 -- -- -- -- --
Increase in valuation al-
lowance.................. 1,174 587 274 689 45 --
------ ---- ----- ---- ---- ----
$ 717 $-- $(177) $-- $-- $--
====== ==== ===== ==== ==== ====
</TABLE>
[f] Deferred tax assets and liabilities for SAC, LATC, Gulfstream, MVB
(from January 1, 1999), MGE, and other separate tax paying entities at
September 30, 1999 consist of the following temporary differences:
<TABLE>
<CAPTION>
July 31,
-----------
September 30, December 31,
1999 1998 1998 1997
------------- ------------ ----- ----
[unaudited]
<S> <C> <C> <C> <C>
Assets
Tax benefit of loss
carryforwards................... $ 2,419 $ 1,288 $ 787 $ 39
Valuation allowance.............. (2,419) (1,111) (787) (39)
------- ------- ----- ----
$ -- $ 177 $ -- $--
======= ======= ===== ====
Liabilities
Real estate properties book value
in excess of tax value.......... $27,005 $ -- $ -- $--
Other assets book value in excess
of tax value.................... 27,546 -- -- --
Other............................ (107) -- -- --
------- ------- ----- ----
$54,444 $ -- $ -- $--
======= ======= ===== ====
</TABLE>
F-29
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
Included in Magna's net investment at September 30, 1999 are additional net
deferred tax liabilities totaling $3.8 million representing temporary
differences on other assets and liabilities carved out from Magna
(excluding assets and liabilities held by SAC, LATC, Gulfstream, MVB, MGE
and other separate tax paying entities at September 30, 1999). Such
temporary differences consist principally of real estate properties book
value in excess of tax value.
7. DEBT AND COMMITMENTS
[a] The Company's long-term debt, consists of the following:
<TABLE>
<CAPTION>
July 31,
---------------
September 30, December 31,
1999 1998 1998 1997
------------- ------------ ------- -------
[unaudited]
<S> <C> <C> <C> <C>
Bank term line of credit with
permitted borrowings of $18.8
million (Austrian Schillings
240 million), bearing interest
at VIBOR [Vienna Interbank
Overnight Rate] plus 0.625% per
annum, payable quarterly. The
advance is repayable in six
annual installments of
principal of $3.1 million
(Austrian Schillings 40
million) beginning on July 31,
1997. The Company has provided
two first mortgages on real
estate properties as security
for this facility.............. $ 9,346 $13,567 $12,784 $14,661
Bank term line of credit,
bearing interest at LIBOR
[London Interbank Overnight
Rate] plus 1.25% per annum,
payable in annual installments
with a final balloon payment
due February 16, 2000. The
Company has pledged the assets
of one of its subsidiaries as
security for this facility..... 6,800 -- -- --
Mortgages outstanding with vari-
ous Austrian banks and local
governments (Austrian Schil-
lings 76 million), bearing in-
terest at rates ranging from
0.5% to 6.75% per annum, pay-
able in semi-annual install-
ments. The mortgages are repay-
able over various periods to
2037........................... 5,896 6,578 6,261 --
Term loan, bearing interest at a
fixed rate of 4% per annum pay-
able annually. The advance is
repayable in 10 annual install-
ments of principal of $35 thou-
sand (Austrian Schillings 0.4
million) commencing December
31, 1997....................... 277 301 285 --
------- ------- ------- -------
22,319 20,446 19,330 14,661
Less due within one year........ 10,157 3,655 3,446 3,052
------- ------- ------- -------
$12,162 $16,791 $15,884 $11,609
======= ======= ======= =======
</TABLE>
F-30
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
[b] Future principal repayments on long-term debt at December 31, 1998 are
as follows:
<TABLE>
<S> <C>
1999............................................................... $ 3,655
2000............................................................... 3,631
2001............................................................... 3,624
2002............................................................... 3,624
2003............................................................... 232
Thereafter......................................................... 5,680
-------
$20,446
=======
</TABLE>
[c] Net interest expense (income) includes:
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month
September 30, period ended Years ended July 31,
-------------- December 31, ----------------------
1999 1998 1998 1998 1997 1996
------ ------- ------------ ------- ------- ------
[unaudited]
<S> <C> <C> <C> <C> <C> <C>
Interest cost, gross
External debt......... $ 909 $ 760 $ 371 $ 1,021 $ 829 $ 136
Magna debt............ 679 864 1,055 986 520 256
------ ------- ------ ------- ------- -----
1,588 1,624 1,426 2,007 1,349 392
Less: Interest
capitalized............ 329 447 190 608 394 276
------ ------- ------ ------- ------- -----
Interst expense......... 1,259 1,177 1,236 1,399 955 116
Interest income
External.............. 216 24 15 19 -- 175
Internal.............. 779 -- -- -- -- --
------ ------- ------ ------- ------- -----
Interest expense
(income), net.......... $ 264 $ 1,153 $1,221 $ 1,380 $ 955 $ (59)
====== ======= ====== ======= ======= =====
</TABLE>
Interest capitalized relates to real estate properties under or held for
development.
Interest paid in cash for the nine-month period ended September 30,
1999 and the five-month period ended December 31, 1998 was $1.8 million
and $1.2 million, respectively (for the years ended July 31, 1998--$1.9
million; 1997--$1.4 million; 1996--$0.4 million).
[d] At September 30, 1999, the Company had commitments under operating
leases requiring annual rental payments for the fiscal periods ending
December 31 as follows:
<TABLE>
<S> <C>
1999 (remaining three months)........................................ $ 89
2000................................................................. 312
2001................................................................. 200
2002................................................................. 20
----
$621
====
</TABLE>
For the nine-month period ended September 30, 1999 and five-month
period ended December 31, 1998, payments under operating leases
amounted to approximately $264 thousand and $39 thousand, respectively
(for the years ended July 31, 1998--$44 thousand; 1997--$49 thousand;
1996--$7 thousand).
F-31
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
8. CURRENCY TRANSLATION ADJUSTMENT
Unrealized translation adjustments arise on the translation to U.S. dollars
of assets and liabilities of the Company's self-sustaining foreign
operations. During the nine-month period ended September 30, 1999, the
Company incurred an unrealized currency translation loss of $3.9 million,
primarily from the weakening of the Austrian Schilling against the U.S.
dollar during the period (an unrealized gain of $4.8 million for the five-
month period ended December 31, 1998 and unrealized losses for the years
ended July 31, 1998--$2.0 million; 1997--$7.2 million; 1996--$1.3 million).
9. FINANCIAL INSTRUMENTS
[a] Fair Value
The methods and assumptions used to estimate the fair value of financial
instruments are described below. Management has estimated the fair value
of its financial instruments using available market information and
appropriate valuation methodologies. Considerable judgement is required
in interpreting market data to develop estimates of fair value.
Accordingly, estimated fair values are not necessarily indicative of the
amounts that could be realized in current market exchanges.
Cash and cash equivalents, accounts receivable, bank indebtedness,
accounts payable, income taxes payable, refundable deposits and accrued
liabilities
Due to the short period to maturity of these instruments, the carrying
values as presented in the consolidated balance sheets are reasonable
estimates of fair value.
Long-term debt
The fair value of the Company's long-term debt, based on current rates
for debt with similar terms and maturities, are not materially different
from their carrying value.
[b] Credit Risk
The Company's financial assets that are exposed to credit risk consist
primarily of cash and cash equivalents and accounts receivable.
Cash and cash equivalents, which consist of short-term investments,
including commercial paper, is only invested in entities with an
investment grade credit rating. Credit risk is further reduced by
limiting the amount which is invested in any one government or
corporation.
The Company, in the normal course of business, is exposed to credit risk
from its customers. However, customer receivables are generally not a
significant portion of the Company's total assets and are comprised of a
large number of individual customers.
[c] Interest Rate Risk
The Company is not exposed to significant interest rate risk due to the
short-term maturity of its monetary current assets and current
liabilities and its current levels of long-term debt balances.
F-32
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
10. SEGMENTED INFORMATION
Operating Segments
The Company has two operating segments: racetrack and real estate
operations.
The following summary presents key information by operating segment.
<TABLE>
<CAPTION>
Nine-month period ended
September 30, 1999
-------------------------------
Racetrack Real Estate
Operations Operations Total
---------- ----------- --------
[unaudited]
<S> <C> <C> <C>
Revenue...................................... $ 58,954 $ 12,167 $ 71,121
Income (loss) before income taxes............ 10,637 (3,244) 7,393
Real estate properties and fixed asset
additions................................... 27,577 7,023 34,600
Real estate properties, fixed and other
assets, net................................. 304,907 208,661 513,568
Current assets............................... 179,887
Deferred income tax assets................... --
--------
Total assets................................. $693,455
========
<CAPTION>
Nine-month period ended
September 30, 1998
-------------------------------
Racetrack Real Estate
Operations Operations Total
---------- ----------- --------
[unaudited]
<S> <C> <C> <C>
Revenue...................................... $ -- $ 17,196 $ 17,196
Loss before income taxes..................... -- (7,640) (7,640)
Real estate properties and fixed asset
additions................................... -- 63,677 63,677
Real estate properties, fixed and other
assets, net................................. -- 190,866 190,866
Current assets............................... 2,291
Deferred income tax assets................... --
--------
Total assets................................. $193,157
========
<CAPTION>
Five-month period ended
December 31, 1998
-------------------------------
Racetrack Real Estate
Operations Operations Total
---------- ----------- --------
<S> <C> <C> <C>
Revenue...................................... $ 3,952 $ 6,597 $ 10,549
Loss before income taxes..................... (435) (3,973) (4,408)
Real estate properties and fixed asset
additions................................... 633 17,435 18,068
Real estate properties, fixed and other
assets, net................................. 127,767 207,144 334,911
Current assets............................... 29,054
Deferred income tax assets................... 177
--------
Total assets................................. $364,142
========
</TABLE>
F-33
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
<TABLE>
<CAPTION>
Year ended July 31, 1998
-------------------------------
Racetrack Real Estate
Operations Operations Total
---------- ----------- --------
<S> <C> <C> <C>
Revenue...................................... $-- $ 20,486 $ 20,486
Loss before income taxes..................... -- (8,610) (8,610)
Real estate properties and fixed asset
additions................................... -- 72,643 72,643
Real estate properties, fixed and other
assets, net................................. -- 182,889 182,889
Current assets............................... 1,913
Deferred income tax assets................... --
--------
Total assets................................. $184,802
========
<CAPTION>
Year ended July 31, 1997
-------------------------------
Racetrack Real Estate
Operations Operations Total
---------- ----------- --------
<S> <C> <C> <C>
Revenue...................................... $-- $ 15,276 $ 15,276
Loss before income taxes..................... -- (1,382) (1,382)
Real estate properties and fixed asset
additions................................... -- 43,579 43,579
Real estate properties, fixed and other
assets, net................................. -- 111,659 111,659
Current assets............................... 1,516
Deferred income tax assets................... --
--------
Total assets................................. $113,175
========
<CAPTION>
Year ended July 31, 1996
-------------------------------
Racetrack Real Estate
Operations Operations Total
---------- ----------- --------
<S> <C> <C> <C>
Revenue...................................... $-- $ 2,460 $ 2,460
Loss before income taxes..................... -- (2,424) (2,424)
Real estate properties and fixed asset
additions................................... -- 25,119 25,119
Real estate properties, fixed and other
assets, net................................. -- 75,215 75,215
Current assets............................... 1,004
Deferred income tax assets................... --
--------
Total assets................................. $ 76,219
========
</TABLE>
Geographic Segments
Revenue by geographic segment of the Company is as follows:
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month
September 30, period ended Years ended July 31,
--------------- December 31, ----------------------
1999 1998 1998 1998 1997 1996
------- ------- ------------ ------- ------- ------
[unaudited]
<S> <C> <C> <C> <C> <C> <C>
United States............ $60,778 $ 1,353 $ 4,707 $ 1,698 $ 1,617 $1,326
Europe................... 10,343 15,843 5,842 18,788 13,659 1,134
------- ------- ------- ------- ------- ------
$71,121 $17,196 $10,549 $20,486 $15,276 $2,460
======= ======= ======= ======= ======= ======
</TABLE>
F-34
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
Real estate properties, fixed and other assets by geographic segment of the
Company are as follows:
<TABLE>
<CAPTION>
July 31,
September 30, December 31, -----------------
1999 1998 1998 1997
------------- ------------ -------- --------
[unaudited]
<S> <C> <C> <C> <C>
United States................... $324,182 $146,063 $ 17,687 $ 17,639
Canada.......................... 72,313 64,804 50,742 33,073
Europe.......................... 117,073 124,044 114,460 60,947
-------- -------- -------- --------
$513,568 $334,911 $182,889 $111,659
======== ======== ======== ========
</TABLE>
11. TRANSACTIONS WITH RELATED PARTIES
[a] During the five-month period ended December 31, 1998, Magna entered
into an agreement to purchase from a company associated with members of
the family of Mr. F. Stronach and Ms. B. Stronach, the Chairman of the
Board and an Executive Vice-President, respectively, of Magna,
approximately 200 acres of land and improvements in Aurora, Ontario for
a purchase price of approximately $11.0 million. This land is adjacent
to land currently owned by Magna and other land subject to a
conditional sale agreement by Magna to the Company. As at September 30,
1999, Magna had paid $9.0 million to the vendor in connection with this
transaction. The rights to acquire this land and improvements, as well
as golf course construction in progress funded by Magna, have been
transferred to the Company as part of the Reorganization. The total
amount included in properties under and held for development on the
consolidated balance sheet at September 30, 1999 for this project is
$18.1 million.
[b] Properties under and held for development includes $20.6 million which
represents the book value of the Aurora lands transferred to the
Company by Magna under a conditional sale agreement. The conditional
sale agreement is subject to the successful severance of the affected
properties. If severance is not obtained within a specified period such
that Magna retains ownership of the Aurora lands, Magna must return
$20.6 million to the Company with interest. Prior to completion of the
conditional sale, the property is being leased by the Company from
Magna for a nominal amount.
[c] Properties available for sale includes $4.6 million, which represents
the book value of vacant land, transferred to the Company by Magna
under two conditional sale agreements. The conditional sale agreements
are subject to the successful severance of the affected properties. If
severance is not obtained within a specified period such that Magna
retains ownership of the properties, Magna must return $4.6 million to
the Company with interest.
[d] The Company has granted a limited term option to Magna to reacquire a
real estate property for a fixed price equal to its book value of 50
million Austrian Schillings ($3.9 million). This property is included
in properties available for sale.
[e] At September 30, 1999, the Company had a note outstanding due to Magna
in the amount of $35.2 million. On September 1, 1999, Magna invested an
additional $250.0 million in cash, by way of equity contribution, in
the Company. Of this amount, $146.9 million was loaned back to Magna
and is reflected as a note receivable from Magna. The note is due on
demand and bears interest at the U.S. prime rate less 1% per annum.
Both the note payable and receivable with Magna were settled subsequent
to September 30, 1999.
F-35
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
[f] Effective March 1, 1999, the Company began charging Magna an access fee
for its use of the golf course and related facilities in
Oberwaltersdorf, Austria. The yearly fee amounts to $2.7 million.
During the nine-months ended September 30, 1999, $1.6 million has been
recognized in revenue related to this fee.
The Company has granted Magna a right of first refusal to purchase the
Company's two golf courses.
[g] One of the Company's subsidiaries has been named as a defendant in a
class action brought in a United States District Court by Gutwillig, et
al. The plaintiffs in this action claim unspecified compensatory and
punitive damages, for restitution and disgorgement of profits, all in
relation to forced labor performed by the plaintiffs for such
subsidiary and certain other Austrian and German corporate defendants
at their facilities in Europe during World War II. As a result of the
Reorganization, the Company acquired shares of such subsidiary. Under
Austrian law, such subsidiary would be jointly and severally liable for
the damages awarded in respect of this class action claim. An Austrian
subsidiary of Magna has agreed to indemnify such subsidiary for any
damages or expenses associated with this claim.
[h] A subsidiary of Magna has agreed to indemnify the Company in respect of
environmental remediation costs and expenses relating to existing
conditions in certain of the Austrian real estate properties.
12. CONTINGENCIES
[a] The Company generates a substantial amount of its revenue from wagering
activities in Southern California and, therefore, it is subject to the
risks inherent in the ownership and operation of a racetrack. These
include, among others, the risks normally associated with changes in
the general economic climate, trends in the gaming industry, including
competition from other gaming institutions and state lottery
commissions and changes in tax laws and gaming laws.
[b] In the ordinary course of business activities, the Company may be
contingently liable for litigation and claims with customers, suppliers
and former employees. Management believes that adequate provisions have
been recorded in the accounts where required. Although it is not
possible to estimate the extent of potential costs and losses, if any,
management believes, but can provide no assurance, that the ultimate
resolution of such contingencies would not have a material adverse
effect on the financial position of the Company.
13. EMPLOYEE DEFINED BENEFIT PLANS
With the acquisition of the Santa Anita racetrack in December 1998, the
Company assumed the assets and liabilities of the Retirement Income Plan
discussed below.
This plan consists of a non-contributory defined benefit retirement plan
for year-round employees who are at least 21 years of age, have one or more
years of service, and are not covered by collective bargaining agreements.
Plan assets consist of a group annuity contract with a life insurance
company. Plan benefits are based primarily on years of service and
qualifying compensation during the final years of employment. Funding
requirements comply with federal requirements that are imposed by law. In
the event of a "change in control," participants in the defined benefit
retirement plan will become fully vested in plan benefits. This occurred on
December 10, 1998.
F-36
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
The Santa Anita racetrack was acquired in December 1998, and the Company
had no defined benefit plans prior thereto. Accordingly, a reconciliation
of the benefit obligation, plan assets, funded assets of the plan and the
components of the net periodic benefit cost has not been provided for the
five-month period ended December 31, 1998 or for any of the years in the
three-year period ended July 31, 1998. The benefit obligation and fair
value of plan assets as of December 31, 1998 was $7.0 million and $5.7
million, respectively.
The accrued pension cost is included in other long-term liabilities in the
consolidated balance sheets.
Assumptions used in determining the funded status of the retirement income
plan are as follows:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Weighted average discount rate.................................. 6.0%
Weighted average rate of increase in compensation levels........ 3.5%
Expected long-term rate of return............................... 8.0%
</TABLE>
The measurement date and related assumptions for the funded status of the
retirement income plan were as of December 31, 1998.
14. SUPPLEMENTARY FINANCIAL INFORMATION
[a] Quarterly Information (unaudited)
Summarized quarterly financial information of the Company for the nine-
months ended September 30, 1999 and the years ended December 31, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
For the nine-months
ended September 30, 1999 March 31 June 30 September 30 Total
------------------------ -------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenue................. $39,907 $20,795 $10,419 $ 71,121
Gross profit (loss)..... 19,277 1,750 (3,402) 17,625
Net income (loss)....... $ 9,325 $(1,235) $(5,090) $ 3,000
<CAPTION>
For the year ended
December 31, 1998 March 31 June 30 September 30 December 31 Total
------------------ -------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue................. $ 5,748 $ 4,995 $ 6,453 $ 7,995 $ 25,191
Gross profit (loss)..... (1,292) (1,300) (1,180) 154 (3,618)
Net loss................ $(2,300) $(2,464) $(2,876) $(2,806) $(10,446)
<CAPTION>
For the year ended
December 31, 1997 March 31 June 30 September 30 December 31 Total
------------------ -------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Revenue................. $ 2,297 $ 2,249 $ 7,026 $ 3,983 $ 15,555
Gross profit (loss)..... 1,042 489 931 91 2,553
Net income (loss)....... $ (579) $(1,057) $ 533 $(1,460) $ (2,563)
</TABLE>
F-37
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
[b] Comparative Information (unaudited)
Summarized comparative financial information for the five-month period
ended December 31, 1997 is as follows:
<TABLE>
<S> <C>
Revenue............................................................ $ 5,844
Real estate costs and expenses
Operating costs.................................................. 6,723
General and administrative....................................... 248
Depreciation and amortization...................................... 742
Interest expense................................................... 526
-------
Loss before income taxes........................................... (2,395)
Income taxes....................................................... --
-------
Net loss........................................................... $(2,395)
=======
</TABLE>
[c] Racetrack wagering revenues are shown net of state and local taxes, stakes,
purses and awards as follows:
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month Years ended
September 30, period ended July 31,
---------------December 31, --------------
1999 1998 1998 1998 1997 1996
-------- ------------------ ---- ---- ----
[unaudited]
<S> <C> <C> <C> <C> <C> <C>
Total live race day handle less
patrons' winning tickets...... 207,224 -- 14,385 -- -- --
State and local taxes and other
fees.......................... 132,897 -- 9,845 -- -- --
Horsemen stakes, purses, and
awards........................ 38,463 -- 2,320 -- -- --
-------- ----- ------ ---- ---- ----
35,864 -- 2,220 -- -- --
Company share of non-live race
day handle and other ......... 4,292 -- 293 -- -- --
-------- ----- ------ ---- ---- ----
40,156 -- 2,513 -- -- --
======== ===== ====== ==== ==== ====
</TABLE>
15. CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The Company's accounting policies as reflected in these consolidated
financial statements do not materially differ from accounting principles
generally accepted in Canada ("Canadian GAAP") except for:
[a] For purposes of reconciling to Canadian GAAP, the Company has early
adopted the provisions of the Canadian Institute of Chartered
Accountant Handbook Section 3461 "Employee Future Benefits" on a
retroactive basis. Accordingly, net pension expense and accrued pension
liabilities are the same as those determined by the application of U.S.
GAAP.
[b] Under Canadian GAAP, the Company is required to comment on its Year
2000 readiness.
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems, which use certain dates in
1999 to represent something other than a date.
F-38
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations
and financial reporting may range from minor errors to significant
systems failure, which could affect the Company's ability to conduct
normal business operations. It is not possible to be certain that all
aspects of the Year 2000 Issue affecting the Company, including those
related to the efforts of customers, suppliers, or other third parties,
will be fully resolved.
[c] Under Canadian GAAP, there is no requirement to disclose comprehensive
income (loss).
16. SUBSEQUENT EVENTS
[a] At September 30, 1999, the components of Magna's net investment were as
follows:
<TABLE>
<S> <C>
Deferred income tax assets..................................... $ 3,041
Deferred income tax liabilities................................ (6,859)
Share capital.................................................. (542,070)
---------
$(545,888)
=========
</TABLE>
On November 5, 1999, Magna completed the Reorganization described in
the Principles of Consolidation section set out under "Significant
Accounting Policies" preceding these consolidated financial statements.
In addition, the Company's capital structure was established creating
Class A Subordinate Voting Stock with one vote per share and Class B
Stock with 20 votes per share. As of November 5, 1999, 78,535,328 Class
B Stock and nil Class A Subordinate Voting Stock were issued and
outstanding.
On December 30, 1999, a further amendment to the Company's capital
structure was effected. On this date, MI Venture (Canada) Inc., a
wholly owned Canadian subsidiary of the Company, amended its Articles
of Incorporation to create a new class of shares, referred to as
Exchangeable Shares. Each Exchangeable Share may be exchanged by the
holder for one share of Class A Subordinate Voting Stock of the
Company. The Exchangeable Shares entitle holders to dividend and other
rights economically equivalent to shares of the Company's Class A
Subordinate Voting Stock and, through a Voting and Exchange Agreement
between Magna, the Company and MI Venture (Canada) Inc., to vote at
meetings of shareholders of the Company. If not previously exchanged by
holders for Class A Subordinate Voting Stock of the Company, the
Exchangeable Shares will remain outstanding until October 1, 2001 (or a
date after October 1, 2001 but prior to April 1, 2003, as determined by
the board of directors of MI Venture (Canada) Inc. upon notice to
holders of Exchangeable Shares), at which time any Exchangeable Shares
still outstanding will be automatically redeemed. The redemption price
at such time will be satisfied by the delivery of one share of Class A
Subordinate Voting Stock of the Company for each Exchangeable Share.
On December 30, 1999, 14,823,187 shares of the Company's Class B Stock
held by Magna were repurchased by the Company for $110,000,000. On this
same date, $110,000,000 was invested by Magna in MI Venture (Canada)
Inc. in return for 14,823,187 Exchangeable Shares. All of the common
shares of MI Venture (Canada) Inc. continue to be held by the Company.
Given that the Exchangeable Shares are economically equivalent to Class
A Subordinate Voting Shares of the Company, the Exchangeable Shares
will be included in shareholders' equity in the Company's consolidated
balance sheet.
Assuming the above issuances of shares occurred at the beginning of the
periods presented, basic and diluted earnings (loss) per share would
have been as follows:
F-39
<PAGE>
MI ENTERTAINMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(all amounts in U.S. dollars unless otherwise noted and all tabular amounts in
thousands, except per share amounts)
(all amounts as at September 30, 1999 and for the nine-month periods ended
September 30, 1999 and 1998 are unaudited)
<TABLE>
<CAPTION>
Nine-month
periods ended Five-month
September 30, period ended Years ended July 31,
--------------- December 31, -------------------------
1999 1998 1998 1998 1997 1996
------- ------- ------------ ------- ------- -------
[unaudited]
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) per
share of Class A
Subordinate Voting and
Class B Stock and
Exchangeable Shares:
Basic and diluted..... $ 0.04 $ (0.10) $ (0.05) $ (0.11) $ (0.02) $ (0.03)
Average number of shares
of Class A Subordinate
Voting and Class B
Stock and Exchangeable
Shares outstanding
during the period [in
thousands]:
Basic and diluted..... 78,535 78,535 78,535 78,535 78,535 78,535
</TABLE>
[b] On November 12, 1999, the Company completed the acquisition of the
Thistledown and Remington Park racetracks in North Randall, Ohio and
Oklahoma City, Oklahoma, respectively, for a total purchase price of
$24.0 million. Of the total purchase price, $19.5 million was paid in
cash and the balance of $4.5 million was paid through the issuance of
650,695 shares of Class A Subordinate Voting Stock.
[c] On December 10, 1999, the Company completed the acquisition of Golden
Gate Fields racetrack in Albany and Berkeley, California for a total
purchase price of $87.0 million. Of the total purchase price,
$60.0 million was paid in cash, $7.0 million was paid through the
issuance of 1,012,195 shares of Class A Subordinate Voting Stock and
$20.0 million was paid by way of an interest-free promissory note
payable, $10.0 million of which matures on the first anniversary of the
date of closing and $5.0 million of which matures on each of the second
and third anniversaries.
[d] The Company has signed a definitive agreement to acquire the assets and
assume certain liabilities of Great Lakes Downs, Inc. racetrack in
Muskegon, Michigan for a purchase price of $1.7 million. The total
purchase price of $1.7 million will be paid by the issuance of 246,287
shares of Class A Subordinate Voting Stock.
[e] On January 14, 2000, the Company filed a registration statement with
the United States Securities and Exchange Commission and a prospectus
in Ontario and certain other provinces of Canada in connection with
Magna's planned distribution, by way of dividend, of approximately 15.7
million shares comprised of a combination of:
(i) Exchangeable Shares of MI Venture (Canada) Inc. to be distributed
to Magna shareholders resident in Canada; and
(ii) Class A Subordinate Voting Stock of the Company to be distributed
to Magna shareholders not resident in Canada.
Magna will convert the necessary amount of shares of Class B Stock to
shares of Class A Subordinate Voting Stock to effect the dividend.
[f] On December 22, 1999, the Company successfully completed the
negotiation of two credit facilities--a $63 million three year term
loan facility and a $10 million revolving line of credit, both of which
bear interest at rates ranging between the U.S. prime rate and LIBOR
plus 2.2% per annum.
F-40
<PAGE>
SCHEDULE III
MI ENTERTAINMENT CORP.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(Amounts in thousands, U.S. dollars)
<TABLE>
<CAPTION>
Costs Capitalized
Initial Costs to Subsequent to Foreign Exchange Gross Amount at which
Company Acquisition Impact Carried at Close of Period
-------------------- -------------------- -------------------- ----------------------------
Building and Building and Building and Building and
Description Encumbrance Land Improvements Land Improvements Land Improvements Land Improvements Total
----------- ----------- ------- ------------ ------ ------------ ------ ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RACETRACK
OPERATIONS
Santa Anita
Racing facilities
California,
U.S.A............ -- 25,072 43,277 -- 504 -- -- 25,072 43,781 68,853
Land held for
development
California,
U.S.A............ -- 52,500 -- -- 120 -- -- 52,500 120 52,620
REAL ESTATE
OPERATIONS
Golf Course
Facilities
Niederoesterreich,
Austria......... -- 3,721 -- 7,120 19,992 937 (4,120) 11,778 15,872 27,650
Ontario,
Canada.......... -- 11,008 -- 11 4,273 33 (4) 11,052 4,269 15,321
Land
Ontario,
Canada.......... -- 13,479 -- 8,478 -- (2,227) -- 19,730 -- 19,730
Ontario,
Canada.......... -- 11,314 -- 96 -- (768) -- 10,642 -- 10,642
Ontario,
Canada.......... -- 2,963 -- 225 524 (324) (7) 2,864 517 3,381
Ontario,
Canada.......... -- 4,452 -- 98 -- (303) -- 4,247 -- 4,247
Ontario,
Canada.......... -- 986 -- 48 -- (68) -- 966 -- 966
Ontario,
Canada.......... -- 1,645 -- 47 -- (111) -- 1,581 -- 1,581
Ontario,
Canada.......... -- 1,868 -- 56 -- (203) -- 1,721 -- 1,721
Ontario,
Canada.......... -- 377 -- 1 -- (42) -- 336 -- 336
Ontario,
Canada.......... -- 861 -- 10 -- (94) -- 777 -- 777
Ontario,
Canada.......... -- 1,189 -- 779 -- (214) -- 1,754 -- 1,754
Ontario,
Canada.......... -- 2,559 -- 201 -- (280) -- 2,480 -- 2,480
Ontario,
Canada.......... -- 1,669 -- 240 -- (207) -- 1,702 -- 1,702
Kentucky,
U.S.A........... -- 2,847 -- 13 -- -- -- 2,860 -- 2,860
Michigan,
U.S.A........... -- 1,161 -- 65 -- -- -- 1,226 -- 1,226
Michigan,
U.S.A........... -- 2,782 -- 8 -- -- -- 2,790 -- 2,790
Maryland,
U.S.A........... -- 997 -- 18 -- -- -- 1,015 -- 1,015
Florida,
U.S.A........... -- 1,918 -- 12 -- -- -- 1,930 -- 1,930
New York,
U.S.A........... -- 725 -- -- -- -- -- 725 -- 725
Niederoesterreich,
Austria......... -- 7,099 -- 49 -- (343) -- 6,805 -- 6,805
Niederoesterreich,
Austria......... -- 21,449 -- 2,010 -- (1,122) -- 22,337 -- 22,337
Austria......... -- 6,239 -- 4 -- 434 -- 6,677 -- 6,677
Steienmark,
Austria......... -- 2,229 -- -- -- 155 -- 2,384 -- 2,384
Commercial/Industrial
properties
Colorado,
U.S.A........... -- -- 1,045 -- -- -- -- -- 1,045 1,045
Oberoesterreich,
Austria......... -- 4,011 8,193 -- -- 279 571 4,290 8,764 13,054
Oberoesterreich,
Austria......... -- 3 3,193 -- 821 -- 223 3 4,237 4,240
Wien, Austria... -- 4,888 2,277 -- -- 341 159 5,229 2,436 7,665
Residential
properties
Ontario,
Canada.......... -- 70 112 -- 6 (5) (8) 65 110 175
Colorado,
U.S.A........... -- -- 1,557 -- 60 -- -- -- 1,617 1,617
Colorado,
U.S.A........... -- -- 3,600 -- -- -- -- -- 3,600 3,600
Florida,
U.S.A........... -- 669 1,242 -- 402 -- -- 669 1,644 2,313
Austria......... 5,839 8,595 7,941 (2) 34 599 552 9,192 8,527 17,719
Other............ 40 -- -- -- (2) 2 38 2 40
----- ------- ------ ------ ------ ------ ------ ------- ------ -------
5,839 201,385 72,437 19,587 26,736 (3,535) (2,632) 217,437 96,541 313,978
===== ======= ====== ====== ====== ====== ====== ======= ====== =======
<CAPTION>
Life on
which
Depreciation
in Latest
income
Accumulated Date of Date statement is
Description Depreciation Construction Acquiried Computed(1)
----------- ------------ ------------ --------- ------------
<S> <C> <C> <C> <C>
RACETRACK
OPERATIONS
Santa Anita
Racing facilities
California,
U.S.A............ 123 n/a 1998 40 years
Land held for
development
California,
U.S.A............ -- n/a 1998 n/a
REAL ESTATE
OPERATIONS
Golf Course
Facilities
Niederoesterreich,
Austria......... 2,194 1996 1994 25 years
Ontario,
Canada.......... -- Ongoing 1998 n/a
Land
Ontario,
Canada.......... --
Ontario,
Canada.......... -- n/a 1998 n/a
Ontario,
Canada.......... -- n/a 1996 n/a
Ontario,
Canada.......... -- n/a 1997 n/a
Ontario,
Canada.......... -- n/a 1997 n/a
Ontario,
Canada.......... -- n/a 1997 n/a
Ontario,
Canada.......... -- n/a 1997 n/a
Ontario,
Canada.......... -- n/a 1985 n/a
Ontario,
Canada.......... -- n/a 1985 n/a
Ontario,
Canada.......... -- n/a 1985 n/a
Ontario,
Canada.......... -- n/a 1997 n/a
Ontario,
Canada.......... -- n/a 1987 n/a
Kentucky,
U.S.A........... -- n/a 1997 n/a
Michigan,
U.S.A........... -- n/a 1996 n/a
Michigan,
U.S.A........... -- n/a 1996 n/a
Maryland,
U.S.A........... -- n/a 1994 n/a
Florida,
U.S.A........... -- n/a 1994 n/a
New York,
U.S.A........... -- n/a 1998 n/a
Niederoesterreich,
Austria......... -- n/a 1994 n/a
Niederoesterreich,
Austria......... -- n/a 1996 n/a
Austria......... -- n/a 1998 n/a
Steienmark,
Austria......... -- n/a 1998 n/a
Commercial/Industrial
properties
Colorado,
U.S.A........... 505 n/a 1992 n/a
Oberoesterreich,
Austria......... 482 n/a 1998 n/a
Oberoesterreich,
Austria......... -- n/a 1998 n/a
Wien, Austria... 35 n/a 1998 n/a
Residential
properties
Ontario,
Canada.......... 6 n/a 1998 n/a
Colorado,
U.S.A........... 83 n/a 1992 n/a
Colorado,
U.S.A........... -- n/a 1995 n/a
Florida,
U.S.A........... 267 n/a 1994 n/a
Austria......... 165 n/a 1998 n/a
Other............ 1
------------
3,861
============
</TABLE>
- ----
(1) Depreciation has ceased on properties available for sale. See note 3 to the
Company's Consolidated Financial Statements.
F-41
<PAGE>
SCHEDULE III
MI ENTERTAINMENT CORP.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
[Amounts in thousands, U.S. dollars]
<TABLE>
<CAPTION>
Five-month
period ended Years ended July 31,
December 31, ------------------------
1998 1998 1997 1996
------------ ------- ------- ------
<S> <C> <C> <C> <C>
COST
Balance at beginning of period........... 169,604 98,608 67,719 44,842
Additions during the period:
Acquisitions........................... 132,578 66,194 33,843 5,998
Improvements........................... 6,250 6,099 6,346 17,996
Foreign exchange impact................. 5,546 (1,297) (9,300) (1,117)
------- ------- ------- ------
Balance at close of period............... 313,978 169,604 98,608 67,719
------- ------- ------- ------
ACCUMULATED DEPRECIATION
Balance at beginning of period........... 2,509 1,180 319 151
Additions during the period:
Depreciation and amortization.......... 1,233 1,289 966 169
Foreign exchange impact................. 119 40 (105) (1)
------- ------- ------- ------
Balance at close of period............... 3,861 2,509 1,180 319
------- ------- ------- ------
Net book value........................... 310,117 167,095 97,428 67,400
Residential development inventory........ 16,573 13,908 12,072 6,858
------- ------- ------- ------
Real estate properties, net.............. 326,690 181,003 109,500 74,258
======= ======= ======= ======
</TABLE>
F-42
<PAGE>
FINANCIAL STATEMENTS
Los Angeles Turf Club, Inc.
For the periods from January 1, 1998 to December 10, 1998,
November 6, 1997 to December 31, 1997, January 1, 1997
to November 5, 1997 and for the year ended December 31, 1996
F-43
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of Directors
Los Angeles Turf Club, Inc.
We have audited the accompanying balance sheets of the Los Angeles Turf
Club, Inc. (the Company) as of December 10, 1998 and December 31, 1997, and the
related statements of operations, shareholder's equity (deficit) and cash flows
for the periods from January 1, 1998 through December 10, 1998, November 6,
1997 through December 31, 1997, January 1, 1997 through November 5, 1997, and
for the year ended December 31, 1996. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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 at December 10,
1998 and December 31, 1997 and the results of its operations and its cash flows
for the periods from January 1, 1998 through December 10, 1998, November 6,
1997 through December 31, 1997, January 1, 1997 through November 5, 1997, and
for the year ended December 31, 1996, in conformity with accounting principles
generally accepted in the United States.
Los Angeles, California Ernst & Young LLP
June 11, 1999 Certified Public Accountants
F-44
<PAGE>
LOS ANGELES TURF CLUB, INC.
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 10, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 221 $ 15,632
Accounts receivable, net of allowance of $238 at
December 10, 1998, and $367 at December 31, 1997.. 2,204 2,417
Prepaid expenses and other assets.................. 1,221 1,393
-------- --------
Total current assets............................. 3,646 19,442
-------- --------
Equipment............................................ 11,928 10,805
Accumulated depreciation............................. (1,424) (224)
-------- --------
10,504 10,581
-------- --------
Other assets......................................... 1,699 1,699
-------- --------
Total assets..................................... $ 15,849 $ 31,722
======== ========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable................................... $ 1,730 $ 10,736
Accrued deferred compensation cost................. 3,850 3,977
Accrued benefit plan cost.......................... 1,304 1,304
Other liabilities.................................. 6,201 10,033
Borrowing under line of credit..................... 2,500 --
Due to affiliates.................................. 20,719 23,718
-------- --------
Total current liabilities........................ 36,304 49,768
Deferred revenue..................................... 1,812 1,349
Deferred income taxes................................ 2,265 2,265
-------- --------
Total liabilities................................ 40,381 53,382
-------- --------
Shareholder's deficit:
Common stock, $1,000 par value; 25 shares
authorized, issued and outstanding................ 25 25
Additional paid-in capital......................... 8,314 6,960
Receivable from parent............................. (15,868) (13,355)
Retained earnings (deficit)........................ (17,003) (15,290)
-------- --------
Total shareholder's deficit...................... (24,532) (21,660)
-------- --------
Total liabilities and shareholder's deficit...... $ 15,849 $ 31,722
======== ========
</TABLE>
See accompanying notes.
F-45
<PAGE>
LOS ANGELES TURF CLUB, INC.
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Period Period Period
From From From
January 1, November 6, January 1,
1998 through 1997 through 1997 through Year Ended
December 10, December 31, November 5, December 31,
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Wagering commissions.... $41,043 $ 2,950 $39,701 $44,781
Admission related....... 21,940 2,278 20,334 23,825
Interest and other...... 179 39 615 581
------- ------- ------- -------
63,162 5,267 60,650 69,187
------- ------- ------- -------
Costs and expenses:
Horse racing operating
costs.................. 48,437 6,407 49,279 48,735
Depreciation and
amortization........... 1,200 171 2,570 3,212
General and
administrative......... 3,965 742 4,821 6,353
Interest and other...... 1,089 30 110 788
Rental expense.......... 10,184 740 9,895 10,861
------- ------- ------- -------
64,875 8,090 66,675 69,949
------- ------- ------- -------
Loss before income taxes.. (1,713) (2,823) (6,025) (762)
Income taxes.............. -- -- -- --
------- ------- ------- -------
Net loss.................. $(1,713) $(2,823) $(6,025) $ (762)
======= ======= ======= =======
Basic and diluted loss per
share.................... $ (68.5) $(112.9) $(241.0) $ (30.5)
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-46
<PAGE>
LOS ANGELES TURF CLUB, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
For the Periods January 1, 1998 through December 10, 1998, November 6, 1997
through December 31, 1997, January 1, 1997 through November 5, 1997, and
the Year Ended December 31, 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Receivable Retained
------------- Paid-in From Earnings
Shares Amount Capital Parent (Deficit) Total
------ ------ ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 25 $ 25 $1,895 $(16,417) $ 22,053 $ 7,556
Addition to receivable
from parent.......... -- -- -- (325) -- (325)
Contributed capital... -- -- 3,208 -- -- 3,208
Net loss.............. -- -- -- -- (762) (762)
---- ---- ------ -------- -------- --------
Balance, December 31,
1996................... 25 25 5,103 (16,742) 21,291 9,677
Payment of receivable
from parent.......... -- -- -- 4,015 -- 4,015
Contributed capital... -- -- 1,494 -- -- 1,494
Net loss.............. -- -- -- -- (6,025) (6,025)
---- ---- ------ -------- -------- --------
Balance, November 5,
1997................... 25 25 6,597 (12,727) 15,266 9,161
Purchase accounting
adjustment........... -- -- -- -- (27,733) (27,733)
Addition to receivable
from parent.......... -- -- -- (628) -- (628)
Contributed capital... -- -- 363 -- -- 363
Net loss.............. -- -- -- -- (2,823) (2,823)
---- ---- ------ -------- -------- --------
Balance, December 31,
1997................... 25 25 6,960 (13,355) (15,290) (21,660)
Addition to receivable
from parent.......... -- -- -- (2,513) -- (2,513)
Contributed capital... -- -- 1,354 -- -- 1,354
Net loss.............. -- -- -- -- (1,713) (1,713)
---- ---- ------ -------- -------- --------
Balance, December 10,
1998................... 25 $ 25 $8,314 $(15,868) $(17,003) $(24,532)
==== ==== ====== ======== ======== ========
</TABLE>
See accompanying notes.
F-47
<PAGE>
LOS ANGELES TURF CLUB, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from Period from Period from
January 1, November 6, January 1,
1998 through 1997 through 1997 through Year Ended
December 10, December 31, November 5, December 31,
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................. $ (1,713) $(2,823) $ (6,025) $ (762)
Adjustments to reconcile
net loss to net cash
(used in) provided by
operating activities:
Depreciation and
amortization............ 1,200 171 2,570 3,212
Deferred income taxes.... -- -- -- (327)
Decrease (increase) in
accounts receivable,
net..................... 213 55 (88) 665
Decrease (increase) in
prepaid expenses and
other assets............ 172 231 (224) (658)
(Decrease) increase in
accounts payable........ (9,006) 7,148 (7,243) 1,758
(Decrease) increase in
other liabilities,
deferred compensation
and permanent employee
compensation............ (3,959) (2,831) 764 (842)
Increase (decrease) in
deferred revenues....... 463 540 (1,030) (540)
-------- ------- -------- -------
Net cash (used in)
provided by operating
activities............... (12,630) 2,491 (11,276) 2,506
-------- ------- -------- -------
Cash flows from investing
activities:
Additions to equipment.... (1,123) (1,805) (7,051) (4,550)
-------- ------- -------- -------
Net cash used in investing
activities............... (1,123) (1,805) (7,051) (4,550)
-------- ------- -------- -------
Cash flows from financing
activities:
Repayment of bank loans
payable.................. -- (82) (785) (868)
Borrowing under line of
credit................... 2,500 -- -- --
(Decrease) increase in due
to/from affiliates....... (2,999) 10,985 7,823 (2,050)
Contributed capital....... 1,354 366 1,494 3,208
(Increase) decrease in
receivable from parent... (2,513) (628) 4,015 (325)
-------- ------- -------- -------
Net cash (used in)
provided by financing
activities............... (1,658) 10,641 12,547 (35)
-------- ------- -------- -------
Net (decrease) increase in
cash and cash
equivalents............... (15,411) 11,327 (5,780) (2,079)
Cash and cash equivalents
at beginning of period.... 15,632 4,305 10,085 12,164
-------- ------- -------- -------
Cash and cash equivalents
at end of period.......... $ 221 $15,632 $ 4,305 $10,085
======== ======= ======== =======
Supplemental Cash Flow
Information (see Notes 3
and 9):
Interest paid for the
period................... $ 58 $ -- $ 111 $ 288
======== ======= ======== =======
</TABLE>
See accompanying notes.
F-48
<PAGE>
LOS ANGELES TURF CLUB, INC.
NOTES TO FINANCIAL STATEMENTS
December 10, 1998, December 31, 1997 and 1996
1. Basis of Presentation
Los Angeles Turf Club, Inc. ("LATC" or the "Company") was incorporated in
1979 and is a successor of a corporation originally organized in 1934 to
conduct thoroughbred horse racing at Santa Anita Racetrack ("Santa Anita") in
Southern California. Prior to November 5, 1997, LATC was a wholly owned
subsidiary of Santa Anita Operating Company and Subsidiaries ("SAOC" or
"Parent"). On November 5, 1997, Meditrust Acquisition Company ("Meditrust")
merged with SAOC and changed its name to Meditrust Operating Company. The
merger has been accounted for as a purchase and the assets and liabilities of
LATC were recorded at their fair market value as of November 5, 1997. A
complete change in accounting basis is appropriate because of the change in
control of voting interests. The financial statements for the periods
subsequent to November 5, 1997 present the financial position of the Company
and its results of operations after the allocation of the purchase price
relating to the Meditrust acquisition. The accompanying financial statements
for the periods prior to and including November 5, 1997 do not include the
effects of Meditrust's purchase accounting for the acquisition (Note 3). On
December 10, 1998, LATC was acquired by a wholly-owned subsidiary of Magna
International Inc.
The accompanying financial statements include the balance sheet and income
statement accounts of LATC. Certain costs incurred by LATC's Parent on the
Company's behalf have been allocated to LATC on the specific identification
basis. The statement of operations may not necessarily be indicative of the
revenues and expenses that would have resulted had LATC operated as a stand
alone entity.
2. Summary of Significant Accounting Policies
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America, which conform,
in all material respects, with accounting principles generally accepted in
Canada except as described in Note 11 to these financial statements.
Property, Plant and Equipment
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("FAS No. 121"). FAS No.
121 requires that impairment losses be recorded on long-lived assets used in
operations when events or changes in circumstances indicate that the
undiscounted cash flows to be generated by these assets are less than their
carrying amount. No such impairment losses were recorded during the periods
January 1, 1998 through December 10, 1998, November 6, 1997 through December
31, 1997, January 1, 1997 through November 5, 1997 or for the year ended
December 31, 1996.
Depreciation of property, plant and equipment is provided primarily on the
straight-line method generally over the following estimated useful lives:
<TABLE>
<S> <C>
Machinery and other equipment................................ 5 to 15 years
Leasehold improvements....................................... 5 to 15 years
</TABLE>
Expenditures which materially increase property lives are capitalized. The
cost of maintenance and repairs is charged to expense as incurred. When
depreciable property is retired or disposed of, the related cost and
accumulated depreciation is removed from the accounts and any gain or loss
reflected in current operations.
F-49
<PAGE>
LOS ANGELES TURF CLUB, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred Revenues
Deferred revenues consist of prepaid admission tickets and parking, which
are recognized as income ratably over the period of the related race meet.
Also, deferred revenue includes prepaid rent from another thoroughbred horse
racing corporation, Oak Tree Racing Association ("OTRA"), which utilizes the
Company's racetrack for a portion of the year. Prepaid rent is recognized over
the remaining term of the lease.
Cash and Cash Equivalent
Highly liquid short-term investments, with remaining maturities of three
months or less at the date of acquisition, are considered cash equivalents.
Allowance for Bad Debts
Management periodically evaluates the collectibility of accounts receivable
and adjusts the allowance for doubtful accounts to reflect the amounts
estimated to be uncollectible .
Advertising
Costs incurred for production and communicating advertising are generally
expensed when incurred. Costs incurred for promotions for specific live race
days are expensed on the applicable race day. Advertising cost of $3,175,000,
$262,000, $2,331,000, and $1,773,000 were incurred for the periods of January
1, 1998 through December 10, 1998, November 6, 1997 through December 31, 1997,
January 1, 1997 through November 5, 1997 and the year ended December 31, 1996,
respectively and are included in horse racing operating costs in the
accompanying financial statements.
Revenues and Costs
The Company records operating revenues associated with thoroughbred horse
racing at Santa Anita Racetrack on a daily basis, except for season admissions
which are recorded ratably over the racing season.
Horse Racing Revenues and Direct Operating Costs
Horse racing revenues and direct operating costs are shown net of state and
local taxes, stakes, purses and awards.
Earnings Per Share
Basic earnings per share is computed by dividing the Company's net income or
loss by the weighted average number of common shares outstanding during the
period which was 25 shares for each of the periods presented. The Company does
not have any dilutive securities.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS 130 became effective
in the first quarter of 1998 and had no impact on the Company's financial
statements. SFAS No. 131 establishes new standards on reporting information
about operating segments in both annual and interim financial statements. It
also establishes standards for related disclosures about products and services,
geographic areas, and major
F-50
<PAGE>
LOS ANGELES TURF CLUB, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
customers. The adoption of the new requirements of SFAS No. 131 did not impact
the Company's disclosure of segment information because the Company operates in
one line of business.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.133, "Accounting for Derivative Instruments"
("SFAS No. 133"). SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 requires that an entity recognize all derivatives either as assets or
liabilities and measure those instruments at fair market value. Presently, the
Company does not use derivative instruments either in hedging activities or as
investments. Accordingly, the Company believes that adoption of SFAS No. 133
will have no impact on its financial position or results of operations.
Concentration of Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash investments and receivables.
The Company places its cash investments in investment grade short-term
instruments and limits the amount of credit exposure to any one commercial
issuer. Concentrations of credit risk with respect to accounts receivable are
limited due to the number of satellite locations and Santa Anita group event
patrons.
The Company generates the majority of its revenue from wagering activities
in Southern California and therefore it is subject to the risks inherent in the
ownership and operation of a racetrack. These include, among others, the risks
normally associated with changes in the general economic climate, trends in the
gaming industry, including competition from other gaming institutions and state
lottery commissions and changes in tax laws and gaming laws.
Fair Value of Financial Instruments
Management has estimated the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the estimated values for the Company as
of December 10, 1998 and December 31, 1997 are not necessarily indicative of
the amounts that could be realized in current market exchanges.
For those financial instruments for which it is practicable to estimate
value, management has determined that the carrying amounts of the Company's
financial instruments approximate their fair value as of December 10, 1998 and
December 31, 1997.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates in the
near term.
3. Acquisition of the Company by Meditrust Acquisition Company
On November 5, 1997, Meditrust acquired LATC. Accordingly, the Company has
adjusted the carrying value of its assets and liabilities to reflect the cost
of Meditrust's investment in LATC in accordance with Accounting Principle Board
Opinion No. 16. As a result, $19,100,000 was allocated to assets and
$37,672,000 was allocated to liabilities, with the remaining balance being
recorded as a reduction to shareholder's equity.
F-51
<PAGE>
LOS ANGELES TURF CLUB, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company's statement of operations reflects depreciation and amortization
based on a historic basis through November 5, 1997 and incorporates the
adjusted basis of the Company's assets and liabilities subsequent to November
5, 1997.
4. Executive Severance
During the period of January 1, 1997 through November 5, 1997 and the year
ended December 31, 1996, pursuant to resignation agreements with certain
executive officers, the Company incurred $351,000 and $851,000, respectively,
in executive severance costs which have been charged to general and
administrative expenses in the statements of operations.
5. Loans Payable
The Company entered into a sale-leaseback transaction related to the
financing of certain television, video monitoring and production equipment
under a five-year lease which expired in December 1997. This financing
arrangement was accounted for as a capital lease.
6. Borrowing Under Line of Credit
At December 10, 1998, the Company had $2,500,000 outstanding under an
unsecured line of credit. Interest on the line of credit was based on prime
plus 0.5% (8.25% at December 10, 1998). The outstanding balance under the line
of credit was paid off subsequent to December 10, 1998.
7. Income Taxes
Income taxes are calculated on a separate return basis. Historically, the
Company has filed consolidated returns with its Parent. Deferred income taxes
arise from temporary differences in the recognition of certain items of revenue
and expense for financial statement and tax reporting purposes. The sources of
temporary differences and their related tax effects for the periods of January
1, 1998 through December 10, 1998, November 6, 1997 through December 31, 1997,
January 1, 1997 through November 5, 1997 and the year ended December 31, 1996
are as follows:
<TABLE>
<CAPTION>
January 1, November 6, January 1,
1998 through 1997 through 1997 through Year ended
December 10, December 31, November 5, December 31,
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Accelerated depreciation
and amortization methods
utilized for tax reporting
purposes.................. $ 308,000 $ (233,000) $ (498,000) $ 675,000
Net operating loss
carryovers................ (879,000) (1,029,000) (2,197,000) (784,000)
Deductions previously
deducted for book
purposes, deductible for
tax purposes currently.... 53,000 71,000 150,000 435,000
Income previously included
for book purposes, not
includable for tax
purposes currently........ -- -- -- (326,000)
Increase in valuation
allowance for deferred tax
assets.................... 518,000 1,191,000 2,545,000 --
--------- ----------- ----------- ---------
$ -- $ -- $ -- $ --
========= =========== =========== =========
</TABLE>
A reconciliation of the Company's total income tax provision for the periods
of January 1, 1998 through December 10, 1998, November 6, 1997 through December
31, 1997, January 1, 1997 through November 5, 1997 and the year ended December
31, 1996 to the statutory federal corporate income tax rate of 34% and the
F-52
<PAGE>
LOS ANGELES TURF CLUB, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
state rate of 9.3% for the year ended December 31, 1996 and 8.84% for the
periods of January 1, 1997 through November 5, 1997, November 6, 1997 through
December 31, 1997 and January 1, 1998 through December 10, 1998, is as follows:
<TABLE>
<CAPTION>
January 1, November 6, January 1,
1998 through 1997 through 1997 through Year ended
December 10, December 31, November 5, December 31,
1998 1997 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computed "expected" tax
recovery for federal
income taxes, net of state
income taxes.............. $(734,000) $(1,209,000) $(2,581,000) $(330,000)
Nondeductible political
contributions............. 73,000 2,000 5,000 82,000
Unrecognized tax net
operating loss
carryforwards, net........ 661,000 1,207,000 2,576,000 194,000
Other, net................. -- -- -- 54,000
--------- ----------- ----------- ---------
$ -- $ -- $ -- $ --
========= =========== =========== =========
</TABLE>
The deferred tax assets and liabilities as of December 10, 1998 and December
31, 1997 consist of the following:
<TABLE>
<CAPTION>
December 10, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Compensation deductible for tax purposes when
paid.............................................. $ 125,000 $ 180,000
Pension contribution deductible for tax purposes
when paid......................................... 581,000 581,000
Contribution carryover............................. 8,000 7,000
Other.............................................. 452,000 452,000
Federal tax benefit of state deferred liabilities.. 562,000 562,000
Federal net operating loss carryovers.............. 3,664,000 2,876,000
State net operating loss carryovers................ 441,000 350,000
Valuation allowance................................ (5,413,000) (4,895,000)
----------- -----------
Total deferred assets............................ 420,000 113,000
----------- -----------
Deferred tax liabilities:
Difference between tax and book depreciation....... (1,028,000) (721,000)
Income previously included for book purposes, not
includable for tax purposes....................... (11,000) (11,000)
State income tax deductible when paid for federal
tax purposes...................................... (1,646,000) (1,646,000)
----------- -----------
Total deferred tax liabilities................... (2,685,000) (2,378,000)
----------- -----------
Net liability for deferred income taxes.............. $(2,265,000) $(2,265,000)
=========== ===========
</TABLE>
There were no taxes paid for the periods of January 1, 1998 through December
10, 1998, November 6, 1997 through December 31, 1997, January 1, 1997 through
November 5, 1997 and the year ended December 31, 1996.
8. Commitments and Contingencies
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. In the opinion of
management, all such matters are adequately covered by
F-53
<PAGE>
LOS ANGELES TURF CLUB, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
insurance or, if not covered, are without merit or are of such a nature or
involve minor damages that would not have a significant effect on the financial
position or results of operations if disposed of unfavorably.
The Company leases the racetrack from an affiliate. The lease agreement
covers the period through December 31, 2010 (see note 10). The Company has
sublet the racetrack for certain periods during the year to OTRA through 2010
(see Note 10).
9. Employee Benefit Plans
Stock Option Program
Prior to December 10, 1998, SAOC and its successor Meditrust Operating
Company were part of a "paired shared real estate investment trust" structure.
As such SAOC and Meditrust Operating Company's shares were traded as a single
unit with Santa Anita Realty Enterprises, Inc. (SARE) and Meditrust
Corporation, respectively, under a stock-pairing agreement.
Stock options granted by LATC's parent were matched with the corresponding
paired share of SARE or its successor Meditrust Corporation once the employees
exercised their option. On November 5, 1997, the stock options outstanding were
deemed exercised and accordingly, a liability for these stock options were
recorded as part of the Meditrust purchase price adjustment.
Restricted Stock Awards
Under the 1995 Share Award Plan, SAOC granted 126,647 shares of common stock
as a Restricted Stock Award at a value of $15.50 per paired share. Of the
shares issued in 1995; 59,291 shares vested in 1996, and 8,065 shares vested in
1995. Based on the Restricted Stock Award agreement SAOC purchased 43,161
shares back in 1997. The remaining 16,130 shares vested in 1997 upon change in
control. Compensation of $61,000 and $524,000 for the years ended December 31,
1997 and 1996, respectively, are included in the general and administrative
expenses in the accompanying statements of operations.
Retirement Income Plan
The Company's parent has a non-contributory defined benefit retirement plan
for year-round employees who are at least 21 years of age, have one or more
years of service, and are not covered by collective bargaining agreements. Plan
assets consist of a group annuity contract with a life insurance company. Plan
benefits are based primarily on years of service and qualifying compensation
during the final years of employment. Funding requirements comply with federal
requirements that are imposed by law. In the event of a "change in control,"
participants in the defined benefit retirement plan become fully vested in plan
benefits, which occurred at November 5, 1997.
F-54
<PAGE>
LOS ANGELES TURF CLUB, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The net periodic pension cost allocated to the Company by its Parent for
the periods of January 1, 1998 through December 10, 1998, November 6, 1997
through December 31, 1997, January 1, 1997 through November 5, 1997 and the
year ended December 31, 1996 for the retirement income plan included the
following components:
<TABLE>
<CAPTION>
January 1, November 6, January 1,
1998 through 1997 through 1997 through Year ended
Components of Net Periodic December 10, December 31, November 5, December 31,
Pension Cost 1998 1997 1997 1996
- -------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service cost................ $ 327,000 $ 38,000 $ 211,000 $ 277,000
Interest cost on projected
benefit obligation......... 429,000 65,000 361,000 441,000
Actual return on plan
assets..................... (490,000) (68,000) (377,000) (387,000)
Net amortization and
deferral................... 171,000 19,000 106,000 101,000
--------- -------- --------- ---------
Net periodic pension
cost..................... $ 437,000 $ 54,000 $ 301,000 $ 432,000
========= ======== ========= =========
</TABLE>
The following provides a reconciliation of benefits obligations, plan
assets and funded status of the plan.
<TABLE>
<CAPTION>
December 10, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period..... $ 6,603,000 $ 5,999,000
Service cost.................................. 327,000 249,000
Interest cost................................. 429,000 427,000
Benefits paid................................. (384,000) (362,000)
Actuarial losses.............................. 22,000 290,000
----------- -----------
Benefit obligation at end of period......... 6,997,000 6,603,000
----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of
period....................................... 5,299,000 4,868,000
Actual return on plan assets.................. 490,000 445,000
Company contributions......................... 288,000 348,000
Benefits paid................................. (384,000) (362,000)
----------- -----------
Fair value of plan assets at end of period.. $ 5,693,000 $ 5,299,000
----------- -----------
Funded status of the plan (underfunded)..... $(1,304,000) $(1,304,000)
=========== ===========
</TABLE>
Assumptions used in determining the funded status of the retirement income
plan are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate............................... 6.0% 6.8% 7.5%
Weighted average rate of increase in compensation levels..... 3.5% 3.5% 3.5%
Expected long-term rate of return............................ 8.0% 8.0% 8.0%
</TABLE>
The measurement date and related assumptions for the funded status of the
Company's retirement income plan were as of the end of the year.
The Company also participates in several multi-employer pension plans for
the benefit of its employees who are union members. Company contributions to
these plans were $4,391,000 for the period of January 1, 1998 to December 10,
1998, $672,000 for the period of November 6, 1997 through December 31, 1997,
$3,709,000 for the period of January 1, 1997 through November 5, 1997, and
$4,377,000 for the year ended
F-55
<PAGE>
LOS ANGELES TURF CLUB, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996. The data available from administrators of the multi-employer
pension plans is not sufficient to determine the accumulated benefit
obligations, nor the net assets attributable to the multi-employer plans in
which Company employees participate.
Deferred Compensation Plan
The Company's parent has defined benefit deferred compensation agreements
which provide selected prior management employees with a fixed benefit at
retirement age. During 1995, the outstanding agreements for active employees
were curtailed and replaced by awards of restricted stock under the 1995 Share
Award Plan. Plan benefits are based primarily on years of service and
qualifying compensation.
Net periodic pension cost for the periods of January 1, 1998 to December 10,
1998, November 6, 1997 through December 31, 1997, January 1, 1997 through
November 5, 1997 and for the year ended December 31, 1996 for the deferred
compensation plan included the following components:
<TABLE>
<CAPTION>
January 1, November 6, January 1,
1998 through 1997 through 1997 through Year ended
Components of Net Periodic December 10, December 31, November 5, December 31,
Pension Cost 1998 1997 1997 1996
- -------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service costs............... $ -- $ -- $ -- $ --
Interest cost on projected
benefit obligation......... 237,000 43,000 240,000 231,000
Amortization of unrecognized
net obligation and
experience losses.......... 66,000 -- -- --
-------- ------- -------- --------
Net periodic pension
cost..................... $303,000 $43,000 $240,000 $231,000
======== ======= ======== ========
</TABLE>
The following provides a reconciliation of benefit obligations and funded
status of the plan. The plan has no assets.
<TABLE>
<CAPTION>
December 10, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period...... $ 3,977,000 $ 3,737,000
Service cost................................... -- --
Interest cost.................................. 237,000 283,000
Benefits paid.................................. (532,000) (539,000)
Actuarial losses............................... 168,000 496,000
----------- -----------
Benefit obligation at end of period.......... $ 3,850,000 $ 3,977,000
=========== ===========
Funded status of the plan (underfunded)...... $(3,850,000) $(3,977,000)
=========== ===========
</TABLE>
Assumptions used in determining the funded status of the deferred
compensation plan are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate................................ 6.0% 6.8% 7.5%
</TABLE>
The measurement date and related assumptions for the funded status of the
Company's deferred compensation plan were as of the end of the year.
F-56
<PAGE>
LOS ANGELES TURF CLUB, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Related Party Transactions
The Company leases the racetrack from an affiliate for the full year for a
fee of 1.5% of the on-track wagering on live races at Santa Anita Racetrack,
which includes the OTRA meet. In addition, the Company pays to the affiliate
26.5% of its wagering commissions from satellite wagering (not to exceed 1.5%
of such wagering). When the Company operates as a satellite for Hollywood Park
Racetrack, Del Mar Racetrack and Pomona Fairplex, the Company pays 26.5% of its
wagering commissions as additional rent to the affiliate. For the periods
January 1, 1998 through December 10, 1998, November 6, 1997 through December
31, 1997, January 1, 1997 through November 5, 1997 and the year ended December
31, 1996, LATC paid the affiliate (including charity days) $10,184,000,
$740,000, $9,895,000, and $10,861,000 in rent.
The lease arrangement between the Company and the affiliate requires the
Company to assume costs attributable to utilities, taxes, maintenance and
insurance.
The Company has sublet the racetrack to OTRA (through 2010) to conduct
OTRA's annual thoroughbred horse racing meet, which commences in late September
or early October. OTRA races five weeks in even-numbered years and six weeks in
odd-numbered years. The Company received $5,233,462, $7,446, $3,797,266 and
$4,807,724, included in wagering commissions, respectively, in rent from OTRA
for the periods January 1, 1998 through December 10, 1998, November 6, 1997
through December 31, 1997, January 1, 1997 through November 5, 1997 and the
year ended December 31, 1996.
As of December 31, 1997, due to affiliates consists of $23,718,000 due to
Meditrust Corporation including $5,500,000 loan payable to Meditrust
Corporation. The loan bore interest at 7% and was repaid in 1998. The affiliate
started charging 7% interest to the Company beginning January 1, 1998 on a
portion of the payable balance. No interest was charged on borrowing from
affiliates prior to January 1, 1998.
As of December 10, 1998, due to affiliates consists of $20,719,000 due to
Meditrust Corporation. Interest of $880,000 was incurred on borrowings from
affiliates and is included in interest and other expenses in the accompanying
statement of operations.
Costs incurred by LATC's parent have been allocated to LATC on the specific
identification basis and were $1,354,000, $363,000, $1,494,000 and $3,208,000
for the periods January 1, 1998 through December 10, 1998, November 6, 1997
through December 31, 1997, January 1, 1997 through November 5, 1997 and the
year ended December 31, 1996, respectively. Such costs are included in the
accompanying statement of operations.
11. Canadian Generally Accepted Accounting Principles
The Company's accounting policies as reflected in these financial statements
do not differ materially from accounting principles generally accepted in
Canada ("Canadian GAAP") except for:
(a) The receivable from parent is shown as a deduction from shareholder's
deficit. Under Canadian GAAP, the receivable from parent would be
presented as a non-current asset. Under Canadian GAAP, total assets at
December 10, 1998 and December 31, 1997 would be $31,717,000 and
$45,077,000, respectively, and shareholder's deficit would be
$8,664,000 and $8,305,000, respectively.
(b) For purposes of reconciling to Canadian GAAP, the Company has early
adopted the provisions of the Canadian Institute of Chartered
Accountants Handbook Section 3461, "Employee Future Benefits," on a
retroactive basis. Accordingly, net pension expense and accrued pension
liabilities are the same as those determined by the application of U.S.
GAAP.
F-57
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
GULFSTREAM PARK RACING ASSOCIATION, INC.
AND SUBSIDIARY
For the years ended December 31, 1998, 1997 and 1996
F-58
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Gulfstream Park Racing Association, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Gulfstream
Park Racing Association, Inc. and Subsidiary (the "Company") as of December 31,
1998 and 1997, and the related consolidated statements of income, stockholders'
deficit and cash flows for each of the years in the three-year period ended
December 31, 1998. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Gulfstream
Park Racing Association, Inc. and Subsidiary at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States.
Miami, Florida PricewaterhouseCoopers LLP
March 10, 1999, except for Note 9 as to Certified Public
which the date is September 1, 1999 Accountants
F-59
<PAGE>
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 7,832,459 $ 2,375,511 $ 605,194
Restricted cash and cash
equivalents........................ 163,884 292,721 592,285
Accounts receivable, less allowance
for doubtful accounts of $101,012
at August 31, 1999 and $0 and
$191,012 at December 31, 1998 and
1997, respectively................. 156,441 121,445 128,135
Note receivable..................... 93,250 93,250 --
Prepaid expenses.................... 911,364 451,144 767,285
------------ ------------ ------------
Total current assets................ 9,157,398 3,334,071 2,092,899
------------ ------------ ------------
Property, plant and equipment:
Land and improvements............... 9,401,638 9,401,638 9,012,699
Buildings and improvements.......... 24,214,826 23,323,001 22,485,253
Furniture, fixtures and equipment... 5,070,935 5,089,592 4,138,418
------------ ------------ ------------
38,687,399 37,814,231 35,636,370
Less accumulated depreciation....... 25,842,336 24,575,672 22,787,284
------------ ------------ ------------
Net property, plant and equipment... 12,845,063 13,238,559 12,849,086
------------ ------------ ------------
Other assets:
Investments, at cost................ 2,500 2,500 2,500
Deposits............................ 12,450 12,450 12,480
Deferred financing costs, net of
accumulated amortization of
$321,124 at August 31, 1999 and
$295,948 and $231,614 at December
31, 1998 and 1997, respectively.... 546 25,722 90,056
------------ ------------ ------------
Total other assets.................. 15,496 40,672 105,036
------------ ------------ ------------
Total assets........................ $ 22,017,957 $ 16,613,302 $ 15,047,021
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable:
Trade............................... $ 751,477 $ 1,869,022 $ 1,079,003
Unearned income..................... 1,844,036 512,187 428,458
Mutuel tickets outstanding.......... 48,833 32,798 23,891
Accrued liabilities:
Interest............................ -- 127,092 --
Underpaid purses.................... 163,884 292,721 592,285
Other accrued expenses.............. 824,146 381,107 507,511
Income taxes payable................ 1,506,420 399,454 --
Notes payable....................... 6,800,000 500,000 --
------------ ------------ ------------
Total current liabilities............ 11,938,796 4,114,381 2,631,148
Deferred income tax.................. 694,270 586,809 731,159
Term note payable.................... -- 6,800,000 7,800,000
Long-term debt....................... 48,000,000 48,000,000 48,000,000
------------ ------------ ------------
Total Liabilities.................... 60,633,066 59,501,190 59,162,307
------------ ------------ ------------
Commitments and contingencies (Note
5)
Stockholders' deficit:
Common stock, $1 par value,
authorized and issued 13,040
shares; outstanding 11,232 shares.. 13,040 13,040 13,040
Additional paid-in capital.......... 22,991,259 22,991,259 22,991,259
Accumulated deficit................. (59,853,908) (64,126,687) (65,354,085)
------------ ------------ ------------
(36,849,609) (41,122,388) (42,349,786)
Less:
Treasury stock, 1,808 common shares
at cost............................ (1,765,500) (1,765,500) (1,765,500)
------------ ------------ ------------
Total stockholders' deficit.......... (38,615,109) (42,887,888) (44,115,286)
------------ ------------ ------------
Total liabilities and stockholders'
deficit............................. $ 22,017,957 $ 16,613,302 $ 15,047,021
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-60
<PAGE>
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Eight Months Ended
August 31, Year Ended December 31,
------------------------ -------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
On-track wagering
commissions........... $21,166,704 $21,064,663 $21,064,663 $20,896,273 $19,710,687
Intertrack wagering
commissions........... 4,327,102 4,134,875 4,110,273 4,370,064 3,766,721
Interstate wagering and
simulcast fees........ 15,370,575 14,177,930 14,178,719 13,803,677 13,322,237
Breakage income........ 930,803 983,233 983,233 949,286 891,837
Escheated mutuel
tickets............... 551,106 546,823 546,823 576,608 422,991
Stake fees for purses.. 966,140 989,750 989,750 941,545 953,410
----------- ----------- ----------- ----------- -----------
43,312,430 41,897,274 41,873,461 41,537,453 39,067,883
Less: Stakes, purses,
trophies and awards.... 21,835,696 20,923,313 20,954,428 20,550,496 19,067,874
----------- ----------- ----------- ----------- -----------
Net pari-mutuel income 21,476,734 20,973,961 20,919,033 20,986,957 20,000,009
Admissions
General................ 997,752 1,036,942 1,036,957 1,080,379 1,121,186
Season boxes, passes
and memberships....... 539,618 503,534 505,887 548,232 557,415
Program sales........... 192,746 209,038 209,038 201,015 174,759
Parking................. 158,527 137,503 137,503 144,274 151,744
Other revenues.......... 664,396 632,813 839,849 560,876 749,476
----------- ----------- ----------- ----------- -----------
24,029,773 24,493,791 23,648,267 23,521,733 22,754,589
----------- ----------- ----------- ----------- -----------
EXPENSES:
Departmental expenses.. 11,983,727 11,663,616 14,343,052 13,977,248 12,981,229
Property taxes......... 462,753 460,752 660,922 657,947 649,268
Payroll taxes and
licenses.............. 645,127 580,559 726,003 740,943 650.911
Insurance.............. 386,681 395,216 567,662 427,374 736,396
Utilities.............. 191,652 140,987 219,312 232,202 187,477
Contributions.......... 10,545 37,875 87,975 79,107 86,689
Depreciation........... 1,266,664 1,289,600 1,795,401 1,877,575 2,031,431
Amortization........... 25,176 42,889 64,334 64,334 64,334
Other.................. -- -- 107,644 51,530 72,993
----------- ----------- ----------- ----------- -----------
14,972,325 14,611,494 18,572,305 18,108,260 17,460,728
----------- ----------- ----------- ----------- -----------
Operating Income....... 9,057,448 8,882,297 5,075,962 5,413,473 5,293,861
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income........ 284,797 354,258 463,449 471,127 449,855
Interest expense....... (2,325,559) (2,571,445) (3,771,610) (3,880,246) (3,946,487)
Gain (loss) on sale of
property.............. -- -- 5,000 -- 1,818,422
Other.................. 66,133 255,850 315,195 19,760 378,752
----------- ----------- ----------- ----------- -----------
Other expense, net..... (1,974,629) (1,961,337) (2,987,966) (3,389,359) (1,299,458)
----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes...... 7,082,819 6,920,960 2,087,996 2,024,114 3,994,403
Provision for income
taxes.................. 2,810,040 2,852,575 860,598 918,299 1,631,200
----------- ----------- ----------- ----------- -----------
Net Income............. $ 4,272,779 $ 4,068,385 $ 1,227,398 $ 1,105,815 $ 2,363,203
=========== =========== =========== =========== ===========
Basic and diluted
earnings per share..... $ 380.41 $ 362.21 $ 109.28 $ 98.45 $ 210.40
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated Treasury Total
Stock Capital Deficit Stock Deficit
------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1995................... $13,040 $22,991,259 $(68,823,103) $(1,765,500) $(47,584,304)
Net income, year ended
December 31, 1996...... -- -- 2,363,203 -- 2,363,203
------- ----------- ------------ ----------- ------------
Balance at December 31,
1996................... 13,040 22,991,259 (66,459,900) (1,765,500) (45,221,101)
Net income, year ended
December 31, 1997...... -- -- 1,105,815 -- 1,105,815
------- ----------- ------------ ----------- ------------
Balances at December 31,
1997................... 13,040 22,991,259 (65,354,085) (1,765,500) (44,115,286)
Net income, year ended
December 31, 1998...... -- -- 1,227,398 -- 1,227,398
------- ----------- ------------ ----------- ------------
Balances at December 31,
1998................... 13,040 22,991,259 (64,126,687) (1,765,500) (42,887,888)
Net income, eight months
ended August 31, 1999
(unaudited)............ -- -- 4,272,779 -- 4,272,779
------- ----------- ------------ ----------- ------------
Balances at August 31,
1999 (unaudited)....... $13,040 $22,991,259 $(59,853,908) $(1,765,500) $(38,615,109)
======= =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Eight months ended
August 31, Year Ended December 31,
------------------------ ----------------------------------
1999 1998 1998 1997 1996
----------- ----------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 4,272,779 $4,068,386 $1,227,398 $1,105,815 $2,363,203
----------- ---------- ---------- ---------- ----------
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation........... 1,266,664 1,289,600 1,795,401 1,877,575 2,031,431
Amortization of
deferred financing
costs................. 25,176 42,889 64,334 64,334 64,334
Gain on sale of
property and
equipment............. -- -- (5,000) -- (1,818,422)
Provision for bad
debt.................. -- -- 63,378 21,535 45,485
Deferred income taxes.. 107,462 (478,470) (144,350) 153,819 520,245
Changes in assets and
liabilities:
Accounts receivable.... (34,996) (58,342) (56,688) (106,087) 42,798
Note receivable........ -- (193,250) (93,250) -- --
Restricted cash and
cash equivalents...... 128,837 353,491 299,564 (167,734) (334,587)
Prepaid expenses....... (460,220) 585,215 316,141 (126,981) (56,185)
Deposits............... -- -- 30 70,000 (70,000)
Accounts payable--
trade................. (1,117,545) (314,114) 790,019 (772,323) 800,308
Accounts payable--
unearned income....... 1,331,849 (343,164) 83,729 (100,874) 117,244
Mutuel tickets
outstanding........... 16,035 10,399 8,907 9,032 4,482
Accrued liabilities--
interest and other
accrued expenses...... 315,947 742,200 688 231,126 107,386
Accrued liabilities--
underpaid purses...... (128,837) (353,491) (299,564) 165,999 345,284
Income tax payable..... 1,106,965 2,216,745 399,454 (550,538) 431,191
----------- ---------- ---------- ---------- ----------
Total adjustments...... 2,557,337 3,499,708 3,222,793 768,883 2,230,994
----------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities... 6,830,116 7,568,094 4,450,191 1,874,698 4,594,197
----------- ---------- ---------- ---------- ----------
Cash flows from
investing activities:
Proceeds from sale of
property and
equipment............. -- -- -- -- 3,291,126
Acquisition of property
and equipment......... (873,168) (351,335) (2,179,874) (1,774,061) (1,728,721)
----------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities............. (873,168) (351,335) (2,179,874) (1,774,061) 1,562,405
----------- ---------- ---------- ---------- ----------
Cash flows from
financing activities:
Repayments of term note
payable............... (500,000) (500,000) (500,000) (1,500,000) (3,200,000)
Repayments under line
of credit............. -- -- -- -- (2,000,000)
----------- ---------- ---------- ---------- ----------
Net cash (used in)
financing activities... (500,000) (500,000) (500,000) (1,500,000) (5,200,000)
----------- ---------- ---------- ---------- ----------
Net increase (decrease)
in cash and cash
equivalents............ 5,456,948 6,716,759 1,770,317 (1,399,363) 956,602
Cash and cash
equivalents, beginning
of period.............. 2,375,511 605,194 605,194 2,004,557 1,047,955
----------- ---------- ---------- ---------- ----------
Cash and cash
equivalents, end of
period................. $ 7,832,459 $7,321,953 $2,375,511 $ 605,194 $2,004,557
=========== ========== ========== ========== ==========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for income
taxes.................. $ 1,068,072 $ 878,096 $ 896,831 $1,705,041 $ 589,000
=========== ========== ========== ========== ==========
Cash paid during the
period for interest.... $ 2,390,864 $1,889,306 $3,578,926 $3,882,003 $3,966,307
=========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-63
<PAGE>
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts as at August 31, 1999 and for the eight month periods ended
August 31, 1999 and 1998 are unaudited)
1. Description of Business:
Gulfstream Park Racing Association, Inc. and its wholly-owned subsidiary
(the "Company"), operate a pari-mutuel horse racing facility in Broward County,
Florida. As provided in the Florida statutes, the Company was authorized to
operate 63 day racing meets during the years ended December 31, 1998 and 1997
and 64 day racing meets during the year ended December 31, 1996. The Company
operates during the prime winter racing season under current Florida pari-
mutuel legislation. A change in legislation could affect the Company's
operating dates and significantly impact future operations.
Ownership
Until August 31, 1999, the Company was a wholly-owned subsidiary of
Gulfstream Holdings, Inc. ("Gulfstream").
2. Significant Accounting Policies:
The significant accounting policies used by the Company in the preparation
of the accompanying consolidated financial statements are as follows:
Basis of Presentation
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States, which conform,
in all material respects, with accounting principles generally accepted in
Canada.
Principles of Consolidation
The consolidated financial statements include the accounts of Gulfstream
Park Racing Association and its subsidiary. All significant intercompany
balances and transactions have been eliminated on consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amount of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less at the time of purchase to be cash equivalents.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
which at times may exceed FDIC insurance limits. As of December 31, 1998, the
Company had approximately $3 million of cash in excess of these limits. The
Company places its cash and cash equivalents with high credit quality financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution.
F-64
<PAGE>
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts as at August 31, 1999 and for the eight month periods ended
August 31, 1999 and 1998 are unaudited)
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated on the
straight-line method over the estimated useful lives of the assets:
<TABLE>
<S> <C>
Buildings...................................................... 25 years
Improvements................................................... 7 to 15 years
Furniture, fixtures and equipment.............................. 5 years
</TABLE>
When assets are retired or otherwise disposed of, the costs and accumulated
depreciation are removed from the respective accounts and any related gain or
loss is recognized in current operations. Maintenance and repair costs are
charged to expense as incurred, and renewals and improvements are capitalized.
Deferred Financing Costs
The Company capitalized costs associated with the acquisition of the
$15,000,000 credit facility, as described in Note 4, and is amortizing these
costs using the straight-line method over the term of the financing.
Income Taxes
The Company utilizes the liability method of accounting for deferred income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using tax rates in effect for the year which the differences
are expected to reverse.
Purses
The Company is required to distribute a specific amount of purses and
owners' awards based on a percentage of the pari-mutuel handle, plus additional
other amounts. At December 31, 1998 and 1997, purses and owners' awards were
underpaid by $292,721 and $592,285, respectively, as shown in the accompanying
consolidated balance sheets. At December 31, 1998 and 1997, $292,721 and
$592,285, respectively, was held in restricted cash accounts in connection with
this liability.
Asset Impairment
The Company evaluates impairment whenever events or changes in circumstances
indicate that the carrying amount in an asset may not be recoverable.
Management of the Company assesses the recoverability of long-lived assets by
determining whether the depreciation and amortization of such assets over their
remaining lives can be recovered through projected undiscounted cash flows. The
amount of impairment, if any, is measured based on fair value (projected
discounted cash flows) and is charged to operations in the period in which such
impairment is determined by management.
Earnings Per Share
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
during the period which was 11,232 shares for the periods presented. The
Company does not have any dilutive securities.
F-65
<PAGE>
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts as at August 31, 1999 and for the eight month periods ended
August 31, 1999 and 1998 are unaudited)
Fair Value of Financial Instruments
Management has estimated that the fair market value of its financial
instruments using available market information and appropriate valuation
methodologies. Considerable judgment is required in interpreting market data to
develop estimates of fair market. Accordingly, the estimated fair values are
not necessarily indicative of the amounts that could be realized in current
market exchanges.
Cash and cash equivalents, restricted cash and cash equivalents, accounts
receivable, note receivable, prepaid expenses, accounts payable and accrued
liabilities, mutuel tickets outstanding income taxes payable and notes
payable --
Due to the short period to maturity of the instruments, the carrying values
as presented in the consolidated balance sheets are reasonable estimates of
fair value.
Term note payable and long-term debt --
The fair value of the Company's term note payable and long-term debt based
on current rates for debt with similar terms and maturities, are not
materially different from their carrying value.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash investments and receivables.
The Company places its cash investments in investment grade short-term
instruments and limits the amount of credit exposure to any one commercial
issuer. Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of receivable accounts.
Unaudited Interim Consolidated Financial Statements
In the opinion of management, the unaudited interim consolidated financial
statements reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at August 31,
1999 and the results of operations and cash flows for the eight months ended
August 31, 1999 and 1998.
New Accounting Standards
In June, 1998, the Financial Accounting Standards Board issued Statement No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". This Statement is effective for the Company's first quarter ended
March 31, 2001. SFAS 133 requires that an entity recognize all derivative
instruments either as assets or liabilities and measure those instruments at
fair value. The Company has not determined the impact, if any, of this
pronouncement on its consolidated financial statements.
Reclassification
Certain amounts have been reclassified to conform to the December 31, 1998
presentation.
F-66
<PAGE>
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts as at August 31, 1999 and for the eight month periods ended
August 31, 1999 and 1998 are unaudited)
3. Income Taxes:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Eight months ended
August 31, Year ended December 31,
----------------------- ------------------------------
1999 1998 1998 1997 1996
----------- ----------- --------- -------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Current provision:
Federal............ $2,307,569 $2,844,179 $ 858,065 $652,744 $ 942,601
State.............. 395,009 486,866 146,883 111,736 168,355
---------- ---------- --------- -------- ----------
2,702,578 3,331,045 1,004,948 764,480 1,110,956
---------- ---------- --------- -------- ----------
Deferred provision:
Federal............ 91,755 (408,536) (123,252) 131,337 450,183
State.............. 15,702 (69,934) (21,098) 22,482 70,061
---------- ---------- --------- -------- ----------
107,462 (478,470) (144,350) 153,819 520,244
---------- ---------- --------- -------- ----------
$2,810,040 $2,852,575 $ 860,598 $918,299 $1,631,200
========== ========== ========= ======== ==========
</TABLE>
The significant components of the net deferred tax liability as of August
31, 1999, December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
August 31, December 31, December 31,
1999 1998 1997
----------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Deferred income...................... $ 3,393 $ 205,335 $ 169,241
State deferred taxes................. 34,501 29,161 36,334
Other................................ 168,232 164,062 139,119
Valuation allowance.................. (99,219) (99,219) (99,219)
--------- --------- ---------
106,907 299,339 245,475
Deferred tax liabilities:
Property and equipment............... (801,177) (886,148) (976,634)
--------- --------- ---------
Net deferred tax liability............. $(694,270) $(586,809) $(731,159)
========= ========= =========
</TABLE>
The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. The Company has
established a valuation allowance against deferred tax assets of $99,219 at
December 31, 1998.
F-67
<PAGE>
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts as at August 31, 1999 and for the eight month periods ended
August 31, 1999 and 1998 are unaudited)
The reconciliation between the statutory income tax provision and the actual
tax provision for the eight month periods ended August 31, 1999 and 1998 and
the years ended December 31, 1998, 1997 and 1996 is shown as follows:
<TABLE>
<CAPTION>
Eight months ended
August 31, Years ended December 31,
----------------------- ----------------------------
1999 1998 1998 1997 1996
----------- ----------- -------- -------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Income tax at Federal
statutory rate.......... $2,478,987 $2,422,336 $746,248 $708,441 $1,398,041
State taxes, net of
federal benefit......... 266,965 271,006 81,760 87,242 154,971
Other.................... 64,088 159,233 32,590 122,616 78,188
---------- ---------- -------- -------- ----------
Income tax provision..... $2,810,040 $2,852,575 $860,598 $918,299 $1,631,200
========== ========== ======== ======== ==========
</TABLE>
4. Notes Payable:
During the year, the Company had a $15,000,000 credit facility from a
financial institution. The credit facility consists of a $2,000,000 revolving
line of credit and a $13,000,000 term loan. The line of credit expired on May
31, 1998, and bore interest at LIBOR plus .55%, plus a commitment fee of .2%.
As of December 31, 1998, the outstanding balances on the term loan was
$7,300,000. The term loan calls for annual principal payments of $500,000 with
a balloon payment due at maturity. The line of credit and the term loan are
collateralized by the assets of the Company, and a nonrecourse guarantee and
pledge agreement by Gulfstream. The credit facility contains covenants which
restrict borrowings and the payment of dividends, requires the maintenance of
certain financial ratios and limits capital expenditures. The term loan, with
interest rates indexed to market rates, approximates fair-market value at
December 31, 1998 and August 31, 1999.
On February 16, 1999, the Company amended its term loan arrangement through
February 16, 2000 with interest at LIBOR plus 1.25%. All other terms of the
arrangement are substantially identical to the previous terms.
5. Long-Term Debt:
At December 31, 1998, the Company had $48,000,000 in long-term debt
outstanding to Orient Corporation (USA). This debt is collateralized by
substantially all of the Company's assets, and is subordinate to the credit
facility. The Company pays interest at TIBOR plus .80% (5.3% at December 31,
1998). The Company entered into an interest rate agreement which limits the
applicable interest rate through December 31, 1999. This debt matures on
December 31, 2004, with annual payments of $500,000 commencing in 2000 with a
balloon payment due at maturity. The long-term debt, with interest rates
indexed to market rates, approximates fair market value at December 31, 1998.
(see Note 9)
6. Commitments and Contingencies:
Contracts
(i) Concession contract
During 1998, the Company entered into a five-year concession contract. Under
the terms of the agreement, the concessionaire is entitled to a guarantee of
$125,000 in the first year and $100,000 thereafter in return for their
services. In the event profits from concessions in a given year exceed
guaranteed amounts (the "excess"), the Company is entitled to receive a portion
of the excess. The Company's entitlement is the first $100,000 of the excess
plus a portion of any additional excess earned above $100,000. (see Note 9)
F-68
<PAGE>
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(All amounts as at August 31, 1999 and for the eight month periods ended
August 31, 1999 and 1998 are unaudited)
(ii) Service agreements
The Company is engaged in a totalisator service agreement that provides that
the Company pay a minimum service charge that is based on a multiple applied to
all wagers plus a $1,000 fee for each racing day. This agreement will expire at
December 31, 1999.
The Company is committed to a service agreement to provide on-track audio
and video support operations through December 31, 2001. The service charge paid
by the Company for each racing day is $3,730.
In December, 1998, the Company entered into a five-year operating lease
agreement for phone equipment. Under the terms of the agreement, the Company is
obligated to pay $13,402 per month with a fair market value purchase option at
the end of the third and fifth year.
Litigation and Other
The Company is a defendant in certain legal and other actions arising in the
normal course of business. Management believes that the outcome of these
actions will not have a material effect on the Company's financial position or
results of operations.
7. Related Party Transactions:
An officer of the Company is a partner in a law firm which performed various
legal services for the Company. Charges from this law firm for legal services
and other reimbursable costs amounted to approximately $44,900 and $21,400 for
the eight month periods ended August 31, 1999 and 1998 and approximately
$29,100, $94,300 and $34,300 for the years ended December 31, 1998, 1997 and
1996, respectively.
The Company has an agreement to pay a consulting fee and loan guarantee fee
to Gulfstream. Such payments amounted to $39,659 and $122,772 for the eight
month periods ended August 31, 1999 and 1998 and $244,772, $255,368 and
$256,980 in the years ended December 31, 1998, 1997 and 1996, respectively.
8. Employee Benefit Plan:
Effective January 1, 1995, the Company adopted a 401(k) profit sharing plan
(the "Plan") to provide retirement benefits for its employees. All employees
who meet certain eligibility requirements are able to participate in the Plan.
Discretionary matching contributions are determined each year by the Company.
The Company contributed to the Plan approximately $54,600 and $71,300 during
the eight month periods ended August 31, 1999 and 1998 and approximately
$85,100, $82,900 and $86,700, during the years ended December 31, 1998, 1997
and 1996, respectively.
9. Subsequent Events:
a) On September 1, 1999, Entertainment Corp., a wholly-owned subsidiary
of Magna International Inc., acquired all of the outstanding common stock
of the Company. Under the terms of the purchase and sale agreement,
$48,000,000 in long-term debt was repaid immediately before the sale, with
funds provided by the seller through an addition to paid-up capital. The
interest rate agreements associated with this long-term debt were
cancelled.
b) The concession contract (Note 6 (i)) was waived in 1999 due to losses
incurred. These losses were shared by the Company and the concessionaire.
F-69
<PAGE>
FINANCIAL STATEMENTS
REMINGTON PARK, INC.
For the years ended December 31, 1998, 1997 and 1996
F-70
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Remington Park, Inc.
We have audited the accompanying balance sheets of Remington Park, Inc. (the
"Company") as of December 31, 1998 and 1997 and the related statements of
operations and accumulated deficit, stockholder's equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1998.
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 auditing standards generally
accepted in the United States. 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 Remington Park, Inc. as of
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
Youngstown, Ohio Hill, Barth & King LLC
February 19, 1999 Certified Public Accountants
(except Note K for
which the date is
October 21, 1999)
F-71
<PAGE>
REMINGTON PARK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1999 1998 1997
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents--NOTE F.. $ 750,319 $ 697,037 $ 501,209
Restricted cash.................... 2,420,961 446,664 400,609
Trade accounts receivable, less
allowance for doubtful accounts of
$27,246 at September 30, 1999,
$26,433 at December 31, 1998 and
$0 at December 31, 1997........... 706,785 306,743 890,243
Inventories........................ 160,075 162,833 202,791
Prepaid expenses and other assets.. 222,212 180,268 270,056
------------ ------------ ------------
Total Current Assets............. 4,260,352 1,793,545 2,264,908
------------ ------------ ------------
PROPERTY AND EQUIPMENT--NOTES B AND I
Land improvements.................. 4,042,534 3,989,282 4,527,282
Buildings and structures........... 29,825,932 30,135,806 32,047,806
Machinery and equipment............ 7,996,937 7,953,549 7,921,772
Furniture and fixtures............. 1,654,963 1,649,747 1,638,081
------------ ------------ ------------
43,520,366 43,728,384 46,134,941
Less accumulated depreciation...... 34,763,202 34,621,473 32,078,706
------------ ------------ ------------
Net Property and Equipment....... 8,757,164 9,106,911 14,056,235
------------ ------------ ------------
OTHER ASSETS
Land lease and other costs less
amortization--NOTES E AND I....... 1,322,601 1,392,987 1,943,765
------------ ------------ ------------
$ 14,340,117 $ 12,293,443 $ 18,264,908
============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES
Accounts payable................... $ 1,886,155 $ 1,374,870 $ 2,851,255
Unredeemed pari-mutuel tickets..... 249,321 445,909 465,585
Advances payable to The Edward J.
DeBartolo Corporation--NOTE G..... 156,674 453,771 5,934,012
Accrued liabilities................ 1,176,728 926,162 782,715
Percentage entitlements in excess
of purses paid--NOTE C............ 1,916,210 292,293 700,911
Deferred revenue................... 517,925 6,972 90,974
------------ ------------ ------------
Total Current Liabilities........ 5,903,013 3,499,977 10,825,452
------------ ------------ ------------
OTHER LIABILITIES
Long-term debt less principal due
within one year--NOTE B........... -- -- 30,000,000
Other.............................. 18,711 -- --
------------ ------------ ------------
Total Other Liabilities.......... 18,711 -- 30,000,000
------------ ------------ ------------
STOCKHOLDER'S EQUITY (DEFICIT)--NOTE
G
Common stock--$1.00 par value per
share:
Authorized 10,000 shares; issued
and outstanding 500 shares....... 500 500 500
Additional paid-in capital........ 48,148,592 47,991,918 7,409,500
Accumulated deficit............... (39,730,699) (39,198,952) (29,970,544)
------------ ------------ ------------
Total Stockholder's Equity
(Deficit)....................... 8,418,393 8,793,466 (22,560,544)
------------ ------------ ------------
$ 14,340,117 $ 12,293,443 $ 18,264,908
============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-72
<PAGE>
REMINGTON PARK, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
-------------------------- ----------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES
Pari-Mutuel income...... $ 21,471,901 $ 23,079,261 $ 29,095,338 $ 33,085,838 $ 33,461,803
------------ ------------ ------------ ------------ ------------
Less:
Purses paid to
horsemen............. 7,376,329 7,754,755 9,819,313 11,438,288 11,450,284
Amounts paid to the
State of Oklahoma.... 2,509,253 2,674,986 3,362,670 3,801,826 3,620,381
Breakage and breeders
awards paid to the
Oklahoma Breeding and
Development Revolving
Fund................. 690,455 778,825 990,960 1,157,359 775,645
Commissions paid to
host tracks.......... 2,824,435 2,779,730 3,420,305 3,680,734 2,833,637
------------ ------------ ------------ ------------ ------------
13,400,472 13,988,296 17,593,248 20,078,207 18,679,947
------------ ------------ ------------ ------------ ------------
Net Pari-Mutuel Income.. 8,071,429 9,090,965 11,502,090 13,007,631 14,781,856
Concession revenue...... 1,165,511 1,338,775 1,851,686 2,168,490 2,517,449
Other non-wagering
revenues............... 1,026,041 1,564,829 2,138,306 2,644,010 3,515,199
------------ ------------ ------------ ------------ ------------
Total Revenues........ 10,262,981 11,994,569 15,492,082 17,820,131 20,814,504
Operating costs and
expenses--
NOTES E and G......... 10,405,855 12,920,768 16,994,450 20,177,827 21,064,646
Depreciation and
amortization........... 486,871 2,029,313 2,706,547 2,723,763 2,800,681
Provision for impairment
of long-lived assets--
NOTE I................. -- 2,837,000 2,837,000 5,077,918 --
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS.... (629,745) (5,792,512) (7,045,915) (10,159,377) (3,050,823)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income....... 102,800 90,392 122,477 116,336 106,130
Interest expense--NOTE
G.................... (4,802) (1,907,474) (2,304,970) (2,539,923) (2,481,557)
------------ ------------ ------------ ------------ ------------
97,998 (1,817,082) (2,182,493) (2,423,587) (2,375,427)
------------ ------------ ------------ ------------ ------------
NET LOSS................ (531,747) (7,609,594) (9,228,408) (12,582,964) (5,426,250)
ACCUMULATED DEFICIT
Beginning of period... (39,198,952) (29,970,544) (29,970,544) (17,387,580) (11,961,330)
------------ ------------ ------------ ------------ ------------
End of period......... $(39,730,699) $(37,580,138) $(39,198,952) $(29,970,544) $(17,387,580)
============ ============ ============ ============ ============
Basic and diluted loss
per share of common
stock.................. $ (1,063) $ (15,219) $ (18,457) $ (25,166) $ ( 10,853)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-73
<PAGE>
REMINGTON PARK, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated Total Equity
Stock Capital Deficit (Deficit)
------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995... $500 $ 7,409,500 $(11,961,330) $ (4,551,330)
Net loss, year ended December
31, 1996...................... -- -- (5,426,250) (5,426,250)
---- ----------- ------------ ------------
Balance at December 31, 1996... 500 7,409,500 (17,387,580) (9,977,580)
Net loss, year ended December
31, 1997...................... -- -- (12,582,964) (12,582,964)
---- ----------- ------------ ------------
Balance at December 31, 1997... 500 7,409,500 (29,970,544) (22,560,544)
1998 Contributions (NOTE J).... -- 40,582,418 -- 40,582,418
Net loss, year ended December
31, 1998...................... -- -- (9,228,408) (9,228,408)
---- ----------- ------------ ------------
Balance at December 31, 1998... 500 47,991,918 (39,198,952) 8,793,466
1999 Contributions (NOTE J)
(unaudited)................... -- 156,674 -- 156,674
Net loss, nine months ended
September 30, 1999
(unaudited)................... -- -- (531,747) (531,747)
---- ----------- ------------ ------------
Balance at September 30, 1999
(unaudited)................... $500 $48,148,592 $(39,730,699) $ 8,418,393
==== =========== ============ ============
</TABLE>
See accompanying notes to financial statements
F-74
<PAGE>
REMINGTON PARK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------------ --------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss............... $ (531,747) $(7,609,594) $(9,228,408) $(12,582,964) $(5,426,250)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities:
Provision for
impairment of long-
lived assets.......... -- 2,837,000 2,837,000 5,077,918 --
Depreciation and
amortization.......... 486,871 2,029,313 2,706,547 2,723,763 2,800,681
Provision for doubtful
accounts.............. 27,246 25,000 26,433 -- --
Gain on sale of
equipment............. -- -- -- (8,341) --
(Increase) decrease in
restricted cash....... (1,974,297) (416,662) (46,055) 346,569 (97,411)
(Increase) decrease in
accounts receivable... (427,288) 282,266 557,067 (479,114) 14,450
Increase (decrease) in
inventories, prepaid
expenses and other
assets................ (39,861) (99,765) 129,746 32,081 (72,787)
Increase (decrease) in
accounts payable and
purse liability....... 2,127,673 (1,386,886) (1,885,003) 1,106,833 1,169,862
Increase (decrease) in
accrued liabilities
and unredeemed pari-
mutuel tickets........ 53,978 333,057 123,771 (43,980) 195,555
Increase in advances
due to The Edward J.
DeBartolo
Corporation........... (540,423) 1,825,165 2,502,177 2,164,757 2,481,557
Increase (decrease) in
deferred revenue...... 510,953 214,150 (84,002) (20,850) (35,090)
---------- ----------- ----------- ------------ -----------
Net cash provided by
(used in) operating
activities............ (306,895) (1,966,956) (2,360,727) (1,683,328) 1,030,567
---------- ----------- ----------- ------------ -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of
improvements and
equipment............. (66,063) (41,948) (43,445) (118,293) (326,020)
Proceeds from sale of
property and
equipment............. -- -- -- 292,770 --
---------- ----------- ----------- ------------ -----------
Net cash provided by
(used in) investing
activities............ (66,063) (41,948) (43,445) 174,477 (326,020)
---------- ----------- ----------- ------------ -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Net advances from The
Edward J. DeBartolo
Corporation........... 400,000 2,600,000 2,600,000 900,000 302,919
Proceeds from (payments
on) note payable...... 26,240 -- -- -- (1,350,000)
---------- ----------- ----------- ------------ -----------
Net cash provided by
(used in) financing
activities............ 426,240 2,600,000 2,600,000 900,000 (1,047,081)
---------- ----------- ----------- ------------ -----------
Net increase (decrease)
in cash and cash
equivalents............ 53,282 591,096 195,828 (608,851) (342,534)
CASH AND CASH
EQUIVALENTS
Beginning of period.... 697,037 501,209 501,209 1,110,060 1,452,594
---------- ----------- ----------- ------------ -----------
End of period.......... $ 750,319 $ 1,092,305 $ 697,037 $ 501,209 $ 1,110,060
========== =========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements
F-75
<PAGE>
REMINGTON PARK, INC.
NOTES TO FINANCIAL STATEMENTS
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
NOTE A--Summary of Significant Accounting Policies
Basis of Presentation:
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States, which conform, in all
material respects, with accounting principles generally accepted in Canada.
Nature of Operations:
The Company operates a thoroughbred horse racing track in Oklahoma City,
Oklahoma. The Company operated 136, 147 and 156 days of live racing in 1998,
1997 and 1996, respectively, and has been awarded live race meetings totalling
123 days for 1999.
Cash and Cash Equivalents:
Restricted cash represents primarily amounts restricted for futurity purse
escrow and supplement purse escrow to be paid during future live meets.
The Company considers highly liquid debt instruments purchased with maturity
dates of three months or less to be cash equivalents.
Inventories:
Inventories, consisting primarily of concession food items, are stated at
lower of cost or market on the first-in, first-out method.
Property and Equipment:
Property and equipment are stated at cost less provision for impairment of
long-lived assets (see Note I). Depreciation is computed on the straight-line
method over the estimated useful lives of the assets:
<TABLE>
<S> <C>
Buildings................................................. 15 to 25 years
Improvements.............................................. 5 to 15 years
Furniture, fixtures and equipment......................... 5 to 10 years
</TABLE>
The Company evaluates impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Management of the Company assesses the recoverability of long-lived assets by
determining whether the depreciation and amortization of such assets over their
remaining lives can be recovered through projected undiscounted cash flows. The
amount of impairment, if any, is measured based on fair value (projected
discounted cash flows) and is charged to operations in the period in which such
impairment is determined by management.
Land Lease Costs:
Land lease costs are stated net of amortization less provision for
impairment of long-lived asset (see Note I). Land lease costs are being
amortized on the straight-line method over the term of the lease.
Deferred Revenue:
Deferred revenue consists primarily of advance payments received on catering
functions which are recognized as revenue when earned.
F-76
<PAGE>
REMINGTON PARK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
Income Taxes:
The Company has been included in the consolidated federal income tax return
of its parent, The Edward J. DeBartolo Corporation through December 1, 1998
(see Note G). Subsequent to December 1, 1998, the company files a separate
federal income tax return. Income taxes of the Company are computed utilizing
the separate return method. Under this method, the provision for income taxes
is generally determined as if the Company filed a separate income tax return.
The Company files a separate state income tax return.
Income taxes are provided for amounts currently due and deferred amounts
arising from temporary differences between the financial accounting and income
tax basis of assets and liabilities.
Advertising:
Advertising costs are charged to operations when incurred and are included
in operating expenses. The amounts charged to operations are as follows:
<TABLE>
<S> <C>
Year ended December 31:
1998........................................................... $1,584,636
1997........................................................... 2,193,659
1996........................................................... 2,292,339
Nine months ended September 30 (unaudited):
1999........................................................... $ 749,011
1998........................................................... 1,268,719
</TABLE>
Earnings Per Share:
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
during the period which was 500 shares for all periods presented. The Company
does not have any dilutive securities.
Revenue Recognition:
The Company records revenues associated with horse racing on a daily basis.
Horse racing revenues are shown net of state and local taxes, stakes, purses
and awards.
Fair Value of Financial Instruments:
Management has estimated the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the estimated fair values are not
necessarily indicative of the amounts that could be realized in current market
exchanges.
Cash and Cash Equivalents, Restricted Cash, Accounts Receivable, Accounts
Payable and Accrued Liabilities--Due to the short period to maturity of these
instruments, the carrying values as presented in the balance sheets are
reasonable estimates of fair value.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-77
<PAGE>
REMINGTON PARK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
Interim Financial Statements:
In the opinion of management, the unaudited interim financial statements
reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at
September 30, 1999 and the results of operations and cash flows for the nine
months ended September 30, 1999 and 1998.
New Accounting Standards:
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". This Statement is effective for the Company's first quarter ended
March 31, 2001. SFAS 133 requires that an entity recognize all derivative
instruments either as assets or liabilities and measure those instruments at
fair value. The Company has not determined the impact, if any, of this
pronouncement on its financial statements.
Reclassification:
The financial statements for 1997 and 1996 have been reclassified to conform
with the presentation for December 31, 1998. Such reclassifications had no
effect on net results of operations.
NOTE B--Long-term Debt
At December 31, 1997, long-term debt represented a note agreement payable to
The Edward J. DeBartolo Corporation ("DeBartolo") with interest at the prime
rate, and principal and interest payments due quarterly based on available cash
flow as defined with all unpaid principal due December 31, 2001, collateralized
by substantially all buildings, improvements and equipment. The principal
balance at December 31, 1997 was $30,000,000.
Effective December 1, 1998, DeBartolo made a capital contribution (see Note
J) which in part was used to reduce the entire principal balance of this note
agreement.
NOTE C--Purse Over/Under Payments
The Oklahoma Horse Racing Commission (OHRC) Rules of Racing contain
provisions relating to future purse overpayments and underpayments and
specifically address how such amounts will be adjusted in purse distributions
during future race meetings.
At September 30, 1999, purses were underpaid during the thoroughbred race
meeting which totalled $2,282,698. Also, at September 30, 1999, purses were
overpaid during the quarter horse race meeting which totalled $366,488. The
Company will include these amounts in its purse distribution during future race
meetings.
At December 31, 1998, purses were underpaid during the thoroughbred race
meeting which totalled $161,014. Also, at December 31, 1998, purses were
underpaid during the quarter horse race meeting which totalled $131,279. The
Company included these amounts in its purse distribution during the 1999 race
meetings.
At December 31, 1997, purses were underpaid during the thoroughbred race
meeting which totalled $277,619. Also at December 31, 1997, purses were
underpaid during the quarter horse race meeting which totalled $423,292. The
Company included these amounts in its purse distribution during the 1998 race
meetings.
F-78
<PAGE>
REMINGTON PARK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
NOTE D--Income Taxes
Following is a summary of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
December 31,
September 30, --------------------------
1999 1998 1997
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Provision for impairment of
long-lived assets............ $ 13,565,000 $ 13,565,000 $ 12,606,000
Net operating loss
carryforward................. 1,445,000 1,100,000 18,893,000
Nondeductible accrued vacation
and sick pay................. 66,000 66,000 61,500
Income deferred for financial
reporting purposes........... -- 2,000 31,500
------------ ------------ ------------
Total Deferred Tax Assets....... 15,076,000 14,733,000 31,592,000
Deferred tax liability:
Excess tax depreciation and
amortization over financial
reporting depreciation and
amortization................. (2,900,000) (2,733,000) (2,719,500)
------------ ------------ ------------
Net Deferred Tax Assets Before
Valuation Allowance............ 12,176,000 12,000,000 28,872,500
Valuation Allowance............. (12,176,000) (12,000,000) (28,872,500)
------------ ------------ ------------
Net Deferred Tax Assets......... $ -- $ -- $ --
============ ============ ============
</TABLE>
At December 31, 1998, the Company had an unused net operating tax loss
carryover of approximately $3,300,000 with various expiration dates through
2013. These amounts are available for federal income tax purposes for offset
against future taxable income based on filing a separate return effective
December 1, 1998 (see Note G).
NOTE E--Leases
The Company occupies land for the racing facility under an operating lease
which extends through 2013. The lease also contains options to renew for five
10-year periods after the initial term. Under the lease agreement, the Company
made an initial payment of $4,000,000 which is being amortized over the initial
lease term. In addition to the initial payment, the Company is obligated to pay
additional rent based on minimum annual rental payments ranging from $110,710
to $132,850 and one-half of one percent of the "handle" in excess of
$187,000,000 during each race season.
F-79
<PAGE>
REMINGTON PARK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
The Company uses significant amounts of equipment under operating leases as
part of its daily business operations. This equipment includes totalisator
equipment, satellite uplink equipment, closed circuit color television
equipment, track maintenance equipment and photofinish equipment. The majority
of the equipment is leased on a raceday basis, with minimum rentals per live
raceday as follows:
<TABLE>
<CAPTION>
Minimum rental Minimum daily Minimum daily
per live rental for on track rental for Off-track
raceday simulcasting cards betting parlors
-------------- ------------------- --------------------
<S> <C> <C> <C>
Year ended December 31:
1998.................. $5,700 $600 $200
1997.................. 3,000 600 800
1996.................. 3,000 575 800
Nine months ended
September 30
(unaudited):
1999.................. 5,700 630 150
1998.................. 5,700 600 200
</TABLE>
Following is a summary of future minimum rental payments under operating
leases that have initial or remaining noncancellable terms in excess of one
year as of December 31, 1998:
<TABLE>
<S> <C>
1999.............................................................. $ 177,000
2000.............................................................. 171,000
2001.............................................................. 168,000
2002.............................................................. 168,000
2003.............................................................. 168,000
Later years....................................................... 1,195,000
----------
Total............................................................. $2,047,000
==========
</TABLE>
Rent expense charged to operations is summarized below:
<TABLE>
<S> <C>
Year ended December 31:
1998........................................................... $2,039,598
1997........................................................... 2,913,829
1996........................................................... 2,281,613
Nine months ended September 30 (unaudited):
1999........................................................... 1,458,933
1998........................................................... 1,549,651
</TABLE>
NOTE F--Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash investments and receivables.
The Company places its cash investments in investment grade short-term
instruments and limits the amount of credit exposure to any one commercial
issuer. The Company maintains significantly all of its bank deposit accounts in
one financial institution in Oklahoma City, Oklahoma. These accounts at times
exceed the federally insured limits. The Company believes it is not exposed to
any significant credit risk on cash and cash equivalents.
The Company grants credit to other racetracks throughout the country and
suite and season-seat rental customers in the ordinary course of business. The
Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers.
F-80
<PAGE>
REMINGTON PARK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
NOTE G--Controlling Interest and Related Party Transactions
Controlling Interest:
The Company was a wholly-owned subsidiary of DeBartolo. Effective December
1, 1998, Oklahoma Racing, LLC. (a newly formed company owned by an affiliated
individual) acquired all of the common stock owned by DeBartolo. The common
stock acquired has been pledged to secure an acquisition note payable to
DeBartolo. See Note K regarding subsequent event.
Related Party Transactions:
Included in the operating costs are certain expenses paid or incurred on
behalf of the Company by DeBartolo. The Company reimbursed DeBartolo for these
general and administrative expenses on a current basis as follows:
<TABLE>
<S> <C>
Year ended December 31:
1998............................................................. $208,002
1997............................................................. 309,751
1996............................................................. 738,169
Nine months ended September 30 (unaudited):
1999............................................................. 81,097
1998............................................................. 181,063
</TABLE>
Effective December 1, 1998, DeBartolo contributed $10,582,418 of the
advances and interest to the capital of the Company. Advances and interest
payable to DeBartolo totalled $453,771 at December 31, 1998 and $5,934,012 at
December 31, 1997. DeBartolo has agreed to advance an additional $3,000,000 in
loans at the prime rate plus one percent to the company during 1999 to fund
operating deficits as needed.
Interest charged by DeBartolo on the note agreement referred to in Note B is
summarized below:
<TABLE>
<S> <C>
Year ended December 31:
1998........................................................... $2,308,356
1997........................................................... 2,532,740
1996........................................................... 2,481,557
Nine months ended September 30 (unaudited):
1999........................................................... --
1998........................................................... 1,907,055
</TABLE>
No interest was charged by DeBartolo on net operating advances. Management
fees charged by DeBartolo totalled $50,000 annually.
NOTE H--Investment Savings Retirement Plan
Effective February 1, 1998, the Company along with an affiliated company
formed a defined contribution 401(k) pension plan, which covers substantially
all of its employees. Individuals employed as of the effective date of the plan
are eligible to participate in the pension plan. Employees hired after the
effective date of the plan, must meet minimum service and age requirements in
order to participate. The plan provides for discretionary company matching
contributions. No discretionary contributions to the plan were made during 1998
or nine months ended September 30, 1999.
F-81
<PAGE>
REMINGTON PARK, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
NOTE I--Impairment of Long-lived Assets
During 1998, the company provided an additional $2,837,000 provision for the
impairment in the value of the racing facilities due to the continued
deterioration in attendance and pari-mutuel handle in recent years. The
provision was allocated to land improvements, buildings and structures and land
lease costs on a pro rata basis. The company recorded a provision for the
impairment of the racing facility of $5,077,918 and $NIL for the years ended
December 31, 1997 and 1996 respectively. At December 31, 1998, the impairment
reserve totalled $39,914,918.
NOTE J--Noncash Investing Activities
Effective December 1, 1998, DeBartolo made a capital contribution of
$40,582,418 which was used to reduce the note agreement and the advances and
interest payable to DeBartolo as discussed in Notes B and G. In addition, at
September 30, 1999, DeBartolo made an additional capital contribution of
$156,674 which was used to reduce the advances payable to DeBartolo.
NOTE K--Subsequent Event
On October 21, 1999, Oklahoma Racing, LLC entered into a definitive
agreement to sell 100% of the outstanding common stock of the Company to MI
Entertainment Corp., a wholly-owned subsidiary of Magna International Inc., for
$10,000,000. As part of the agreement, DeBartolo agreed to contribute $156,674
of advances to additional paid-in capital. This contribution to capital was
reflected as of September 30, 1999 in the accompanying financial statements.
F-82
<PAGE>
FINANCIAL STATEMENTS
THISTLEDOWN, INC.
For the years ended December 31, 1998, 1997 and 1996
F-83
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Thistledown, Inc.
We have audited the accompanying balance sheets of Thistledown, Inc. as of
December 31, 1998 and 1997 and the related statements of operations and
accumulated deficit, stockholder's deficit and cash flows for each of the years
in the three year period ended December 31, 1998. 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 auditing standards generally
accepted in the United States. 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 Thistledown, Inc. as of
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
Youngstown, Ohio Hill, Barth & King LLC
October 12, 1999 (except Note I for Certified Public Accountants
which the date is October 21, 1999)
F-84
<PAGE>
THISTLEDOWN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1999 1998 1997
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............ $ 2,366,651 $ 1,779,565 $ 895,292
Restricted cash...................... 2,256,828 1,562,770 1,581,885
Trade accounts receivable (less
allowance for doubtful accounts of
$89,624 at September 30, 1999,
$89,830 at December 31, 1998 and
$56,599 at December 31, 1997)....... 2,296,486 2,027,847 1,665,173
Inventories.......................... 163,576 143,103 155,923
Purses paid in excess of percentage
entitlements--NOTE C................ 176,317 -- --
Prepaid expenses and other assets.... 32,295 176,061 50,123
----------- ----------- -----------
Total Current Assets................. 7,292,153 5,689,346 4,348,396
----------- ----------- -----------
Property And Equipment
Land................................. 1,002,700 1,002,700 1,002,700
Land improvements.................... 1,010,522 1,010,522 1,010,522
Parking lot improvements............. 198,007 198,007 198,007
Buildings and structures............. 39,600,666 39,591,161 39,576,955
Furniture and equipment.............. 2,319,321 2,209,950 2,104,442
----------- ----------- -----------
44,131,216 44,012,340 43,892,626
Less accumulated depreciation........ 34,439,953 33,359,365 31,893,794
----------- ----------- -----------
Net Property and Equipment........... 9,691,263 10,652,975 11,998,832
----------- ----------- -----------
Other Assets
Deferred racetrack improvement fund
rebate--NOTE B...................... 1,085,964 792,131 503,587
Deposits............................. 47,398 33,944 31,222
----------- ----------- -----------
Total other assets................... 1,133,362 826,075 534,809
----------- ----------- -----------
$18,116,778 $17,168,396 $16,882,037
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities
Accounts payable..................... $ 3,579,044 $ 2,785,348 $ 2,737,170
Unredeemed pari-mutuel tickets....... 683,528 639,306 651,091
Due to The Edward J. DeBartolo
Corporation......................... 2,757 35,611 850,700
Accrued liabilities.................. 814,042 593,868 600,925
Percentage entitlements in excess of
purses paid--NOTE C................. -- 526,592 337,515
Deferred revenue..................... 11,872 1,684 6,822
----------- ----------- -----------
Total Current Liabilities............ 5,091,243 4,582,409 5,184,223
----------- ----------- -----------
Due to The Edward J. DeBartolo
Corporation--NOTES G and I........... 61,628,370 61,221,811 60,034,612
----------- ----------- -----------
Deferred Income Taxes--NOTE D......... 1,262,000 1,253,000 1,000,000
----------- ----------- -----------
Stockholder's Deficit--Notes G And I
Common stock--no par value per share:
Authorized 500 shares; issued and
outstanding 250 shares.............. 500 500 500
Additional paid-in capital........... 100,000 100,000 100,000
Accumulated deficit.................. (49,965,335) (49,989,324) (49,437,298)
----------- ----------- -----------
Total Stockholder's Deficit.......... (49,864,835) (49,888,824) (49,336,798)
----------- ----------- -----------
$18,116,778 $17,168,396 $16,882,037
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-85
<PAGE>
THISTLEDOWN, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
-------------------------- ----------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES
Pari-Mutuel income...... $ 25,781,914 $ 25,643,540 $ 34,283,820 $ 31,912,780 $ 26,933,567
------------ ------------ ------------ ------------ ------------
Less:
Purses paid to
horsemen.............. 9,170,440 9,040,027 12,115,337 10,970,292 9,509,854
State of Ohio pari-
mutuel taxes--net of
racetrack improvement
fund rebate........... 2,821,673 2,987,503 3,937,712 3,597,768 3,991,419
Breakage paid to
Thoroughbred Health
and Retirement Fund... 254,045 274,471 356,977 351,631 303,161
Amount paid to the
Horsemen's Benevolent
& Protection
Association........... 64,368 62,540 87,046 84,826 89,822
Commission paid to host
tracks................ 2,687,816 2,687,562 3,575,538 3,165,904 1,457,258
------------ ------------ ------------ ------------ ------------
14,998,342 15,052,103 20,072,610 18,170,421 15,351,514
------------ ------------ ------------ ------------ ------------
Net Pari-Mutuel Income.. 10,783,572 10,591,437 14,211,210 13,742,359 11,582,053
Non-wagering revenues... 2,654,188 2,537,033 3,469,119 3,345,817 3,332,165
------------ ------------ ------------ ------------ ------------
Total Revenues......... 13,437,760 13,128,470 17,680,329 17,088,176 14,914,218
Operating costs and
expenses--
NOTES E, G and H....... 12,020,154 12,275,347 16,027,163 16,234,915 14,903,093
Depreciation and
amortization........... 1,080,587 1,087,028 1,465,571 1,497,966 1,482,331
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS............. 337,019 (233,905) 187,595 (644,705) (1,471,206)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest earned........ 102,529 69,580 89,108 72,923 22,763
Interest expense--NOTE
G..................... (406,559) (448,910) (575,729) (742,836) (545,736)
------------ ------------ ------------ ------------ ------------
(304,030) (379,330) (486,621) (669,913) (522,973)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
INCOME TAXES........... 32,989 (613,235) (299,026) (1,314,618) (1,994,179)
Deferred income taxes--
NOTE D................. 9,000 168,667 253,000 354,000 321,000
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS)....... 23,989 (781,902) (552,026) (1,668,618) (2,315,179)
ACCUMULATED DEFICIT
Beginning of period.... (49,989,324) (49,437,298) (49,437,298) (47,768,680) (45,453,501)
------------ ------------ ------------ ------------ ------------
End of period.......... $(49,965,335) $(50,219,200) $(49,989,324) $(49,437,298) $(47,768,680)
============ ============ ============ ============ ============
Basic and diluted
earnings (loss) per
share of common stock.. $ 96 $ (3,128) $ (2,208) $ (6,674) $ (9,261)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-86
<PAGE>
THISTLEDOWN, INC.
STATEMENTS OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated Total
Stock Capital Deficit Deficit
------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995.... $500 $100,000 $(45,453,501) $(45,353,001)
Net loss, year ended December
31, 1996....................... -- -- (2,315,179) (2,315,179)
---- -------- ------------ ------------
Balance at December 31, 1996.... 500 100,000 (47,768,680) (47,668,180)
Net loss, year ended December
31, 1997....................... -- -- (1,668,618) (1,668,618)
---- -------- ------------ ------------
Balance at December 31, 1997.... 500 100,000 (49,437,298) (49,336,798)
Net loss, year ended December
31, 1998....................... -- -- (552,026) (552,026)
---- -------- ------------ ------------
Balance at December 31, 1998.... 500 100,000 (49,989,324) (49,888,824)
Net income, nine months ended
September 30, 1999
(unaudited).................... -- -- 23,989 23,989
---- -------- ------------ ------------
Balance at September 30, 1999
(unaudited).................... $500 $100,000 $(49,965,335) $(49,864,835)
==== ======== ============ ============
</TABLE>
See accompanying notes to financial statements
F-87
<PAGE>
THISTLEDOWN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years ended December 31,
------------------------ ------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss)....... $ 23,989 $ (781,902) $ (552,026) $(1,668,618) $(2,315,179)
Adjustments to reconcile
net income (loss) to
cash provided by (used
in) operating
activities:
Depreciation and
amortization.......... 1,080,587 1,087,028 1,465,571 1,497,966 1,482,331
Provision for doubtful
accounts.............. 26,003 -- 39,098 46,467 19,560
Deferred income taxes.. 9,000 168,667 253,000 354,000 321,000
(Increase) decrease in
restricted cash....... (694,058) (315,496) 19,115 (241,656) (1,340,229)
Increase in accounts
receivable............ (294,642) (64,810) (401,773) (247,808) (1,082,062)
(Increase) decrease in
inventories........... (20,473) (16,251) 12,820 1,083 (11,185)
(Increase) decrease in
prepaid expenses...... 143,766 (32,265) (125,938) 47,845 (25,647)
Increase in purses paid
in excess of
percentage
entitlements.......... (176,317) -- -- -- --
Increase in other
assets................ (307,287) (193,712) (291,266) (372,160) (152,226)
Increase (decrease) in
accounts payable and
accrued liabilities... 1,013,870 287,022 41,121 (339,485) 2,192,388
Increase (decrease) in
unredeemed pari-mutuel
tickets............... 44,222 117,510 (11,785) 218,318 92,059
Increase (decrease) in
percentage
entitlements in excess
of purses paid........ (526,592) 345,742 189,077 1,733 335,782
Increase (decrease) in
deferred revenue...... 10,188 29,848 (5,138) 5,118 1,704
---------- ---------- ---------- ----------- -----------
Net cash provided by
(used in) operating
activities............ 332,256 631,381 631,876 (697,197) (481,704)
---------- ---------- ---------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property
and equipment......... (118,873) (117,318) (119,714) (228,315) (332,592)
---------- ---------- ---------- ----------- -----------
Net cash used in
investing activities.. (118,873) (117,318) (119,714) (228,315) (332,592)
---------- ---------- ---------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Net advances from The
Edward J. DeBartolo
Corporation........... 373,703 421,379 372,111 989,948 1,364,585
---------- ---------- ---------- ----------- -----------
Net cash provided by
financing activities.. 373,703 421,379 372,111 989,948 1,364,585
---------- ---------- ---------- ----------- -----------
Net Increase in cash
and cash equivalents.. 587,086 935,442 884,273 64,436 550,289
CASH AND CASH
EQUIVALENTS
Beginning of period.... 1,779,565 895,292 895,292 830,856 280,567
---------- ---------- ---------- ----------- -----------
End of period.......... $2,366,651 $1,830,734 $1,779,565 $ 895,292 $ 830,856
========== ========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-88
<PAGE>
THISTLEDOWN, INC.
NOTES TO FINANCIAL STATEMENTS
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
NOTE A--Summary of Significant Accounting Policies
Basis of Presentation:
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States, which conform, in all
material respects, with accounting principles generally accepted in Canada.
Nature of Operations:
The company formally changed its name from Carat Company, Inc. to
Thistledown, Inc. on February 26, 1998. On January 9, 1998, Raceway
Properties, Inc., a wholly-owned subsidiary of The Edward J. DeBartolo
Corporation, was merged into the company. Raceway Properties, Inc. owned the
land under the racing facility, certain buildings and equipment used by the
company. The merger was accounted for using the pooling-of-interests method of
accounting and all intercompany transactions have been eliminated.
The company operates a thoroughbred horse racing track in Cleveland, Ohio.
The company operated 187, 186 and 195 days of live racing in 1998, 1997 and
1996, respectively, and has been awarded live race meetings totalling 187 days
for 1999.
Cash and Cash Equivalents:
The company considers highly liquid debt instruments purchased with
maturity dates of three months or less to be cash equivalents.
Restricted cash represents primarily amounts restricted for purse escrow
and simulcast settlement escrow.
Inventories:
Inventories, consisting primarily of concession food items, are stated at
lower of cost or market on the first-in, first-out method.
Property and Equipment:
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets:
<TABLE>
<S> <C>
Buildings................................................. 15 to 25 years
Improvements.............................................. 5 to 15 years
Furniture, fixtures and equipment......................... 5 to 10 years
</TABLE>
Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of", establishes accounting standards for the impairment of
long-lived assets. The company evaluates impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Management of the company assesses the recoverability of long-
lived assets by determining whether the depreciation and amortization of such
assets over their remaining lives can be recovered through projected
undiscounted cash flows. The amount of impairment, if any, is measured based
on fair value (projected discounted cash flows) and is charged to operations
in the period in which such impairment is determined by management.
Income Taxes:
The company has been included in the consolidated federal income tax return
of its parent, The Edward J. DeBartolo Corporation ("DeBartolo"). Income taxes
of the company are computed utilizing the separate return
F-89
<PAGE>
THISTLEDOWN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
method. Under this method, the provision for income taxes is generally
determined as if the company filed a separate income tax return. The company
files a separate state income tax return.
Income taxes are provided for amounts currently due and deferred amounts
arising from temporary differences between the financial accounting and income
tax basis of assets and liabilities.
Advertising:
Advertising costs are charged to operations when incurred and are included
in operating expenses. The amounts charged to operations are as follows:
<TABLE>
<S> <C>
Year ended December 31:
1998........................................................... $1,324,955
1997........................................................... 1,475,192
1996........................................................... 1,375,741
Nine months ended September 30 (unaudited):
1999........................................................... 1,111,920
1998........................................................... 1,147,844
</TABLE>
Earnings Per Share:
Basic earnings per share is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
during the period which was 250 shares for all periods presented. The company
does not have any dilutive securities.
Revenue Recognition:
The Company records revenue associated with horse racing on a daily basis.
Horse racing revenues are shown net of state and local taxes, stakes, purses
and awards.
Fair Value of Financial Instruments:
Management has estimated the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the estimated fair values are not
necessarily indicative of the amounts that could be realized in current market
exchanges.
Cash and cash equivalents, restricted cash, accounts receivable, accounts
payable and accrued liabilities--Due to the short period to maturity of these
instruments, the carrying values as presented in the balance sheets are
reasonable estimates of fair value.
Deferred Racetrack Improvement Fund Rebate--It is not practicable to
estimate the fair value of the deferred racetrack improvement fund rebate due
to the uncertainty of the timing of the realization of this instrument.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-90
<PAGE>
THISTLEDOWN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
Interim Financial Statements:
In the opinion of management, the unaudited interim financial statements
reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at
September 30, 1999 and the results of operations and cash flows for the nine
months ended September 30, 1999 and 1998.
New Accounting Standards:
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities". This Statement is effective for the company's first quarter ended
March 31, 2001. SFAS 133 requires that an entity recognize all derivative
instruments either as assets or liabilities and measure those instruments at
fair value. The company has not determined the impact, if any, of this
pronouncement on its financial statements.
NOTE B--Racetrack Improvement Fund Rebate
The State of Ohio has enacted a Capital Improvement--Tax Reduction bill
(Ohio Revised Code 3769.20) to encourage the renovation of existing racing
facilities. During 1999, the State extended the rebate period from December 31,
2004 to December 31, 2014. The rebates are approved by the State based on
expenditures made on major improvements plus interest on the borrowed funds
used for the project. During April 1998, the State approved a $9,801,163 rebate
related to debt service on a 1986 major improvement project.
The tax credit earned is equal to one percent of gross on-track pari-mutuel
handle up to the amount of the approved rebate. As a result of limits on the
amount of rebates earned that can be used to reduce current pari-mutuel taxes,
not all earned rebates are realized currently. Any rebates earned and not
realized currently will be available for offset against future pari-mutuel
taxes until fully realized. The company's policy is to recognize the rebates as
they are earned based on one percent of gross on track pari-mutuel handle.
Following is a summary of (1) the approved rebate which is unearned, (2) the
tax rebate earned and (3) the tax rebate credited to pari-mutuel taxes:
<TABLE>
<CAPTION>
Approved Rebate Rebate Credited
--------------------- Ohio Pari-
Unearned Earned Mutuel Taxes
---------- ---------- ---------------
<S> <C> <C> <C>
Year ended December 31:
1998............................... $8,682,282 $1,413,191 $1,124,647
1997............................... 294,310 1,434,814 1,056,468
1996............................... 1,729,124 1,232,647 1,115,348
Nine months ended September 30
(unaudited):
1999............................... 7,551,298 1,124,985 831,115
1998............................... 9,063,184 1,049,096 862,403
</TABLE>
NOTE C--Percentage Entitlements and Purse Distributions
Ohio State Statutes require the company to distribute as purses an amount
equal to the track's commission less 1.875% of gross pari-mutuel handle times
50% plus 20% of breakage. In addition, the company must pay 45% of breakage to
the Thoroughbred Health and Retirement Fund. Purse overpayments and
underpayments will be adjusted in purse distributions during future race
meetings.
F-91
<PAGE>
THISTLEDOWN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
Purses were underpaid at the end of each period as follows:
<TABLE>
<S> <C>
December 31, 1998............................................. $526,592
========
December 31, 1997............................................. $337,515
========
Purses were overpaid at the end of:
September 30, 1999 (unaudited)................................ $176,317
========
</TABLE>
NOTE D--Income Taxes
Following is a summary of deferred tax liabilities:
<TABLE>
<CAPTION>
December 31,
September 30, ---------------------
1999 1998 1997
------------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Deferred tax liabilities:
Excess tax depreciation and
amortization over financial statement
reporting depreciation and
amortization......................... $ 893,000 $ 984,000 $ 829,000
Racetrack improvement fund rebate
recognized for financial statement
reporting in excess of tax
reporting............................ 369,000 269,000 171,000
---------- ---------- ----------
Total Deferred Tax Liabilities...... $1,262,000 $1,253,000 $1,000,000
========== ========== ==========
</TABLE>
The primary reason for the difference between the expected tax benefit and
the income tax provision is that the company did not receive a benefit for the
company's net operating losses utilized by its parent company in its
consolidated tax return.
NOTE E--Leases
The company uses significant amounts of equipment under operating leases as
part of its daily business operations. This equipment includes totalisator
equipment, satellite uplink equipment, closed circuit color television
equipment, track maintenance equipment and photofinish equipment. The majority
of the equipment is leased on a raceday basis, with minimum rentals as follows:
<TABLE>
<CAPTION>
Minimum Minimum Rental for
Rental per On-Track
Live Raceday Simulcasting Cards
------------ ------------------
<S> <C> <C>
Year ended December 31:
1998...................................... $4,292 $1,296
1997...................................... 4,059 1,406
1996...................................... 3,701 1,110
Nine months ended September 30 (unaudited):
1999...................................... 3,844 1,535
1998...................................... 4,292 1,296
</TABLE>
Following is a summary of future minimum rental payments under operating
leases that have initial or remaining noncancellable terms in excess of one
year as of December 31, 1998:
<TABLE>
<S> <C>
1999........................................................... $ 98,500
2000........................................................... 4,000
--------
Total........................................................ $102,500
========
</TABLE>
F-92
<PAGE>
THISTLEDOWN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
Rent expense charged to operations is summarized below:
<TABLE>
<S> <C>
Year ended December 31:
1998........................................................... $1,765,940
1997........................................................... 1,619,099
1996........................................................... 1,524,921
Nine months ended September 30 (unaudited):
1999........................................................... 1,283,199
1998........................................................... 1,295,697
</TABLE>
NOTE F--Concentration of Credit Risk
Financial instruments which potentially subject the company to
concentrations of credit risk are primarily cash investments and receivables.
The company places its cash investments in investment grade short-term
instruments and limits the amount of credit exposure to any one commercial
issuer. The company maintains significantly all of its bank deposit accounts in
one financial institution in Cleveland, Ohio. These accounts at times exceed
the federally insured limits. The company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
The company grants credit to other racetracks throughout the country. The
company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers.
NOTE G--Controlling Interest and Related Party Transactions
Controlling Interest:
The company is a wholly-owned subsidiary of DeBartolo. See Note I regarding
subsequent event.
Related Party Transactions:
Included in the accompanying financial statements are certain expenses paid
or incurred on behalf of the company by DeBartolo. The company reimburses
DeBartolo for salaries and wages and related expenses and general and
administrative expenses as follows:
<TABLE>
<CAPTION>
Salaries, Wages General and
and Related Administrative
Expenses Expenses Total
--------------- -------------- ----------
<S> <C> <C> <C>
Year ended December 31:
1998........................... $8,508,074 $558,112 $9,066,186
1997........................... 8,156,565 815,126 8,971,691
1996........................... 7,740,070 503,288 8,243,358
Nine months ended September 30
(unaudited):
1999........................... 5,807,765 373,517 6,181,282
1998........................... 6,061,420 703,048 6,764,468
</TABLE>
F-93
<PAGE>
THISTLEDOWN, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
The accompanying balance sheets include notes, advances and related accrued
interest payable to DeBartolo (see Note I) as summarized below:
<TABLE>
<CAPTION>
Long-
Current Portion term Portion
--------------- ------------
<S> <C> <C>
December 31, 1998............................... $ 35,611 $61,221,811
======== ===========
December 31, 1997............................... $850,700 $60,034,612
======== ===========
September 30, 1999 (unaudited).................. $ 2,757 $61,628,370
======== ===========
</TABLE>
The current portion of the amount payable to DeBartolo at September 30, 1999
is to be repaid. The long-term portion of the amount payable to DeBartolo at
September 30, 1999 will be contributed to additional paid-in capital (see Note
I).
DeBartolo charged interest at the applicable federal rate (AFR) on a note
payable related to the financing of certain racetrack improvements. Interest
charged by DeBartolo is summarized as follows:
<TABLE>
<S> <C>
Year ended December 31:
1998............................................................. $575,617
1997............................................................. 740,309
1996............................................................. 544,681
Nine months ended September 30 (unaudited):
1999............................................................. 406,459
1998............................................................. 448,778
</TABLE>
No interest was charged by DeBartolo on net operating advances. Management
fees charged by DeBartolo totalled $50,000 annually.
NOTE H--Investment Savings Retirement Plan
Effective February 1, 1998, the company along with an affiliated company
formed a defined contribution 401(k) pension plan, which covers substantially
all of its employees that are not covered by a collective bargaining agreement
or another retirement plan. Individuals employed as of the effective date of
the plan are eligible to participate in the pension plan. Employees hired after
the effective date of the plan, must meet minimum service and age requirements
in order to participate. The plan provides for discretionary company matching
contributions. No discretionary contributions to the plan were made during 1998
or 1999.
NOTE I--Subsequent Event
On October 21, 1999, DeBartolo entered into a definitive agreement to sell
100% of the outstanding common stock of the company to MI Entertainment Corp.,
a wholly-owned subsidiary of Magna International Inc., for $14,000,000. As part
of the agreement, DeBartolo agreed to contribute $61,628,370 of notes, advances
and related accrued interest to additional paid-in capital. These amounts are
reflected as noncurrent liabilities in the accompanying balance sheets.
F-94
<PAGE>
COMBINED FINANCIAL STATEMENTS
GOLDEN GATE FIELDS (CONSISTING OF
PACIFIC RACING ASSOCIATION'S OPERATIONS
SUBJECT TO THE LICENSING PROVISIONS OF THE
CALIFORNIA HORSE RACING BOARD,
LADBROKE RACING CALIFORNIA, INC.
AND LADBROKE LAND HOLDINGS, INC.
(WHOLLY OWNED SUBSIDIARIES OF
LADBROKE RACING CORPORATION))
Years ended December 31, 1998, 1997 and 1996
F-95
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Pacific Racing Association,
Ladbroke Racing California, Inc. and
Ladbroke Land Holdings, Inc.
We have audited the accompanying combined statement of assets and
liabilities of Pacific Racing Association's operations subject to the licensing
provisions of the California Horse Racing Board ("Pacific Racing Association"),
Ladbroke Racing California, Inc. and Ladbroke Land Holdings, Inc.
(collectively, "Golden Gate Fields" or the "Company") as of December 31, 1998,
and 1997, and the related combined statements of operations, stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 1998. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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.
The accompanying combined financial statements present the financial
position and results of operations of the Golden Gate Fields racetrack facility
and are not intended to include a complete presentation of the financial
position and results of operations of Pacific Racing Association.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined assets and liabilities of Pacific Racing
Association, Ladbroke Racing California, Inc. and Ladbroke Land Holdings, Inc.
at December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998,
in conformity with accounting principles generally accepted in the United
States.
Walnut Creek, California Ernst & Young LLP
October 4, 1999, except paragraph 1 of Note 5, Certified Public Accountants
as to which the date is
October 19, 1999
F-96
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
COMBINED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------
1999 1998 1997
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............ $ 739,839 $ 714,691 $ 1,426,313
Equity in pooled cash and cash
equivalents......................... 45,991,536 41,117,870 34,998,292
Accounts receivable, net of allowance
for doubtful accounts of $20,989 in
1997, $236,687 in 1998 and $160,092
at September 30, 1999............... 822,479 3,100,143 3,661,060
Other current assets................. 127,386 479,827 779,343
------------ ----------- -----------
Total current assets............... 47,681,240 45,412,531 40,865,008
Racetrack properties and equipment,
net................................... 48,532,678 48,429,435 24,070,678
Intangible assets, net................. 2,473,259 3,044,009 14,380,010
------------ ----------- -----------
Total assets....................... $ 98,687,177 $96,885,975 $79,315,696
============ =========== ===========
Liabilities and stockholder's equity
Current liabilities:
Notes payable to affiliate, current
portion............................. $ 2,594,191 $ 1,448,415 $ --
Accounts payable..................... 703,270 4,055,475 4,301,635
Accrued compensation................. 1,265,620 1,743,079 1,772,730
Other accrued liabilities............ 2,216,315 1,213,890 1,440,484
Due to affiliates.................... 20,657,507 17,149,343 4,414,034
------------ ----------- -----------
Total current liabilities.......... 27,436,903 25,610,202 11,928,883
------------ ----------- -----------
Note payable to affiliate.............. 59,591,322 58,183,681 42,722,954
------------ ----------- -----------
Notes payable.......................... -- -- 10,025,915
------------ ----------- -----------
Stockholder's equity:
Common stock, authorized 111,000
shares, issued and outstanding
80,347 shares....................... 1,494,000 1,494,000 1,494,000
Paid-in capital...................... 13,360,000 13,360,000 13,360,000
Accumulated deficit.................. (3,195,048) (1,761,908) (216,056)
------------ ----------- -----------
Total stockholder's equity......... 11,658,952 13,092,092 14,637,944
------------ ----------- -----------
Total liabilities and stockholder's
equity............................ $ 98,687,177 $96,885,975 $79,315,696
============ =========== ===========
</TABLE>
See accompanying notes.
F-97
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine months ended September 30, Years ended December 31,
-------------------------------- -------------------------------------
1999 1998 1998 1997 1996
--------------- --------------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Mutual commission and
breakage............. $ 14,202,234 $ 12,470,873 $17,362,961 $16,555,897 $15,786,982
Admissions............ 982,313 1,026,560 1,347,652 1,717,753 1,923,166
Catering operations... 1,860,094 1,742,275 2,269,092 2,288,534 2,313,021
Parking............... 700,497 707,180 937,434 922,325 954,876
Programs.............. 959,955 905,408 1,227,601 1,272,416 1,269,256
Indirect revenues..... 2,194,208 2,142,788 2,506,497 2,754,653 2,684,698
--------------- --------------- ----------- ----------- -----------
20,899,301 18,995,084 25,651,237 25,511,578 24,931,999
--------------- --------------- ----------- ----------- -----------
Operating expenses:
Salaries, wages,
benefits and other
payroll-related
expenses............. 8,777,260 8,465,979 11,895,359 11,401,172 10,689,267
Rental of facilities
and equipment........ 277,386 501,806 654,927 749,870 1,661,174
Operating and
maintenance
services............. 2,821,788 2,756,420 4,997,209 4,508,930 3,921,650
Depreciation and
amortization......... 1,902,154 3,131,997 3,621,315 3,828,330 3,987,359
Taxes and licenses.... 677,488 615,012 726,613 789,325 707,031
Advertising and public
relations............ 1,371,491 968,036 1,269,124 1,301,954 1,294,999
General and
administrative....... 2,268,537 2,316,127 2,047,403 1,494,073 2,327,842
Charity days expense.. 66,841 64,183 86,976 96,815 98,356
--------------- --------------- ----------- ----------- -----------
18,162,945 18,819,560 25,298,926 24,170,469 24,687,678
--------------- --------------- ----------- ----------- -----------
Income from operations.. 2,736,356 175,524 352,311 1,341,109 244,321
Other income (expense):
Interest income,
principally from
affiliate............ 1,667,796 1,609,183 2,148,526 1,976,792 1,714,396
Interest expense to
affiliate............ (3,501,074) (2,648,491) (3,845,028) (2,516,408) (2,310,728)
--------------- --------------- ----------- ----------- -----------
Income (loss) before
income taxes........... 903,078 (863,784) (1,344,191) 801,493 (352,011)
Provision for federal
and state income
taxes.................. (2,336,218) (88,749) (201,661) (1,888,195) (1,000,490)
--------------- --------------- ----------- ----------- -----------
Net loss................ $ (1,433,140) $ (952,533) $(1,545,852) $(1,086,702) $(1,352,501)
=============== =============== =========== =========== ===========
</TABLE>
See accompanying notes.
F-98
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Retained Total
Common Paid-in Earnings Stockholder's
Stock Capital (Deficit) Equity
---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31,
1995....................... $1,494,000 $13,360,000 $ 2,223,147 $17,077,147
Net loss.................. -- -- (1,352,501) (1,352,501)
---------- ----------- ----------- -----------
Balance at December 31,
1996....................... 1,494,000 13,360,000 870,646 15,724,646
Net loss.................. -- -- (1,086,702) (1,086,702)
---------- ----------- ----------- -----------
Balance at December 31,
1997....................... 1,494,000 13,360,000 (216,056) 14,637,944
Net loss.................. -- -- (1,545,852) (1,545,852)
---------- ----------- ----------- -----------
Balance at December 31,
1998....................... 1,494,000 13,360,000 (1,761,908) 13,092,092
Net loss (unaudited)...... -- -- (1,433,140) (1,433,140)
---------- ----------- ----------- -----------
Balance at September 30,
1999 (unaudited)........... $1,494,000 $13,360,000 $(3,195,048) $11,658,952
========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-99
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
------------------------ -------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss................ $(1,433,140) $ (952,533) $(1,545,852) $(1,086,702) $(1,352,501)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Depreciation........... 1,331,404 1,545,747 1,097,814 952,329 1,111,358
Amortization........... 570,750 1,586,250 2,523,501 2,876,001 2,876,001
Provision for doubtful
accounts.............. -- -- 215,698 13,239 --
Changes in operating
assets and
liabilities:
Accounts receivable.... 2,277,664 2,661,289 345,219 (1,356,568) (1,672,357)
Other current assets... 352,441 175,602 299,516 (355,913) (79,900)
Accrued interest on
notes payable to
affiliate............. 3,405,136 2,648,491 3,363,540 2,502,802 1,882,816
Accounts payable....... (3,352,205) 199,610 (246,160) (1,409,619) 4,333,346
Accrued compensation... (477,459) 424,042 (29,651) 387,530 93,023
Other accrued
liabilities........... 1,002,425 441,023 (226,594) 141,458 283,112
Due to affiliates...... 2,220,046 (2,891,340) 2,709,394 1,608,121 534,269
----------- ----------- ----------- ----------- -----------
Net cash provided by
operating activities... 5,897,062 5,838,181 8,506,425 4,272,678 8,009,167
----------- ----------- ----------- ----------- -----------
Investing activities
Purchase of racetrack
properties and
equipment.............. (998,248) (6,646,593) (16,644,071) (19,582,404) (1,910,089)
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities... (998,248) (6,646,593) (16,644,071) (19,582,404) (1,910,089)
----------- ----------- ----------- ----------- -----------
Financing activities
Borrowings from
affiliates for
racetrack property
purchase............... -- 6,195,469 13,545,602 7,879,398 --
Issuance of note
payable................ -- -- -- 10,025,915 --
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... -- 6,195,469 13,545,602 17,905,313 --
----------- ----------- ----------- ----------- -----------
Increase in cash and
cash equivalents and
equity in pooled cash
and cash equivalents... 4,898,814 5,387,057 5,407,956 2,595,587 6,099,078
Cash and cash
equivalents and equity
in pooled cash and cash
equivalents at
beginning of period.... 41,832,561 36,424,605 36,424,605 33,829,018 27,729,940
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents and equity
in pooled cash and cash
equivalents at end of
period................. $46,731,375 $41,811,662 $41,832,561 $36,424,605 $33,829,018
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-100
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
1. Business and Basis of Presentation
Business
Pacific Racing Association's operations subject to the licensing provisions
of the California Horse Racing Board ("PRA"), Ladbroke Racing California, Inc.
("LRCA") and Ladbroke Land Holdings, Inc. ("LLH") (collectively, "Golden Gate
Fields" or the "Company") wholly owned subsidiaries of Ladbroke Racing
Corporation ("LRC"), are engaged in operating the Golden Gate Fields racetrack
facility for thoroughbred horse racing, the conduct of which is subject to the
licensing provisions of the California Horse Racing Board. PRA operates the
racetrack facility, LRCA leased the racetrack facility from a third party
through October 1998 and LLH purchased the racetrack facility from a third
party effective October 1998.
Basis of Presentation
The accompanying combined financial statements present the financial
position and results of operations of the Golden Gate Fields racetrack facility
and include the accounts of LRCA, LLH and those components of PRA's operations
subject to the licensing provisions of the California Horse Racing Board. The
components of PRA's operations not included in the combined financial
statements are two subsidiaries (Ladbroke Gaming California, Inc. and Golden
Gate Catering Company) as these are not associated with the operations of the
Golden Gate Fields racetrack facility and are not being acquired by MI
Entertainment Corp. (see Note 10). The accompanying financial statements are
not intended to include a complete presentation of the financial position and
results of operations of Pacific Racing Association.
In addition, LRCA is not being acquired by MI Entertainment Corp. although
its results are included in these combined financial statements. Through
October 1998, LRCA leased the Golden Gate Fields racetrack facility from a
third party and then subleased the facility to PRA. This lease was cancelled in
October 1998 when LLH purchased the racetrack facility. In order to more fairly
present the results of operations of the Golden Gate Fields racetrack facility
prior to October 1998, LRCA has been included in these combined financial
statements.
All significant intercompany accounts and transactions between PRA, LRCA and
LLH have been eliminated.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States which conform in all
material respects with accounting principles generally accepted in Canada.
2. Summary of Significant Accounting Policies
Equity in Pooled Cash and Cash Equivalents
The Company participates in a pooled cash and cash equivalents management
system sponsored by its ultimate U.S. parent, Ladstock Holding Corporation.
Monies included in the pool are from the Company, the parent and other U.S.
affiliates. Cash and cash equivalents recorded by the Company are based on the
parent's
F-101
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
tracking of each subsidiary's cash activity. The balance at year end represents
cash and cash equivalents, less outstanding checks.
The Company earns interest income based on its net daily position in the
pool. The Company was allocated interest income of approximately $2.1 million,
$2.0 million and $1.7 million for the years ended December 31, 1998, 1997 and
1996, respectively, and $1.6 million and $1.6 million for the nine months ended
September 30, 1999 and 1998, respectively.
For purposes of financial statement presentation, the Company considers all
highly liquid investment instruments with original maturities of three months
or less to be cash equivalents.
Racetrack Properties and Equipment
Racetrack properties, buildings, improvements and equipment are recorded at
cost and are depreciated using the straight-line method over the estimated
useful lives of the assets, which range from 3 years to 30 years.
Long-Lived Assets Including Intangible Assets
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("FAS 121"), the carrying value of long-lived assets and
related goodwill and other intangibles is reviewed if the facts and
circumstances suggest that they may be impaired. If this review indicates that
the carrying value of these assets will not be recoverable, as determined based
on the undiscounted net cash flows of the entity over the remaining
amortization period, the Company's carrying value is reduced to its estimated
fair value (based on an estimate of discounted future net cash flows).
Income Taxes
The Company files a consolidated federal income tax return with its parent
and other affiliated companies. The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("FAS 109"), which requires the use of the
liability method in accounting for income taxes. Under FAS 109, deferred tax
assets and liabilities are measured based on differences between the financial
reporting and tax bases of assets and liabilities using enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Revenue Recognition
Revenues from mutuel commissions are recognized when earned upon the
completion of each thoroughbred horse race. Revenues from the operations of the
Golden Gate Fields racetrack facility (primarily admissions, catering, and
event programs) are recognized when the service is rendered or the goods are
delivered which generally corresponds to the receipt of cash from the customer.
F-102
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
Advertising
Costs incurred for production and communicating advertising are expensed
when incurred. Costs incurred for promotions for specific live race days are
expensed on the applicable race day.
Concentration of Risk
The Company's accounts receivable balances related primarily to amounts due
from other non-affiliated racetrack facilities throughout the United States for
simulcast and off-track activities. The Company performs ongoing credit
evaluations of its customers and does not require collateral. The Company
maintains reserves for estimated potential credit losses and such losses to
date have not been material.
The Company generates the majority of its revenue from wagering activities
in Northern California and therefore it is subject to the risks inherent in the
ownership and operation of a racetrack. These include, among others, the risks
normally associated with changes in the general economic climate, trends in the
gaming industry, including competition from other gaming institutions and state
lottery commissions and change in tax laws and gaming laws.
Fair Value of Financial Instruments
Management has estimated the fair value of its financial instruments using
available market information and appropriate valuation methodologies.
Considerable judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the estimated fair values are not
necessarily indicative of the amounts that could be realized in current market
exchanges.
The carrying values of cash and cash equivalents, equity in pooled cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities
and due to affiliates approximate fair value due to the short term nature of
the instruments.
The carrying value of the Company's note payable to affiliate approximates
fair value as interest on these notes is variable and based on LRC's borrowing
rate.
Common Stock
The combined common stock consists of the following:
<TABLE>
<CAPTION>
Issued and
Authorized Outstanding
Shares Shares
---------- -----------
<S> <C> <C>
Pacific Racing Association, no par value.............. 100,000 69,347
Ladbroke Racing California, $1 par value.............. 10,000 10,000
Ladbroke Land Holdings, Inc., no par value............ 1,000 1,000
------- ------
111,000 80,347
======= ======
</TABLE>
F-103
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS 133
requires that an entity recognize all derivatives either as assets or
liabilities and measure those instruments at fair market value. Presently, the
Company does not use derivative instruments either in hedging activities or as
investments. Accordingly, the Company believes that adoption of SFAS 133 will
have no impact on its financial position or results of operations.
Interim Financial Information
The interim financial information at September 30, 1999 and for the nine-
month periods ended September 30, 1998 and 1999 is unaudited but, in the
opinion of management, includes all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of the financial position and results of operations for the
interim periods. The results of operations for the nine months ended September
30, 1999 are not necessarily indicative of the results to be expected for the
full fiscal year.
3. Racetrack Properties and Equipment
Racetrack properties and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
September --------------------------
30, 1999 1998 1997
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
Land............................... $ 25,256,936 $ 25,256,936 $ 17,905,313
Buildings.......................... 17,231,479 17,231,479 --
Building improvements.............. 9,890,717 9,018,654 8,460,063
Equipment.......................... 8,639,810 8,077,230 7,762,352
------------ ------------ ------------
61,018,942 59,584,299 34,127,728
Less accumulated depreciation...... (12,486,264) (11,154,864) (10,057,050)
------------ ------------ ------------
$ 48,532,678 $ 48,429,435 $ 24,070,678
============ ============ ============
</TABLE>
LLH was formed in order to purchase and develop income producing properties
in anticipation of swapping such properties (in a Section 1031 like-kind
exchange) for the land and buildings constituting Golden Gate Fields racetrack.
This transaction had been agreed to in the "Option Agreement and Agreement of
Purchase and Sale" ("Option Agreement") entered into on July 25, 1997. The
racetrack property had been
F-104
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
subject to a lease between the third party property owner and LRCA. The Section
1031 exchange ("Exchange") was finalized in October 1998 and the Company
obtained title to the property. The properties were exchanged on the basis of
cost, and no gain or loss was recognized on the transaction. If an agreement to
sell LLH is entered into, LRCA may be contingently liable for a portion of any
excess proceeds received on the sale as defined in the Option Agreement.
In 1997, a note payable was entered into with the former owner of the Golden
Gate Fields racetrack facility in the amount of $10,025,915. The note was
settled in 1998 in conjunction with the exchange transaction described above.
This settlement was financed by affiliates.
4. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
September 30, -------------------------
1999 1998 1997
------------- ----------- ------------
(unaudited)
<S> <C> <C> <C>
Prepaid lease....................... $ -- $ -- $ 29,610,000
Goodwill............................ 7,503,119 7,503,119 7,503,119
Racing rights....................... 3,049,000 3,049,000 3,049,000
Other............................... 101,900 101,900 101,900
----------- ----------- ------------
10,654,019 10,654,019 40,264,019
Less accumulated amortization....... (8,180,760) (7,610,010) (25,884,009)
----------- ----------- ------------
$ 2,473,259 $ 3,044,009 $ 14,380,010
=========== =========== ============
</TABLE>
Prepaid Lease
The prepaid lease is stated at cost and was being amortized on a straight-
line basis over the term of the original lease agreement, which expires in
2002. In connection with the exchange transaction described in Note 3, the
lease agreement between the former owner of the Golden Gate Fields racetrack
and LRCA was terminated and the remaining unamortized balance of the prepaid
lease of $8,812,500 was included in the cost of the racetrack facility
acquired.
Prior to the purchase of the racetrack facility in October 1998, LRCA
incurred rent expense under the lease agreement of $250,000, $347,202 and
$1,293,662 in the years ended December 31, 1998, 1997, and 1996, respectively,
and none and $225,282 in the nine months ended September 30, 1999 and 1998,
respectively.
Goodwill
The amount of the purchase price paid in excess of the net book value of
assets acquired to purchase PRA on January 3, 1989 is classified as goodwill
and is being amortized on a straight-line basis through 2002.
F-105
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
Purchased Racing Rights
Included in intangible assets is a $3,900,000 payment made to acquire
certain racing rights. The acquisition of racing rights allows the Company
additional racing days at Golden Gate Fields. The prepayment is being amortized
on a straight-line basis through 2002, which conforms to the life of the racing
rights purchased.
5. Related-Party Transactions
The Company has loan agreements with an affiliate with outstanding balances
of $59,632,096 and $42,722,954 at December 31, 1998 and 1997, respectively, and
$62,185,513 at September 30, 1999. Amounts borrowed under the agreement bear
interest at the affiliate's internal lending rate (6.8% at December 31, 1998
and 7.0% at December 31, 1997), and interest and principal are payable upon
maturity. Based upon an amendment to the loan agreement dated February 1, 1999
and October 19, 1999, outstanding principal in the amount of $40,327,639
including unpaid interest is due in full on December 31, 2004. At December 31,
1998, the principal outstanding and unpaid interest are due as follows:
<TABLE>
<S> <C>
1999............................................................. $ 1,448,415
2000............................................................. 617,496
2001............................................................. 617,496
2002............................................................. 617,496
2003............................................................. 617,496
Thereafter....................................................... 55,713,697
-----------
$59,632,096
===========
</TABLE>
Interest expense in the years ended December 31, 1998, 1997 and 1996 under
these loan agreements was $3,363,772, $2,502,807 and $2,289,258, respectively,
and in the nine months ended September 30, 1999 and 1998 was $1,870,764 and
$1,939,536, respectively.
The Company also has intercompany payables to affiliates. Such advances bear
interest at internal borrowing rates (6.5% at December 31, 1998 and 7.6% at
December 31, 1997) and are due on demand. Interest expense on such advances was
$481,256, $13,601 and $21,470 for the years ended December 31, 1998, 1997 and
1996, respectively, and $1,630,310 and $708,955 for the nine months ended
September 30, 1999 and 1998, respectively.
LRC allocates corporate overhead expenses to its subsidiaries on a pro rata
basis according to a formula determined by LRC. Corporate overhead expenses of
$1,510,556, $820,455 and $675,236 were allocated by LRC in the years ended
December 31, 1998, 1997 and 1996, respectively, and $988,562 and $988,562 for
the nine months ended September 30, 1999 and 1998, respectively. Such amounts
are included in general and administrative expense in the accompanying
statements of operations.
F-106
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
6. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
------------------ ------------------------------
1999 1998 1998 1997 1996
---------- ------- -------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Currently payable:
Federal.................. $2,336,218 $ -- $ -- $1,227,683 $ 768,061
State.................... -- 88,749 201,661 660,512 232,429
---------- ------- -------- ---------- ----------
2,336,218 88,749 201,661 1,888,195 1,000,490
Deferred................... -- -- -- -- --
---------- ------- -------- ---------- ----------
$2,336,218 $88,749 $201,661 $1,888,195 $1,000,490
========== ======= ======== ========== ==========
</TABLE>
As wholly owned subsidiaries of LRC, PRA, LLH and LRCA do not file separate
federal or state income tax returns. However, under a tax-sharing arrangement
with LRC, PRA, LLH and LRCA record federal tax provisions and resulting
liabilities as if each of these entities was filing a separate return, except
that the tax-sharing arrangement does not allow for income tax benefits to be
recognized when operating losses are incurred except to the extent that such
benefits can be used by the parent. State tax provisions are recorded based
upon an allocation of LRC's state tax provision as determined by LRC.
A reconciliation of the income tax provision (benefit) at the U.S. federal
statutory rate (34%) to the income tax provision at the effective tax rate is
as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
-------------------- --------------------------------
1999 1998 1998 1997 1996
---------- --------- --------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes provision
(benefit) computed at
the U.S. federal
statutory rate......... $ 307,000 $(294,000) $(457,000) $ 272,500 $ (119,700)
State taxes, allocated
by parent.............. -- 88,749 201,661 660,512 232,429
Unutilized net operating
losses................. 2,029,218 294,000 457,000 955,183 887,761
---------- --------- --------- ---------- ----------
Income tax provision.... $2,336,218 $ 88,749 $ 201,661 $1,888,195 $1,000,490
========== ========= ========= ========== ==========
</TABLE>
F-107
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Amortization of prepaid lease.................... $ 872,000 $ 230,000
Depreciation..................................... 787,000 819,000
Capitalized interest............................. 316,000 --
Capitalized asset acquisition costs.............. 111,000 --
Accrued expenses................................. 163,000 175,000
----------- -----------
Total deferred tax assets.......................... 2,249,000 1,224,000
Valuation allowance................................ (2,249,000) (1,224,000)
----------- -----------
Net deferred tax assets............................ $ -- $ --
=========== ===========
</TABLE>
The valuation allowance increased $1,025,000 for the year ended December 31,
1998. Based upon its losses from operations, the Company believes that there is
sufficient uncertainty regarding the realizability of the deferred tax assets,
and accordingly, a full valuation allowance has been recorded. The Company will
continue to assess the realizability of the deferred tax assets based on actual
and forecasted operating results.
7. Pension Plans
Substantially all of PRA's hourly workers are represented by various unions
through collective bargaining agreements that expire from January 1999 through
December 2000.
The Company contributes to several multi-employer defined benefit pension
plans for union employees and to the California Racetrack Pension Plan for
nonunion employees. The total expense under these plans was $889,981, $790,104
and $804,120 in the years ended December 31, 1998, 1997 and 1996, respectively,
and $582,087 and $660,630 for the nine months ended September 30, 1999 and
1998, respectively. Pension expense for the nonunion pension plan includes the
cost of current service and the amortization of past service costs over periods
of 20 to 30 years. Pension costs are funded currently. The weighted-average
assumed rate of return used in determining the actuarial present value of
pension benefits was 7.0% for 1998, 7.0% for 1997 and 7.5% for 1996.
Information about the accumulated plan benefits and plan net assets relative to
the participation of the Company in the various plans has not been separately
determined.
8. Satellite Wagering
On June 30, 1992, an organization, Northern California Off-Track Wagering,
Inc. ("NCOTWINC"), was incorporated as a closed corporation to operate the
Satellite Wagering System. The Company holds 25% of the outstanding shares of
NCOTWINC at a cost of $48,000. NCOTWINC does not generate revenues but rather
receives reimbursement of expenses from its host shareholders for operating
expenses that it incurs on their behalf to conduct satellite wagering.
F-108
<PAGE>
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(All amounts as at September 30, 1999 and for the nine month periods ended
September 30, 1999 and 1998 are unaudited)
The Company recorded as other indirect revenue $312,189, $323,568 and
$345,743 for the years ended December 31, 1998, 1997 and 1996, respectively,
and $334,896 and $258,001 for the nine months ended September 30, 1999 and
1998, respectively, as NCOTWINC's operations generated amounts in excess of the
Company's portion of the operating expenses.
9. Contingencies
In the ordinary course of business, the Company is involved as a plaintiff
or defendant in various legal proceedings. The claims and counterclaims in such
litigation involve amounts that may be material. However, it is the opinion of
the Company's management, based in part upon the advice of its counsel, that
the ultimate disposition of pending litigation will not be material in relation
to the Company's combined financial position.
10. Subsequent Event--Unaudited
On November 5, 1999, Ladbroke Racing Corporation and MI Entertainment Corp.
entered into a Stock Purchase Agreement for the sale of the Golden Gate Fields
racetrack facility (as defined in Note 1) to MI Entertainment Corp. The
purchase price will be approximately $87 million, subject to adjustment based
on the closing balance sheet of the combined operations of PRA and LLH (as
defined).
As disclosed in Note 1, LRCA is not being acquired by MI Entertainment Corp.
The assets and liabilities of LRCA included in these financial statements but
that are not being acquired by MI Entertainment Corp. are $45,534,250 of equity
in pooled cash and cash equivalents, $8,591,500 of net race track properties
and equipment, $34,208 of accounts payable, $2,594,191 and $34,383,886
representing the current and long-term portion of notes payable to affiliate,
and ($3,214,577) representing the amount due to affiliates.
Prior to closing, Ladbroke Racing Corporation agreed to contribute to the
paid-in capital of PRA and LLH $25,207,436 representing the long-term portion
of notes payable to affiliate and $23,872,084 representing the amount due to
affiliates by PRA and LLH. The transaction will be accounted for under the
purchase method of accounting.
F-109
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This is a non-offering amended preliminary prospectus, a copy of which has +
+been filed with the securities commissions or similar regulatory authorities +
+in the Provinces of British Columbia, Alberta, Saskatchewan, Ontario, Nova +
+Scotia, Newfoundland and Quebec, but which has not yet become final. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Alternate Page for Canadian Prospectus
AMENDED PRELIMINARY PROSPECTUS DATED JANUARY 14, 2000
This prospectus does not constitute a public offering of any securities. No
securities commission or similar authority has in any way passed upon any
information contained herein and any representation to the contrary is an
offence.
Non-Offering Prospectus
MI ENTERTAINMENT CORP.
CLASS A SUBORDINATE VOTING STOCK
AND MI VENTURE (CANADA) INC. EXCHANGEABLE SHARES
No securities are being offered pursuant to this Prospectus. This Prospectus
is being filed with certain provincial securities commissions in Canada to
enable each of MI Entertainment Corp. ("MIEC") and MI Venture (Canada) Inc.
("Exchangeco") to become reporting issuers pursuant to applicable securities
legislation in such provinces, notwithstanding that no sale of any securities
is contemplated herein. Since no securities are being offered pursuant to this
Prospectus, no proceeds will be raised and all expenses in connection with the
preparation and filing of this Prospectus will be paid by our parent company,
Magna International Inc. ("Magna") from its general funds.
We are filing this Prospectus to become reporting issuers to prepare for the
distribution of approximately 20% of the equity of MIEC held by Magna in the
form of shares of MIEC Class A Subordinate Voting Stock and Exchangeable Shares
of Exchangeco. On or about . , Magna will distribute to holders of its Class A
Subordinate Voting Shares and Class B Shares of record on . , by way of
special dividend, approximately 15.7 million shares comprised of our Class A
Subordinate Voting Stock and Exchangeable Shares. Magna shareholders resident
in Canada may elect to receive Exchangeable Shares of Exchangeco in
satisfaction of their entitlement to receive shares of Class A Subordinate
Voting Stock of MIEC. Each Exchangeable Share may be exchanged by the holder at
any time for, and is intended to be as nearly as practicable at all times
economically equivalent to, a share of Class A Subordinate Voting Stock of
MIEC. See "Description of the Exchangeable Shares". It is expected that the
Exchangeable Shares will be "qualified investments" under the Income Tax Act
(Canada) for certain investors and will not be "foreign property" under the
Income Tax Act (Canada). Registered holders of Magna shares resident in Canada
will be deemed to have elected to receive Exchangeable Shares in satisfaction
of their entitlement to receive shares of Class A Subordinate Voting Stock of
MIEC unless they specifically advise Magna to the contrary prior to . , 2000
by following the instructions for doing so enclosed with this prospectus. As a
result of the special dividend, Magna shareholders will receive one-fifth of
one share of MIEC Class A Subordinate Voting Stock or one-fifth of one
Exchangeable Share for every one Class A Subordinate Voting Share or Class B
Share of Magna that they hold on the record date, provided that no registered
holder will be entitled to receive any fractional interests in Class A
Subordinate Voting Stock of MIEC or in Exchangeable Shares. Magna will make a
cash payment to such registered holders equal to the fair market value of such
fractional interests. Magna will concurrently distribute to those holders its
regular quarterly cash dividend of $0.25 per share. In this Prospectus, we
refer to the special dividend and the concurrent regular quarterly cash
dividend as the distribution. If you are a holder of record of Magna Class A
Subordinate Voting Shares or Magna Class B Shares on the record date, you will
receive shares of MIEC Class A Subordinate Voting Stock of MIEC held by Magna
automatically on the distribution date. You do not need to take any further
action. If you are the beneficial owner of Magna Class A Subordinate Voting
Shares or Class B Shares, you will automatically become the beneficial owner of
MIEC Class A Subordinate Voting Stock or Exchangeable Shares received by the
record holder of your Magna Class A Subordinate Voting Shares or Class B Shares
on the distribution date, unless you have specifically agreed otherwise with
the record holder. If you are a beneficial holder of Magna shares and are
resident in Canada, you should advise the record holder of your shares prior to
. if you do not wish to be deemed to be electing to receive Exchangeable
Shares in lieu of the shares of Class A Subordinate Voting Stock.
The capital stock of MIEC consists of two classes - Class A Subordinate
Voting Stock and Class B Stock. Holders of the MIEC Class A Subordinate Voting
Stock are entitled to one vote per share, holders of the MIEC Class B Stock are
entitled to 20 votes per share and all holders vote together as a single class,
except where separate class votes are required by law or by the Certificate of
Incorporation of MIEC. Upon completion of the distribution, Magna will own all
the MIEC Class B Stock (and none of the Class A Subordinate Voting Stock of
<PAGE>
Alternate Page for Canadian Prospectus
MIEC), which means that Magna will be entitled to exercise approximately 99%
of the total votes attached to all outstanding MIEC stock. Magna will therefore
continue to be able to elect all directors of MIEC and continue to control
MIEC.
MIEC has applied to The Nasdaq Stock Market, Inc. to approve its Class A
Subordinate Voting Stock for quotation and trading on the Nasdaq National
Market under the symbol " . " and has applied for approval to list its Class A
Subordinate Voting Stock on The Toronto Stock Exchange (the "TSE") under the
symbol " . ". Exchangeco intends to apply for approval to list its Exchangeable
Shares on the TSE. Magna has advised us that it will not complete the
distribution until we receive these approvals.
IN REVIEWING THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE MATTERS
AFFECTING THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF MIEC AND THE
VALUE OF MIEC CLASS A SUBORDINATE VOTING STOCK THAT THIS PROSPECTUS DESCRIBES
IN DETAIL UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE [15].
SHAREHOLDER APPROVAL IS NOT REQUIRED FOR THE DISTRIBUTION OR ANY OF THE
OTHER TRANSACTIONS THAT THIS PROSPECTUS DESCRIBES. WE ARE NOT ASKING YOU FOR A
PROXY AND WE REQUEST THAT YOU NOT SEND ONE TO US.
In this prospectus, the terms "we" and "our" are used to refer to MIEC as
the disclosure contained in this prospectus principally relates to the business
and affairs of MIEC.
2
<PAGE>
Alternate Page for Canadian Prospectus
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Heading Page No.
- ------- --------
<S> <C>
Special Note Regarding Forward-Looking Information................... 3
Questions and Answers About the Distribution......................... 4
Summary.............................................................. 9
Risk Factors......................................................... 17
Distributing Company................................................. 24
The Special Dividend................................................. 24
Our Business......................................................... 27
Our Strategy......................................................... 34
Industry Overview.................................................... 36
Selected Financial and Operating Information......................... 40
Management's Discussion and Analysis of Financial Condition and
Operating Results................................................... 42
Quantitative and Qualitative Disclosures About Market Risk........... 52
Consolidated Capitalization.......................................... 53
Reorganization....................................................... 54
Recent Acquisitions.................................................. 57
Certain Income Tax Considerations.................................... 58
Directors and Executive Officers..................................... 66
Security Ownership of Certain Beneficial Owners and Management....... 69
Certain Relationships and Related Transactions....................... 70
Legal Proceedings.................................................... 71
Trading History and Dividend Record and Policy....................... 72
Description of Our Securities........................................ 72
Description of Exchangeable Shares................................... 75
Legal Matters........................................................ 81
Auditors, Transfer Agent and Registrar............................... 82
Promoter............................................................. 82
Financial Statements................................................. F-1
Certificates......................................................... C-1
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included herein constitute "forward-looking statements"
within the meaning of the United States Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on certain assumptions
and analyses made by us in light of our experience and our perception of
historical trends, current conditions and expected future developments as well
as other factors we believe are appropriate in the circumstances. However,
whether actual results and developments will conform with our expectations and
predictions is subject to a number of risks and uncertainties, including but
not limited to those described below under "Risk Factors". Consequently, all
the forward-looking statements made in this prospectus are fully qualified by
this special note, and there can be no assurance that the actual results or
developments anticipated by us will be realized, or even if realized, that they
will have the expected consequences to, or effects on, us. See "Risk Factors"
below.
3
<PAGE>
Alternate Page for Canadian Prospectus
Class A Subordinate Voting Stock, nor shall we change the shares of our Class A
Subordinate Voting Stock, unless the same or an economically equivalent
distribution on or change to the Exchangeable Shares (or in the rights of the
holders thereof) is made simultaneously. The Exchangeco Board of Directors is
conclusively empowered to determine in good faith and in its sole discretion
whether any corresponding distribution on or change to the Exchangeable Shares
is the same as or economically equivalent to any proposed distribution on or
change to the shares of our Class A Subordinate Voting Stock. In the event of
any proposed tender offer, share exchange offer, issuer bid, take-over bid or
similar transaction with respect to the shares of our Class A Subordinate
Voting Stock which is recommended by our Board of Directors and in connection
with which the Exchangeable Shares are not redeemed by Exchangeco or purchased
by us pursuant to the redemption call right, we will use reasonable efforts to
take all actions necessary or desirable to enable holders of Exchangeable
Shares to participate in such transaction to the same extent and on an
economically equivalent basis as the holders of shares of our Class A
Subordinate Voting Stock.
In order to assist us to comply with our obligations under the Exchangeable
Share Support Agreement and to permit us to exercise the call rights,
Exchangeco is required to notify us of the occurrence of certain events, such
as the liquidation, dissolution or winding-up of Exchangeco, and Exchangeco's
receipt of a retraction request from a holder of Exchangeable Shares.
Under the Exchangeable Share Support Agreement, we have agreed not to
exercise any voting rights attached to the Exchangeable Shares owned by us or
any of our subsidiaries on any matter considered at meetings of holders of
Exchangeable Shares. We have also agreed to use our reasonable efforts to
enable Exchangeco to maintain a listing for the Exchangeable Shares on a
Canadian stock exchange.
With the exception of administrative changes for the purpose of adding
covenants of any or all parties, making certain necessary amendments or curing
ambiguities or clerical errors (in each case provided that our Board of
Directors and the Board of Directors of Exchangeco are of the opinion that such
amendments are not prejudicial to the interests of the holders of the
Exchangeable Shares), the Exchangeable Share Support Agreement may not be
amended without the approval of the holders of the Exchangeable Shares given in
the manner set forth above under "Description of Exchangeable Shares--Amendment
and Approval".
LEGAL MATTERS
Certain legal matters in connection with the distribution of shares of our
Class A Subordinate Voting Stock will be passed upon by Sidley & Austin, our
United States counsel. Certain legal matters in connection with the
distribution of the Exchangeable Shares will be passed upon by Osler, Hoskin &
Harcourt LLP, our Canadian counsel.
81
<PAGE>
Alternate Page for Canadian Prospectus
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
MI ENTERTAINMENT CORP.
For the nine month period ended September 30, 1999 and
the year ended December 31, 1998
F-2
<PAGE>
Alternate Page for Canadian Prospectus
COMPILATION REPORT
To the Directors of
MI Entertainment Corp.
We have reviewed, as to compilation only, the accompanying pro forma
consolidated balance sheet of MI Entertainment Corp. as at September 30, 1999
and the pro forma consolidated statements of income (loss) and comprehensive
income (loss) for the nine months ended September 30, 1999 and for the year
ended December 31, 1998, in accordance with the standards of The Canadian
Institute of Chartered Accountants.
These pro forma consolidated statements have been prepared for inclusion in
the Prospectus relating to the Class A Subordinate Voting Stock of the Company.
In our opinion, the unaudited pro forma consolidated balance sheet and the
unaudited pro forma consolidated statements of income (loss) and comprehensive
income (loss) have been properly compiled to give effect to the proposed
transactions and assumptions described in the notes thereto.
Los Angeles, California Certified Public Accountants
January 14, 2000
F-3
<PAGE>
Alternate Page for Canadian Prospectus
MI ENTERTAINMENT CORP.
PRO FORMA CONSOLIDATED BALANCE SHEET
as at September 30, 1999
[Unaudited]
[U.S. dollars in thousands]
<TABLE>
<CAPTION>
MI Remington Thistledown
Entertainment Remington Adjustments Thistledown Adjustments
Corp. (Note 2(c)(ii)) (Note 2(c)(iii)) (Note 2(d)(ii)) (Note 2(d)(iii))
------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ 23,544 $ 3,171 $(10,250) $ 4,624 $ (9,750)
Accounts
receivable..... 5,926 707 2,296
Inventories.... 527 160 164
Prepaid
expenses and
other.......... 3,028 222 208
Note receivable
from Magna..... 146,862
-------- -------- -------- -------- --------
179,887 4,260 (10,250) 7,292 (9,750)
Real estate
properties and
fixed assets,
net............. 451,329 8,757 9,691
Other assets,
net............. 62,239 1,323 1,832 1,134 4,143
Deferred income
taxes...........
-------- -------- -------- -------- --------
693,455 14,340 (8,418) 18,117 (5,607)
======== ======== ======== ======== ========
<CAPTION>
Golden Other Pro Forma
Golden Gate Pro Forma Consolidated
Gate Adjustments Adjustments Balance
(Note 2(e)(ii)) (Note 2(e)(iii)) (Notes 2(f) thru (i)) Sheet
--------------- ---------------- --------------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $46,731 $(106,534) $111,622 $ 63,158
Accounts
receivable..... 823 9,752
Inventories.... 851
Prepaid
expenses and
other.......... 127 3,585
Note receivable
from Magna..... (146,862)
--------------- ---------------- --------------------- ------------
47,681 (106,534) (35,240) 77,346
Real estate
properties and
fixed assets,
net............. 48,533 36,328 554,638
Other assets,
net............. 2,473 28,547 101,691
Deferred income
taxes........... 3,041 3,041
--------------- ---------------- --------------------- ------------
98,687 (41,659) (32,199) 736,716
=============== ================ ===================== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
liabilities:
Bank
indebtedness... $ 7,774 $ $ $ $
Accounts
payable........ 4,373 1,886 3,579
Accrued
salaries and
wages.......... 1,474
Refundable
deposits....... 2,092
Other accrued
liabilities.... 8,957 3,499 1,500
Income taxes
payable........ 4,878
Long-term debt
due within one
year........... 10,157
Deferred
revenue........ 4,699 518 12
Note payable to
Magna.......... 35,240
-------- -------- -------- -------- --------
79,644 5,903 5,091
-------- -------- -------- -------- --------
Long-term debt.. 12,162 61,629 (61,629)
-------- -------- -------- -------- --------
Other long-term
liabilities..... 1,317 19
-------- -------- -------- -------- --------
Deferred income
taxes........... 54,444 1,262 1,657
-------- -------- -------- -------- --------
Magna's net
investment...... 545,888
Share capital... 48,149 (48,149) 100 4,400
Deficit......... (39,731) 39,731 (49,965) 49,965
-------- -------- -------- -------- --------
545,888 8,418 (8,418) (49,865) 54,365
-------- -------- -------- -------- --------
693,455 14,340 (8,418) 18,117 (5,607)
======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
liabilities:
Bank
indebtedness... $ $ $ $ 7,774
Accounts
payable........ 21,361 (20,692) 10,507
Accrued
salaries and
wages.......... 1,474
Refundable
deposits....... 2,092
Other accrued
liabilities.... 3,482 17,438
Income taxes
payable........ 4,878
Long-term debt
due within one
year........... 2,594 (2,594) 10,157
Deferred
revenue........ 5,229
Note payable to
Magna.......... (35,240)
--------------- ---------------- --------------------- ------------
27,437 (23,286) (35,240) 59,549
--------------- ---------------- --------------------- ------------
Long-term debt.. 59,591 (42,261) 29,492
--------------- ---------------- --------------------- ------------
Other long-term
liabilities..... 1,336
--------------- ---------------- --------------------- ------------
Deferred income
taxes........... 28,547 6,859 92,769
--------------- ---------------- --------------------- ------------
Magna's net
investment...... (545,888)
Share capital... 14,854 (7,854) 542,070 553,570
Deficit......... (3,195) 3,195
--------------- ---------------- --------------------- ------------
11,659 (4,659) (3,818) 553,570
--------------- ---------------- --------------------- ------------
98,687 (41,659) (32,199) 736,716
=============== ================ ===================== ============
</TABLE>
On behalf of the Board:
(Signed) Vincent Galifi, Director
(Signed) James Nicol, Director
See accompanying notes
F-6
<PAGE>
Alternate Page for Canadian Prospectus
REPORT OF INDEPENDENT AUDITORS
To the Shareholder and Directors of
MI Entertainment Corp.
We have audited the accompanying consolidated balance sheets of MI
Entertainment Corp. as of December 31, 1998, July 31, 1998 and 1997, and the
related consolidated statements of income (loss) and comprehensive income
(loss), changes in Magna's net investment and cash flows for the five-month
period ended December 31, 1998 and for each of the years in the three-year
period ended July 31, 1998. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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 consolidated financial position of MI
Entertainment Corp. at December 31, 1998, July 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for the five-month
period ended December 31, 1998 and for each of the years in the three-year
period ended July 31, 1998 in conformity with accounting principles generally
accepted in the United States.
Los Angeles, California
November 8, 1999 Certified Public Accountants
[Except as to Note 16, which is as of January 14, 2000]
F-13
<PAGE>
Alternate Page for Canadian Prospectus
MI ENTERTAINMENT CORP.
CONSOLIDATED BALANCE SHEETS
Incorporated under the laws of the State of Delaware
[U.S. dollars in thousands]
<TABLE>
<CAPTION>
July 31,
September 30, December 31, -----------------
Note 1999 1998 1998 1997
---- ------------- ------------ -------- --------
[unaudited]
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.. $ 23,544 $ 17,503 $ 295 $ 220
Accounts receivable........ 5,926 8,979 1,088 788
Inventories................ 527 1,050 461 438
Prepaid expenses and
other..................... 3,028 1,522 69 70
Note receivable from
Magna..................... 11 146,862
-------- -------- -------- --------
179,887 29,054 1,913 1,516
-------- -------- -------- --------
Real estate properties, net.. 3 441,797 326,690 181,003 109,500
-------- -------- -------- --------
Fixed assets, net............ 4 9,532 8,221 1,886 2,159
-------- -------- -------- --------
Other assets, net............ 5 62,239 -- -- --
-------- -------- -------- --------
Deferred income taxes........ 6 -- 177 -- --
-------- -------- -------- --------
693,455 364,142 184,802 113,175
======== ======== ======== ========
LIABILITIES AND MAGNA'S NET
INVESTMENT
Current liabilities:
Bank indebtedness.......... 7,774 11,889 165 4,277
Accounts payable........... 4,373 15,409 2,700 1,823
Accrued salaries and
wages..................... 1,474 518 410 334
Refundable deposits........ 2,092 2,008 1,695 989
Other accrued liabilities.. 8,957 6,955 2,067 1,718
Income taxes payable....... 6 4,878 -- -- --
Long-term debt due within
one year.................. 7 10,157 3,655 3,446 3,052
Deferred revenue........... 4,699 3,098 160 1,456
Note payable to Magna...... 11 35,240 -- -- --
-------- -------- -------- --------
79,644 43,532 10,643 13,649
-------- -------- -------- --------
Long-term debt............... 7 12,162 16,791 15,884 11,609
-------- -------- -------- --------
Other long-term liabilities.. 13 1,317 1,317 -- --
-------- -------- -------- --------
Deferred income taxes........ 6 54,444 -- -- --
-------- -------- -------- --------
Magna's net investment....... 545,888 302,502 158,275 87,917
-------- -------- -------- --------
$693,455 $364,142 $184,802 $113,175
======== ======== ======== ========
</TABLE>
- --------
Commitments and contingencies [notes 7, 11 and 12]
On behalf of the Board:
(Signed) Vincent Galifi (Signed) James Nicol
Director Director
See accompanying notes
F-20
<PAGE>
Alternate Page for Canadian Prospectus
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of Directors
Los Angeles Turf Club, Inc.
We have audited the accompanying balance sheets of the Los Angeles Turf
Club, Inc. (the Company) as of December 10, 1998 and December 31, 1997, and the
related statements of operations, shareholder's equity (deficit) and cash flows
for the periods from January 1, 1998 through December 10, 1998, November 6,
1997 through December 31, 1997, January 1, 1997 through November 5, 1997, and
for the year ended December 31, 1996. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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 at December 10,
1998 and December 31, 1997 and the results of its operations and its cash flows
for the periods from January 1, 1998 through December 10, 1998, November 6,
1997 through December 31, 1997, January 1, 1997 through November 5, 1997, and
for the year ended December 31, 1996, in conformity with accounting principles
generally accepted in the United States.
Los Angeles, California
June 11, 1999 Certified Public Accountants
F-44
<PAGE>
Alternate Page for Canadian Prospectus
LOS ANGELES TURF CLUB, INC.
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 10, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 221 $ 15,632
Accounts receivable, net of allowance of $238 at
December 10, 1998, and $367 at December 31, 1997.. 2,204 2,417
Prepaid expenses and other assets.................. 1,221 1,393
-------- --------
Total current assets............................. 3,646 19,442
-------- --------
Equipment............................................ 11,928 10,805
Accumulated depreciation............................. (1,424) (224)
-------- --------
10,504 10,581
-------- --------
Other assets......................................... 1,699 1,699
-------- --------
Total assets..................................... $ 15,849 $ 31,722
======== ========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable................................... $ 1,730 $ 10,736
Accrued deferred compensation cost................. 3,850 3,977
Accrued benefit plan cost.......................... 1,304 1,304
Other liabilities.................................. 6,201 10,033
Borrowing under line of credit..................... 2,500 --
Due to affiliates.................................. 20,719 23,718
-------- --------
Total current liabilities........................ 36,304 49,768
Deferred revenue..................................... 1,812 1,349
Deferred income taxes................................ 2,265 2,265
-------- --------
Total liabilities................................ 40,381 53,382
-------- --------
Shareholder's deficit:
Common stock, $1,000 par value; 25 shares
authorized, issued and outstanding................ 25 25
Additional paid-in capital......................... 8,314 6,960
Receivable from parent............................. (15,868) (13,355)
Retained earnings (deficit)........................ (17,003) (15,290)
-------- --------
Total shareholder's deficit...................... (24,532) (21,660)
-------- --------
Total liabilities and shareholder's deficit...... $ 15,849 $ 31,722
======== ========
</TABLE>
On behalf of the Board:
(Signed) Frank Stronach (Signed) Lonny Powell
Director Director
See accompanying notes.
F-45
<PAGE>
Alternate Page for Canadian Prospectus
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Gulfstream Park Racing Association, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Gulfstream
Park Racing Association, Inc. and Subsidiary (the "Company") as of December 31,
1998 and 1997, and the related consolidated statements of income, stockholders'
deficit and cash flows for each of the years in the three-year period ended
December 31, 1998. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Gulfstream
Park Racing Association, Inc. and Subsidiary at December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States.
Miami, Florida
March 10, 1999, except for Note 9 as to Certified Public
which the date is September 1, 1999 Accountants
F-59
<PAGE>
Alternate Page for Canadian Prospectus
GULFSTREAM PARK RACING ASSOCIATION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 7,832,459 $ 2,375,511 $ 605,194
Restricted cash and cash
equivalents........................ 163,884 292,721 592,285
Accounts receivable, less allowance
for doubtful accounts of $101,012
at August 31, 1999 and $0 and
$191,012 at December 31, 1998 and
1997, respectively................. 156,441 121,445 128,135
Note receivable..................... 93,250 93,250 --
Prepaid expenses.................... 911,364 451,144 767,285
------------ ------------ ------------
Total current assets................ 9,157,398 3,334,071 2,092,899
------------ ------------ ------------
Property, plant and equipment:
Land and improvements............... 9,401,638 9,401,638 9,012,699
Buildings and improvements.......... 24,214,826 23,323,001 22,485,253
Furniture, fixtures and equipment... 5,070,935 5,089,592 4,138,418
------------ ------------ ------------
38,687,399 37,814,231 35,636,370
Less accumulated depreciation....... 25,842,336 24,575,672 22,787,284
------------ ------------ ------------
Net property, plant and equipment... 12,845,063 13,238,559 12,849,086
------------ ------------ ------------
Other assets:
Investments, at cost................ 2,500 2,500 2,500
Deposits............................ 12,450 12,450 12,480
Deferred financing costs, net of
accumulated amortization of
$321,124 at August 31, 1999 and
$295,948 and $231,614 at December
31, 1998 and 1997, respectively.... 546 25,722 90,056
------------ ------------ ------------
Total other assets.................. 15,496 40,672 105,036
------------ ------------ ------------
Total assets........................ $ 22,017,957 $ 16,613,302 $ 15,047,021
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable:
Trade............................... $ 751,477 $ 1,869,022 $ 1,079,003
Unearned income..................... 1,844,036 512,187 428,458
Mutuel tickets outstanding.......... 48,833 32,798 23,891
Accrued liabilities:
Interest............................ -- 127,092 --
Underpaid purses.................... 163,884 292,721 592,285
Other accrued expenses.............. 824,146 381,107 507,511
Income taxes payable................ 1,506,420 399,454 --
Notes payable....................... 6,800,000 500,000 --
------------ ------------ ------------
Total current liabilities............ 11,938,796 4,114,381 2,631,148
Deferred income tax.................. 694,270 586,809 731,159
Term note payable.................... -- 6,800,000 7,800,000
Long-term debt....................... 48,000,000 48,000,000 48,000,000
------------ ------------ ------------
Total Liabilities.................... 60,633,066 59,501,190 59,162,307
------------ ------------ ------------
Commitments and contingencies (Note
5)
Stockholders' deficit:
Common stock, $1 par value,
authorized and issued 13,040
shares; outstanding 11,232 shares.. 13,040 13,040 13,040
Additional paid-in capital.......... 22,991,259 22,991,259 22,991,259
Accumulated deficit................. (59,853,908) (64,126,687) (65,354,085)
------------ ------------ ------------
(36,849,609) (41,122,388) (42,349,786)
Less:
Treasury stock, 1,808 common shares
at cost............................ (1,765,500) (1,765,500) (1,765,500)
------------ ------------ ------------
Total stockholders' deficit.......... (38,615,109) (42,887,888) (44,115,286)
------------ ------------ ------------
Total liabilities and stockholders'
deficit............................. $ 22,017,957 $ 16,613,302 $ 15,047,021
============ ============ ============
</TABLE>
On behalf of the Board:
(Signed) Vincent Galifi (Signed) James Nicol
Director Director
The accompanying notes are an integral part of these financial statements
F-60
<PAGE>
Alternate Page for Canadian Prospectus
INDEPENDENT AUDITORS' REPORT
Board of Directors
Remington Park, Inc.
We have audited the accompanying balance sheets of Remington Park, Inc. (the
"Company") as of December 31, 1998 and 1997 and the related statements of
operations and accumulated deficit, stockholder's equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 1998.
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 auditing standards generally
accepted in the United States. 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 Remington Park, Inc. as of
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
Youngstown, Ohio
February 19, 1999 Certified Public Accountants
(except Note K for
which the date is
October 21, 1999)
F-71
<PAGE>
Alternate Page for Canadian Prospectus
REMINGTON PARK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1999 1998 1997
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents--NOTE F.. $ 750,319 $ 697,037 $ 501,209
Restricted cash.................... 2,420,961 446,664 400,609
Trade accounts receivable, less
allowance for doubtful accounts of
$27,246 at September 30, 1999,
$26,433 at December 31, 1998 and
$0 at December 31, 1997........... 706,785 306,743 890,243
Inventories........................ 160,075 162,833 202,791
Prepaid expenses and other assets.. 222,212 180,268 270,056
------------ ------------ ------------
Total Current Assets............. 4,260,352 1,793,545 2,264,908
------------ ------------ ------------
PROPERTY AND EQUIPMENT--NOTES B AND I
Land improvements.................. 4,042,534 3,989,282 4,527,282
Buildings and structures........... 29,825,932 30,135,806 32,047,806
Machinery and equipment............ 7,996,937 7,953,549 7,921,772
Furniture and fixtures............. 1,654,963 1,649,747 1,638,081
------------ ------------ ------------
43,520,366 43,728,384 46,134,941
Less accumulated depreciation...... 34,763,202 34,621,473 32,078,706
------------ ------------ ------------
Net Property and Equipment....... 8,757,164 9,106,911 14,056,235
------------ ------------ ------------
OTHER ASSETS
Land lease and other costs less
amortization--NOTES E AND I....... 1,322,601 1,392,987 1,943,765
------------ ------------ ------------
$ 14,340,117 $ 12,293,443 $ 18,264,908
============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES
Accounts payable................... $ 1,886,155 $ 1,374,870 $ 2,851,255
Unredeemed pari-mutuel tickets..... 249,321 445,909 465,585
Advances payable to The Edward J.
DeBartolo Corporation--NOTE G..... 156,674 453,771 5,934,012
Accrued liabilities................ 1,176,728 926,162 782,715
Percentage entitlements in excess
of purses paid--NOTE C............ 1,916,210 292,293 700,911
Deferred revenue................... 517,925 6,972 90,974
------------ ------------ ------------
Total Current Liabilities........ 5,903,013 3,499,977 10,825,452
------------ ------------ ------------
OTHER LIABILITIES
Long-term debt less principal due
within one year--NOTE B........... -- -- 30,000,000
Other.............................. 18,711 -- --
------------ ------------ ------------
Total Other Liabilities.......... 18,711 -- 30,000,000
------------ ------------ ------------
STOCKHOLDER'S EQUITY (DEFICIT)--NOTE
G
Common stock--$1.00 par value per
share:
Authorized 10,000 shares; issued
and outstanding 500 shares....... 500 500 500
Additional paid-in capital........ 48,148,592 47,991,918 7,409,500
Accumulated deficit............... (39,730,699) (39,198,952) (29,970,544)
------------ ------------ ------------
Total Stockholder's Equity
(Deficit)....................... 8,418,393 8,793,466 (22,560,544)
------------ ------------ ------------
$ 14,340,117 $ 12,293,443 $ 18,264,908
============ ============ ============
</TABLE>
On behalf of the Board:
(Signed) Vincent Galifi (Signed) James Nicol
Director Director
See accompanying notes to financial statements
F-72
<PAGE>
Alternate Page for Canadian Prospectus
INDEPENDENT AUDITORS' REPORT
Board of Directors
Thistledown, Inc.
We have audited the accompanying balance sheets of Thistledown, Inc. as of
December 31, 1998 and 1997 and the related statements of operations and
accumulated deficit, stockholder's deficit and cash flows for each of the years
in the three year period ended December 31, 1998. 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 auditing standards generally
accepted in the United States. 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 Thistledown, Inc. as of
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1998 in
conformity with accounting principles generally accepted in the United States.
Youngstown, Ohio
October 12, 1999 (except Note I for Certified Public Accountants
which the date is October 21, 1999)
F-84
<PAGE>
Alternate Page for Canadian Prospectus
THISTLEDOWN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1999 1998 1997
------------- ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............ $ 2,366,651 $ 1,779,565 $ 895,292
Restricted cash...................... 2,256,828 1,562,770 1,581,885
Trade accounts receivable (less
allowance for doubtful accounts of
$89,624 at September 30, 1999,
$89,830 at December 31, 1998 and
$56,599 at December 31, 1997)....... 2,296,486 2,027,847 1,665,173
Inventories.......................... 163,576 143,103 155,923
Purses paid in excess of percentage
entitlements--NOTE C................ 176,317 -- --
Prepaid expenses and other assets.... 32,295 176,061 50,123
----------- ----------- -----------
Total Current Assets................. 7,292,153 5,689,346 4,348,396
----------- ----------- -----------
Property And Equipment
Land................................. 1,002,700 1,002,700 1,002,700
Land improvements.................... 1,010,522 1,010,522 1,010,522
Parking lot improvements............. 198,007 198,007 198,007
Buildings and structures............. 39,600,666 39,591,161 39,576,955
Furniture and equipment.............. 2,319,321 2,209,950 2,104,442
----------- ----------- -----------
44,131,216 44,012,340 43,892,626
Less accumulated depreciation........ 34,439,953 33,359,365 31,893,794
----------- ----------- -----------
Net Property and Equipment........... 9,691,263 10,652,975 11,998,832
----------- ----------- -----------
Other Assets
Deferred racetrack improvement fund
rebate--NOTE B...................... 1,085,964 792,131 503,587
Deposits............................. 47,398 33,944 31,222
----------- ----------- -----------
Total other assets................... 1,133,362 826,075 534,809
----------- ----------- -----------
$18,116,778 $17,168,396 $16,882,037
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities
Accounts payable..................... $ 3,579,044 $ 2,785,348 $ 2,737,170
Unredeemed pari-mutuel tickets....... 683,528 639,306 651,091
Due to The Edward J. DeBartolo
Corporation......................... 2,757 35,611 850,700
Accrued liabilities.................. 814,042 593,868 600,925
Percentage entitlements in excess of
purses paid--NOTE C................. -- 526,592 337,515
Deferred revenue..................... 11,872 1,684 6,822
----------- ----------- -----------
Total Current Liabilities............ 5,091,243 4,582,409 5,184,223
----------- ----------- -----------
Due to The Edward J. DeBartolo
Corporation--NOTES G and I........... 61,628,370 61,221,811 60,034,612
----------- ----------- -----------
Deferred Income Taxes--NOTE D......... 1,262,000 1,253,000 1,000,000
----------- ----------- -----------
Stockholder's Deficit--Notes G And I
Common stock--no par value per share:
Authorized 500 shares; issued and
outstanding 250 shares.............. 500 500 500
Additional paid-in capital........... 100,000 100,000 100,000
Accumulated deficit.................. (49,965,335) (49,989,324) (49,437,298)
----------- ----------- -----------
Total Stockholder's Deficit.......... (49,864,835) (49,888,824) (49,336,798)
----------- ----------- -----------
$18,116,778 $17,168,396 $16,882,037
=========== =========== ===========
</TABLE>
On behalf of the Board:
(Signed) Vincent Galifi (Signed) James Nicol
Director Director
See accompanying notes to financial statements
F-85
<PAGE>
Alternate Page for Canadian Prospectus
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Pacific Racing Association,
Ladbroke Racing California, Inc. and
Ladbroke Land Holdings, Inc.
We have audited the accompanying combined statement of assets and
liabilities of Pacific Racing Association's operations subject to the licensing
provisions of the California Horse Racing Board ("Pacific Racing Association"),
Ladbroke Racing California, Inc. and Ladbroke Land Holdings, Inc.
(collectively, "Golden Gate Fields" or the "Company") as of December 31, 1998,
and 1997, and the related combined statements of operations, stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 1998. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit 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.
The accompanying combined financial statements present the financial
position and results of operations of the Golden Gate Fields racetrack facility
and are not intended to include a complete presentation of the financial
position and results of operations of Pacific Racing Association.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined assets and liabilities of Pacific Racing
Association, Ladbroke Racing California, Inc. and Ladbroke Land Holdings, Inc.
at December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998,
in conformity with accounting principles generally accepted in the United
States.
Walnut Creek, California
October 4, 1999, except paragraph 1 of Note 5, Certified Public Accountants
as to which the date is
October 19, 1999
F-96
<PAGE>
Alternate Page for Canadian Prospectus
Golden Gate Fields consisting of
Pacific Racing Association's operations subject to the
licensing provisions of the California Horse Racing Board
Ladbroke Racing California, Inc.
and Ladbroke Land Holdings, Inc.
(wholly owned subsidiaries of Ladbroke Racing Corporation)
COMBINED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31,
September 30, ------------------------
1999 1998 1997
------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............ $ 739,839 $ 714,691 $ 1,426,313
Equity in pooled cash and cash
equivalents......................... 45,991,536 41,117,870 34,998,292
Accounts receivable, net of allowance
for doubtful accounts of $20,989 in
1997, $236,687 in 1998 and $160,092
at September 30, 1999............... 822,479 3,100,143 3,661,060
Other current assets................. 127,386 479,827 779,343
------------ ----------- -----------
Total current assets............... 47,681,240 45,412,531 40,865,008
Racetrack properties and equipment,
net................................... 48,532,678 48,429,435 24,070,678
Intangible assets, net................. 2,473,259 3,044,009 14,380,010
------------ ----------- -----------
Total assets....................... $ 98,687,177 $96,885,975 $79,315,696
============ =========== ===========
Liabilities and stockholder's equity
Current liabilities:
Notes payable to affiliate, current
portion............................. $ 2,594,191 $ 1,448,415 $ --
Accounts payable..................... 703,270 4,055,475 4,301,635
Accrued compensation................. 1,265,620 1,743,079 1,772,730
Other accrued liabilities............ 2,216,315 1,213,890 1,440,484
Due to affiliates.................... 20,657,507 17,149,343 4,414,034
------------ ----------- -----------
Total current liabilities.......... 27,436,903 25,610,202 11,928,883
------------ ----------- -----------
Note payable to affiliate.............. 59,591,322 58,183,681 42,722,954
------------ ----------- -----------
Notes payable.......................... -- -- 10,025,915
------------ ----------- -----------
Stockholder's equity:
Common stock, authorized 111,000
shares, issued and outstanding
80,347 shares....................... 1,494,000 1,494,000 1,494,000
Paid-in capital...................... 13,360,000 13,360,000 13,360,000
Accumulated deficit.................. (3,195,048) (1,761,908) (216,056)
------------ ----------- -----------
Total stockholder's equity......... 11,658,952 13,092,092 14,637,944
------------ ----------- -----------
Total liabilities and stockholder's
equity............................ $ 98,687,177 $96,885,975 $79,315,696
============ =========== ===========
</TABLE>
On behalf of the Board:
(Signed) Vincent Galifi (Signed) James Nicol
Director Director
See accompanying notes.
F-97
<PAGE>
Alternate Page for Canadian Prospectus
CERTIFICATE OF THE COMPANY AND OF THE PROMOTER
Dated: January 14, 2000
The foregoing constitutes full, true and plain disclosure of all material
facts relating to the securities previously issued by the issuer, as required
by the Securities Act (British Columbia), by Part 8 of the Securities Act
(Alberta), by Part XI of The Securities Act, 1988 (Saskatchewan), by Part XV of
the Securities Act (Ontario), by the Securities Act (Nova Scotia), and by Part
XIV of the Securities Act (Newfoundland) and the respective regulations
thereunder. This prospectus, as required by the Securities Act (Quebec) and the
regulations thereunder, does not contain any misrepresentation likely to affect
the value or market price of the securities already issued.
(Signed) Frank Stronach (Signed) Graham Orr
Chairman and Chief Executive Officer Executive Vice-President and Chief
Financial Officer
On behalf of the Board of Directors
(Signed) James Nicol (Signed) J. Brian Colburn
Director Director
PROMOTER
MAGNA INTERNATIONAL INC.
(Signed) Vincent J. Galifi (Signed) J. Brian Colburn
Executive Vice-President, Finance Executive Vice-President, Special
and Chief Financial Officer Projects and Secretary
C-1
<PAGE>
Alternate Page for Canadian Prospectus
CERTIFICATE OF MI VENTURE (CANADA) INC.
Dated: January 14, 2000
The foregoing constitutes full, true and plain disclosure of all material
facts relating to the securities previously issued by the issuer, as required
by the Securities Act (British Columbia), by Part 8 of the Securities Act
(Alberta), by Part XI of The Securities Act, 1988 (Saskatchewan), by Part XV of
the Securities Act (Ontario), by the Securities Act (Nova Scotia), and by Part
XIV of the Securities Act (Newfoundland) and the respective regulations
thereunder. This prospectus, as required by the Securities Act (Quebec) and the
regulations thereunder, does not contain any misrepresentation likely to affect
the value or market price of the securities already issued.
(Signed) James Nicol (Signed) Graham Orr
President and Chief Executive Officer Executive Vice-President and Chief
Financial Officer
On behalf of the Board of Directors
(Signed) Vincent J. Galifi (Signed) J. Brian Colburn
Director Director
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all expenses, other than the underwriting
discount, payable by the registrant in connection with the securities being
registered. All amounts shown are estimates except for the SEC registration fee
and the NASD filing fee.
<TABLE>
<CAPTION>
Amount to be Paid
-----------------
<S> <C>
SEC registration fee.................................... $
NASD filing fee.........................................
Blue Sky fees and expenses..............................
Printing and engraving expenses.........................
Accounting fees and expenses............................
Legal fees and expenses.................................
Miscellaneous...........................................
----
Total................................................... $
====
</TABLE>
Item 14. Indemnification of Directors and Officers
As permitted by Section 145 of the Delaware General Corporation Law, our by-
laws require us to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that such person is or was or has agreed to
become one of our directors, officers, employees or agents, or has agreed to
serve at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. Our
indemnification obligation extends to costs, charges, expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by any such person or on his or her behalf in connection
with such an action, suit or proceeding and any appeal therefrom, if any such
person acted in good faith in a manner he or she reasonably believed to be in
or not opposed to our best interests and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Our certificate of incorporation also provides that, to the extent
permitted by law, our directors will have no liability to us or our
stockholders for monetary damages for breach of fiduciary duty as a director.
We are covered under Magna's liability insurance which provides for coverage
for our officers and directors and officers and directors of our subsidiaries,
subject to a deductible for executive indemnification. The policy does not
provide coverage for losses arising from violation of, or the enforcement of,
environmental laws and regulations.
Item 15. Recent Sales of Unregistered Securities
On November 12, 1999, we issued 650,695 shares of our Class A Subordinate
Voting Stock, par value $0.01, to Edward J. DeBartolo Corporation and Oklahoma
Racing LLC as partial consideration for the purchase of all the issued and
outstanding stock of Thistledown, Inc. The transaction involved the purchase of
all issued and outstanding stock of Thistledown, Inc. and Remington Park, Inc.
for an aggregate amount of $24.0 million of which $19.5 million was paid in
cash and $4.5 million was paid through the issuance of the Class A Subordinate
Voting Stock. This issuance was made in reliance on the exemption from
registration provided in Section 4(2) of the United States Securities Act of
1933 for transactions by an issuer not involving any public offering.
On December 10, 1999, we issued 1,012,195 shares of our Class A Subordinate
Voting Stock, par value $0.01 to Ladbroke Racing Corporation as partial
consideration for the purchase of all the issued and outstanding stock of
Ladbroke Land Holdings, Inc. and Pacific Racing Association Inc. The aggregate
amount of consideration for the transaction was $87.0 million of which $60.0
million was paid in cash $7.0 million was
II-1
<PAGE>
paid through the issuance of the Class A Subordinate Voting Stock and $20.0
million was paid by way of an interest-free promissory note. This issuance was
made in reliance on the exemption from registration provided in Section 4(2) of
the United States Securities Act of 1933 for transactions by an issuer not
involving any public offering.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Share Purchase Agreement dated October 29, 1999 between MI Venture
Inc.
(now MI Entertainment Corp.) and 1305272 Ontario Inc.
2.2 Share Purchase Agreement dated October 29, 1999 between MI Venture
Inc.
(now MI Entertainment Corp.) and Magna International Inc.
2.3 Share Purchase Agreement dated October 29, 1999 between MI Venture
Inc.
(now MI Entertainment Corp.) and 1346457 Ontario Inc.
3.1 Articles of Incorporation of MI Entertainment Corp., including
amendments thereto
3.2 By-Laws of MI Entertainment Corp.
4.1 Form of Stock Certificate for Class A Subordinate Voting Stock*
5.1 Opinion of Sidley & Austin*
10.1 Asset Purchase Agreement dated as of November 13, 1998 between MI
Developments (America) Inc., Meditrust Corporation, Meditrust
Operating Company, The Santa Anita Companies, Inc. and Santa Anita
Enterprises, Inc. together with assignment of interest from MI
Developments (America) Inc. to The Santa Anita Companies, Inc.
10.2 Stock Purchase Agreement dated as of June 30, 1999 between MI
Venture Inc. (now MI Entertainment Corp.) and Gulfstream Holdings
Inc. of Illinois and Gulfstream Park Racing Association Inc.
10.3 Stock Purchase Agreement dated as of October 21, 1999 between MI
Venture Inc. (now MI Entertainment Corp.), The Edward J. DeBartolo
Corporation and Oklahoma Racing LLC
10.4 Stock Purchase Agreement dated as of November 5, 1999 between MI
Venture Inc. (now MI Entertainment Corp.) and Ladbroke Racing
Corporation
10.5 Exchangeable Share Support Agreement dated as of December 30, 1999
between MI Entertainment Corp. and MI Venture (Canada) Inc.*
10.6 Voting and Exchange Agreement dated as of December 30, 1999 among
Magna International Inc., MI Entertainment Corp. and MI Venture
(Canada) Inc.*
10.7 Credit Agreement dated December 23, 1999 between MI Entertainment
Corp. and Wells Fargo Bank*
10.8 Forebearance Agreement dated as of . , 2000 between Magna
International Inc. and MI Entertainment Corp.*
10.9 Access Agreement dated as of March 1, 1999 between Magna
International Inc. and MI Entertainment Corp.*
10.10 Stock Option Plan for Eligible Directors, Senior Officers and
Employees*
10.11 Deferred Profit Sharing Plan*
10.12 Employment Agreement dated . , 1999 with Jerry S. Campbell*
10.13 Employment Agreement dated November 26, 1999 with David A.
Mitchell*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP in respect of the Audited
Consolidated Financial Statements of MI Entertainment Corp.
23.2 Consent of Ernst & Young LLP in respect of the Audited Financial
Statements of Los Angeles Turf Club, Inc.
23.3 Consent of PricewaterhouseCoopers LLP in respect of the Audited
Consolidated Financial Statements of Gulfstream Park Racing
Association, Inc. and Subsidiary
23.4 Consent of Hill, Barth & King LLC in respect of the Audited
Financial Statements of Remington Park, Inc.
23.5 Consent of Hill, Barth & King LLC in respect of the Audited
Financial Statement of Thistledown, Inc.
23.6 Consent of Ernst & Young LLP in respect of the Audited Combined
Financial Statements of Golden Gate Fields
23.7 Consents of Messrs. Campbell, Davis, George, Harper, Lanni,
Lumley, Mack, Roncelli, Schaeffer, A. Stronach, Volkman and York
to act as directors*
23.8 Consent of Sidley & Austin (included in Exhibit 5.1)
27.1 Financial Data Schedules
99.1 Provisions attaching to the Exchangeable Shares of MI Venture
(Canada) Inc.*
</TABLE>
- --------
*To be filed by amendment
(b) Financial Statement Schedules
Schedule III--Real Estate and Accumulated Depreciation
II-3
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b), if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(4) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Toronto, in Canada, on January 14, 2000.
MI ENTERTAINMENT CORP.
(Registrant)
/s/ James Nicol
By:
Name:James Nicol
Title:Vice Chairman and President
/s/ J. Brian Colburn
By:
Name:J. Brian Colburn
Title:Executive Vice-President and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Brian Colburn, Vincent Galifi, James Nicol,
and Graham Orr, and each of them (with full power to each of them to act
alone), his or her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments pursuant to Rule 462(b) or otherwise) to
this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the U.S. Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
Signature Title Date
/s/ Frank Stronach
- ------------------
Frank Stronach Chairman, Chief Executive Officer and Director January 14, 2000
/s/ Graham Orr
- ------------------
Graham Orr Executive Vice-President and Chief Financial Officer January 14, 2000
/s/ James Nicol
- ------------------
James Nicol Vice Chairman, President and Director January 14, 2000
/s/ James Bromby
- ------------------
James Bromby Corporate Controller January 14, 2000
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Vincent Galifi
- ----------------------
Vincent Galifi Executive Vice President, Finance and Director January 14, 2000
/s/ J. Brian Colburn
- ----------------------
J. Brian Colburn Executive Vice President and Secretary and Director January 14, 2000
/s/ Lonny Powell
- ----------------------
Lonny Powell Executive Vice President, Racing Operations January 14, 2000
/s/ Frank DeMarco, Jr.
- ----------------------
Frank DeMarco, Jr Vice-President, Regulatory Affairs January 14, 2000
</TABLE>
II-6
<PAGE>
II. INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
2.1 Share Purchase Agreement dated October 29, 1999 between MI Venture
Inc.
(now MI Entertainment Corp.) and 1305272 Ontario Inc.
Share Purchase Agreement dated October 29, 1999 between MI Venture
Inc.
(now MI Entertainment Corp.) and Magna International Inc.
Share Purchase Agreement dated October 29, 1999 between MI Venture
Inc.
(now MI Entertainment Corp.) and 1346457 Ontario Inc.
3.1 Articles of Incorporation of MI Entertainment Corp., including
amendments thereto
3.2 By-Laws of MI Entertainment Corp.
4.1 Form of Stock Certificate for Class A Subordinate Voting Stock*
5.1 Opinion of Sidley & Austin*
10.1 Asset Purchase Agreement dated as of November 13, 1998 between MI
Developments (America) Inc., Meditrust Corporation, Meditrust
Operating Company, The Santa Anita Companies, Inc. and Santa Anita
Enterprises, Inc. together with assignment of interest from MI
Developments (America) Inc. to The Santa Anita Companies, Inc.
10.2 Stock Purchase Agreement dated as of June 30, 1999 between MI
Venture Inc. (now MI Entertainment Corp.) and Gulfstream Holdings
Inc. of Illinois and Gulfstream Park Racing Association Inc.
10.3 Stock Purchase Agreement dated as of October 21, 1999 between MI
Venture Inc. (now MI Entertainment Corp.), The Edward J. DeBartolo
Corporation and Oklahoma Racing LLC
10.4 Stock Purchase Agreement dated as of November 5, 1999 between MI
Venture Inc. (now MI Entertainment Corp.) and Ladbroke Racing
Corporation
10.5 Exchangeable Share Support Agreement dated as of December 30, 1999
between MI Entertainment Corp. and MI Venture (Canada) Inc.*
10.6 Voting and Exchange Agreement dated as of December 30, 1999 among
Magna International Inc., MI Entertainment Corp. and MI Venture
(Canada) Inc.*
10.7 Credit Agreement dated December 23, 1999 between MI Entertainment
Corp. and Wells Fargo Bank*
10.8 Forebearance Agreement dated as of . , 2000 between Magna
International Inc. and MI Entertainment Corp.*
10.9 Access Agreement dated as of March 1, 1999 between Magna
International Inc. and MI Entertainment Corp.*
10.10 Stock Option Plan for Eligible Directors, Senior Officers and
Employees*
10.11 Deferred Profit Sharing Plan*
10.12 Employment Agreement dated . , 1999 with Jerry S. Campbell*
10.13 Employment Agreement dated November 26, 1999 with David A.
Mitchell*
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP in respect of the Audited
Consolidated Financial Statements of MI Entertainment Corp.
23.2 Consent of Ernst & Young LLP in respect of the Audited Financial
Statements of Los Angeles Turf Club, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
23.3 Consent of PricewaterhouseCoopers LLP in respect of the Audited
Consolidated Financial Statements of Gulfstream Park Racing
Association, Inc. and Subsidiary
23.4 Consent of Hill, Barth & King LLC in respect of the Audited
Financial Statements of Remington Park, Inc.
23.5 Consent of Hill, Barth & King LLC in respect of the Audited
Financial Statement of Thistledown, Inc.
23.6 Consent of Ernst & Young LLP in respect of the Audited Combined
Financial Statements of Golden Gate Fields
23.7 Consents of Messrs. Campbell, Davis, George, Harper, Lanni,
Lumley, Mack, Roncelli, Schaeffer, A. Stronach, Volkman and York
to act as directors*
23.8 Consent of Sidley & Austin (included in Exhibit 5.1)
27.1 Financial Data Schedules
99.1 Provisions attaching to the Exchangeable Shares of MI Venture
(Canada) Inc.*
</TABLE>
- --------
*To be filed by amendment
<PAGE>
SHARE PURCHASE AGREEMENT
------------------------
THIS AGREEMENT made as of the 29th day of October, 1999 between MI VENTURE
----------
INC., a corporation incorporated under the laws of the State of Delaware
- ----
("Purchaser") and 1305272 ONTARIO INC., a corporation incorporated under the
--------------------
laws of the Province of Ontario, Canada ("Vendor").
WHEREAS:
A. Certain capitalized terms used herein have the meanings ascribed thereto in
Schedule A; and
B. Vendor has agreed to sell and Purchaser has agreed to purchase the
Purchased Shares.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
PURCHASE OF SHARES:
- ------------------
1. Vendor hereby sells, assigns and transfers the Purchased Shares to Purchaser
and Purchaser hereby purchases the Purchased Shares with effect as and from the
Transfer Time on the terms and conditions hereinafter set forth, for
consideration equal to the Purchase Price.
PAYMENT OF PURCHASE PRICE:
- -------------------------
2. The Purchase Price shall be satisfied by Purchaser delivering on the Delivery
Date the Consideration to Vendor.
REPRESENTATIONS AND WARRANTIES RESPECTING VENDOR:
- ------------------------------------------------
3. Vendor covenants, represents and warrants as follows and acknowledges that
Purchaser is relying upon such covenants, representations and warranties in
connection with the purchase by Purchaser of the Purchased Shares:
(a) all necessary corporate action of Vendor to authorize the execution,
delivery and performance of this Agreement has been taken;
(b) this Agreement has been duly executed and delivered by Vendor and
constitutes a valid and binding obligation of Vendor enforceable in
accordance with its terms;
(c) Vendor is a corporation duly organized and validly subsisting under
the laws of its governing jurisdiction and has the corporate power to
own its property, including the Purchased Shares;
(4) the Subject Company is a corporation duly organized and validly
subsisting under the laws of its governing jurisdiction and has the
<PAGE>
2
corporate power to own or lease its property and to carry on the
business as now being conducted by it and is duly qualified to do
business in each jurisdiction where its business is conducted;
(e) the Purchased Shares consist of fully paid-up shares of the Subject
Company and upon completion of the transactions contemplated hereby
and any other documentation required under applicable Ontario law
shall be validly transferred to Purchaser with good and marketable
title free and clear of any claims, liens, encumbrances or security
interests whatsoever;
(f) the Purchased Shares do now, and at the Transfer Time will, constitute
all of the issued and outstanding shares of the Subject Company held
by Vendor; and
(g) the entering into of this agreement and the transaction contemplated
hereby will not result in the violation of any of the terms and
provisions of the applicable constating documents or by-laws of the
Vendor or the Subject Company or any indenture or other agreement,
written or oral, to which Vendor or the Subject Company may be a
party.
REPRESENTATIONS AND WARRANTIES RESPECTING PURCHASER:
- ---------------------------------------------------
4. Purchaser covenants, represents and warrants as follows and acknowledges that
Vendor is relying upon such covenants, representations and warranties in
connection with the sale by Vendor of the Purchased Shares:
(a) all necessary corporate action of Purchaser to authorize the
execution, delivery and performance of this Agreement has been taken;
(b) this Agreement has been duly executed and delivered by Purchaser and
constitutes a valid and binding obligation of Purchaser enforceable in
accordance with its terms;
(c) Purchaser is a corporation duly organized and validly subsisting under
the laws of its governing jurisdiction and has the corporate power to
own its property; and
(d) Purchaser is purchasing the Purchased Shares as principal for
investment only and not with a view to resale or distribution.
SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES:
- -----------------------------------------------------
5. The covenants, representations and warranties of each of Vendor and Purchaser
contained in this Agreement shall survive the closing of the purchase and sale
of the Purchased Shares herein provided for, for a period of two (2) years from
the Delivery Date.
DELIVERIES:
- ----------
<PAGE>
3
6. The deliveries contemplated hereby shall take place at 10:00 a.m. on the
Delivery Date. On the Delivery Date or so soon thereafter as is reasonably
acceptable to the Purchaser:
(a) Purchaser shall deliver to Vendor the Consideration; and
(b) Vendor shall deliver to Purchaser properly endorsed share certificates
representing the Purchased Shares or other reasonable evidence of
their transfer to the Purchaser of the Purchased Shares.
PURCHASE PRICE ADJUSTMENT
- -------------------------
7. It is the intention of the parties that the Purchase Price shall be equal to
the fair market value of the Purchased Shares as at the Transfer Time.
Therefore, Vendor and Purchaser agree that should they subsequently mutually
determine, or should Revenue Canada or any other taxing authority issue, or
propose to issue, assessments or reassessments of additional liability for
taxes, or any other subject by reason of asserting that the Purchase Price is
less than or greater than the fair market value of the Purchased Shares, or that
the consideration received by Vendor is more or less than the fair market value
of the Purchased Shares, then the Purchase Price or the Purchaser Shares, as the
case may be, shall be increased or decreased as necessary but only to the extent
that the Purchase Price or the Purchaser Shares so revised is acceptable to the
parties hereto or to both the taxing authority and the parties hereto, as the
case may be, or is established by a court of competent jurisdiction (after all
appeal rights have been exhausted or all times for appeal have expired without
appeals having been taken) to be the fair market value of the Purchased Shares.
If the Purchase Price or the Purchaser Shares is varied in the circumstances
described above, Vendor and Purchaser shall take such steps as may be necessary
to reflect properly an appropriate adjustment to the Purchase Price and the
Purchaser Shares as so varied.
FURTHER ASSURANCES:
- ------------------
8. This Agreement shall operate as an actual conveyance, transfer, assignment
and setting over of all the right, title and interest of Vendor in and to the
Purchased Shares as of the Transfer Time to the Purchaser. Each of the parties
hereto shall from time to time at the other's request and expense, without
further consideration, execute and deliver such other instruments, transfers,
conveyances and assignments and take all such other actions as may be required
to more effectively complete any matter provided for herein.
SUCCESSORS AND ASSIGNS:
- ----------------------
9. This Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns.
ENTIRE AGREEMENT
- ----------------
10. This Agreement constitutes the entire agreement between the parties and,
except as
<PAGE>
4
stated herein and in the instruments and documents to be executed and delivered
pursuant hereto, contains all of the representations and warranties of the
parties. There are no oral representations or warranties between the parties.
This Agreement may not be amended or modified in any respect except by written
instrument signed by the parties.
GOVERNING LAW
- -------------
11. This Agreement shall be construed in accordance with the laws of the
Province of Ontario and the laws of Canada applicable in such Province and shall
be treated, in all respects, as an Ontario contract.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date first set out above.
1305272 ONTARIO INC.
By: _____________________________________________
Title: ___________________________________________
By: _____________________________________________
Title: ___________________________________________
MI VENTURE INC.
By: _____________________________________________
Title: ___________________________________________
By: _____________________________________________
Title: ___________________________________________
<PAGE>
SCHEDULE A
The following capitalized terms have the following meanings ascribed
thereto:
<TABLE>
<S> <C>
Consideration: One (1) share of Class C Common Stock of Purchaser
Delivery Date: October 29, 1999
Purchase Price: Cdn. $100.00
Purchased Shares: 100 Common shares of MI Venture (Canada) Inc., a corporation
incorporated under the laws of the Province of Ontario, which represent
all the issued and outstanding shares of MI Venture (Canada) Inc.
Subject Company: MI Venture (Canada) Inc.
Transfer Time: 10:00 a.m. on October 29, 1999
</TABLE>
<PAGE>
SHARE PURCHASE AGREEMENT
------------------------
(S. 85.1(3) Rollover)
THIS AGREEMENT made as of the 29th day of October, 1999 between MI VENTURE
----------
INC., a corporation incorporated under the laws of the State of Delaware
- ----
("Purchaser") and MAGNA INTERNATIONAL INC., a corporation incorporated under the
------------------------
laws of the Province of Ontario, Canada ("Vendor").
WHEREAS:
A. Certain capitalized terms used herein have the meanings ascribed thereto in
Schedule A; and
B. Vendor has agreed to sell and Purchaser has agreed to purchase the Purchased
Shares.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
PURCHASE OF SHARES:
- ------------------
1. Vendor hereby sells, assigns and transfers the Purchased Shares to Purchaser
and Purchaser hereby purchases the Purchased Shares with effect as and from the
Transfer Time on the terms and conditions hereinafter set forth, for
consideration equal to the Purchase Price.
PAYMENT OF PURCHASE PRICE:
- -------------------------
2. The Purchase Price shall be satisfied by Purchaser delivering on the Delivery
Date the Purchaser Shares to Vendor.
REPRESENTATIONS AND WARRANTIES RESPECTING VENDOR:
- ------------------------------------------------
3. Vendor covenants, represents and warrants as follows and acknowledges that
Purchaser is relying upon such covenants, representations and warranties in
connection with the purchase by Purchaser of the Purchased Shares:
(a) all necessary corporate action of Vendor to authorize the execution,
delivery and performance of this Agreement has been taken;
(b) this Agreement has been duly executed and delivered by Vendor and
constitutes a valid and binding obligation of Vendor enforceable in
accordance with its terms;
(c) Vendor is a corporation duly organized and validly subsisting under
the laws of its governing jurisdiction and has the corporate power to
own its property, including the Purchased Shares;
(d) each of the Subject Companies is a corporation duly organized and
validly subsisting under the laws of its governing jurisdiction and
has the corporate power to own or
<PAGE>
2
lease its property and to carry on the business as now being conducted
by it and is duly qualified to do business in each jurisdiction where
its business is conducted;
(e) the Purchased Shares consist of fully paid-up shares of the Subject
Companies and upon completion of the transactions contemplated hereby
and any other documentation required under applicable Austrian and
Delaware law shall be validly transferred to Purchaser with good and
marketable title free and clear of any claims, liens, encumbrances or
security interests whatsoever;
(f) the Purchased Shares do now, and at the Transfer Time will, constitute
all of the issued and outstanding shares of the Subject Companies held
by Vendor;
(g) the Purchased Shares constitute capital property of the Vendor;
(h) the Subject Companies and the Purchaser are Foreign Affiliates of the
Vendor as defined in subsection 95(1) of the Income Tax Act, Canada;
and
(i) the entering into of this agreement and the transaction contemplated
hereby will not result in the violation of any of the terms and
provisions of the applicable constating documents or by-laws of the
Vendor or the Subject Companies or any indenture or other agreement,
written or oral, to which Vendor or any of the Subject Companies may
be a party.
REPRESENTATIONS AND WARRANTIES RESPECTING PURCHASER:
- ---------------------------------------------------
4. Purchaser covenants, represents and warrants as follows and acknowledges that
Vendor is relying upon such covenants, representations and warranties in
connection with the sale by Vendor of the Purchased Shares:
(a) all necessary corporate action of Purchaser to authorize the
execution, delivery and performance of this Agreement has been taken;
(b) this Agreement has been duly executed and delivered by Purchaser and
constitutes a valid and binding obligation of Purchaser enforceable in
accordance with its terms;
(c) Purchaser is a corporation duly organized and validly subsisting under
the laws of its governing jurisdiction and has the corporate power to
own its property, including the Purchased Shares;
(d) Purchaser is purchasing the Purchased Shares as principal for
investment only and not with a view to resale or distribution; and
(e) upon completion of the transactions contemplated by this Agreement,
the Purchaser
<PAGE>
3
Shares shall be validly issued by Purchaser to Vendor with good and
marketable title, free and clear of any and all claims, liens,
mortgages, encumbrances and security interests whatsoever.
SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES:
- -----------------------------------------------------
5. The covenants, representations and warranties of each of Vendor and Purchaser
contained in this Agreement shall survive the closing of the purchase and sale
of the Purchased Shares herein provided for, for a period of two (2) years from
the Delivery Date.
DELIVERIES:
- ----------
6. The deliveries contemplated hereby shall take place at 10:00 a.m. on the
Delivery Date. On the Delivery Date or so soon thereafter as is reasonably
acceptable to the Purchaser:
(a) Purchaser shall deliver to Vendor the Purchaser Shares including share
certificates (or equivalent evidence of the issuance to Vendor of the
Purchaser Shares) representing the Purchaser Shares; and
(b) Vendor shall deliver to Purchaser properly endorsed share certificates
representing the Purchased Shares or other reasonable evidence of
their transfer to the Purchaser of the Purchased Shares.
CHARACTERIZATION FOR TAX PURPOSES
- ---------------------------------
7. Purchaser and Vendor have entered into this Agreement for the purposes of
effecting the conveyance of the Purchased Shares to the Purchaser and other
corporate law purposes. The parties do not hereby intend to effect a sale of the
Purchased Shares giving rise to tax for purposes of the Income Tax Act (Canada);
and, accordingly and notwithstanding any other provision of this Agreement to
the contrary, the Purchaser and Vendor intend that the conveyance of the
Purchased Shares shall be treated for Canadian federal income tax purposes as a
tax-free rollover within the scope and effect of Subsection 85.1(3) of the
Income Tax Act (Canada). Purchaser and Vendor shall jointly complete and file
all reports and elections which counsel to Purchaser may advise are necessary or
desirable under the provisions of the Income Tax Act (Canada) or any other
applicable taxing statute in the form prescribed thereunder and within the time
permitted therefor in respect of the intended treatment of the conveyance of the
Purchased Shares.
PURCHASE PRICE ADJUSTMENT
- -------------------------
8. It is the intention of the parties that the Purchase Price shall be equal to
the fair market value of the Purchased Shares as at the Transfer Time.
Therefore, Vendor and Purchaser agree that should they subsequently mutually
determine, or should Revenue Canada or any other taxing authority issue, or
propose to issue, assessments or reassessments of additional liability for
taxes, or any other subject by reason of asserting that the Purchase Price is
less than or greater than
<PAGE>
4
the fair market value of the Purchased Shares, or that the consideration
received by Vendor is more or less than the fair market value of the Purchased
Shares, then the Purchase Price or the Purchaser Shares, as the case may be,
shall be increased or decreased as necessary but only to the extent that the
Purchase Price or the Purchaser Shares so revised is acceptable to the parties
hereto or to both the taxing authority and the parties hereto, as the case may
be, or is established by a court of competent jurisdiction (after all appeal
rights have been exhausted or all times for appeal have expired without appeals
having been taken) to be the fair market value of the Purchased Shares. If the
Purchase Price or the Purchaser Shares is varied in the circumstances described
above, Vendor and Purchaser shall take such steps as may be necessary to reflect
properly an appropriate adjustment to the Purchase Price and the Purchaser
Shares as so varied.
TRANSFER TAXES
- --------------
9 Purchaser shall be liable for and shall pay all Taxes, whether direct or
indirect, and whether or not such Taxes would by law be paid by Vendor, properly
payable upon, arising out of or in connection with the transactions contemplated
by this Agreement, including without limitation, in connection with the sale,
conveyance, assignment and transfer of the Purchased Shares to Purchaser. Such
amounts on account of Taxes for which Purchaser is liable hereunder shall either
be paid by Purchaser to the appropriate governmental authority or Purchaser
shall reimburse Vendor for its payment of such Taxes. Where such Taxes are to be
paid by Purchaser to a governmental authority, Purchaser shall, on request by
Vendor, provide satisfactory evidence to Vendor of such payments or exemption
from the payment of such Taxes. For purposes of this Section, "Taxes" means any
tax, duty, excise, fee, impose, assessment, deduction, charge or withholding
including sales tax, land transfer tax, stamp tax and other transfer taxes and
all liabilities with respect thereto, including without limitation any penalty
and interest payable with respect thereto, levied, imposed or assessed from time
to time upon or in respect of income, profits or assets of any nature or kind by
any governmental authority, but specifically not including income and capital
taxes of the parties hereto.
FURTHER ASSURANCES:
- ------------------
10. This Agreement shall operate as an actual conveyance, transfer, assignment
and setting over of all the right, title and interest of Vendor in and to the
Purchased Shares as of the Transfer Time to the Purchaser. Each of the parties
hereto shall from time to time at the other's request and expense, without
further consideration, execute and deliver such other instruments, transfers,
conveyances and assignments and take all such other actions as may be required
to more effectively complete any matter provided for herein.
SUCCESSORS AND ASSIGNS:
- ----------------------
11. This Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns.
ENTIRE AGREEMENT
- ----------------
<PAGE>
5
12. This Agreement constitutes the entire agreement between the parties and,
except as stated herein and in the instruments and documents to be executed and
delivered pursuant hereto, contains all of the representations and warranties of
the parties. There are no oral representations or warranties between the
parties. This Agreement may not be amended or modified in any respect except by
written instrument signed by the parties.
GOVERNING LAW
- -------------
13. This Agreement shall be construed in accordance with the laws of the
Province of Ontario and the laws of Canada applicable in such Province and shall
be treated, in all respects, as an Ontario contract.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date first set out above.
MI VENTURE INC.
By: ________________________________
Title: _____________________________
By: ________________________________
Title: _____________________________
MAGNA INTERNATIONAL INC.
By: ________________________________
Title: _____________________________
By: ________________________________
Title: _____________________________
<PAGE>
SCHEDULE A
The following capitalized terms have the following meanings ascribed thereto:
Delivery Date: October 29, 1999
Purchase Price: The Purchase Price for the Purchased Shares is US
$111,562,649 (Cdn. 164,128,272) and is allocated to the
Purchased Shares as follows:
<TABLE>
<CAPTION>
US$ Cdn.$
--- -----
<S> <C> <C>
(1) Vista Hospitality Inc. 430,000 629,919
(2) Magna Ventures Holding AG 59,170,144 87,051,116
(3) Magna Projektentwicklungs AG 16,536,705 24,328,800
(4) Magna Vierte Beteiligungs AG 34,991,894 51,480,075
(5) Steyr-Daimler-Puch AG 433,906 638,362
------------- -------------
111,562,649 164,128,272
=========== ===========
</TABLE>
Purchased Shares: (i) all of the 100 shares of common stock of Vista
Hospitality Inc., a corporation incorporated under
the laws of the State of Delaware
(ii) 70,000 registered shares having a face value of EURO
70,000 of Magna Ventures Holding AG, a stock company
incorporated under the laws of Austria, which
represents all of the outstanding share capital of
Magna Ventures Holding AG
(iii) 999 registered shares having a face value of ATS
999,000 of Magna Projektentwicklungs AG, a stock
company incorporated under the laws of Austria, which
represent 99.9% of the outstanding share capital of
Magna Projektentwicklungs AG
(iv) 69,999 registered shares having a face value of EURO
69,999 of Magna Vierte Beteiligungs AG, a stock
company incorporated under the laws of Austria, which
represent 99.9% of the outstanding share capital of
Magna Vierte Beteiligungs AG
(v) 7,355 bearer shares of Steyr-Daimler-Puch AG, a stock
company incorporated under the laws of Austria, which
represents .7355% of the outstanding share capital of
Steyr-Daimler-Puch AG
Purchaser Shares: 1,115,627 shares of Class C Common stock in the capital of
Purchaser having a value of US $111,562,649
Subject Companies: (i) Vista Hospitality Inc.
(ii) Magna Ventures Holding AG
(iii) Magna Projektentwicklungs AG
(iv) Magna Vierte Beteiligungs AG
(v) Steyr-Daimler-Puch AG
Transfer Time: 10:00 a.m. on October 29, 1999
<PAGE>
SHARE PURCHASE AGREEMENT
------------------------
(S. 85.1(3) Rollover)
THIS AGREEMENT made as of October 29, 1999 between MI VENTURE INC., a
---------------
corporation incorporated under the laws of the State of Delaware, U.S.A.
("Purchaser") and 1346457 ONTARIO INC., a corporation incorporated under the
--------------------
laws of the Province of Ontario, Canada ("Vendor").
WHEREAS:
A. Certain capitalized terms used herein have the meanings ascribed thereto in
Schedule A; and
B. Vendor has agreed to sell and Purchaser has agreed to purchase the
Purchased Shares.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
PURCHASE OF SHARES:
- ------------------
1. Vendor hereby sells, assigns and transfers the Purchased Shares to Purchaser
and Purchaser hereby purchases the Purchased Shares with effect as and from the
Transfer Time on the terms and conditions hereinafter set forth, for
consideration equal to the Purchase Price.
PAYMENT OF PURCHASE PRICE:
- -------------------------
2. The Purchase Price shall be satisfied by Purchaser delivering on the Delivery
Date the Purchaser Shares to Vendor.
REPRESENTATIONS AND WARRANTIES RESPECTING VENDOR:
- ------------------------------------------------
3. Vendor covenants, represents and warrants as follows and acknowledges that
Purchaser is relying upon such covenants, representations and warranties in
connection with the purchase by Purchaser of the Purchased Shares:
(a) all necessary corporate action of Vendor to authorize the execution,
delivery and performance of this Agreement has been taken;
(b) this Agreement has been duly executed and delivered by Vendor and
constitutes a valid and binding obligation of Vendor enforceable in
accordance with its terms;
(c) Vendor is a corporation duly organized and validly subsisting under
the laws of its governing jurisdiction and has the corporate power to
own its property, including the Purchased Shares;
(4) The Santa Anita Companies, Inc. ("SAC") is a Delaware corporation duly
incorporated and organized and validly subsisting under the
<PAGE>
2
laws of its governing jurisdiction and has the corporate power to own
or lease its property and to carry on the business as now being
conducted by it and is duly qualified to do business in each
jurisdiction where its business is conducted;
(e) the Purchased Shares consist of fully paid-up shares of SAC and upon
completion of the transactions contemplated hereby and any other
documentation required under applicable Delaware law shall be validly
transferred to Purchaser with good and marketable title free and clear
of any claims, liens, encumbrances or security interests whatsoever;
(f) the Purchased Shares do now, and at the Transfer Time will, constitute
all of the issued and outstanding shares of SAC held by Vendor;
(5) the Purchased Shares constitute capital property of the Vendor;
(6) SAC and the Purchaser are Foreign Affiliates of the Vendor as defined
in subsection 95(1) of the Income Tax Act, Canada; and
(i) the entering into of this agreement and the transaction contemplated
hereby will not result in the violation of any of the terms and
provisions of the constating documents or by-laws of the Vendor and
SAC or any indenture or other agreement, written or oral, to which
Vendor and SAC may be a party.
REPRESENTATIONS AND WARRANTIES RESPECTING PURCHASER:
- ---------------------------------------------------
4. Purchaser covenants, represents and warrants as follows and acknowledges that
Vendor is relying upon such covenants, representations and warranties in
connection with the sale by Vendor of the Purchased Shares:
(a) all necessary corporate action of Purchaser to authorize the
execution, delivery and performance of this Agreement has been taken;
(b) this Agreement has been duly executed and delivered by Purchaser and
constitutes a valid and binding obligation of Purchaser enforceable in
accordance with its terms;
(c) Purchaser is a corporation duly organized and validly subsisting under
the laws of its governing jurisdiction and has the corporate power to
own its property, including the Purchased Shares;
<PAGE>
3
(d) Purchaser is purchasing the Purchased Shares as principal for
investment only and not with a view to resale or distribution other
than to an affiliate; and
(e) upon completion of the transactions contemplated by this Agreement,
the Purchaser Shares shall be validly issued by Purchaser to Vendor
with good and marketable title, free and clear of any and all claims,
liens, mortgages, encumbrances and security interests whatsoever.
SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES:
- -----------------------------------------------------
5. The covenants, representations and warranties of each of Vendor and Purchaser
contained in this Agreement shall survive the closing of the purchase and sale
of the Purchased Shares herein provided for, for a period of two (2) years from
the Delivery Date.
DELIVERIES:
- ----------
6. The deliveries contemplated hereby shall take place at 11:00 a.m. on the
Delivery Date. On the Delivery Date or so soon thereafter as is reasonably
acceptable to the Purchaser:
(a) Purchaser shall deliver to Vendor the Purchaser Shares, including
share certificates representing the Purchaser Shares; and
(b) Vendor shall deliver to Purchaser properly endorsed share certificates
representing the Purchased Shares or other reasonable evidence of its
transfer to the Purchaser of the Purchased Shares.
CHARACTERIZATION FOR TAX PURPOSES
- ---------------------------------
7. Purchaser and Vendor have entered into this Agreement for the purposes of
effecting the conveyance of the Purchased Shares to the Purchaser and other
corporate law purposes. The parties do not hereby intend to effect a sale of the
Purchased Shares giving rise to tax for purposes of the Income Tax Act (Canada);
and, accordingly and notwithstanding any other provision of this Agreement to
the contrary, the Purchaser and Vendor intend that the conveyance of the
Purchased Shares shall be treated for Canadian federal income tax purposes as a
tax-free rollover within the scope and effect of Subsection 85.1(3) of the
Income Tax Act (Canada). Purchaser and Vendor shall jointly complete and file
all reports and elections which counsel to Purchaser may advise are necessary or
desirable under the provisions of the Income Tax Act (Canada) or any other
applicable taxing statute in the form prescribed thereunder and within the time
permitted therefor in respect of the intended treatment of the conveyance of the
Purchased Shares.
PURCHASE PRICE ADJUSTMENT
- -------------------------
8. It is the intention of the parties that the Purchase Price shall be equal to
the fair market value of the Purchased Shares as at the Transfer Time.
Therefore, Vendor and Purchaser
<PAGE>
4
agree that should they subsequently mutually determine, or should Revenue Canada
or any other taxing authority issue, or propose to issue, assessments or
reassessments of additional liability for taxes, or any other subject by reason
of asserting that the Purchase Price is less than or greater than the fair
market value of the Purchased Shares, or that the consideration received by
Vendor is more or less than the fair market value of the Purchased Shares, then
the Purchase Price or the Purchaser Shares, as the case may be, shall be
increased or decreased as necessary but only to the extent that the Purchase
Price or the Purchaser Shares so revised is acceptable to the parties hereto or
to both the taxing authority and the parties hereto, as the case may be, or is
established by a court of competent jurisdiction (after all appeal rights have
been exhausted or all times for appeal have expired without appeals having been
taken) to be the fair market value of the Purchased Shares. If the Purchase
Price or the Purchaser Shares is varied in the circumstances described above,
Vendor and Purchaser shall take such steps as may be necessary to reflect
properly an appropriate adjustment to the Purchase Price and the Purchaser
Shares as so varied.
TRANSFER TAXES
- --------------
9 Purchaser shall be liable for and shall pay all Taxes, whether direct or
indirect, and whether or not such Taxes would by law be paid by Vendor, properly
payable upon, arising out of or in connection with the transactions contemplated
by this Agreement, including without limitation, in connection with the sale,
conveyance, assignment and transfer of the Purchased Shares to Purchaser. Such
amounts on account of Taxes for which Purchaser is liable hereunder shall either
be paid by Purchaser to the appropriate governmental authority or Purchaser
shall reimburse Vendor for its payment of such Taxes. Where such Taxes are to be
paid by Purchaser to a governmental authority, Purchaser shall, on request by
Vendor, provide satisfactory evidence to Vendor of such payments or exemption
from the payment of such Taxes. For purposes of this Section, "Taxes" means any
tax, duty, excise, fee, impose, assessment, deduction, charge or withholding
including sales tax, land transfer tax, stamp tax and other transfer taxes and
all liabilities with respect thereto, including without limitation any penalty
and interest payable with respect thereto, levied, imposed or assessed from time
to time upon or in respect of income, profits or assets of any nature or kind by
any governmental authority, but specifically not including income and capital
taxes of the parties hereto.
FURTHER ASSURANCES:
- ------------------
10. This Agreement shall operate as an actual conveyance, transfer, assignment
and setting over of all the right, title and interest of Vendor in and to the
Purchased Shares as of the Transfer Time to the Purchaser. Each of the parties
hereto shall from time to time at the other's request and expense, without
further consideration, execute and deliver such other instruments, transfers,
conveyances and assignments and take all such other actions as may be required
to more effectively complete any matter provided for herein.
SUCCESSORS AND ASSIGNS:
- ----------------------
11. This Agreement shall enure to the benefit of and be binding upon the parties
hereto
<PAGE>
5
and their respective successors and assigns.
ENTIRE AGREEMENT
- ----------------
12. This Agreement constitutes the entire agreement between the parties and,
except as stated herein and in the instruments and documents to be executed and
delivered pursuant hereto, contains all of the representations and warranties of
the parties. There are no oral representations or warranties between the
parties. This Agreement may not be amended or modified in any respect except by
written instrument signed by the parties.
GOVERNING LAW
- -------------
13. This Agreement shall be construed in accordance with the laws of the
Province of Ontario and the laws of Canada applicable in such Province and shall
be treated, in all respects, as an Ontario contract.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
date first set out above.
1346457 ONTARIO INC.
By:_________________________________
President and Secretary
Title: _____________________________
MI VENTURE INC.
By: ________________________________
Title: _____________________________
By: ________________________________
Title: _____________________________
<PAGE>
SCHEDULE A
The following capitalized terms have the following meanings ascribed thereto:
Delivery Date: October 29, 1999
Purchase Price: US $38,684,000 (Cdn. $56,911,900)
Purchased Shares: 1,100 shares of Common stock of The Santa Anita
Companies, Inc., a corporation incorporated under the
laws ws of the State of Delaware, which represents
all the issued and outstanding shares of The Santa
Anita ta Companies, Inc.
Purchaser Shares: 386,840 shares of Class C Common stock in the capital
of Purchaser having a value of US $38,684,000 (Cdn.
$56,911,900)
Transfer Time: 11:00 a.m. on October 29, 1999
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MI VENTURE INC.
---------------
FIRST: The name of the Corporation is MI VENTURE INC.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The nature of the business or purpose of the Corporation is to engage
in any lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware, including but not limited to manufacturing,
processing, distribution, selling and research and development.
In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of Delaware or by any other law of
Delaware or this Certificate of Incorporation together with any powers
incidental thereto, so far as such powers and privileges are necessary to the
interest, promotion or attainment of the business or purposes of the
Corporation.
FOURTH: The total number of shares of stock which the Corporation shall have
authority to issue is Ten thousand (10,000) shares without par value of Common
Stock.
FIFTH: The name and mailing address of the incorporator is:
J. Brian Colburn
337 Magna Drive
Aurora, Ontario L5G 7K1
Canada
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the by-laws of the Corporation.
EIGHTH: Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the by-laws of the Corporation. Elections of directors
need not be by written ballot unless the by-laws of the Corporation shall so
provide.
<PAGE>
- 2 -
NINTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and in the by-laws of the Corporation, and
all rights conferred upon stockholders hereby are granted subject to this
reservation.
THE UNDERSIGNED, being the incorporator named above, for the purposes of forming
a corporation pursuant to the General Corporation Law of the State of Delaware,
does make this Certificate, hereby declaring and certifying that this is my act
and deed and the facts herein stated are true, and accordingly have hereunto set
my hand this 3rd day of March, 1999.
/s/ J. Brian Colburn
___________________________
J. Brian Colburn
Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
MI VENTURE INC.
It is hereby certified as follows:
1. The name of the corporation (hereafter called the "Corporation") is
MI VENTURE INC.
2. The Certificate of Incorporation of the Corporation is amended as
follows:
Article FOURTH is amended to read in its entirety as follows:
"FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Twenty Million (20,000,000) shares without
par value, Ten Million (10,000,000) of which shall be "Class A Common
Stock" and Ten Million (10,000,000) of which shall be "Class C Common
Stock". All stock issued by the Corporation prior to the date of this
Amendment shall be reclassified by virtue of this Amendment as Class A
Common Stock. The Class A Common Stock and the Class C Common Stock are
hereinafter sometimes collectively called, the "Common Stock". The
powers, preferences and relative, participating, optional or other
special rights of the Class A Common Stock and Class C Common Stock and
the qualifications, limitations or restrictions thereof, are identical,
except as follows:
1. Voting Rights. The Class A Common Stock shall have one
-------------
(1) vote per share and the Class C Common Stock shall have two (2)
votes per share.
2. Preference on Liquidation, Dissolution or Winding Up. Upon
----------------------------------------------------
any voluntary or involuntary liquidation, dissolution, or winding up of
the Corporation, the holders of the Class C Common Stock will be
entitled to be paid an aggregate amount in cash equal to $500,000
before any distribution or payment is made on any Class A Common Stock.
3. The amendment of the certificate of incorporation herein certified
has been duly adopted and written consent has been given in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware.
<PAGE>
Executed this 30th day of August, 1999.
MI VENTURE INC.
By: /s/ J. Brian Colburn
-----------------------------
J. Brian Colburn
Title: Executive Vice President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
MI VENTURE INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation (the "Board "),
by the unanimous written consent of its members, filed with the minutes of the
Board, duly adopted resolutions setting forth a proposed amendment to the
Certificate of Incorporation, as filed pursuant to Section 101 of the General
Corporation Law of the State of Delaware (the "GCL") on March 4, 1999, and as
amended on August 30, 1999, of the Corporation (the "Certificate of
Incorporation"), declaring said amendment to be advisable.
SECOND: That thereafter, written consents to the proposed amendment
were duly signed and delivered to the Corporation by all the stockholders of the
Corporation pursuant to Section 228 of the GCL.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the GCL.
FOURTH: Said amendment is as follows:
(A) All shares of "Class A Common Stock" previously issued by the
Corporation and outstanding upon the first date of effectiveness of said
amendment shall be reclassified and changed into one share of Class B Stock (as
defined below) effective on such date.
(B) Each share of "Class C Common Stock" previously issued by the
Corporation and outstanding upon the first date of effectiveness of said
amendment shall be reclassified as one share of Class B Stock effective on such
date.
(C) Each share of Class B Stock resulting from the reclassifications
and change described above shall be subdivided into 13.47562592 shares of Class
B Stock.
(D) Article First of the Certificate of Incorporation is hereby
amended in its entirety to read as follows:
FIRST: The name of the Corporation is: MI Entertainment Corp. (the
"Corporation.")
<PAGE>
(E) Article Fourth of the Certificate of Incorporation is hereby
amended to read in its entirety as follows:
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is four hundred million (400,000,000) shares,
par value, $0.01 per share, three hundred and ten million (310,000,000)
of which shall be "Class A Subordinate Voting Stock" and ninety million
(90,000,000) of which shall be "Class B Stock". The rights, privileges,
restrictions and conditions attaching to the Class A Subordinate Voting
Stock and the Class B Stock are as follows:
(a) Rights, privileges, restrictions and conditions attaching to the
Class A Subordinate Voting Stock.
----------------------------------------------------------------
(i) Voting.
------
The Class A Subordinate Voting Stock shall carry and be entitled
to one (1) vote per share at all meetings of the stockholders of
the Corporation, except a meeting of the holders of only a
particular class or series of stock other than the Class A
Subordinate Voting Stock.
(ii) Dividends.
---------
The holders of the Class A Subordinate Voting Stock shall be
entitled to receive such dividends as may be declared thereon by
the Board of Directors. Subject to paragraph (a)(iii) below,
------------------
each share of Class A Subordinate Voting Stock shall participate
equally as to dividends with each share of Class B Stock without
preference, priority or distinction. No dividend shall at any
time be declared or set aside or paid on the Class B Stock
unless, on the same date, a dividend in the same amount per share
(to the extent that such dividend is payable in cash) or
identical property of equal value per share (to the extent that
such dividend is not payable in cash), as the case may be, is
declared to be payable on the Class A Subordinate Voting Stock,
which dividend shall be payable on the same date as that declared
on the Class B Stock. The holders of the Class A Subordinate
Voting Stock shall not be entitled to any dividends other than or
in excess of the dividends hereinbefore provided for in this
paragraph (a)(ii).
-----------------
2
<PAGE>
(iii) Stock Dividends.
---------------
Notwithstanding the provisions of paragraph (a)(ii) above
-----------------
contemplating the declaration or payment of dividends in
identical property, the Board of Directors may, in declaring
simultaneous dividends on both the Class A Subordinate Voting
Stock and the Class B Stock, cause the dividend on the Class A
Subordinate Voting Stock to be payable in Class A Subordinate
Voting Stock and the dividend on the Class B Stock to be payable
in Class A Subordinate Voting Stock or in Class B Stock, but no
dividend payable in Class B Stock may be declared on the Class A
Subordinate Voting Stock.
(iv) Right to Elect Directors.
------------------------
If:
(A) After-Tax Profits shall be less than four percent (4%) of
the Share Capital in each of two (2) consecutive Years (the
terms "After-Tax Profits", "Share Capital" and "Years" are
defined in paragraph (a)(viii) below); or
-------------------
(B) the Corporation fails to make a Required Dividend (as
defined in paragraph (a)(viii) below) in respect of each of
-------------------
two (2) consecutive Years;
then, and in any such case, the holders of the Class A
Subordinate Voting Stock shall, until After-Tax Profits for a
Year are at least equal to four percent (4%) of the Share Capital
and all Required Dividends in respect of such Year are made, have
the exclusive right, voting separately as a class, to nominate
and elect two (2) individuals to the Board at each meeting of the
stockholders of the Corporation subsequent to the two-Year period
referred to in subparagraphs (A) or (B) above at which directors
----------------- ---
are to be elected.
(v) Right to Elect Additional Directors.
-----------------------------------
If, following the period of two (2) consecutive Years described
in paragraph (a)(iv) above:
-----------------
3
<PAGE>
(A) After-Tax Profits shall be less than four percent (4%) of
the Share Capital in each of two (2) consecutive Years; or
(B) the Corporation fails to make a Required Dividend in respect
of each of two (2) consecutive Years;
then, and in any such case, the holders of the Class A
Subordinate Voting Stock shall, until After-Tax Profits for a
Year are at least equal to four percent (4%) of the Share Capital
and all Required Dividends in respect of such Year are made, have
the exclusive right, voting separately as a class, to nominate
and elect, in addition to those directors elected under paragraph
---------
(a)(iv) above, two (2) individuals to the Board of Directors at
-------
each meeting of the stockholders of the Corporation subsequent to
the two-Year period referred to in subparagraphs (A) or (B) above
----------------- ---
at which directors are to be elected. This right to elect two
(2) additional directors shall arise for each subsequent period
of two (2) consecutive Years until the holders of the Class A
Subordinate Voting Stock have the right, voting separately as a
class, to nominate and elect all the directors of the
Corporation.
(vi) Right to Request Meeting to Elect Directors.
-------------------------------------------
In the event that a stockholders' meeting at which directors are
to be elected is not held within one hundred and eighty (180)
days of the end of any period of two (2) consecutive Years
referred to in paragraphs (a)(iv) or (a)(v) above, the holders of
------------------ ------
record of at least ten percent (10%) of the Class A Subordinate
Voting Stock outstanding may request the Secretary of the
Corporation in writing to call a stockholders' meeting at which
directors are to be elected, and the Secretary shall call, within
thirty (30) days of receipt of such written notice, such a
meeting to be held within ninety (90) days of receipt of such
written notice; in default of the calling of such stockholders'
meeting by the Secretary within thirty (30) days of receipt of
the written notice, the meeting may be called by any holder of
record of the Class A Subordinate Voting Stock.
4
<PAGE>
(vii) Term of Office of Directors.
----------------------------
Notwithstanding anything contained in the by-laws of the
Corporation, the term of office of all persons who may be
directors of the Corporation at any time when the right to elect
directors arises in favor of the holders of the Class A
Subordinate Voting Stock as provided for in paragraphs (a)(iv)
------------------
and (a)(v) above, or who may be appointed as directors after such
------
rights have arisen and before a meeting of the stockholders has
been held to elect directors, shall terminate upon the election
of new directors at the meeting of the stockholders called for
the purposes of paragraphs (a)(iv) or (a)(v) above.
------------------ ------
Notwithstanding anything contained in the by-laws of the
Corporation, upon termination of the right of the holders of the
Class A Subordinate Voting Stock to elect directors as provided
for in paragraphs (a)(iv) and (a)(v) above, the term of office of
------------------ ------
all persons who may be directors of the Corporation, or who may
be appointed as directors after such termination and before a
meeting of the stockholders has been held to elect directors,
shall terminate upon the election of directors at the next
meeting of the stockholders at which directors are to be elected.
(viii) Definitions.
-------------
As used in paragraphs (a)(iv) through (a)(vii) above and in this
------------------ --------
paragraph (a)(viii), unless the context otherwise requires, the
---------
terms "After-Tax Profits", "Required Dividend", "Share Capital"
and "Year" have the following meanings:
(A) "After-Tax Profits" means the net income or net loss of the
Corporation as set forth in its audited consolidated
statement of income or loss for each Year, adjusted to
deduct extraordinary gains or gains which arise from the
disposal by the Corporation of existing businesses or fixed
assets as set forth in its audited consolidated statement of
income or loss;
(B) "Required Dividend" means the distribution of After-Tax
Profits required to be made each Year as provided below.
Unless otherwise approved by ordinary resolution of the
holders of Class A Subordinate Voting Stock and Class B
Stock, voting as separate
5
<PAGE>
classes, to the holders of Class A Subordinate Voting Stock
and Class B Stock shall be entitled to receive and the
Corporation shall pay thereon as and when declared by the
Board of Directors out of the moneys of the Corporation
properly applicable to the payment of dividends, non-
cumulative dividends in respect of each Year, so that the
aggregate of the dividends paid or payable in respect of
such Year by the Corporation is (i) equal to at least 10% of
After-Tax Profits; and (ii) in respect of all Years
commencing after January 1, 2006, shall be at least equal to
the greater of: (a) the amount specified in the preceding
subparagraph (i); (b) an amount which, when added to the
aggregate of such dividends paid in respect of the two (2)
immediately preceding Years equals 20% of the aggregate of
the After-Tax Profits for such Year and the two immediately
preceding Years;
(C) "Share Capital" with respect to any Year means the
arithmetic average of the stated capital attributable to the
outstanding shares of Class A Subordinate Voting Stock and
Class B Stock of the Corporation at the commencement of such
Year and at the end of such Year; and
(D) "Year" means the fiscal year of the Corporation from time to
time commencing with the fiscal year beginning January 1,
2004.
(ix) Dissolution.
------------
In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its
stockholders for the purpose of winding-up its affairs, all the
property and assets of the Corporation available for distribution
to the holders of the Class A Subordinate Voting Stock or the
Class B Stock shall be paid or distributed equally, share for
share, to the holders of the Class A Subordinate Voting Stock and
the Class B Stock, respectively, without preference, priority or
distinction.
6
<PAGE>
(x) Amendment.
----------
This Certificate of Incorporation may be amended to add, delete
or vary any right, privilege, restriction or condition attaching
to the Class A Subordinate Voting Stock which does not adversely
affect the rights of the holders of Class A Subordinate Voting
Stock without the approval of the holders of the Class A
Subordinate Voting Stock. Any amendment to the Certificate of
Incorporation to create stock ranking in priority to or on a
parity with the Class A Subordinate Voting Stock shall be deemed
not to adversely affect the rights of the holders of Class A
Subordinate Voting Stock and may be made without the approval of
the holders of the Class A Subordinate Voting Stock. Any
amendment to this Certificate of Incorporation to add, delete or
vary any right, privilege, restriction or condition attaching to
the Class A Subordinate Voting Stock which adversely affects the
rights of the holders of Class A Subordinate Voting Stock may be
made only with the approval of the holders of the Class A
Subordinate Voting Stock given. :
(A) in accordance with paragraph (a)(xi) below; and
-----------------
(B) in writing by the holders of all the outstanding Class A
Subordinate Voting Stock or by a resolution authorized by at
least two-thirds (2/3rds) of the votes cast at a separate
meeting of the holders of the Class A Subordinate Voting
Stock duly called and held for that purpose upon not less
than twenty-one (21) days' notice, such meeting to be held
and such notice to be given in accordance with the by-laws
of the Corporation in that regard, provided that each holder
of a share of Class A Subordinate Voting Stock shall be
entitled to one (1) vote at such meeting in respect of each
share of Class A Subordinate Voting Stock held by such
holder.
Any approval given as aforesaid shall be in addition to any other
consent or approval required by applicable law.
7
<PAGE>
(xi) Elections and Approval.
----------------------
Any election or approval by the holders of the Class A
Subordinate Voting Stock voting separately as a class as
contemplated or required by paragraphs (a)(iv) or (a)(v) or
------------------ ------
subparagraph (a)(x)(A) above shall mean the election by, or
----------------------
approval given by, a majority of the votes cast at a meeting of
such holders other than the votes attaching to the Class A
Subordinate Voting Stock beneficially owned, directly or
indirectly, by Magna International Inc. and its successors
("Magna") or any of its affiliates or by any person who, by
agreement, is acting jointly with Magna or any such affiliate, or
over which Magna, any of its affiliates or any such person
exercises direct or indirect control. "Affiliate" and "control"
shall have the meanings specified in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended, or any successor
rule.
(b) Rights, privileges, restrictions and conditions attaching to the
---
Class B Stock.
----------------------------------------------------------------
(i) Voting.
------
The Class B Stock shall carry and be entitled to twenty (20)
votes per share at all meetings of the stockholders of the
Corporation, except a meeting of the holders of only a particular
class or series of stock other than the Class B Stock.
(ii) Dividends.
---------
The holders of the Class B Stock shall be entitled to receive
such dividends as may be declared thereon by the Board of
Directors. Subject to paragraph (b)(iii) below, each Class B
------------------
Share shall participate equally as to dividends with each Class A
Subordinate Voting Share without preference, priority or
distinction. No dividend shall at any time be declared or set
aside or paid on the Class B Stock unless, on the same date, a
dividend in the same amount per share (to the extent that such
dividend is payable in cash) or identical property of equal value
per share (to the extent that such dividend is not payable in
cash), as the case may be, is declared to be payable on the Class
A Subordinate Voting Stock, which dividend
8
<PAGE>
shall be payable on the same date as that declared on the Class B
Stock. The holders of the Class B Stock shall not be entitled to
any dividends other than or in excess of the dividends
hereinbefore provided for in this paragraph (b)(ii).
-----------------
(iii) Stock Dividends.
---------------
Notwithstanding the provisions of paragraph (b)(ii) above
-----------------
contemplating the declaration or payment of dividends in
identical property, the Board of Directors may, in declaring
simultaneous dividends on both the Class A Subordinate Voting
Shares and the Class B Stock, cause the dividend on the Class A
Subordinate Voting Stock to be payable in Class A Subordinate
Voting Stock and the dividend on the Class B Stock to be payable
in Class A Subordinate Voting Stock or in Class B Stock, but no
dividend payable in Class B Stock may be declared on the Class A
Subordinate Voting Stock.
(iv) Dissolution.
-----------
In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its
stockholders for the purpose of winding-up its affairs, all the
property and assets of the Corporation available for distribution
to the holders of the Class B Stock or the Class A Subordinate
Voting Stock shall be paid or distributed equally, share for
share, to the holders of the Class B Stock and the Class A
Subordinate Voting Stock, respectively, without preference,
priority, or distinction.
(v) Conversion Right.
-----------------
The Class B Stock may, upon and subject to the terms and
conditions hereinafter set forth, be converted at any time by the
holder or holders thereof into fully-paid and non-assessable
Class A Subordinate Voting Stock of the Corporation on the basis
of one (1) share of Class A Subordinate Voting Stock for each
share of Class B Stock; provided, however, that in the event of
the liquidation, dissolution or winding-up of the Corporation,
whether
9
<PAGE>
voluntary or involuntary, such right of conversion shall cease
and expire at noon on the business day next preceding the date of
such liquidation, dissolution or winding-up.
(vi) Conversion Procedure.
---------------------
A holder of the Class B Stock desiring to convert some or all of
his Class B Stock into Class A Subordinate Voting Stock in
accordance with the foregoing shall surrender the certificate or
certificates representing the Class B Stock which such holder
desires to be converted to the Corporation at its registered
office or to the transfer agent, if any, for the Class B Stock,
together with a written request for such conversion in such form
and with such verification of signature, as the Board of
Directors may from time to time require.
(vii) Issuance of Class B Stock.
-------------------------
The Board of Directors shall not authorize the issuance of any
Class B Stock (other than in connection with a stock dividend)
without the prior approval of the holders of the Class B Stock
given by ordinary resolution, voting as a separate class.
(viii) Amendment.
---------
This Certificate of Incorporation may be amended to add, delete
or vary any right, privilege, restriction or condition attaching
to the Class B Stock or to create Stock ranking in priority to or
on a parity with the Class B Stock, but only with the approval of
the holders of the Class B Stock given in writing by the holders
of all of the outstanding Class B Stock or by a resolution
authorized by at least two-thirds (2/3rds) of the votes cast at a
separate meeting of the holders of the Class B Stock duly called
and held for that purpose upon not less than twenty-one (21)
days' notice, such meeting to be held and such notice to be given
in accordance with the by-laws of the Corporation in that regard,
provided that each holder of a share of Class B Stock shall be
entitled to twenty (20) votes
10
<PAGE>
at such meeting in respect of each share of Class B Stock held by
such holder.
Any approval given as aforesaid shall be in addition to any other
consent or approval required by applicable law.
(F) A new paragraph Tenth is added to the Certificate of Incorporation
of the Corporation, reading in its entirety as follows:
TENTH: To the fullest extent permitted by the GCL as it exists
on the date hereof or as it may hereafter be amended, a director
of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as
a director. No amendment to or repeal of this Article TENTH
shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect
to any acts or omissions of such director occurring prior to such
amendment or repeal.
[Signature page follows]
11
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
by J.Brian Colburn, its Executive Vice-President and Secretary, this 4/th/ day
of November, 1999.
By: /s/ J. Brian Colburn
-------------------------
J. Brian Colburn
Title: Executive Vice President and Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
MI ENTERTAINMENT CORP., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation (the "Board "),
by the unanimous written consent of its members, filed with the minutes of the
Board, duly adopted resolutions setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation, as filed pursuant to Section
101 of the General Corporation Law of the State of Delaware (the "GCL") on March
4, 1999, and as further amended on August 30, 1999 and November 4, 1999,
respectively, (the "Certificate of Incorporation"), declaring said amendment to
be advisable.
SECOND: That thereafter, written consents to the proposed amendment
were duly signed and delivered to the Corporation by all the stockholders of the
Corporation pursuant to Section 228 of the GCL.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the GCL.
FOURTH: Said amendment is as follows:
(A) Article Fourth of the Certificate of Incorporation is hereby
amended to read in its entirety as follows:
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is four hundred million (400,000,000)
shares, par value, $0.01 per share, three hundred and ten million
(310,000,000) of which shall be "Class A Subordinate Voting Stock" and
ninety million (90,000,000) of which shall be "Class B Stock". The
rights, privileges, restrictions and conditions attaching to the Class
A Subordinate Voting Stock and the Class B Stock are as follows:
<PAGE>
(a) Rights, privileges, restrictions and conditions attaching to the
Class A Subordinate Voting Stock.
----------------------------------------------------------------
(i) Voting.
------
The Class A Subordinate Voting Stock shall carry and be entitled
to one (1) vote per share at all meetings of the stockholders of
the Corporation, except a meeting of the holders of only a
particular class or series of stock other than the Class A
Subordinate Voting Stock.
(ii) Dividends.
---------
The holders of the Class A Subordinate Voting Stock shall be
entitled to receive such dividends as may be declared thereon by
the Board of Directors. Subject to paragraph (a)(iii) below,
------------------
each share of Class A Subordinate Voting Stock shall participate
equally as to dividends with each share of Class B Stock without
preference, priority or distinction. No dividend shall at any
time be declared or set aside or paid on the Class B Stock
unless, on the same date, a dividend in the same amount per share
(to the extent that such dividend is payable in cash) or
identical property of equal value per share (to the extent that
such dividend is not payable in cash), as the case may be, is
declared to be payable on the Class A Subordinate Voting Stock,
which dividend shall be payable on the same date as that declared
on the Class B Stock. The holders of the Class A Subordinate
Voting Stock shall not be entitled to any dividends other than or
in excess of the dividends hereinbefore provided for in this
paragraph (a)(ii).
-----------------
(iii) Stock Dividends.
---------------
Notwithstanding the provisions of paragraph (a)(ii) above
-----------------
contemplating the declaration or payment of dividends in
identical property, the Board of Directors may, in declaring
simultaneous dividends on both the Class A Subordinate Voting
Stock and the Class B Stock, cause the dividend on the Class A
Subordinate Voting Stock to be payable in Class A Subordinate
Voting Stock and the dividend on the Class B Stock to be payable
in Class A Subordinate Voting Stock or in Class B Stock, but no
dividend payable in Class B Stock may be declared on the Class A
Subordinate Voting Stock.
2
<PAGE>
(iv) Definitions.
-------------
As used in this paragraph (a)(iv), unless the context otherwise
-------
requires, the terms "After-Tax Profits", "Required Dividend", and
"Year" have the following meanings:
(A) "After-Tax Profits" means the net income or net loss of the
Corporation as set forth in its audited consolidated
statement of income or loss for each Year, adjusted to
deduct extraordinary gains or gains which arise from the
disposal by the Corporation of existing businesses or fixed
assets as set forth in its audited consolidated statement of
income or loss;
(B) "Required Dividend" means the distribution of After-Tax
Profits required to be made each Year as provided below.
Unless otherwise approved by ordinary resolution of the
holders of Class A Subordinate Voting Stock and Class B
Stock, voting as separate classes, the holders of Class A
Subordinate Voting Stock and Class B Stock shall be entitled
to receive and the Corporation shall pay thereon as and when
declared by the Board of Directors out of the moneys of the
Corporation properly applicable to the payment of dividends,
non-cumulative dividends in respect of each Year, so that
the aggregate of the dividends paid or payable in respect of
such Year by the Corporation is (i) equal to at least 10% of
After-Tax Profits; and (ii) in respect of all Years
commencing after January 1, 2006, shall be at least equal to
the greater of: (a) the amount specified in the preceding
subparagraph (i); (b) an amount which, when added to the
aggregate of such dividends paid in respect of the two (2)
immediately preceding Years equals 20% of the aggregate of
the After-Tax Profits for such Year and the two immediately
preceding Years;
(C) "Year" means the fiscal year of the Corporation from time to
time commencing with the fiscal year beginning January 1,
2004.
3
<PAGE>
(v) Dissolution.
------------
In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its
stockholders for the purpose of winding-up its affairs, all the
property and assets of the Corporation available for distribution
to the holders of the Class A Subordinate Voting Stock or the
Class B Stock shall be paid or distributed equally, share for
share, to the holders of the Class A Subordinate Voting Stock and
the Class B Stock, respectively, without preference, priority or
distinction.
(vi) Amendment.
-----------
This Certificate of Incorporation may be amended to add, delete
or vary any right, privilege, restriction or condition attaching
to the Class A Subordinate Voting Stock which does not adversely
affect the rights of the holders of Class A Subordinate Voting
Stock without the approval of the holders of the Class A
Subordinate Voting Stock. Any amendment to the Certificate of
Incorporation to create stock ranking in priority to or on a
parity with the Class A Subordinate Voting Stock shall be deemed
not to adversely affect the rights of the holders of Class A
Subordinate Voting Stock and may be made without the approval of
the holders of the Class A Subordinate Voting Stock. Any
amendment to this Certificate of Incorporation to add, delete or
vary any right, privilege, restriction or condition attaching to
the Class A Subordinate Voting Stock which adversely affects the
rights of the holders of Class A Subordinate Voting Stock may be
made only with the approval of the holders of the Class A
Subordinate Voting Stock given. :
(A) in accordance with paragraph (a)(vii) below; and
----------------
(B) in writing by the holders of all the outstanding Class A
Subordinate Voting Stock or by a resolution authorized by at
least two-thirds (2/3rds) of the votes cast at a separate
meeting of the holders of the Class A Subordinate Voting
Stock duly called and held for that purpose upon not less
than twenty-one (21) days' notice, such meeting to be held
and such notice to be
4
<PAGE>
given in accordance with the by-laws of the Corporation in
that regard, provided that each holder of a share of Class A
Subordinate Voting Stock shall be entitled to one (1) vote
at such meeting in respect of each share of Class A
Subordinate Voting Stock held by such holder.
Any approval given as aforesaid shall be in addition to any other
consent or approval required by applicable law.
(vii) Elections and Approval.
----------------------
Any election or approval by the holders of the Class A
Subordinate Voting Stock voting separately as a class as
contemplated or required herein shall mean the election by, or
approval given by, a majority of the votes cast at a meeting of
such holders other than the votes attaching to the Class A
Subordinate Voting Stock beneficially owned, directly or
indirectly, by Magna International Inc. and its successors
("Magna") or any of its affiliates or by any person who, by
agreement, is acting jointly with Magna or any such affiliate, or
over which Magna, any of its affiliates or any such person
exercises direct or indirect control. "Affiliate" and "control"
shall have the meanings specified in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended, or any successor
rule.
(b) Rights, privileges, restrictions and conditions attaching to the
---
Class B Stock.
----------------------------------------------------------------
(i) Voting.
------
The Class B Stock shall carry and be entitled to twenty (20)
votes per share at all meetings of the stockholders of the
Corporation, except a meeting of the holders of only a particular
class or series of stock other than the Class B Stock.
(ii) Dividends.
---------
The holders of the Class B Stock shall be entitled to receive
such dividends as may be declared thereon by the Board of
Directors. Subject to paragraph (b)(iii) below, each Class B
------------------
5
<PAGE>
Share shall participate equally as to dividends with each Class A
Subordinate Voting Share without preference, priority or
distinction. No dividend shall at any time be declared or set
aside or paid on the Class B Stock unless, on the same date, a
dividend in the same amount per share (to the extent that such
dividend is payable in cash) or identical property of equal value
per share (to the extent that such dividend is not payable in
cash), as the case may be, is declared to be payable on the Class
A Subordinate Voting Stock, which dividend shall be payable on
the same date as that declared on the Class B Stock. The holders
of the Class B Stock shall not be entitled to any dividends other
than or in excess of the dividends hereinbefore provided for in
this paragraph (b)(ii).
----------------
(iii) Stock Dividends.
---------------
Notwithstanding the provisions of paragraph (b)(ii) above
-----------------
contemplating the declaration or payment of dividends in
identical property, the Board of Directors may, in declaring
simultaneous dividends on both the Class A Subordinate Voting
Shares and the Class B Stock, cause the dividend on the Class A
Subordinate Voting Stock to be payable in Class A Subordinate
Voting Stock and the dividend on the Class B Stock to be payable
in Class A Subordinate Voting Stock or in Class B Stock, but no
dividend payable in Class B Stock may be declared on the Class A
Subordinate Voting Stock.
(iv) Dissolution.
-----------
In the event of the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its
stockholders for the purpose of winding-up its affairs, all the
property and assets of the Corporation available for distribution
to the holders of the Class B Stock or the Class A Subordinate
Voting Stock shall be paid or distributed equally, share for
share, to the holders of the Class B Stock and the Class A
Subordinate Voting Stock, respectively, without preference,
priority, or distinction.
(v) Conversion Right.
------------------
6
<PAGE>
The Class B Stock may, upon and subject to the terms and
conditions hereinafter set forth, be converted at any time by the
holder or holders thereof into fully-paid and non-assessable
Class A Subordinate Voting Stock of the Corporation on the basis
of one (1) share of Class A Subordinate Voting Stock for each
share of Class B Stock; provided, however, that in the event of
the liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, such right of conversion shall
cease and expire at noon on the business day next preceding the
date of such liquidation, dissolution or winding-up.
(vi) Conversion Procedure.
---------------------
A holder of the Class B Stock desiring to convert some or all of
his Class B Stock into Class A Subordinate Voting Stock in
accordance with the foregoing shall surrender the certificate or
certificates representing the Class B Stock which such holder
desires to be converted to the Corporation at its registered
office or to the transfer agent, if any, for the Class B Stock,
together with a written request for such conversion in such form
and with such verification of signature, as the Board of
Directors may from time to time require.
(vii) Issuance of Class B Stock.
-------------------------
The Board of Directors shall not authorize the issuance of any
Class B Stock (other than in connection with a stock dividend)
without the prior approval of the holders of the Class B Stock
given by ordinary resolution, voting as a separate class.
(viii) Amendment.
---------
This Certificate of Incorporation may be amended to add, delete
or vary any right, privilege, restriction or condition attaching
to the Class B Stock or to create Stock ranking in priority to or
on a parity with the Class B Stock, but only with the approval of
the holders of the Class B Stock given in writing by the holders
of all of the outstanding Class B Stock
7
<PAGE>
or by a resolution authorized by at least two-thirds (2/3rds) of
the votes cast at a separate meeting of the holders of the Class
B Stock duly called and held for that purpose upon not less than
twenty-one (21) days' notice, such meeting to be held and such
notice to be given in accordance with the by-laws of the
Corporation in that regard, provided that each holder of a share
of Class B Stock shall be entitled to twenty (20) votes at such
meeting in respect of each share of Class B Stock held by such
holder.
Any approval given as aforesaid shall be in addition to any other
consent or approval required by applicable law.
(F) A new paragraph Tenth is added to the Certificate of Incorporation
of the Corporation, reading in its entirety as follows:
TENTH: To the fullest extent permitted by the GCL as it exists
on the date hereof or as it may hereafter be amended, a director
of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as
a director. No amendment to or repeal of this Article TENTH
shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect
to any acts or omissions of such director occurring prior to such
amendment or repeal.
[Signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
by J.Brian Colburn, its Executive Vice-President and Secretary, this 8th day
of November, 1999.
/s/ J. Brian Colburn
- ----------------------------
By J. Brian Colburn
-------------------------------------
Title: Executive Vice-President and Secretary
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
MI VENTURE INC.
___________________
ARTICLE 1
MEETINGS OF STOCKHOLDERS
Section 1.1. Place of Meetings. Meetings of the stockholders shall be held at
------------------
such place within or without the State of Delaware as shall be designated by the
Board of Directors or the person or persons calling the meeting.
Section 1.2. Annual Meetings. The annual meeting of the stockholders for the
----------------
election of directors and the transaction of such other business as may properly
come before the meeting shall be held after the close of the Corporation's
fiscal year on such date and at such time as shall be designated by the Board of
Directors.
Section 1.3. Special Meetings. Special meetings may be called at any time by
-----------------
the Chairman of the Board, the President, the Board of Directors or the holders
of not less than one-fifth (1/5) of all of the outstanding stock entitled to
vote at such meeting.
Section 1.4. Notice of Meetings. A written notice stating the place, date,
------------------
and hour of each meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called shall be given by, or at the direction
of, the Secretary or the person or persons authorized to call the meeting to
each stockholder of record entitled to vote at such meeting, not less than ten
(10) days nor more than sixty (60) days before the date of the meeting, unless a
greater period of time is required by law in a particular case.
Section 1.5. Record Date. In order to determine the stockholders entitled to
------------
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. If no record
date is fixed: (i) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; and (ii) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 1.6. Informal Action. Any action required to be taken at any annual or
----------------
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of the stockholders, may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
Section 1.7. Quorum. A stockholders' meeting duly called shall not be
-------
organized for the transaction of business unless a quorum is present. A majority
of the outstanding shares entitled to vote, present in person or represented by
proxy, shall constitute a quorum. Once a quorum has been established, the
stockholders present in person or represented by proxy at a duly organized
meeting
<PAGE>
- 2 -
can continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum. If any meeting of
stockholders cannot be organized because of lack of a quorum, those present in
person or by proxy shall have the power, except as otherwise provided by
statute, to adjourn the meeting to such time and place as they may determine,
but in the case of any meeting called for the election of directors, the shares
present in person or represented by proxy at the second of such adjourned
meetings, consisting of at least one-third (1/3) of the outstanding shares
entitled to vote, shall nevertheless constitute a quorum for the purpose of
electing directors.
Section 1.8. Action by Stockholders; Voting. Except as may otherwise be
-------------------------------
provided by statute, the Certificate of Incorporation or this By-law, (i) each
stockholder of record present in person or by proxy shall be entitled, at every
stockholders' meeting, to one vote for each share of capital stock having voting
power standing in the name of such stockholder on the books of the Corporation,
and (ii) the affirmative vote of a majority of the shares present in person or
represented by proxy at a duly organized meeting and entitled to vote on the
subject matter shall be the act of the stockholders.
ARTICLE II
DIRECTORS
Section 2.1. Powers of Directors. The business and affairs of the Corporation
--------------------
shall be managed by or under the direction of the Board of Directors, which
shall exercise all powers that may be exercised or performed by the Corporation
and that are not by statute, the Certificate of Incorporation or this By-law
directed to be exercised or performed by the stockholders.
Section 2.2 Number, Election and Term of Office. The number of directors that
------------------------------------
shall constitute the whole Board of Directors shall be not less than one (l) and
not more than ten (10). The number of directors of the Corporation and the
number of directors to be elected at the annual meeting of stockholders shall be
such number as shall be determined from time to time by resolution of the
directors. Directors need not be stockholders of the Corporation. The directors
shall be elected by the stockholders at the annual meeting or any special
meeting called for such purpose. Each director shall hold office until his or
her successor shall be duly elected and qualified or until his or her earlier
resignation or removal. A director may resign at any time upon written notice to
the Corporation.
Section 2.3. Vacancies. Vacancies and newly created directorships resulting
----------
from any increase in the authorized number of directors may be filled by a
majority vote of the directors then in office, although less than a quorum, or
by a sole remaining director. The occurrence of a vacancy which is not filled by
action of the Board of Directors shall constitute a determination by the Board
of Directors that the number of directors is reduced so as to eliminate such
vacancy, unless the Board of Directors shall specify otherwise. When one or
more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective. All
replacement directors shall be selected from a list of nominees provided by the
shareholder who had nominated the director being replaced.
Section 2.4. Meetings of Directors. Regular meetings of the Board of
----------------------
Directors shall be held at such time and place as the Directors shall from time
to time by resolution appoint; and no notice shall be required to be given of
any such regular meeting. A special meeting of the Board of Directors may be
called by the Chairman of the Board, the President or any director by giving ten
(10) days notice to each director by letter, telegram, telephone or other oral
message. Except as otherwise provided by these By-laws, a majority of the total
number of directors shall constitute a quorum for the transaction of business,
and the vote of a majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors.
<PAGE>
- 3 -
Section 2.5. Informal Action. Any action required or permitted to be taken at
----------------
any meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 2.6. Quorum. A majority of the Board of Directors then in office
-------
shall constitute a quorum for the transaction of business.
Section 2.7. Telephone Participation in Meetings. Members of the Board of
------------------------------------
Directors, or any committee designated by the Board, shall be entitled to
participate in a meeting of the Board of Directors or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section shall constitute presence in person at such
meeting.
ARTICLE III
OFFICERS
Section 3.1. Enumeration. The officers of the Corporation shall be elected or
------------
appointed by the Board of Directors and may consist of a President, such number
of Vice Presidents (if any) as the Board of Directors shall from time to time
elect or appoint, a Secretary, a Treasurer, and such other officers (if any) as
the Board of Directors shall from time to time elect or appoint. The Board of
Directors may at any time elect or appoint one of its members as Chairman of the
Board of the Corporation, who shall preside at meetings of the Board of
Directors and of the stockholders and shall have such powers and perform such
duties as shall from time to time be prescribed by the Board of Directors. Any
two or more offices may be held by the same person.
Section 3.2 Chairman of the Board. The Chairman of the Board, if elected or
----------------------
appointed by the Board of Directors, shall preside at meetings of the Board of
Directors. If the Chairman of the Board shall also be elected or appointed as
the chief executive officer, the Chairman of the Board shall have the powers and
perform the duties of the chief executive officer. The Chairman of the Board
shall have such other powers and perform such other duties as shall from time to
time be specified by the Board of Directors or delegated to the Chairman of the
Board by the chief executive officer of the Corporation.
Section 3.3. President. The President shall be the chief executive officer of
----------
the Corporation, unless the Chairman of the Board has been so elected under
Section 3.2, and shall have general and active charge and control over the
business and affairs of the Corporation, subject to the Board of Directors. If
there shall be no Chairman of the Board, or in his or her absence or inability
to act, the President shall preside at meetings of the Board of Directors and of
the stockholders. The President shall sign all certificates for shares of the
capital stock of the Corporation and may, together with the Secretary, execute
on behalf of the Corporation any contract which has been approved by the Board
of Directors.
Section 3.4. Executive Vice-President and Vice President. The Vice President
--------------------------------------------
(including an Executive Vice-President) or, if there shall be more than one, the
Vice Presidents (including Executive Vice-Presidents), in the order of their
seniority unless otherwise specified by the Board of Directors, shall have all
the powers and perform all of the duties of the President during the absence or
inability to act of the President. Each Vice President (including an Executive
Vice-President) shall also have such other powers and perform such other duties
as shall from time to time be prescribed by the Board of Directors or the
President.
<PAGE>
- 4 -
Section 3.5. Secretary. The Secretary shall record the proceedings of the
----------
meetings of the stockholders and directors in a book to be kept for that
purpose, and shall give notice as required by statute or this By-law of all such
meetings. The Secretary shall have custody of the seal of the Corporation and of
all books, records, and papers of the Corporation, except such as shall be in
the charge of the Treasurer or of some other person authorized to have custody
and possession thereof by resolution of the Board of Directors. The Secretary
may, together with the President, execute on behalf of the Corporation any
contract which has been approved by the Board of Directors. The Secretary shall
also have such other powers and perform such other duties as are incident to the
office of the secretary of a corporation or as shall from time to time be
prescribed by, or pursuant to authority delegated by, the Board of Directors.
Section 3.6. Treasurer. The Treasurer shall keep full and accurate accounts
----------
of the receipts and disbursements of the Corporation in books belonging to the
Corporation, shall deposit all moneys and other valuable effects of the
Corporation in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors, and shall also have
such other powers and perform such other duties as are incident to the office of
the treasurer of a corporation or as shall from time to time be prescribed by,
or pursuant to authority delegated by, the Board of Directors.
Section 3.7. Other Officers. The powers and duties of each other officer who
---------------
may from time to time be elected or appointed by the Board of Directors shall be
as specified by, or pursuant to authority delegated by, the Board of Directors
at the time of the election or appointment of such other officer or from time to
time thereafter. In addition, each officer designated as an assistant officer
shall assist in the performance of the duties of the officer to which he or she
is assistant, and shall have the powers and perform the duties of such officer
during the absence or inability to act of such officer.
Section 3.8. Additional Powers and Duties. The Board of Directors may from
-----------------------------
time to time by resolution increase or add to the powers and duties of any of
the officers of the Corporation.
Section 3.9. Term and Compensation. Officers shall be elected or appointed by
----------------------
the Board of Directors from time to time, to serve at the pleasure of the Board.
Each officer shall hold office until his or her successor is elected or
appointed and qualified, or until his or her earlier resignation or removal. Any
officer may resign at any time upon written notice to the Corporation. The
compensation of all officers shall be fixed by, or pursuant to authority
delegated by, the Board of Directors from time to time.
ARTICLE IV
INDEMNIFICATION
Section 4.1. Actions, Suits or Proceedings Other Than by or in the Right of the
------------------------------------------------------------------
Corporation. The Corporation shall indemnify any person who was or is a party or
- ------------
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was or has agreed to become a director, officer, employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, to the
full extent now or hereinafter permitted by law against costs, charges, expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
action, suit or proceeding and any appeal therefrom, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
---------------
itself,
<PAGE>
- 5 -
create a presumption that the person did not act in good faith or in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Corporation, or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 4.2. Actions or Suits by or in the Right of the Corporation. The
-------------------------------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favour by reason of
the fact that he is or was or has agreed to become a director, officer, employee
or agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or omitted in such capacity, against
costs, charges and expenses (including attorneys' fees) actually and reasonably
incurred by him or on his behalf in connection with the defense or settlement of
such action or suit and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable in the performance of his duty to the Corporation unless and only to the
extent that the Court of Chancery of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such costs,
charges and expenses which the Court of Chancery or such other court shall deem
proper.
Section 4.3. Indemnification for Costs, Charges and Expenses of Successful
-------------------------------------------------------------
Party. Notwithstanding the other provisions of this Article, to the extent that
- ------
a director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in defense of any action, suit or proceeding referred
to in Sections 4.1 and 4.2 of this Article, or in defense of any claim, issue or
matter therein, he shall be indemnified against all costs, charges and expenses
(including attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection therewith.
Section 4.4. Determination of Right to Indemnification. Any indemnification
------------------------------------------
under Sections 4.1 and 4.2 of this Article (unless ordered by a court) shall be
paid by the Corporation unless a determination is made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders, that indemnification of the director, officer, employee or agent
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in Sections 4.1 and 4.2 of this Article.
Section 4.5. Advance of Costs, Charges and Expenses. Costs, charges and
---------------------------------------
expenses (including attorneys' fees) incurred by a person referred to in
Sections 4.1 and 4.2 of this Article in defending a civil or criminal action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition or such action, suit or proceeding; provided, however, that the
-----------------
payment of such costs, charges and expenses incurred by a director or officer in
his capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer) in
advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article. Such costs, charges and expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate. The Board of
Directors may, in the manner set forth above, and upon approval of such
director, officer, employee or agent of the Corporation, authorize the
Corporation's counsel to represent such person, in any action, suit or
proceeding, whether or not the Corporation is a party to such action, suit or
proceeding.
<PAGE>
- 6 -
Section 4.6. Procedure for Indemnification. Any indemnification under
------------------------------
Sections 4.1, 4.2 and 4.3, or advance of costs, charges and expenses under
Section 4.5 of this Article, shall be made promptly, and in any event within 60
days, upon the written request of the director, officer, employee or agent. The
right to indemnification or advances as granted by this Article shall be
enforceable by the director, officer, employee or agent in any court of
competent jurisdiction, if the Corporation denies such request, in whole or in
part, or if no disposition thereof is made within 60 days. Such persons' costs
and expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under Section 4.5 of this Article where the required undertaking, if
any, has been received by the Corporation) that the claimant has not met the
standard of conduct set forth in Sections 4.1 or 4.2 of this Article, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, its independent legal
counsel, and its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in Sections 4.1 or 4.2 of this Article, nor the fact that there has been
an actual determination by the Corporation (including its Board of Directors,
its independent legal counsel, and its stockholders) that the claimant has not
met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
Section 4.7. Other Rights; Continuation of Right to Indemnification. The
----------------------------------------------------------
indemnification provided by this Article shall not be deemed exclusive of any
other rights to which a person seeking indemnification may be entitled under any
law (common or statutory), agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, and shall continue as to a person who has ceased
to be a director, officer, employee or agent, and shall inure to the benefit of
the estate, heirs, executors and administrators of such person. All rights to
indemnification under this Article shall be deemed to be a contract between the
Corporation and each director, officer, employee or agent of the Corporation who
serves or served in such capacity at any time while this Article is in effect.
Any repeal or modification of this Article or any repeal or modification of
relevant provisions of the Delaware General Corporation Law or any other
applicable laws shall not in any way diminish any rights to indemnification of
such director, officer, employee or agent or the obligations of the Corporation
arising hereunder.
Section 4.8. Insurance. The Corporation may purchase and maintain insurance on
----------
behalf of any person who is or was or has agreed to become a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another Corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him or on his behalf in any such capacity,
or arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
Article, provided that such insurance is available on acceptable terms, which
--------
determination shall be made by a vote of a majority of the entire Board of
Directors.
Section 4.9 Savings Clause. If this Article or any portion hereof shall be
---------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee and
agent of the Corporation as to costs, charges and expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement with respect to any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation, to the
full extent permitted by any applicable portion of this Article that shall not
have been invalidated and to the full extent permitted by applicable law.
<PAGE>
- 7 -
ARTICLE V
SHARES OF CAPITAL STOCK
Section 5.1. Issuance of Stock. Shares of capital stock of any class now or
------------------
hereafter authorized of the Corporation, securities convertible into or
exchangeable for such stock, or options or other rights to purchase such stock
or securities may be issued or granted in accordance with authority granted by
resolution of the Board of Directors.
Section 5.2. Stock Certificates. Certificates for shares of the capital stock
-------------------
of the Corporation shall be in the form adopted by the Board of Directors, shall
be signed by the President and by the Secretary or Treasurer, and may be sealed
with the seal of the Corporation. All such certificates shall be numbered
consecutively, and the name of the person owning the shares represented thereby,
with the number of such shares and the date of issue, shall be entered on the
books of the Corporation.
Section 5.3. Transfer of Stock. Shares of capital stock of the Corporation
------------------
shall be transferred only on the books of the Corporation, by the holder of
record in person or by the holder's duly authorized representative, upon
surrender to the Corporation of the certificate for such shares duly endorsed
for transfer, together with such other documents (if any) as may be required
from time to time by the Board of Directors to effect such transfer.
Section 5.4. Lost, Stolen, Destroyed, or Mutilated Certificates. New stock
---------------------------------------------------
certificates may be issued to replace stock certificates alleged to have been
lost, stolen, destroyed, or mutilated, upon such terms and conditions, including
proof of loss or destruction, and the giving of a satisfactory bond of
indemnity, as the Board of Directors from time to time may determine.
Section 5.5. Regulations. The Board of Directors shall have power and
------------
authority to make all such rules and regulations not inconsistent with this By-
law as it may deem expedient concerning the issue, transfer, and registration of
shares of capital stock of the Corporation.
Section 5.6. Holders of Record. The Corporation shall be entitled to treat
------------------
the holder of record of any share or shares of capital stock of the Corporation
as the holder and owner in fact thereof for all purposes and shall not be bound
to recognize any equitable or other claim to, or right, title, or interest in,
such share or shares on the part of any other person, whether or not the
Corporation shall have express or other notice thereof, except as otherwise
provided by the laws of the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Corporate Seal. The Corporation may adopt a seal in such form as
---------------
the Board of Directors shall from time to time determine.
Section 6.2. Financial Year. The financial year of the Corporation shall be
---------------
as designated by the Board of Directors from time to time.
Section 6.3. Banking Arrangements. The banking business of the Corporation
---------------------
including, without limitation, the borrowing of money and the provision of
security therefor, shall be transacted with such banks, trust companies or other
bodies corporate or organizations as may from time to time be designated by or
under the authority of the Board of Directors. Such banking business or any
part thereof shall be transacted under such agreements, instructions and
delegations of powers as the
<PAGE>
- 8 -
Board or the Chairman or President and the Vice-President, Finance, the
Secretary or the Treasurer of the Corporation may from time to time prescribe.
The Chairman or President and the Vice-President, Finance, the Secretary or the
Treasurer of the Corporation shall have the authority to appoint bankers,
authorize facsimile signatures on cheques, and authorize signing officers to
sign, endorse or deposit cheques, bills of exchange and similar documents and to
attend to other matters related to the Corporation's dealings with its bankers.
Section 6.4. Financial Reports. Financial statements or reports shall not be
------------------
required to be sent to the stockholders of the Corporation, but may be so sent
in the discretion of the Board of Directors, in which event the scope of such
statements or reports shall be within the discretion of the Board of Directors,
and, unless the Board of Directors otherwise requires or prescribes, such
statements or reports shall not be required to have been examined by or to be
accompanied by an opinion of an accountant or firm of accountants.
Section 6.5. Effect of By-Laws. No provision in this By-law shall vest any
------------------
property right in any stockholder.
Section 6.6. Notices and Waiver of Notice.
-----------------------------
(a) Whenever, under the provisions of applicable law or of the Certificate
of Incorporation or of this By-law, written notice is required to be given to
any person, it may be given to such person either personally or by sending a
copy thereof through the mail, or by telefax, telex or telegram, postage or
charges prepaid, directed to such person at his or her address as it appears on
the records of the Corporation. If the notice is sent by mail or by telefax,
telex or telegraph, it shall be deemed to have been given to the person entitled
thereto three (3) business days after being deposited in the United States mail
or on the next business day following the transmittal thereof by telefax, telex
or telegram. Such notice shall specify the place, date and hour of the meeting
and, in the case of special meeting of stockholders, the purpose or purposes for
which the meeting is called. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
(b) Whenever notice is required to be given, under the provisions of
applicable law or under the Certificate of Incorporation or this By-law, a
written waiver of such notice, signed by the person entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
such notice. Neither the business to be transacted at nor the purpose of any
regular or special meeting of the stockholders, directors, or members of a
committee of directors, need be specified in any written waiver of notice of
such meeting. Attendance of a person at any meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Section 6.7. Execution of Documents. Deeds, transfers, assignments, contracts
-----------------------
and all other obligations of the Corporation may be signed by any two directors
or proper officers of the Corporation. In addition to the foregoing, the Board
of Directors may, at any time and from time to time, direct the manner in which
and the person or persons by whom any particular deed, transfer, assignment,
contract or other obligation or any class of deeds, transfers, assignments,
contracts or other obligations may be signed for and on behalf of the
Corporation.
Section 6.8 Unanimous Stockholders Agreement. Except as prohibited by
---------------------------------
applicable law or the Certificate of Incorporation, the provisions of this By-
law shall be read in conjunction with and made subject to the provisions of any
unanimous stockholders agreement executed, from time to
<PAGE>
- 9 -
time, by all of the stockholders of the Corporation, and, to the extent that the
stockholders assume, in such unanimous stockholders agreement, the powers and
duties that the Board of Directors of the Corporation would otherwise exercise,
the Board of Directors shall be relieved from performing such powers and duties
and released and discharged from any related responsibilities.
ARTICLE VII
AMENDMENTS
Except as may otherwise be provided in this By-law, the authority to adopt,
amend or repeal by-laws of the Corporation is expressly conferred upon the Board
of Directors, which may take such action by the affirmative vote of a majority
of the whole Board of Directors at any regular or special meeting duly convened
after notice of that purpose, subject always to the power of the stockholders to
adopt, amend or repeal by-laws.
<PAGE>
Exhibit 10.1
===============================================================================
ASSET PURCHASE AGREEMENT
dated as of
November 13, 1998,
between
Meditrust Corporation,
Meditrust Operating Company,
The Santa Anita Companies, Inc.
and Santa Anita Enterprises, Inc., as Sellers
and
MI Developments of America, Inc., as Buyer
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
1.1 Definitions............................................................. 1
ARTICLE II
SALE OF ASSETS, ASSUMPTION OF LIABILITIES AND RELATED TRANSACTIONS
2.1 Purchase and Sale of Assets............................................ 8
2.2 Assumption of Certain Liabilities...................................... 10
2.3 Purchase Price and Allocation.......................................... 11
2.4 Payment of Purchase Price; Closing Adjustment.......................... 11
2.5 Review of Title Matters................................................ 13
2.6 Interim Operations..................................................... 13
ARTICLE III
CLOSING
3.1 Closing Date........................................................... 13
3.2 Items to be Delivered at the Closing By Sellers........................ 13
3.3 Items to be Delivered at the Closing by Buyer.......................... 14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
4.1 Organization and Related Matters...................................... 15
4.2 Stock................................................................. 15
4.3 Financial Statements; Changes; Contingencies.......................... 16
4.4 Tax and Other Returns and Reports..................................... 17
4.5 MaterialContracts..................................................... 17
4.6 Condition of Property; Leases......................................... 18
4.7 Intangible Property................................................... 20
4.8 Authorization;No Conflicts............................................ 20
4.9 Legal Proceedings..................................................... 21
4.10 Minute Books.......................................................... 21
4.11 Accounting Records; Internal Controls; Absence of Certain Payments.... 21
4.12 Insurance............................................................. 21
4.13 Permits............................................................... 22
4.14 Compliance with Law................................................... 22
i
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
4.15 Dividends and other Distributions..................................... 22
4.16 Employee Benefits..................................................... 22
4.17 Certain Interests..................................................... 26
4.18 Intercompany Transactions............................................. 26
4.19 Bank Accounts, Powers, etc............................................ 26
4.20 No Brokers or Finders................................................. 26
4.21 Accuracy of Information............................................... 27
4.22 Environmental Compliance.............................................. 27
4.23 Powers of Attorney.................................................... 28
4.24 As-Is Qualification................................................... 28
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
5.1 Organization and Related Matters....................................... 29
5.2 Authorization.......................................................... 29
5.3 No Conflicts........................................................... 29
5.4 No Brokers or Finders.................................................. 29
5.5 Governmental Filings................................................... 29
ARTICLE VI
COVENANTS WITH RESPECT TO CONDUCT OF THE BUSINESS PRIOR TO CLOSING
6.1 Access................................................................. 30
6.2 Material Adverse Changes; Reports; Financial Statements................ 30
6.3 Conduct of Business.................................................... 31
6.4 Notification of Certain Matters........................................ 33
6.5 Permits and Approvals; Third Party Consents............................ 33
6.6 Preservation of Business Prior to Closing Date......................... 34
6.7 Certain Filings........................................................ 34
ARTICLE VII
ADDITIONAL CONTINUING COVENANTS
7.1 Noncompetition........................................................ 34
7.2 Nondisclosure of Proprietary Data..................................... 35
7.3 Tax Cooperation....................................................... 35
7.4 Employment Matters.................................................... 36
7.5 Proration Payments.................................................... 36
7.6 New Gaming Profit Sharing............................................. 37
ii
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
7.7 No Solicitation....................................................... 37
7.8 Section 338(h)(10) Election........................................... 37
7.9 Sales and Transfer Taxes.............................................. 37
7.10 Waiver of Bulk Sales Notice........................................... 38
7.11 Elimination of Intercompany and Affiliate Liabilities................. 38
7.12 Pension Plan.......................................................... 38
7.13 Corporate Name........................................................ 38
7.14 Repair of Damage; Condemnation........................................ 38
ARTICLE VIII
CONDITIONS OF PURCHASE
8.1 GeneralConditions...................................................... 39
8.2 Conditions to Obligations of Buyer..................................... 39
8.3 Conditions to Obligations of Sellers................................... 40
ARTICLE IX
TERMINATION OF OBLIGATIONS; SURVIVAL
9.1 Termination of Agreement............................................... 40
9.2 Effect of Termination.................................................. 41
9.3 Survival of Representations and Warranties............................. 41
ARTICLE X
INDEMNIFICATION
10.1 Obligations of Sellers................................................ 42
10.2 Obligations of Buyer.................................................. 42
10.3 Certain Tax Matters................................................... 43
10.4 Procedure............................................................. 44
10.5 Survival.............................................................. 45
10.6 Notice by Sellers..................................................... 45
10.7 Not Exclusive Remedy.................................................. 45
ARTICLE XI
GENERAL
11.1 Amendments;Waivers................................................... 45
11.2 Schedules; Exhibits; Integration..................................... 45
11.3 BestEfforts;FurtherAssurances........................................ 46
iii
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
11.4 Governing Law........................................................ 46
11.5 No Assignment........................................................ 46
11.6 Headings............................................................. 46
11.7 Counterparts......................................................... 46
11.8 Publicity and Reports................................................ 46
11.9 Confidentiality...................................................... 47
11.10 Parties in Interest.................................................. 47
11.11 Performance by Subsidiaries.......................................... 47
11.12 Notices.............................................................. 47
11.13 Expenses............................................................. 48
11.14 Remedies; Waiver..................................................... 49
11.15 Attorney's Fees...................................................... 49
11.16 Specific Performance................................................. 49
11.17 Severability......................................................... 49
11.18 Time of Essence...................................................... 49
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into as of November 13, 1998,
between MI Developments of America, Inc., a Delaware corporation ("Buyer"),
Meditrust Corporation, a Delaware corporation ("MT"), Meditrust Operating
Company, a Delaware corporation ("MOC"), The Santa Anita Companies, Inc., a
Delaware corporation ("SAC"), and Santa Anita Enterprises, a California
corporation ("SAE," and together with MT, MOC and SAC, "Sellers").
R E C I T A L S
WHEREAS, Sellers own, lease or license all of the assets used in connection
with their horse racing business conducted at Santa Anita Racetrack.
WHEREAS, Sellers desire to sell, and Buyer desires to purchase such assets
on the terms and conditions set forth in this Agreement.
A G R E E M E N T
In consideration of the mutual promises contained herein and intending to
be legally bound, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions.
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For all purposes of this Agreement, except as otherwise expressly provided,
(a) the terms defined in this Article I have the meanings assigned to them
in this Article I and include the plural as well as the singular,
(b) all accounting terms not otherwise defined herein have the meanings
assigned under generally accepted accounting principles in the United States,
(c) all references in this Agreement to designated "Articles," "Sections"
and other subdivisions are to the designated Articles, Sections and other
subdivisions of the body of this Agreement,
(d) pronouns of either gender or neuter shall include, as appropriate, the
other pronoun forms, and
(e) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision.
As used in this Agreement and the Exhibits and Schedules delivered pursuant
to this Agreement, the following definitions shall apply.
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"Accounts Receivable" has the meaning specified in Section 2.1(b).
"Action" means any action, complaint, investigation, petition, suit or
other proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity.
"Adjustment Period" has the meaning specified in Section 10.3(c).
"Affiliate" means a Person that directly or indirectly, through one or
more intermediaries, controls, or is controlled by, or is under common control
with, a specified Person.
"Aggregate Claims" has the meaning specified in Section 10.1(b).
"Agreement" means this Agreement by and among Buyer and Sellers as
amended or supplemented together with all Exhibits and Schedules attached or
incorporated by reference.
"Approval" means any approval, authorization, consent, qualification
or registration, or any waiver of any of the foregoing, required to be obtained
from, or any notice, statement or other communication required to be filed with
or delivered to, any Governmental Entity or any other Person.
"Arbitrating Accountant" has the meaning specified in Section 2.4(d).
"Associate" of a Person means
(a) a corporation or organization (other than a party to this
Agreement) of which such person is a director, an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities;
(b) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as trustee or in a similar
capacity; and
(c) any relative or spouse of such person or any relative of such
spouse.
"Assumed Liabilities" has the meaning specified in Section 2.2(b).
"Auditors" means PriceWaterhouseCoopers LLP, independent public
accountants to Sellers.
"Bill of Sale" has the meaning specified in Section 3.2(a).
"Business" means the horse racing operations of Sellers and the
Subsidiaries taken as a whole and any and all rights, documents and other
interests of Sellers and the Subsidiaries with respect to the development or the
proposed development of the Real Property and shall be deemed to include each or
any of the following incidents of such business: income, future cash flow,
operations, condition (financial or other), Purchased Assets, anticipated
revenues/income, prospects, Assumed Liabilities, and personnel and management.
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"Closing" means the consummation of the transaction contemplated by
this Agreement as set forth in Section 3.1.
"Closing Account Amount" means (a) the sum of the book values of
inventory, prepaid expenses (including without limitation all expenses incurred
in connection with the 1998-1999 Santa Anita race meet) and cash and cash
equivalents as included in the Closing Balance Sheet, less (b) liabilities,
including, without limitation, deferred income and accrued vacation, reflected
on the Closing Balance Sheet (excluding any amounts for Excluded Liabilities,
which shall be transferred by LATC to Seller immediately prior to the Closing).
"Closing Adjustment" has the meaning specified in Section 2.4.
"Closing Balance Sheet" has the meaning specified in Section 2.4(b).
"Closing Date" means the date of the Closing.
"Closing Payment" has the meaning specified in Section 2.4(a).
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Contract" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"Deficiency Period" has the meaning specified in Section 10.3(c).
"Deposit" means the $6.5 million being held pursuant to the letter
agreement, dated October 23, 1998, which amount shall be transferred to the
Title Company to be held under the terms hereof and the Joint Escrow
Instructions, and shall include any and all interest or other investment income
thereon.
"Disclosure Schedule" means the Disclosure Schedule dated November 12,
1998 and delivered by Sellers to Buyer. The Sections of the Disclosure Schedule
shall be numbered to correspond to the applicable Section of this Agreement and,
together with all matters under such heading, shall be deemed to qualify only
----
that section.
"Disputed Items" has the meaning specified in Section 2.4(d).
"Encumbrance" means any claim, charge, lease, covenant, easement,
encumbrance, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"Equity Securities" means any capital stock or other equity interest
or any securities convertible into or exchangeable for capital stock or any
other rights, warrants or options to acquire any of the foregoing securities.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related regulations and published interpretations.
"ERISA Affiliate" means (i) any corporation which is a member of a
group of corporations of which any Seller is a member and which is a controlled
group of corporations within the meaning of Section 414(b) of the Code; (ii) any
trade or business (whether or not incorporated) which is a member of a group of
trades or businesses under common control within the meaning of Section 414(c)
of the Code of which any Seller is a member; and (iii) a member of an affiliated
service group within the meaning of Section 414(m) or (o) of the Code of which
any Seller, any corporation described in clause (i) above or any trade or
business described in clause (ii) above is a member.
"ERISA Plan" means any plan or Contract referred to in Section 4.16
that is subject to any provision of ERISA.
"Excess Amount" has the meaning specified in Section 10.3(c).
"Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
"Excluded Assets" has the meaning specified in Section 2.1(a).
"Excluded Liabilities" has the meaning specified in Section 2.2(a).
"FIRPTA Certificate" has the meaning specified in Section 3.2(e).
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time, applied on a consistent basis.
"Gaming Royalty" has the meaning specified in Section 7.6.
"Governmental Entity" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"Grant Deed" has the meaning specified in Section 3.2(b).
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the related regulations and published
interpretations.
"Hazardous Substance" means (but shall not be limited to) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable Laws as "hazardous substances," "hazardous materials," "hazardous
wastes" or "toxic substances," or any other formulation intended to define, list
or classify substances by reason of deleterious properties such as ignitibility,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy.
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"Indemnifiable Claim" means any Loss for or against which any party is
entitled to indemnification under this Agreement; "Indemnified Party" means the
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party entitled to indemnity hereunder; and "Indemnifying Party" means the party
------------------
obligated to provide indemnification hereunder.
"Intangible Property" means any trade secret, secret process or other
confidential information or know-how related to the Business and any and all
Marks, and in each case, any licenses with respect thereto.
"Inventory" has the meaning specified in Section 2.1(a).
"IRS" means the United States Internal Revenue Service or any
successor entity.
"Joint Escrow Instructions" has the meaning specified in Section
8.2(h).
"LATC" means Los Angeles Turf Club Incorporated, a California
corporation.
"Law" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"Lease" has the meaning set forth in Section 4.6.
"Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified person.
"Mark" means any brand name, copyright, patent, service mark,
trademark, trade name, and all registrations or applications for registration of
any of the foregoing, in each case related to the Business.
"Material Adverse Effect" means (a) dimunition in value of the
Purchased Assets of $5 million or more from their value as of the date of this
Agreement or (b) the inability of Buyer to conduct the Business in substantially
the manner it has been conducted during the Period of Ownership.
"Material Contract" means any executory Contract relating to the
Business as of or after November 12, 1998 which is deemed material by Section
4.5.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Pension Plan" has the meaning set forth in Section 7.12.
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"Permit" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued by
any Governmental Entity and related to the operation of the Business.
"Permitted Exceptions" means (a) Taxes (i) not yet delinquent or (ii)
the validity of which are being contested in good faith by appropriate actions
and which are described on Schedule 2.5 hereto and (b) those exceptions set
forth in the Title Commitment.
"Person" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"Preliminary Title Report" means an extended coverage preliminary
title report or title insurance commitment issued by the Title Company showing
all Encumbrances affecting all Real Property, together with legible copies of
all documents referred to in such preliminary title report.
"Prepaid Expenses" has the meaning specified in Section 2.1(a).
"Proration Date" means as of 12:01 a.m. on the earlier of the Closing
Date or December 26, 1998.
"Purchase Price" has the meaning set forth in Section 2.3.
"Purchased Assets" has the meaning set forth in Section 2.1(a).
"Real Property" means all Purchased Assets consisting of real
property, appurtenances thereto, rights in connection therewith, and any
interest therein, including without limitation leasehold estates.
"Review Period" has the meaning specified in Section 2.4(c).
"SAC" means The Santa Anita Companies, Inc., a Delaware corporation.
"SAE" means Santa Anita Enterprises, Inc., a California corporation.
"SEC" means the United States Securities and Exchange Commission or
any successor entity.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Subsequent Contract" has the meaning specified in Section 6.5.
"Subsidiary" means any Person in which MOC has a direct or indirect
equity or ownership interest in excess of 50% and which is involved directly or
indirectly through other Subsidiaries in the Business, which are SAC, SAE and
LATC.
"Survey" means a current survey of the Real Property prepared by a
surveyor registered or licensed in the State of California, which survey shall
contain the legal description of such Real Property and a certification from the
surveyor to Buyer and the Title Company that
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it was prepared in compliance with standards of the American Land Title
Association, and that the survey shows: (a) the location of the perimeter of the
Real Property by courses and distances; (b) all easements affecting the Real
Property whether benefiting or burdening the same, rights-of-way and existing
utility lines whether recorded or disclosed by a physical inspection of the Real
Property; (c) a calculation of the acreage of the Real Property; (d) any
established building lines or restrictions of record or other restrictions that
have been established by any applicable zoning or building code or ordinance;
(e) the lines of the public streets abutting the Real Property and the widths
thereof; (f) all encroachments onto the Real Property and all encroachments by
any buildings, structures or improvements located on the Real Property onto any
easements and onto property adjacent to the Real Property, and the extent in
feet and inches of any such encroachments; (g) all buildings, structures and
improvements, whether completed or partially constructed, and, if determinable,
the location of the improvements to be constructed on the Real Property and any
other physical matters on the ground which may affect the Real Property or title
thereto and the relationship of such buildings, structures, improvements and
other physical matters by distances to the perimeter of the Real Property,
established building lines, street lines, set-back restrictions and easements;
and (h) if the Real Property is described as being on a filed map, a legend
relating the survey to such map.
"Tax" means any foreign, federal, state, county or local income, sales
and use, excise, franchise, real and personal property, transfer, gross receipt,
capital stock, production, business and occupation, disability, employment,
payroll, severance or withholding tax or charge imposed by any Governmental
Entity, any interest and penalties (civil or criminal) related thereto or to the
nonpayment thereof, and any Loss in connection with the determination,
settlement or litigation of any Tax liability.
"Tax Item" has the meaning specified in Section 10.3(c).
"Tax Return" means a report, return or other information required to
be supplied to a Governmental Entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for any group of
entities that includes any Subsidiary.
"Termination Date" means the specific date first set forth in Section
9.1.
"Title Commitment" means the commitment of the Title Company, dated
November 2, 1998 (No. 9832484-8) to issue the Title Policy.
"Title Company" means First American Title Insurance Company, or any
other title insurance company reasonably acceptable to Buyer.
"Title Policy" means one or more ALTA extended coverage owner's title
insurance policies, effective as of the date of the Closing, insuring Buyer's
fee title in each parcel of Real Property set forth in Schedule 2.1(a) hereto,
in an amount not less than the portion of the Purchase Price allocated to each
such parcel of Real Property, subject only to the Permitted Exceptions, and
containing unmodified CLTA Form 100, 103.1 (modified for an owner), 103.7,
116.1, 116.7 and 123.1 Endorsements (or equivalents) and such other endorsements
as Buyer shall reasonably require.
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"Withholding Exemption Certificate" has the meaning specified in
Section 3.2(f).
ARTICLE II
SALE OF ASSETS, ASSUMPTION OF LIABILITIES
AND RELATED TRANSACTIONS
2.1 Purchase and Sale of Assets.
----------------------------
(a) Purchased Assets. Subject to the terms and conditions of this
----------------
Agreement, on the Closing Date Sellers shall sell, convey, assign, transfer and
deliver to Buyer, and Buyer shall purchase, acquire and accept from Sellers, all
of the assets, properties, rights, privileges, claims and contracts of every
kind and nature, real and personal, tangible and intangible, absolute or
contingent, wherever located, owned by Sellers and used primarily in connection
with the Business (the "Purchased Assets"), except the assets specifically
identified in Section 2.1(b) (the "Excluded Assets"). The Purchased Assets shall
include, but shall not be limited to, the items set forth on Schedule 2.1(a),
attached hereto and incorporated herein by reference, except as changed by
assets acquired or disposed of in the ordinary course of business of the
Business after the date thereof, and also shall include the following:
(i) The Real Property owned by Sellers (the legal description of which
is set forth as Appendix A to the Schedules hereto.)
(ii) All fixtures and improvements attached to the Real Property owned
by Sellers and used in the Business or to any Real Property used in the
Business in which Sellers have a leasehold interest.
(iii) All machinery, apparatus, furniture and fixtures, materials,
supplies, motor vehicles, computer systems and other equipment of every
type owned or leased by Sellers and used in the Business as set forth in
Schedule 2.1(a).
(iv) All inventory of usable goods, including all merchandise, food,
beverages, supplies and other tangible personal property held for sale or
used in connection with the Business as of November 12, 1998 (the
"Inventory"), together with any additions thereto and subject to any
reductions therefrom received or incurred by Sellers operating the Business
in the ordinary course after November 12, 1998 through the Closing Date.
(v) All of Sellers' rights and interests arising under or in
connection with any Contracts to which any Seller is a party and which
relate to the Business or insurance policies pursuant to which the Business
is a beneficiary and other documents relating to the Business.
(vi) Sellers' prepaid expenses related to the Business as of November
12, 1998 ("Prepaid Expenses"), together with any additions thereto and
subject to any reductions therefrom made or accrued by Sellers in operating
the Business in the ordinary course and in compliance with Section 6.3
hereof after November 12, 1998 through the Closing Date.
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(vii) Management information services systems and software used in
connection with the Business and para-mutuel wagering computer systems and
software used in connection with the Business, to the extent owned or
licensed by SAC, SAE or LATC.
(viii) Cash and cash equivalents of LATC and SAE as of November 12,
1998, together with any additions thereto and subject to any reductions
therefrom made by LATC in operating the Business in the ordinary course and
in compliance with Section 6.3 hereof after November 12, 1998 through the
Closing Date.
(ix) Sales data, customer lists and profiles, information relating to
customers, suppliers' names, mailing lists, and advertising matter and all
rights thereto relating to the Business.
(x) All of Sellers' Intangible Property related to the Business, and
corporate and trade names and Marks related to the Business, including all
of Sellers' rights in the corporate name and Marks related to the Business
in any location in the United States or in any foreign country; goodwill
associated with the Business; all Sellers' books and records relating to
the Business and employees; transferable Permits; and unemployment
compensation, workers' compensation and other credits, reserves or deposits
with applicable Governmental Entities relating to Sellers' employees
involved in the Business.
(xi) All of Sellers' or LATC's rights in and to all artwork and
statutes relating to the Business or located in the executive offices of
the Business, except for that specifically set forth in Appendix D to the
Schedules.
(xii) All of the capital stock of LATC owned by Sellers.
(b) Excluded Assets. The assets that constitute Excluded Assets shall
---------------
include only:
(i) The consideration delivered to Sellers pursuant to this Agreement.
(ii) Sellers' certificates or articles of incorporation,
non-transferable franchises, corporate seals, minute books, stock books and
other corporate records having to do with the corporate organization and
capitalization of Sellers and all income tax records and nontransferable
Permits; provided, however, that copies of such corporate and tax records
(other than those of MT and MOC) and nontransferable Permits (whether by
their terms or operation of law) shall be provided to Buyer at the Closing.
(iii) Sellers' books of account; provided, however, that copies of
such books of account related to the Business shall be provided to Buyer at
the Closing.
(iv) Any shares of the capital stock of Sellers held as treasury
shares or otherwise.
(v) Any Tax refund not included as a Purchased Asset.
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(vi) All amounts due from any Seller or any Affiliate of any Seller,
to the extent set forth on Schedule 2.2(b).
(vii) Any goods or other assets on consignment or otherwise held for
third parties.
(viii) The real property owned by MT relating to the medical office
building and the ownership interest of MT in the Fashion Park regional mall
adjacent to the Business, and specifically described on Schedule 2.1(b)
hereto and all of MT's interests in Anita Associates, a California limited
partnership.
(ix) The artwork owned by LATC and which is specifically described in
Appendix D to the Schedules.
(x) The accounts receivable (the "Accounts Receivable") of LATC as of
the Proration Date, which Accounts Receivable shall be transferred by LATC
to Sellers effective as of the Closing Date.
(xi) Any of Sellers' assets not used in the operation of the Business.
(xii) Rights under the life insurance policies set forth on Appendix E
to the
Schedules.
2.2 Assumption of Certain Liabilities.
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(a) Liabilities Not Assumed. Except for the liabilities and obligations
-----------------------
specifically assumed pursuant to and identified in Section 2.2(b) below,
Buyer shall not assume, shall not take subject to and shall not be liable
--- --- ---
for, any liabilities or obligations of any kind or nature, whether
absolute, contingent, accrued, known or unknown, of Sellers or any
Affiliate of Sellers, the ("Excluded Liabilities") including, but not
limited to, the following:
(i) Any liabilities described on Schedule 2.2(a), including, without
limitation, the liabilities of LATC described on Schedule 2.2(a);
(ii) Any liabilities or obligations incurred prior to the Closing,
arising from or out of, or in connection with Sellers' operations, the
condition of their assets or places of business, their ownership of the
Purchased Assets, or the issuance, sale, repayment or repurchase of any of
their securities.
(iii) Any liabilities or obligations incurred, arising from or out of,
in connection with or as a result of claims made by or against Sellers
whether before or after the Closing Date that arise out of events or
operation of the Business solely prior to the Closing Date.
(iv) Any liabilities or obligations incurred, arising from or out of,
in connection with or as a result of any alleged or actual defect in any
product or service or in connection with any alleged or actual breach of
warranty (whether express or implied) in relation to any product sold or
service provided by Sellers prior to the Closing Date.
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(v) Subject to the provisions of Section 10.3, any liabilities or
obligations (whether assessed or unassessed) of Sellers for any Taxes,
including any Taxes arising by reason of the transactions contemplated
herein, as of, or for any period ending on or prior to, the Closing Date.
(vi) All fees and expenses of Sellers in connection with the
transactions contemplated herein.
(vii) All fees and expenses, if any, of Sellers in connection with the
dissolution and liquidation of Sellers and withdrawal from the Business by
Sellers.
(viii) Any liabilities or obligations incurred for any period prior to
the Closing to former or current officers, directors, employees or
Affiliates of Sellers, including without limitation any liabilities or
obligations of Sellers in connection with any employee benefit plans or
collective bargaining, labor or employment agreement or other similar
arrangement or obligations in respect of retiree health benefits.
(ix) Any liabilities or obligations to stockholders or former
stockholders of Sellers.
(x) Any liabilities or obligations of Sellers incurred, arising from
or out of, or in connection with this Agreement or the events or
negotiations leading up to this Agreement.
(b) Assumed Liabilities. Notwithstanding Section 2.2(a), on the Closing
-------------------
Date Buyer shall assume the liabilities or obligations specifically identified
on Schedule 2.2(b) attached hereto and incorporated herein by this reference and
the liabilities and obligations arising from the operation of the Business after
the Closing Date (the "Assumed Liabilities").
2.3 Purchase Price and Allocation.
-----------------------------
The total purchase price (the "Purchase Price") to be paid to Sellers by
Buyer at the Closing for the Purchased Assets shall be (i) the assumption of the
Assumed Liabilities, plus (ii) $126 million in cash, plus or minus the amount of
the Closing Adjustment described in Section 2.4 calculated as of the Proration
Date.
The Purchase Price shall be allocated among the Purchased Assets and
Assumed Liabilities as set forth in Schedule 2.3 attached hereto and
incorporated herein by reference. Buyer and Sellers agree that their agreed upon
allocation shall be used, reported and implemented for all federal, state, local
and other tax purposes.
2.4 Payment of Purchase Price; Closing Adjustment.
---------------------------------------------
(a) On the Closing Date, Buyer shall pay to Sellers $126 million (the
"Closing Payment") as set forth in this Section 2.4(a). Buyer shall make the
Closing Payment by depositing immediately available funds with the Title Company
in an amount equal to the balance of the Closing Payment not previously
deposited with the Title Company. The Title
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Company shall distribute the Closing Payment to Sellers net of prorations,
adjustments and expenses described in the Joint Escrow Instructions.
(b) Within 45 days after the Closing Date, Ernst & Young LLP shall deliver
to Sellers and Buyer an audited balance sheet of the Business as of the
Proration Date (the "Closing Balance Sheet"), prepared in accordance with GAAP,
which sets forth the book values of the Purchased Assets and the Assumed
Liabilities, and a calculation of the Closing Adjustment to the Purchase Price.
The "Closing Adjustment" shall be equal to the amount by which the Closing
Account Amount of the Business as of the Proration Date is greater than or less
than zero. If the Closing Account Amount as of the Proration Date, is greater
than zero, then Buyer shall pay to Sellers the amount of such excess. If the
Closing Account Amount as of the Proration Date, is less than zero, then Sellers
shall pay to Buyer the amount of such deficit.
(c) Buyer shall deliver a copy of the Closing Balance Sheet and related
calculation of the Closing Adjustment to Sellers within three days of receipt of
the same from Ernst & Young LLP. Sellers and Auditors shall be entitled to make
an independent review of the Closing Balance Sheet and related calculation and
shall, during the 15-day period after delivery of the Closing Balance Sheet and
related calculation of the Closing Adjustment (the "Review Period"), have access
to all work papers of Ernst & Young LLP used to prepare the Closing Balance
Sheet and to calculate the Closing Adjustment.
(d) Before expiration of the Review Period, Sellers shall deliver to Buyer
its objection, if any, to the calculation of the Closing Adjustment, together
with details of the disputed items (the "Disputed Items") set forth in the
Closing Balance Sheet and the proposed adjustments to such items. If Sellers
fail to provide notice of objection prior to the end of the Review Period, then
the Closing Balance Sheet, and the calculation of the Closing Adjustment by
Ernst & Young LLP shall be final and binding on all the parties. If Sellers
notify Buyer prior to the end of the Review Period of Sellers disapproval of the
calculation of the Closing Adjustment or the Closing Balance Sheet prepared by
Ernst & Young LLP, then Buyer and Sellers shall attempt to reach agreement with
respect to the Disputed Items. In the event that Buyer and Sellers are unable to
reach agreement on the Disputed Items, then either shall be entitled to refer
the matter to a nationally recognized accounting firm independent of Sellers and
Buyer mutually agreed upon by Buyer and Sellers, provided, that if Buyer and
Sellers are unable to agree upon such accounting firm within a period of 15 days
from the receipt by Buyer of Sellers' objection, such accounting firm shall be
chosen at random by Buyer and Sellers from among the "Big Five" accounting firms
which are independent of Buyer and Sellers (the "Arbitrating Accountant"). The
Arbitrating Accountant shall determine the Disputed Items and calculate the
Closing Adjustment within 20 days after the Disputed Items are submitted to
them, and such determination shall be final and binding upon all the parties.
The fees and expenses of the Arbitrating Accountants shall be paid 50% by Buyer
and 50% by Sellers.
(e) The amount of the Closing Adjustment as finally determined shall be
paid by wire transfer or other immediately available funds, within five days
after final determination of the Closing Adjustment.
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2.5 Review of Title Matters.
-----------------------
(a) Buyer acknowledges that Sellers have delivered to Buyer from the Title
Company a Preliminary Title Report with respect to the Real Property.
(b) As soon as possible but prior to November 18, 1998, Sellers shall cause
to be delivered to Buyer and to the Title Company a Survey with respect to each
parcel of Real Property, together with a certificate as to whether the Real
Property lies within a flood zone as determined by the U.S. Federal Emergency
Management Agency. The Survey shall be certified as true and correct by the
surveyor for the benefit of Buyer and the Title Company and shall be at Sellers'
expense.
(c) Buyer shall notify Sellers of any title exceptions that are not
reflected in the Title Commitment, and that would have a Material Adverse Effect
(each, a "Disapproved Matter"). Sellers shall use reasonable commercial efforts
without the expenditure of funds to remove, or cause to be removed, all
Disapproved Matters or, in the alternative, obtain title insurance in a form
reasonably satisfactory to Buyer insuring against the effect of such Disapproved
Matters. As soon as practicable prior to the Closing, Sellers shall notify Buyer
in writing of any Disapproved Matters which Sellers are unwilling or unable to
cause to be removed or satisfactorily insured against and Buyer shall then,
within five days thereafter or, if earlier, prior to the Closing, elect, by
giving written notice to Sellers, (i) to terminate this Agreement and obtain a
refund of the Deposit, or (ii) to waive its disapproval of such exceptions.
Buyer's failure to give such notice shall be deemed an election to waive such
exceptions.
2.6 Interim Operations.
-------------------
If the Closing Date occurs after the Proration Date, then between the
Proration Date and the Closing Date, Sellers shall operate the Business in the
ordinary course of business for the benefit of Buyer in accordance with the
requirements of Section 6.3, with all net income and operating cash flow
accruing for the benefit of Buyer.
ARTICLE III
CLOSING
3.1 Closing Date.
------------
Upon the terms and subject to the conditions set forth in this Agreement,
the Closing of the transaction shall take place at the offices of O'Melveny &
Myers LLP, 400 South Hope Street, Los Angeles, California, at 9:00 a.m., on
December 23, 1998, or if Sellers notify Buyer on or prior to December 1, 1998 of
Sellers' election to delay the Closing until January 7, 1999 or at such other
location or time as Sellers and Buyer may agree, but in no event later than
January 15, 1999. Time is of the essence of this Agreement.
3.2 Items to be Delivered at the Closing By Sellers.
-----------------------------------------------
At the Closing, Sellers shall deliver or cause to be delivered to Buyer:
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(a) A Bill of Sale and Assignment, in substantially the form of Exhibit A
(the "Bill of Sale").
(b) Grant deed, properly executed and acknowledged, conforming to and
conveying the agreed state of title for all Real Property and interests in Real
Property in accordance with Section 2.5 (the "Grant Deed").
(c) Instruments of transfer in the form customarily used in commercial
transactions in the area in which the personal property is located sufficient to
transfer each personal property interest owned by Seller not otherwise
transferred by the Bill of Sale referred to in Section 3.2(a).
(d) Such other instruments of transfer necessary or appropriate to transfer
to and vest in Buyer all of Sellers' right, title and interest in and to the
Purchased Assets.
(e) All documentation required to exempt Sellers from the withholding
requirement of Section 1445 of the Code, consisting of (a) an affidavit from
Sellers to Buyer stating under penalty of perjury that none of the Sellers is a
foreign person and providing each Seller's U.S. taxpayer identification number,
or (b) a sworn affidavit of each Seller that it is not a "U.S. real property
holding corporation," as defined in Section 897 of the Code or (c) a "qualifying
statement" obtained by each Seller from the Internal Revenue Service (any of
which is hereafter referred to as a "FIRPTA Certificate").
(f) All documentation required to exempt Sellers from the withholding
requirements of Section 18662 of the California Revenue and Taxation Code,
consisting of a completed and duly executed California Form 590-RE (the
"Withholding Exemption Certificate").
(g) The opinions, certificates, consents and other documents referred to
herein as then deliverable by Sellers.
(h) A list of all assets being sold to Buyer, accounts payable and of all
other liabilities being assumed by Buyer relating to the Business as of the
Proration Date.
(i) A list of all Accounts Receivable and prepaid expenses as of the
Proration Date.
(j) A list of the locations of all deposits of Purchased Assets held by
other Persons and not listed on Schedule 4.19.
(k) The keys to all locks located on or in the Purchased Assets (and any
and all cards, devices or things necessary to access any Purchased Assets).
(l) A list of non-union employees of the Business as of the Closing Date.
3.3 Items to be Delivered at the Closing by Buyer.
---------------------------------------------
At the Closing, Buyer shall deliver to Sellers:
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(a) The Purchase Price.
(b) An Assumption Agreement, in substantially the form of Exhibit B.
(c) Such instruments as may reasonably be requested by any creditor, lessor
or any other person whose consent is required to consummate the transactions
contemplated by this Agreement to evidence the assumption by Buyer of the
Assumed Liabilities.
(d) The opinions, certificates, consents and other documents referred to
herein as then deliverable by Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
All references in this Article IV referring to Sellers knowledge or to the
best of Sellers' knowledge or similar words or phrases shall be deemed to mean
the actual knowledge without further inquiry of any of the officers or employees
who are specifically identified on Schedule 4.1. References in this Article IV
to "Period of Ownership" shall mean the period of time beginning on November 5,
1997 and ending on the Closing Date. Except as otherwise indicated on the
Sellers' Disclosure Schedule dated November 12, 1998 previously delivered to
Buyer, each Seller represents, warrants and agrees as follows:
4.1 Organization and Related Matters.
--------------------------------
Each Seller is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization. Each Seller has all necessary corporate power and authority to
execute, deliver and perform this Agreement. Schedule 4.1 lists all Subsidiaries
of SAC and correctly sets forth the capitalization of LATC and SAC's ownership
interest therein, any other interest of any other Person therein, the
jurisdiction in which SAC and each Subsidiary was organized, each jurisdiction
in which SAC and each Subsidiary is or is required to be qualified or licensed
to do business as a foreign Person and a brief summary of SAC's and each
Subsidiary's assets, liabilities and business. Each of the Subsidiaries,
including LATC, is duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation or organization. SAC and its
Subsidiaries have all necessary corporate power and authority to own their
respective properties and assets and to carry on their respective businesses as
now conducted and are duly qualified or licensed to do business as foreign
corporations in good standing in all jurisdictions listed on Schedule 4.1.
Schedule 4.1 correctly lists the current directors and executive officers of SAC
and of each Subsidiary. True, correct and complete copies of the respective
charter documents of SAC and the Subsidiaries as in effect have been delivered
to Buyer. None of Sellers nor any Subsidiary is (i) except for MT and MOC, a
registered or reporting company under the Exchange Act or (ii) a company
required to be registered under the Investment Company Act of 1940, as amended.
4.2 Stock.
-----
Except as described in Schedule 4.1, SAC owns all of the outstanding Equity
Securities of each of the Subsidiaries, beneficially and of record. All of such
Equity Securities of the Subsidiaries are owned free and clear of any
Encumbrance. At the Closing, Buyer will
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acquire good and marketable title to and complete ownership of all of the issued
and outstanding capital stock of LATC, free of any Encumbrance. There are no
outstanding Contracts or other rights to subscribe for or purchase, or Contracts
or other obligations to issue or grant any rights to acquire, any Equity
Securities of LATC, or to restructure or recapitalize LATC, in each case arising
during the Period of Ownership. The Equity Securities of LATC are duly
authorized, validly issued and outstanding and are fully paid and nonassessable.
To Sellers' knowledge, there are no preemptive rights in respect of any Equity
Securities of LATC.
4.3 Financial Statements; Changes; Contingencies.
--------------------------------------------
(a) Unaudited Financial Statements. Sellers have delivered to Buyer
------------------------------
consolidated and combined balance sheets for the Business at December 31, 1997
and September 30, 1998, and the related consolidated and combined statements of
operations and cash flows and changes in stockholder's equity for the year ended
December 31, 1997 and the nine months ended September 30, 1998. All such interim
financial statements have been prepared in conformity with GAAP applied on a
consistent basis except for changes, if any, required by GAAP and disclosed
therein. The statements of operations and cash flows present fairly the results
of operations and cash flows of the Business for the respective periods covered,
and the balance sheets present fairly the financial condition of the Business as
of their respective dates. All such financial statements reflect all adjustments
(which consist only of normal recurring adjustments not material in amount and
include but are not limited to estimated provisions for year-end adjustments)
necessary for a fair presentation. At the dates of such balance sheets, the
Business did not have any material liability (actual, contingent or accrued)
that, in accordance with GAAP applied on a consistent basis, should have been
shown or reflected therein but were not.
(b) No Material Adverse Changes. Since September 30, 1998, whether or not
---------------------------
in the ordinary course of business, there has not been, occurred or arisen:
(i) any change in or event affecting the Business that, to Sellers'
knowledge, has had or may reasonably be expected to have a material adverse
effect on the Business as a whole, or
(ii) any agreement, condition, action or omission which would be
proscribed by (or require consent under) Section 6.3 had it existed,
occurred or arisen after the date of this Agreement, or
(iii) any strike or other labor dispute, or
(iv) any casualty, loss, damage or destruction (whether or not covered
by insurance) of any of the Purchased Assets in excess of $1,000,000 or
that has involved or may involve a loss to the Business of more than
$1,000,000.
(c) No Other Liabilities or Contingencies. None of the Sellers nor any
-------------------------------------
Subsidiary has any liabilities related to the Business of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
probable of assertion or not, except liabilities that (i) are reflected or
disclosed in the most recent of the financial statements referred
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to in subsection (a) above, (ii) were incurred after September 30, 1998 in the
ordinary course of business and in the aggregate do not exceed $100,000 or (iii)
are set forth in Schedule 4.3 hereto.
4.4 Tax and Other Returns and Reports.
---------------------------------
Each of SAC and LATC has timely filed or will file (or, where permitted or
required, its respective direct or indirect parents have timely filed or will
file) all required Tax Returns and have paid all Taxes due for all periods
ending after November 5, 1997. To Seller's knowledge, adequate provision has
been made in the books and records of each Seller and each Subsidiary, and in
the financial statements referred to in Section 4.3 above or delivered to Buyer,
for all Taxes whether or not due and payable and whether or not disputed. To
Seller's knowledge, none of SAC or LATC nor any Subsidiary has elected to be
treated as a consenting corporation under Section 341(f) of the Code. Schedule
4.4 lists the date or dates through which the IRS and any other Governmental
Entity have examined the United States federal income tax returns and any other
Tax Returns of SAC and LATC. To Seller's knowledge, all required Tax Returns of
SAC or LATC, including amendments to date, have been prepared in good faith
without negligence or willful misrepresentation and are complete and accurate in
all material respects. To Seller's knowledge, except as set forth in Schedule
4.4, no Governmental Entity has, during the past three years, examined or is in
the process of examining any Tax Returns of SAC or LATC. To Sellers' knowledge,
except as set forth on Schedule 4.4, no Governmental Entity has proposed
(tentatively or definitively), asserted or assessed or, to the best knowledge of
Sellers, threatened to propose or assert, against LAC or LATC any deficiency,
assessment or claim for Taxes.
4.5 Material Contracts.
------------------
Schedule 4.5 lists each contract which relates to the Purchased Assets or
the Business to which any Seller or any Subsidiary is a party or to which any
Seller, any Subsidiary or any of their respective properties used in the
Business is subject or by which any thereof is bound that is deemed a Material
Contract under this Agreement. Unless otherwise so noted in Schedule 4.5, each
such Contract was entered into in the ordinary course of business. Each Contract
that relates to the Business and that (a) after September 30, 1998 obligates
Sellers to pay an amount of $100,000 or more, (b) has an unexpired term as of
September 30, 1998 in excess of one year, (c) contains a covenant not to compete
or otherwise significantly restricts business activities, (d) provides for the
extension of credit other than consistent with normal credit terms, (e) limits
the ability of Sellers or any Subsidiary to conduct the Business, including as
to manner or place, (f) provides for a guaranty or indemnity by Sellers or any
Subsidiary, (g) grants a power of attorney, agency or similar authority to
another person or entity, (h) contains a right of first refusal, (i) contains a
right or obligation relating to the Business other than in the ordinary course
of business to any Affiliate, officer or director or any Associate, of any
Seller or any Subsidiary to any Subsidiary, (j) constitutes a collective
bargaining agreement or provides for severance benefits to any officer, director
or employee, (k) represents a Contract upon which the Business is substantially
dependent or a Contract which is otherwise material to the Business, (l) relates
to the leasing of, or future commitments to lease, any portion of the Real
Property regardless of whether such Real Property is used in the Business or (m)
was not made in the ordinary course of business and requires aggregate
expenditures in excess of $100,000, shall be deemed to be a Material Contract.
True, correct and complete copies of the agreements
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appearing on Schedule 4.5, including all amendments and supplements, have been
delivered to Buyer. Each Material Contract is valid and subsisting; each Seller
or the applicable Subsidiary that is a party to a Material Contract has duly
performed all its material obligations thereunder to the extent that such
obligations to perform have accrued; and no breach or default, alleged breach or
default, or event which would (with the passage of time, notice or both)
constitute a breach or default thereunder by any Seller or its Subsidiaries, as
the case may be (or, to the best knowledge of Sellers, any other party or
obligor with respect thereto), has occurred or as a result of this Agreement or
its performance will occur, except for such breaches and defaults which
individually or in the aggregate will not have a material adverse effect on the
Business, the Purchased Assets or the Assumed Liabilities. Except as set forth
in Schedule 4.5A, consummation of the transactions contemplated by this
Agreement will not (and will not give any Person a right to) terminate or modify
any rights of, or accelerate or augment any obligation of, Sellers or any
Subsidiary.
4.6 Condition of Property; Leases.
-----------------------------
(a) As of the Closing, Sellers shall have good and marketable title to each
of the Purchased Assets (excluding the Real Property), free and clear of any
Encumbrances, except Permitted Encumbrances. Sellers have all rights, power and
authority to sell, convey, assign, transfer and deliver the Purchased Assets to
Buyer in accordance with the terms of this Agreement. At the Closing, Sellers
shall deliver the Purchased Assets to Buyer, free and clear of any Encumbrances
except for Permitted Exceptions. The Purchased Assets have been maintained
during the Period of Ownership in a manner consistent with past practices. The
machinery, apparatus, furniture and fixtures, materials, supplies, motor
vehicles, computer systems and other equipment of every type set forth in
Schedule 2.1(a) constitutes all of the machinery, apparatus, furniture and
fixtures, materials, supplies, motor vehicles, computer systems and other
equipment of every type owned or leased by Sellers or LATC and used in the
Business.
(b) To Seller's knowledge, the Real Property listed on Schedule 2.1(a)
consists of substantially all of the real property and leasehold interests used
by Sellers in the conduct of the Business. Sellers have received no notice of
any proposed special assessments, nor any proposed material changes in property
tax or land use laws affecting the Real Property.
(c) To Sellers' knowledge, there are no material physical, structural, or
mechanical defects in the Real Property, including, without limitation, the
plumbing, heating, air conditioning and electrical systems.
(d) Except as disclosed to Buyer in writing, Sellers have not received any
notices or communications with respect to any condemnation, environmental,
zoning or other land-use regulation proceeding, either instituted or planned to
be instituted, which would affect the Real Property or the conduct of the
Business thereon in any material respect, nor do Sellers have any knowledge of
any assessments affecting the Real Property other than as set forth in the
Preliminary Title Report.
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(e) To Sellers' knowledge, Sellers have received no notice or communication
with respect to any violation of any covenants, conditions or restrictions
applicable to the Real Property.
(f) None of Sellers is either a "foreign person" within the meaning of
Section 1445(f)(3) of the Code, nor a non-resident seller of a "California real
property interest" within the meaning of Sections 18805 or 26131 of the
California Revenue and Taxation Code.
(g) Sellers have not received notice that any portion of the Real Property
is subject to a redevelopment plan or agreement or is to be included within any
redevelopment area. Sellers have not entered into a disposition and development
agreement, owner's participation agreement, or any similar agreement with any
governmental or quasi-governmental authority concerning the use and development
of any portion of the Real Property except as disclosed in the Preliminary Title
Report or otherwise disclosed in writing by Sellers to Buyer.
(h) All material leasehold properties that constitute part of the Purchased
Assets held by Sellers or any Subsidiary as lessee are held under valid, binding
and enforceable leases in accordance with their terms (except for the effects on
enforceability arising from bankruptcy, insolvency and similar laws affecting
creditors' rights generally), subject only to such exceptions as are not,
individually or in the aggregate, material to the Business.
(i) Sellers have heretofore delivered to Buyer a true, correct and
complete copy of each lease that pertains to a leasehold interest
comprising a portion of the Purchased Assets (each a "Lease"), together
with all amendments, modifications, alterations, and other changes thereto.
(ii) To Sellers' knowledge, the Leases constitute the entire agreement
to which Sellers or any Subsidiary is a party with respect to the
properties which are demised pursuant thereto.
(iii) To Sellers' knowledge, the term and a description of each Lease
is accurately set forth on Schedule 4.6. Seller has accepted possession of
the property demised pursuant to each Lease and is in actual possession
thereof and has not sublet, assigned or hypothecated its leasehold interest
except as set forth on Schedule 4.6.
(iv) To Seller's knowledge, as of the date hereof, all conditions
precedent to the enforceability of each Lease have been satisfied and there
exists no breach or default, nor state of facts which, with the passage of
time, notice, or both, would result in a breach or default on the part of
any Seller or the lessor thereunder.
(v) To Seller's knowledge, all space and improvements leased by
Sellers have been fully and satisfactorily completed and furnished in
accordance with the provisions of each Lease.
(vi) To Sellers' knowledge, Sellers have received no notice of
non-compliance with any restriction encumbering any leased property, nor
has any Seller received notice of any zoning violations affecting any
leased property.
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(vii) To Seller's knowledge, there is no pending or threatened Action
that would materially interfere with the quiet enjoyment of any such
leasehold by Sellers or, after the Closing, by Buyer.
(i) To Sellers' knowledge, all water, sewer, gas, electric, telephone, and
drainage facilities and all other utilities required by Law for the present use
and operation of the Real Property are installed across public property or valid
easements to the boundary lines of the Real Property, and are connected pursuant
to valid permits.
4.7 Intangible Property.
-------------------
To Sellers' knowledge, Schedule 4.7 lists any and all Marks and other
material items of Intangible Property related to the Business in which any
Seller or its Subsidiaries have an interest and the nature of such interest.
Such assets include all Permits or other rights with respect to any of the
foregoing. Sellers and their Subsidiaries have complete rights to and ownership
of all Intangible Property required for use in connection with the Business.
Sellers and its Subsidiaries do not use any Intangible Property by consent of
any other person and are not required to and do not make any payments to others
with respect thereto. Except as prohibited by their terms or by Law, the
Intangible Property of Sellers and its Subsidiaries is fully assignable free and
clear of any Encumbrances. To Seller's knowledge, Sellers and their Subsidiaries
have in all material respects performed all obligations required to be performed
by them, and none of such entities is in default in any material respect under
any Contract relating to any of the foregoing. To Sellers' knowledge, none of
Sellers nor any Subsidiary has received any notice to the effect (or is
otherwise aware) that the Intangible Property or any use by Sellers or any
Subsidiary of any such property conflicts with or infringes (or allegedly
conflicts with or infringes) the rights of any Person.
4.8 Authorization; No Conflicts.
---------------------------
The execution, delivery and performance of this Agreement by Sellers have
been duly and validly authorized by the respective Boards of Directors of
Sellers and by all other necessary corporate action on the part of Sellers. This
Agreement constitutes the legally valid and binding obligation of Sellers,
enforceable against Sellers in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors rights generally. The execution, delivery and performance of
this Agreement by Sellers will not violate, or constitute a breach or default
(whether upon lapse of time and/or the occurrence of any act or event or
otherwise) under, the charter documents or by-laws of any of such entities or
any Material Contract of any of such entities, result in the imposition of any
Encumbrance against any assets of Sellers or any of the Purchased Assets or
violate any Law, limited, in the case of Material Contracts, to such violations,
breaches or defaults as would have a material adverse effect on the Business.
Schedule 4.8 lists all Permits held by any of Sellers or any Subsidiary relating
to the operation of the Business.
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4.9 Legal Proceedings.
-----------------
To Seller's knowledge, there is no Order or Action relating to the Business
pending, or, to the best knowledge of Sellers, threatened, against or affecting
the Business or any of its properties or assets that individually or when
aggregated with one or more other Orders or Actions has or might reasonably be
expected to have a material adverse effect on the Business, the Purchased Assets
(or the use, operation or value thereof), the Assumed Liabilities or Sellers'
ability to perform this Agreement. Schedule 4.9 lists each Order and each Action
that involves a claim or potential claim of aggregate liability in excess of
$100,000 against, or that enjoins or seeks to enjoin any activity by Sellers or
any Affiliate in connection with the Business. There is no matter as to which
any Seller has received any notice, claim or assertion against or affecting any
director, officer, employee, agent or representative of Sellers or any
Subsidiary involved in the Business or any other Person in connection with which
any such Person has or may reasonably be expected to have any right to be
indemnified by Sellers or any Subsidiary as a result of the ownership or
operation of the Business.
4.10 Minute Books.
------------
The minute books of SAC and LATC accurately reflect all actions and
proceedings taken during the Period of Ownership by the respective shareholders,
boards of directors and committees of SAC and LATC, and such minute books
contain true and complete copies of the charter documents of SAC and LATC and
all related amendments. To Seller's knowledge, the stock record books of each
SAC and LATC reflect accurately all transactions in their respective capital
stock of all classes.
4.11 Accounting Records; Internal Controls; Absence of Certain Payments.
------------------------------------------------------------------
(a) Accounting Records. During the Period of Ownership, each Seller and its
------------------
Subsidiaries have maintained records relating to the Business that accurately
and validly reflect their respective transactions pertaining to the Business,
and accounting controls sufficient to insure that such transactions are (i)
executed in accordance with management's general or specific authorization and
(ii) recorded in conformity with GAAP so as to maintain accountability for
assets.
(b) Data Processing; Access. Such records, to the extent they contain
-----------------------
important information that is not easily and readily available elsewhere, have
been duplicated, and such duplicates are stored safely and securely pursuant to
procedures and techniques utilized by companies of comparable size in similar
lines of business.
4.12 Insurance.
---------
Sellers and the Subsidiaries are, and at all times during the Period of
Ownership have been, insured with reputable insurers against all risks normally
insured against by companies in similar lines of business, and all of the
insurance policies and bonds maintained by Sellers and its Subsidiaries relating
to the Business are in full force and effect. Schedule 4.12 lists all insurance
policies and bonds that are material to the Business. To Sellers' knowledge,
none of Sellers nor any Subsidiary is in default under any such policy or bond.
Each Seller and
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its Subsidiaries have timely filed claims with their respective insurers with
respect to all matters and occurrences relating to the operation of the Business
for which they believe they have coverage. All insurance policies maintained by
Sellers and their respective Subsidiaries pertaining to the Business, are in
effect as of the Closing. There are no outstanding requirements or
recommendations which have been communicated to Sellers by any insurance company
that issued a policy with respect to any of the properties and assets, including
the Purchased Assets, of Sellers or any Subsidiary used in the Business by any
Board of Fire Underwriters or other body exercising similar functions or by any
Governmental Entity requiring or recommending any action which has not been
taken.
4.13 Permits.
-------
Sellers have received no notice or communication regarding the suspension,
cancellation or termination of any of the Permits.
4.14 Compliance with Law.
-------------------
To Sellers' knowledge, Sellers and their respective Subsidiaries involved
in the Business are organized and have conducted the Business in accordance with
applicable Laws, and the forms, procedures and practices of Sellers and its
Subsidiaries are in compliance with all such Laws, to the extent applicable, the
violation of which might have a material adverse effect on Sellers, the Business
or any of the Purchased Assets or the Assumed Liabilities.
4.15 Dividends and other Distributions.
---------------------------------
There has been no dividend or other distribution of assets, other than
cash, cash items, or intercompany receivables or payables, declared, issued or
paid subsequent to the date of the most recent financial statements described in
Section 4.3 by LATC.
4.16 Employee Benefits.
-----------------
(a) Employee Benefit Plans, Collective Bargaining and Employment
Agreements, and Similar Arrangements.
(1) Schedule 4.16 lists (by entity subject thereto or bound thereby)
all employee benefit plans and collective bargaining, employment or
severance agreements and other similar arrangements which cover employees
employed in the Business and to which any Seller or any Subsidiary is or
has been within the Period of Ownership a party or by which any of them is
or within the Period of Ownership has been bound, legally or otherwise,
including, without limitation, (a) any profit-sharing, deferred
compensation, bonus, stock option, stock purchase, pension, retainer,
consulting, retirement, severance, welfare or incentive plan, agreement or
arrangement, (b) any plan, agreement or arrangement providing for "fringe
benefits" or perquisites to employees, officers, directors or agents,
including but not limited to benefits relating to company automobiles,
clubs, vacation, child care, parenting, sabbatical, sick leave, medical,
dental, hospitalization, life insurance and other types of insurance, (c)
any employment agreement not terminable on 30 days (or less) written
notice, or (d) any other "employee benefit plan" (within the meaning of
Section 3(3) of ERISA), but only to the extent that
22
<PAGE>
such employee benefit plans, collective bargaining, labor and employment
agreements or other similar arrangements are Assumed Liabilities under
Section 2.2(b) and are not Excluded Liabilities under Section 2.2(a) (the
"Employee Plans").
(2) Sellers have delivered to Buyer true and complete copies of all
documents and summary plan descriptions with respect the Employee Plans, or
summary descriptions of any Employee Plans not otherwise in writing.
(3) To the best of Sellers' knowledge, there are no negotiations,
demands or proposals that are pending or have been made which concern
matters within the Period of Ownership, now covered, or that would be
covered, by the Employee Plans.
(4) With respect to the Period of Ownership, Sellers and their
respective Subsidiaries are in material compliance with the applicable
provisions of ERISA (as amended through the date of this Agreement), the
regulations and published authorities thereunder, and all other Laws
applicable with respect to the Employee Plans. Within the Period of
Ownership, Sellers and their respective Subsidiaries have performed all of
their material obligations under the Employee Plans. To the best knowledge
of Sellers, there are no Actions (other than routine claims for benefits)
pending or threatened against the Employee Plans or the assets of the
Employee Plans, or arising out of the Employee Plans, and, to the best
knowledge of Sellers, within the Period of Ownership no facts exist which
could give rise to any such Actions that might have a material adverse
effect on the Employee Plans or the Business.
(5) Except as specified in Schedule 4.16, each of the Employee Plans
can be terminated by Buyer or the applicable Subsidiary within a period of
30 days following the Closing Date, without payment of any additional
compensation or amount or the additional vesting or acceleration of any
such benefits.
(b) Qualified Plans.
---------------
(1) Schedule 4.16A lists all "employee pension benefit plans" (within
the meaning of Section 3(2) of ERISA) in Schedule 4.16 which are also stock
bonus, pension or profit-sharing plans within the meaning of Section 401(a)
of the Code and which are not unfunded plans providing for deferred
compensation (the "Employee Pension Plans").
(2) Each Employee Pension Plan has been duly authorized by the
appropriate board of directors of Sellers and each participating
Subsidiary. With respect to the Period of Ownership, each Employee Pension
Plan is qualified in form and operation under Section 401(a) of the Code
and each trust under each Employee Pension Plan is exempt from tax under
Section 501(a) of the Code. To Sellers' knowledge and with respect to the
Period of Ownership, no event has occurred that will or could give rise to
disqualification or loss of tax-exempt status of any Employee Pension Plan
or trust under such sections. To Sellers' knowledge, no event has occurred
during the Period of Ownership that will or could subject any Employee
Pension Plans to tax under Section 511 of the Code. To Sellers' knowledge,
no prohibited transaction (within the
23
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meaning of Section 4975 of the Code) or party-in- interest transaction
(within the meaning of Section 406 of ERISA) has occurred during the Period
of Ownership with respect to any Employee Pension Plan. For purposes of the
preceding two sentences, Sellers have knowledge if they have knowledge of
the event or transaction even if they do not have knowledge of the
consequences of the event or transaction under the Code or ERISA.
(3) Sellers have delivered to Buyer for each Employee Pension Plan
copies of the following documents: (i) the Form 5500 filed in each of the
most recent plan year, including but not limited to all schedules thereto
and financial statements with attached opinions of independent accountants,
(ii) the most recent determination letter from the IRS, (iii) the
consolidated statement of assets and liabilities of such plan as of its
most recent valuation date, and (iv) the statement of changes in fund
balance and in financial position or the statement of changes in net assets
available for benefits under such Employee Pension Plan for the most
recently ended plan year. To the best knowledge of Sellers, the financial
statements so delivered fairly present the financial condition and the
results or operations of each of such plans as of such dates, in accordance
with GAAP.
(c) Title IV Plans.
--------------
(1) Schedule 4.16B lists all plans in Schedules 4.16 and 4.16A which
are also subject to Title IV of ERISA, other than any Multiemployer Plan (a
"Defined Benefit Pension Plan").
(2) With respect to each Defined Benefit Pension Plan solely with
respect to the Period of Ownership, (i) neither Sellers nor any Subsidiary
nor any ERISA Affiliate has withdrawn from such Defined Benefit Pension
Plan during a plan year in which it was a "substantial employer" (as
defined in Section 4001(a)(2) of ERISA), (ii) neither Sellers nor any
Subsidiary nor any ERISA Affiliate has filed a notice of intent to
terminate any Defined Benefit Pension Plan or adopted any amendment to
treat any Defined Benefit Pension Plan as terminated, (iii) the PBGC has
not instituted proceedings to terminate any such plan, (iv) no other event
or condition has occurred which might constitute grounds under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Defined Benefit Pension Plan, (v) no accumulated funding
deficiency, whether or not waived, exists with respect to any Defined
Benefit Pension Plan, no condition has occurred or exists which by the
passage of time would be expected to result in an accumulated funding
deficiency as of the last day of the current plan year of any Defined
Benefit Pension Plan, and neither Sellers nor any Subsidiary nor any ERISA
Affiliate has failed to make full payment when due of all amounts which
under the provisions of any Defined Benefit Pension Plan are required to be
made as contributions thereto, (vi) all required premium payments to the
PBGC have been paid when due, (vii) no reportable event, as described in
Section 4043 of ERISA, has occurred with respect to any Defined Benefit
Pension Plan, (viii) no excise taxes are payable under the Code and (ix) no
amendment with respect to which security is required under Section 307 of
ERISA has been made or is reasonably expected to be made.
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(3) costs of any Defined Benefit Pension Plan have been provided for
on the basis of consistent methods in accordance with sound actuarial
assumptions and practices. Since the last valuation date for each Defined
Benefit Pension Plan, there has been no amendment or change to such plan
that would increase the amount of benefits thereunder.
(4) In addition to the documents listed in sub-section (b)(3) above,
Sellers have delivered to Buyer for each Defined Benefit Pension Plan
copies of the following documents: (i) the Form PBGC-1 filed in each of the
most recent plan year, and (ii) the actuarial report as of the last
valuation date. To the best knowledge of Sellers, each such actuarial
report fairly presents the financial condition and the results of
operations of each such plan as of such date, in accordance with GAAP.
(d) Multiemployer Plans.
-------------------
(1) Schedule 4.16C lists all plans in Schedules 4.16 and 4.16A that
are also multiemployer plans within the meaning of Section 3(37) of ERISA
(the "Multiemployer Plans").
(2) With respect to each such Multiemployer Plan in which any Seller,
any Subsidiary or any ERISA Affiliate participates or has participated with
respect to employees employed in the Business during the Period of
Ownership, (i) neither Sellers nor any Subsidiary nor any ERISA Affiliate
has withdrawn, partially withdrawn, or received any notice of any claim or
demand for withdrawal liability or partial withdrawal liability, (ii)
neither Sellers nor any Subsidiary nor any ERISA Affiliate has received any
notice that any such plan is in reorganization, that increased
contributions may be required to avoid a reduction in plan benefits or the
imposition of any excise tax, or that any plan is or may become insolvent,
(iii) neither Sellers, nor any Subsidiary nor any ERISA Affiliate has
failed to make any required contributions, (iv) to the best of Sellers'
knowledge, no such plan is a party to any pending merger or asset or
liability transfer, (v) to Sellers' knowledge, there are no PBGC
proceedings against or affecting any such plan and (vi) neither Sellers nor
any Subsidiary nor any ERISA Affiliate has (or may have as a result of the
transactions contemplated hereby) any withdrawal liability by reason of a
sale of assets pursuant to section 4204 of ERISA.
(e) Health Plans. To Sellers' knowledge and during the Period of Ownership,
------------
all group health plans covering employees involved in the Business of Sellers,
any Subsidiary and any ERISA Affiliate have been operated in compliance with the
group health plan continuation coverage requirements of Section 162(k) and
Section 4980B of the Code to the extent such requirements are applicable.
(f) Fines and Penalties. To Sellers' knowledge and during the Period of
-------------------
Ownership, there has been no act or omission by any Seller or any Subsidiary or
any ERISA Affiliate that has given rise to or may give rise to fines, penalties,
taxes, or related charges under Section 502(c) or (i) or Section 4071 of ERISA
or Chapter 43 of the Code.
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4.17 Certain Interests.
-----------------
No Affiliate of Sellers nor any officer or director of any thereof, nor
Associate of any such individual, has any material interest in any of the
Purchased Assets, the Assumed Liabilities or any property used in or pertaining
to the Business; no such Person is indebted in an amount in excess of $10,000 or
otherwise obligated to Sellers or any Subsidiary; and no Seller is indebted or
otherwise obligated to any such Person, except for amounts due under normal
arrangements applicable to all employees generally as to salary or reimbursement
of ordinary business expenses not unusual in amount or significance. The
consummation of the transactions contemplated by this Agreement will not (either
alone, or upon the occurrence of any act or event, or with the lapse of time, or
both) result in any benefit or payment (severance or other) due to any employee
involved in the Business arising or becoming due from Sellers or any Subsidiary
or the successor or assign of any thereof to any Person.
4.18 Intercompany Transactions.
-------------------------
Except for payments made by LATC, as lessee, to Meditrust, as lessor,
pursuant to that certain lease covering the Real Property (the "Permitted Lease
Payments") and for the transfer by LATC of the Munnings Art Collection as
described in Appendix D to the Schedules (the "Munnings Transfer") and
intercompany payables and receivables reflected on the LATC balance sheet, dated
September 30, 1998 (the "Intercompany Amounts" and together with the Permitted
Lease Payments and the Munnings Transfer, the "Permitted Intercompany
Transactions"), neither SAC nor any of its Subsidiaries has engaged in any
transaction with any Affiliate of Sellers since December 31, 1997 or (if prior
to such date) that remains executory. Except for the Permitted Intercompany
Transactions, neither SAC nor any of its Subsidiaries has any liabilities or
obligations to any Affiliate of Sellers and none of such Affiliates has any
obligations to SAC or any of its Subsidiaries. The consummation of the
transactions contemplated by this Agreement will not (either alone, or upon the
occurrence of any act or event, or with the lapse of time, or both) result in
any payment arising or becoming due from Sellers (other than MT and MOC) or any
Subsidiary or the successor or assign of any thereof to any Affiliate of
Sellers.
4.19 Bank Accounts, Powers, etc.
--------------------------
Schedule 4.19 ("Bank List") lists each bank, trust company, savings
institution, brokerage firm, mutual fund or other financial institution of which
any of SAC, SAE or LATC has an account or safe deposit box used in connection
with the operation of the Business and the names and identification of all
Persons authorized to draw thereon or to have access thereto, and lists the
names of each Person holding powers of attorney or agency authority from Sellers
or any Subsidiary and a summary of the terms thereof.
4.20 No Brokers or Finders.
---------------------
Neither Seller nor any Affiliate thereof has engaged any agent, broker,
finder, or investment or commercial banker in connection with the negotiation,
execution or performance of this Agreement who is or will be entitled to any
brokerage or finder's or similar fee or other
26
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commission as a result of this Agreement, except for NationsBanc Montgomery
Securities LLC, as to which Sellers shall have full responsibility and Buyer
shall have no liability.
4.21 Accuracy of Information.
-----------------------
All information prepared or dated on or after November 5, 1997 furnished by
or on behalf of Sellers to Buyer, its agents or representatives in connection
with Sellers, any Subsidiary, the Business, the Purchased Assets, the Excluded
Assets, the Assumed Liabilities and the Excluded Liabilities, this Agreement and
the transactions contemplated by this Agreement is, to Sellers' knowledge, true
and complete in all material respects and does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make any
statement therein not misleading. None of the information supplied or to be
supplied by or on behalf of Sellers prepared or dated on or after November 5,
1997 (a) to any Person for inclusion, or included, in any document or
application filed with any Governmental Entity having jurisdiction over or in
connection with the transactions contemplated by this Agreement or (b) to Buyer,
its agents or representatives in connection with these transactions or this
Agreement, did contain, or at the respective times such information is delivered
or becomes effective, will contain any untrue statement of a material fact, or
omitted or will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. If Sellers become aware that any of
such information at any time subsequent to its delivery and prior to Closing
becomes untrue or misleading in any material respect, Sellers will promptly
notify Buyer in writing of such fact and of the reasons for such change. All
documents required to be filed by Sellers or any Subsidiary or Affiliate with
any Governmental Entity in connection with this Agreement or the transactions
contemplated by this Agreement will comply in all material respects with the
provisions of applicable Law.
4.22 Environmental Compliance.
------------------------
Except as set forth in Section 4.22 of the Disclosure Schedule during the
Period of Ownership, (i) Sellers have not received any notice or communication
indicating that any Seller with reference to the Business and the Purchased
Assets nor any Subsidiary has generated, used, transported, treated, stored,
released or disposed of, or has suffered or permitted anyone else to generate,
use, transport, treat, store, release or dispose of any Hazardous Substance in
violation of any Law; (ii) except as disclosed in environmental reports
delivered to Buyer by Sellers, Sellers have not received any notice or
communication indicating that there has been any generation, use,
transportation, treatment, storage, release or disposal of any Hazardous
Substance in connection with the conduct of the Business or the use of any
property or facility of Sellers or any Subsidiary included in the Purchased
Assets or to the knowledge of Sellers any nearby or adjacent properties which
has created or might reasonably be expected to create any liability under any
Law or which would require reporting to or notification of any Governmental
Entity; and (iii) with respect to the Business and the Purchased Assets, neither
Sellers nor any Subsidiary are subject to or have received notice of any written
order, consent decree, settlement agreement, investigation, notice, claim,
action, suit, proceeding, demand or other order or directive with or from any
Person relating to (a) a violation of Law relating to the generation, use,
transportation, treatment, storage, release or disposal of Hazardous Substances
or (b) any
27
<PAGE>
actual or alleged damage, injury, threat or harm to health, safety, natural
resources or the environment.
4.23 Powers of Attorney.
------------------
During the Period of Ownership and to Sellers' knowledge, Sellers and the
Subsidiaries have not given any power of attorney (irrevocable or otherwise) to
any person or entity for any purpose relating to the Business, Purchased Assets
or Assumed Liabilities, other than powers of attorney given to regulatory
authorities in connection with routine qualifications to do business.
4.24 As-Is Qualification
-------------------
Buyer hereby agrees and acknowledges that (i) except for the
representations and warranties set forth in Article IV, it is buying the
Purchased Assets on an "AS-IS" basis; (ii) it has made or will have made its own
investigations and inspections of the Purchased Assets, including, without
limitation, the physical aspects of the Purchased Assets and the Purchased
Assets' compliance with all laws applicable to the Purchased Assets' current or
intended use or development; (iii) in connection with its investigations and
inspections of the Purchased Assets it has contracted or had the opportunity to
contract with certain advisors and consultants, including, but not limited to,
environmental consultants, engineers and geologists, to conduct such
environmental, hazardous material, geological, soils, hydrology, seismic,
endangered species, archeological, physical, structural, mechanical and other
inspections of the Purchased Assets as Buyer deemed to be necessary, including
without limitation whether the Real Property is located in a "flood zone" as set
forth on the Special Flood Zone Area Maps maintained by the United States
Department of Housing and Urban Development and whether the Real Property is
situated in a Special Study Zone as designated under the Alquist-Priolo Special
Studies Zone Act with respect to areas of geologic instability; (iv) it has
approved the reports of such advisors and consultants; (v) except for the
representations and warranties set forth in Article IV, it is relying solely on
such reports and its own investigations as to the Purchased Assets, their
condition and other characteristics and compliance with laws; (vi) except for
the representations and warranties set forth in Article IV, Buyer is not making
the purchase of the Purchased Assets in reliance upon any statements or
representations, express or implied, made by Sellers or their agents or brokers,
as to the condition of or characteristics of the Purchased Assets, their fitness
for use for any particular purpose, or the Purchased Assets' compliance with any
zoning or other rules, regulations, laws or statutes applicable to the Purchased
Assets, or the uses permitted on or the development requirements for or any
other matters relating to the Property. Except as set forth in Article IV,
Sellers have no liability nor responsibility to Buyer in connection with the
matters set forth in this Section 4.24, including, without limitation, any
liability under any laws, rules, regulations or ordinances regulating the
environment, hazardous materials, or human health and safety, or any latent or
patent defects.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as otherwise indicated on the Buyer's Disclosure Schedule dated
November 12, 1998 previously delivered to Sellers, Buyer represents, warrants
and agrees as follows:
5.1 Organization and Related Matters.
--------------------------------
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Buyer has all necessary
corporate power and authority to carry on its business as now being conducted.
Buyer has the necessary corporate power and authority to execute, deliver and
perform this Agreement.
5.2 Authorization.
-------------
The execution, delivery and performance of this Agreement by Buyer has been
duly and validly authorized by the Board of Directors of Buyer and by all other
necessary corporate action on the part of Buyer. This Agreement constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws and
equitable principles relating to or limiting creditors' rights generally.
5.3 No Conflicts.
------------
The execution, delivery and performance of this Agreement by Buyer will not
violate the provisions of, or constitute a breach or default whether upon lapse
of time and/or the occurrence of any act or event or otherwise under (a) the
charter documents or bylaws of Buyer, (b) any Law to which Buyer is subject or
(c) any Contract to which Buyer is a party that is material to the financial
condition, results of operations or conduct of the business of Buyer, provided
that the appropriate regulatory approvals are received as contemplated by
Section 8.1.
5.4 No Brokers or Finders.
---------------------
Neither Buyer nor any Affiliate thereof has engaged any agent, broker,
finder, or investment or commercial banker in connection with the negotiation,
execution or performance of this Agreement who is or will be entitled to any
brokerage or finder's or similar fee or other commission as a result of this
Agreement.
5.5 Governmental Filings. All documents required to be filed by Buyer or
--------------------
any Affiliate with any Governmental Entity in connection with this Agreement or
the transactions contemplated by this Agreement will comply in all material
respects with the provisions of applicable law.
29
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ARTICLE VI
COVENANTS WITH RESPECT TO CONDUCT OF THE
BUSINESS PRIOR TO CLOSING
Sellers hereby covenant and agree with Buyer that from November 13, 1998
until the Closing, and except as otherwise contemplated by this Agreement or
consented to or approved by Buyer in writing, as follows:
6.1 Access.
------
Sellers will (and will cause the Subsidiaries to) authorize and permit
Buyer and its representatives (which term shall be deemed to include its
independent accountants and counsel) to have reasonable access during normal
business hours, upon reasonable notice and in such manner as will not
unreasonably interfere with the conduct of their respective businesses, to all
of their respective properties, books, records, operating instructions and
procedures, Tax Returns and all other information with respect to the Business
as Buyer may from time to time reasonably request, and to make copies of such
books, records and other documents (at Buyer's expense) and to discuss the
Business with such third Persons (in a manner that will not unreasonably
interfere with the conduct of their business activities or the relationship
between such third persons and Sellers), including, without limitation,
directors, officers, employees, accountants, counsel, suppliers, customers, and
creditors, as Buyer considers reasonably necessary or appropriate for the
purposes of familiarizing itself with the Business, the Purchased Assets or the
Assumed Liabilities, obtaining any necessary Approvals of or Permits for the
transactions contemplated by this Agreement and conducting an evaluation of the
organization and the Business. Without limiting the generality of the foregoing,
Buyer shall be entitled to conduct or cause to be conducted on the Real Property
such soils and geological tests and environmental inspections, audits and tests
(including the taking of soils and ground water samples) and such structural and
other physical inspections as Buyer shall deem necessary or useful in connection
with its acquisition of the Real Property. After making such tests and
inspections, Buyer agrees to promptly restore the Real Property to its condition
prior to such tests and inspections, and to indemnify Sellers against any Losses
relating to Buyer's conduct of such tests and inspections, including, without
limitation, Sellers' reasonable attorneys' fees and expenses.
6.2 Material Adverse Changes; Reports; Financial Statements.
-------------------------------------------------------
(a) Sellers will promptly notify Buyer of any event of which Sellers obtain
knowledge which has had or might reasonably be expected to have a material
adverse effect on the Business or which if known as of the date hereof would
have been required to be disclosed to Buyer. Buyer will promptly notify Sellers
of any event of which Buyer obtains knowledge which has had or might reasonably
be expected to have a material adverse effect on the Business.
(b) Seller will furnish to Buyer (i) as soon as available, and in any event
within 10 days after it is prepared by Sellers or any of the Subsidiaries, all
financial statements relating to the Business prepared from and after the date
hereof for submission to their respective boards of directors and other
operating or financial reports relating to the Business (including any
projections and budgets) prepared for management of the Business, together with
any working papers related thereto, (ii) as soon as available, copies of all
reports, renewals, filings,
30
<PAGE>
certificates, statements and other documents relating to the Business and filed
with any Governmental Entity, (iii) to the extent regularly prepared, monthly
and quarterly unaudited consolidated and combined balance sheets, statements of
operations and cash flows and changes in stockholder's equity of the Business,
and (iv) to the extent regularly prepared, such other reports as Buyer may
reasonably request relating to the Business. Each of the financial statements
delivered pursuant to this Section 6.2(b) shall be prepared in accordance with
GAAP, consistently applied (except as disclosed therein), except that such
financial statements may omit footnote disclosures required by GAAP and year-end
adjustments. Each of the financial statements delivered pursuant to this Section
6.2(b) shall be accompanied by a certificate of the respective chief financial
officers of Sellers and, as to the Subsidiaries, of Subsidiaries to the effect
that such financial statements present fairly the financial condition and
changes in equity and results of operations and cash flow of Sellers and its
Subsidiaries with respect to the operations of the Business for the periods
covered and reflect all adjustments (which consist only of normal recurring
adjustments not material in amount) necessary for a fair presentation.
6.3 Conduct of Business.
-------------------
None of Sellers nor any Subsidiary in connection with the operation of the
Business will without the prior consent in writing of Buyer (which consent shall
not be unreasonably withheld or delayed):
(a) conduct the Business except in the ordinary course consistent with past
practices; or
(b) amend, terminate, renew or renegotiate any Material Contract or default
(or take or omit to take any action that with or without the giving of notice or
passage of time or both, would constitute a default) in any of its obligations
under any Material Contract or enter into any new Material Contract, any Lease,
or any prospective lease for all or any portion of the Real Property; or
(c) terminate or fail to renew any existing insurance coverage; or
(d) terminate, amend or fail to renew or preserve any Permits; or
(e) in the case of SAC, SAE or LATC except as otherwise permitted herein,
incur or agree to incur any obligation or liability (absolute or contingent)
that individually calls for payment by SAC, SAE or LATC in connection with the
Business of more than $75,000 in any specific case or $250,000 in the aggregate;
or
(f) in the case of SAC, SAE or LATC, make any loan, guaranty or other
extension of credit, or enter into any commitment to make any loan, guaranty or
other extension of credit, to or for the benefit of any Affiliate, director,
officer, employee, stockholder or any of their respective Associates or
Affiliates; or
(g) in the case of SAC, SAE or LATC, grant any general or uniform increase
in the rates of pay or benefits to officers, directors or employees (or a class
thereof) or any increase in salary or benefits of any officer, director,
employee or agent or pay any bonus to any person, except for normal increases to
non-management personnel in accordance with past
31
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practices and increases required under the terms of agreements existing on
November 12, 1998 and listed in the Disclosure Schedule, or enter into any new
employment, collective bargaining or severance agreement; or
(h) sell, transfer, mortgage, encumber or otherwise dispose of any assets
or any liabilities relating to the Business, including the Purchased Assets and
Assumed Liabilities, except (i) for dispositions of property not greater than
$100,000 in the aggregate, or (ii) in the ordinary course of business or (iii)
as contemplated by this Agreement; provided, that prior to the Closing,
Meditrust shall be permitted to secure up to $80 million of financing with a
trust deed, assignment of rents and leases and fixture filing on the Real
Property, which financing shall be repaid in full out of the Purchase Price at
the Closing, and the trust deed shall be released at the Closing; or
(i) in the case of SAC, SAE or LATC, issue, sell, redeem or acquire for
value, or agree to do so, any debt obligations or Equity Securities of Sellers
or any of the Subsidiaries; or
(j) in the case of SAC, SAE or LATC, declare, issue, make or pay any
dividend or other distribution, other than in cash, cash items or intercompany
payables or receivables to its shareholders, or split, combine, dividend,
distribute or reclassify any shares of its Equity Securities; or
(k) in the case of SAC, SAE or LATC, change or amend any of its charter
documents or bylaws; or
(l) in the case of SAC, SAE or LATC, make any capital expenditures or
commitments with respect thereto aggregating more than $50,000; or
(m) in the case of SAC, SAE or LATC, make special or extraordinary payments
to any Person, except for cash settlements of outstanding litigation matters
involving LATC which are identified on Schedule 2.2(a) as liabilities not
assumed by Buyer; or
(n) in the case of SAC, SAE or LATC, make any material investment, by
purchase, contribution to capital, property transfer, or otherwise, in any other
Person; or
(o) in the case of SAC, SAE or LATC, dispose of or permit to lapse any
Intangible Property or any rights to its use; or
(p) in the case of SAC, SAE or LATC, compromise or otherwise settle any
claims, or adjust any assertion or claim of a deficiency in Taxes, or file any
appeal from an asserted deficiency, except in a form previously approved by
Buyer in writing, or file or amend any Tax Return, in any matters that involves
or may involve any of the Assumed Liabilities or Purchased Assets, before
furnishing a copy to Buyer and affording Buyer an opportunity to consult with
respect thereto; or
(q) in the case of SAC, SAE or LATC, make any Tax election, change any
method or period of accounting or change any significant accounting policy,
practice or
32
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procedure, or introduce any new method of management or operation in respect of
the Business; or
(r) in the case of SAC, SAE or LATC, fail to maintain or repair any
Purchased Asset consistent with past practices; or
(s) take any action, or make any commitment, which relates to the
development, zoning, rezoning or leasing or prospective leasing of any of the
Real Property; or
(t) from and after November 12, 1998, make any payments from LATC to any
Affiliate, except for payments required to be made by LATC under the Lease
between LATC and MT with respect to the Real Property through the Closing Date
or, if earlier, the Proration Date; or
(u) in the case of SAC, SAE or LATC, enter into any new banking
relationships or commit to any new lines of credit or other financing
facilities; provided, that LATC shall be permitted to obtain prior to the
Closing a line of credit to fund its operations through the Closing Date which
line of credit shall be on terms reasonably acceptable to Buyer;
(v) agree to or make any commitment to take any action that is or would be
prohibited by this Section 6.3.
6.4 Notification of Certain Matters.
-------------------------------
Sellers shall give prompt notice to Buyer, and Buyer shall give prompt
notice to Sellers, of (i) the occurrence, or failure to occur, of any event that
would be likely to cause any of its representations or warranties contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date of this Agreement to the Closing Date and (ii) any failure on its
part to comply with or satisfy, in any material respect, any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement.
6.5 Permits and Approvals; Third Party Consents.
-------------------------------------------
(a) Sellers and Buyer each agree to cooperate and use their best efforts to
obtain (and will immediately prepare all registrations, filings and
applications, requests and notices preliminary to obtaining all) Approvals and
Permits that may be necessary or that may be reasonably requested by Buyer to
consummate the transactions contemplated by this Agreement.
(b) To the extent that the Approval of a third party with respect to any
Contract is required in connection with the transactions contemplated by this
Agreement, Sellers shall cooperate with Buyer in obtaining such Approval prior
to the Closing Date.
(c) From November 12, 1998 to the Closing Date, SAC and SAE agree to
include in each Contract relating to the Business entered into subsequent to
November 12, 1998 ("Subsequent Contract") a provision permitting the assignment
of any such Subsequent Contract to Buyer and providing that upon such
assignment, Buyer shall succeed to all of SAC's and SAE's rights, title and
interests thereunder subject only to Buyer's express assumption of all
33
<PAGE>
SAC's and SAE's duties, powers and obligations under such Subsequent Contract,
or containing provisions that do not otherwise prohibit assignment to Buyer.
6.6 Preservation of Business Prior to Closing Date.
----------------------------------------------
During the period beginning on November 12, 1998 and ending on the Closing
Date, (a) Sellers will use their best efforts to preserve the Business and to
preserve the goodwill of customers, suppliers and others having business
relations with Sellers and its Subsidiaries and (b) Sellers will not take any
actions which interfere with Buyer's efforts to keep available to Buyer, the
services of the officers and employees of Sellers and its Subsidiaries involved
in the operations of the Business that Buyer may wish to retain. Nothing in this
Section shall obligate Buyer or any Subsidiary after the Closing to retain or
offer employment to any officer or employee of Sellers or any Subsidiary;
provided, that Buyer agrees to indemnify and hold Sellers harmless with respect
to any liability of Sellers for failing to comply with any of the notification
requirements of the Worker Adjustment and Retraining Notification Act which
results from the discharge or termination of employment by Buyer or LATC after
the Closing Date.
6.7 Certain Filings.
---------------
Sellers and Buyer will make any and all filings required to be made on
their respective parts under the Hart-Scott-Rodino Act and the California Horse
Racing Law. Buyer and Sellers agree to make any filings required under the
Hart-Scott-Rodino Act on or before November 20, 1998. Sellers and Buyer shall
furnish each other such necessary information and reasonable assistance as the
other may reasonably request in connection with its preparation of necessary
filings or submissions under the provisions of such laws. Sellers and Buyer will
supply each other with copies of all correspondence, filings or communications,
including file memoranda evidencing telephonic conferences, with representatives
of any Governmental Entity or member of its staff, with respect to the
transactions contemplated by this Agreement and any related or contemplated
transactions.
ARTICLE VII
ADDITIONAL CONTINUING COVENANTS
7.1 Noncompetition.
--------------
(a) Restrictions on Competitive Activities. Sellers agree that, after the
--------------------------------------
Closing, Buyer shall be entitled to the goodwill and going concern value of the
Business and to protect and preserve the same to the maximum extent permitted by
law. For these and other reasons and as an inducement to Buyer to enter into
this Agreement, Sellers agree that for a period of five years after the Closing
Date Sellers will not, directly or indirectly, for their own benefit or as agent
for another, carry on or participate in the ownership, management or control of,
or be employed by, or consult for or otherwise render services to, any other
present or future business enterprise that competes with Buyer in the horse
racing business in the Counties of Los Angeles, San Bernardino, San Diego,
Orange and Riverside in the State of California in which Sellers or its
Subsidiaries are now substantially engaged.
(b) Exceptions. Nothing contained herein shall limit the right of Sellers
----------
as an investor to hold and make investments in securities of any corporation or
limited partnership that
34
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is registered on a national securities exchange or admitted to trading
privileges thereon or actively traded in a generally recognized over-the-counter
market, provided Sellers' equity interest therein does not exceed 10% of the
outstanding shares or interests in such corporation or partnership.
(c) Special Remedies and Enforcement. Sellers recognize and agree that a
--------------------------------
breach by Sellers of any of the covenants set forth in this Section 7.1 could
cause irreparable harm to Buyer, that Buyer's remedies at law in the event of
such breach would be inadequate, and that, accordingly, in the event of such
breach a restraining order or injunction or both may be issued against Sellers,
in addition to any other rights and remedies which are available to Buyer. If
this Section 7.1 is more restrictive than permitted by the Laws of any
jurisdiction in which Buyer seeks enforcement hereof, this Section 7.1 shall be
limited to the extent required to permit enforcement under such Laws. In
particular, the parties intend that the covenants contained in the preceding
portions of this Section 7.1 shall be construed as a series of separate
covenants, one for each county specified. Except for geographic coverage, each
such separate covenant shall be deemed identical in terms. If, in any judicial
proceeding, a court shall refuse to enforce any of the separate covenants deemed
included in this paragraph, then such unenforceable covenant shall be deemed
eliminated from these provisions for the purpose of those proceedings to the
extent necessary to permit the remaining separate covenants to be enforced.
7.2 Nondisclosure of Proprietary Data.
---------------------------------
After the Closing, none of Sellers nor any of its representatives shall, at
any time, make use of, divulge or otherwise disclose, directly or indirectly,
any trade secret or other proprietary data (including, but not limited to, any
customer list, record or financial information) concerning the Business or the
business or policies of Sellers related to the Business that Sellers or any
representative of Sellers may have learned as an owner or a shareholder,
employee, officer or director of the Business. In addition, none of Sellers nor
any of their representatives shall make use of, divulge or otherwise disclose,
directly or indirectly, to persons other than Buyer, any confidential
information concerning the Business that may have been learned in any such
capacity. Notwithstanding the restrictions of this Section 7.2, Sellers shall
not be precluded from disclosing any such confidential or proprietary
information (i) which is required to be disclosed by law, court order,
governmental order or decree; provided, that Sellers have provided notice to
Buyer of such disclosure and given Buyer the opportunity to seek a protective
order with respect to the information proposed to be disclosed; or (ii) to an
insurance carrier or lender, subject to appropriate confidentiality
restrictions.
7.3 Tax Cooperation.
---------------
After the Closing, Sellers shall, and shall cause its Affiliates to,
cooperate fully with Buyer in the preparation of all Tax Returns relating to
periods ending on or prior to the Closing Date and shall provide, or cause to be
provided at Sellers' sole cost and expense, to Buyer any records and other
information requested by such parties in connection therewith as well as access
to, and the cooperation of, the Auditors of Sellers and its Affiliates. After
the Closing, Sellers shall, and shall cause its Affiliates to, cooperate fully
with Buyer in connection with any Tax investigation, audit or other proceeding
relating to the Business. After the Closing, Buyer shall, and shall cause its
Affiliates to, cooperate fully with Sellers in the preparation of all
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Tax Returns required to be filed by Sellers relating the Business and to periods
ending on or prior to the Closing Date and shall provide, or cause to be
provided at Buyer's sole cost and expense, to Sellers any records and other
information requested by such parties in connection therewith as well as access
to, and the cooperation of, Buyer's auditors. Any information obtained pursuant
to this Section 7.3 or pursuant to any other Section hereof providing for the
sharing of information or the review of any Tax Return or other Schedule
relating to Taxes shall be subject to Section 11.9.
7.4 Employment Matters.
------------------
(a) Non-Represented Employees. As of the Closing Date, Buyer may, at its
-------------------------
option, offer employment to any employee of Sellers involved in the Business
that is not represented by a collective bargaining organization on such terms
and conditions as may be mutually agreed upon by Buyer and such employees.
Sellers shall not take any action, directly or indirectly, to prevent or
discourage any such employee involved in horse racing activities from being
employed by Buyer as of the Closing Date and shall not solicit, invite, induce
or entice any such employee to remain in the employ of Sellers or otherwise
attempt to retain the services of any such employee, except with the prior
written consent of Buyer. Sellers agree to consult with Buyer on all material
oral or written communications or meetings primarily regarding future employment
with such employees and/or the represented employees described below.
(b) Union Contracts. LATC is a party to the collective bargaining
---------------
agreements relating to the Business listed in Schedule 4.16 hereto (the "Union
Contracts"). Promptly after the execution of this Agreement, LATC shall advise
each such union of the matters contemplated hereunder and shall use its best
efforts to secure such union's written agreement that Buyer shall be LATC's
successor to the Union Contracts. Upon consummation of the Closing, Buyer agrees
to assume and fully discharge the obligations of Sellers and to be bound by all
terms and conditions of the Union Contracts on and after the Closing Date.
(c) Proration of Employee Benefits. All obligations for compensation,
------------------------------
wages, bonuses, severance pay, vacation time, pay in lieu of vacation, sickness
and accident benefits, leaves of absence, and similar employee benefits provided
by Sellers shall be prorated between Sellers and Buyer as of the Closing Date
or, if earlier, the Proration Date for all employees of Sellers or LATC who
become employees of Buyer as of the Closing Date. Sellers and LATC shall cause
all such benefits to be paid or accrued as of the Closing Date or, if earlier,
the Proration Date, and such amounts shall be included as liabilities in
calculating the Closing Adjustment.
(d) No Third Party Beneficiaries. Notwithstanding any possible inferences
----------------------------
to the contrary, neither Sellers nor Buyer intend for this Section 7.4 to create
any rights or obligations except as between Sellers and Buyer, and no past,
present or future employees of Sellers, Subsidiaries or Buyer shall be treated
as third-party beneficiaries of this Section 7.4.
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7.5 Proration Payments.
------------------
If any provision hereof requires the proration between Buyer and Sellers of
obligations to third parties, including employees or former employees, each
party hereto agrees to pay promptly upon demand by the other party (accompanied
by a reasonably itemized statement of the claim and basis therefor and
supporting documentation from such other party) its proportionate share of the
obligations that it has assumed hereunder. If the parties are unable to agree on
an amount due hereunder the parties shall select an Arbitrating Accountant to
resolve the dispute, which resolution shall be binding on the parties.
7.6 New Gaming Profit Sharing.
-------------------------
In the event that video, mechanical, or electro-mechanical slot machines or
similar gaming devices ("Gaming Devices") are installed on the Real Property at
any time during the five-year period after the Closing Date, then Buyer agrees
to pay to Sellers an amount equal to 20% of the "pre-tax net profits" of Buyer
relating to such Gaming Devices for the ten-year period after Gaming Devices are
first introduced on the Real Property. "Pre-tax net profits" from Gaming Devices
(the "Gaming Royalties") shall be calculated and paid on a quarterly basis and
shall be determined in accordance with GAAP, including an allocation of the
overhead and related costs associated with generating the Gaming Devices
revenue. Accompanying each payment of Gaming Royalties shall be a report setting
forth in reasonable detail the calculation of the Gaming Royalties then due.
Sellers shall have the right to examine the books, records and accounts of Buyer
as are reasonably necessary to verify the calculation of Gaming Royalties;
provided, that such right shall not be exercised more than twice during any
12-month period. Such inspections shall be subject Sellers or their agents
signing a non-disclosure agreement, and may be conducted upon reasonable notice,
during normal business hours and in a manner that will not unreasonably
interfere with the conduct of the Business. If any audit reveals that Buyer has
underpaid Gaming Royalties hereunder, and the amount of Gaming Royalties which
Buyer has failed properly to pay exceeds by five percent (5%) or more the Gaming
Royalties actually paid to Sellers for the period under review, Buyer shall
reimburse Sellers for such underpayment and for the costs and expenses of any
independent certified public accountant engaged to conduct such review. In the
event of a dispute regarding the calculation of pre-tax net profits relating to
Gaming Devices, the dispute shall be finally and conclusively resolved by the
Arbitrating Accountant.
7.7 No Solicitation.
---------------
Sellers and their Subsidiaries shall not, directly or indirectly, through
any officer, director, agent or otherwise, solicit any offer or engage in any
negotiations, or provide non-public information to any person, other than Buyer
in connection with any transactions involving the sale of all or a substantial
part of the Business to any third party other than Buyer.
7.8 Section 338(h)(10) Election.
---------------------------
Buyer and Sellers agree that after the Closing Date each will make the
appropriate elections under Section 338(h)(10) of the Code to treat the sale of
the stock of LATC as an asset sale.
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7.9 Sales and Transfer Taxes.
------------------------
Sellers shall pay all real and personal property transfer taxes, if any,
and all sales, use and other similar taxes, if any, imposed on or in connection
with the purchase, sale or transfer of the Purchased Assets to, and the
assumption of the Assumed Liabilities by, Buyer pursuant to this Agreement;
provided, that Sellers shall not be responsible for any real property taxes
relating to the reassessment of the Real Property with respect to periods after
the Closing as a result of the transactions contemplated hereby.
7.10 Waiver of Bulk Sales Notice.
---------------------------
Buyer and Sellers waive compliance with any applicable bulk sales laws,
subject to the provisions of Section 10.1.
7.11 Elimination of Intercompany and Affiliate Liabilities.
-----------------------------------------------------
Prior to the Closing Date, Sellers shall cause to be repaid (i) any and all
loans or other extensions of credit made or guaranteed by Sellers or any
Subsidiary to or for the benefit of any director, officer, shareholder, or
employee involved in the Business, or any of their Affiliates or Associates and
(ii) any and all loans, guarantees or other extensions of credit of any amount
made to or for the benefit of Sellers or any of the Subsidiaries by any of such
persons. Buyer shall not have any continuing commitment, obligation or liability
of any kind with respect to the persons referred to in subsections (i) and (ii)
above as a result of this Agreement. Sellers agree to indemnify Buyer for any
Losses of Buyer with respect to any such commitment, obligation or liability not
assumed by Buyer.
7.12 Pension Plan.
------------
Prior to the Closing Date, Sellers shall cause The Santa Anita Companies,
Inc. Retirement Income Plan (the "Pension Plan") and the Santa Anita Companies,
Inc. 401(k) Plan (the "401(k) Plan") to be amended to provide that LATC is the
sponsor of such plans. The parties acknowledge that LATC will be the sponsor of
the Pension Plan and the 401(k) Plan following the Closing Date.
7.13 Corporate Name.
--------------
Within one business day after the Closing Date, Sellers shall take all
action necessary and file all documents or instruments necessary with any
Governmental Entity or other Person to change the name of SAC and SAE to other
names. Such new names shall not conflict with or otherwise interfere with
Buyer's ability to use such names after the Closing.
7.14 Repair of Damage; Condemnation.
------------------------------
(a) In the event that prior to the Closing there is any "Non-Material" (as
defined in subsection (c) hereof) damage to the Purchased Assets, or any part
thereof, Buyer shall accept such Purchased Assets in their then current
condition (provided Buyer shall be entitled to any insurance proceeds).
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(b) In the event that prior to the Closing, any Non-Material portion of the
Purchased Assets is subject to a taking, Buyer shall accept the Purchased Assets
in their then-current condition and proceed with the Closing, in which case
Buyer shall be entitled to an assignment of all of Sellers' rights to any award
in connection with such taking. In the event of any such Non-Material taking,
Sellers shall not compromise, settle or adjust any claims to such award without
Buyer's prior written consent.
(c) For the purpose of this Section 7.14, damage to the Purchased Assets or
a taking of a portion thereof shall be deemed to be "Non-Material" if the
reasonably estimated cost of restoration or repair of such damage or the amount
of the condemnation award with respect to such taking shall not exceed
$3,000,000.
(d) Sellers agree to give Buyer prompt notice of any taking, damage or
destruction of the Purchased Assets.
ARTICLE VIII
CONDITIONS OF PURCHASE
8.1 General Conditions.
------------------
The obligations of the parties to effect the Closing shall be subject to
the following conditions:
(a) No Orders; Legal Proceedings. No Law or Order shall have been enacted,
----------------------------
entered, issued, promulgated or enforced by any Governmental Entity, nor shall
any Action have been instituted and remain pending and remain so by any
Governmental Entity on the scheduled Closing Date, that prohibits or restricts
or would (if successful) prohibit or restrict the sale of the Business or the
transfer of the Real Property. No Governmental Entity shall have notified any
party to this Agreement that consummation of the transactions contemplated by
this Agreement would constitute a violation of any Laws of any jurisdiction or
that it intends to commence proceedings to restrain or prohibit such
transactions or force divestiture or rescission, unless such Governmental Entity
shall have withdrawn such notice and abandoned any such proceedings prior to the
scheduled Closing.
(b) Approvals. The applicable waiting period under the Hart-Scott-Rodino
---------
Act shall have expired or been terminated.
8.2 Conditions to Obligations of Buyer.
----------------------------------
The obligations of Buyer to effect the Closing shall be subject to the
following conditions except to the extent waived in writing by Buyer:
(a) Representations and Warranties and Covenants of Sellers. The
-------------------------------------------------------
representations and warranties of Sellers herein contained shall be true at the
Closing Date to the extent that there shall have been no Material Adverse
Effect, Sellers shall have performed all obligations and complied with all
covenants and conditions required by this Agreement to be performed or complied
with by them at or prior to the Closing Date, and Sellers shall have delivered
to Buyer certificates of Sellers in form and substance satisfactory to Buyer,
dated the
39
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Closing Date and signed by the Chief Executive Officer and Chief Financial
Officer of Sellers to such effect.
(b) No Material Adverse Effect. There shall not have occurred one or more
--------------------------
events or other circumstances which have had a Material Adverse Effect
subsequent to September 30, 1998.
(c) Opinion of Counsel. Buyer shall receive at the Closing from Arter &
------------------
Hadden LLP, counsel to Sellers, an opinion dated the Closing Date, in form and
substance substantially as set forth in Exhibit C.
(d) Resignation of Directors and Certain Officers and Employees. The
-----------------------------------------------------------
directors and officers of LATC listed in a letter to be delivered by Buyer to
Sellers not less than five days prior to the Closing Date, shall have submitted
their resignations in writing to LATC. Such resignations of officers and
directors (in such capacity) shall be effective as of the Closing.
(e) Title. The Title Company shall have confirmed that it will issue the
-----
Title Policy with respect to the Real Property, subject only to the Permitted
Exceptions.
(f) Escrow Instructions. Sellers shall have entered into Joint Escrow
-------------------
Instructions relating to the transfer of the Real Property substantially in the
form of Exhibit D hereto (the "Joint Escrow Instructions").
8.3 Conditions to Obligations of Sellers.
------------------------------------
The obligations of Sellers to effect the Closing shall be subject to the
following conditions, except to the extent waived in writing by Sellers:
(a) Representations and Warranties and Covenants of Buyer. The
-----------------------------------------------------
representations and warranties of Buyer herein contained shall be true in all
material respects at the Closing Date with the same effect as though made at
such time, Buyer shall have performed all obligations and complied with all
covenants and conditions required by this Agreement to be performed or complied
with by it at or prior to the Closing Date, and Buyer shall have delivered to
Sellers certificates of Buyer in form and substance satisfactory to Sellers,
dated the Closing Date and signed by the chief executive officer and chief
financial officer of Buyer, to such effect.
(b) Opinion of Counsel. Seller shall receive at the Closing from O'Melveny
------------------
& Myers LLP, counsel to Buyer, an opinion dated the Closing Date, in form and
substance substantially as set forth in Exhibit E.
(c) Escrow Instructions. Buyer shall have entered into the Joint Escrow
-------------------
Instructions.
40
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ARTICLE IX
TERMINATION OF OBLIGATIONS; SURVIVAL
9.1 Termination of Agreement.
------------------------
Anything herein to the contrary notwithstanding, this Agreement and the
transactions contemplated by this Agreement shall terminate at the close of
business on January 15, 1998 unless extended by mutual consent in writing of
Buyer and Sellers and may otherwise be terminated at any time before the Closing
as follows and in no other manner:
(a) Mutual Consent. By mutual consent in writing of Buyer and Sellers.
--------------
(b) Conditions to Buyer's Performance Not Met. By Buyer upon written notice
-----------------------------------------
to Sellers that one or more of the conditions to the obligations of Buyer set
forth in Section 8.1 or 8.2 have not been satisfied.
(c) Conditions to Sellers' Performance Not Met. By Sellers upon written
------------------------------------------
notice to Buyer that one or more of the conditions to the obligations of Sellers
set forth in Section 8.1 or 8.3 have not been satisfied.
(d) Material Breach. By Buyer or Sellers if there has been a
---------------
misrepresentation or breach the result of which would be a material adverse
effect on the Business on the part of the other party in its representations,
warranties or covenants set forth herein; provided, however, that if such breach
or misrepresentation is susceptible to cure, Sellers or Buyer, as the case may
be, shall have 10 business days after receipt of notice from the other party of
its intention to terminate this Agreement pursuant to this Section 9.1(d) if
such misrepresentation or breach continues in which to cure such breach or
misrepresentation before the other party may so terminate this Agreement.
(e) Destruction or Condemnation. By Buyer, if any of the Purchased Assets
---------------------------
are damaged, destroyed or taken, and if such damage, destruction or condemnation
is not "Non-Material" pursuant to Section 7.14.
9.2 Effect of Termination.
---------------------
In the event that this Agreement shall be terminated pursuant to Section
9.1, all further obligations of the parties under this Agreement shall terminate
without further liability of any party to another; provided that the obligations
of the parties contained in Section 11.9 [Confidentiality] and Section 11.14
[Expenses] shall survive any such termination. A termination under Section 9.1
shall not relieve any party of any liability for a breach of, or for any
misrepresentation under this Agreement, or be deemed to constitute a waiver of
any available remedy (including specific performance if available) for any such
breach or misrepresentation.
9.3 Survival of Representations and Warranties.
------------------------------------------
The representations and warranties contained in or made pursuant to this
Agreement shall expire on the first anniversary of the Closing, except that (i)
the representations
41
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and warranties contained in Sections 4.1 [Organization and Related Matters], 4.2
[Stock], 4.8 [Authorization; No Conflicts], 4.20 [No Brokers or Finders], 4.22
[Environmental Compliance], 5.1 [Organization and Related Matters], 5.2
[Authorization], 5.4 [No Brokers or Finders], Section 7.9 [Sales and Transfer
Taxes], Section 7.10 [Waiver of Bulk Sales Notice], 7.14 [Repair of Damage;
Condemnation], and Section 4.4 [Taxes] shall survive the Closing and shall
remain in full force and effect through the expiration of the applicable statute
of limitations, and (ii) if a claim or notice is given under Article X
[Indemnification] with respect to any representation or warranty prior to the
applicable expiration date, such representation or warranty shall continue until
such claim is finally resolved.
ARTICLE X
INDEMNIFICATION
10.1 Obligations of Sellers.
----------------------
(a) Sellers agree to indemnify and hold harmless Buyer, and its directors,
officers, employees, affiliates, agents and assigns from and against any and all
Losses of Buyer, directly or indirectly, as a result of, or based upon or
arising from:
(i) any material inaccuracy in or material breach or nonperformance of
any of the representations, warranties, covenants or agreements made by
Sellers in or pursuant to this Agreement; or
(ii) any other matter as to which Sellers in other provisions of this
Agreement has agreed to indemnify Buyer; or
(iii) any liability or obligation of Sellers or any of its Affiliates
not expressly assumed by Buyer pursuant to Section 2.2(b) hereof; or
(iv) any third party claims in respect of the Purchased Assets,
Assumed Liabilities or the Business (or regarding the conduct of the
Business) from circumstances which arise prior to the Closing that are
asserted after the Closing; or
(v) non-compliance with any applicable bulk sales or fraudulent
conveyance law in connection with or as a result of the sale and transfers
contemplated by this Agreement; or
(vi) any liabilities not assumed and set forth on Schedule 2.2(a).
(b) Notwithstanding the provisions of Section 10.1(a) above, Buyer shall be
entitled to indemnity from Sellers for claims arising under Section 10.1(a)(i)
only after the aggregate claims thereunder would constitute a Material Adverse
Effect ("Aggregate Claims"). When the amount of the Aggregate Claims determined
exceeds $5,000,000, Sellers shall be obligated to indemnify Buyers for the full
amount of the Aggregate Claims and any other claims for indemnification under
Section 10.1(a)(i).
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10.2 Obligations of Buyer.
--------------------
(a) Buyer agrees to indemnify and hold harmless Sellers, and their
respective directors, officers, employees, affiliates, agents and assigns, from
and against any Losses of Sellers, directly or indirectly, as a result of, or
based upon or arising from:
(i) any inaccuracy in or breach or nonperformance of any of the
representations, warranties, covenants or agreements made by Buyer in or
pursuant to this Agreement; or
(ii) any other matter as to which Buyer in other provisions of this
Agreement has agreed to indemnify Sellers; or
(iii) any third party claims in respect of the Purchased Assets,
Assumed Liabilities or the Business (or regarding the conduct of the
Business) from circumstances which arise from and after the Closing.
(b) Notwithstanding the provisions of this Section 10.2 to the contrary, in
the event that Buyer fails to consummate the transactions contemplated by this
Agreement, other than as a result of failure of Sellers to satisfy the
conditions to Closing set forth in Sections 8.1 and 8.2, then Sellers' sole and
exclusive recourse against Buyer shall be the retention of the Deposit described
in the Joint Escrow Instructions.
10.3 Certain Tax Matters.
-------------------
(a) Sellers Indemnity. Sellers agree to indemnify, defend and hold harmless
-----------------
Buyer against (i) any Tax payable by or on behalf of Sellers or any of its
Affiliates, to the extent such Taxes exceed the amount if any of Tax liability
expressly assumed by Buyer pursuant to Section 2.2(b), (ii) any deficiencies in
any Tax payable by or on behalf of Sellers or any of its Affiliates with respect
to any period ending (or treated by this Agreement as ending) on or prior to the
Closing Date, (iii) Taxes of any member of a consolidated or combined tax group
of which Sellers or any of its Affiliates are, or were at any time, a member,
for which Buyer is jointly or severally liable as a result of Sellers' or any
Subsidiary's inclusion in such group, (iv) any claim or demand for reimbursement
or indemnification resulting from any transfer by Sellers or any Subsidiary
prior to the Closing to any other person of any Tax benefits or credits
attributable to the Business, the Purchased Assets or the Assumed Liabilities,
or assumption of any Tax liability arising out of the transfer of the Purchased
Assets, including the stock of any of the Subsidiaries, or assumption of the
Assumed Liabilities, and (v) with respect to any Taxes payable by Buyer with
respect to the operation of the Business and the ownership of the Purchased
Assets (other than Buyer's income or franchise taxes) due for periods commencing
on or prior to and ending after the Closing Date (whether or not assessed prior
to the Closing Date), a pro- rata share of such Taxes, calculated as if the
period ended on the Closing Date.
(b) Audit Matters. Sellers shall have the responsibility for, and the right
-------------
to control, at Sellers' expense, the audit (and disposition thereof) of any Tax
Return relating to periods ending on or prior to the Closing Date and shall have
the right to participate in the disposition of the audit of any Tax Return
relating to the periods ending after the Closing Date if and to the extent that
such audit or disposition thereof could give rise to a claim for
43
<PAGE>
indemnification hereunder. Buyer shall have the right directly or through its
designated representatives, to review in advance and comment upon all
submissions made in the course of audits or appeals thereof to any Governmental
Entity relating to periods ending (or treated by this Agreement as ending) on or
prior to the Closing Date and to approve the disposition of any audit adjustment
with respect to such periods if such disposition will or might reasonably be
expected to result in an increase in Taxes of Buyer for any period beginning at
or after the Closing.
(c) Additional Matters. Notwithstanding any other provision of this
-----------------
Agreement, the representations and indemnification in this Agreement by Sellers
of Buyer regarding Taxes of Sellers or any of their Subsidiaries or Affiliates
with respect to a particular year or other period ("Deficiency Period") shall
apply only to the extent attributable to the excess ("Excess Amount") of (i) the
Taxes for such Deficiency Period which result from the inclusion or
disallowance, as the case may be, of any item of income, gain, loss, deduction
or credit ("Tax Item") for such Deficiency Period, over (ii) the present value
of any reduction in Taxes for a year or other period preceding or subsequently
to the Deficiency Period ("Adjustment Period") attributable to an exclusion or
allowance, as the case may be, for the Adjustment Period of all or a portion of
a Tax Item corresponding to, or caused by, the adjustment with respect to the
Tax Item for the Deficiency Period. The following shall apply in determining the
Excess Amount.
(i) The discount rate for determining the present value of any
reduction in Taxes for an Adjustment Period shall be based on the U.S.
Prime Rate as published in the Wall Street Journal on the last publication
date during the Deficiency Period; and
(ii) The reduction in Taxes for an Adjustment Period shall be based on
the "Hypothetical Tax Rate." The Hypothetical Tax Rate shall be the
percentage equal to the sum of "A" and "B," where: "A" equals the highest
marginal federal income tax rate to which the taxable income of the Seller,
Subsidiary or Affiliate in issue was subject for the Deficiency Period; and
"B" equals the highest marginal state income or franchise tax rate to which
the taxable income of such Seller, Subsidiary or Affiliate was subject for
the Deficiency Period, as adjusted to take into account the effect of any
federal income tax deduction for state income or franchise taxes.
For example and for illustration purposes only, if (i) a Tax liability for
a Deficiency Period is attributable to the disallowance of a deduction under
Code Section 162, and (ii) all or any portion of such Tax Item is deductible for
one or more Adjustment Periods (regardless as to whether such Tax Item is
deductible under Code Section 162, 168 or other provision of the Code), then the
Tax representations and Tax indemnification set forth in this Agreement shall
apply only to the extent that the Taxes for the Deficiency Period attributable
to the disallowance of such Tax Item exceed the present value of the reduction
in Taxes (as determined above) for the Adjustment Period attributable to the
allowance of such Tax Item for such Adjustment Period.
44
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10.4 Procedure.
---------
(a) Notice. Any party seeking indemnification (an "Indemnified Party") with
------
respect to any Loss shall give notice thereof to the party required to provide
indemnity hereunder (the "Indemnifying Party"). Notwithstanding the foregoing,
(i) no Indemnified Party shall have any obligation to give any notice of any
asserted liability by a third party unless such assertion is in writing, and
(ii) the rights of any Indemnified Party to be indemnified in respect of any
Loss resulting from the asserted liability shall not be adversely affected by
the Indemnified Party's failure to give or delay in giving notice unless (and
then only to the extent that) the Indemnifying Party is materially prejudiced
thereby.
(b) Defense. If any claim, demand or liability is asserted by any third
-------
party against any Indemnified Party, the Indemnifying Party shall upon the
written request of the Indemnified Party, defend any action or proceeding
brought against the Indemnified Party in respect of matters embraced by the
indemnity. If, after a request to defend any action or proceeding, the
Indemnifying Party neglects or refuses to defend the Indemnified Party, a
recovery against the latter suffered by it in good faith, is conclusive in its
favor against the Indemnifying Party, provided however that, if the Indemnifying
Party has not received reasonable notice of the action or proceeding against the
Indemnified Party, or is not allowed to control its defense, judgment against
the Indemnified Party is only presumptive evidence against the Indemnifying
Party. The parties shall cooperate in the defense of all third party claims
which may give rise to Indemnifiable Claims hereunder. In connection with the
defense of any claim, each party shall make available to the party controlling
such defense, any books, records or other documents within its control that are
necessary or appropriate for such defense.
10.5 Survival.
--------
This Article X shall survive any termination of this Agreement.
10.6 Notice by Sellers.
-----------------
Sellers agree to notify Buyer of any liabilities, claims or
misrepresentations, breaches or other matters covered by this Article X upon
discovery or receipt of notice thereof (other than from Buyer), whether before
or after Closing. Buyer agrees to notify Sellers of any liabilities, claims or
misrepresentations, breaches or other matters covered by this Article X upon
discovery or receipt of notice thereof (other than from Sellers), whether before
or after Closing.
10.7 Not Exclusive Remedy.
--------------------
This Article X shall not be deemed to preclude or otherwise limit in any
way the exercise of any other rights or pursuit of other remedies for the breach
of this Agreement or with respect to any misrepresentation.
45
<PAGE>
ARTICLE XI
GENERAL
11.1 Amendments; Waivers.
-------------------
This Agreement and any schedule or exhibit attached hereto may be amended
only by agreement in writing of all parties. No waiver of any provision nor
consent to any exception to the terms of this Agreement shall be effective
unless in writing and signed by the party to be bound and then only to the
specific purpose, extent and instance so provided.
11.2 Schedules; Exhibits; Integration.
--------------------------------
Each schedule and exhibit delivered pursuant to the terms of this Agreement
shall be in writing and shall constitute a part of this Agreement, although
schedules need not be attached to each copy of this Agreement. This Agreement,
together with such schedules and exhibits, constitutes the entire agreement
among the parties pertaining to the subject matter hereof and supersedes all
prior agreements and understandings of the parties in connection therewith.
11.3 Best Efforts; Further Assurances.
--------------------------------
Each party will use its best efforts to cause all conditions to its
obligations hereunder to be timely satisfied and to perform and fulfill all
obligations on its part to be performed and fulfilled under this Agreement, to
the end that the transactions contemplated by this Agreement shall be effected
in accordance with its terms. The parties shall cooperate with each other in
such actions and in securing requisite Approvals. Each party shall execute and
deliver both before and after the Closing such further certificates, agreements
and other documents and take such other actions as the other party may
reasonably request to consummate or implement the transactions contemplated
hereby or to evidence such events or matters.
11.4 Governing Law.
-------------
This Agreement and the legal relations between the parties shall be
governed by and construed in accordance with the laws of the State of California
applicable to contracts made and performed in such State and without regard to
conflicts of law doctrines except to the extent that certain matters are
preempted by federal law.
11.5 No Assignment.
-------------
Neither this Agreement nor any rights or obligations hereunder are
assignable except that Buyer may assign its rights or a portion thereof
(including but not limited to its rights under Article X) to one or more
directly or indirectly wholly-owned subsidiaries of Buyer which are organized
under the laws of a state of the United States, however, notwithstanding any
such assignment hereunder Buyer shall continue to be responsible for payment of
the Purchase Price.
46
<PAGE>
11.6 Headings.
--------
The descriptive headings of the articles, sections and subsections of this
Agreement are for convenience only and do not constitute a part of this
Agreement.
11.7 Counterparts.
------------
This Agreement and any amendment hereto or any other agreement (or
document) delivered pursuant hereto may be executed in one or more counterparts
and by different parties in separate counterparts. All of such counterparts
shall constitute one and the same agreement (or other document) and shall become
effective (unless otherwise therein provided) when one or more counterparts have
been signed by each party and delivered to the other party.
11.8 Publicity and Reports.
---------------------
Sellers and Buyer shall coordinate all publicity relating to the
transactions contemplated by this Agreement, and no party shall issue any press
release, publicity statement or other public notice relating to this Agreement,
or the transactions contemplated by this Agreement, without obtaining the prior
consent of both Sellers and Buyer except to the extent that a particular action
is required by applicable Law.
11.9 Confidentiality.
---------------
All information disclosed by any party (or its representatives) whether
before or after the date hereof, in connection with the transactions
contemplated by, or the discussions and negotiations preceding, this Agreement
to any other party (or its representatives) shall be kept confidential by such
other party and its representatives and shall not be used by any such Persons
other than as contemplated by this Agreement, except to the extent that such
information (i) was known by the recipient when received, (ii) it is or
hereafter becomes lawfully obtainable from other sources, (iii) is necessary or
appropriate to disclose to a Governmental Entity having jurisdiction over the
parties, (iv) as may otherwise be required by law or (v) to the extent such duty
as to confidentiality is waived in writing by the other party. If this Agreement
is terminated, each party shall use all reasonable efforts to return upon
written request from the other party all documents (and reproductions thereof)
received by it or its representatives from such other party (and, in the case of
reproductions, all such reproductions made by the receiving party) that include
information not within the exceptions contained in the first sentence of this
Section 11.9, unless the recipients provide assurances reasonably satisfactory
to the requesting party that such documents have been destroyed.
11.10 Parties in Interest.
-------------------
This Agreement shall be binding upon and inure to the benefit of each
party, and nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement. Nothing in this Agreement is intended to relieve or
discharge the obligation of any third person to any party to this Agreement.
47
<PAGE>
11.11 Performance by Subsidiaries.
---------------------------
Each party agrees to cause its Subsidiaries to comply with any obligations
hereunder relating to such subsidiaries and to cause its subsidiaries to take
any other action which may be necessary or reasonably requested by the other
party in order to consummate the transactions contemplated by this Agreement.
11.12 Notices.
-------
Any notice or other communication hereunder must be given in writing and
either (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism or (c) mailed by certified or registered mail,
postage prepaid, as follows:
If to Buyer, addressed to:
MI Developments of America, Inc.
337 Magna Drive
Aurora, Ontario L4G 7K1
Canada
Attention: President
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street, 15th Floor
Los Angeles, California 90071
Attention: Frederick B. McLane, Esq.
Facsimile: (213) 430-6407
If to Sellers, addressed to:
Meditrust Corporation
197 First Avenue
Needham Heights, MA 02194
Attention: Michael S. Benjamin
Facsimile: (781) 433-1224
With a copy to:
Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attention: Bruce H. Newman, Esq.
Facsimile: (213) 617-9255
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given
48
<PAGE>
by telecommunication, when transmitted to the applicable number so specified in
(or pursuant to) this Section 11.12 and an appropriate answerback is received,
(ii) if given by mail, three days after such communication is deposited in the
mails with first class postage prepaid, addressed as aforesaid or (iii) if given
by any other means, when actually delivered at such address.
11.13 Expenses.
--------
Each of Sellers and Buyer shall pay its own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including but not limited to the fees, expenses and
disbursements of its investment bankers, accountants and counsel and of securing
third party consents and approvals required to be obtained by it.
Sellers shall pay (i) any documentary transfer tax, real property transfer
or gains tax, document recording fees and charges, and any income, franchise or
revenue tax or excise tax (and any surtax thereon) due in connection with the
consummation of the transactions contemplated by this Agreement, (ii) the cost
of a CLTA Title Policy for the Real Property, (iii) the cost of title
endorsements which are used for title curative purposes under Section 2.5, and
(iv) 50% percent of all other escrow and associated closing costs with respect
to transfers of the Real Property. Buyer shall pay (i) all document recording
fees and charges, (ii) the cost of any title endorsement other than an
endorsement for title curative purposes under Section 2.5, (iii) the incremental
cost of acquiring an ALTA Title Policy over an CLTA Title Policy and (iv) the
remaining 50% percent of the other escrow and closing costs referred to in
clause (iv) above.
11.14 Remedies; Waiver.
----------------
All rights and remedies existing under this Agreement and any related
agreements or documents are cumulative to, and not exclusive of, any rights or
remedies otherwise available under applicable Law. No failure on the part of any
party to exercise or delay in exercising any right hereunder shall be deemed a
waiver thereof, nor shall any single or partial exercise preclude any further or
other exercise of such or any other right.
11.15 Attorney's Fees.
---------------
In the event of any Action for the breach of this Agreement or
misrepresentation by any party, the prevailing party shall be entitled to
reasonable attorney's fees, costs and expenses incurred in such Action.
Attorneys fees incurred in enforcing any judgment in respect of this
Agreement are recoverable as a separate item. The preceding sentence is intended
to be severable from the other provisions of this Agreement and to survive any
judgment and, to the maximum extent permitted by law, shall not be deemed merged
into any such judgment.
11.16 Specific Performance.
--------------------
Sellers and Buyer each acknowledge that, in view of the uniqueness of the
Business and the Real Property and the transactions contemplated by this
Agreement, the other
49
<PAGE>
party would not have an adequate remedy at law for money damages in the event
that this Agreement has not been performed in accordance with its terms. Each
party therefore agrees that the other party shall be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which it may
be entitled, at law or in equity.
11.17 Severability.
------------
If any provision of this Agreement is determined to be invalid, illegal or
unenforceable by any Governmental Entity, the remaining provisions of this
Agreement shall remain in full force and effect provided that the economic and
legal substance of the transactions contemplated is not affected in any manner
materially adverse to any party. In the event of any such determination, the
parties agree to negotiate in good faith to modify this Agreement to fulfill as
closely as possible the original intents and purposes hereof. To the extent
permitted by Law, the parties hereby to the same extent waive any provision of
Law that renders any provision hereof prohibited or unenforceable in any
respect.
11.18 Time of Essence
---------------
Time is of the essence in the performance by Sellers and Buyer of their
respective obligations under this Agreement.
50
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
BUYER
MI DEVELOPMENTS OF AMERICA, INC.
By:____________________________________
Its:___________________________________
SELLERS
MEDITRUST CORPORATION
By:____________________________________
Its:___________________________________
MEDITRUST OPERATING COMPANY
By:____________________________________
Its:___________________________________
THE SANTA ANITA COMPANIES, INC.
By:____________________________________
Its:___________________________________
51
<PAGE>
SANTA ANITA ENTERPRISES, INC.
By:____________________________________
Its:___________________________________
52
<PAGE>
Exhibit 10.2
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
Dated as of June 30, 1999
By and Among
GULFSTREAM PARK RACING ASSOCIATION, INC.,
a Florida corporation,
and
GULFSTREAM HOLDINGS, INC. OF ILLINOIS,
an Illinois corporation,
and
MI VENTURE INC.,
a Delaware corporation.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- --------- ----
1. DEFINITIONS............................................. 1
1.1 Definitions .................................. 1
1.2 Other Definitional Provisions ................ 7
2. PURCHASE AND SALE OF SHARES; CLOSING.................... 7
2.1 Purchase and Sale of Shares .................. 7
2.2 Purchase Price ............................... 7
2.3 Closing ...................................... 7
2.4 Sales and Transfer Taxes ..................... 8
3. REPRESENTATIONS AND WARRANTIES OF COMPANY............... 8
3.1 Organization and Good Standing ............... 8
3.2 No Other Subsidiary .......................... 9
3.3 Capital Structure ............................ 9
3.4 Ownership of Shares .......................... 9
3.5 Power; Authorization and Approvals; Enforceability 9
3.6 Governmental Consents ........................ 10
3.7 No Conflict .................................. 10
3.8 Real Property ................................ 11
3.9 Brokers and Finders .......................... 11
3.10 Tax Returns .................................. 11
3.11 Financial Statements ......................... 12
3.12 Properties ................................... 12
3.13 Intangible Personal Property ................. 12
3.14 Condition and Sufficiency of Assets .......... 13
3.15 Insurance .................................... 13
3.16 No Material Adverse Change ................... 13
3.17 Employment Agreements ........................ 13
3.18 Legal Proceedings; Orders .................... 14
3.19 Employee Benefit Plans ....................... 14
3.20 Compliance with Laws ......................... 16
3.21 Absence of Certain Changes and Events ........ 16
3.22 Contracts .................................... 17
3.23 Environmental Compliance ..................... 18
3.24 Accuracy of Representations and Warranties ... 19
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER............. 19
4.1 Organization and Good Standing ............... 19
4.2 Power; Authorization and Approvals ........... 19
4.3 Enforceability ............................... 19
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<PAGE>
4.4 Governmental Consents ........................ 20
4.5 No Conflict .................................. 20
4.6 Investment Intent ............................ 20
4.7 Brokers and Finders .......................... 20
4.8 Subsidiary ................................... 21
5. REPRESENTATIONS AND WARRANTIES OF SELLER................ 21
5.1 Organization and Good Standing ............... 21
5.2 Capital Structure ............................ 21
5.3 Ownership of Shares .......................... 21
5.4 Power; Authorization and Approvals; Enforceability 21
5.5 Governmental Consents ........................ 22
5.6 No Conflict .................................. 22
5.7 Brokers and Finders .......................... 22
6. COVENANTS OF SELLER AND COMPANY......................... 23
6.1 No Solicitation .............................. 23
6.2 No Changes with Respect to Shares; Waiver of Rights 23
6.3 Conduct of Business .......................... 23
6.4 Conduct of Business - Affirmative Covenants .. 25
6.5 Access to Information and Personnel .......... 26
6.6 Best Efforts ................................. 27
6.7 Resignations of Directors .................... 27
6.8 Payment of Accrued Amounts ................... 27
6.9 Tax Matters .................................. 28
7. COVENANTS OF PURCHASER.................................. 28
7.1 Confidentiality .............................. 28
7.2 Best Efforts ................................. 29
7.3 Purchaser's Financial Ability ................ 29
8. CONDITIONS TO CLOSING................................... 29
8.1 Conditions Precedent to Purchaser's Performance 29
8.1.1 Compliance with this Agreement ............... 29
8.1.2 No Material Adverse Change ................... 30
8.1.3 No Default ................................... 30
8.1.4 No Illegality ................................ 30
8.1.5 Governmental Consents and Approvals .......... 30
8.1.6 Absence of Legal Challenge to Acquisition .... 30
8.1.7 Approval of Documentation .................... 30
8.1.8 Share Certificates ........................... 30
8.1.9 Director and Officer Resignations ............ 31
8.1.10 Execution of Agreements ...................... 31
8.1.11 Opinion of Counsel ........................... 31
8.1.12 Corporate Action ............................. 31
8.1.13 Survey ....................................... 31
8.1.14 Title ........................................ 31
8.1.15 Release of Liens; Repayment of Outstanding
Loan and Mortgage Balance .................... 31
8.1.16 Limited Support Letters ...................... 32
8.1.17 SunTrust Waiver .............................. 32
8.1.18 Termination of Arrangements with Affiliates .. 32
8.2 Conditions Precedent to Seller's Performance . 32
8.2.1 Compliance with this Agreement ............... 32
8.2.2 No Illegality ................................ 33
8.2.3 Government Consents and Approvals ............ 33
8.2.4 Absence of Legal Challenge to Acquisition .... 33
8.2.5 Corporate Action ............................. 33
8.2.6 Approval of Documentation .................... 33
8.2.7 Execution of Agreements ...................... 33
8.2.8 Opinion of Counsel ........................... 33
8.2.9 Payment of Accrued Interest and Fees ......... 33
9. TERMINATION PRIOR TO CLOSING............................ 34
9.1 Termination .................................. 34
9.2 Effect of Termination ........................ 35
10. INDEMNIFICATION.......................................... 35
10.1 Indemnification by Seller .................... 35
10.2 Indemnification by Purchaser ................. 36
10.3 Third Party Claims ........................... 36
10.4 As Is Transaction; No Warranties: ............ 37
11. POST-CLOSING MATTERS..................................... 38
11.1 Survival of Representations and Warranties ... 38
11.2 Select Employees of Company .................. 38
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<PAGE>
12. MISCELLANEOUS............................................ 38
12.1 No Public Announcement ....................... 38
12.2 Expenses ..................................... 38
12.3 Notices and Legal Process .................... 39
12.4 Counterparts ................................. 40
12.5 Waiver ....................................... 40
12.6 Entire Agreement ............................. 41
12.7 Binding Agreement; Assignment ................ 41
12.8 Governing Law ................................ 41
12.9 Captions ..................................... 41
12.10 Parties in Interest .......................... 41
12.11 Severability; Construction ................... 41
12.12 Schedules and Exhibits ....................... 41
12.13 Waiver of Right to Jury Trial ................ 41
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<PAGE>
THIS STOCK PURCHASE AGREEMENT is made as of June 30, 1999, by and among
GULFSTREAM PARK RACING ASSOCIATION, INC., a Florida corporation (the "Company"),
GULFSTREAM HOLDINGS, INC. OF ILLINOIS, an Illinois corporation (the "Seller"),
each with its principal office at 901 S. Federal Highway, Hallandale, Florida
33009, and MI VENTURE INC., a Delaware corporation (the "Purchaser") with its
principal office in c/o Magna International Inc., 337 Magna Drive, Aurora,
Ontario, Canada L4G7K1.
W I T N E S S E T H:
WHEREAS, the Company is the owner and operator of a race course in
Hallandale, Florida commonly known and referred to as "Gulfstream Park" and is
engaged in the operation of a thoroughbred horse racing and pari-mutuel wagering
business at Gulfstream Park and related activities conducted under a permit
issued by the State of Florida and a racing license issued by the Division of
Pari-Mutuel Wagering of the Department of Business and Professional Regulation
of the State of Florida;
WHEREAS, the Seller owns 100% of the issued and outstanding shares of
capital stock of the Company;
WHEREAS, subject to the terms and conditions set forth herein, the Seller
wishes to sell, assign, transfer and convey to the Purchaser, and the Purchaser
wishes to purchase and acquire, 100% of the issued and outstanding shares of
capital stock of the Company.
NOW, THEREFORE, in consideration of the above premises and the mutual
agreements and covenants set forth below, the parties hereto hereby agree as
follows:
1. DEFINITIONS.
-----------
1.1 Definitions. In this Agreement, unless the context otherwise
-----------
requires, all of the terms defined in the preamble or recitals hereto shall have
the same meanings herein and the following terms shall have the meanings
respectively set forth opposite them:
"Acquisition Agreements" the Escrow Trust Instructions and the
Confidentiality Agreement.
"Affiliate" a person or entity that directly or
indirectly, through one or more
intermediaries, controls or is
controlled by, or is under common
control with, the person or entity
specified. For purposes of Section
1.1, "control" shall be defined as
(a) 50% or more common equity
ownership, or (b) the ability to
direct
<PAGE>
the management or policies of a company,
whether by contract or otherwise.
"Agreement" this Agreement, as amended, modified and
supplemented from time to time.
"Annual Financial the audited balance sheets of the
Company as of December 31, 1997 and 1998
and the related audited statements of
operations, statements of shareholders'
equity and cash flow of the Company for
the fiscal years ended on each such
date, accompanied by the reports thereon
of PricewaterhouseCoopers.
"Balance Sheet" the term defined in Section 3.11.
"Bank" the Bank of Nova Scotia.
"Business" the operation of a thoroughbred horse
racing and pari-mutuel wagering business
and related activities at Gulfstream
Park conducted under the Pari-Mutuel
Wagering Permit.
"Canadian Securities Acts" the securities laws, rules and
regulations of each of the provinces and
territories of Canada, and any related
national policy guidelines, as in effect
from time to time.
"Closing" the consummation of the purchase and
sale of the Shares pursuant to
Section 2.
"Closing Date" the date that each of the conditions
set forth in Section 8 will have been
satisfied or waived in accordance
with this Agreement.
"COBRA" the Consolidated Omnibus Budget
Reconciliation Act of 1985, as
amended.
"Code" the Internal Revenue Code of 1986, as
amended, and the regulations
promulgated thereunder.
"Confidentiality the Confidentiality Agreement, dated
Agreement" as of March 30, 1999 between Magna
and the Company.
"Contracts" all material contracts, commitments,
obligations and
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agreements of the Company or its
Subsidiaries, whether written or oral.
"Corporate Records" the Articles of Incorporation and bylaws
and all amendments thereto, stock
ledgers, all minutes of the proceedings
of the Board of Directors and
shareholders, corporate seals, and all
other documents relating to the
organization and corporate maintenance
of a corporation.
"Credit Agreement" the Credit Agreement, dated as of
February 17, 1994, between the Company
and the Bank, as amended, modified and
supplemented from time to time, and any
related credit and collateral documents.
"Damages" the term defined in Section 10.1.
"Demand Note" the Demand Note, dated as of March 23,
1990, by the Company to the order of
Orient Corporation, as assigned to the
Mortgagee and as amended, modified and
supplemented from time to time, and any
related credit and collateral documents.
"Division" the Division of Pari-Mutuel Wagering of
the Department of Business and
Professional Regulation of the State of
Florida.
"Dollar(s)", "$" and lawful currency of the United States of
America which is legal tender for the
payment of public and private debts in
the United States of America.
"ERISA" the Employee Retirement Income Security
Act of 1974, as amended, and the
regulations promulgated thereunder.
"ERISA Affiliate" the term defined in Section 3.19.1.
"ERISA Benefit Plans" the term defined in Section 3.19.1.
"Escrow Trustee" Chicago Title and Trust Company or other
Person acceptable to the Seller and the
Purchaser.
"Escrow Trust Instructions" the escrow trust instructions
substantially in the form attached
hereto as Exhibit 1 to be dated as of
the Closing Date among the Purchaser,
the Seller and the Escrow Trustee.
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<PAGE>
"Employees" all employees of the Company.
"GAAP" U.S. generally accepted accounting
principles applied on a basis consistent
with those used by the Company in
connection with the preparation of the
Company's financial statements referred
to in Section 3.11.
"Governmental Authority" any foreign, federal, state, local or
other governmental authority or
regulatory body.
"Gulfstream Park" the race course in Hallandale, Florida
commonly known and referred to as
"Gulfstream Park".
"Hazardous Substance" the term defined in Section 3.23.
"HSR Act" the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended,
and the rules and regulations
promulgated thereunder.
"Indemnified Seller Parties" the term defined in Section 10.2.
"Indemnitor" the term defined in Section 10.1.
"Intangible Personal Property" any domestic and foreign patent, patent
application, invention disclosure,
trademark, trademark registration, trade
name, service mark and application for
any of the foregoing, and any other
trade secrets and proprietary know-how
owned or used by the Company in the
conduct of Business.
"IRS" the Internal Revenue Service.
"Liabilities" all contractual or non-contractual
obligations, debts or liabilities of any
nature of the Company, whether accrued
or unaccrued, contingent or absolute,
direct or indirect, recorded or
unrecorded, potential or realized.
"Licenses" all licenses, permits, franchises,
rights and privileges issued by any
Governmental Authority necessary for the
conduct of the Business as presently
conducted.
"Lien" any charge, claim, equitable interest,
lien, option, pledge, security interest,
right of first refusal, or restriction
of any
-4-
<PAGE>
kind, including any restriction on use,
voting, transfer, receipt of income, or
exercise of any other attribute of
ownership.
"Magna" Magna International Inc.
"Material Adverse Effect" any condition, circumstance, change
or effect (or any development that
would reasonably be expected to
result in any condition,
circumstance, change or effect) that
is materially adverse to the assets,
business, financial condition,
results of operations or prospects of
the Company.
"Mortgagee" Orient Corporation, in its own
capacity or as agent for Orient
Corporation (USA).
"Outstanding Loan and all amounts of principal due and
Mortgage Balance" owing by the Company to: (i) the Bank
pursuant to the Credit Agreement; and
(ii) the Mortgagee pursuant to the
Demand Note.
"Pari-Mutuel Wagering the license issued to the Company by
Permit" the Division and the permit issued by
the State of Florida with respect to
the thoroughbred horse racing and
pari-mutuel wagering operations and
related activities of the Company,
including, without limitation, the
conduct of live racing and
simulcasting.
"Pension Plans" the term defined in Section 3.19.1.
"Person" a natural person, partnership,
corporation, limited liability
company, business trust, joint stock
company, trust, unincorporated
association, joint venture,
Governmental Authority or other
entity of whatever nature.
"Proceeding" any action, arbitration, audit,
hearing, investigation, litigation or
suit (whether civil, criminal,
administrative or investigative)
commenced, brought, conducted or
heard by or before or otherwise
involving any Governmental Authority
or arbitrator.
"Property" all real property owned by the
Company.
"Purchase Price" the term defined in Section 2.2.
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<PAGE>
"Requirement of Law" as to any legal entity, the Articles of
Incorporation and bylaws or other
organizational or constituent documents
of such legal entity, and any law,
treaty, rule or regulation or order,
writ, injunction, decree or
determination of an arbitrator or court
order or Governmental Authority, in each
case applicable to or binding upon such
legal entity or to which any of its
property is subject.
"SEC" the Securities and Exchange Commission
of the United States of America and any
successor Governmental Authority.
"Schedules" all schedules to this Agreement.
"Securities Act" the Securities Act of 1933, as amended,
and the rules and regulations of the SEC
promulgated thereunder, all as in effect
from time to time.
"Share Certificates" the stock certificate(s) representing
the Shares.
"Shares" the term defined in Section 2.1.
"Subsidiary" with respect to any Person (the
"Owner"), any corporation or other
Person of which securities or other
interests having the power to elect a
majority of that corporation's or other
Person's board of directors or similar
governing body, or otherwise having
power to direct the business and
policies of that corporation or other
Person (other than securities or other
interests having such power only upon
the happening of a contingency that has
not occurred) are held by the Owner or
one or more of its Subsidiaries; and,
when used without reference to a
particular person, a Subsidiary of the
Company.
"Tax Returns" federal, state, local and foreign
franchise, income, sales, gross receipts
and all other tax returns and statements
(including any information return) that
are required to be filed with any
Governmental Authority.
"Taxes" all federal, state, local, foreign and
other tax liabilities of any and all
kinds arising out of the Seller's
ownership or operation of the Company
and any obligation of the Company with
respect to any and all taxes, including
without limitation, income, profits,
premiums, estimated, excise, sales, use,
gross receipts, franchise, transfer,
withholding, employment,
-6-
<PAGE>
unemployment compensation,
payroll-related and property taxes,
import duties and other governmental
charges, whetheror not measured in whole
or in part by net income, and including
deficiencies, interest, additions or tax
or interest and penalties with respect
thereto, and including expenses
associated with contesting any proposed
adjustment relating to the foregoing and
including any liability for the payment
of any amounts described above as a
result of being a "Transferee" as
defined in Section 6901 of the Code.
"Welfare Plans" the term defined in Section 3.19.1.
1.2 Other Definitional Provisions. The words "hereof", "herein" and
-----------------------------
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Section, Schedule and Exhibit referenced are
to this Agreement unless otherwise specified. The meanings given to terms
defined herein shall be equally applicable to both the singular and plural forms
of such terms. All references to specific statutes shall be to statutes of the
United States of America, unless otherwise indicated.
2. PURCHASE AND SALE OF SHARES; CLOSING.
------------------------------------
2.1 Purchase and Sale of Shares. Upon the terms and subject to the
---------------------------
conditions set forth in this Agreement, at the Closing, the Purchaser shall
purchase at the Purchase Price from the Seller, and the Seller shall sell,
assign, transfer, convey and deliver to the Purchaser, one hundred percent
(100%) of the issued and outstanding shares of capital stock of the Company (the
"Shares"), in consideration of the Purchaser's payment of the Purchase Price to
the Seller in accordance with this Agreement. No election under Section 338 of
the Code will be made in connection with the sale and purchase of the Shares.
2.2 Purchase Price. The Purchase Price to be paid at the Closing for the
--------------
Shares shall be $95,000,000.
2.3 Closing. Subject to the conditions set forth in Section 8, unless
------- -------
this Agreement shall have been terminated pursuant to the provisions of Section
-------
9, the Closing shall take place on the Closing Date at the offices of Masuda,
Funai, Eifert & Mitchell, Ltd., One East Wacker Drive, Chicago, Illinois 60601
or at such other place and time as the parties may mutually agree.
2.3.1 At the Closing, against the delivery of the Purchase Price as
provided in Section 2.2, the Seller shall, in accordance with the Escrow
-------
Trust Instructions: (1) deliver or cause to be delivered to the Escrow
Trustee the Share Certificates, duly endorsed or accompanied by stock
powers duly executed; (2) cause the Mortgagee to execute and deliver to the
Escrow Trustee for recording a release and full reconveyance with respect
to the
-7-
<PAGE>
mortgage in favor of the Mortgagee encumbering the Property; (3) cause the
Bank to execute and deliver to the Escrow Trustee for recording a release
and full reconveyance with respect to the mortgage in favor of the Bank
encumbering the Property; (4) cause the Bank to execute and deliver to the
Escrow Trustee a release of all Liens in favor of the Bank encumbering the
Shares; (5) cause the Seller, the Mortgagee and the Bank to deliver to the
Escrow Trustee for recording releases of all Liens on the assets of the
Company in favor of the Seller, the Mortgagee or the Bank; and (6) deliver
to the Purchaser all instruments and documents required to be delivered
pursuant to Section 8.1. At the Closing, upon payment of all amounts
-------
specified in Section 6.8 and all applications of funds under the Escrow
-------
Trust Instructions, all credit facilities, loan agreements, guaranty fee
arrangements and consulting agreements with the Seller, the Mortgagee and
any Affiliates thereof shall terminate.
2.3.2 At the Closing, against the delivery of the Share Certificates,
the Purchaser shall: (1) pay to the Escrow Trustee, in accordance with the
Escrow Trust Instructions, the Outstanding Loan and Mortgage Balance; (2)
pay to the Seller, in accordance with the Escrow Trust Instructions, the
difference between the Purchase Price and the Outstanding Loan and Mortgage
Balances; and (3) deliver to the Seller all instruments and documents
required to be delivered pursuant to Section 8.2.
-------
2.4 Sales and Transfer Taxes. The Purchaser shall pay, or cause to be
------------------------
paid, all transfer Taxes and fees, recordation or similar Taxes or fees, deed,
stamp, documentary, intangible property or other Taxes, recording charges, fees,
or other similar cost or expense of any kind required in connection with the
effectuation of the transactions contemplated by this Agreement, regardless of
whether such Tax or fee is imposed on the Seller or the Company.
3. REPRESENTATIONS AND WARRANTIES OF COMPANY.
-----------------------------------------
As a material inducement to the Purchaser to enter into this Agreement and to
purchase the Shares, the Company hereby represents and warrants to the Purchaser
as follows:
3.1 Organization and Good Standing. The Company is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Florida. Schedule 3.1 sets forth those jurisdictions in which the
--------
Company is qualified to do business as a foreign corporation. The Company is
qualified to do business as a foreign corporation and is in good standing in
each state where the nature of the Business or its ownership, lease or operation
of property or the conduct of the Business requires it to be so qualified,
except to the extent that the failure of the Company to be so qualified in good
standing would not, individually or in the aggregate with all such other
failures, have a Material Adverse Effect. The Company has all necessary
corporate power and authority and legal right to conduct the Business as it is
now being conducted and to own or use the assets that it purports to own or use,
except to the extent the failure to have such power, authority or legal right
would not, individually or in the aggregate, have a Material Adverse Effect.
Complete, current and correct copies of the Corporate Records of the Company
have been delivered to the Purchaser prior
-8-
<PAGE>
to the date hereof, and no changes have been made thereto since the date of
delivery of which the Purchaser has not received notice. At the Closing, all of
the Corporate Records of the Company will be in the possession of the Company or
the agents of the Company who will deliver the same to the Purchaser at the
Closing or as otherwise directed by the Purchaser.
3.2 No Other Subsidiary. Except as set forth in Schedule 3.2, the Company
------------------- --------
does not have any Subsidiaries. Schedule 3.2 contains a complete and accurate
------------
list of each Subsidiary of the Company, showing its name, its jurisdiction of
incorporation, other jurisdictions in which it is authorized to do business, and
its capitalization (including the identity of each stockholder and the number of
shares held by each). Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted and to own or use the properties and assets that it
purports to own or use. All of the outstanding shares of capital stock of each
Subsidiary of the Company have been duly and validly issued, are fully paid and
nonassessable and are owned, or record and beneficially, by the Company.
3.3 Capital Structure. The authorized capital stock of the Company
-----------------
consists of 13,040 shares of voting common stock, $1.00 par value, of which
11,232 shares are issued and outstanding and constitute the Shares. All of the
Shares are equal in rights, preferences and privileges, were duly and validly
issued in accordance with the laws of the State of Florida, are fully paid and
nonassessable, with no statutory or other liability attaching to the ownership
thereof (other than Taxes regularly imposed on property of such type by the
State of Florida), and were not issued in violation of any preemptive or similar
rights. Except as set forth in Schedule 3.3, there are no outstanding
subscription rights, options, warrants, convertible debt or securities, calls,
agreements, arrangements, commitments, plans, understandings or other rights of
any kind to which the Company is a party or by which it is bound, with respect
to the sale, transfer, issuance or voting of, or granting of rights to acquire,
any shares of the capital stock of any class or series of, or other equity
interest in, the Company or any securities convertible or exchangeable into or
evidencing the right to purchase any shares of the capital stock of any class or
series of, or other equity interest in, the Company or obligating the Company to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement.
3.4 Ownership of Shares. Except as set forth in Schedule 3.4, the Seller
------------------- --------
is the owner, beneficially and of record, of all of the Shares, free and clear
of all Liens, with full power and authority to deliver title and transfer to the
Shares to the Purchaser in accordance with the terms of this Agreement.
3.5 Power; Authorization and Approvals; Enforceability. The Company has
--------------------------------------------------
the power to enter into this Agreement and each of the Acquisition Agreements to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by the Company of this
Agreement and each of the Acquisition Agreements have been or will on the
Closing Date have been duly and validly authorized and approved by all required
actions and no other corporate action on the part of the Company is necessary
for the execution,
-9-
<PAGE>
delivery and performance of this Agreement and each of the Acquisition
Agreements and to consummate the transactions contemplated hereby and thereby.
This Agreement and each of the Acquisition Agreements are legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally or by equitable principles.
3.6 Governmental Consents. Except for compliance by the Purchaser and
---------------------
the Seller with the HSR Act and the procurement by the Purchaser and the Seller
of the approval by the Division of the transaction contemplated hereby, no
approval, consent, order or authorization of, or registration, declaration or
filing with, any court or Governmental Authority is required in connection with
the execution, delivery and performance by the Company of this Agreement and the
Acquisition Agreements to which it is a party or the consummation by the Company
of the transactions contemplated hereby and thereby, except for: (1) such
consents, approvals, orders, authorizations, obligations, declarations and
filings as may be required under applicable state securities laws or applicable
to the Purchaser; and (2) such other consents, authorizations, filings,
approvals and registrations that, if not obtained or made, would not
individually or in the aggregate have a Material Adverse Effect.
3.7 No Conflict. Except as set forth in Schedule 3.7, neither the
----------- --------
execution and delivery of this Agreement and any of the Acquisition Agreements
by the Company nor the consummation of the transactions contemplated hereby and
thereby by the Company will:
(1) violate, or result in a violation of any Requirement of Law
imposed upon the Company or any of its Subsidiaries;
(2) violate, or be in conflict with, or constitute a default (or an
event which, with the giving of notice or lapse of time or both, would
constitute a default) under, or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions or
provisions of any contract to which the Company is a party or by which
the Company or any of its Subsidiaries or any of their respective
assets may be bound.
(3) cause the Purchaser, the Company or any Subsidiary of the Company
to become subject to, or to become liable for the payment of, any
Taxes (other than Taxes with respect to the documentary stamp tax and
general intangible property taxes of the State of Florida;
(4) cause any of the assets owned by the Company or any of its
Subsidiaries to be reassessed or revalued by any taxing authority or
other Governmental Authority; or
-10-
<PAGE>
(5) result in the imposition or creation of any Lien upon or with
respect to any of the assets owned or used by the Company or any of
its Subsidiaries.
3.8 Real Property. Schedule 3.8 contains a complete, current and correct
------------- --------
legal description of the Property. Except as set forth in Schedule 3.8, the
--------
Company has good and valid title to the Property.
3.9 Brokers and Finders. Except for accountants and attorneys acting as
-------------------
such (and not as brokers, finders or in other like capacity), all negotiations
on behalf of the Company relating to this Agreement and the transactions
contemplated hereby have been carried on directly by the Company without the
intervention of any broker, finder, investment banker or other third party
representing the Company. The Company has not engaged or authorized any broker,
finder, investment banker or other third party to act on behalf of the Company,
directly or indirectly, as a broker, finder, investment broker or in any other
like capacity in connection with this Agreement or the transactions contemplated
hereby, or has consented to or acquiesced in anyone so acting, and the Company
knows of no claim for compensation from any such broker, finder, investment
banker or other third party for so acting or of any basis for such a claim. The
Seller shall have full responsibility for any claim for compensation from any
such party claiming to have acted on behalf of the Company or the Seller and the
Company and the Purchaser shall have no liability therefor.
3.10 Tax Returns.
-----------
3.10.1 The Company has: (1) timely filed (or timely extended) all Tax
Returns due on or after December 31, 1994, and prior to the date hereof;
and (2) paid within the time (including extensions) and in the manner
prescribed by law or established reasonable reserves and reflected in the
Annual Financial Statements for the payment of all Taxes accrued or payable
by the Company for all periods covered by such Tax Returns to the date
hereof.
3.10.2 The Tax Returns due on or after December 31, 1994 and prior to
the date hereof are complete and accurate in all material respects, and no
tax assessment or deficiency which has not been paid or for which an
adequate reserve has not been set aside, has been made or proposed against
the Company, nor are any of such Tax Returns now being or threatened to be
examined or audited, and no consents waiving or extending any applicable
statute or limitation thereunder, have been filed. Prior to the date
hereof, the Company has delivered to the Purchaser complete, current and
correct copies of all of the Company's federal and state income tax returns
for the periods ending on or after December 31, 1994 and prior to the date
hereof.
3.10.3 The Tax Returns filed on or after December 31, 1994 and prior
to the date hereof by (or that include on a consolidated basis) any of the
Company or any of its Subsidiaries are true, correct, and complete. There
is no tax sharing agreement with the
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<PAGE>
Seller that will require any payment by the Company or any of its
Subsidiaries after the date of this Agreement.
3.10.4 The U.S. Federal and state income Tax Returns of the Company
and its Subsidiaries have been audited by the IRS or relevant state
authorities or are closed by the applicable statute of limitations for all
taxable years through March 31, 1995.
3.11 Financial Statements. The Company has delivered to the
--------------------
Purchaser: (1) consolidated balance sheets of the Company and Subsidiary as at
December 31 in each of the years 1995 through 1997 and the related consolidated
statements of income, changes in stockholders' equity, and cash flow for each of
the fiscal years then ended, together with the report thereon of Coopers &
Lybrand LLP, independent certified public accountants; (2) a consolidated
balance sheet of the Company as at December 31, 1998 (including the notes
thereto, the "Balance Sheet"), and the related consolidated statements of
income, changes in stockholders' equity, and cash flow for the fiscal year then
ended, together with the report thereon of PriceWaterhouseCoopers LLP,
independent certified public accountants; and (3) an unaudited consolidated
balance sheet of the Company and its Subsidiary as of April 30, 1999 (the
"Interim Balance Sheet") and the related unaudited consolidated statement of
income for the 4 months then ended. Such financial statements fairly present
the financial condition and the results of operations of the Company and its
Subsidiaries for the periods referred to in such financial statements, subject,
in the case of interim financial statements, to normal recurring year-end
adjustments (the effect of which will not, individually or in the aggregate, be
materially adverse) and the absence of notes (that, if presented, would not
differ materially from those included in the Balance Sheet) and exclusive of
federal and state income tax accruals; and the financial statements referred to
in this Section 3.11 reflect the consistent application of such accounting
-------
principles throughout the periods involved. No financial statements of any
Person other than the Company and Avant Advertising, Inc. are required by GAAP
to be included in the consolidated financial statements of the Company.
3.12 Properties. Except as set forth in Schedule 3.12, the Company
---------- --------
has good and valid title to all of its assets (except for real properties and
leased or licensed properties and assets) except for (i) minor defects in title
that individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect; or (ii) statutory or other similar liens securing
payments not yet due. All such assets of the Company are free and clear of all
title defects, liens, claims, charges, security interests or other encumbrances.
There is no material defect in the normal operating condition and repair of the
equipment owned or leased by the Company, except for ordinary, routine
maintenance and repairs which are not material in cost.
3.13 Intangible Personal Property. Schedule 3.13 attached hereto
---------------------------- --------
contains a complete, current and correct list of the Intangible Personal
Property. Except as set forth on Schedule 3.13, the Company has the right and
--------
authority to use the Intangible Personal Property in connection with the conduct
of the Business in the manner presently conducted, and such use does not
conflict with, infringe upon or violate any trademark, trade name, copyright,
patent or patent rights, trade secret rights or any other intellectual property
rights of any other Person. There have not been any actions
-12-
<PAGE>
or other judicial or adversary proceedings involving the Company concerning the
ownership, use, infringement, validity of the Intangible Personal Property, nor
have any such actions or proceedings been threatened.
3.14 Condition and Sufficiency of Assets. The buildings, plants,
-----------------------------------
structures, and equipment of the Company and its Subsidiaries are structurally
sound, are in good operating condition and repair, and are adequate for the uses
to which they are being put, and none of such buildings, plants, structures, or
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The building,
plants, structures, and equipment of the Company and its Subsidiaries are
sufficient for the continued conduct of the Business after the Closing in
substantially the same manner as conducted prior to the Closing.
3.15 Insurance. Schedule 3.15 attached hereto contains a complete,
--------- --------
current and correct description of all material Insurances. All policies for
such Insurance are in full force and effect, all premiums with respect thereto
invoiced as of the date hereof have been paid, and no notice of cancellation,
termination or denial of coverage has been received with respect to any such
policy. Such policies:
3.15.1 are adequate for compliance with all Requirements of Law and
of all agreements or instruments to which the Company is a party, or
pursuant to which any of their respective properties or assets may be
subject;
3.15.2 are adequate for conducting the Business as presently
conducted in the ordinary course;
3.15.3 are valid, outstanding and enforceable policies issued by
reputable insurance companies;
3.15.4 provide adequate insurance coverage for the properties, assets
and operations of the Company as presently conducted; and
3.15.5 will remain in full force and effect up to the dates set forth
in Schedule 3.15, without the payment of additional premiums and will not
--------
in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement.
Schedule 3.15 attached hereto also describes all claims of the Company which are
- --------
pending under such insurance policies or have been paid to the Company since
January 1, 1998. Prior to the date hereof, complete, current and correct copies
of all of the policies of insurance which are maintained by or for the Company
have been made available to the Purchaser.
3.16 No Material Adverse Change. Since the date of the Balance Sheet,
--------------------------
there has not been any material adverse change in the business, operations,
properties, prospects, assets, or
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<PAGE>
condition of the Company, and no event has occurred or circumstance exists that
may result in such a material adverse change.
3.17 Employment Agreements. Except as set forth on Schedule 3.17,
--------------------- --------
none of the Company or any of its Subsidiaries is a party to any employment,
consulting, non-competition, severance, or indemnification agreement with any
current or former executive officer or director of Company or any of its
Subsidiaries. True and complete copies of the agreements set forth on Schedule
--------
3.17 have been furnished to the Purchaser prior to the date hereof.
3.18 Legal Proceedings; Orders. Except as set forth on Schedule 3.18,
------------------------- --------
there is no pending or threatened Proceedings:
3.18.1 that has been commenced by or against the Company or any of
its Subsidiaries or that otherwise relates to or may affect the business
of, or any of the assets owned, or used by, the Company or any of its
Subsidiaries; or
3.18.2 that challenges, or that may have the effect of preventing,
delaying making illegal, or otherwise interfering with, the sale of the
Shares by the Seller to the Purchaser.
The Proceedings listed in Schedule 3.18, if decided adversely to the
--------
Company, would not reasonably be expected to have a Material Adverse Effect.
3.19 Employee Benefit Plans.
----------------------
3.19.1 Set forth in Schedule 3.19.1 is a true and complete list of
--------
each "employee pension benefit plan" (as such term is defined in Section
-------
3(2) of ERISA) maintained by the Company or an ERISA Affiliate, or with
respect to which the Company or an ERISA Affiliate is or will be required
to make any payment, or which provides or will provide benefits to present
or prior employees of the Company or an ERISA Affiliate due to such
employment (the "Pension Plans"). The Company does not currently maintain
a Pension Plan subject to Section 3(2) of ERISA. Set forth in Schedule
--------
3.19.1 is a true and complete list of each "employee welfare benefit plan"
(as such term is defined in Section 3(1) of ERISA) maintained by the
-------
Company, or with respect to which the Company is or will be required to
make any payment, or which provides or will provide benefits to present or
prior employees of the Company due to such employment (the "Welfare Plans")
(the Pension Plans and Welfare Plans being the "ERISA Benefit Plans").
Neither the Company nor any ERISA Affiliate has maintained or made (or been
required to make) payments to any other "employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA) or any "multi employer plan"
-------
(as such term is defined in Section 3137) of ERISA). For purposes of this
-------
Agreement, "ERISA Affiliate" means (i) any corporation which at any time on
or before the Closing Date is or was a member of the same controlled group
of corporations (within the meaning of Section 414(b) of the Code) as the
-------
Company; (ii) any partnership, trade or business (whether or not
incorporated) which at any time on or before the Closing Date
-14-
<PAGE>
is or was under common control (within meaning of Section 414(c) of the
-------
Code) with the Company; and (iii) any entity which at any time on ore
before the Closing Date is or was a member of the same affiliated service
group (within the meaning of Section 414(m) of the Code) as either the
-------
Company, any corporation described in clause (i) or any partnership, trade
or business described in clause (ii) of this paragraph.
3.19.2 Other than those listed in Schedule 3.19.1, set forth in
--------
Schedule 3.19.2 is a true and complete list of each of the following to
--------
which the Company is a party or with respect to which it is or will be
required to make any payment (the "Non-ERISA Commitments"):
(1) each retirement, saving, profit sharing, deferred
compensation, severance, stock ownership, stock purchase, stock
option, performance, bonus, incentive, vacation or holiday pay,
hospitalization or other medical, disability, life or other insurance,
or other welfare, benefit or fringe benefit plan, policy, trust,
understanding or arrangement of any kind, whether written or oral; and
(2) each employment agreement, understanding or arrangement of
any kind, whether written or oral, with or for the benefit of any
present or prior officer, director, employee, agent or consultant
(including, without limitation, each employment, compensation,
deferred compensation, severance or consulting agreement or
arrangement, confidentiality agreement, covenant not to compete, and
any agreement or arrangement associated with a change in ownership or
control of the Company, but excluding employment agreements terminable
by the Company without premium or penalty or notice of thirty (30)
days or less under which the only monetary obligation of the Company
is to make current wage or salary payments and provide current fringe
benefits).
The Company has delivered, or will deliver prior to the Closing, to the
Purchaser correct and complete copies of (i) all written Non-ERISA
Commitments and (ii) all insurance and annuity policies and contracts and
other documents relevant to any Non-ERISA Commitment. Schedule 3.19.2
--------
contains a complete and accurate description of all oral Non-ERISA
Commitments. Except as disclosed on Schedule 3.19.1 or Schedule 3.19.2,
-------- --------
none of the ERISA Benefit Plans or the Non-ERISA Commitments is subject to
the law of any jurisdiction outside of the United States of America.
3.19.3 The Company has delivered to the Purchaser with respect to
each ERISA Benefit Plan, correct and complete copies of (i) all plan
documents and amendments thereto, trust agreements and amendments thereto
and insurance and annuity contracts and policies, (ii) the current summary
plan description, (iii) the Annual Reports (Form 5500 series) and
accompanying schedules, as filed, for the most recently completed three
plan years for which such reports have been filed, (iv) the most recent
determination letter issued by the IRS and
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<PAGE>
the application submitted with respect to such letter, and (v) all
correspondence with the IRS, Department of Labor and Pension Benefit
Guaranty Corporation concerning any controversy.
3.19.4 There is no pending or, to the best knowledge of the Company,
threatened claim in respect of any of the ERISA Benefit Plans other than
claims for benefits in the ordinary course of business. Each of the ERISA
Benefit Plans (i) has been administered in accordance with its terms and
(ii) complies in form, and has been administered in accordance, with the
requirements of ERISA and, where applicable, the Code. The Company and
each ERISA Affiliate has complied with the health care continuation
requirements of Part 6 of Title I of ERISA. The Company has no obligation
under any ERISA Benefit Plan or otherwise to provide health or other
welfare benefits to any prior employees or any other person, except as
required by Part 6 of Title I of ERISA. The consummation of the
transactions contemplated by this Agreement will not result in an increase
in the amount of compensation or benefits or accelerate the vesting or
timing of payment of any compensation or benefits payable to or in respect
of any participant.
3.19.5 Neither the Company nor any other "disqualified person"
(within the meaning of Section 4975 of the Code) or "party in interest"
--------
(within the meaning of Section 3(14) of ERISA) has taken any action with
-------
respect to any ERISA Benefit Plan which could subject any such plan (or its
related trust) or the Company or any officer, director or employee of any
of the foregoing to the penalty or tax under Section 502(i) or Section
------- -------
502(1) of ERISA or Section 4975 of the Code.
-------
3.20 Compliance with Laws. Except as set forth in Schedule 3.20, the
-------------------- --------
Business has been conducted in compliance in all material respects with all
Requirement of Law, except where such failure to comply with and such
Requirement of Law would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
3.21 Absence of Certain Changes and Events. Except as set forth in
-------------------------------------
Schedule 3.21, since the date of the Balance Sheet, the Company and its
- -------------
Subsidiaries have conducted their businesses only in the ordinary course of
business and there has not been any:
3.21.1 change in authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock; issuance of any
security convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition of any
shares of any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital stock;
3.21.2 amendment to the Articles of Incorporation or Bylaws;
3.21.3 payment or increase of any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the
ordinary course of business) employee or
-16-
<PAGE>
entry into any employment, severance, or similar contract with any
director, officer, or employee;
3.21.4 adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan;
3.21.5 damage to or destruction or loss of any asset or property,
whether or not covered by insurance, which had a Material Adverse Effect;
3.21.6 entry into, termination of, or receipt of notice of
termination of any license, broadcasting agreement, or similar agreement;
3.21.7 sale (other than sales of inventory in the ordinary course of
business), lease, or other disposition of or mortgage, pledge or any
imposition of any Lien on any asset;
3.21.8 material change in the accounting methods; or
3.21.9 agreement, whether oral or written, to do any of the
foregoing.
3.22 Contracts.
---------
3.22.1 Schedule 3.22 contains (except as indicated on such Schedule)
--------
a complete and accurate list, and the Company has delivered to the
Purchaser a true and complete copy, of the following:
(1) each Contract that involves performance of services or
delivery of goods or materials by the Company or any of its
Subsidiaries of an amount or value in excess of $50,000;
(2) each Contract that involves performance of services or
delivery of goods or materials to the Company or any of its
Subsidiaries of an amount or value in excess of $50,000;
(3 ) each Contract that was not entered into in the ordinary
course of business and that involves expenditures or receipts of the
Company or any of its Subsidiaries in excess of $50,000;
(4) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other applicable
Contract affecting the ownership of, leasing of, title to, use of, or
any leasehold or other interest in, any real or personal property
(except personal property leases and installment and conditional sales
-17-
<PAGE>
agreements having a value per item or aggregate payments of less than
$50,000 and with terms of less than one year);
(5) each licensing agreement or other Contract with respect to
patents, trademarks, copyrights, or other intellectual property,
including agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure of any
of the intellectual property assets of the Company;
(6) each collective bargaining agreement and other Contract to
or with any labor union or other employee representative of a group of
employees;
(7) each joint venture, partnership, and other Contract (however
named) involving a sharing of profits, losses, costs, or liabilities
by any the Company or any of its Subsidiaries with any other Person;
(8) each Contract containing covenants that in any way purport to
restrict the business activity of any of the Company or any of its
Subsidiaries or any Affiliate of the Company or limit the freedom of
the Company or any of its Subsidiaries or any Affiliate of the Company
to engage in any line of business or to compete with any Person;
(9) each Contract providing for payments to or by any Person
based on sales, purchases, or profits, other than direct payments for
goods;
(10) each power of attorney that is currently effective and
outstanding;
(11) each Contract entered into other than in the ordinary
course of business that contains or provides for an express
undertaking by any of the Company or any of its Subsidiaries to be
responsible for consequential damages;
(12) each Contract for capital expenditures in excess of $50,000;
(13) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the
Company or any of its Subsidiaries other than in the ordinary course
of business; and
(14) each amendment, supplement, and modification (whether oral
or written) in respect of any of the foregoing.
3.22.2 Except as set forth in Schedule 3.22, there are no
--------
renegotiations of, attempts to renegotiate, or outstanding rights to
renegotiate, any material amounts paid or payable to the Company or any of
its Subsidiaries under current or completed Contracts with any Person and
no such Person has made written demand for such renegotiation.
-18-
<PAGE>
3.23 Environmental Compliance. Except as set forth in Schedule 3.23:
------------------------ --------
(1) the Company and its Subsidiaries have not generated, used, transported,
treated, stored, released or disposed of, or suffered or permitted anyone else
to generate, use, transport, treat, store, release or dispose of, any Hazardous
Substance at or about the Property in violation of any Requirement of Law; (2)
there has not been any generation, use, transportation, treatment, storage,
release or disposal of any Hazardous Substance in connection with the conduct of
the Business or the use of the Property or, to the knowledge of the Company, any
nearby or adjacent properties, which has created or might reasonably be expected
to create any liability with respect to the Property under any Requirement of
Law or which would require reporting to or notification of any Governmental
Authority with respect to the Property; (3) no asbestos or polychlorinated
biphenyl or underground storage tank is contained in or located at the Property,
other than in compliance with applicable Requirements of Law; and (4) no
Hazardous Substance handled or dealt with at the Property has been and is being
handled or dealt with in any manner other than in compliance with all
Requirements of Law; other than, with respect to the foregoing four sub-clauses
of this Section 3.23, where the cost of remediation of which would not
-------
reasonably be expected to exceed in the aggregate $150,000. For purposes hereof,
"Hazardous Substance" means (but shall not be limited to) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable laws
as "hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances," or any other formulation intended to define, list or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity,
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development or production of crude oil,
natural gas or geothermal energy.
3.24 Accuracy of Representations and Warranties. No representation or
------------------------------------------
warranty made in this Agreement or any of the Acquisition Agreements and no
statement contained in any document, schedule or certificate furnished or to be
furnished by Company to the Purchaser contains as of the date hereof, or will
contain as of the Closing Date, any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
so made, in light of the circumstances under which they are made, not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
-------------------------------------------
As a material inducement to the Seller and the Company to enter into this
Agreement and to sell the Shares, the Purchaser makes the representations and
warranties set forth in this Section 4.
-------
4.1 Organization and Good Standing. The Purchaser is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Power; Authorization and Approvals. The Purchaser has all necessary
----------------------------------
corporate power and authority to enter into this Agreement and each of the
Acquisition Agreements and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and
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<PAGE>
performance by the Purchaser of this Agreement and each of the Acquisition
Agreements have been duly and validly authorized and approved by all required
corporate actions on the part of the Purchaser and no other corporate action on
the part of the Purchaser is necessary for the execution, delivery and
performance of this Agreement and each of the Acquisition Agreements and to
consummate the transactions contemplated hereby and thereby.
4.3 Enforceability. This Agreement and each of the Acquisition Agreements
--------------
are legal, valid and binding obligations of the Purchaser, enforceable in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally or by equitable principles.
4.4 Governmental Consents. Except for compliance by the Seller and the
---------------------
Purchaser with the HSR Act and the procurement by the Purchaser and the Seller
of the approval by the Division of the transaction contemplated hereby, no
approvals, consents, order or authorization of, or registration, declaration or
filing with, any court or Governmental Authority is required in connection with
the execution, delivery and performance by the Purchaser of this Agreement and
the Acquisition Agreements or the consummation by the Purchaser of the
transactions contemplated hereby and thereby, except for: (1) such consents,
approvals, orders, authorizations, obligations, declarations and filings as may
be required under applicable state securities laws; and (2) such other consents,
authorizations, filings, approvals and registrations that, if not obtained or
made, would not individually or in the aggregate have a Material Adverse Effect.
4.5 No Conflict. Neither the execution and delivery of this Agreement and
-----------
any of the Acquisition Agreements by the Purchaser, nor the consummation of the
transactions contemplated hereby and thereby by the Purchaser, will:
(a) subject to compliance with the statute and regulation set
forth in Section 4.4 applicable to the Purchaser, violate or result in
-------
a violation of, any Requirement of Law; or
(b) violate, or be in conflict with, or constitute a default (or
any event which, with the giving of notice or lapse of time or both,
would constitute a default) under any material agreement or instrument
to which the Purchaser is a party or by which the Purchaser is bound.
4.6 Investment Intent. The Purchaser acknowledges and is aware that no
-----------------
Shares are registered under the Securities Act or under any state securities
laws or under any Canadian Securities Acts. The Purchaser is purchasing such
Shares solely for investment, with no present intention to distribute any of the
Shares to any Person. The Purchaser shall not sell or otherwise dispose of the
Shares except in compliance with the registration requirements or exemption
provisions under the Securities Act, the Canadian Securities Acts and the rules
and regulations promulgated thereunder and any other applicable securities laws.
-20-
<PAGE>
4.7 Brokers and Finders. Except for accountants and attorneys acting as
-------------------
such (and not as brokers, finders or in other like capacity), all negotiations
on behalf of the Purchaser relating to this Agreement and the transactions
contemplated hereby have been carried on directly by the Purchaser without the
intervention of any broker, finder, investment banker of any broker, finder,
investment banker or other third party representing the Purchaser. The
Purchaser has not engaged or authorized any broker, finder, investment banker or
other third party to act on behalf of the Purchaser, directly or indirectly, as
a broker, finder, investment banker or in any other like capacity in connection
with this Agreement or the transactions contemplated hereby, or has consented to
or acquiesced in anyone so acting, and the Purchaser knows of no claim for
compensation from any such broker, finder, investment banker or other third
party for so acting or of any basis for such a claim. The Purchaser shall be
liable for any such claim for compensation and the Seller and the Company shall
have no liability therefor.
4.8 Subsidiary. Magna owns, directly or indirectly (through one of
----------
Magna's wholly-owned Subsidiaries), 100% of the issued and outstanding shares of
capital stock of the Purchaser.
On the Closing Date, Magna will own, directly or indirectly (through one of
Magna's wholly-owned Subsidiaries), more than 50% of the issued and outstanding
shares of capital stock of the Purchaser.
5. REPRESENTATIONS AND WARRANTIES OF SELLER.
----------------------------------------
As a material inducement to the Purchaser to enter into this Agreement and to
purchase the Shares, the Seller hereby represents and warrants to the Purchaser
as follows:
5.1 Organization and Good Standing. The Seller is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Illinois. The Seller has all necessary corporate power and authority and legal
right to conduct the business in which it is engaged, except to the extent the
failure to have such power, authority or legal right would not, individually or
in the aggregate, have a Material Adverse Effect.
5.2 Capital Structure. Except as set forth in Schedule 5.2, with respect
----------------- --------
to the Seller, there are no outstanding options, warrants, calls, rights,
commitment or agreements of any kind to which the Seller is party or by which it
is bound relating to the sale, issuance or voting of, or the granting of rights
to acquire, any shares of the capital stock of any class or series of, or other
equity interest in, the Company or any securities convertible or exchangeable
into or evidencing the right to purchase any shares of capital stock of any
class or series of, or other equity interest in, the Company or obligating the
Company to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement.
5.3 Ownership of Shares. Except as set forth in Schedule 5.3: (1) the
------------------- --------
Seller is the owner, beneficially and of record, of all of the Shares and has
good and valid title to the Shares, free and clear of all Liens, with full power
and authority to deliver and transfer title to the Shares to the Purchaser in
accordance with the terms of this Agreement; and (2) the Seller is not a party
to any
-21-
<PAGE>
voting trust agreement or any other contract, agreement, arrangement,
commitment, plan or understanding restricting or otherwise relating to voting or
dividend rights or privileges with respect to the Shares, or which restricts the
sale, transfer or assignment of the Shares.
5.4 Power; Authorization and Approvals; Enforceability. The Seller has
--------------------------------------------------
all necessary corporate power and authority to enter into this Agreement and
each of the Acquisition Agreements to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by the Seller of this Agreement and each of such Acquisition
Agreements have been duly and validly authorized and approved by all required
corporate action on the part of the Seller and no other corporate action on the
part of the Seller is necessary for the execution, delivery and performance of
this Agreement and each of the Acquisition Agreements and to consummate the
transactions contemplated hereby and thereby. This Agreement and each of such
Acquisition Agreements are legal, valid and binding obligations of the Seller,
enforceable in accordance with their respective terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally or by
equitable principles.
5.5 Governmental Consents. Except for compliance by the Seller and the
---------------------
Purchaser under the HSR Act and the procurement by the Purchaser and the Seller
of the approval by the Division of the transaction contemplated hereby, no
approval, consent, order or authorization of, or registration, declaration or
filing with, any court or Governmental Authority is required in connection with
the execution, delivery and performance by the Seller of this Agreement and the
Acquisition Agreements or the consummation by the Seller of the transactions
contemplated hereby and thereby, except for: (1) such consents, approvals,
orders, authorizations, obligations, declarations and filings as may be required
under applicable state securities laws or applicable to the Purchaser; and (2)
such other consents, authorizations, filings, approvals and registrations that,
if not obtained or made, would not individually or in the aggregate have a
Material Adverse Effect.
5.6 No Conflict. Neither the execution and delivery of this Agreement and
-----------
any of the Acquisition Agreements by the Seller nor the consummation of the
transactions contemplated hereby and thereby by the Seller will:
(1) violate, or result in a violation of any Requirement of Law
imposed upon the Seller; or
(2) except as set forth in Schedule 5.6 violate, or be in conflict
--------
with, or constitute a default (or an event which, with the giving of
notice or lapse of time or both, would constitute a default) under, or
give rise to any right of termination, cancellation or acceleration
under any of the terms, conditions or provisions of any contract to
which the Seller is a party or by which the Seller or any of its
respective properties or assets may be bound.
-22-
<PAGE>
5.7 Brokers and Finders. Except as set forth in Schedule 5.7 and for
------------------- --------
accountants and attorneys acting as such (and not as brokers, finders or in
other like capacity), all negotiations on behalf of the Seller relating to this
Agreement and the transactions contemplated hereby have been carried on directly
by the Seller with the Purchaser without the intervention of any broker, finder,
investment banker or other third party representing the Seller. Except as set
forth in Schedule 5.7, the Seller has not engaged or authorized any broker,
--------
finder, investment banker or other third party to act on behalf of the Seller,
directly or indirectly, as a broker, finder, investment broker or in any other
like capacity in connection with this Agreement or the transactions contemplated
hereby, or has consented to or acquiesced in anyone so acting, and the Seller
knows of no claim for compensation from any such broker, finder, investment
banker or other third party for so acting on behalf of the Seller or of any
basis for such a claim. The Seller shall have full responsibility for any such
claim for compensation and the Purchaser and the Company shall have no liability
therefor.
6. COVENANTS OF SELLER AND COMPANY.
-------------------------------
6.1 No Solicitation. Prior to the earlier of the Closing or termination
---------------
of this Agreement, the Seller and the Company shall not, and shall cause their
respective officers, directors, employees and agents not to, initiate, solicit
or encourage, directly or indirectly, any inquiries or the making of any
proposal with respect to, or engage in any negotiations concerning, enter into
any agreements with, any Person relating to any acquisition, business
combination or purchase of all or any substantial portion of the assets of, or
any equity interest in, the Company. The Seller and the Company shall
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties (other than the Purchaser)
conducted heretofore with respect to any of the foregoing.
6.2 No Changes with Respect to Shares; Waiver of Rights. Prior to the
---------------------------------------------------
earlier of the Closing or termination of this Agreement, the Seller will not (i)
sell, dispose of or otherwise transfer any interest in any of the Shares; (ii)
grant any Liens; or permit any Lien to exist, on any of the Shares; (iii) vote
in favor of any merger, consolidation, reorganization or other extraordinary
transactions involving the Company; or (iv) enter into any agreement to effect
any of the foregoing.
6.3 Conduct of Business. During the period from the date hereof to the
-------------------
Closing Date, without the prior written consent of the Purchaser, and except
with respect to the 1999 Breeders Cup, or as expressly contemplated by this
Agreement (including, in particular, Section 6.8), the Company shall operate and
-------
carry on the Business only in the ordinary course of business and consistent
with past practices, and shall use commercially reasonably efforts to preserve
intact its present business organization, keep available the services of its
present officers, Employees and consultants and preserve its present
relationships with customers, suppliers, Employees, and others having business
relationships. Without limiting the generality of the foregoing, and except as
otherwise provided in this Agreement, prior to the Closing Date, the Company
shall not, without the prior written consent of the Purchaser:
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<PAGE>
(a) offer, issue, deliver, or agree to issue, sell or deliver any
capital stock of any class, options, warrants, subscriptions or other
similar rights or securities of which the Company is the issuer or
grantor, or agree to grant or issue, any options, warrants, incentive
awards or similar rights calling for issuance of such securities or
enter into any registration rights agreements or evidences of
indebtedness convertible into Shares or any other capital stock of the
Company;
(b) split, reclassify, subdivide or change the rights and privileges
of, or redeem, repurchase or otherwise acquire any shares of the
capital stock of the Company;
(c) settle, pay, discharge, compromise or satisfy any claims,
liabilities or obligations, except for the payment, discharge or
satisfaction of liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their
terms as in effect on the date hereof, or any lawsuit or any other
claim asserted against the Company, any of its officers, directors,
shareholders, Employees, representatives or agents;
(d) other than in the ordinary course of business and consistent with
past practices, prepay any indebtedness, or pledge or subject to any
Lien any asset of the Company;
(e) other than in the ordinary course of business and consistent with
past practices, declare or pay any bonuses or any increases in salary,
commissions or other compensation to any of the Employees, independent
contractors or agents of the Company, or amend any existing, or enter
into any new employment, engagement or consulting contracts except to
the extent required under existing employee benefit plans, agreements
or arrangements as in effect on the date hereof;
(f) effect any recapitalization of the capital stock of the Company or
amend, whether by merger; consolidation or otherwise, the Articles of
Incorporation or the bylaws of the Company;
(g) violate any Requirement of Law or relinquish, suffer, terminate or
agree to the suspension of any rights, or (except where the same are
not required) the termination or suspension of any of the Licenses;
(h) enter into any new transactions with Affiliates or alter the terms
of any existing arrangements between the Company and Affiliates;
(i) declare, set aside or pay any dividend on or make any distribution
with respect to the Shares or any other shares of capital stock of the
Company;
-24-
<PAGE>
(j) sell, assign, lease, encumber or otherwise transfer or dispose any
of the properties or assets of the Company, except in the ordinary
course of business and consistent with past practices;
(k) other than in the ordinary course of business and consistent with
past practices, borrow any funds, incur, assume or guarantee any loans
or any other obligations of others or provide indemnities for others
in excess of $500,000;
(l) purchase or lease any interest in real property;
(m) enter into any employment agreements or establish, enter into,
adopt, amend or terminate any employee benefit plan or arrangement for
the benefit of any directors, officers or employees, or terminate any
ERISA Benefit Plans or take any action with respect to the terms of
such ERISA Benefit Plans which would adversely affect the accrued
benefits of the Employees;
(n) other than in the ordinary course of business and consistent with
past practices, enter into any contracts or commitments or make
capital expenditures for amounts in excess of $500,000 in the
aggregate;
(o) take any action or omit to take any action that would result in a
cancellation or breach of, or with notice or lapse of time or both
would constitute a default under, any Contract to which the Company is
a party or by which it or its assets may be bound;
(p) merge or consolidate with, or purchase all or substantially all of
the shares of capital stock (or other equity securities) or assets of,
any Person;
(q) become a general or limited partner of any partnership;
(r) take any action or omit to take any action that would cause any
representation made by the Seller under Section 6 above to be made
-------
untrue, or would result in the breach of any warranty made by the
Seller under Section 6 above;
-------
(s) change or alter the manner of keeping the books, accounts or
records of the Company or in the accounting practices of the Company;
(t) take any actions which are reasonably likely to have a Material
Adverse Effect; and
(u) commit the Company to do any of the things described in this
Section 6.3.
- -------
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<PAGE>
6.4 Conduct of Business - Affirmative Covenants. Prior to the Closing
-------------------------------------------
Date, the Company shall take any and all actions which may be necessary to
conduct the Business in the ordinary course of business and consistent with
past practices, including, without limitation, actions to:
(a) maintain its good standing and qualification to do business in all
jurisdictions where required to be qualified to do business;
(b) maintain all the Licenses which are necessary for the conduct of
the Company's Business and operations;
(c) continue to maintain its properties, assets and equipment in
customary repair, order and working condition, reasonable wear and use
excepted;
(d) duly comply with all Requirements of Law imposed upon the Company;
(e) duly comply with the terms, conditions or provisions of all
Contracts to which the Company or its respective properties or assets
may be bound;
(f) maintain in force and effect the current insurance with respect to
the Business;
(g) pay and discharge, before the same shall become delinquent, all
Taxes, imposed on or against the income or profits or any of the
properties, assets or equipment of the Company;
(h) pay all costs and expenses of the Company as they become due and
payable in the ordinary course of business and consistent with past
practices;
(i) timely file or extend Tax Returns which are required to be filed
by the Company;
(j) use commercially reasonable efforts to keep intact the present
business organization of the Company, including the services of its
present officers, directors, Employees, representatives and agents;
(k) use commercially reasonable efforts to preserve the present
relationships of the Company with all customers, clients, accounts,
distributors, sales representatives, suppliers and other Persons
having business relationships with the Company;
(l) maintain the books, records and accounts of the Company with
completeness and accuracy in the ordinary course of business and
consistent with past practices; and
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<PAGE>
(m) timely file or cause to be timely filed any and all
applicable reports, statements or filings with all court or
Governmental Authority.
6.5 Access to Information and Personnel.
-----------------------------------
6.5.1 Subject to the terms and conditions set forth in the
Confidentiality Agreement, the Purchaser may make or cause to be made such
additional investigation of the Business and assets of the Company and its
financial and legal condition as the Purchaser deems reasonably necessary
or advisable to familiarize itself therewith further. The Company shall
(and the Seller shall cause the Company to) permit the Purchaser and its
accountants, counsel and other representatives to have, during the period
from the date hereof to the Closing Date, reasonable access to the
premises, customers, books and records of the Company (including such books
and records as relate to Taxes of the Company) relating to the business of
the Company, for all periods ending prior to or as of the Closing Date,
during normal business hours and upon reasonable advance notice. The
Company shall furnish the Purchaser with such financial and operating data
and other information with respect to the Business and assets of the
Company as the Purchaser will from time to time reasonably request,
provided the same can be provided to the Purchaser without undue expense to
the Company. Any information regarding the Company heretofore obtained
from the Company by the Purchaser or its representatives, or hereafter
obtained from the Company, shall be subject to the terms of the
Confidentiality Agreement and such information shall be held by the
Purchaser and its representatives in accordance with the terms of the
Confidentiality Agreement.
6.5.2 No investigation pursuant to this Section shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
6.6 Best Efforts. The Seller shall use its best efforts to cause the
------------
transactions contemplated hereby to be consummated on or before August 30, 1999
and to take or to cause the Company to take any and all actions which may be
required to be taken under this Agreement prior to the Closing Date. The Seller
shall proceed as soon as practicable in the procurement of all permits,
consents, approvals and termination of waiting periods and in the taking of any
other action, and the satisfaction of all other requirements prescribed by law
or otherwise necessary for consummation of the transactions contemplated hereby
on the terms herein provided, and shall diligently prosecute the same, including
without limitation, within 10 business days of the execution of this Agreement,
effect the filing(s) required from the Company and the Seller under the HSR Act
and request early termination of the waiting period under such HSR Act.
6.7 Resignations of Directors. On or prior to the Closing Date, all of
-------------------------
the members of the Board of Directors and each of the officers of the Company
appointed or elected prior to the Closing Date shall have submitted their
resignations to the Company in form and content satisfactory to the Purchaser
and effective as of the Closing Date.
-27-
<PAGE>
6.8 Payment of Accrued Amounts. Prior to the Closing, the Company shall
--------------------------
pay: (1) to the Seller, all consultancy fees and guaranty fees payable by the
Company to the Seller and accrued to and including the Closing Date; (2) to the
Escrow Trustee for payment to the Bank, all amounts of interest accrued to and
including the Closing Date under the Credit Agreement, together with all other
amounts (including break funding costs, if any, but excluding amounts of
principal) payable by the Company thereunder to and including the Closing Date;
and (3) to the Escrow Trustee for payment to the Mortgagee, all amounts of
interest accrued to and including the Closing Date owing to the Mortgagee under
the Demand Note, together with all other amounts (excluding amounts of
principal) payable by the Company to the Mortgagee thereunder to and including
the Closing Date; provided, however, that (i) all such payments shall be
pursuant to agreements in existence on the date of this Agreement (and not
subsequently amended or modified) which are disclosed in the Schedules to this
Agreement; (ii) such payments shall not include amounts for which the Seller is
responsible under Section 12.2 and (iii) the aggregate amount of all payments to
-------
be made by the Company under this Section 6.8 prior to the Closing (other than
-------
amounts paid in the ordinary course of business) shall not exceed $1,500,000.
6.9 Tax Matters.
-----------
6.9.1 The Seller shall make an election to waive the net operating
loss carryback period pursuant to Section 172(b)(3) of the Code with
respect to its tax year ended March 31, 2000.
6.9.2 Following the filing of the Seller's Federal income tax return
for the period ended March 31, 2000, the Seller shall provide the Purchaser
with a copy thereof to enable the Purchaser to determine if there are any
net operating loss carryovers, tax credit carryovers or other attribute
carryovers available for the Purchaser's post acquisition Federal income
tax return.
6.9.3 After the Closing, the Seller shall inform the Purchaser of
any adjustments proposed by the Internal Revenue Service or other taxing
authority with respect to tax years of the Seller ending on or before March
31, 2000 which may have a materially adverse impact on the Purchaser. The
Seller will advise the Purchaser of the terms of any proposed settlement of
such adjustments which would have a material adverse impact on the
Purchaser and provide the Purchaser with a reasonable opportunity, at the
Purchaser's sole cost and expense, to object to such settlement but only to
the extent that tax counsel to the Seller shall have concluded in its
opinion that any such objection by the Purchaser shall not adversely effect
the position of the Seller.
7. COVENANTS OF PURCHASER.
----------------------
7.1 Confidentiality. The Purchaser shall not, without the prior written
---------------
consent of the Seller, disclose or acquiesce in the disclosure by any person or
entity, or use or enable the use to the
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<PAGE>
competitive detriment of the Seller and/or the Company, any non-public
information regarding (1) the Company and the Business or financial condition of
the Company, other than after the Closing, or (2) the Seller and the Business or
financial condition of the Company, contained in any documents or otherwise
furnished at any time to the Purchaser by or on behalf of the Company or the
Seller, to any person or organization except the Purchaser's legal counsel,
accountants, financial advisors, investment bankers and its other authorized
agents and representatives, and to such persons only to the extent required for
activities directly related to the purchase of the Shares or other transactions
contemplated by this Agreement and the Purchaser shall ensure that such agents
and representatives comply with the confidential obligation of the Purchaser
hereunder, except to the extent such information has been publicly disclosed or
is otherwise in the public domain or is required to be disclosed by law or by a
court of competent jurisdiction or Governmental Authority.
7.2 Best Efforts. The Purchaser shall use its best efforts to cause the
------------
transactions contemplated hereby to be consummated on or before August 30, 1999,
and to take any and all actions which may be required to be taken by the
Purchaser under this Agreement prior to the Closing Date. The Purchaser shall
proceed as soon as is practicable in the procurement of all permits, consents,
approvals and termination of waiting periods and in the taking of any other
action and the satisfaction of all other requirements prescribed by law or
otherwise necessary for consummation of the transactions contemplated hereby on
the terms herein provided, and shall diligently prosecute the same, including,
without limitation: (i) within 30 business days of execution of this Agreement
make the filing of the initial transfer application with the Division in
connection with the transfer of the Pari-Mutuel Wagering Permit; and (ii) within
10 business days of the execution of this Agreement make the filing required
under the HSR Act and shall request early termination of the waiting period
under the HSR Act. The Purchaser shall bear all expenses and fees in
connection with the transfer of the Pari-Mutuel Wagering Permit, including any
such expenses and fees incurred by the Seller or the Company.
7.3 Purchaser's Financial Ability. On or prior to the date hereof, the
-----------------------------
Purchaser shall have delivered to the Seller a letter from Magna confirming that
the Purchaser will have the financial ability to fulfill its obligations
hereunder and the Seller shall be entitled to rely upon such letter from Magna.
8. CONDITIONS TO CLOSING.
---------------------
8.1 Conditions Precedent to Purchaser's Performance. The obligation of
-----------------------------------------------
the Purchaser to consummate the purchase of the Shares in accordance with this
Agreement is subject to the fulfillment of each of the following conditions, any
of which may be waived in writing by the Purchaser, in whole or in part, in its
sole discretion:
8.1.1 Compliance with this Agreement.
------------------------------
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<PAGE>
(1) Each of the Seller and the Company shall have performed and
satisfied in all material respects all covenants, obligations,
agreements and conditions required by this Agreement to be performed
and satisfied by it on or prior to the Closing Date;
(2) The representations and warranties of the Company and the
Seller contained in Sections 3 and 5, respectively, shall be true,
--------
correct and complete in all material respects as of the date when
made, and as of the Closing Date, with the same force and effect as if
such representations and warranties had been made on the Closing Date,
except: (i) for changes permitted or contemplated by this Agreement;
(ii) to the extent they expressly refer to an earlier time in which
case they shall be true and correct as of such time, and (iii) for
representations and warranties not containing any materiality
qualifier, in which case such representations and warranties shall be
true and correct in all material respects; and
(3) The Company shall have delivered to the Purchaser a
certificate, dated as of the Closing Date, signed by it as to the
matters relating to it described in Sections 8.1.1(1), 8.1.1(2) with
--------
respect to the representations in Section 3, and 8.1.2.; and the
-------
Seller shall have delivered to the Purchaser a certificate, dated as
of the Closing Date, signed by it as to the matters relating to it
described in Sections 8.1.1(1) and 8.1.1(2) with respect to the
--------
representations set forth in Section 5.
-------
8.1.2 No Material Adverse Change. As of the Closing Date, there
--------------------------
shall have been no change in the financial condition, results of
operations, assets or business of the Company since the date hereof that is
a Material Adverse Effect.
8.1.3 No Default. As of the Closing Date, the Company shall not be
----------
in default under, and no event shall have occurred which would constitute a
default (or any event which with the giving of notice or lapse of time or
both, would constitute a default) under, any Contract to which the Company
is a party.
8.1.4 No Illegality. It shall not have become illegal, on or prior
-------------
to the Closing Date, under any statute, rule, order or regulation of or in
any applicable jurisdiction for the Purchaser to perform the transactions
contemplated by this Agreement, provided that such illegality shall not
have arisen by reason of any wrongful act or omission to act by the
Purchaser.
8.1.5 Governmental Consents and Approvals. Any and all necessary
-----------------------------------
approvals and consents from Governmental Authority and other third parties
to complete the transactions contemplated hereby shall have been obtained,
such approvals and consents shall not have expired or been withdrawn as of
the Closing Date and all applicable waiting periods shall have expired or
terminated.
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8.1.6 Absence of Legal Challenge to Acquisition. As of the Closing
-----------------------------------------
Date, there shall be no litigation, action, investigation, inquiry,
proceeding, order, writ, injunction, judgment, decree, or other legal
restraint or prohibition pending or threatened relating to or affecting the
Purchaser in any court, or by any Governmental Authority prohibiting the
consummation of the purchase and sale of the Shares or any of the other
transactions specified in or required by the terms of this Agreement,
which, in the reasonable opinion of legal counsel for the Purchaser could
make it necessary not to consummate such transactions.
8.1.7 Approval of Documentation. The form and substance of all
-------------------------
certificates, instruments and other documents delivered to the Purchaser by
the Seller under this Agreement shall be satisfactory in all material
respects to the Purchaser and its legal counsel.
8.1.8 Share Certificates. The Seller shall have delivered to the
------------------
Escrow Trustee, for delivery to the Purchaser pursuant to the Escrow Trust
Instructions, the Share Certificates, free and clear of any and all Liens
(other than restrictions on transfer or resale imposed by federal or state
securities laws or laws of any Governmental Authority regulating the
Business).
8.1.9 Director and Officer Resignations. All of the directors and
---------------------------------
officers of the Company (other than R. Douglas Donn and Mark Gunderson)
shall have tendered their written resignations as such, effective upon
consummation of the Closing.
8.1.10 Execution of Agreements. Each of the Acquisition Agreements
-----------------------
shall have been executed in form and substance acceptable to the Purchaser.
8.1.11 Opinion of Counsel. The Purchaser shall have received the
------------------
written opinions of Romanik, Huss & Ivers, Florida counsel to the Company,
and Masuda, Funai, Eifert & Mitchell, Ltd., Illinois counsel to the Company
and the Seller, addressed to the Purchaser and dated as of the Closing Date
substantially in the respective forms of Exhibits 2 and 3.
--------
8.1.12 Corporate Action. The Purchaser shall have received: (1) from
----------------
the Seller: (i) a copy of the resolutions adopted by the Board of Directors
of the Seller authorizing the execution, delivery and performance by the
Seller of this Agreement, certified by the Secretary or the Assistant
Secretary of the Seller; and (ii) an incumbency certificate of the
Secretary or the Assistant Secretary of the Seller as to the incumbency and
signature of the officer of the Seller executing this Agreement and any
certificate delivered to the Seller hereunder; and (2) from the Company:
(i) a copy of the resolutions adopted by the Board of Directors of the
Company authorizing the execution, delivery and performance by the Company
of this Agreement, certified by the Secretary or the Assistant of the
Company; and (ii) an incumbency certificate by the Secretary or the
Assistant Secretary of the Company as to the incumbency and signature of
the officer of the Company executing this Agreement.
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<PAGE>
8.1.13 Survey. The Purchaser shall have received, at it sole cost
------
and expense, an ALTA Survey of the Property inform and substance reasonably
satisfactory to the Purchaser.
8.1.14 Title. Concurrently with the Closing, the Purchaser shall
-----
have received from a title insurance company selected by the Purchaser, at
the Purchaser's sole cost and expense, an ALTA extended coverage owner's
title insurance policy insuring the Purchaser's fee title in the Property
in an amount not less than the portion of the Purchase Price allocated to
such Property, subject only to such exceptions as are reasonably acceptable
to the Purchaser and containing such endorsements as are reasonably
requested by the Purchaser.
8.1.15 Release of Liens; Repayment of Outstanding Loan and Mortgage
------------------------------------------------------------
Balance. The Purchaser shall have received confirmation: (1) from the
-------
Escrow Trustee that the Escrow Trustee has received all documents and
instruments and all funds required under the Escrow Trust Instructions to
release all Liens specified in Section 2.3.1; (2) from the Bank, the amount
-------
of principal, accrued interest and fees and all other amounts owing by the
Company to the Bank to and including the Closing Date under the Credit
Agreement; and (3) from the Mortgagee, the amount of principal, accrued
interest and fees and all other amounts owing by the Company to the
Mortgagee to and including the Closing Date under the Demand Note.
8.1.16 Limited Support Letters. The Purchaser shall have received
-----------------------
from each of the shareholders of the Seller a letter in the form of Exhibit
-------
6.
8.1.17 SunTrust Waiver. The Purchaser shall have received a waiver
---------------
(in form and substance satisfactory to the Purchaser) from SunTrust Bank,
South Florida, National Association ("SunTrust"), as lessor under a Master
Lease Agreement, dated October 30, 1998, as amended, between SunTrust and
the Company, with respect to the transaction contemplated hereby.
8.1.18 Termination of Arrangements with Affiliates. The Purchaser
-------------------------------------------
shall have received evidence, reasonably satisfactory to the Purchaser,
that all of the obligations, agreements and undertakings of the Company
with the Seller, any Affiliate of the Seller and any lawyer, accountant or
other professional that also provides services to the Seller or any
Affiliate of the Seller shall have been terminated (unless waived by the
Purchaser).
8.2 Conditions Precedent to Seller's Performance. The obligation of the
--------------------------------------------
Seller to consummate the sale of the Shares in accordance with this Agreement is
subject to the fulfillment of each of the following conditions, any of which may
be waived in writing by the Seller, in whole or in part, in its sole discretion:
8.2.1 Compliance with this Agreement.
------------------------------
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<PAGE>
(1) The Purchaser shall have performed and satisfied all
covenants, obligations, agreements and conditions required by this
Agreement to be performed and satisfied by it, on or prior to the
Closing Date;
(2) The representations and warranties of the Purchaser contained
in Section 4 above shall be true, correct and complete in all material
-------
respects as of the date when made, on or and as of the Closing Date,
with the same force and effect as if such representations and
warranties had been made on the Closing Date, except for (i) changes
permitted or contemplated by this Agreement; (ii) to the extent they
expressly refer to an earlier time in which case they shall be true
and correct as of such time, and (ii) for representations and
warranties not containing any materiality qualifier, in which case
such representations and warranties shall be true and correct in all
material respects; and
(3) The Purchaser shall have delivered to the Seller and the
Company a certificate dated as of the Closing Date, signed by the
Purchaser as to the matters described in Section 8.2.1(1) and
-------
8.2.1(2).
8.2.2 No Illegality. It shall not have become illegal, on or prior
-------------
to the Closing, under any statute, rule, order or regulation of or in any
applicable jurisdiction for the Seller to perform the transactions
contemplated by this Agreement, provided that such illegality shall not
have arisen by reason of any wrongful act or omission to act by the Seller.
8.2.3 Government Consents and Approvals. Any and all necessary
---------------------------------
material approvals and consents from any Governmental Authority and other
third parties to complete the transactions contemplated hereby shall have
been obtained, such approvals and consents shall not have expired or been
withdrawn as of the Closing Date and all applicable waiting periods shall
have expired or terminated.
8.2.4 Absence of Legal Challenge to Acquisition. As of the Closing
-----------------------------------------
Date, there shall be no litigation, action, investigation, inquiry,
proceeding, order, writ, injunction, judgment or decree, or other legal
restraint or prohibition pending or threatened relating to or affecting the
Purchaser, the Seller or the Company in any court, or by any Governmental
Authority prohibiting the consummation of the purchase and sale of the
Shares or any of the other transactions specified in or required by the
terms of this Agreement, which, in the reasonable opinion of legal counsel
for the Seller would make it necessary not to consummate such transactions.
8.2.5 Corporate Action. The Seller shall have received: (1) a copy
----------------
of the resolution adopted by the Board of Directors of the Purchaser
authorizing the execution, delivery and performance by the Purchaser of
this Agreement, certified by the Secretary or Assistant Secretary of the
Purchaser; and (2) an incumbency certificate of the Secretary or
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<PAGE>
Assistant Secretary of the Purchaser as to the incumbency and signature of
the officer of the Purchaser executing this Agreement and any certificate
delivered to the Seller hereunder.
8.2.6 Approval of Documentation. The form and substance of all
-------------------------
certificates, instruments and other documents delivered to the Seller by
the Purchaser under this Agreement shall be satisfactory in all material
respects to the Seller and its legal counsel.
8.2.7 Execution of Agreements. Each of the Acquisition Agreements
-----------------------
shall have been executed in form and substance acceptable to the Seller.
8.2.8 Opinion of Counsel. The Seller shall have received the
------------------
written opinion of O'Melveny & Myers LLP, counsel of the Purchaser,
addressed to the Seller and dated as of the Closing Date substantially in
the form of Exhibit 4.
-------
8.2.9 Payment of Accrued Interest and Fees. The Seller shall have
------------------------------------
received: (1) subject to the maximum amount permitted under Section
-------
6.8(iii), payment of all consultancy fees and guaranty fees payable to the
Seller by the Company accrued to and including the Closing Date; and (2)
confirmation from the Escrow Trustee of the receipt by the Escrow Trustee
of the following: (i) from the Purchaser, the Purchase Price; and (ii) from
the Company, all amounts of interest and fees accrued to and including the
Closing Date and all other amounts (other than principal) due and owing by
the Company to the Bank under the Credit Agreement and (subject to the
maximum amount permitted under Section 6.8(iii)) the Mortgagee under the
-------
Demand Note.
9. TERMINATION PRIOR TO CLOSING.
----------------------------
9.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing:
(a) by mutual agreement of the Seller and the Purchaser;
(b) (i) by the Purchaser upon written notice given to the Seller in
the event that the Seller, contrary to the terms of this Agreement,
fails or refuses to consummate the transactions contemplated hereby or
to take any other action referred to herein necessary to consummate
the transactions contemplated hereby, after affording such Seller a
30-day period after notice in which to cure such failure or refusal or
(ii) by the Seller upon written notice given to the Purchaser in the
event that the Purchaser, contrary to the terms of this Agreement,
fails or refuses to consummate the transactions contemplated hereby or
to take any other action referred to herein necessary to consummate
the transactions contemplated hereby, after affording the Purchaser a
30-day period after notice in which to cure such failure or refusal;
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<PAGE>
(c) (i) by the Purchaser upon notice given to the Seller if the
Closing will not have taken place on or before November 30, 1999;
provided that the failure of the Closing to occur on or before such
date is not the result of the breach of any covenants, agreements,
representations or warranties hereunder of the Purchaser or; (ii) by
the Seller upon written notice given to the Purchaser if the Closing
will not have taken place on or before November 30, 1999, provided
that the failure of the Closing to occur on or before such date is not
the result of the breach of the covenants, agreements, representations
or warranties hereunder of the Seller;
(d) either the Purchaser or the Seller upon notice given to the other
if any court or Governmental Authority of competent jurisdiction will
have issued a final permanent order, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement;
(e) by the Purchaser, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company or the Seller set
forth in this Agreement, or if any representation or warranty of the
Company or the Seller shall have become untrue, in either case such
that the conditions set forth in Sections 8.1 or 8.2 would not be
--------
satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided that if
--------
such inaccuracy in the Company's or the Seller's representations and
warranties or breach by the Company or the Seller is curable through
the exercise of its reasonable efforts and for so long as the Company
or the Seller continues to exercise such reasonable efforts, the
Purchaser may not terminate this Agreement under this Section 9.1(e);
-------
(f) by the Seller, upon a breach of any representations, warranty,
covenant or agreement on the part of the Purchaser set forth in this
Agreement, or if any representation or warranty of the Purchaser shall
have become untrue, in either case such that the conditions set forth
in Sections 8.1 or 8.2 would not be satisfied as of the time of such
--------
breach or as of the time such representation or warranty shall have
become untrue, provided that if such inaccuracy in the Purchaser's
--------
representations and warranties or breach by the Purchaser is curable
through the exercise of its reasonable efforts and for so long as the
Purchaser continues to exercise such reasonable efforts, the Company
may not terminate this Agreement under this Section 9.1(f).
-------
9.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement as provided in Section 9.1, all of the obligations and liabilities of
-------
the parties under this Agreement shall terminate and each party hereto shall pay
its own fees and expenses incurred in connection with the negotiation,
preparation, execution and performance of this Agreement, including without
limitation the fees and expenses of attorneys, accountants and other advisors;
provided that nothing in this Section 9.2 shall relieve any party from any
- -------- -------
liability for any breach of this Agreement. Any
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<PAGE>
termination of this Agreement shall not affect the parties' respective covenants
and obligations under the Confidentiality Agreement.
10. INDEMNIFICATION.
---------------
10.1 Indemnification by Seller. The Seller (sometimes referred to in
-------------------------
this Section 10 as "Indemnitors") shall defend, indemnify and hold the Purchaser
-------
and its officers, directors, shareholders, employees, lawyers, accountants and
agents (the "Indemnified Purchaser Parties"), harmless from and against any and
all claims, demands, damages, liabilities, losses, costs, interest, penalties
and expenses (including reasonable attorneys' fees) of any kind or nature
whatsoever (collectively, "Damages") that may be asserted against, or sustained
or incurred by the Indemnified Purchaser Parties or any of them: (i) within 6
months from the Closing, as a result of a breach of any representation in
Section 5 (other than Section 5.3) or any covenant of the Seller contained in
- ------- -------
Section 6 of this Agreement or (ii) within 12 months from the Closing, as a
- -------
result of a breach of the representation in Section 5.3; provided, however,
-------
that: (1) the amount to be indemnified by the Indemnitors to the Indemnified
Purchaser Parties under this Section 10.1 shall be reduced by the amount, if
-------
any, actually paid by the Indemnified Purchaser Parties' insurance carrier to
cover the Damages to be indemnified; (2) the Seller shall have no liability
under Section 10.1(i) until the aggregate amount of Damages of the Purchaser
-------
(after any reductions as a result of the preceding proviso) exceed $500,000 and
then only for the amount that such Damages exceed $500,000; and (3) in no event
shall the aggregate liability of the Seller with respect to all claims of
indemnification under Section 10.1(i)exceed $500,000 and under Section 10.1(ii)
------- -------
exceed $6,000,000.
10.2 Indemnification by Purchaser. The Purchaser agrees to defend,
----------------------------
indemnify and hold the Seller and its officers, directors, shareholders,
employees, lawyers accountants and agents (the "Indemnified Seller Parties")
harmless from and against any and all claims, demands, damages, liabilities,
losses, costs, interest, penalties and expenses (including reasonable attorneys'
fees) of any kind or nature whatsoever which: (i) may be asserted against the
Indemnified Seller Parties or sustained or suffered by the Indemnified Seller
Parties based upon, related to, or arising out of a breach of any
representation, warranty or covenant contained in Sections 4 and 7; and (ii) may
--------
be asserted against the Indemnified Seller Parties or sustained or suffered by
the Indemnified Seller Parties based upon, or related to, or arising out of: (1)
any business or transactions conducted by the Company after the Closing Date,
and (2) any act or omission of the Purchaser or the Company or their respective
officers, directors, shareholders, employees or agents occurring after the
Closing Date and not related to sub-clause (i) above; provided, that the amount
to be indemnified by the Purchaser to the Indemnified Seller Parties under this
Section 10.2 shall be reduced by the amount, if any, actually paid by the
- -------
Indemnified Seller Parties' insurance carrier to cover the loss to be
indemnified.
10.3 Third Party Claims. If a claim by a third party is made against
------------------
any of the indemnified parties, and if such indemnified party intends to seek
indemnity with respect thereto under this Section 10, such indemnified party
-------
shall promptly notify in writing the Purchaser or the
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<PAGE>
Seller, as the case may be, of such claim. If any indemnified party or parties
fails to provide the foregoing written notice in a timely manner, which failure
to notify results in or otherwise gives rise to any material prejudice to the
defense of such claim, the indemnified party or parties shall be deemed to have
waived its, his, her or their rights to indemnification under this Section 10
-------
from the indemnifying party or parties with respect to the claim for which
timely written notice was not given. The indemnifying party shall have thirty
(30) days after receipt of such notice to commence to undertake, conduct and
control, through counsel of its own choosing and at its expense, the settlement
or defense therefor, and the indemnified party shall cooperate in connection
therewith, provided that:
10.3.1 the indemnifying party shall not thereby permit to exist any
lien or adverse charge upon any asset of any indemnified party;
10.3.2 the indemnifying party shall permit the indemnified party to
participate in such settlement or defense through counsel chosen by the
indemnified party, provided that the fees and expenses of such counsel
shall be borne by the indemnified party;
10.3.3 the indemnifying party shall promptly reimburse the
indemnified party for the full amount of any loss resulting from such claim
and all related expenses incurred by the indemnified party within the
limits of this Section 10, except for counsel fees under Section 10.3.2;
------- -------
and
10.3.4 the indemnified party shall have the right to employ its own
counsel, at such indemnified party's expense if such indemnified party
reasonably concludes that such action, suit or proceedings involves to a
significant extent matters beyond the scope of the indemnity agreement
contained in this Section 10, or that there may be defenses available to it
-------
which are different from or additional to those available to the
indemnifying party, except that the portion of such fees and expenses
reasonably related to matters covered by the indemnity agreement set forth
in this Section 10 shall be borne by the indemnifying party. So long as
-------
the indemnifying party is reasonably contesting any such claim in good
faith, the indemnified party shall not pay or settle any such claim.
Notwithstanding the foregoing, the indemnified party shall have the right
to pay or settle any such claim, provided that in such event the
indemnified party shall waive any right to indemnity therefor by the
indemnifying party. If the indemnifying party does not notify the
indemnified party within 30 days after receipt of the indemnified party's
written notice of a claim of indemnity hereunder that it elects to
undertake the defense thereof, the indemnified party shall have the right
to contest, settle or compromise the claim in the exercise of its exclusive
discretion at the expense of the indemnifying party. The indemnified party
shall, however, notify the indemnifying party in writing of any compromise
or settlement of any such claim.
10.4 As Is Transaction; No Warranties: NOTWITHSTANDING SECTION 10.1,
--------------------------------- -------
AND EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES AND COVENANTS SET
FORTH IN THIS AGREEMENT, THE SHARES AND ALL ASSETS OF THE COMPANY,
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<PAGE>
INCLUDING WITHOUT LIMITATION THE PROPERTY, IS PURCHASED AND SOLD "AS IS." THE
PURCHASE PRICE AND THE TERMS AND CONDITIONS SET FORTH HEREIN ARE THE RESULT OF
ARM'S-LENGTH BARGAINING BETWEEN SOPHISTICATED PARTIES OF EQUIVALENT BARGAINING
POWER FAMILIAR WITH TRANSACTIONS OF THIS KIND AND REPRESENTED BY COMPETENT
COUNSEL, AND SAID PRICE, TERMS AND CONDITIONS REFLECT THE FACT THAT THE
PURCHASER SHALL HAVE THE BENEFIT OF, AND IS RELYING UPON, NO STATEMENTS,
REPRESENTATIONS OR WARRANTIES WHATSOEVER, MADE BY OR ENFORCEABLE AGAINST THE
SELLER RELATING TO THE COMPANY, THE PROPERTY OR OTHER ASSETS, EXCEPT SUCH
REPRESENTATIONS AND WARRANTIES AND OTHER PROVISIONS AS ARE EXPRESSLY SET FORTH
IN THIS AGREEMENT. THE PURCHASER REPRESENTS, WARRANTS AND COVENANTS TO THE
SELLER THAT, EXCEPT FOR THE SELLER'S AND THE COMPANY'S EXPRESS REPRESENTATIONS
AND WARRANTIES AND COVENANTS SPECIFIED IN THIS AGREEMENT, THE PURCHASER IS
RELYING SOLELY UPON THE PURCHASER'S OWN INVESTIGATION OF THE COMPANY AND THE
PROPERTY. IF THE SELLER OBTAINS OR HAS OBTAINED THE SERVICES, OPINIONS OR WORK
PRODUCT OF SURVEYORS, ARCHITECTS, ENGINEERS, ESCROW TRUSTEE, GOVERNMENTAL
AUTHORITIES OR ANY OTHER PERSON OR ENTITY WITH RESPECT TO THE COMPANY OR THE
PROPERTY, THEN THE PURCHASER AND THE SELLER AGREE THAT THE SELLER SHALL DO SO
ONLY FOR THE CONVENIENCE OF BOTH PARTIES, AND THE RELIANCE BY THE PURCHASER UPON
ANY SUCH SERVICES, OPINIONS OR WORK PRODUCT SHALL NOT CREATE OR GIVE RISE TO ANY
LIABILITY OF OR AGAINST THE SELLER.
THE PURCHASER HEREBY EXPRESSLY ACKNOWLEDGES THAT, PRIOR TO THE CLOSING, THE
PURCHASER WILL HAVE HAD THE OPPORTUNITY TO INVESTIGATE ALL PHYSICAL AND ECONOMIC
ASPECTS OF THE COMPANY AND ITS ASSETS AND TO MAKE ALL INSPECTIONS AND
INVESTIGATIONS OF THE COMPANY AND THE PROPERTY WHICH THE PURCHASER DEEMS
NECESSARY OR DESIRABLE TO PROTECT ITS INTERESTS IN ACQUIRING THE COMPANY AND THE
PROPERTY, INCLUDING, WITHOUT LIMITATION, ALL LICENSES AND OTHER PERMITS RELATED
TO OPERATION OF THE BUSINESS, BUILDING PERMITS, CERTIFICATES OF OCCUPANCY,
ENVIRONMENTAL AUDITS AND ASSESSMENTS, TOXIC SUBSTANCE REPORTS, SURVEYS,
INVESTIGATION OF LAND USE AND DEVELOPMENT RIGHTS, AND THE CONDITION OF THE
PROPERTY AND ALL IMPROVEMENTS THEREON (INCLUDING WITHOUT LIMITATION WITH RESPECT
TO ANY ENVIRONMENTAL HAZARDS OR CONDITIONS). EXCEPT AS MAY BE SET FORTH IN THIS
AGREEMENT, THE PURCHASER DOES HEREBY WAIVE, AND THE SELLER DOES HEREBY DISCLAIM,
ALL WARRANTIES OF ANY TYPE OR KIND WHATSOEVER WITH RESPECT TO THE COMPANY, THE
BUSINESS OR THE PROPERTY, WHETHER EXPRESS OR IMPLIED, INCLUDING, BY WAY OF
DESCRIPTION BUT NOT LIMITATION, THOSE OF FITNESS FOR A PARTICULAR PURPOSE AND
USE.
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<PAGE>
11. POST-CLOSING MATTERS.
--------------------
11.1 Survival of Representations and Warranties. The respective
------------------------------------------
representations and warranties of the parties contained herein or in any
certificates or the documents delivered prior to or at the Closing shall not be
deemed waived or otherwise affected by any investigation made by any party
hereto, and shall survive for 6 months following the Closing, except that the
representation and warranty of the Seller contained in Section 5.3 shall survive
-------
for 12 months following the Closing.
11.2 Select Employees of Company. The Purchaser shall retain all
---------------------------
employees of the Company listed in Exhibit 5, upon similar or the same terms and
-------
conditions of employment, as are effective as of the date hereof, for a minimum
period of one year.
12. MISCELLANEOUS.
-------------
12.1 No Public Announcement. No party hereto shall make any public
----------------------
announcement concerning the transactions contemplated by this Agreement without
the prior approval of the other parties, except as such announcement may be
required by law or the rules and regulations of a stock exchange, in which case
the party required to make the announcement shall use all reasonable efforts to
provide the other party with reasonable time under the circumstances to comment
on such announcement in advance of such announcement.
12.2 Expenses. Whether or not the transactions contemplated hereby
--------
are consummated, the Purchaser on behalf of itself, and the Seller, on behalf of
itself, shall each bear its own expenses in connection with the purchase and
sale of the Shares and the other transactions contemplated by this Agreement,
including the fees of attorneys, accountants, advisors, brokers, investment
bankers and other representatives; provided, however, that the Purchaser shall
pay all the fees, costs and expenses of Florida regulatory counsel (as selected
by the Purchaser and the Seller) relating to filings with and obtaining
approvals from the Division with respect to the transactions contemplated by
this Agreement.
12.3 Notices and Legal Process. Except as otherwise provided in this
-------------------------
Agreement, all notices and other communications and legal process shall be in
writing and shall be personally delivered, transmitted by facsimile or overnight
courier, as elected by the party giving such notice, addressed as follows:
(a) If to the Company:
Gulfstream Park Racing Association, Inc.
901 South Federal Highway
Hallandale, Florida 33009
Facsimile: 954-457-6125
Attention: R. Douglas Donn
-39-
<PAGE>
With a copy to:
Masuda, Funai, Eifert & Mitchell, Ltd.
One East Wacker Drive
Suite 3200
Chicago, Illinois 60601-2002
Facsimile: 312-245-7467
Attention: Keith W. Groebe, Esq.
(b) If to the Seller:
Gulfstream Holding, Inc. of Illinois
c/o Orient Corporation
11 F Sunshine 60 Building
3-1-1, Higashi Ikebukuro
Toshima-ku, Tokyo 170-6062 Japan
Facsimile: 81-3-3985-8407
Attention: Mr. Akihiro Terada
-40-
<PAGE>
With a copy to:
Masuda, Funai, Eifert & Mitchell, Ltd.
One East Wacker Drive
Suite 3200
Chicago, Illinois 60601-2002
Facsimile: 312-245-7467
Attention: Keith W. Groebe, Esq.
(c) If to the Purchaser:
MI Venture Inc.
c/o Magna International Inc.
337 Magna Drive
Aurora, Ontario, Canada L4G7K1
Facsimile: 905-726-7177
Attention: Mr. James Nicol
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
Facsimile: 213-430-6407
Attention: Frederick B. McLane, Esq.
Notices shall be deemed to have been given: (i) on the date of receipt, if
delivered personally, or (ii) on the next business day after transmission, if by
facsimile (and appropriate confirmations have been received by the noticing
party). Any party hereto may change its address or telecopier number specified
above by giving written notice to the other parties hereto in the same manner as
specified in this Section 12.3.
-------
12.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, and all of which together
shall constitute but one and the same instrument.
12.5 Waiver. Any party may by written instrument extend the time for
------
the performance of any of the obligations or other acts of any other party
hereunder and may waive: (1) any inaccuracies of any other party in the
representations or warranties contained in this Agreement or in any document
delivered pursuant hereto, (2) compliance with any of the covenants,
undertakings or agreements of any other party, or satisfaction of any of the
conditions to its obligations, contained in this Agreement, or (3) the
performance (including performance to the satisfaction of a party or its legal
counsel) by any other party of any of its obligations set out herein.
-41-
<PAGE>
12.6 Entire Agreement. Unless otherwise specifically agreed in
----------------
writing, this Agreement and the Schedules attached hereto, together with the
Acquisition Agreements, represent the entire understanding of the parties with
reference to the transactions set forth herein, and supersede all prior
representations, warranties, understandings and agreements heretofore made by
the parties, and neither this Agreement nor any provisions hereof may be
amended, waived, modified or discharged except by an agreement in writing signed
by the party against whom the enforcement of any amendment, waiver, change or
discharge is sought.
12.7 Binding Agreement; Assignment. This Agreement shall be binding
-----------------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Neither the Purchaser nor the Seller may transfer or
assign its rights or obligations under this Agreement without obtaining the
prior written consent of the other.
12.8 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Illinois.
12.9 Captions. The captions of the various Sections and subsections
--------
hereof and on the Schedules attached hereto are for convenience of reference
only, and shall not affect the meaning or construction of any provision hereof
or of any such Schedules.
12.10 Parties in Interest. Nothing in this Agreement, whether express
-------------------
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any persons other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over or against any party to this Agreement.
12.11 Severability; Construction. In the event any provision hereof is
--------------------------
determined to be invalid or unenforceable, the remaining provisions hereof shall
be deemed severable therefrom and shall remain in full force and effect.
12.12 Schedules and Exhibits. All Schedules referred to in this
----------------------
Agreement are attached hereto and are incorporated herein by this reference as
if fully set forth herein. For purposes of this Agreement, any item in a
Schedule relating to a specific representation and warranty shall be deemed
disclosed in connection with all other representations and warranties.
12.13 Waiver of Right to Jury Trial. EACH PARTY HERETO KNOWINGLY,
-----------------------------
WILLINGLY AND VOLUNTARILY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE OTHER ACQUISITION AGREEMENTS TO WHICH SUCH PARTY IS A
PARTY. EACH PARTY HERETO (i) CERTIFIES THAT NO REPRESENTATIVE OR LAWYER OF ANY
OTHER PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT
-42-
<PAGE>
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (II) ACKNOWLEDGES THAT
SUCH PARTY AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT, THE ACQUISITION AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY
AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS SECTION 12.13.
-------
[Signature Page to Follow]
-43-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
GULFSTREAM PARK RACING
ASSOCIATION, INC.
By: __________________________________________________________
Name: R. Douglas Donn
Title: President
GULFSTREAM HOLDINGS, INC. OF ILLINOIS
By: __________________________________________________________
Name: Takeshi Doden
Title: President
MI VENTURE INC.
By: ___________________________________________________________
Name: James Nicol
Title:
-44-
<PAGE>
Exhibit 10.3
================================================================================
STOCK PURCHASE AGREEMENT
Dated as of October 21, 1999
By and Among
THE EDWARD J. DEBARTOLO CORPORATION,
an Ohio corporation,
and
OKLAHOMA RACING LLC,
an Ohio limited liability company,
and
MI VENTURE INC.,
a Delaware corporation.
================================================================================
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS.................................................1
2. SALE AND TRANSFER OF SHARES; CLOSING........................9
2.1 SHARES.................................................9
2.2 PURCHASE PRICE.........................................9
2.3 CLOSING................................................9
2.4 CLOSING OBLIGATIONS....................................9
3. REPRESENTATIONS AND WARRANTIES OF SELLERS..................10
3.1 ORGANIZATION AND GOOD STANDING........................10
3.2 AUTHORITY; NO CONFLICT................................10
3.3 CAPITALIZATION........................................11
3.4 FINANCIAL STATEMENTS..................................12
3.5 BOOKS AND RECORDS.....................................13
3.6 TITLE TO PROPERTIES; ENCUMBRANCES.....................13
3.7 CONDITION AND SUFFICIENCY OF ASSETS...................14
3.8 ACCOUNTS RECEIVABLE...................................14
3.9 INVENTORY.............................................15
3.10 NO UNDISCLOSED LIABILITIES............................15
3.11 TAXES.................................................15
3.12 NO MATERIAL ADVERSE CHANGE............................16
3.13 EMPLOYEE BENEFITS.....................................16
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS........................................23
3.15 LEGAL PROCEEDINGS; ORDERS.............................24
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS.................25
3.17 CONTRACTS; NO DEFAULTS................................26
3.18 INSURANCE.............................................29
3.19 ENVIRONMENTAL MATTERS.................................30
3.20 EMPLOYEES.............................................31
3.21 LABOR RELATIONS; COMPLIANCE...........................32
3.22 INTELLECTUAL PROPERTY.................................32
3.23 CERTAIN PAYMENTS......................................33
3.24 DISCLOSURE............................................34
<PAGE>
TABLE OF CONTENTS
(continued)
Page
3.25 RELATIONSHIPS WITH RELATED PERSONS....................34
3.26 INVESTMENT INTENT OF EJDC.............................34
3.27 BROKERS OR FINDERS....................................34
4. REPRESENTATIONS AND WARRANTIES OF BUYER....................35
4.1 ORGANIZATION AND GOOD STANDING........................35
4.2 AUTHORITY; NO CONFLICT................................35
4.3 CAPITALIZATION........................................35
4.4 FINANCIAL STATEMENTS..................................36
4.5 NO UNDISCLOSED LIABILITIES............................36
4.6 NO MATERIAL ADVERSE CHANGE............................36
4.7 CERTAIN PROCEEDINGS...................................36
4.8 INVESTMENT INTENT OF BUYER............................36
4.9 BROKERS OR FINDERS....................................37
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE.................37
5.1 ACCESS AND INVESTIGATION..............................37
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED
COMPANIES.............................................37
5.3 NEGATIVE COVENANT.....................................38
5.4 REQUIRED APPROVALS....................................38
5.5 NOTIFICATION..........................................38
5.6 SATISFACTION OF INDEBTEDNESS..........................38
5.7 NO NEGOTIATION........................................39
5.8 BEST EFFORTS..........................................39
5.9 ACQUISITION OF REMINGTON PARK LAND BY BUYER...........39
5.10 401(k) PLAN...........................................39
5.11 ACCESS TO SELLER ACCOUNTING RECORDS...................39
5.12 REMINGTON LEASE.......................................39
5.13 ACQUIRED COMPANY FINANCIAL DATA.......................40
6. COVENANTS OF BUYER.........................................40
6.1 ACCESS AND INVESTIGATION..............................40
ii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
6.2 APPROVALS OF GOVERNMENTAL BODIES......................40
6.3 BEST EFFORTS..........................................40
6.4 EMPLOYEES.............................................40
6.5 DIRECTORSHIP..........................................41
6.6 NOTIFICATION..........................................41
6.7 REFUNDS OF PURSE MONEY TO SELLER......................41
7. TAX MATTERS................................................42
7.1 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE......42
7.2 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER
CLOSING DATE..........................................42
7.3 REFUNDS AND TAX BENEFITS..............................43
7.4 COOPERATION ON TAX MATTERS............................43
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE........43
8.1 ACCURACY OF REPRESENTATIONS...........................44
8.2 SELLERS' PERFORMANCE..................................44
8.3 CONSENTS..............................................44
8.4 ADDITIONAL DOCUMENTS..................................44
8.5 NO PROCEEDINGS........................................45
8.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS...45
8.7 HSR ACT...............................................45
8.8 COMMISSION APPROVALS..................................45
9. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE.......45
9.1 ACCURACY OF REPRESENTATIONS...........................45
9.2 BUYER'S PERFORMANCE...................................46
9.3 ADDITIONAL DOCUMENTS..................................46
9.4 NO PROCEEDINGS........................................46
9.5 HSR ACT...............................................46
10. TERMINATION................................................46
10.1 TERMINATION EVENTS....................................46
10.2 EFFECT OF TERMINATION.................................47
iii
<PAGE>
TABLE OF CONTENTS
(continued)
Page
11. INDEMNIFICATION; REMEDIES..................................47
11.1 SURVIVAL..............................................47
11.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY EJDC........47
11.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER.......48
11.4 TIME LIMITATIONS......................................48
11.5 LIMITATIONS ON AMOUNT-- EJDC..........................49
11.6 LIMITATIONS ON AMOUNT-- BUYER.........................49
11.7 PROCEDURE FOR INDEMNIFICATION-- THIRD PARTY CLAIMS....49
11.8 PROCEDURE FOR INDEMNIFICATION-- OTHER CLAIMS..........50
11.9 DETERMINATION OF DAMAGES, ETC.........................50
12. GENERAL PROVISIONS.........................................51
12.1 EXPENSES..............................................51
12.2 PUBLIC ANNOUNCEMENTS..................................51
12.3 CONFIDENTIALITY.......................................51
12.4 NOTICES...............................................52
12.5 FURTHER ASSURANCES....................................52
12.6 WAIVER................................................53
12.7 ENTIRE AGREEMENT AND MODIFICATION.....................53
12.8 DISCLOSURE LETTER.....................................53
12.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS....53
12.10SEVERABILITY..........................................54
12.11SECTION HEADINGS, CONSTRUCTION........................54
12.12TIME OF ESSENCE.......................................54
12.13GOVERNING LAW.........................................54
12.14COUNTERPARTS..........................................54
iv
<PAGE>
EXHIBITS
Exhibit 4.1 Description of Buyer's Business
Exhibit 8.4(a) Form of Legal Opinion of Sellers' Counsel
Exhibit 8.4(b) Form of Legal Opinion of Sellers' Oklahoma Counsel
Exhibit 9.3(a) Form of Legal Opinion of Buyer's Counsel
SCHEDULES
Schedule 6.4 Key Management Employees
v
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of October 21,
1999, by MI Venture Inc., a Delaware corporation ("Buyer"), The Edward J.
DeBartolo Corporation, an Ohio corporation ("EJDC"), and Oklahoma Racing LLC, an
Ohio limited liability company ("OR" and, collectively with EJDC, "Sellers").
RECITALS
EJDC desires to sell, and Buyer desires to purchase, all of the
issued and outstanding shares (the "Thistledown Shares") of capital stock of
Thistledown, Inc., an Ohio corporation ("Thistledown") which owns and operates a
thoroughbred horse racing and pari-mutuel wagering business at Thistledown
Racetrack, for the consideration and on the terms set forth in this Agreement;
and
OR desires to sell, and Buyer desires to purchase, all of the issued
and outstanding shares (the "Remington Shares" and, collectively with the
Thistledown Shares, the "Shares") of capital stock of Remington Park, Inc., an
Oklahoma corporation ("Remington") which owns and operates a thoroughbred horse
racing and pari-mutuel wagering business at Remington Park Racetrack, for the
consideration and on the terms set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Acquired Companies"--Thistledown and Remington,
------------------
collectively.
"Applicable Contract" -- any Contract (a) under which any Acquired
-------------------
Company has or may acquire any rights, (b) under which any Acquired Company has
or may become subject to any obligation or liability, or (c) by which any
Acquired Company or any of the assets owned or used by it is or may become
bound.
"Balance Sheets" -- as defined in Section 3.4(b).
--------------
"Best Efforts" -- the efforts that a prudent Person desirous of
------------
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible.
"Book Value" -- means the excess of total assets over total
----------
liabilities of a Person, as shown on any specified balance sheet of such Person.
<PAGE>
"Breach" -- a "Breach" of a representation, warranty, covenant,
------
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, and the term
"Breach" means any such inaccuracy, breach, failure, claim, occurrence, or
circumstance.
"Buyer" -- as defined in the first paragraph of this Agreement.
-----
"Buyer Disclosure Letter" -- the disclosure letter delivered by Buyer
-----------------------
to Sellers concurrently with the execution and delivery of this Agreement.
"Buyer Shares" -- means (i) if the Proposed Acquisition has not
------------
occurred prior to the Closing, the number of shares of Class A Subordinate
Voting Stock which is equal to .82173% of the total number of shares of equity
stock of Buyer outstanding at Closing (as adjusted to reflect (a) the issuance
of the Buyer Shares and (b) the deemed exchange of all Exchangeable Shares
outstanding at such time) and (ii) if the Proposed Acquisition has occurred
prior to the Closing, the number of shares of Class A Subordinate Voting Stock
which is equal to .82173% of the total number of shares of equity stock of Buyer
outstanding immediately upon closing of the Proposed Acquisition (as adjusted to
reflect (a) the issuance of the Buyer Shares and (b) the deemed exchange of all
Exchangeable Shares outstanding at such time), less any shares of equity stock
of Buyer issued in connection with the Proposed Acquisition or the acquisition
of any other horse racing or pari-mutuel wagering business prior to the Closing.
For all purposes hereunder, the value of the Buyer Shares shall be $4,500,000.
"Class A Subordinate Voting Stock" -- as defined in Section 4.3(a).
--------------------------------
"Cleanup" -- as defined in the definition of Environmental, Health
-------
and Safety Liabilities.
"Closing" -- as defined in Section 2.3.
-------
"Closing Date" -- the date and time as of which the Closing actually
------------
takes place.
"Commissions"-- the Ohio Commission and the Oklahoma Commission.
-----------
"Consent" -- any approval, consent, ratification, waiver, or other
-------
authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions contemplated
-------------------------
by this Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the performance by Buyer and Sellers of their respective
covenants and obligations under this Agreement;
(c) Buyer's acquisition and ownership of the Shares and exercise of
control over the Acquired Companies, and
2
<PAGE>
(d) Buyer's issuance of the Buyer Shares to EJDC.
"Contract" -- any agreement, contract, obligation, promise, or
--------
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Damages" -- as defined in Section 11.2.
-------
"Disclosure Letter" -- the disclosure letters delivered by Sellers to
-----------------
Buyer concurrently with the execution and delivery of this Agreement.
"EJDC" -- as defined in the first paragraph of this Agreement.
----
"Encumbrance" -- any charge, claim, community property interest,
-----------
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership other than those imposed by operation of law.
"Environment" -- soil, land surface or subsurface strata, surface
-----------
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental, Health and Safety Liabilities" -- any cost, damages,
---------------------------------------------
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses;
(c) financial responsibility for cleanup costs or corrective action,
including any required investigation, cleanup, removal, containment, or other
remediation or response actions ("Cleanup") required or requested by any
Governmental Body or any other Person and for any natural resource damages; or
(d) any other required compliance, corrective,
investigative, or remedial measures.
The terms "removal," "remedial," and "response action" include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq., as amended.
"Environmental Law" -- any Legal Requirement that requires or relates
-----------------
to:
3
<PAGE>
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing the
Threat of Release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
-----
successor law, and regulations and rules issued pursuant to that act or any
successor law.
"Exchangeable Shares" -- shares of a direct or indirect subsidiary of
-------------------
Buyer to be issued as set forth in the second paragraph of Part 4.3(a) of the
Buyer Disclosure Letter.
"Facilities" -- any real property, leaseholds, or other interests
----------
currently or formerly owned or operated by any Acquired Company and any
buildings, plants or structures currently or formerly owned or operated by any
Acquired Company.
"GAAP" -- generally accepted United States accounting principles,
----
applied on a basis consistent with the basis on which the Balance Sheets and the
other financial statements referred to in Section 3.4 were prepared.
"Governmental Authorization" -- any approval, consent, license,
--------------------------
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
4
<PAGE>
"Governmental Body" -- any:
-----------------
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"Hazardous Activity" -- the distribution, generation, handling,
------------------
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment.
"Hazardous Materials" -- any waste or other substance that is listed,
-------------------
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"HSR Act" -- the Hart-Scott-Rodino Antitrust Improvements Act of 1976
-------
or any successor law, and regulations and rules issued pursuant to that act or
any successor law.
"Indemnified Persons" -- as defined in Section 11.2.
-------------------
"Intellectual Property Assets" -- as defined in Section 3.22.
----------------------------
"Interim Balance Sheets" -- as defined in Section 3.4(b).
----------------------
"IRC" -- the Internal Revenue Code of 1986 or any successor law, and
---
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" -- the United States Internal Revenue Service or any successor
---
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
---------
particular fact or other matter if such individual is actually aware of such
fact or other matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving as a director, executive officer, general partner, executor, or trustee
of such Person (or in any similar capacity) has, or at any time had, Knowledge
of such fact or other matter.
5
<PAGE>
"Legal Requirement" -- any federal, state, local, municipal, foreign,
-----------------
international, multinational, or other administrative order, constitution, law,
ordinance, regulation, statute, or treaty.
"Occupational Safety and Health Law" -- any Legal Requirement
----------------------------------
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards.
"Ohio Commission" -- the Ohio State Racing Commission.
---------------
"Oklahoma Commission" -- the Oklahoma Horse Racing Commission.
-------------------
"OR" -- as defined in the first paragraph of this Agreement.
--
"Order" -- any award, decision, injunction, judgment, order, ruling,
-----
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be
---------------------------
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of such
Person; and
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority) and is not required to be specifically authorized by the
parent company (if any) of such Person.
"Organizational Documents" -- (a) the articles or certificate of
------------------------
incorporation and the bylaws or code of regulation of a corporation; (b) the
partnership agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) the articles of organization and any operating
agreement of a limited liability company; (e) any charter or similar document
adopted or filed in connection with the creation, formation, or organization of
a Person; and (f) any amendment to any of the foregoing.
"Person" -- any individual, corporation (including any non-profit
------
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plan" -- as defined in Section 3.13.
----
"Pro Forma Balance Sheet" -- as defined in Section 4.4(b).
-----------------------
"Proceeding" -- any action, arbitration, audit, hearing,
----------
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or before
any Governmental Body or arbitrator.
6
<PAGE>
"Proposed Acquisition" -- means the purchase by Buyer of all of the
--------------------
outstanding shares of certain thoroughbred horse racing and pari-mutuel wagering
subsidiaries of Hilton Group plc, as set forth in the first paragraph of Part
4.3(a) of the Buyer Disclosure Letter.
"Purchase Price" -- as defined in Section 2.2.
--------------
"Racetrack Employees" -- all persons who, on or prior to the date
-------------------
hereof, are (i) employees of an Acquired Company or (ii) employees of EJDC whose
principal place of employment is at either Thistledown Racetrack or Remington
Park Racetrack.
"Real Property" -- the real property (i) owned by Thistledown on
-------------
which Thistledown Racetrack is located and (ii) leased by Remington on which
Remington Park Racetrack is located.
"Related Person" -- with respect to a particular individual:
--------------
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest; and
(e) any Person with respect to which such specified Person serves as
a general partner or a trustee (or in a similar capacity).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and (iii) any child of
an individual or the individual's spouse residing with the individual, and (b)
"Material Interest" means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of voting
securities or other voting
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interests representing at least 50% of the outstanding voting power of a Person
or equity securities or other equity interests representing at least 50% of the
outstanding equity securities or equity interests in a Person.
"Release" -- any spilling, leaking, emitting, discharging,
-------
depositing, escaping, leaching, dumping, or other releasing into the
Environment, whether intentional or unintentional.
"Remington" -- as defined in the Recitals of this Agreement.
---------
"Remington Lease" - the lease agreement dated June 13, 1986, amended
---------------
January 7, 1987, between the Trustees and Oklahoma Racing Associates which was
subsequently assigned by Oklahoma Racing Associates to Remington.
"Remington Shares" -- as defined in the Recitals of this Agreement.
----------------
"Representative" -- with respect to a particular Person, any
--------------
director, officer, employee, agent, consultant or advisor of such Person,
including legal counsel, accountants, and financial advisors.
"Securities Act" -- the Securities Act of 1933 or any successor law,
--------------
and regulations and rules issued pursuant to that act or any successor law.
"Sellers" -- as defined in the first paragraph of this Agreement.
-------
"Shares" -- as defined in the Recitals of this Agreement.
------
"Subsidiary" -- with respect to any Person (the "Owner"), any
----------
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred), are held by the Owner or one or more of its
Subsidiaries.
"Tax" -- any tax (including any income tax, capital gains tax,
---
value-added tax, sales tax, property tax, gift tax, or estate tax), levy,
assessment, deficiency, or other fee, and any related charge or amount
(including any fine, penalty, interest, or addition to tax), imposed, assessed,
or collected by or under the authority of any Governmental Body or payable
pursuant to any tax-sharing agreement or any other Contract relating to the
sharing or payment of any such tax, levy, assessment, deficiency, or fee.
"Tax Return" -- any return (including any information return),
----------
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"Thistledown" -- as defined in the Recitals of this Agreement.
-----------
8
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"Thistledown Interim Balance Sheet" -- as defined in Section 3.4(a).
---------------------------------
"Thistledown Shares" -- as defined in the Recitals of this Agreement.
------------------
"Threat of Release" -- a substantial likelihood of a Release that may
-----------------
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"Threatened" -- a claim, Proceeding, dispute, action, or other matter
----------
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"Trade Secrets" -- as defined in Section 3.22(a).
-------------
"Trustees" - The Trustees of the Oklahoma City Zoological Trust.
--------
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the
Closing, Sellers will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Sellers.
2.2 PURCHASE PRICE
The purchase price for the Thistledown Shares will be $9,500,000 in
cash plus the Buyer Shares (collectively, the "Thistledown Purchase Price"). The
purchase price for the Remington Shares will be $10,000,000 in cash (the
"Remington Purchase Price," and collectively with the Thistledown Purchase
Price, the "Purchase Price").
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement
will take place at the offices of Sellers' counsel at 2300 BP Tower, 200 Public
Square, Cleveland, Ohio, at 10:00 a.m. (local time) on the later of (i) October
29, 1999 or (ii) the date that is two business days following the receipt of all
Governmental Authorizations required in order for the Buyer and the Sellers to
consummate the Contemplated Transactions, or at such other time and place as the
parties may agree. Subject to the provisions of Section 10, failure to
consummate the purchase and sale provided for in this Agreement on the date and
time and at the place determined pursuant to this Section 2.3 will not result in
the termination of this Agreement and will not relieve any party of any
obligation under this Agreement.
9
<PAGE>
2.4 CLOSING OBLIGATIONS
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, endorsed to Buyer or
endorsed in blank for transfer to Buyer; and
(ii) a certificate executed by each Seller to the effect that each of
such Seller's representations and warranties in this Agreement was accurate in
all material respects as of the date of this Agreement and is accurate in all
material respects as of the Closing Date as if made on the Closing Date (giving
full effect to any supplements to the Disclosure Letter that were delivered by
Sellers to Buyer prior to the Closing Date in accordance with Section 5.5); and
(b) Buyer will deliver to EJDC:
(i) $9,5000,000 in immediately available funds by wire transfer to
the account specified by EJDC;
(ii) certificates representing the Buyer Shares; and
(iii) a certificate executed by Buyer to the effect that each of
Buyer's representations and warranties in this Agreement was accurate in all
respects as of the date of this Agreement and is accurate in all respects as of
the Closing Date as if made on the Closing Date; and
(c) Buyer will deliver to OR:
(i) $10,000,000 in immediately available funds by wire transfer to
the account specified by OR; and
(ii) a certificate executed by Buyer to the effect that each of
Buyer's representations and warranties in this Agreement was accurate in all
respects as of the date of this Agreement and is accurate in all respects as of
the Closing Date as if made on the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
EJDC represents and warrants as to itself and jointly and severally
as to Remington and severally as to Thistledown, and OR represents and warrants
as to itself and, for the period from December 1, 1998 to the Closing Date, as
to Remington, to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING
(a) Each Acquired Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation, with full
10
<PAGE>
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. Neither
Acquired Company is required to be qualified to do business as a foreign
corporation under the laws of any other state or other jurisdiction. Neither
Acquired Company has any Subsidiary.
(b) Sellers have delivered to Buyer copies of the Organizational
Documents of each Acquired Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding
obligation of Sellers, enforceable against Sellers in accordance with its terms.
Sellers have the absolute and unrestricted right, power, authority, and capacity
to execute and deliver this Agreement and to perform their obligations under
this Agreement.
(b) Except as set forth in Part 3.2 of the Disclosure Letter, neither
the execution and delivery of this Agreement nor the consummation or performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Sellers or the Acquired Companies,
or (B) any resolution adopted by the board of directors or the stockholders of
Sellers or any Acquired Company;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which any Acquired Company or either
Seller, or any of the assets owned or used by any Acquired Company, may be
subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization
that is held by Sellers or any Acquired Company or that otherwise relates to the
business of, or any of the assets owned or used by, any Acquired Company;
(iv) to Sellers' Knowledge, cause any Acquired Company to become
subject to, or to become liable for the payment of, any Tax in the States of
Ohio or Oklahoma;
(v) to Sellers' Knowledge, cause any of the assets owned by any
Acquired Company to be reassessed or revalued by any taxing authority or other
Governmental Body in the States of Ohio or Oklahoma;
(vi) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy
11
<PAGE>
under, or to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by any Acquired Company.
Except as set forth in Part 3.2 of the Disclosure Letter, no Seller or Acquired
Company is or will be required to give any notice to or obtain any Consent from
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the Contemplated Transactions.
3.3 CAPITALIZATION
(a) The authorized equity securities of Thistledown consist of 500
shares of common stock, without par value, of which 250 shares are issued and
outstanding and constitute the Thistledown Shares. EJDC is and will be on the
Closing Date the record and beneficial owner and holder of the Thistledown
Shares, free and clear of all Encumbrances.
(b) The authorized equity securities of Remington consist of 500
shares of common stock, par value $1.00 per share, of which 500 shares are
issued and outstanding and constitute the Remington Shares. OR is and will be on
the Closing Date the record and beneficial owner and holder of the Remington
Shares, free and clear of all Encumbrances, other than as set forth in Part
3.3(b) of the Disclosure Letter.
(c) All of the outstanding equity securities of each Acquired Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in Part 3.3(c) of the Disclosure Letter,
there are no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of any Acquired Company. None of the outstanding
equity securities or other securities of any Acquired Company was issued in
violation of the Securities Act or any other Legal Requirement. Except as set
forth in Part 3.3(c) of the Disclosure Letter, no Acquired Company owns, or has
any Contract to acquire, any equity securities or other securities of any Person
or any direct or indirect equity or ownership interest in any other business.
3.4 FINANCIAL STATEMENTS
(a) EJDC has delivered to Buyer: (i) consolidated balance sheets of
Thistledown as at December 31 in each of the years 1994 through 1997, and the
related consolidated statements of income and changes in stockholders' equity
for each of the fiscal years then ended, (ii) a consolidated balance sheet of
Thistledown as at December 31, 1998 (the "Thistledown Balance Sheet"), and the
related consolidated statements of income, changes in stockholders' equity, and
cash flow for the fiscal year then ended, and (iii) an unaudited balance sheet
of Thistledown as at July 31, 1999 (the "Thistledown Interim Balance Sheet") and
the related unaudited consolidated statements of income, changes in
stockholders' equity, and cash flow for the seven months then ended.
(b) OR has delivered to Buyer: (i) balance sheets of Remington as at
December 31 in each of the years 1994 through 1997, and the related statements
of income,
12
<PAGE>
changes in stockholders' equity, and cash flow for each of the fiscal years then
ended, together with the report thereon of Hill, Barth & King, independent
certified public accountants, (ii) a balance sheet of Remington as at December
31, 1998 (including the notes thereto, the "Remington Balance Sheet" and,
collectively with the Thistledown Balance Sheet, the "Balance Sheets"), and the
related statements of income, changes in stockholders' equity, and cash flow for
the fiscal year then ended, together with the report thereon of Hill, Barth &
King, independent certified public accountants, and (iii) an unaudited balance
sheet of Remington and its Subsidiaries as at July 31, 1999 (collectively with
the Thistledown Interim Balance Sheet, the "Interim Balance Sheets") and the
related unaudited statements of income, changes in stockholders' equity, and
cash flow for the seven months then ended, including in each case the notes
thereto.
(c) Except as set forth in Part 3.4(c) of the Disclosure Letter, such
financial statements and notes fairly present the financial condition and the
results of operations, changes in stockholders' equity, and cash flow of the
Acquired Companies as at the respective dates of and for the periods referred to
in such financial statements, all in accordance with GAAP, subject, in the case
of interim financial statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the applicable Balance Sheet); the financial
statements referred to in this Section 3.4 reflect the consistent application of
such accounting principles throughout the periods involved, except as disclosed
in the notes to such financial statements or in Part 3.4(c) of the Disclosure
Letter. No financial statements of any Person are required by GAAP to be
included in the consolidated financial statements of either Thistledown or
Remington, other than those included.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other
records of the Acquired Companies, all of which have been made available to
Buyer, are complete and correct and have been maintained in accordance with
sound business practices, including the maintenance of an adequate system of
internal controls. The minute books of the Acquired Companies contain accurate
and complete records of all meetings held of, and corporate action taken by, the
stockholders, the Boards of Directors, and committees of the Boards of Directors
of the Acquired Companies, and no meeting of any such stockholders, Board of
Directors, or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of the Acquired Companies.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
(a) Part 3.6(a) of the Disclosure Letter contains a complete and
accurate list of all real property, leaseholds, or other interests therein owned
by any Acquired Company. Sellers have delivered or made available to Buyer
copies of the deeds and other instruments (as recorded) by which the Acquired
Companies acquired such real property and interests, and copies of all title
insurance policies, opinions, abstracts, and surveys in the possession of
Sellers or the Acquired Companies and relating to such property or interests.
The Acquired Companies own (with good and marketable title in the case of real
property, subject
13
<PAGE>
only to the matters permitted by the following sentence) all the properties and
assets (whether real, personal, or mixed and whether tangible or intangible)
that they purport to own located in the facilities owned or operated by the
Acquired Companies or reflected as owned in the books and records of the
Acquired Companies, including all of the properties and assets reflected in the
Balance Sheets and the Interim Balance Sheets (except for assets held under
capitalized leases disclosed or not required to be disclosed in Part 3.6(a) of
the Disclosure Letter and personal property sold since the date of the Balance
Sheets and the Interim Balance Sheets, as the case may be, in the Ordinary
Course of Business), and all of the properties and assets purchased or otherwise
acquired by the Acquired Companies since the date of the Balance Sheets (except
for personal property acquired and sold since the date of the Balance Sheets in
the Ordinary Course of Business and consistent with past practice).
(b) All material properties and assets reflected in the Balance
Sheets and the Interim Balance Sheets are free and clear of all Encumbrances and
are not, in the case of real property, subject to any rights of way, building
use restrictions, exceptions, variances, reservations, or limitations of any
nature except, with respect to all such properties and assets: (a) mortgages or
security interests shown on the Balance Sheets or the Interim Balance Sheets as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) mortgages or security interests incurred in connection with
the purchase of property or assets after the date of the Interim Balance Sheets
(such mortgages and security interests being limited to the property or assets
so acquired), with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (c) liens for current
taxes not yet due, (d) leases described in Part 3.6(b) of the Disclosure Letter,
and (e) with respect to real property (i) minor imperfections of title, if any,
none of which is substantial in amount, materially detracts from the value or
impairs the use of the property subject thereto, or impairs the operations of
any Acquired Company, (ii) rights of way, restrictions, variances, reservations
or limitations described in the surveys and title insurance policies delivered
to Buyer by Sellers, and (iii) zoning laws and other land use restrictions that
do not impair the present use of the property subject thereto. Except as set
forth in Part 3.6(b) of the Disclosure Letter, all buildings, plants, and
structures owned or leased by the Acquired Companies lie wholly within the
boundaries of the real property owned by the Acquired Companies and do not
encroach upon the property of, or otherwise conflict with the property rights
of, any other Person.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment of the Acquired
Companies are, to Sellers' Knowledge, structurally sound, are in adequate
operating condition and repair, and are adequate for the uses to which they are
being put, and, to Sellers' Knowledge, none of such buildings, plants,
structures, or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature or
cost. The building, plants, structures, and equipment of the Acquired Companies
are sufficient for the continued conduct of the Acquired Companies' businesses
after the Closing in substantially the same manner as conducted prior to the
Closing.
14
<PAGE>
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Acquired Companies that are reflected
on the Balance Sheets or the Interim Balance Sheets or on the accounting records
of the Acquired Companies as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of Business.
Unless paid prior to the Closing Date, the Accounts Receivable are or will be as
of the Closing Date current and collectible net of the respective reserves shown
on the Balance Sheets or the Interim Balance Sheets or on the accounting records
of the Acquired Companies as of the Closing Date (which reserves are adequate
and calculated consistent with past practice and, in the case of the reserve as
of the Closing Date, will not represent a greater percentage of the Accounts
Receivable as of the Closing Date than the reserve reflected in the Interim
Balance Sheets represented of the Accounts Receivable reflected therein and will
not represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Part 3.8 of the Disclosure Letter contains a
complete and accurate list of all Accounts Receivable as of the date of the
Interim Balance Sheets, which list sets forth the aging of such Accounts
Receivable.
3.9 INVENTORY
All inventory of the Acquired Companies, whether or not reflected in
the Balance Sheets or the Interim Balance Sheets, consists of a quality and
quantity usable and salable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Balance Sheets or the
Interim Balance Sheets or on the accounting records of the Acquired Companies as
of the Closing Date, as the case may be. All inventories not written off have
been priced at the lower of cost or market on a first in, first out basis.
3.10 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 3.10 of the Disclosure Letter, the
Acquired Companies have no liabilities or obligations of any nature (whether
known or unknown and whether absolute, accrued, contingent, or otherwise) except
for liabilities or obligations reflected or reserved against in the Balance
Sheets or the Interim Balance Sheets and liabilities incurred in the Ordinary
Course of Business since the respective dates thereof.
3.11 TAXES
(a) Except as set forth in Part 3.11 of the Disclosure Letter, the
Acquired Companies have filed or caused to be filed (since January 1, 1994)
all material Tax Returns that are or were required to be filed by or with
respect to any of them, either separately or as a member of a group of
corporations, pursuant to applicable Legal Requirements. Part 3.11 of the
Disclosure Letter contains a complete and accurate list of all such Tax
Returns relating to income or franchise taxes filed since January 1, 1994,
and Sellers have delivered to Buyer (i) all Tax Returns relating to income
and franchise Taxes filed by the Acquired Companies on a stand-alone basis
since January 1, 1994 and (ii) all pro forma Tax Returns of the Acquired
Companies relating to income and
15
<PAGE>
franchise Taxes filed since January 1, 1994 as part of a consolidated,
combined or unitary Tax Return with Sellers. The Acquired Companies have
paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns, or pursuant to any assessment
received by Sellers or any Acquired Company, except such Taxes, if any, as
are listed in Part 3.11 of the Disclosure Letter and are being contested in
good faith and as to which adequate reserves (determined in accordance with
GAAP) have been provided in the Balance Sheets and the Interim Balance
Sheets.
(b) The United States federal and state income Tax Returns of each
Acquired Company subject to such Taxes have been audited by the IRS or
relevant state tax authorities or are closed by the applicable statute of
limitations for all taxable years through 1994. Part 3.11 of the Disclosure
Letter contains a complete and accurate list of all audits relating to the
Acquired Companies with respect to all income and franchise Tax Returns
filed since January 1, 1994, including a reasonably detailed description of
the nature and outcome of each audit. All deficiencies proposed as a result
of such audits have been paid, reserved against, settled, or, as described
in Part 3.11 of the Disclosure Letter, are being contested in good faith by
appropriate proceedings. Except as described in Part 3.11 of the Disclosure
Letter, no Seller or Acquired Company has given or been requested to give
waivers or extensions (or is or would be subject to a waiver or extension
given by any other Person) of any statute of limitations relating to the
payment of Taxes of any Acquired Company or for which any Acquired Company
may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
Interim Balance Sheets were adequate (determined in accordance with GAAP)
as of the date of such Interim Balance Sheets, and the Acquired Companies'
liability for Taxes for Tax periods ending on or before the Closing Date
will not exceed by a material amount such charges, accruals and reserves,
as adjusted for operations and transactions in the Ordinary Course of
Business through the Closing Date. To the Knowledge of Sellers, there
exists no proposed tax assessment against any Acquired Company, except as
disclosed in the Balance Sheets or in Part 3.11 of the Disclosure Letter.
No consent to the application of Section 341(f)(2) of the IRC has been
filed with respect to any property or assets held, acquired, or to be
acquired by any Acquired Company. All material Taxes that any Acquired
Company is or was required by Legal Requirements to withhold or collect
have been duly withheld or collected and, to the extent required, have been
paid to the proper Governmental Body or other Person.
(d) As of the date hereof, there is no tax sharing agreement that will
require any payment by any Acquired Company after the date of this
Agreement. No Acquired Company is, or within the five-year period preceding
the Closing Date has been, an "S" corporation.
3.12 NO MATERIAL ADVERSE CHANGE
Since the date of the Balance Sheets, there has not been any material
adverse change in the business, operations, properties, prospects, assets, or
condition of any Acquired Company, and no event has occurred or circumstance
exists that may result in such a material adverse change.
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<PAGE>
3.13 EMPLOYEE BENEFITS
(a) As used in this Section 3.13, the following terms have the
meanings set forth below.
"Company Other Benefit Obligation" means an Other Benefit Obligation
--------------------------------
owed, adopted, or followed by an Acquired Company or an ERISA Affiliate of an
Acquired Company with respect to Racetrack Employees.
"Company Plan" means all Plans of which an Acquired Company is or was
------------
a Plan Sponsor, or to which an Acquired Company otherwise contributes or has
contributed, or in which an Acquired Company otherwise participates or has
participated or any other Plan in which Racetrack Employees participate or which
otherwise provides benefits to Racetrack Employees. All references to Plans are
to Company Plans unless the context requires otherwise.
"Company VEBA" means a VEBA whose members include Racetrack
------------
Employees.
"ERISA Affiliate" means, with respect to an Acquired Company, any
---------------
other person that, together with such company, would be treated as a single
employer under IRC ss. 414.
"Multi-Employer Plan" means a Company Plan that is a "multi-employer
-------------------
plan" as defined in ERISA ss. 3(37)(A).
"Other Benefit Obligations" means all obligations, arrangements, or
-------------------------
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of IRC ss. 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Pension Plan" means a Company Plan that is a "pension plan" as
------------
defined in ERISA ss. 3(2)(A).
"Plan" has the meaning given in ERISA ss. 3(3).
----
"Plan Sponsor" has the meaning given in ERISA ss. 3(16)(B).
------------
"Qualified Plan" means any Plan that meets or purports to meet the
--------------
requirements of IRC ss. 401(a).
"Title IV Plans" means all Pension Plans that are subject to Title IV
--------------
of ERISA, 29 U.S.C.ss.1301 et seq., other than Multi-Employer Plans.
17
<PAGE>
"VEBA" means a voluntary employees' beneficiary association
----
under IRC ss. 501(c)(9).
(b) (i) Part 3.13(b)(i) of the Disclosure Letter contains a complete
and accurate list of all Company Plans, Company Other Benefit Obligations, and
Company VEBAs, and identifies as such all Company Plans that are (A) defined
benefit Pension Plans, (B) Qualified Plans, (C) Title IV Plans, or (D)
Multi-Employer Plans.
(ii) Part 3.13(b)(ii) of the Disclosure Letter contains a complete
and accurate list of (A) all ERISA Affiliates of each Acquired Company, and (B)
all Plans (whether or not a Company Plan) of which any such ERISA Affiliate is
or was a Plan Sponsor, in which any such ERISA Affiliate participates or has
participated, or to which any such ERISA Affiliate contributes or has
contributed.
(iii) Part 3.13(b)(iii) of the Disclosure Letter sets forth, for each
Multi-Employer Plan, as of its last valuation date, and, if available, the
amount of potential withdrawal liability of the Acquired Companies and the
Acquired Companies' other ERISA Affiliates, calculated according to information
made available pursuant to ERISA ss. 4221(e).
(iv) Part 3.13(b)(iv) of the Disclosure Letter sets forth a
calculation of the liability of the Acquired Companies for post-retirement
benefits other than pensions, made in accordance with Financial Accounting
Statement 106 of the Financial Accounting Standards Board, regardless of whether
any Acquired Company is required by this Statement to disclose such information.
(c) Except as set forth in Part 3.13(c) of the Disclosure Letter,
Sellers have delivered to Buyer, or will deliver to Buyer as promptly as
practicable after the date of this Agreement:
(i) all documents that set forth the terms of each Company Plan,
Company Other Benefit Obligation, or Company VEBA and of any related trust,
including (A) all plan descriptions and summary plan descriptions of Company
Plans for which Sellers or the Acquired Companies are required to prepare, file,
and distribute plan descriptions and summary plan descriptions, and (B) all
summaries and descriptions furnished to participants and beneficiaries regarding
Company Plans, Company Other Benefit Obligations, and Company VEBAs for which a
plan description or summary plan description is not required;
(ii) all personnel, payroll, and employment manuals and policies;
(iii) all collective bargaining agreements pursuant to which
contributions have been made or obligations incurred (including both pension and
welfare benefits) by the Acquired Companies, or by the ERISA Affiliates of the
Acquired Companies with respect to Racetrack Employees;
(iv) a written description of any Company Plan or Company Other
Benefit Obligation that is not otherwise in writing;
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(v) all registration statements filed with respect to any Company
Plan;
(vi) all insurance policies purchased by or to provide benefits under
any Company Plan;
(vii) all contracts with third party administrators, actuaries,
investment managers, consultants, and other independent contractors that relate
to any Company Plan, Company Other Benefit Obligation, or Company VEBA;
(viii) all reports submitted within the two years preceding the date
of this Agreement by third party administrators, actuaries, investment managers,
consultants, or other independent contractors with respect to any Company Plan
approved by an Acquired Company, and such reports reasonably requested by Buyer
with respect to any other Company Plan, Company Other Benefit Obligation, or
Company VEBA;
(ix) samples of all notifications to employees of their rights under
ERISAss.601 et seq. and IRCss.4980B;
(x) if required to be filed, the Form 5500 filed in each of the most
recent three plan years with respect to each Company Plan, including all
schedules thereto and the opinions of independent accountants;
(xi) all notices that were given by any Acquired Company or any ERISA
Affiliate of an Acquired Company with respect to any Company Plan, or by any
Company Plan, to the IRS or the PBGC, or any participant or beneficiary,
pursuant to statute, within (A) four years preceding the date of this Agreement
if given with respect to a Company Plan sponsored by an Acquired Company and (B)
two years preceding the date of this Agreement if given with respect to any
other Company Plan, in each case including notices that are expressly mentioned
elsewhere in this Section 3.13;
(xii) all notices that were given by the IRS, the PBGC, or the
Department of Labor to any Acquired Company, any ERISA Affiliate of an Acquired
Company with respect to any Company Plan, or with respect to any other Plan if
such notice could result in liability to any Acquired Company, or to any Company
Plan within the four years preceding the date of this Agreement;
(xiii) the most recent determination letter for each Company Plan
that is a Qualified Plan; and
(xiv) with respect to Title IV Plans, the Form PBGC-1 filed for each
of the three most recent plan years.
(d) Except as set forth in Part 3.13(d) of the Disclosure Letter:
(i) The Acquired Companies have performed all of their respective
obligations under all Company Plans, Company Other Benefit Obligations, and
Company VEBAs. The Acquired Companies have made appropriate entries in their
financial
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records and statements for all obligations and liabilities under such
Plans, VEBAs, and Obligations that have accrued but are not due.
(ii) No statement, either written or oral, has been made by any
Acquired Company to any Person with regard to any Plan or Other Benefit
Obligation that was not in accordance with the Plan or Other Benefit Obligation
and that could have an adverse economic consequence to any Acquired Company or
to Buyer.
(iii) The Acquired Companies, with respect to all Company Plans,
Company Other Benefits Obligations, and Company VEBAs, are, and each Company
Plan, Company Other Benefit Obligation, and Company VEBA is, in all material
respects, in compliance with ERISA, the IRC, and other applicable Legal
Requirements including the provisions of such Legal Requirements expressly
mentioned in this Section 3.13, and with any applicable collective bargaining
agreement:
(A) No non-exempt transaction prohibited by ERISA ss. 406 and no
non-exempt "prohibited transaction" under IRC ss. 4975(c) have occurred with
respect to any Company Plan.
(B) No Seller or Acquired Company has any liability to the IRS with
respect to any Plan, including any liability imposed by Chapter 43 of the IRC.
(C) No Seller or Acquired Company has any liability to the PBGC with
respect to any Plan or has any liability under ERISA ss. 502 or ss. 4071.
(D) All filings required by ERISA and the IRC as to each Plan (other
than Multi-Employer Plans) have been timely filed, and all notices and
disclosures to participants required by either ERISA or the IRC have been timely
provided.
(E) All contributions and payments made or accrued with respect to
all Company Plans, Company Other Benefit Obligations, and Company VEBAs are
deductible under IRC ss. 162 or ss. 404. No amount, or any asset of any Company
Plan or Company VEBA, is subject to tax as unrelated business taxable income.
(iv) Each Company Plan that is not a Qualified Plan can be terminated
within thirty days, without payment of any additional contribution or amount and
without the vesting or acceleration of any benefits promised by such Plan.
(v) Since December 31, 1998, there has been no establishment or
amendment of any Company Plan, Company VEBA, or Company Other Benefit
Obligation.
(vi) To Seller's Knowledge no event has occurred or circumstance
exists that could result in a material increase in premium costs of Company
Plans and Company Other Benefit Obligations that are insured, or a material
increase in benefit costs of such Plans and Obligations that are self-insured.
(vii) Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding involving, any Company
Plan, Company
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Other Benefit Obligation, or Company VEBA is pending or, to Sellers' Knowledge,
is Threatened.
(viii) No Company Plan is a stock bonus, pension, or profit-sharing
plan within the meaning of IRC ss. 401(a).
(ix) Except for defects that can be corrected without meaningful cost
or liability, each Qualified Plan of each Acquired Company is qualified in form
and operation under IRC ss. 401(a); each trust for each such Plan is exempt from
federal income tax under IRC ss. 501(a); each Company VEBA is exempt from
federal income tax; and no event has occurred or circumstance exists that will
or could give rise to disqualification or loss of tax-exempt status of any such
Plan or trust.
(x) Each Acquired Company and each ERISA Affiliate of an Acquired
Company has met the minimum funding standard, and has made all contributions
required, under ERISA ss. 302 and IRC ss. 402.
(xi) No Company Plan is subject to Title IV of ERISA.
(xii) The Acquired Companies have paid all amounts due to the PBGC
pursuant to ERISA ss. 4007.
(xiii) No Acquired Company or any ERISA Affiliate of an Acquired
Company has ceased operations at any facility or has withdrawn from any Title IV
Plan in a manner that would subject any entity or Sellers to liability under
ERISA ss. 4062(e), ss. 4063, or ss. 4064.
(xiv) No Acquired Company or any ERISA Affiliate of an Acquired
Company has filed a notice of intent to terminate any Plan or has adopted any
amendment to treat a Plan as terminated. The PBGC has not instituted proceedings
to treat any Company Plan as terminated. No event has occurred or circumstance
exists that may constitute grounds under ERISA ss. 4042 for the termination of,
or the appointment of a trustee to administer, any Company Plan.
(xv) No amendment has been made, or is reasonably expected to be
made, to any Plan that has required or could require the provision of security
under ERISA ss. 307 or IRC ss. 401(a)(29).
(xvi) No accumulated funding deficiency, whether or not waived,
exists with respect to any Company Plan; no event has occurred or circumstance
exists that may result in an accumulated funding deficiency as of the last day
of the current plan year of any such Plan.
(xvii) The actuarial report for each Pension Plan (other than
Multi-Employer Plans) of each Acquired Company and each ERISA Affiliate of each
Acquired Company fairly presents the financial condition and the results of
operations of each such Plan in accordance with GAAP.
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(xviii) Since the last valuation date for each Pension Plan, no event
has occurred or circumstance exists that would increase the amount of benefits
under any such Plan or that would cause the excess of Plan assets over benefit
liabilities (as defined in ERISA ss. 4001) to decrease, or the amount by which
benefit liabilities exceed assets to increase.
(xix) No reportable event (as defined in ERISA ss. 4043 and in
regulations issued thereunder) has occurred with respect to any Pension Plan.
(xx) No Seller or Acquired Company has Knowledge of any facts or
circumstances that may give rise to any liability of any Seller, any Acquired
Company, or Buyer to the PBGC under Title IV of ERISA.
(xxi) Except as set forth in Part 3.13(d)(xxi) of the Disclosure
Letter, no Acquired Company or any ERISA Affiliate of an Acquired Company has
ever established, maintained, or contributed to or otherwise participated in, or
had an obligation to maintain, contribute to, or otherwise participate in, any
Multi-Employer Plan.
(xxii) Except as set forth in Part 3.13(d)(xxii) of the Disclosure
Letter, no Acquired Company or any ERISA Affiliate of an Acquired Company has
withdrawn from any Multi-Employer Plan with respect to which there is any
outstanding liability as of the date of this Agreement. No event has occurred or
circumstance exists that presents a risk of the occurrence of any withdrawal
from, or the participation, termination, or to Sellers' Knowledge,
reorganization, or insolvency of, any Multi-Employer Plan that could result in
any liability of either any Acquired Company or Buyer to a Multi-Employer Plan.
(xxiii) No Acquired Company or any ERISA Affiliate of an Acquired
Company has received notice from any Multi-Employer Plan that it is in
reorganization or is insolvent, that increased contributions may be required to
avoid a reduction in plan benefits or the imposition of any excise tax, or that
such Plan intends to terminate or has terminated.
(xxiv) No Multi-Employer Plan is a party to any pending merger or
asset or liability transfer or is subject to any proceeding brought by the PBGC.
(xxv) Except to the extent required under ERISA ss. 601 et seq. and
IRC ss. 4980B or as provided through a multi-employer welfare fund covering
collectively bargained employees, no Acquired Company provides health or welfare
benefits for any retired or former employee or is obligated to provide health or
welfare benefits to any active employee following such employee's retirement or
other termination of service.
(xxvi) Each Acquired Company has the right to modify and terminate
benefits to retirees (other than pensions) with respect to both retired and
active employees, subject to (if applicable) the requirements of collective
bargaining agreements..
(xxvii) Sellers and all Acquired Companies have complied with the
provisions of ERISAss.601 et seq. and IRCss.4980B.
(xxviii) No payment that is owed or may become due to any director,
officer, employee, or agent of any Acquired Company will be non-deductible to
the
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Acquired Companies or subject to tax under IRCss.280G orss.4999; nor will any
Acquired Company be required to "gross up" or otherwise compensate any such
person because of the imposition of any excise tax on a payment to such person.
(xxix) The consummation of the Contemplated Transactions will not
result in the payment, vesting, or acceleration of any benefit, except as may be
required by a Qualified Plan pursuant to Section 411(d)(3) of the IRC.
(e) After the Closing Date, neither Buyer nor the Acquired Companies
will have any liability with respect to any Plan of a pre-Closing Date ERISA
Affiliate.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) each Acquired Company is in compliance in all material respects
with Legal Requirements applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a material
violation by any Acquired Company of, or a material failure on the part of any
Acquired Company to comply with, any Legal Requirement, or (B) may give rise to
any obligation on the part of any Acquired Company to undertake, or to bear all
or any portion of the cost of, any material remedial action of any nature; and
(iii) no Acquired Company has received, at any time since January 1,
1996, any written notice or other written communication from any Governmental
Body or any other Person regarding (A) any actual, alleged, possible, or
potential material violation of, or material failure to comply with, any Legal
Requirement that has not been satisfied, withdrawn or otherwise complied with,
or (B) any actual, alleged, possible, or potential obligation on the part of any
Acquired Company to undertake, or to bear all or any portion of the cost of, any
material remedial action of any nature.
(b) Part 3.14 of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by any Acquired
Company or that otherwise relates to the business of, or to any of the assets
owned or used by, any Acquired Company. Each Governmental Authorization listed
or required to be listed in Part 3.14 of the Disclosure Letter is valid and in
full force and effect. Except as set forth in Part 3.14 of the Disclosure
Letter:
(i) each Acquired Company is in compliance in all material respects
with all of the terms and requirements of each Governmental Authorization
identified or required to be identified in Part 3.14 of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly or indirectly
in a material
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violation of or a material failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Part 3.14 of the
Disclosure Letter, or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, or termination of, or any material
modification to, any Governmental Authorization listed or required to be listed
in Part 3.14 of the Disclosure Letter;
(iii) no Acquired Company has received, at any time since January 1,
1996, any written notice or other written communication from any Governmental
Body or any other Person regarding (A) any actual, alleged, possible, or
potential material violation of or material failure to comply with any term or
requirement of any Governmental Authorization that has not been satisfied,
withdrawn or otherwise complied with, or (B) any actual, proposed, possible, or
potential revocation, withdrawal, suspension, cancellation, termination of, or
material modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in Part 3.14 of
the Disclosure Letter have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings required to have been
made with respect to such Governmental Authorizations have been duly made on a
timely basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 3.14 of the Disclosure Letter
collectively constitute all of the Governmental Authorizations necessary to
permit the Acquired Companies to lawfully conduct and operate their businesses
in the manner they currently conduct and operate such businesses.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 3.15 of the Disclosure Letter, there
is no pending Proceeding:
(i) that has been commenced by or against any Acquired Company or
that otherwise relates to or may affect the business of, or any of the assets
owned or used by, any Acquired Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
Except as set forth in Part 3.15 of the Disclosure Letter, to the Knowledge of
Sellers and the Acquired Companies: (1) no such Proceeding has been Threatened
and (2) no event has occurred or circumstance exists that may give rise to or
serve as a basis for the commencement of any such Proceeding. Sellers have
delivered or made available to Buyer copies of all pleadings, correspondence,
and other documents relating to each Proceeding listed in Part 3.15 of the
Disclosure Letter. The Proceedings listed in Part 3.15 of the Disclosure Letter
will not have a material adverse effect on the business, operations, assets,
condition, or prospects of any Acquired Company.
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(b) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) there is no Order to which any of the Acquired Companies, or any
of the assets owned or used by any Acquired Company, is subject;
(ii) neither Seller is subject to any Order that relates to the
business of, or any of the assets owned or used by, any Acquired Company; and
(iii) to the Knowledge of Sellers, no officer, director or employee
of any Acquired Company is subject to any Order that prohibits such officer,
director, agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of any Acquired Company.
(c) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) each Acquired Company is in substantial compliance with all of
the terms and requirements of each Order to which it, or any of the assets owned
or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute
or result in (with or without notice or lapse of time) a material violation of
or material failure to comply with any term or requirement of any Order to which
any Acquired Company, or any of the assets owned or used by any Acquired
Company, is subject; and
(iii) no Acquired Company has received, at any time since January 1,
1996, any written notice or other written communication from any Governmental
Body or any other Person regarding any actual, alleged, possible, or potential
material violation of, or material failure to comply with, any term or
requirement of any Order to which any Acquired Company, or any of the assets
owned or used by any Acquired Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.16 of the Disclosure Letter, since the
date of the Interim Balance Sheets, the Acquired Companies have conducted their
businesses only in the Ordinary Course of Business and there has not been any:
(a) change in any Acquired Company's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital stock of
any Acquired Company; issuance of any security convertible into such capital
stock; grant of any registration rights; purchase, redemption, retirement, or
other acquisition by any Acquired Company of any shares of any such capital
stock; or declaration or payment of any dividend or other distribution or
payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired
Company;
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(c) payment or increase by any Acquired Company of any bonuses,
salaries, or other compensation to any stockholder, director, or (except in the
Ordinary Course of Business) officer or employee or entry into any employment,
severance, or similar Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under,
any profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of any
Acquired Company;
(e) damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects of
the Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination
of (i) any license, distributorship, dealer, sales representative, joint
venture, credit, or similar agreement, or (ii) any Contract or transaction
involving a total remaining commitment by or to any Acquired Company of at least
$50,000;
(g) sale (other than sales of inventory or assets which are obsolete
or no longer useful in the Ordinary Course of Business), lease, or other
disposition of any asset or property of any Acquired Company or mortgage,
pledge, or imposition of any lien or other encumbrance on any material asset or
property of any Acquired Company, including the sale, lease, or other
disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to
any Acquired Company in excess of $50,000;
(i) repayment by an Acquired Company of any indebtedness owed to
either Seller or any Related Person of either Seller;
(j) material change in the accounting methods used by any Acquired
Company; or
(k) agreement, whether oral or written, by any Acquired Company to do
any of the foregoing.
3.17 CONTRACTS; NO DEFAULTS
(a) Part 3.17(a) of the Disclosure Letter contains a complete and
accurate list, and Sellers have delivered to Buyer true and complete copies, of:
(i) each Applicable Contract that involves performance of services or
delivery of goods or materials by one or more Acquired Companies of an amount or
value in excess of $50,000;
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(ii) each Applicable Contract that involves performance of services
or delivery of goods or materials to one or more Acquired Companies of an amount
or value in excess of $50,000;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts of one or
more Acquired Companies in excess of $50,000;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $25,000 and which either have terms of less than
one year or are terminable by the Acquired Company with notice to the other
party of 90 days or less);
(v) each licensing agreement or other Applicable Contract with
respect to Intellectual Property Assets, including agreements with current or
former employees, consultants, or contractors regarding the appropriation or the
non-disclosure of any of the Intellectual Property Assets;
(vi) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of a group
of employees;
(vii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or liabilities by
any Acquired Company with any other Person;
(viii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of any Acquired Company or any
Affiliate of an Acquired Company or limit the freedom of any Acquired Company or
any Affiliate of an Acquired Company to engage in any line of business or to
compete with any Person;
(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments for
goods;
(x) each power of attorney that is currently effective and
outstanding;
(xi) each Applicable Contract entered into other than in the Ordinary
Course of Business that contains or provides for an express undertaking by any
Acquired Company to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of
$50,000;
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(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by any Acquired
Company other than in the Ordinary Course of Business; and
(xiv) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
Part 3.17(a) of the Disclosure Letter sets forth reasonably complete details
concerning such Contracts described in this Section 3.17(a) ("Material
Contracts"), including the parties to the Contracts.
(b) Except as set forth in Part 3.17(b) of the Disclosure Letter:
(i) neither Seller (and no Related Person of either Seller) has or
may acquire any rights under, and neither Seller has or may become subject to
any obligation or liability under, any Material Contract that relates to the
business of, or any of the assets owned or used by, any Acquired Company; and
(ii) to the Knowledge of Sellers and the Acquired Companies, no
officer, director or employee of any Acquired Company is bound by any Contract
that purports to limit the ability of such officer, director or employee to (A)
engage in or continue any conduct, activity, or practice relating to the
business of any Acquired Company, or (B) assign to any Acquired Company or to
any other Person any rights to any invention, improvement, or discovery.
(c) Except as set forth in Part 3.17(c) of the Disclosure Letter, to
the Knowledge of Sellers, each Material Contract is in full force and effect and
is valid and enforceable in accordance with its terms.
(d) Except as set forth in Part 3.17(d) of the Disclosure Letter:
(i) each Acquired Company is in compliance in all material respects
with the applicable terms and requirements of each Material Contract under which
such Acquired Company has any obligation or liability or by which such Acquired
Company or any of the assets owned or used by such Acquired Company is bound;
(ii) to the Knowledge of Sellers, each other Person that has any
obligation or liability under any Material Contract under which an Acquired
Company has any rights is in compliance in all material respects with the
applicable terms and requirements of such Material Contract;
(iii) to the Knowledge of Sellers, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a violation or breach of, or give any
Acquired Company or other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Material Contract; and
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(iv) no Acquired Company has given to or received from any other
Person, at any time since January 1, 1996, any written notice or other written
communication regarding any actual, alleged, possible, or potential violation or
breach of, or default under, any Material Contract that has not been cured,
withdrawn or otherwise resolved.
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to any
Acquired Company under current or completed Material Contracts with any Person
and, to the Knowledge of Sellers and the Acquired Companies, no such Person has
made written demand for such renegotiation.
(f) The Material Contracts relating to provision of products or
services by the Acquired Companies have been entered into in the Ordinary Course
of Business and have been entered into without the commission of any act alone
or in concert with any other Person, or any consideration having been paid or
promised, that is or would be in material violation of any Legal Requirement.
3.18 INSURANCE
(a) Sellers have delivered or made available to Buyer:
(i) true and complete copies of all policies of insurance to which
any Acquired Company is a party or under which any Acquired Company, or any
director of any Acquired Company, is covered;
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of any Acquired Company's
financial statements with regard to the adequacy of such entity's coverage or of
the reserves for claims.
(b) Part 3.18(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting any Acquired
Company, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by any Acquired Company; and
(iii) all obligations of the Acquired Companies to third parties with
respect to insurance (including such obligations under leases and service
agreements) and identifies the policy under which such coverage is provided.
(c) Part 3.18(c) of the Disclosure Letter sets forth, by year, for
the current policy year and each of the three preceding policy years:
(i) a summary of the loss experience under each policy;
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(ii) a statement describing each claim under an insurance policy,
which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance, and
period of coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Part 3.18(d) of the Disclosure Letter:
(i) All policies to which any Acquired Company is a party or that
provide coverage to any Acquired Company, or any director or officer of an
Acquired Company are valid, outstanding, and enforceable.
(ii) The Acquired Companies have given notice to the insurer of all
claims that may be insured thereby.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in part 3.19 of the Disclosure Letter:
(a) Each Acquired Company is, and at all times has been, in material
compliance with, and has not been and is not in violation of or liable under,
any Environmental Law. No Seller or Acquired Company has received any actual or,
to Sellers' Knowledge any Threatened, Order, written notice, or other written
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or, to Sellers' Knowledge any Threatened,
obligation to undertake or bear the cost of any Environmental, Health, and
Safety Liabilities with respect to any of the Facilities or any other properties
or assets (whether real, personal, or mixed) in which any Acquired Company has
had an interest, or with respect to any property or Facility at or to which
Hazardous Materials were generated, manufactured, refined, transferred,
imported, used, or processed by any Acquired Company, or any other Person for
whose conduct it is or may be held responsible, or from which Hazardous
Materials have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of Sellers and the
Acquired Companies, Threatened claims, Encumbrances, or other restrictions of
any nature, resulting from any Environmental, Health, and Safety Liabilities or
arising under or pursuant to any Environmental Law, with respect to or affecting
any of the Facilities or any other properties and assets (whether real,
personal, or mixed) in which any Acquired Company has or had an interest.
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(c) No Acquired Company, or any other Person for whose conduct it is
or may be held responsible, has any Environmental, Health, and Safety
Liabilities with respect to the Facilities or with respect to any other
properties and assets (whether real, personal, or mixed) in which any
Acquired Company (or any predecessor), has or had an interest.
(d) There are no Hazardous Materials present on or in the Environment
at the Facilities, including any Hazardous Materials contained in barrels,
above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary
or permanent, and deposited or located in land, water, sumps, or any other
part of the Facilities, or incorporated into any structure therein or
thereon, except in material compliance with all applicable Environmental
Laws.
(e) There has been no Release or, to the Knowledge of Sellers and the
Acquired Companies, Threat of Release of any Hazardous Materials at or from
the Facilities or at any other locations where any Hazardous Materials were
generated, used, or processed, except in material compliance with all
applicable Environmental Laws.
(f) Sellers have delivered or made available to Buyer true and
complete copies and results of any reports, studies, analyses, tests, or
monitoring possessed or initiated by Sellers or any Acquired Company
pertaining to Hazardous Materials or Hazardous Activities in, on, or under
the Facilities, or concerning compliance by Sellers, any Acquired Company,
or any other Person for whose conduct the Acquired Companies are or may be
held responsible, with Environmental Laws and dated within ten years prior
to the date of this Agreement.
3.20 EMPLOYEES
(a) Part 3.20(a) of the Disclosure Letter contains a complete and
accurate list of the following information for each Racetrack Employee,
including each employee on leave of absence or layoff status: employer; name;
job title; current compensation paid or payable; vacation accrued; and service
credited for purposes of vesting and eligibility to participate under any
Acquired Company's pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other employee pension benefit
plan or employee welfare benefit plan, or any other employee benefit plan.
(b) To Sellers' Knowledge, no employee of any Acquired Company is a
party to, or is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between such
employee and any other Person ("Proprietary Rights Agreement") that in any way
adversely affects or will affect (i) the performance of his duties as an
employee of the Acquired Companies, or (ii) the ability of any Acquired Company
to conduct its business, including any Proprietary Rights Agreement with Sellers
or the Acquired Companies by any such employee. Except as set forth
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in Part 3.20(b) of the Disclosure Letter, to Sellers' Knowledge, no officer or
other key employee of any Acquired Company intends to terminate his employment
with such Acquired Company.
(c) Part 3.20(c) of the Disclosure Letter contains a complete and
accurate list of the following information for each retired employee of the
Acquired Companies, or their dependents, receiving benefits or scheduled to
receive benefits in the future: name, pension benefit, pension option election,
retiree medical insurance coverage, retiree life insurance coverage, and other
benefits.
3.21 LABOR RELATIONS; COMPLIANCE
Except as set forth in Part 3.21 of the Disclosure Letter, no
Acquired Company is a party to any collective bargaining or other labor
Contract. Except as set forth in Part 3.21 of the Disclosure Letter, since
January 1, 1999, there has not been, there is not presently pending or existing,
and there is not Threatened: (a) any strike, slowdown, picketing, work stoppage,
or employee grievance process, (b) any Proceeding against or affecting any
Acquired Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable Governmental
Body, organizational activity, or other labor or employment dispute against or
affecting any of the Acquired Companies or their premises, or (c) any
application for certification of a collective bargaining agent. To Sellers'
Knowledge, no event has occurred or circumstance exists that could provide the
basis for any work stoppage or other labor dispute. There is no lockout of any
employees by any Acquired Company, and no such action is contemplated by any
Acquired Company. To Sellers' Knowledge, each Acquired Company is in compliance
in all material respects with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar
taxes, occupational safety and health, and plant closing, and no Seller or
Acquired Company has received any actual or, to Sellers' Knowledge any
Threatened, Order, written notice, or other written communication from any
Governmental Body of any actual or potential violation or failure to comply with
any of the foregoing Legal Requirements.
3.22 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets-- The term "Intellectual Property
Assets" includes:
(i) the names "Thistledown" and "Remington," all fictional business
names, trading names, registered and unregistered trademarks, service marks, and
applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions and discoveries
that may be patentable;
(iii) all copyrights in both published works and unpublished works:
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(iv) all rights in mask works; and
(v) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "Trade Secrets"); owned, used, or
licensed by any Acquired Company as licensee or licensor.
(b) Know-How Necessary for the Business-- The Intellectual Property
Assets are all those necessary for the operation of the Acquired Companies'
businesses as they are currently conducted. One or more of the Acquired
Companies is the owner of all right, title, and interest in and to each of
the Intellectual Property Assets, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims, and
has the right to use without payment to a third party all of the
Intellectual Property Assets.
(c) Trademarks
(i) Part 3.22(c) of Disclosure Letter contains a complete and
accurate list and summary description of all Marks. One or more of the Acquired
Companies is the owner of all right, title, and interest in and to each of the
Marks, free and clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims.
(ii) All Marks that have been registered with the United States
Patent and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to Sellers' Knowledge, no such action is
Threatened with the respect to any of the Marks.
(iv) To Sellers' Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
(v) To Sellers' Knowledge, no Mark is infringed or has been
challenged or threatened in any way and none of the Marks used by any Acquired
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
3.23 CERTAIN PAYMENTS
Since January 1, 1996, no Acquired Company has authorized any
director, officer, agent, or employee of any Acquired Company, or any other
Person associated with or acting for or on behalf of any Acquired Company to (a)
make any illegal or unlawful contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of any
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Acquired Company or any Related Person of an Acquired Company, or (iv) in
violation of any Legal Requirement, (b) established or maintained any fund or
asset that has not been recorded in the books and records of the Acquired
Companies.
3.24 DISCLOSURE
(a) No representation or warranty of Sellers in this Agreement and no
statement in the Disclosure Letter omits to state a material fact necessary
to make the statements herein or therein, in light of the circumstances in
which they were made, not misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they
were made, not misleading.
3.25 RELATIONSHIPS WITH RELATED PERSONS
Except as set forth in Part 3.25 of the Disclosure Letter, no Seller
or to Sellers' Knowledge any Related Person of Sellers or of any Acquired
Company has or has had any interest in any property (whether real, personal, or
mixed and whether tangible or intangible) used in or pertaining to the Acquired
Companies' businesses. Except as set forth in Part 3.25 of the Disclosure
Letter, no Seller or to Sellers' Knowledge any Related Person of Sellers or of
any Acquired Company owns (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in, a Person that has (i) had
business dealings or a material financial interest in any transaction with any
Acquired Company, or (ii) engaged in competition with any Acquired Company with
respect to any line of the products or services of such Acquired Company in any
market presently served by such Acquired Company. Except as set forth in Part
3.25 of the Disclosure Letter, no Seller or any Related Person of Sellers or of
any Acquired Company is a party to any Contract with, or has any claim or right
against, any Acquired Company.
3.26 INVESTMENT INTENT OF EJDC
EJDC represents and warrants to Buyer that it is acquiring the Buyer
Shares for its own account and not with a view to their distribution within the
meaning of Section 2(11) of the Securities Act. EJDC understands that: (a) the
Buyer Shares have not been registered under the Securities Act and are being
offered and sold in reliance on an exemption from the registration requirements
of the Securities Act; (b) the Buyer Shares may not be transferred or resold
except as permitted under the Securities Act and applicable state securities
laws pursuant to registration or an exemption therefrom; and (c) the certificate
evidencing the Buyer Shares will bear a legend to the effect that they have not
been registered under the Securities Act and may be transferred or resold only
in compliance with the Securities Act and applicable state securities laws.
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3.27 BROKERS OR FINDERS
Sellers and their Representatives have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, with full corporate power and
authority to conduct its business as it is now being conducted, to own and use
the properties and assets that it purports to own or use and to perform all of
its obligations under this Agreement. Exhibit 4.1 contains a description of
Buyer's business which is correct and complete in all material respects.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement and to perform its obligations under this Agreement.
(b) Except for Governmental Authorizations of the Commissions and as
required under the HSR Act, neither the execution and delivery of this Agreement
by Buyer nor the consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be subject;
or
(iv) any Contract to which Buyer is a party or by which Buyer may be
bound.
4.3 CAPITALIZATION
(a) On the date of this Agreement, the authorized equity securities
of Buyer consist of 10,000,000 shares of Class A Common Stock, no par value (the
"Class A Common Stock"), of which 100 shares are issued and outstanding, and
10,000,000 shares of Class C Common Stock, no par value (the "Class C Common
Stock"), of which 3,450,000 shares are issued and outstanding. Prior to the
Closing Date, Buyer's certificate of incorporation will be amended to modify
Buyer's capital stock as follows: (a) shares of class A subordinate voting stock
(the "Class A Subordinate Voting Stock") will be authorized, (b) shares of class
B stock (the "Class B Stock") will be authorized, (c) all shares of Class A
Common Stock outstanding on the date the certificate of incorporation is amended
will be converted into shares of Class B Stock, (d) all shares of Class C Common
Stock outstanding on the date the certificate of
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incorporation is amended will be converted into shares of Class A Subordinate
Voting Stock and/or shares of Class B Stock and (e) the share provisions of the
Class A Common Stock and the Class C Common Stock will be eliminated. Except as
set forth in Part 4.3(a) of the Buyer Disclosure Letter, and except as described
herein, Buyer has not issued or granted any options, warrants or other
securities convertible into Class A Subordinate Voting Stock and has not entered
into any agreements or arrangements, other than with its parent or employees,
relating to the issuance of such options, warrants or convertible securities or
to the issuance of Class A Subordinate Voting Stock.
(b) At the Closing, the Buyer Shares will be duly authorized and
validly issued and fully paid and nonassessable.
4.4 FINANCIAL STATEMENTS
(a) Buyer has delivered to Sellers an unaudited consolidated balance
sheet of Buyer as at August 31, 1999 (including the notes thereto), which fairly
presents the financial condition of Buyer in accordance with GAAP, subject to
normal recurring year-end adjustments (the effect of which will not,
individually or in the aggregate, be materially adverse).
(b) Buyer has delivered to Sellers a pro forma unaudited consolidated
balance sheet of Buyer as at August 31, 1999 (including the notes thereto, the
"Pro Forma Balance Sheet") which reflects (i) certain contributions of capital
and assets to be made to Buyer by Buyer's parent and the reorganization of
Buyer's capital structure prior to the Closing Date, (ii) the acquisition of
Gulfstream Park Racing Association, Inc. and (iii) the acquisition of Remington
and Thistledown pursuant hereto. The Pro Forma Balance Sheet has been prepared
from the applicable historical financial statements, adjusting the combined
amounts for purchase accounting adjustments and any significant differences in
accounting methods used by the entities involved.
4.5 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 4.5 of the Buyer Disclosure Letter, Buyer
has no liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent or otherwise) except for liabilities
reflected or reserved against in the balance sheets referred to in Section 4.4
and current liabilities incurred in the Ordinary Course of Business since June
30, 1999.
4.6 NO MATERIAL ADVERSE CHANGE
Since June 30, 1999, there has not been any material adverse change
in the business, operations, properties, assets or condition of Buyer and its
Subsidiaries, and no event has occurred or circumstance exists that may result
in such a material adverse change.
4.7 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer
and that challenges, or may have the effect of preventing, delaying, making
illegal, or otherwise
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interfering with, any of the Contemplated Transactions. To Buyer's Knowledge, no
such Proceeding has been Threatened.
4.8 INVESTMENT INTENT OF BUYER
Buyer is acquiring the Shares for its own account and not with a view
to their distribution within the meaning of Section 2(11) of the Securities Act.
4.9 BROKERS OR FINDERS
Buyer and its Representatives have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Sellers harmless from any such payment alleged to be due by
or through Buyer as a result of the action of Buyer or its officers or agents.
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Sellers
will, and will cause each Acquired Company and its Representatives to: (a)
afford Buyer and its Representatives and prospective lenders and their
Representatives (collectively, "Buyer's Advisors") reasonable access during
normal business hours upon reasonable notice to each Acquired Company's general
manager and designated management personnel, properties (including subsurface
testing), contracts, books and records, and other documents and data, (b)
furnish Buyer and Buyer's Advisors with copies of all such contracts, books and
records, and other existing documents and data as Buyer may reasonably request,
and (c) furnish Buyer and Buyer's Advisors with such additional existing
financial, operating, and other data and information as Buyer may reasonably
request.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
Between the date of this Agreement and the Closing Date, Sellers
will, and will cause each Acquired Company to:
(a) conduct the business of such Acquired Company only in the Ordinary
Course of Business;
(b) use their Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services of the
current officers, employees, and agents of such Acquired Company, and
maintain the relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships with
such Acquired Company;
(c) confer with Buyer concerning operational matters of a material
nature; and
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(d) otherwise report periodically to Buyer concerning the status of
the business, operations, and finances of such Acquired Company.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between
the date of this Agreement and the Closing Date, Sellers will not, and will
cause each Acquired Company not to, without the prior consent of Buyer, take any
affirmative action, or fail to take any reasonable action within their or its
control, as a result of which any of the changes or events listed in Section
3.16 is likely to occur.
5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Sellers
will, and will cause each Acquired Company to, make all filings required by
Legal Requirements to be made by them in order to consummate the Contemplated
Transactions (including all filings under the HSR Act and with the Commissions).
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause each Acquired Company to: (a) cooperate with Buyer with respect to all
filings that Buyer is required by Legal Requirements to make in connection with
the Contemplated Transactions, and (b) cooperate with Buyer in obtaining all
Consents identified in Section 4.2 (including taking all actions reasonably
requested by Buyer to cause early termination of any applicable waiting period
under the HSR Act and all actions reasonably requested by Buyer to obtain the
approval of the Commissions with respect to the Contemplated Transactions).
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, each Seller
will promptly notify Buyer in writing if such Seller or any Acquired Company
becomes aware of any fact or condition that causes or constitutes a Breach of
any of Sellers' representations and warranties as of the date of this Agreement,
or if such Seller or any Acquired Company becomes aware of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. Should any
such fact or condition require any change in the Disclosure Letter if the
Disclosure Letter were dated the date of the occurrence or discovery of any such
fact or condition, Sellers will promptly deliver to Buyer a supplement to the
Disclosure Letter specifying such change. During the same period, each Seller
will promptly notify Buyer of the occurrence of any Breach of any covenant of
Sellers in this Section 5 or of the occurrence of any event that may make the
satisfaction of the conditions in Section 8 impossible or unlikely.
5.6 SATISFACTION OF INDEBTEDNESS
Sellers will cause (a) indebtedness in the amount of $61,529,766.76
owed by Thistledown to either Seller or any Related Person of either Seller and
(b) indebtedness in the amount of $156,673.87 owed by Remington to either Seller
or any Related Person of either Seller, to be contributed to such Acquired
Company as additional paid-in capital prior to Closing.
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Sellers will cause all other indebtedness owed by an Acquired Company to either
Seller or any Related Person of either Seller to be paid in full by each
Acquired Company prior to Closing and will cause all indebtedness owed to an
Acquired Company by either Seller or any Related Person of either Seller to be
paid in full prior to Closing.
5.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to
Section 10, Sellers will not, and will cause each Acquired Company and each of
their Representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of any Acquired Company, or any of the capital
stock of any Acquired Company, or any merger, consolidation, business
combination, or similar transaction involving any Acquired Company.
5.8 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Sellers will
use their Best Efforts to cause the conditions in Sections 8 and 9 to be
satisfied.
5.9 ACQUISITION OF REMINGTON PARK LAND BY BUYER
Between the date of this Agreement and the Closing Date, Sellers will
use commercially reasonably efforts to assist Buyer in securing ownership, upon
commercially reasonable terms satisfactory to Buyer, of the 371.6 acre parcel
upon which the Remington Park Racetrack is situated and the 75 acre parcel
contiguous thereto.
5.10 401(k) PLAN
Prior to the Closing, the sponsorship of the Investment Savings and
Retirement Plan of Thistledown Racetrack and Remington Park, Inc. (the
"Racetrack Plan") shall be changed to Thistledown and, as such, the Racetrack
Plan shall be transferred with the Acquired Companies under this Agreement.
Following execution of this Agreement and prior to the Closing, Sellers and
Buyer shall use their Best Efforts to, effective as of or before the Closing,
include the Thistledown collectively-bargained group (Racing Guild of Ohio,
Local 304 ("Local 304 Employees")) currently covered by the DeBartolo Investment
Savings Retirement Plan (the "DeBartolo Plan") in the Racetrack Plan, subject to
collective bargaining requirements. In the event that the Local 304 Employees
cannot be included in the Racetrack Plan on or before the Closing, Sellers shall
allow the Local 304 Employees to continue active participation in the DeBartolo
Plan for a period not extending beyond December 31, 1999, in which case, Buyer
shall fully and promptly reimburse Seller for all costs associated with such
continued participation (including, without limitation, contribution and
administrative costs) and any liability incurred by Seller with respect thereto
other than as a result of its negligence or willful misconduct. Subject to
collective bargaining requirements, as soon as practicable after the Closing and
in no event later than twelve months thereafter, the assets and liabilities
associated with the Local 304 Employees under the DeBartolo Plan shall be
transferred (with any
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outstanding plan loans transferred in kind) to the Racetrack Plan or another
qualified plan established by Buyer or a Buyer affiliate in a plan-to-plan
transfer.
5.11 TRANSITION SERVICES
Between the Closing Date and December 31, 1999, EJDC will continue to
provide services to the Acquired Companies of the type referred to in Section
3.17(a)(ii), item 1 of the Disclosure Letter for a monthly fee to be agreed upon
by EJDC and Buyer. These services include payroll processing, daily and monthly
computer bookkeeping and accounting functions, tape/information transmission to
administrators for Company Plans that are 401(k) plans and payroll taxes
administration.
5.12 REMINGTON LEASE
After the date of this Agreement, Sellers will cooperate in the
efforts of Buyer to obtain an amendment to the provisions of the Remington Lease
giving the Trustees the right to terminate the lease at any time with or without
cause upon 180 days notice.
5.13 ACQUIRED COMPANY FINANCIAL DATA
Between the date of this Agreement and the Closing Date, the Sellers
shall use their Best Efforts (but without incurring any out of pocket expense)
to assist Buyer in obtaining such financial and other data relating to the
Acquired Companies as may be necessary or advisable to enable Buyer to file a
prospectus with the Securities and Exchange Commission which complies with the
Securities Act.
6. COVENANTS OF BUYER
6.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Buyer will
afford Sellers and their Representatives such access to Buyer's officers, books
and records and other information as Sellers may reasonably request for the
purpose of analyzing the value of the Buyer Shares. Buyer will preserve and keep
for a period of three years the books and records held by the Acquired Companies
on the Closing Date and will make such books and records available to Sellers as
may be reasonably required by Sellers in connection with insurance claims by,
legal proceedings against or governmental investigations of Seller, subject to
restrictions on disclosure of such information under applicable laws and
agreements with third parties. Sellers will maintain in confidence, and will
cause the directors, officers, employees, agents, and advisors of Sellers to
maintain in confidence, any information furnished by Buyer or another party in
connection with this Section 6.1.
6.2 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer
will, and will cause each of its Related Persons to, make all filings required
by Legal Requirements to be made by them to consummate the Contemplated
Transactions (including all filings under the HSR Act and with the Commissions).
Between the date of this Agreement and the Closing Date, Buyer
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will, and will cause each Related Person to, cooperate with Sellers with respect
to all filings that Sellers are required by Legal Requirements to make in
connection with the Contemplated Transactions, and (ii) cooperate with Sellers
in obtaining all consents identified in Part 3.2 of the Disclosure Letter;
provided that Buyer will not be required to dispose of or make any change in any
portion of its business or to incur any other burden to obtain a Governmental
Authorization.
6.3 BEST EFFORTS
Except as set forth in the proviso to Section 6.2, between the date
of this Agreement and the Closing Date, Buyer will use its Best Efforts to cause
the conditions in Sections 8 and 9 to be satisfied.
6.4 EMPLOYEES
Buyer shall, or shall cause the Acquired Companies to, employ and
retain all key management employees of the Acquired Companies and all employees
of EJDC located at the Acquired Companies who are in each case listed on
Schedule 6.4, upon similar or the same terms and conditions of employment as are
effective as of the date hereof, for a minimum period of one year. Buyer shall,
or shall cause the Acquired Companies to, employ all Racetrack Employees of
Thistledown Racetrack as of the Closing Date upon similar or the same terms and
conditions of employment as are effective as of the date hereof, and will be
obligated for all termination and severance costs relating to any terminations
of any such Racetrack Employees after the Closing; provided, however, that Buyer
shall have no obligation to retain, or cause the Acquired Companies to retain,
such employees for any period of time; and provided, further, that Buyer's
obligations under this Section 6.4 shall not create any rights or obligations in
any third party.
6.5 DIRECTORSHIP
Immediately after the Closing, Buyer's Board of Directors will expand
its number by one and elect John C. York II to fill the position to act as
Director with all of the same rights of participation and voting as are held by
the other members of Buyer's Board of Directors. Buyer agrees to nominate a
person designated by EJDC as a member of the "management slate" for the Board of
Directors so long as EJDC continues to hold the Buyer Shares obtained pursuant
to this Agreement. Buyer will purchase and maintain customary insurance policies
for the indemnification of all members of its Board of Directors, including the
EJDC nominee, so long as such insurance is available at rates determined by such
Board of Directors to be reasonable.
6.6 NOTIFICATION
Between the date of this Agreement and the Closing Date, Buyer will
promptly notify Sellers in writing if Buyer becomes aware of any fact or
condition that constitutes a Breach of any of Buyer's representations and
warranties as of the date of this Agreement, or if Buyer becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the Buyer
Disclosure Letter if the Buyer Disclosure Letter were dated the date of the
occurrence or discovery of such fact or condition, Buyer will promptly deliver
to
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Sellers a supplement to the Buyer Disclosure Letter specifying such change.
During the same period, Buyer will promptly notify Sellers of the occurrence of
any Breach of any covenant of Buyer in this Section 6 or of the occurrence of
any event that may make the satisfaction of the conditions in Section 9
impossible or unlikely.
6.7 REFUNDS OF PURSE MONEY TO SELLER
Buyer will, or will cause the Acquired Companies to, forward to EJDC
any amounts received by Buyer or either Acquired Company after the Closing Date
as a refund of purse money which (a) was advanced by either Seller or any
Related Person prior to the Closing Date and (b) is refundable to the payor
pursuant to the letter dated August 10, 1999 from the Oklahoma HBPA to the
Oklahoma Commission.
7. TAX MATTERS
The following provisions will govern the allocation of responsibility
as between Buyer and Sellers for certain Tax matters following the Closing Date:
7.1 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE
Buyer will prepare or cause to be prepared and file or cause to be
filed all Tax Returns for the Acquired Companies for all periods ending on or
prior to the Closing Date which are filed after the Closing Date, other than (i)
income or franchise Tax Returns with respect to periods for which a
consolidated, unitary or combined income or franchise Tax Return of EJDC will
include the operations of either or both of the Acquired Companies (such
consolidated, unitary or combined Tax Returns to be prepared by EJDC) and (ii)
the federal and state income tax returns of Remington for the taxable period
ended December 31, 1998. Buyer will permit Sellers to review and comment on each
such Tax Return described in the preceding sentence prior to filing and will
make such revisions to such Tax Returns as are reasonably requested by Sellers.
In this regard, requested revisions that are consistent with the past practices
and customs of the Acquired Companies shall be deemed to be reasonable. Sellers
will reimburse Buyer for Taxes of the Acquired Companies with respect to such
periods within fifteen (15) days after payment by Buyer or the Acquired
Companies of such Taxes, to the extent that such Taxes are neither (a) reflected
in the reserve for Tax Liability shown on the Interim Balance Sheets, as
adjusted for operations and transactions through the Closing Date, nor (b)
incurred in the Ordinary Course of Business since January 1, 1999. Sellers will
be responsible for the payment of any Taxes of the Acquired Companies for which
a consolidated, unitary or combined income Tax Return of EJDC includes the
operations of the Acquired Companies. EJDC shall provide Buyer with pro forma
Tax Returns of the Acquired Companies relating to such consolidated, unitary or
combined Tax Returns. To the extent reasonably practicable, EJDC shall provide
Buyer with such pro forma Tax Returns at least thirty (30) days prior to filing,
although EJDC shall have no duty or obligation to make any such revisions
thereto as Buyer may request.
` 7.2 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER CLOSING DATE
Buyer will prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the Acquired Companies for Tax periods which begin
before the Closing Date and
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end after the Closing Date. Sellers will pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such taxable
period ending on the Closing Date, to the extent such Taxes were neither
incurred in the Ordinary Course of Business nor reflected in the reserve or
accruals for Taxes shown on the Interim Balance Sheets, as adjusted for
operations and transactions through the Closing Date. For purposes of this
Section, in the case of any Taxes that are imposed on a periodic basis and are
payable for a taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such taxable
period ending on the Closing Date will (a) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire taxable period multiplied by a fraction, the numerator
of which is the number of days in the taxable period ending on the Closing Date
and the denominator of which is the number of days in the entire taxable period,
and (b) in the case of any Tax based upon or related to income or receipts be
deemed equal to the amount which would be payable if the relevant taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations will be made in a manner consistent with prior practice of
the Acquired Companies.
7.3 REFUNDS AND TAX BENEFITS
Any Tax refunds received by Buyer or the Acquired Companies and any
amounts credited against Tax to which Buyer or the Acquired Companies become
entitled, in each case relating to Tax periods or portions thereof ending on or
before the Closing Date, will be for the account of Sellers to the extent that
such Tax refund or credit is not reflected on the Interim Balance Sheets, and
Buyer will pay over to Sellers any such refund or the amount of any such credit
within fifteen (15) days after receipt thereof or entitlement thereto.
Notwithstanding the foregoing: (a) Buyer shall not be required to reimburse
Sellers for net operating losses or other carryovers allocable to the Acquired
Companies which are utilized by the Buyer or the Acquired Companies in taxable
periods beginning on or after the Closing Date and (b) racetrack tax rebates
under Section 3769-20 of the Ohio Revised Code which are utilized by Buyer or
the Acquired Companies in taxable periods beginning on or after the Closing Date
shall not be for the account of, and shall not be paid over to, Sellers.
7.4 COOPERATION ON TAX MATTERS
(a) Buyer, the Acquired Companies and Sellers will cooperate fully,
as and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Article and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation will include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
Proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. The Acquired Companies and Sellers agree (i) to retain all books and
records with respect to Tax matters pertinent to the Acquired Companies relating
to any taxable period beginning before the Closing Date until the expiration of
the statute of limitations (and, to the extent notified by Buyer or Sellers, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (ii) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and
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records and, if the other party so requests, the Acquired Companies or Sellers,
as the case may be, will allow the other party to take possession of such books
and records (unless such books and records relate to a consolidated, unitary or
combined Tax Return).
(b) Buyer and Sellers further agree, upon request, to use their Best
Efforts to obtain any certificate or other document from any Governmental
Authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the Contemplated Transactions).
(c) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to report
pursuant to Section 6043 of the IRC and all Treasury Department Regulations
promulgated thereunder.
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other
actions required to be taken by Buyer at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Buyer, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
Each of Sellers' representations and warranties in this Agreement
must have been accurate in all material respects as of the date of this
Agreement, and must be accurate in all material respects as of the Closing Date
as if made on the Closing Date, without giving effect to any supplement to the
Disclosure Letter.
8.2 SELLERS' PERFORMANCE
(a) Each of the covenants and obligations that Sellers are required
to perform or to comply with pursuant to this Agreement at or prior to the
Closing must have been duly performed and complied with in all material
respects.
(b) Each document required to be delivered pursuant to Section 2.4
must have been delivered.
8.3 CONSENTS
Each of the Consents identified in Part 3.2 of the Disclosure Letter,
and each Consent identified in Section 4.2, must have been obtained and must be
in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
(a) an opinion of Benesch, Friedlander, Coplan & Aronoff, LLP, dated
the Closing Date, in the form of Exhibit 8.4(a);
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(b) an opinion of Kirk & Chaney, Oklahoma counsel to the Sellers,
dated the Closing Date, in the form of Exhibit 8.4(b);
(c) one or more ALTA extended owner's or leasehold, as the case may
be, coverage title insurance policies issued by First American Title Insurance
Company, with 50% coinsurance by Commonwealth Land Title Insurance Company,
insuring the Acquired Companies fee title or leasehold interest, as the case may
be, in the Real Property in the amounts of $14,000,000 with respect to
Thistledown and $10,000,000 with respect to Remington, subject only to such
exceptions as are reasonably acceptable to Buyer and containing such
endorsements as are reasonably requested by Buyer;
(d) written resignations of the directors of the Acquired Companies;
(e) landlord estoppels from Remington landlords, in form and
substance satisfactory to Buyer; and
(f) such other documents as Buyer may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 9.3(a), (ii) evidencing the accuracy of any of Sellers' representations
and warranties, (iii) evidencing the performance by either Seller of, or the
compliance by either Seller with, any covenant or obligation required to be
performed or complied with by such Seller, (iv) evidencing the satisfaction of
any condition referred to in this Section 8, or (v) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.
8.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced
against Buyer, or against any Person affiliated with Buyer, any Proceeding (a)
involving any challenge to, or seeking damages or other relief in connection
with, any of the Contemplated Transactions, or (b) that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with any of the
Contemplated Transactions.
8.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other voting,
equity, or ownership interest in, any of the Acquired Companies, or (b) other
than EJDC, with respect to the Remington Purchase Price, is entitled to all or
any portion of the Purchase Price payable for the Shares.
8.7 HSR ACT
The waiting period under the HSR Act shall have expired or been
terminated.
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8.8 COMMISSION APPROVALS
Each of the Commissions shall have approved the Contemplated
Transactions to the extent required by applicable Legal Requirements.
9. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions
required to be taken by Sellers at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Sellers, in whole or in part):
9.1 ACCURACY OF REPRESENTATIONS
Each of Buyer's representations and warranties in this Agreement must
have been accurate in all material respects as of the date of this Agreement and
must be accurate in all material respects as of the Closing Date as if made on
the Closing Date.
9.2 BUYER'S PERFORMANCE
(a) Each of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
must have been performed and complied with in all material respects.
(b) Buyer must have delivered each of the documents required to be
delivered by, and made each of the payments required to be made by, Buyer
pursuant to Section 2.4.
9.3 ADDITIONAL DOCUMENTS
Buyer must have caused the following documents to be delivered to
Sellers:
(a) an opinion of O'Melveny & Myers LLP, dated the Closing Date, in
the form of Exhibit 9.3(a); and
(b) such other documents as Sellers may reasonably request for the
purpose of (i) enabling their counsel to provide the opinions referred to in
Sections 8.4(a) and 8.4(b), (ii) evidencing the accuracy of any representation
or warranty of Buyer, (iii) evidencing the performance by Buyer of, or the
compliance by Buyer with, any covenant or obligation required to be performed or
complied with by Buyer, (iv) evidencing the satisfaction of any condition
referred to in this Section 9, or (v) otherwise facilitating the consummation of
any of the Contemplated Transactions.
9.4 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced
against either Seller, or against any Person affiliated with either Seller, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated
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Transactions, or (b) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of the Contemplated Transactions.
9.5 HSR ACT
The waiting period under the HSR Act shall have expired or been
terminated.
10. TERMINATION
10.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Buyer or Sellers if a material Breach of any provision
of this Agreement has been committed by the other party and such Breach has not
been waived;
(b) by Buyer if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Sellers, if any of the conditions in Section
9 has not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Sellers to
comply with their obligations under this Agreement) and Sellers have not waived
such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not occurred (other
than through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before November
30, 1999, or such later date as the parties may agree upon.
10.2 EFFECT OF TERMINATION
Each party's right of termination under Section 10.1 is in addition
to any other rights it may have under this Agreement or otherwise, and the
exercise of a right of termination will not be an election of remedies. If this
Agreement is terminated pursuant to Section 10.1, all further obligations of the
parties under this Agreement will terminate, except that the obligations in
Sections 12.1, 12.2 and 12.3 will survive; provided, however, that if this
Agreement is terminated by a party because of the Breach of the Agreement by the
other party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
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11. INDEMNIFICATION; REMEDIES
11.1 SURVIVAL
All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Letter, any supplement to the Disclosure Letter and
the certificate delivered pursuant to Section 2.4(a)(ii) will survive the
Closing.
11.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY EJDC
EJDC will indemnify and hold harmless Buyer, the Acquired Companies,
and their respective Representatives, stockholders, controlling persons, and
affiliates (collectively, the "Indemnified Persons") for, and will pay to the
Indemnified Persons the amount of, any loss, liability, claim, damage, expense
(including costs of investigation and defense and reasonable attorneys' fees) or
diminution of value, whether or not involving a third-party claim (collectively,
"Damages"), arising, directly or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Sellers in
this Agreement, the Disclosure Letter, any supplement to the Disclosure Letter,
or any other certificate or document delivered by Sellers pursuant to this
Agreement;
(b) any Breach by either Seller of any covenant or obligation of such
Seller in this Agreement; or
(c) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with either Seller or any Acquired
Company (or any Person acting on their behalf) in connection with any of the
Contemplated Transactions.
The remedies provided in this Section 11.2 will be the exclusive
post-Closing remedies available to Buyer or the other Indemnified Persons.
11.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Sellers, and will pay to
Sellers the amount of any Damages arising, directly or indirectly, from or in
connection with (a) any Breach of any representation or warranty made by Buyer
in this Agreement or in any certificate or document delivered by Buyer pursuant
to this Agreement, (b) any Breach by Buyer of any covenant or obligation of
Buyer in this Agreement, or (c) any claim by any Person for brokerage or
finder's fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by such Person with Buyer (or any Person
acting on its behalf) in connection with any of the Contemplated Transactions,
or (d) any additional Taxes payable by Sellers (including Taxes payable due to
this indemnification payment) resulting from any transaction not in the Ordinary
Course of Business by the Acquired Companies on the Closing Date after the
Closing. Buyer will also indemnify and hold harmless EJDC, and pay to EJDC the
amount of any Damages arising or resulting from the existence of (i) the 1995
guaranty by EJDC of that certain John Deere Master Lease Agreement dated October
29, 1995 by and between Deere Credit, Inc. and Thistledown's predecessor
(provided that such guaranty relates to that
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certain master lease agreement accepted by lessor on January 6, 1996) and (ii)
the 1995 guaranty by EJDC of that certain John Deere Master Lease Agreement
effective September 20, 1995 by and between Deere Credit, Inc. and Remington.
Such indemnification will be in accordance with the provisions set forth in this
Article 11; provided, however that the limitations set forth in Section 11.6
will not apply to any claim for indemnification made pursuant to the preceding
sentence of this Section 11.3.
The remedies provided in this Section 11.3 will be the exclusive
post-Closing remedies available to Sellers.
11.4 TIME LIMITATIONS
If the Closing occurs, Sellers will have no liability with respect to
any representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, other than those in Sections 3.3, 3.11,
3.13, and 3.19, unless on or before March 31, 2001 Buyer notifies Sellers of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Buyer; a claim with respect to Section 3.11, 3.13, or 3.19
may be made at any time on or before December 31, 2002, or, in the case of
Section 3.11, the expiration of the applicable statute of limitations, whichever
is later; a claim with respect to Section 3.3 may be made at any time. If the
Closing occurs, Buyer will have no liability with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, other than those in Section 4.3, unless on or before March
31, 2001 Sellers notify Buyer of a claim specifying the factual basis of that
claim in reasonable detail to the extent then known by Sellers; a claim with
respect to Section 4.3 may be made at any time.
11.5 LIMITATIONS ON AMOUNT-- EJDC
EJDC will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or, to the extent relating to any
failure to perform or comply prior to the Closing Date, clause (b) of Section
11.2 until the total of all Damages with respect to such matters exceeds
$400,000, and then only for the amount by which such total Damages exceed
$200,000, and its indemnification obligations with respect to such matters shall
be limited, in the aggregate, to $12,500,000. EJDC may make payment with respect
to any indemnification either in cash or by transferring to Buyer an appropriate
number of Buyer Shares at their then current market value.
11.6 LIMITATIONS ON AMOUNT-- BUYER
Buyer will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a) or, to the extent relating to any
failure to perform or comply prior to the Closing Date, clause (b) of Section
11.3 until the total of all Damages with respect to such matters exceeds
$400,000.
11.7 PROCEDURE FOR INDEMNIFICATION-- THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under Section 11.2
or 11.3, of notice of the commencement of any Proceeding against it, such
indemnified party
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will, if a claim is to be made against an indemnifying party under such Section,
give notice to the indemnifying party of the commencement of such claim
including reasonable detail relating to such claim to the extent then known by
the indemnified party, but the failure to notify the indemnifying party will not
relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnified party's failure
to give such notice.
(b) If any Proceeding referred to in Section 11.7(a) is brought
against an indemnified party and it gives notice to the indemnifying party of
the commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the indemnified party
determines in good faith that joint representation would be inappropriate, or
(ii) the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding and
provide indemnification with respect to such Proceeding), to assume the defense
of such Proceeding with counsel reasonably satisfactory to the indemnified party
and, after notice from the indemnifying party to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
not, as long as it diligently conducts such defense, be liable to the
indemnified party under this Section 11 for any fees of other counsel or any
other expenses with respect to the defense of such Proceeding, in each case
subsequently incurred by the indemnified party in connection with the defense of
such Proceeding.
If the indemnifying party assumes the defense of a Proceeding, (i) it
will be conclusively established for purposes of this Agreement that the claims
made in that Proceeding are within the scope of and subject to indemnification;
(ii) no compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party's consent unless (A) there is
no finding or admission of any violation of Legal Requirements or any violation
of the rights of any Person and no effect on any other claims that may be made
against the indemnified party, and (B) the sole relief provided is monetary
damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding, such notice
specifically refers to this Section and asserts a right of indemnification
hereunder, and the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld). Notwithstanding anything to the contrary in this Article
11, including the preceding sentence, EJDC shall have the sole and exclusive
right to defend any Proceeding relating to a
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consolidated, combined or unitary Tax Return of EJDC; provided that EJDC shall
promptly notify and keep the Acquired Companies informed of any written or other
significant communications received by it with respect to any such Proceeding
that relates to the Acquired Companies and shall provide the Acquired Companies
with the opportunity to present EJDC with memoranda and position paper with
respect to any such Proceeding (to the extent such Proceeding relates to the
Acquired Companies).
(d) Sellers hereby consent to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding or the matters alleged therein, and agree that
process may be served on Sellers with respect to such a claim anywhere in the
world.
11.8 PROCEDURE FOR INDEMNIFICATION-- OTHER CLAIMS
A claim for indemnification for any matter not involving a
third-party claim may be asserted by notice to the party from whom
indemnification is sought.
11.9 DETERMINATION OF DAMAGES, ETC.
In determining Damages, the parties will make appropriate adjustments
for Tax consequences and insurance coverage and will take into account the time
value of money. All payments under this Section 11 will be deemed adjustments to
the Purchase Price.
12. GENERAL PROVISIONS
12.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party
to this Agreement will bear its respective expenses incurred in connection with
the preparation, execution, and performance of this Agreement and the
Contemplated Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants. Buyer will pay the HSR Act filing
fee. Sellers will pay the cost of the title insurance policy referred to in
Section 8.4(c), including any endorsements requested by Buyer in an amount not
to exceed $45,650. Sellers will cause the Acquired Companies not to incur any
out-of-pocket expenses in connection with the preparation, negotiation and
closing of this Agreement. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party.
12.2 PUBLIC ANNOUNCEMENTS
Except pursuant to Legal Requirement, filing under the HSR Act or any
Proceeding before either of the Commissions or with the prior written consent of
the other party, neither Sellers nor Buyer will, or will allow their respective
Representatives to, directly or indirectly make any public comment, statement or
communication with respect to, or otherwise disclose or permit the disclosure
of, the Contemplated Transactions or any of the terms, conditions or other
aspects thereof. If Legal Requirement requires such disclosure, the party under
such requirement must first provide to the other party (no less than 5 business
days prior to
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such proposed disclosure) the content of the disclosure, the reasons that such
disclosure is required, the time and place that the disclosure will be made, and
an opportunity to comment upon the form of such proposed disclosure.
12.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and
Sellers will maintain in confidence, and will cause the directors, officers,
employees, agents, and advisors of Buyer, Sellers and the Acquired Companies to
maintain in confidence, any information furnished by another party or an
Acquired Company in connection with this Agreement or the Contemplated
Transactions, unless (a) such information is already known to such party or to
others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request.
12.4 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), or (c) when received by the addressee,
if sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
Sellers: The Edward J. DeBartolo Corporation and
Oklahoma Racing LLC
7620 Market Street
Post Office Box 9128
Youngstown, Ohio 44513
Facsimile: 330-965-4062
Attention: Mr. Timon M. Kaple
With a copy to:
Benesch, Friedlander, Coplan & Aronoff, LLP
2300 BP Tower
200 Public Square
Cleveland, Ohio 44114
Facsimile: 216-363-4588
Attention: David S. Inglis, Esq.
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Buyer: MI Venture Inc.
c/o Magna International Inc.
337 Magna Drive
Aurora, Ontario, Canada L4G7K1
Facsimile: 905-726-7177
Attention: Mr. James Nicol
With a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
Facsimile: 213-430-6407
Attention: Frederick B. McLane, Esq.
12.5 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
12.6 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
12.7 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties
with respect to its subject matter (including the Letter of Intent between Buyer
and Sellers dated July 8, 1999) and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
53
<PAGE>
12.8 DISCLOSURE LETTER
(a) The disclosures in the Disclosure Letter, and those in any
Supplement thereto, must relate only to the representations and warranties in
the Section of the Agreement to which they expressly relate and not to any other
representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the body of
this Agreement and those in the Disclosure Letter (other than an exception
expressly set forth as such in the Disclosure Letter with respect to a
specifically identified representation or warranty), the statements in the
body of this Agreement will control.
12.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement
without the prior consent of the other parties, except that (a) Buyer may assign
any of its rights under this Agreement to any Subsidiary of Buyer and (b) EJDC
may assign its rights and obligations under this Agreement to an entity owned or
controlled by Denise DeBartolo York in the event that it sells, conveys,
transfers, assigns, contributes or otherwise delivers the Thistledown Shares to
such entity, provided, that (i) such entity specifically assumes all of such
obligations in form and substance satisfactory to Buyer and (ii) EJDC represents
and warrants to Buyer at the time of the assignment that such entity's Book
Value is at that time greater than $100,000,000. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any
Person other than the parties to this Agreement any legal or equitable right,
remedy, or claim under or with respect to this Agreement or any provision of
this Agreement. This Agreement and all of its provisions and conditions are for
the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
12.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable
by any court of competent jurisdiction, the other provisions of this Agreement
will remain in full force and effect. Any provision of this Agreement held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
12.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
54
<PAGE>
12.12 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in
this Agreement, time is of the essence.
12.13 GOVERNING LAW
This Agreement will be governed by the laws of the State of Delaware
without regard to conflicts of laws principles.
12.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
[Remainder of page intentionally left blank]
55
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
MI VENTURE INC.
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
THE EDWARD J. DEBARTOLO CORPORATION
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
OKLAHOMA RACING LLC
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
S-1
<PAGE>
Exhibit 10.4
================================================================================
STOCK PURCHASE AGREEMENT
Between
LADBROKE RACING CORPORATION
and
MI VENTURE INC.
Dated as of November 5, 1999
================================================================================
<PAGE>
DISCLOSURE SCHEDULE
The Disclosure Schedule shall include the following Sections:
3.4 Subsidiaries
3.5 Conflicts
3.6 Government Consents and Approvals
3.7 Reference Balance Sheet
3.8 Liabilities
3.9 Conduct not in Ordinary Course; Changes, Events and Conditions
3.10 Litigation
3.11 Noncompliance with Laws
3.12 Environmental Matters
3.13 Material Contracts
3.14 Intellectual Property
3.15 Real Property
3.16 Assets
3.17 Employee Benefit Matters
3.18 Labor Matters
3.19 Key Employees
3.20 Taxes
3.23 Insurance Policies
5.1 Conduct of Business Prior to the Closing
6.4 Assumed Severance Obligations
4.5 Liabilities
4.6 Litigation
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Defined Terms...........................................1
ARTICLE II
PURCHASE AND SALE
SECTION 2.1 Purchase and Sale of the Shares.................................8
SECTION 2.2 Purchase Price..................................................8
SECTION 2.3 Closing.........................................................8
SECTION 2.4 Closing Deliveries by the Seller................................9
SECTION 2.5 Closing Deliveries by the Purchaser.............................9
SECTION 2.6 Adjustment of Purchase Price....................................9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
SECTION 3.1 Organization, Authority and Qualification of the Seller and
Guarantor.............................................................10
SECTION 3.2 Organization, Authority and Qualification of the Companies.....10
SECTION 3.3 Capital Stock of the Companies; Ownership of the Shares........11
SECTION 3.4 Subsidiaries...................................................11
SECTION 3.5 No Conflict....................................................12
SECTION 3.6 Governmental Consents and Approvals............................12
SECTION 3.7 Financial Information, Books and Records, Projections and
Operating Data........................................................12
SECTION 3.8 No Undisclosed Liabilities.....................................13
SECTION 3.9 Conduct in the Ordinary Course; Absence of Certain Changes,
Events and Conditions.................................................13
SECTION 3.10 Litigation....................................................14
SECTION 3.11 Compliance with Laws..........................................14
SECTION 3.12 Environmental Matters.........................................15
SECTION 3.13 Material Contracts............................................15
SECTION 3.14 Intellectual Property.........................................16
SECTION 3.15 Real Property.................................................17
SECTION 3.16 Assets........................................................18
SECTION 3.17 Employee Benefit Matters......................................18
SECTION 3.18 Labor Matters.................................................23
SECTION 3.19 Key Employees.................................................23
SECTION 3.20 Taxes.........................................................23
SECTION 3.21 Brokers.......................................................24
SECTION 3.22 Investment Purpose............................................24
i
<PAGE>
SECTION 3.23 Insurance.....................................................25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.1 Organization and Authority of the Purchaser....................25
SECTION 4.2 No Conflict....................................................26
SECTION 4.3 Governmental Consents and Approvals............................26
SECTION 4.4 Investment Purpose.............................................26
SECTION 4.5 No Undisclosed Liabilities.....................................26
SECTION 4.6 Litigation.....................................................26
SECTION 4.7 No Material Adverse Change.....................................26
SECTION 4.8 Purchaser Prospectus...........................................27
SECTION 4.9 Brokers........................................................27
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Conduct of Business Prior to the Closing.......................27
SECTION 5.2 Access to Information..........................................28
SECTION 5.3 Confidentiality................................................29
SECTION 5.4 Regulatory and Other Authorizations; Notices and Consents......29
SECTION 5.5 Director.......................................................30
SECTION 5.6 Purchaser Shares; Transfer Restrictions........................30
SECTION 5.7 Distribution of Excess PRA Assets..............................30
SECTION 5.8 Casualty Insurance Proceeds....................................30
SECTION 5.9 Notification...................................................31
SECTION 5.10 Intercompany Obligations.......................................31
SECTION 5.11 No Negotiation.................................................31
SECTION 5.12 Further Action.................................................31
SECTION 5.13 Non-Competition................................................31
SECTION 5.14 Maintenance of Book Value......................................31
SECTION 5.15 Ladbroke Names.................................................32
SECTION 5.16 San Pablo Gaming Facility......................................32
SECTION 5.17 Transition Services............................................32
SECTION 5.18 Termination of Interests in Real Property......................33
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.1 Payroll Obligations, Employee Agreements and WARN Act..........33
SECTION 6.2 Seller's Plans and Employee-Related Liabilities................33
SECTION 6.3 Purchaser's Plans..............................................34
SECTION 6.4 Bonus and Severance Obligations; Accrued Vacation Pay..........35
ii
<PAGE>
SECTION 6.5 Mutual Cooperation.............................................35
SECTION 6.6 Employee Benefits Indemnity....................................35
SECTION 6.7 Third-Party Claims.............................................36
ARTICLE VII
TAX MATTERS
SECTION 7.1 Indemnity......................................................36
SECTION 7.2 Returns and Payments...........................................37
SECTION 7.3 Refunds........................................................37
SECTION 7.4 Contests.......................................................38
SECTION 7.5 Time of Payment................................................38
SECTION 7.6 Cooperation and Exchange of Information........................39
SECTION 7.7 Conveyance Taxes...............................................39
SECTION 7.8 Miscellaneous..................................................39
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.1 Conditions to Obligations of the Seller........................40
SECTION 8.2 Conditions to Obligations of the Purchaser.....................41
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Survival of Representations, Warranties and Indemnification
Obligations...........................................................42
SECTION 9.2 Indemnification by the Seller..................................43
SECTION 9.3 [Intentionally Omitted]........................................44
SECTION 9.4 Limits on Indemnification; Jurisdiction; Guaranty..............44
ARTICLE X
TERMINATION AND WAIVER
SECTION 10.1 Termination...................................................45
SECTION 10.2 Effect of Termination.........................................46
SECTION 10.3 Waiver........................................................46
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.1 Expenses......................................................46
SECTION 11.2 Notices.......................................................47
SECTION 11.3 Public Announcements..........................................48
iii
<PAGE>
SECTION 11.4 Headings......................................................48
SECTION 11.5 Severability..................................................48
SECTION 11.6 Entire Agreement..............................................49
SECTION 11.7 Assignment....................................................49
SECTION 11.8 No Third Party Beneficiaries..................................49
SECTION 11.9 Amendment.....................................................49
SECTION 11.10 Jurisdiction; Service of Process.............................49
SECTION 11.11 WAIVER OF JURY TRIAL ........................................49
SECTION 11.12 Governing Law................................................49
SECTION 11.13 Counterparts.................................................49
SECTION 11.14 Specific Performance.........................................49
iv
<PAGE>
EXHIBIT
1.1 JOINT ESCROW INSTRUCTIONS
1.2 PURCHASER SHARE PERCENTAGE CALCULATION
2.2 FORM OF PURCHASER NOTE
2.6 COMPANIES' ACCOUNTING POLICIES
5.7 EXCESS PRA ASSETS
8.1(d) FORM OF OPINION OF THE PURCHASER'S COUNSEL
8.1(e) FORM OF REGISTRATION RIGHTS AGREEMENT
8.2(d) FORM OF OPINION OF THE SELLER'S COUNSEL
8.2(g) CERTIFICATE OF NON-FOREIGN STATUS
8.2(h) TITLE POLICY EXCEPTIONS AND ENDORSEMENTS
v
<PAGE>
STOCK PURCHASE AGREEMENT, dated as of November 5, 1999, between
Ladbroke Racing Corporation, a Delaware corporation (the "Seller"), and MI
------
Venture Inc., a Delaware corporation (the "Purchaser").
---------
W I T N E S S E T H:
WHEREAS, the Seller owns directly or indirectly all the issued and
outstanding shares (the "Shares") of (i) common stock, no par value (the "LL
------ --
Common Stock"), of Ladbroke Land Holdings, Inc., a California corporation
- ------------
("LL"), and (ii) common stock, no par value (the "PRA Common Stock" and,
-- ----------------
together with the LL Common Stock, the "Common Stock"), of Pacific Racing
------------
Association Inc., a California corporation ("PRA") (each of LL and PRA
---
individually, a "Company" and collectively, the "Companies"); and
------- ---------
WHEREAS, the Seller wishes to sell to the Purchaser, and the
Purchaser wishes to purchase from the Seller, the Shares, upon the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, the Purchaser and the Seller,
intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings:
"Acquisition Documents" has the meaning specified in Section 9.1.
---------------------
"Action" means any claim, action, suit, arbitration, inquiry,
------
proceeding or investigation by or before any Governmental Authority.
"Adjustment Date" has the meaning specified in Section 2.6(b).
---------------
"Affiliate" means, with respect to any specified Person, any other
---------
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" or "this Agreement" means this Stock Purchase Agreement,
--------- --------------
dated as of November 5, 1999, between the Seller and the Purchaser (including
the Exhibits hereto and the Disclosure Schedule) and all amendments hereto made
in accordance with the provisions of Section 11.9.
"Assets" has the meaning specified in Section 3.16(a).
------
"Book Value" means the excess of total assets over total liabilities
----------
of a Person shown on any specified balance sheet of such Person.
1
<PAGE>
"Business" means the operation of a thoroughbred horseracing and
--------
pari-mutuel wagering business and related activities at Golden Gate Fields in
Alameda County, California.
"Business Day" means any day that is not a Saturday, a Sunday or
------------
other day on which banks are required or authorized by law to be closed in
London, Toronto or The City of New York.
"Claim Notice" has the meaning specified in Section 9.2(b).
------------
"Class A Subordinate Voting Stock" means the class A subordinate
--------------------------------
voting stock of the Purchaser to be distributed as a stock dividend to
stockholders of Magna International Inc.
"Closing" has the meaning specified in Section 2.3.
-------
"Closing Balance Sheet" means the audited balance sheet (including
---------------------
the related notes and schedules thereto) of the Companies and the Subsidiaries,
to be prepared pursuant to Section 2.6(a) and to be dated as of the Closing
Date.
"Closing Date" has the meaning specified in Section 2.3.
------------
"COBRA" has the meaning specified in Section 6.2(c).
-----
"Code" means the Internal Revenue Code of 1986, as amended through
----
the date hereof.
"Common Stock" has the meaning specified in the recitals to this
------------
Agreement.
"Companies' Accounting Policies" means those policies specified on
------------------------------
Exhibit 2.6 attached hereto.
"Company" and "Companies" have the meaning specified in the recitals
------- ---------
to this Agreement.
"Company Plan" has the meaning specified in Section 3.17(a).
------------
"Development Agreement" has the meaning specified in Section 5.18.
---------------------
"Disclosure Schedule" means the Disclosure Schedule attached hereto,
-------------------
dated as of the date hereof, and forming a part of this Agreement.
"Employee" or "Employees" means any individual who is (a) an active
-------- ---------
employee of any Company or any Subsidiary immediately prior to the Closing Date
and (b) employees on any authorized leave of absence, including, without
limitation, short- or long-term disability leave, worker's compensation leave or
vacation leave as of the Closing Date.
"Employee Agreements" has the meaning specified in Section 3.17(a).
-------------------
2
<PAGE>
"Encumbrance" means any charge, claim, condition, equitable
-----------
interest, lien, option, pledge, security interest, right of first refusal or
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"Environment" means soil, land surface or subsurface strata, surface
-----------
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental Law" means any Law in effect as of the Closing Date
-----------------
that requires or relates to: (a) advising appropriate authorities, employees,
and the public of intended or actual releases of Hazardous Materials, violations
of discharge limits related to Hazardous Materials, or other prohibitions
related to Hazardous Materials and of the commencements of activities, such as
resource extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of Hazardous
Materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) protecting natural resources, species, or ecological amenities;
(e) reducing to acceptable levels the risks inherent in the transportation
of Hazardous Materials;
(f) cleaning up Hazardous Materials that have been released, preventing the
possibility of release, or paying the costs of such clean up or prevention; or
(g) making responsible parties pay private parties, or groups of them, for
damages done to their health (as related to Hazardous Materials) or the
Environment, or permitting self-appointed representatives of the public interest
to recover for injuries done to the Environment.
"ERISA" has the meaning specified in Section 3.17(a).
-----
"ERISA Affiliate" means, with respect to a Company, any other Person
---------------
that, together with such Company, would be treated as a single employer under
Code ss. 414.
"Excess PRA Assets" means those assets set forth on Exhibit 5.7
-----------------
attached hereto.
"Exchange Act" means the Securities Exchange Act of 1934 and any
------------
successor law and regulations issued pursuant thereto.
3
<PAGE>
"Governmental Authority" means any United States federal, state or
----------------------
local or any foreign government, governmental, regulatory, gaming or
administrative authority, agency or commission or any court, tribunal, or
judicial or arbitral body.
"Governmental Order" means any order, writ, judgment, injunction,
------------------
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"Guarantor" means Ladbroke Hotels U.S.A. Corporation, a Delaware
---------
corporation.
"Hazardous Materials" means any waste or other substance that is
-------------------
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any mixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" means, with respect to any Person, (a) all
------------
indebtedness of such Person, whether or not contingent, for borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
Seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all obligations of such Person as
lessee under leases that have been or should be, in accordance with U.S. GAAP,
recorded as capital leases, (f) all obligations, contingent or otherwise, of
such Person under acceptance, letter of credit or similar facilities, (g) all
obligations of such Person to purchase, redeem, retire, defease or otherwise
acquire for value any capital stock of such Person or any warrants, rights or
options to acquire such capital stock, valued, in the case of redeemable
preferred stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Indebtedness of others
referred to in clauses (a) through (f) above guaranteed directly or indirectly
in any manner by such Person, and (i) all Indebtedness referred to in clauses
(a) through (f) above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any
Encumbrance on property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness.
"Indemnified Party" has the meaning specified in Section 9.2(a).
-----------------
"Intellectual Property" means all Marks, all patents, patent
---------------------
applications, and inventions and discoveries that may be patentable, all
copyrights in both published works and unpublished works, all rights in mask
works and Trade Secrets owned, used, or licensed by any Company as licensee or
licensor.
"IRS" means the United States Internal Revenue Service or any
---
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
4
<PAGE>
"Joint Escrow Instructions" means the joint escrow instructions
-------------------------
substantially in the form attached hereto as Exhibit 1.1 to be dated as of the
Closing Date between the Purchaser and the Seller.
"Knowledge" means (i) in the case of the Seller and the Companies,
---------
the actual knowledge of George Harbison, John Ford, Peter Tunney, Thomas Kanar,
Russell Foreman, Hilary Stewart-Jones or Paul Lierman and (ii) in the case of
the Purchaser, the actual knowledge of James Nicol, Graham Orr, Louis Tonelli or
Dilip Sinha.
"Ladbroke Leases" means the lease dated January 1, 1971 between LL
---------------
and LRC and the Third Amended and Restated Pacific Sublease dated March 4, 1991
between LRC and PRA, each relating to the Real Property.
"Law" or "Laws" means any federal, state, local or foreign statute,
--- ----
law, ordinance, regulation, rule, code, order, other requirement or rule of law.
"Liabilities" means any and all debts, liabilities and obligations,
-----------
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising under
any Law (including, without limitation, any Environmental Law), Action or
Governmental Order and those arising under any contract, agreement, arrangement,
commitment or undertaking.
"Limited Partnership Agreement" has the meaning specified in Section
-----------------------------
8.2(j).
"Loss" or "Losses" has the meaning specified in Section 9.2(a).
---- ------
"LL" has the meaning specified in the recitals of this Agreement.
--
"LL Common Stock" has the meaning specified in the recitals of this
---------------
Agreement.
"LRC" means Ladbroke Racing California, Inc., a Delaware
---
Corporation.
"Marks" means the name "Golden Gate Fields," all fictional business
----- ------------------
names, trading names, registered and unregistered trademarks, service marks, and
applications.
"Material Adverse Effect" means any circumstance, change in, or
-----------------------
effect on the Companies or any Subsidiary that is or would reasonably be
expected to be materially adverse to the results of operations or financial
condition of the Companies and the Subsidiaries, taken as a whole; provided,
--------
however, that "Material Adverse Effect" shall not include any circumstance,
- -------
change in or effect on the Company or any Subsidiary directly or indirectly
arising out of or attributable to (i) any actions taken or omitted to be taken
by the Seller pursuant to the terms of this Agreement or any actions taken by
the Purchaser or (ii) any effects resulting from the announcement of the
transactions contemplated by this Agreement.
"Material Contracts" has the meaning specified in Section 3.13(a).
------------------
"Multiemployer Plans" has the meaning specified in Section 3.17(a).
-------------------
5
<PAGE>
"Option Agreement" means the Option Agreement and Agreement of
----------------
Purchase and Sale dated as of July 25, 1997 between GGF Property, LLC and Golden
Gate Land Company, Inc.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Pension Plans" has the meaning given in ERISA ss. 3(2)(A).
-------------
"Person" means any individual, partnership, firm, corporation,
------
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Exchange Act.
"Plans" has the meaning specified in Section 3.17(a).
-----
"PRA" has the meaning specified in the recitals to this Agreement.
---
"PRA Common Stock" has the meaning specified in the recitals to this
----------------
Agreement.
"Purchase Price" has the meaning specified in Section 2.2.
--------------
"Purchase Price Bank Account" means a bank account designated in
---------------------------
writing by the Seller at least 3 Business Days prior to the Closing.
"Purchaser" has the meaning specified in the recitals to this
---------
Agreement.
"Purchaser Note" has the meaning specified in Section 2.2.
--------------
"Purchaser Share Percentage" means the percentage of shares that
--------------------------
reflects the percentage which $7,000,000 bears to total stockholders' equity of
the Purchaser, to be calculated as set forth on Exhibit 1.2 hereto.
"Purchaser Shares" means shares of Class A Subordinate Voting Stock
----------------
equal to the Purchaser Share Percentage of the total number of shares of equity
stock of the Purchaser outstanding at Closing, on a "fully-diluted" basis. For
purposes of this definition, the "fully-diluted" equity stock of the Purchaser
outstanding at Closing shall include the Purchaser Shares but shall not include
any other shares issued in connection with the acquisition (from third parties
that are not Affiliates of the Purchaser) of any horse racing or pari-mutuel
wagering business prior to the Closing (other than the shares issued to The
Edward J. DeBartolo Corporation pursuant to the Stock Purchase Agreement dated
as of October 21, 1999 among The Edward J. DeBartolo Corporation, Oklahoma
Racing LLC and the Purchaser).
"Purchaser's Accountants" means Ernst & Young LLP, independent
-----------------------
accountants of the Purchaser.
"Purchaser Material Adverse Effect" has the meaning specified in
---------------------------------
Section 4.7.
6
<PAGE>
"Purchaser's Plans" has the meaning specified in Section 6.3(a).
-----------------
"Purchaser Prospectus" means the Purchaser's preliminary prospectus
--------------------
registering with the SEC shares of Class A Subordinate Voting Stock.
"Registration Rights Agreement" means the registration rights
-----------------------------
agreement executed and delivered by the Seller and the Purchaser on the Closing
Date, substantially in the form attached hereto as Exhibit 8.1(e), as such
agreement may thereafter be amended, amended and restated, supplemented or
otherwise modified from time to time.
"Qualified Plan" has the meaning specified in Section 3.17(d).
--------------
"Real Property" means the real property described on Section 3.15(a)
-------------
of the Disclosure Schedule, including all improvements and appurtenances
thereto, rights in connection therewith and interests therein.
"Reference Balance Sheet" means the combined Statement of Certain
-----------------------
Assets and Liabilities (including the schedules thereto) of the Companies, dated
as of December 31, 1998, copies of which are set forth in Section 3.7(a) of the
Disclosure Schedule.
"Reference Balance Sheet Date" means December 31, 1998.
----------------------------
"Returns" has the meaning specified in Section 7.2
-------
"SEC" means the United States Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933 and any successor
--------------
law and regulations issued pursuant thereto.
"Seller" has the meaning specified in the recitals to this
------
Agreement.
"Seller's Accountants" means Ernst & Young LLP independent
--------------------
accountants of the Seller.
"Shares" has the meaning specified in the recitals to this
------
Agreement.
"Subsidiary" or "Subsidiaries" means any and all corporations,
---------- ------------
partnerships, joint ventures, associations and other entities controlled by any
of the Companies directly or indirectly through one or more intermediaries.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties,
--- -----
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any government or taxing authority, including,
without limitation: taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer,
7
<PAGE>
value added, or gains taxes; license, registration and documentation fees; and
customs duties, tariffs, and similar charges.
"Third Party Claims" has the meaning specified in Section 9.2(b).
------------------
"Title Policy" has the meaning specified in Section 8.2(h).
------------
"Title IV Plans" means all Pension Plans that are subject to
--------------
Title IV of ERISA, 29 U.S.C.ss.1301 et seq., other than Multiemployer Plans.
"Trade Secrets" means all know-how, trade secrets, confidential
-------------
information, customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints.
"U.S. GAAP" means United States generally accepted accounting
---------
principles and practices as in effect from time to time and applied consistently
throughout the periods involved.
"WARN Act" has the meaning specified in Section 6.1(c).
--------
"Workers' Compensation Claim" has the meaning specified in Section
---------------------------
6.2(b).
ARTICLE II
PURCHASE AND SALE
SECTION 2.1 Purchase and Sale of the Shares. Upon the terms and
-------------------------------
subject to the conditions of this Agreement, at the Closing, the Seller shall
sell to the Purchaser, and the Purchaser shall purchase from the Seller, the
Shares.
SECTION 2.2 Purchase Price. Subject to the adjustments set forth in
--------------
Section 2.6, the aggregate purchase price for the Shares shall be (i)
$60,000,000 in cash, (ii) the Purchaser Shares, and (iii) a $20,000,000
principal amount non-interest bearing promissory note of the Purchaser (the
"Purchaser Note") maturing at a rate of $10,000,000 on the first anniversary of
the Closing Date and $5,000,000 on each of the second and third anniversaries of
the Closing Date, such promissory note to be substantially in the form of
Exhibit 2.2 (together, the "Purchase Price").
SECTION 2.3 Closing. Upon the terms and subject to the conditions of
-------
this Agreement, the sale and purchase of the Shares contemplated by this
Agreement shall take place at a closing (the "Closing") to be held at the
-------
offices of O'Melveny & Myers LLP, 275 Battery Street, San Francisco, California
at 10:00 A.M. San Francisco time on the fifth Business Day following the later
to occur of (A) expiration or termination of all applicable waiting periods
under the HSR Act and (B) satisfaction or waiver of all other conditions to the
obligations of the parties set forth in Article VIII, or at such other place or
at such other time or on such other date as the Seller and the Purchaser may
mutually agree upon in writing (the day on which the Closing takes place being
the "Closing Date").
------------
8
<PAGE>
SECTION 2.4 Closing Deliveries by the Seller. At the Closing,
--------------------------------
against delivery of the Purchase Price, the Seller shall, in accordance with the
Joint Escrow Instructions, deliver or cause to be delivered to the Purchaser:
(a) stock certificates evidencing the Shares duly endorsed in blank,
or accompanied by stock powers duly executed in blank, in form satisfactory to
the Purchaser and with all required stock transfer tax stamps affixed;
(b) a receipt for the Purchase Price; and
(c) the opinions, certificates and other documents required to be
delivered pursuant to Section 8.2.
SECTION 2.5 Closing Deliveries by the Purchaser. At the Closing,
-----------------------------------
against delivery of the stock certificates evidencing the Shares, the Purchaser
shall deliver to the Seller, in accordance with the Joint Escrow Instructions:
(a) the cash portion of the Purchase Price by wire transfer in
immediately available funds to the Purchase Price Bank Account;
(b) a stock certificate representing the Purchaser Shares;
(c) the Purchaser Note; and
(d) the opinions, certificates and other documents required to be
delivered pursuant to Section 8.1.
SECTION 2.6 Adjustment of Purchase Price. The Purchase Price shall
----------------------------
be subject to adjustment after the Closing as specified in this Section 2.6:
(a) Closing Balance Sheet. As promptly as practicable, but in any
---------------------
event within ninety calendar days following the Closing Date, the Seller shall
deliver to the Purchaser the Closing Balance Sheet, together with a report
thereon of the Seller's Accountants stating that the Closing Balance Sheet
fairly presents the financial position of the Companies at the Closing Date in
conformity with U.S. GAAP applied on a basis consistent with the Companies'
Accounting Policies. Promptly upon receipt of the Closing Balance Sheet and such
report, the Purchaser shall deliver copies of the same to the Purchaser's
Accountants. As promptly as practicable, but in any event within fifteen
calendar days, the Purchaser shall deliver to the Seller its objection, if any,
to the Closing Balance Sheet and any proposed adjustments. If the parties are
unable to agree on the Closing Balance Sheet, then each party shall refer the
open issues to a senior technical accounting partner of such party's accountants
selected by such party to resolve, and such partners' determination of the
validity of the Purchaser's objection and proposed adjustments shall be final
and binding on all parties. If the technical accounting partners are unable to
agree on the Closing Balance Sheet, then either the Purchaser or the Seller may
refer the matter to a nationally recognized accounting firm independent of the
Purchaser and the Seller (the "Independent Firm"), provided that, if the
Purchaser and the Seller are unable to agree on the Independent Firm within a
period of 15 calendar days from the receipt by the Seller of the Purchaser's
objection and proposed adjustments, the Independent Firm shall be chosen at
9
<PAGE>
random by the Purchaser's Accountants and the Seller's Accountants from among
the "Big Five" accounting firms that are independent of the Purchaser and the
Seller. The Independent Firm's determination of the validity of the Purchaser's
objection and proposed adjustments shall be final and binding on all parties.
The fees and expenses of the Independent Firm shall be paid by the party against
whom the Independent Firm's final determination is made; provided that, if such
final determination is not wholly in favor of one or the other party, the
Independent Firm shall apportion its fees and expenses between the parties in
accordance with the Independent Firm's determination of the relative merits of
each party's position, which determination shall be final and binding on all
parties.
(b) Minimum Book Value. The Seller shall pay to the Purchaser within
------------------
five Business Days of delivery to the Purchaser of the Closing Balance Sheet
(the "Adjustment Date") the positive difference, if any, between the Book Value
as shown on the Reference Balance Sheet (as adjusted to reflect (i) the deemed
contribution to capital or forgiveness of debt, as appropriate, made pursuant to
Section 5.10 hereof and (ii) exclusion of the Excess PRA Assets) minus the Book
Value as shown on the Closing Balance Sheet.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Purchaser to enter into this Agreement, the
Seller hereby represents and warrants to the Purchaser as follows:
SECTION 3.1 Organization, Authority and Qualification of the Seller
-------------------------------------------------------
and Guarantor. Each of the Seller and the Guarantor is a corporation duly
- -------------
organized and validly existing under the laws of its jurisdiction of
incorporation or formation and has all necessary corporate or partnership power
and authority to enter into this Agreement to carry out its obligations
hereunder and to consummate the transactions contemplated hereby. Each of the
Seller and the Guarantor is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the properties owned or leased by it
or the operation of its business makes such licensing or qualification
necessary, except to the extent that the failure to be so licensed or qualified
would not materially adversely affect the ability of either the Seller or the
Guarantor to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by each of the Seller and the
Guarantor, the performance by each of the Seller and the Guarantor of its
obligations hereunder and the consummation by each of the Seller and the
Guarantor of the transactions contemplated hereby have been duly authorized by
all requisite action on the part of each of the Seller and the Guarantor. This
Agreement has been duly executed and delivered by each of the Seller and the
Guarantor, and (assuming due authorization, execution and delivery by the
Purchaser) this Agreement constitutes a valid and binding obligation of each of
the Seller and the Guarantor enforceable against each of the Seller and the
Guarantor in accordance with its terms.
SECTION 3.2 Organization, Authority and Qualification of the
------------------------------------------------
Companies. Each of LL and PRA is a corporation duly organized, validly existing
- ---------
and in good standing under the laws of its jurisdiction of incorporation and has
all necessary corporate power and authority to own, operate or lease the
properties and assets now owned, operated or leased by it and to carry on the
portion of the Business as it has been and is currently conducted. Each of LL
and
10
<PAGE>
PRA is duly licensed or qualified to do business and is in good standing in
each jurisdiction in which the properties owned or leased by it or the operation
of its business makes such licensing or qualification necessary, except for such
failures which would not have a Material Adverse Effect. All corporate actions
taken by each of LL and PRA have been duly authorized, and neither LL nor PRA
has taken any action that in any material respect conflicts with, constitutes a
default under or results in a violation of any provision of its Certificate of
Incorporation or By-laws. True and correct copies of the Certificate of
Incorporation and By-laws of each of LL and PRA, each as in effect on the date
hereof, have been delivered by the Seller to the Purchaser.
SECTION 3.3 Capital Stock of the Companies; Ownership of the Shares.
-------------------------------------------------------
The authorized capital stock of LL consists of 1,000 shares of LL Common Stock
and the authorized capital stock of PRA consists of 100,000 shares of PRA Common
Stock. As of the date hereof, 100 shares of LL Common Stock and 69,347 shares of
PRA Common Stock are issued and outstanding, all of which are validly issued,
fully paid and nonassessable. None of the issued and outstanding shares of
Common Stock was issued in violation of any preemptive rights. There are no
options, warrants, convertible securities or other rights, agreements,
arrangements or commitments of any character relating to the capital stock of
any Company or obligating the Seller or any Company to issue or sell any shares
of capital stock of, or any other interest in, the Companies. There are no
outstanding contractual obligations of any Company to repurchase, redeem or
otherwise acquire any shares of its Common Stock or to provide funds to, or make
any investment (in the form of a loan, capital contribution or otherwise) in,
any other Person. The Shares constitute all the issued and outstanding capital
stock of the Companies and are owned of record and beneficially solely by the
Seller free and clear of all Encumbrances. Upon consummation of the transactions
contemplated by this Agreement and registration of the Shares in the name of the
Purchaser in the respective stock records of the Companies, the Purchaser,
assuming it shall have purchased the Shares for value in good faith and without
notice of any adverse claim, will own all the issued and outstanding capital
stock of the Companies free and clear of all Encumbrances, and the Shares will
be fully paid and nonassessable. There are no voting trusts, stockholder
agreements, proxies or other agreements or understandings in effect with respect
to the voting or transfer of any of the Shares.
SECTION 3.4 Subsidiaries.
------------
(a) Section 3.4(a) of the Disclosure Schedule sets forth a true and
complete list of all Subsidiaries, listing for each Subsidiary its name, type of
entity, the jurisdiction and date of its incorporation or organization, its
authorized capital stock, partnership capital or equivalent, the number and type
of its issued and outstanding shares of capital stock, partnership interests or
similar ownership interests and the current ownership of such shares,
partnership interests or similar ownership interests.
(b) Other than the Subsidiaries, there are no other corporations,
partnerships, joint ventures, associations or other entities in which any
Company owns, of record or beneficially, any direct or indirect equity or other
interest or any right (contingent or otherwise) to acquire the same. Other than
the Subsidiaries, none of the Companies is a member of (nor is any part of the
Business conducted through) any partnership. Except as set forth in Section
3.4(b) of the Disclosure Schedule, none of the Companies is a participant in any
joint venture or similar arrangement.
11
<PAGE>
(c) Each Subsidiary that is a corporation: (i) is a corporation duly
organized and validly existing under the laws of its jurisdiction of
incorporation, (ii) has all necessary power and authority to own, operate or
lease the properties and assets owned, operated or leased by such Subsidiary and
to carry on its business as it has been and is currently conducted by such
Subsidiary and (iii) is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the properties owned or leased by it or
the operation of its business makes such licensing or qualification necessary or
desirable, except for such failures which would not have a Material Adverse
Effect. Each Subsidiary that is not a corporation: (i) is duly organized and
validly existing under the laws of its jurisdiction of organization, (ii) has
all necessary power and authority to own, operate or lease the properties and
assets owned, operated or leased by such Subsidiary and to carry on its business
as it has been and is currently conducted by such Subsidiary and (iii) is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification necessary or desirable,
except for such failures which would not have a Material Adverse Effect.
SECTION 3.5 No Conflict. Assuming that all consents, approvals,
-----------
authorizations and other actions described in Section 3.6 have been obtained and
all filings and notifications listed in Section 3.6 of the Disclosure Schedule
have been made, the execution, delivery and performance of this Agreement by the
Seller and the Guarantor do not and will not (a) violate, conflict with or
result in the breach of any provision of the charter or by-laws (or similar
organizational documents) of the Seller, the Guarantor, the Companies or any
Subsidiary, (b) conflict in a material respect with or violate in a material
respect any material Law or Governmental Order applicable to the Seller, the
Guarantor, the Companies or any Subsidiary, or (c) except as set forth in
Section 3.5(c) of the Disclosure Schedule, conflict with, result in any breach
of, constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, require any consent under, or give
to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the Shares or on any of the assets or properties of the Seller, the
Guarantor, the Companies or any Subsidiary pursuant to, any material note, bond,
mortgage, indenture, license, permit, lease, sublease or other material
contract, agreement, or instrument or arrangement to which the Seller, the
Guarantor, the Companies or any Subsidiary is a party or by which any of the
Shares or any of such assets or properties is bound or affected.
SECTION 3.6 Governmental Consents and Approvals. The execution,
-----------------------------------
delivery and performance of this Agreement by the Seller and the Guarantor do
not and will not require any consent, approval, authorization or other order of,
action by, filing with or notification to any Governmental Authority, except (a)
as described in Section 3.6 of the Disclosure Schedule and (b) the notification
requirements of the HSR Act.
SECTION 3.7 Financial Information, Books and Records, Projections
-----------------------------------------------------
and Operating Data.
- ------------------
(a) True and complete copies of the audited balance sheet of the
Companies for each of the three fiscal years ended as of December 31, 1998, 1997
and 1996 and the related audited statements of income and cash flows of the
Companies, together with all related notes and schedules thereto, accompanied by
the reports thereon of the Seller's Accountants
12
<PAGE>
(collectively referred to herein as the "Financial Statements") have been
--------------------
delivered by the Seller to the Purchaser. The Financial Statements and the
Reference Balance Sheet (i) were prepared in accordance with the books of
account and other financial records of the Companies, (ii) present fairly the
financial condition and results of operations of the Companies and the
Subsidiaries as of the dates thereof or for the periods covered thereby, (iii)
have been prepared in accordance with U.S. GAAP applied on a basis consistent
with the past practices of the Seller and the Companies and (iv) include all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair presentation of the financial condition of the Companies and the
Subsidiaries and the results of the operations of the Companies and the
Subsidiaries as of the dates thereof or for the periods covered thereby.
(b) The books of account and other financial records of the
Companies and the Subsidiaries: (i) reflect all items of income and expense and
all assets and Liabilities required to be reflected therein in accordance with
U.S. GAAP applied on a basis consistent with the past practices of the Companies
and the Subsidiaries, respectively and (ii) are in all material respects
complete and correct, and do not contain or reflect any material inaccuracies or
discrepancies.
SECTION 3.8 No Undisclosed Liabilities. To the Seller's Knowledge,
--------------------------
there are no Liabilities of any Company or any Subsidiary, other than
Liabilities (i) reflected or reserved against on the Reference Balance Sheet;
(ii) disclosed in the Disclosure Schedule, (iii) Liabilities relating to
environmental matters, Intellectual Property, employee benefit matters, labor
matters and Taxes which are not required to be disclosed pursuant to Sections
3.12, 3.14, 3.17, 3.18 and 3.20, respectively; or (iv) incurred since the date
of the Reference Balance Sheet in the ordinary course of the business,
consistent with the past practice, of the Companies and the Subsidiaries.
SECTION 3.9 Conduct in the Ordinary Course; Absence of Certain
--------------------------------------------------
Changes, Events and Conditions. Since the Reference Balance Sheet Date, except
- ------------------------------
as disclosed in Section 3.9 of the Disclosure Schedule, the business of the
Companies and the Subsidiaries has been conducted in the ordinary course and
consistent with past practice. As amplification and not limitation of the
foregoing, except as disclosed in Section 3.9 of the Disclosure Schedule and
except as would not have a Material Adverse Effect, since the Reference Balance
Sheet Date, neither the Companies nor any Subsidiary has:
(i) changed any Company's authorized or issued capital stock;
granted any stock option or right to purchase shares of capital stock
of any Company; issued any security convertible into such capital
stock; granted any registration rights; or purchased, redeemed,
retired, or otherwise acquired any shares of any such capital stock;
(ii) amended the organizational documents of any Company;
(iii) paid or increased any bonuses, salaries, or other
compensation to any stockholder, director, officer, or (except in the
ordinary course of business) employee or entered into any employment,
severance, or similar Material Contract with any director, officer, or
employee;
13
<PAGE>
(iv) adopted, or increased the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any
employees of any Company;
(v) suffered any damage to or destruction or loss of any asset or
property of any Company not covered by insurance, which would
reasonably be likely to have a Material Adverse Effect;
(vi) entered into, terminated, or received notice of termination
of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Material
Contract or transaction involving a total remaining commitment by or
to any Company of at least $100,000;
(vii) sold, leased, or otherwise disposed of any material asset
or property of any Company or mortgaged, pledged, or suffered the
imposition of any lien or other encumbrance on any material asset or
property of any Company, including the sale, lease, or other
disposition of any of material Intellectual Property;
(viii) canceled or waived any claims or rights with a value to
any Company in excess of $100,000;
(ix) made any material change in the accounting methods used by
the Companies at the time of preparation of their most recent
financial statements;
(x) suffered any Material Adverse Effect; or
(xi) entered into any agreement to do any of the foregoing.
SECTION 3.10 Litigation. Section 3.10 of the Disclosure Schedule
----------
sets forth each Action by or against the Companies or any Subsidiary (or by or
against the Seller or any Affiliate thereof and relating to the Business, the
Companies or any Subsidiary), or, to Seller's Knowledge, affecting any of the
Assets, pending before any Governmental Authority (or, to the Knowledge of the
Seller, threatened to be brought by or before any Governmental Authority) which
involves a claim or potential claim of aggregate liability in excess of $25,000.
Except as set forth in Section 3.10 of the Disclosure Schedule, none of the
Companies, the Subsidiaries nor any of the Assets nor the Seller is subject to
any Governmental Order (nor, to the Knowledge of the Seller, are there any such
Governmental Orders threatened to be imposed by any Governmental Authority)
which has or has had a Material Adverse Effect.
SECTION 3.11 Compliance with Laws.
--------------------
(a) Except as set forth in Section 3.11(a) of the Disclosure
Schedule, and except as would not reasonably be likely to have a Material
Adverse Effect, the Companies and the Subsidiaries have each conducted and
continue to conduct the Business in accordance with all Laws and Governmental
Orders applicable to the Companies or any Subsidiary, and neither the Companies
nor any Subsidiary is in violation of any such Law or Governmental Order.
14
<PAGE>
(b) Section 3.11(b) of the Disclosure Schedule sets forth a brief
description of each Governmental Order applicable to the Companies or any
Subsidiary or any of the Assets or the Business, and no such Governmental Order
has or has had a Material Adverse Effect.
SECTION 3.12 Environmental Matters.
---------------------
(a) Except as disclosed in Section 3.12 of the Disclosure Schedule
and except as would not, individually or in the aggregate, have a Material
Adverse Effect: (i) to the Seller's Knowledge, the Companies and the
Subsidiaries are in compliance with all applicable Environmental Laws and have
obtained and are in compliance with all required Environmental Permits, (ii)
there are no environmental Actions pending or, to the Seller's Knowledge,
threatened, against any of the Companies or the Subsidiaries, (iii) to the
Seller's Knowledge, no Hazardous Materials have been released into the
Environment by any of the Companies or the Subsidiaries or any other Person on
any of the Real Property except as authorized under Environmental Law and as
would not require investigation or remediation as of the date of this Agreement,
and (iv) the Seller has provided the Purchaser with copies of any and all
written environmental assessment or audit reports in the Seller's or Companies'
possession, that relate to the Business or the Real Property.
(b) The Purchaser acknowledges that (i) the representations and
warranties contained in this Section 3.12 are the only representations and
warranties being made with respect to compliance with or liability under
Environmental Laws or with respect to any environmental, health or safety
matter, including natural resources, related in any way to the Business or the
Real Property or to this Agreement or its subject matter, and (ii) no other
representation contained in this Agreement shall apply to any such matters and
no other representation or warranty, express or implied, is being made with
respect thereto.
SECTION 3.13 Material Contracts.
------------------
(a) Section 3.13(a) of the Disclosure Schedule lists each of the
following contracts and agreements of the Companies and the Subsidiaries (such
contracts and agreements, together with all contracts, agreements, leases and
subleases concerning the management or operation of any Real Property
(including, without limitation, brokerage contracts) listed or otherwise
disclosed in Section 3.15(a) or 3.15(b) of the Disclosure Schedule to which the
Companies or any Subsidiary is a party and all agreements relating to
Intellectual Property set forth in Section 3.14(b) of the Disclosure Schedule,
being "Material Contracts"):
------------------
(i) each contract and agreement for the furnishing of services to
or by the Companies, any Subsidiary or otherwise related to the
Business under the terms of which the Companies or any Subsidiary: (A)
is likely to pay or otherwise give consideration of more than $50,000
in the aggregate during the calendar year ended December 31, 1999, (B)
is likely to pay or otherwise give consideration of more than $100,000
in the aggregate over the remaining term of such contract or (C)
cannot be cancelled by the Companies or such Subsidiary without
penalty or further payment and without more than 30 days' notice;
15
<PAGE>
(ii) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising contracts and agreements to which
the Companies or any Subsidiary is a party;
(iii) all management contracts and contracts with independent
contractors or consultants (or similar arrangements) to which the
Companies or any Subsidiary is a party and which are not cancellable
without penalty or further payment or without more than 30 days'
notice;
(iv) all contracts and agreements relating to Indebtedness of the
Companies or any Subsidiary;
(v) all contracts and agreements with any Governmental Authority
to which the Companies or any Subsidiary is a party;
(vi) all contracts and agreements that limit or purport to limit
the ability of the Companies or any Subsidiary to compete in any line
of business or with any Person or in any geographic area or during any
period of time;
(vii) all contracts and agreements between or among the Companies
or any Subsidiary and the Seller or any Affiliate of the Seller; and
(viii) all Employee Agreements.
For purposes of this Section 3.13 and Sections 3.14, 3.15 and 3.16,
the term "lease" shall include any and all leases, subleases, sale/leaseback
-----
agreements or similar arrangements.
(b) Except as disclosed in Section 3.13(b) of the Disclosure
Schedule, each Material Contract: (i) is valid and binding on the Companies or a
Subsidiary and is in full force and effect and (ii) upon consummation of the
transactions contemplated by this Agreement, except to the extent that any
consents set forth in Section 3.5 of the Disclosure Schedule are not obtained,
shall continue in full force and effect without penalty or other adverse
consequence. Neither the Companies nor any Subsidiary is in breach of, or
default under, any Material Contract.
(c) Except as disclosed in Section 3.13(c) of the Disclosure
Schedule, to the Knowledge of the Companies no other party to any Material
Contract is in breach thereof or default thereunder.
SECTION 3.14 Intellectual Property.
---------------------
(a) One or more of the Companies is the owner of all right, title,
and interest in and to each of the Intellectual Property, free and clear of all
liens, security interests, charges, encumbrances, equities, and other adverse
claims, and has the right to use without payment to a third party all of the
Intellectual Property.
16
<PAGE>
(b) Except as would not reasonably be likely to have a Material
Adverse Effect:
(i) Section 3.14(b) of the Disclosure Schedule contains a
complete and accurate list and summary description of all Marks.
One or more of the Companies is the owner of all right, title,
and interest in and to each of the Marks, free and clear of all
liens, security interests, charges, encumbrances, equities, and
other adverse claims.
(ii) All Marks that have been registered with the United
States Patent and Trademark Office are currently in compliance
with all formal legal requirements (including the timely
post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or taxes
or Actions falling due within ninety days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to the Seller's Knowledge, no
such action is threatened with the respect to any of the Marks.
(iv) To the Seller's Knowledge, there is no potentially
interfering trademark or trademark application of any third
party.
(v) All products and materials containing a Mark bear the
proper federal registration notice where permitted by law.
SECTION 3.15 Real Property.
-------------
(a) Section 3.15(a) of the Disclosure Schedule accurately
identifies, by street address or other identifying information, all real
property and leased property owned or leased by the Companies and the
Subsidiaries. The Seller has delivered or made available to the Purchaser copies
of the deeds and other instruments (as recorded) in the possession of the Seller
or the Companies and relating to such property by which the Companies and the
Subsidiaries acquired such property, and the Seller acknowledges that the
Purchaser has received that certain commitment for title insurance dated August
26, 1999 (order no. 76941-97) prepared by First American Title Insurance Company
(the "Title Commitment").
----------------
(b) Except as set forth in Section 3.15(b) of the Disclosure
Schedule, and in the Title Commitment, to Seller's Knowledge, the Real Property
is free and clear of all Encumbrances and is not subject to any rights of way,
exceptions, reservations, or other encumbrances of any nature except: (a)
mortgages or security interests shown on the Reference Balance Sheet as securing
specified liabilities or obligations, with respect to which no default (or event
that, with notice or lapse of time or both, would constitute a default) exists,
(b) liens for current taxes not yet due and (c) (i) minor imperfections of
title, if any, that do not materially impair the use of the Real Property
subject thereto for its current purposes and (ii) zoning laws and other land use
restrictions that do not materially impair the use of the property subject
thereto for its current purposes.
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SECTION 3.16 Assets.
------
(a) Except as disclosed in Section 3.16 of the Disclosure Schedule,
and except as would not have a Material Adverse Effect, either a Company or a
Subsidiary, as the case may be, owns, leases or has the legal right to use all
the properties and assets, including, without limitation, the Intellectual
Property and the Real Property, used or intended to be used in the conduct of
the Business or otherwise owned, leased or used by the Companies or any
Subsidiary (all such properties and assets being the "Assets").
------
(b) The Assets constitute all the properties, assets and rights
forming a part of, used, held or intended to be used in, and all such
properties, assets and rights as are necessary in the conduct of, the Business.
(c) Immediately following the consummation of the transactions
contemplated by this Agreement, either a Company or a Subsidiary, as the case
may be, will continue to own, or lease, under valid and subsisting leases, or
otherwise retain its respective interest in the Assets without incurring any
penalty or other adverse consequence, including, without limitation, any
increase in rentals, royalties, or licenses or other fees imposed as a result
of, or arising from, the consummation of the transactions contemplated by this
Agreement. Immediately following the Closing, either a Company or a Subsidiary,
as the case may be, shall own and possess all documents, books, records,
agreements and financial data of any sort used by such Company or such
Subsidiary in the conduct of the Business or otherwise.
SECTION 3.17 Employee Benefit Matters.
------------------------
(a) Section 3.17(a) of the Disclosure Schedule lists (i) all
employee compensation and benefit plans (including, without limitation, each
employee benefit plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), which are or were
-----
maintained, contributed to or sponsored by the Seller, a Company or a Subsidiary
for the benefit of any Employee, officer or director (or former Employee,
officer or director) of the Companies and Subsidiaries as to which a Company or
a Subsidiary has any obligation (the "Plans"), (ii) all Plans as to which any
-----
Company or Subsidiary is or was the "administrator" or "plan sponsor," as those
terms are defined in Section 3 of ERISA, without regard to whether or not such
Plan is an ERISA plan, at any time within the past three years (the "Company
-------
Plans"), (iii) all material employment, termination, severance or other
- -----
contracts or agreements (including, without limitation, collective bargaining
agreements and other labor union agreements), in respect of any Employee, to
which a Company or a Subsidiary is a party or, with respect to which, a Company
or a Subsidiary has any obligation (collectively, the "Employee Agreements") and
-------------------
(iv) any multiemployer plans (as defined in Section 3(37) of ERISA), pursuant to
which the Seller, a Company or a Subsidiary contribute, or have an obligation to
contribute, in respect of any Employee, officer or director of the Companies or
Subsidiaries (the "Multiemployer Plans"). Section 3.17(a) of the Disclosure
-------------------
Schedule identifies which Plans are Company Plans and Multiemployer Plans and
the approximate number of Employees, officers and directors of the Companies and
Subsidiaries currently participating in each Plan, and, for each Multiemployer
Plan, sets forth, to the extent such information is in the possession of the
Seller, a Company or a Subsidiary, the amount of potential withdrawal liability
of the Companies as of its last valuation date.
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(b) Except as noted in Schedule 3.17(b), each Plan, Employee
Agreement and Multiemployer Plan is in writing and the Seller has made available
to the Purchaser a true and complete copy of:
(i) each such Plan, Employee Agreement and, if in the
possession of the Seller, a Company or a Subsidiary,
Multiemployer Plan, including any related trust agreements,
summary plan descriptions of Plans for which the Seller, a
Company or a Subsidiary are required to prepare descriptions, and
summaries and descriptions furnished to participants and
beneficiaries regarding Company Plans for which a summary plan
description is not required;
(ii) all personnel and employment manuals and policies;
(iii) all collective bargaining agreements pursuant to which
contributions are being made or obligations are owed by a Company
or Subsidiary;
(iv) written information regarding any Company Plan that is
not otherwise in writing;
(v) all registration statements filed with respect to any
Company Plan;
(vi) all insurance policies purchased by or to provide
benefits under any Plan;
(vii) all contracts with third party administrators,
actuaries, investment managers, consultants, and other
independent contractors that relate to any Company Plan;
(viii) all reports submitted within the four years preceding
the date of this Agreement by third party administrators,
actuaries, investment managers, consultants, or other independent
contractors with respect to any Company Plan, and all such
reports in the possession of the Seller, a Company or a
Subsidiary relating to a Multiemployer Plan;
(ix) samples of notifications to employees of their rights
under ERISAss.601 et seq. and Codess.4980B relating to any
Company Plan;
(x) if required to be filed, the Form 5500 filed in each of
the most recent three plan years with respect to each Company
Plan and the most recent Form 5500 for each other Plan, including
all schedules thereto and the opinions of independent
accountants;
(xi) all notices that were given by any Company or any ERISA
Affiliate of a Company with respect to any Plan, or by any Plan,
to the IRS, the PBGC, or any participant or beneficiary, pursuant
to statute, within the four years preceding the date of this
Agreement, including notices that are expressly mentioned
elsewhere in this Section 3.17;
19
<PAGE>
(xii) all notices that were given by the IRS, the PBGC, or
the Department of Labor to either Company, any ERISA Affiliate of
a Company with respect to any Plan, or with respect to any other
Plan if such notice could result in liability to either Company,
or to any Plan, within the four years preceding the date of this
Agreement;
(xiii) the most recent determination letter for each Plan
that is a Qualified Plan; and
(xiv) with respect to Title IV Plans which are Company
Plans, the Form PBGC-1 filed for each of the three most recent
plan years.
(c) Each Plan has been operated in all material respects in
accordance with its terms and the requirements of all applicable Laws,
including, without limitation, ERISA and the Code, and all Companies and
Subsidiaries have made appropriate entries in their financial records and
financial statements for all obligations and liabilities of such Companies and
Subsidiaries under such Plans that have accrued but are not yet due. No Action
is pending or, to the Knowledge of the Seller, threatened with respect to any
Plan (other than claims for benefits in the ordinary course) and, to the
Knowledge of the Seller, no fact or event exists that could give rise to any
such Action.
(d) Each Plan that is intended to be qualified under Section 401(a)
of the Code (collectively, the "Qualified Plans") has timely received a
favorable determination letter from the IRS stating that the Plan is so
qualified and each trust established in connection with any Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code has received a determination letter from the IRS that it is exempt, and, to
the Knowledge of the Seller, no fact or event has occurred since the date of
such determination letter or letters from the IRS to adversely affect the
qualified status of any such Plan or the exempt status of any such trust.
(e) Except as set forth in Section 3.17(e) of the Disclosure
Schedule:
(i) No statement, either written or, to Seller's Knowledge,
oral, has been made by either Company or Subsidiary to any person
with regard to any Company Plan that was not in accordance with
such Company Plan and that could have an adverse economic
consequence to either Company, Subsidiary or the Purchaser.
(ii) No transaction prohibited by ERISA ss. 406 and no
"prohibited transaction" under Code ss. 4975(c) has occurred with
respect to any Plan.
(iii) No Company or Subsidiary has any liability to the IRS
with respect to any Plan, including any liability imposed by
Chapter 43 of the Code.
(iv) No Company or Subsidiary has any liability to the PBGC
with respect to any Plan or has any liability under ERISA ss. 502
or ss. 4071.
20
<PAGE>
(v) All filings required by ERISA and the Code as to each
Plan have been timely filed, and all notices and disclosures to
participants required by either ERISA or the Code have been
timely provided.
(vi) All contributions and payments made or accrued with
respect to all Plans are deductible under Code ss. 162 or ss.
404. No amount or any asset of any Plan is subject to tax as
unrelated business taxable income.
(vii) Each Plan that is not a Qualified Plan can be
terminated within thirty days, without payment of any additional
contribution or amount and without the vesting or acceleration of
any benefits promised by such Plan.
(viii) To the Knowledge of the Seller, no event has occurred
or circumstance exists that could result in a material increase
in premium costs of the Company Plans that are insured, or a
material increase in benefit costs of such Company Plans that are
self-insured.
(ix) No Plan other than a Multiemployer Plan is subject to
Title IV of ERISA or Section 412 of the Code.
(x) The Companies and Subsidiaries have paid amounts due to
the PBGC pursuant to ERISA ss. 4007.
(xi) No Company or Subsidiary has ceased operations at any
facility or has withdrawn from any Title IV Plan in a manner that
would subject any entity to liability under ERISA ss. 4062(e),
ss. 4063, or ss. 4064.
(xii) No Company or Subsidiary has filed a notice of intent
to terminate any Plan or has adopted any amendment to treat a
Plan as terminated. The PBGC has not instituted proceedings to
treat any Plan as terminated. No event has occurred or
circumstance exists that may constitute grounds under ERISA ss.
4042 for the termination of, or the appointment of a trustee to
administer, any Plan.
(xiii)No amendment has been made, or is reasonably expected
to be made, to any Plan that has required or could require the
provision of security under ERISA ss. 307 or Code ss. 401(a)(29).
(xiv) No accumulated funding deficiency, whether or not
waived, exists with respect to any Plan, and no event has
occurred or circumstance exists that may result in an accumulated
funding deficiency as of the last day of the current plan year of
any such Plan.
(xv) The actuarial report for each Plan fairly presents the
financial condition and the results of operations of each such
Plan in accordance with U.S. GAAP.
(xvi) Since the last valuation date for each Plan, no event
has occurred or circumstance exists that would increase the
amount of benefits under any such Plan or
21
<PAGE>
that would cause the excess of Plan assets over benefit
liabilities (as defined in ERISA ss. 4001) to decrease, or the
amount by which benefit liabilities exceed assets to increase.
(xvii) No reportable event (as defined in ERISA ss. 4043 and
in regulations issued thereunder) has occurred with respect to
any Plan.
(xviii) No Seller or Company has Knowledge of any facts or
circumstances that may give rise to any liability of either
Company, Subsidiary or the Purchaser to the PBGC under Title IV
of ERISA.
(xix) No Company or Subsidiary participates in, or has an
obligation to contribute to or otherwise participate in, any
Multiemployer Plan.
(xx) No Company or Subsidiary has withdrawn from any
Multiemployer Plan with respect to which there is any outstanding
liability as of the date of this Agreement. To the Knowledge of
the Seller, no event has occurred or circumstance exists that
presents a risk of the occurrence of any withdrawal from, or the
termination, reorganization, or insolvency of, any Multiemployer
Plan that could result in any liability of either Company, any
Subsidiary or the Purchaser to a Multiemployer Plan.
(xxi) No Company or Subsidiary has received notice from any
Multiemployer Plan that it is in reorganization or is insolvent,
that increased contributions may be required to avoid a reduction
in plan benefits or the imposition of any excise Tax, or that
such plan intends to terminate or has terminated.
(xxii) To the Knowledge of the Seller, no Multiemployer Plan
to which either Company or any Subsidiary contributes or has
contributed during the three years immediately preceding the date
hereof is a party to any pending merger or asset or liability
transfer or is subject to any proceeding brought by the PBGC.
(xxiii) Except to the extent required under ERISA ss. 601 et
seq. and Code ss. 4980B, no Company or Subsidiary provides health
or welfare benefits through any Plan for any retired or former
employee or is obligated to provide health or welfare benefits to
any active employee through any Plan following such employee's
retirement or other termination of service.
(xxiv) No payment that is owed or may become due to any
director, officer, employee, or agent of either Company or
Subsidiary will be non-deductible to such Company or Subsidiary
or subject to tax under Code ss. 280G or ss. 4999; nor will
either Company or Subsidiary be required to "gross up" or
otherwise compensate any such Person because of the imposition of
any excise tax on a payment to such Person.
(xxv) The consummation of the transactions contemplated by
this Agreement will not result in the payment, vesting, or
acceleration of any benefit, except as may be required by a
Qualified Plan pursuant to Section 411(d)(3) of the Code.
22
<PAGE>
(f) No event has occurred that could result in any liability of
either Company or any Subsidiary as the result of it being treated, together
with one or more other Persons or entities, as a single employer under Code
ss.414 or similar provisions of ERISA.
SECTION 3.18 Labor Matters. Except as set forth in Section 3.18 of
-------------
the Disclosure Schedule, (a) neither the Companies nor any Subsidiaries are
parties to any collective bargaining agreement or other labor union contract,
and, to the Seller's Knowledge, currently there are no organizational campaigns,
petitions or other unionization activities seeking recognition of a collective
bargaining unit which could affect the Companies or Subsidiaries; (b) there are
no controversies, strikes, slowdowns or work stoppages pending or, to the
Seller's Knowledge, threatened between the Companies or any Subsidiaries and any
Employee, and neither the Companies nor any Subsidiaries have experienced any
such controversy, strike, slowdown or work stoppage within the past three years;
(c) neither the Companies nor any Subsidiaries have breached, in any material
respect, or otherwise failed to comply, in any material respect, with the
provisions of any collective bargaining or union contract and there are no
grievances outstanding against the Companies or Subsidiaries under any such
agreement or contract that could have a Material Adverse Effect; (d) there are
no unfair labor practice complaints pending or, to the Seller's Knowledge,
threatened against the Companies or Subsidiaries before the National Labor
Relations Board or any other Governmental Authority or any current union
representation questions involving Employees that could have a Material Adverse
Effect; (e) neither the Companies nor any Subsidiaries are parties to, or
otherwise bound by, any consent decree with, or citation by, any Governmental
Authority relating to Employees or employment practices; (f) there is no charge
or proceeding with respect to a violation of any occupational safety or health
standards that has been asserted or is now pending or, to the Seller's
Knowledge, threatened with respect to the Companies or Subsidiaries; and (g)
there is no charge of discrimination in employment or employment practices, for
any reason, including, without limitation, age, gender, race, religion or other
legally protected category, which has been asserted or is now pending or, to the
Seller's Knowledge, threatened before the United States Equal Employment
Opportunity Commission or any other Governmental Authority in any jurisdiction
in which the Companies or Subsidiaries have employed or currently employ any
person.
SECTION 3.19 Key Employees. Section 3.19 of the Disclosure Schedule
-------------
lists the name, place of employment, the current annual salary rates, bonuses,
deferred or contingent compensation, pension, accrued vacation, "golden
parachute" and other like benefits paid or payable (in cash or otherwise) in
1998, the date of employment and a description of position and job function of
each current salaried employee, officer, director, consultant or agent of the
Companies or any Subsidiary whose annual cash compensation exceeded (or, in
1999, is expected to exceed) $75,000.
SECTION 3.20 Taxes.
-----
(a) Except as set forth in Section 3.20 of the Disclosure Schedule:
(i) all material returns and reports in respect of Taxes required to be filed
with respect to the Companies and each Subsidiary (including the consolidated
federal income tax return of the Seller and any state Tax return that includes
the Companies or any Subsidiary on a consolidated or combined basis) have been
timely filed; (ii) all Taxes shown on such returns and reports or
23
<PAGE>
otherwise due have been timely paid; (iii) all such Tax returns are true,
complete and correct in all material respects; (iv) no adjustment relating to
such returns has been proposed formally or informally by any Tax authority
(insofar as either relates to the activities or income of the Companies or any
Subsidiary or could result in Liability of the Companies or any Subsidiary on
the basis of joint and/or several liability) and, to the Knowledge of the
Seller, the Companies and the Subsidiaries, no basis exists for any such
adjustment; (v) there are no pending or, to the Knowledge of the Seller, the
Companies and the Subsidiaries, threatened Actions or proceedings for the
assessment or collection of Taxes against the Companies or any Subsidiary or
(insofar as either relates to the activities or income of the Companies or any
Subsidiary or could result in Liabilities of the Companies or any Subsidiary on
the basis of joint and/or several liability) any corporation that was included
in the filing of a return with the Seller on a consolidated or combined basis;
(vi) no consent under Section 341(f) of the Code has been filed with respect to
the Companies or any Subsidiary; and (vii) from and after January 1, 1996, the
Companies and each Subsidiary has been and continues to be a member of the
affiliated group (within the meaning of Section 1504(a)(1) of the Code) with
which the Seller files a consolidated return, and has not been includible in any
other consolidated return for any taxable period for which the statute of
limitations has not expired.
(b) Except as disclosed with reasonable specificity in Section 3.20
of the Disclosure Schedule, there are no outstanding waivers or agreements
extending the statute of limitations for any period with respect to any Tax to
which the Companies or any Subsidiary may be subject.
(c) (i) Section 3.20 of the Disclosure Schedule lists all income,
franchise and similar tax Returns (federal, state, local and foreign) filed with
respect to each of the Companies and the Subsidiaries for taxable periods ended
on or after January 1, 1996, indicates for which jurisdictions Returns have been
filed on the basis of a unitary group, indicates the most recent income,
franchise or similar tax Return for each relevant jurisdiction for which an
audit has been completed or the statute of limitations has lapsed and indicates
all tax Returns that currently are the subject of audit; (ii) the Seller has
delivered to the Purchaser copies of all federal, state and foreign income,
franchise and similar tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Companies or any Subsidiary
since January 1, 1996; (iii) the Seller has delivered to the Purchaser a true
and complete copy of any tax-sharing or allocation agreement or arrangement
involving the Companies or any Subsidiary. The Seller has delivered to the
Purchaser copies of all pro forma federal income tax Returns of the
Subsidiaries, prepared in connection with the Seller's or any other consolidated
federal income tax Return, accompanied by a schedule reconciling the items in
the pro forma Return to the items as included in the consolidated tax Return for
all taxable years ending on or after January 1, 1996.
SECTION 3.21 Brokers. No broker, finder or investment banker is
-------
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Seller.
SECTION 3.22 Investment Purpose. The Seller is acquiring the shares
------------------
of the Purchaser solely for the purpose of investment and not with a view to, or
for offer or sale in connection with, any distribution thereof. The Seller
understands that: (a) the Purchaser Shares
24
<PAGE>
have not been registered under the Securities Act and are being offered and sold
in reliance on an exemption from the registration requirements of the Securities
Act; (b) the Purchaser Shares may not be transferred or resold except as
permitted under the Securities Act and applicable state securities laws pursuant
to registration or an exemption therefrom; and (c) the certificate evidencing
the Purchaser Shares will bear a legend to the effect that they have not been
registered under Securities Act and may be transferred or resold only in
compliance with the Securities Act and applicable state securities laws.
SECTION 3.23 Insurance. Section 3.23 of the Disclosure Schedule sets
---------
forth the following information with respect to each insurance policy under
which the Companies or any Subsidiary has been an insured, a named insured or
otherwise the principal beneficiary of coverage at any time within the past
year:
(a) the name, address and telephone number of the agent or broker;
(b) the name of the insurer and the names of the principal insured
and each named insured;
(c) the policy number and the period of coverage;
(d) the type, scope (including an indication of whether the coverage
was on a claims made, occurrence or other basis) and amount (including a
description of how deductibles, retentions and aggregates are calculated and
operate) of coverage; and
(e) the premium charged for the policy, including, without
limitation, a description of any retroactive premium adjustments or other
loss-sharing arrangements.
All of the insurance policies listed on Section 3.23 of the
Disclosure Schedule shall be amended or cancelled as of the Closing Date to
remove the Companies as an insured, a named insured or the principal beneficiary
of coverage thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As an inducement to the Seller to enter into this Agreement, the
Purchaser hereby represents and warrants to the Seller as follows:
SECTION 4.1 Organization and Authority of the Purchaser. The
-------------------------------------------
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all necessary corporate power
and authority to enter into this Agreement, to carry out its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Purchaser, the performance by the
Purchaser of its obligations hereunder and the consummation by the Purchaser of
the transactions contemplated hereby have been duly authorized by all requisite
action on the part of the Purchaser. This Agreement has been duly executed and
delivered by the Purchaser, and (assuming due authorization, execution and
delivery by the Seller) this Agreement constitutes a valid and binding
obligation of the Purchaser enforceable against the Purchaser in accordance with
its terms.
25
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SECTION 4.2 No Conflict. Assuming compliance with the notification
-----------
requirements of the HSR Act and the making and obtaining of all filings,
notifications, consents, approvals, authorizations and other actions referred to
in Section 4.3, except as may result from any facts or circumstances relating
solely to the Seller, the execution, delivery and performance of this Agreement
by the Purchaser do not and will not (a) violate, conflict with or result in the
breach of any provision of the Certificate of Incorporation or By-laws of the
Purchaser, (b) conflict with or violate any Law or Governmental Order applicable
to the Purchaser or (c) conflict with, or result in any breach of, constitute a
default (or event which with the giving of notice or lapse or time, or both,
would become a default) under, require any consent under, or give to others any
rights of termination, amendment, acceleration, suspension, revocation, or
cancellation of, or result in the creation of any Encumbrance on any of the
assets or properties of the Purchaser pursuant to, any note, bond, mortgage or
indenture, contract, agreement, lease, sublease, license, permit, franchise or
other instrument or arrangement to which the Purchaser is a party or by which
any of such assets or properties are bound or affected, except for conflicts or
violations which would not have a material adverse effect on the ability of the
Purchaser to consummate the transactions contemplated by this Agreement.
SECTION 4.3 Governmental Consents and Approvals. The execution,
-----------------------------------
delivery and performance of this Agreement by the Purchaser do not and will not
require any consent, approval, authorization or other order of, action by,
filing with, or notification to, any Governmental Authority, except (a) as
described in a writing delivered to the Seller by the Purchaser on the date of
this Agreement, (b) the notification requirements of the HSR Act and (c) the
approval of the California Horse Racing Board.
SECTION 4.4 Investment Purpose. The Purchaser is acquiring the
------------------
Shares solely for the purpose of investment and not with a view to, or for offer
or sale in connection with, any distribution thereof.
SECTION 4.5 No Undisclosed Liabilities. To Purchaser's Knowledge,
--------------------------
there are no Liabilities of the Purchaser, other than Liabilities (i) reflected
or reserved against on June 30, 1999, (ii) disclosed in Section 4.5 of the
Disclosure Schedule, or (iii) incurred since June 30, 1999 in the ordinary
course of the business, consistent with the past practice, of the Purchaser.
SECTION 4.6 Litigation. Except as set forth in Section 4.6 of the
----------
Disclosure Schedule, there are no material Actions by or against the Purchaser
(or by or against the Purchaser or any Affiliate thereof and relating to the
business of the Purchaser), or materially affecting any of the assets of the
Purchaser, pending before any Governmental Authority (or, to the Knowledge of
the Purchaser, threatened to be brought by or before any Governmental
Authority). Except as set forth in Section 4.6 of the Disclosure Schedule, none
of the Purchaser nor any of the assets of the Purchaser is subject to any
Governmental Order (nor, to the Knowledge of the Purchaser, are there any such
Governmental Orders threatened to be imposed by any Governmental Authority)
which has or has had a Purchaser Material Adverse Effect.
SECTION 4.7 No Material Adverse Change. Since the date of this
--------------------------
Agreement, there has not been any material adverse change in the results of
operations or financial condition of the Purchaser (a "Purchaser Material
Adverse Effect"), and no event has occurred or
26
<PAGE>
circumstance exists that may result in a Purchaser Material Adverse Effect. For
purposes of this Section 4.7, the term "Purchaser" includes the operations of
its subsidiaries, The Santa Anita Companies, Inc. and Gulfstream Park Racing
Association, Inc.
SECTION 4.8 Purchaser Prospectus.
--------------------
(a) The Purchaser Prospectus, as well as all other forms, reports
and documents to be filed by the Purchaser with the SEC after the date hereof
and prior to the Closing Date: (i) will be prepared in accordance with the
requirements of the Securities Act and the Exchange Act, as the case may be, and
the rules and regulations thereunder, (ii) will not at the time they are filed
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading, and (iii) will not at the time they are filed omit any documents
required to be filed as exhibits thereto.
(b) Each of the financial statements (including, in each case, any
notes thereto) contained in the Purchaser Prospectus, and all other financial
statements to be filed by the Purchaser with the SEC after the date hereof and
prior to the Closing Date, will be prepared in accordance with U.S. GAAP (except
as may be indicated in the notes thereto), and each will fairly present in all
material respects the consolidated financial position, results of operations and
cash flows of the Purchaser as at the respective dates thereof and for the
respective periods indicated therein in accordance with U.S. GAAP (subject, in
the case of unaudited statements, to normal and recurring year-end adjustments
which are not expected to be material); provided that, in making this
representation, the Purchaser is relying on the Seller's representations in
Sections 3.7 and 3.8.
SECTION 4.9 Brokers. No broker, finder or investment banker is
-------
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Conduct of Business Prior to the Closing. The Seller
----------------------------------------
covenants and agrees that, except as described in Section 5.1 of the Disclosure
Schedule, between the date hereof and the time of the Closing, none of the
Companies nor any Subsidiary shall conduct its business other than in the
ordinary course and consistent with the Companies' and such Subsidiary's prior
practice. Without limiting the generality of the foregoing, except as described
in Section 5.1 of the Disclosure Schedule, the Seller shall cause the Companies
and each Subsidiary to (i) continue its advertising and promotional activities,
and pricing and purchasing policies, in accordance with past practice; (ii) not
shorten or lengthen the customary payment cycles for any of its payables or
receivables; (iii) use its commercially reasonable efforts to (A) preserve
intact their business organizations and the business organization of the
Business and (B) continue in full force and effect without material modification
all existing policies or binders of insurance currently maintained in respect of
the Companies, each Subsidiary and the Business and (iv) exercise, but only
after notice to the Purchaser and receipt of the Purchaser's prior
27
<PAGE>
written approval, any rights of renewal pursuant to the terms of any of the
leases or subleases set forth in Section 3.15 of the Disclosure Schedule which
by their terms would otherwise expire. Except as described in Section 5.1 of the
Disclosure Schedule, the Seller covenants and agrees that, prior to the Closing,
without the prior written consent of the Purchaser, neither the Companies nor
any Subsidiary will do any of the things enumerated in the second sentence of
Section 3.9 (including, without limitation, clauses (i) through (xi) thereof).
SECTION 5.2 Access to Information.
---------------------
(a) From the date hereof until the Closing, the Seller shall cause
the Companies and each of the Companies' officers, directors, employees, agents,
representatives, accountants and counsel to: (i) afford the officers, employees
and authorized agents, accountants, counsel, and representatives of the
Purchaser reasonable access, upon reasonable notice and during normal business
hours, to the officers, directors, employees, accountants and counsel of the
Companies who have material relevant knowledge relating to the Companies or the
Business and (ii) furnish to the officers, employees and authorized agents,
accountants, counsel, and representatives of the Purchaser unaudited financial
statements of the Companies on a monthly basis prepared by the management of the
Companies and the Seller.
(b) The Seller shall provide to the Purchaser, promptly upon the
Purchaser's reasonable request, all financial and other data and information
relating to LL and PRA as may be necessary or advisable to enable the Purchaser
to prepare and file the Purchaser Prospectus (and any amendments thereto) with
the SEC, consistent with the Purchaser's obligations under Section 4.8 hereof
and under applicable federal and state securities laws; provided, that, if the
Seller reasonably believes that it is necessary to retain accountants or other
advisors to respond to any such request, the Purchaser shall reimburse the
Seller for the reasonable fees and expenses of such accountants or other
advisors.
(c) In order to facilitate the resolution of any claims made against
or incurred by the Seller prior to the Closing, for a period of seven years
after the Closing, the Purchaser shall (i) retain the books and records of the
Companies and the Subsidiaries relating to periods prior to the Closing in a
manner reasonably consistent with the prior practice of the Companies and the
Subsidiaries and (ii) upon reasonable notice, afford the officers, employees and
authorized agents and representatives of the Seller reasonable access (including
the right to make, at the Seller's expense, photocopies), during normal business
hours, to such books and records.
(d) In order to facilitate the resolution of any claims made by or
against or incurred by the Purchaser, the Companies or any Subsidiary after the
Closing or for any other reasonable purpose, for a period of seven years
following the Closing, the Seller shall (i) retain the books and records of the
Seller which relate to the Companies and the Subsidiaries and their operations
for periods prior to the Closing and which shall not otherwise have been
delivered to the Purchaser, the Companies or any Subsidiary and (ii) upon
reasonable notice, afford the officers, employees and authorized agents and
representatives of the Purchaser, the Companies or any Subsidiary reasonable
access (including the right to make photocopies, at the expense of the
Purchaser, the Companies or such Subsidiary), during normal business hours, to
such books and records.
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SECTION 5.3 Confidentiality. The Purchaser and the Seller agree to,
---------------
and shall cause their respective agents, representatives, Affiliates, employees,
officers and directors to: (i) treat and hold as confidential (and not disclose
or provide access to any Person to) this Agreement and all information relating
to trade secrets, product development, price, customer and supplier lists,
pricing and marketing plans, policies and strategies, details of client and
consultant contracts, business acquisition plans, and all other confidential
information with respect to the Business, the Companies and each Subsidiary,
(ii) in the event that the Purchaser or the Seller or any such agent,
representative, Affiliate, employee, officer or director becomes legally
compelled or is requested by any Governmental Authority to disclose any such
information, provide the other party with prompt written notice of such
requirement so that such party, the Companies or any Subsidiary may seek a
protective order or other remedy or waive compliance with this Section 5.3,
(iii) in the event that such protective order or other remedy is not obtained,
or such party waives compliance with this Section 5.3, furnish only that portion
of such confidential information which is legally required to be provided and
exercise commercially reasonable efforts to obtain assurances that confidential
treatment will be accorded such information; provided, however, that this
sentence shall not apply to any information that, at the time of disclosure, is
available publicly and was not disclosed in breach of this Agreement by the
Purchaser or the Seller, as applicable, or their respective agents,
representatives, Affiliates, employees, officers or directors or is required to
be disclosed in compliance with Section 5.4 of this Agreement, federal and state
laws or regulations or the regulations governing any national securities
exchange or quotation system or is requested by a regulatory body that has
authority over the Seller or the Purchaser. The Purchaser and the Seller agree
and acknowledge that remedies at law for any breach of their respective
obligations under this Section 5.3 are inadequate and that in addition thereto
the other party shall be entitled to seek equitable relief, including injunction
and specific performance, in the event of any such breach.
SECTION 5.4 Regulatory and Other Authorizations; Notices and
------------------------------------------------
Consents.
- --------
(a) The Purchaser shall use its best efforts to obtain all
authorizations, consents, orders and approvals of all Governmental Authorities
and officials that may be or become necessary for its execution and delivery of,
and the performance of its obligations pursuant to, this Agreement, and the
Seller will cooperate fully with the Purchaser in promptly seeking to obtain all
such authorizations, consents, orders and approvals; provided that neither the
Purchaser nor the Seller shall be required to divest any assets or give any
guarantee in connection therewith. Each party hereto agrees to make an
appropriate filing, if necessary, pursuant to the HSR Act with respect to the
transactions contemplated by this Agreement within five Business Days of the
date hereof and to supply as promptly as practicable to the appropriate
Governmental Authorities any additional information and documentary material
that may be requested pursuant to the HSR Act, and the Purchaser agrees to make
an appropriate filing with the California Horse Racing Board within 30 days of
the date hereof.
(b) The Seller shall use commercially reasonable efforts to give all
notices and obtain all consents set forth in Section 3.5(c) of the Disclosure
Schedule. The Purchaser shall cooperate and use all reasonable efforts to assist
the Seller in giving such notices and obtaining such consents; provided,
--------
however, that neither the Purchaser nor the Seller shall have any obligation to
- -------
give any guarantee or other consideration of any nature in connection with any
such notice or consent or to consent to any change in the terms of any agreement
or arrangement.
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(c) The Seller and the Purchaser agree that, in the event any
consent, approval or authorization necessary to preserve for the Business, the
Companies or any Subsidiary any right or benefit under any lease, license,
contract, commitment or other agreement or arrangement to which the Seller, the
Companies or any Subsidiary is a party is not obtained prior to the Closing, the
Seller will, subsequent to the Closing, cooperate with the Purchaser and the
Companies in attempting to obtain such consent, approval or authorization as
promptly thereafter as practicable. If such consent, approval or authorization
cannot be obtained, the Seller shall use its commercially reasonable efforts to
provide such Company or such Subsidiary, as the case may be, with the rights and
benefits of the affected lease, license, contract, commitment or other agreement
or arrangement for the term of such lease, license, contract or other agreement
or arrangement, and, if the Seller provides such rights and benefits, such
Company or such Subsidiary, as the case may be, shall assume all obligations and
burdens thereunder.
SECTION 5.5 Director. Simultaneously with the Closing, the Purchaser
--------
shall increase its number of directors by one, and shall appoint Mr. Peter
George to the Purchaser's Board of Directors.
SECTION 5.6 Purchaser Shares; Transfer Restrictions.
---------------------------------------
(a) If the Class A Subordinate Voting Stock of the Purchaser is not
quoted on The Nasdaq National Market on or before June 30, 2000, then upon
written notice from the Seller on or before July 31, 2000, the Purchaser will
repurchase the Purchaser Shares from the Seller for $7,000,000 in cash.
(b) The Seller covenants and agrees that, prior to the first
anniversary of the Closing Date, it will not, other than in accordance with the
Registration Rights Agreement: (i) sell, assign, transfer, pledge, mortgage,
convey or otherwise dispose of or encumber (each, a "Transfer") any of the
Purchaser Shares or any interest therein or (ii) agree to so Transfer any of the
Purchaser Shares or any interest therein. All Transfers or purported Transfers
of the Purchaser Shares in violation of the terms of this Agreement shall be
void and of no effect, and the Purchaser shall not be required to enter any such
Transfer on its books or otherwise register such Transfer. The certificates
evidencing the Purchaser Shares shall bear an appropriate legend referring to
this Agreement and the foregoing restrictions on Transfer.
SECTION 5.7 Distribution of Excess PRA Assets. Prior to the Closing,
---------------------------------
the Seller shall cause PRA to distribute to the Seller the Excess PRA Assets.
Such distribution shall be accomplished in a manner such that the Purchaser is
reasonably satisfied that the distribution does not create any additional Tax
Liabilities for the Companies or the Subsidiaries.
SECTION 5.8 Casualty Insurance Proceeds. With respect to any
---------------------------
casualty occurring from and after the date hereof and prior to the Closing Date
that results in the Seller's or the Companies' receipt of casualty insurance
proceeds, including any proceeds for lost profits, business interruption or the
like, under any casualty insurance policy maintained by or for the benefit of
the Companies or any Subsidiary, the Seller shall cause any and all of the
Seller's right to such casualty insurance proceeds to be assigned to the
Companies and any amounts received thereunder to promptly be remitted to the
Companies.
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SECTION 5.9 Notification. Prior to the Closing, the Seller and the
------------
Purchaser, as applicable (in such case, the "Breaching Party"), shall promptly
notify the other party in writing of all events, circumstances, facts and
occurrences arising subsequent to the date of this Agreement which would result
in a breach of a representation or warranty or covenant of the Breaching Party
in this Agreement or which would have the effect of making any representation or
warranty of the Breaching Party in this Agreement untrue or incorrect in any
material respect.
SECTION 5.10 Intercompany Obligations. Aggregate Indebtedness owed
------------------------
by any Company or Subsidiary as of the Closing Date to any of its Affiliates
(including the Seller and its Affiliates, but not including any Company or any
Subsidiary) shall on the Closing Date be netted against aggregate Indebtedness
owed by any Affiliate of any Company or any Subsidiary (including the Seller and
its Affiliates, but not including any Company or any Subsidiary) to any Company
or any Subsidiary as of the Closing Date. Any remaining Indebtedness shall be
cancelled as of the Closing Date, without any payment in respect thereof, and
the amount of such cancelled Indebtedness shall be characterized as a
contribution to capital by the Seller to PRA or as forgiveness of debt by PRA,
as appropriate.
SECTION 5.11 No Negotiation. Until such time, if any, as this
--------------
Agreement is terminated pursuant to Section 10.1, the Seller will not, and will
cause the Companies and each of their representatives not to, directly or
indirectly solicit, initiate, or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to, or consider
the merits of any unsolicited inquiries or proposals from, any Person (other
than the Purchaser) relating to any transaction involving the sale of the
Business or Assets (other than in the ordinary course of business) of the
Companies or the Subsidiaries, or any of the capital stock of the Companies or
the Subsidiaries, or any merger, consolidation, business combination, or similar
transaction involving the Companies or the Subsidiaries.
SECTION 5.12 Further Action. Subject to the provisos of Sections
--------------
5.4(a) and (b), each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all appropriate action, do or cause to be done all
things necessary, proper or advisable under applicable Law, and execute and
deliver such documents and other papers, as may be required to carry out the
provisions of this Agreement and consummate and make effective the transactions
contemplated by this Agreement.
SECTION 5.13 Non-Competition. For a period of two (2) years after
---------------
the Closing Date, the Purchaser shall not engage, directly or indirectly, in any
business (a) on the Real Property that competes with Ladbroke Gaming California,
Inc. or its subsidiaries in supplying card club services of the kind supplied
thereby on the Closing Date or (b) that, solely by reason of owning the Real
Property or the PRA Common Stock, competes with Ladbroke Gaming California, Inc.
or its subsidiaries in supplying card club services of the kind supplied thereby
on the Closing Date.
SECTION 5.14 Maintenance of Book Value. The Purchaser covenants and
-------------------------
agrees that the Book Value of the Purchaser shall be not less than $550,000,000
on the Closing Date and not less than $50,000,000 at all times thereafter until
(a) compliance in full with the obligation contained in Section 5.6 of this
Agreement and (b) payment in full or other satisfaction or termination of all
amounts due under the Purchaser Note.
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SECTION 5.15 Ladbroke Names. The Purchaser acknowledges that from
--------------
and after the Closing, the name "Ladbroke" and all similar or related names,
marks and logos (all of such names, marks and logos being the "Ladbroke Names")
--------------
shall be owned by the Seller, that neither the Purchaser nor any of its
Affiliates shall have any rights in the Ladbroke Names, and that neither the
Purchaser nor any of its Affiliates will contest the ownership or validity of
any rights of the Seller in or to the Ladbroke Names.
SECTION 5.16 San Pablo Gaming Facility. The Seller shall not, shall
-------------------------
cause its Affiliates not to, and shall use its best efforts to cause Lytton
Casino Management, LLC ("Lytton") not to, consent to the commencement of
pari-mutuel wagering on horse races at the Facility or on the Property, each as
defined in that certain Property Acquisition & Management Agreement dated as of
December, 1998 among the Lytton Band of Pomo Indians (the "Band"), Lytton and
One Sky Sonoma, LLC (the "Management Agreement"); provided that, if the Business
is expanded to include any form of Class III Gaming (as defined in the
Management Agreement) other than pari-mutuel wagering on horse racing, the
Seller may and may cause its Affiliates to consent to the commencement by the
Band of pari-mutuel wagering on horse races at the Facility.
SECTION 5.17 Transition Services.
-------------------
(a) For a period of sixty (60) days following the Closing Date, the
Seller shall provide, or shall use its best efforts, including the payment of
money, to cause its designee to provide, such information technology services at
the Companies as were provided by the Seller on or prior to the date hereof, if
requested by the Companies or the Purchaser. The Seller shall cause the Provider
to provide these services to the Companies at an hourly rate not to exceed $100
per hour of work performed. The Seller shall ensure that reasonably adequate
personnel are deployed to accomplish the services requested by the Companies in
a reasonably timely and satisfactory manner. The Seller shall maintain a written
log setting forth the amount of time spent by the Provider's personnel in
providing services to the Companies hereunder, and this log shall be reviewed by
the Seller with Thomas Kanar at least weekly. All invoices delivered by the
Seller to the Companies or the Purchaser for services hereunder shall be based
solely on hours entered into the written log.
(b) For a period of sixty (60) days following the Closing Date, the
Seller shall permit the Companies and their respective personnel to use the
fractional T1-Line to the corporate office of the Seller in Richmond, California
as the Companies' internet connection. The Purchaser shall, or shall cause the
Companies to, reimburse the Seller for the marginal invoiced cost of this
connection which is attributable to the Companies' use.
(c) The Seller shall use its best efforts to obtain an assignment to
the Companies or the Purchaser of the leases relating to computer hardware used
by the Companies and the Business which are incorporated into the Master Lease
Agreement No. 4551097 effective June 7, 1999 between Dell Financial Services
L.P. and the Seller, such assignment to be in form and substance reasonably
satisfactory to the Purchaser.
(d) As approved in writing by the Purchaser and Thomas Kanar, the
Seller shall purchase prior to the Closing an e-mail/internet server, firewall
hardware and peripheral
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equipment, including without limitation routers and modems, at an approximate
total cost of $48,000. The Purchaser will reimburse the Seller for the cost of
these purchases associated solely with the transition of the Business from the
Seller to the Purchaser (which purchases shall be specified in any approval
given by the Purchaser) and not associated with ongoing equipment replacement in
the ordinary course of business.
SECTION 5.18 Termination of Interests in Real Property.
-----------------------------------------
(a) The Seller shall use its best efforts to promptly terminate the
development agreement dated August 1, 1994 between LRC and the City of Albany,
as amended (the "Development Agreement"); provided that, if the Seller is not
---------------------
successful in terminating the Development Agreement, neither the Seller nor its
Affiliates, nor such parties' designees, successors or assigns, shall, or shall
agree to, exercise any rights under the Development Agreement or sell, assign,
transfer, pledge, mortgage, convey or otherwise dispose of or encumber the
Seller's interests arising out of or relating to the Development Agreement.
(b) The Seller shall, promptly upon termination of the Development
Agreement and/or final determination of the Action set forth in paragraph 9 of
Section 3.10 of the Disclosure Schedule, deliver to the Purchaser executed
documents in recordable form effective to remove from title to the Real Property
any Encumbrance arising out of or relating to the Development Agreement and/or
such Action.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.1 Payroll Obligations, Employee Agreements and WARN Act.
-----------------------------------------------------
(a) The Purchaser shall assume responsibility for all payroll
obligations (including, without limitation, the satisfaction of all payroll
withholding tax obligations) for the Companies and Subsidiaries payable after
the Closing Date.
(b) The Purchaser shall honor, without modification, all Employee
Agreements executed prior to the date hereof which apply to any Employee.
(c) Effective as of the Closing Date and thereafter, the Purchaser
shall be responsible for (i) any liability arising under the Worker Adjustment
and Retraining Notification Act (the "WARN Act") in connection with the
--------
termination of the employment of any Employee by the Purchaser on or after the
Closing Date and (ii) issuance of any notices required by the WARN Act with
respect to the termination of any Employee after the Closing Date.
SECTION 6.2 Seller's Plans and Employee-Related Liabilities.
-----------------------------------------------
(a) The Seller agrees to continue coverage of the Employees under
the Plans in accordance with their terms through the date prior to the Closing
Date. As of the Closing Date, each Employee shall cease to be covered by each of
the Plans which are not Company Plans. Except with respect to the liabilities
under any Plans that are assumed by the Purchaser, the Seller shall remain
obligated for all benefits and benefit entitlements under the Plans that were
earned or accrued, except as noted in Section 6.4(b), by Employees prior to the
Closing
33
<PAGE>
Date. With respect to the Plans that provide welfare benefits, the Seller agrees
that either it or the applicable insurance carrier, as set forth in the
applicable Plan, remain obligated to reimburse Employees for eligible health
care and other eligible welfare benefit expenses and services incurred up to the
Closing Date in accordance with the terms of such Plans; provided that
Employees' claims for reimbursement for such expenses and services are delivered
to the appropriate party within applicable time limits, as set forth in the
applicable Plan. An expense or service is deemed to be incurred, with respect to
a health plan, when the medical services are performed, and, with respect to
plans that provide welfare benefits other than medical or dental benefits, when
the event giving rise to such expense or service occurs.
(b) The Seller agrees to remain obligated for expenses incurred in
connection with any claim of an Employee arising under the workers' compensation
laws of any state (a "Workers' Compensation Claim") that was filed with the
appropriate Governmental Authority prior to the Closing Date. The Seller shall
have no obligation with respect to any Workers' Compensation Claim filed on or
after the Closing Date, regardless of the date on which the event triggering
such claim occurred. All such Workers' Compensation Claims filed after the
Closing Date shall be the responsibility of the Purchaser.
(c) The Seller agrees to remain obligated to provide continuation
health care coverage, in accordance with Section 4980B of the Code and Sections
601 to 608 of ERISA ("COBRA"), to all Employees and their qualified
beneficiaries (i) who incur a qualifying event prior to the Closing Date and
(ii) to whom the Seller, either Company, or any Subsidiary are, on the Closing
Date, (A) providing such continuation coverage or (B) under an obligation to
provide such continuation coverage at the election of the Employee or his
qualified beneficiary. The Purchaser shall have responsibility for any and all
obligations under COBRA with respect to Employees and their qualified
beneficiaries who incur qualifying events on or after the Closing Date.
(d) Prior to the Closing Date, the Seller agrees to remain obligated
with respect to contributions to any Multiemployer Plan in respect of the
Employees. As of the Closing Date, the Purchaser shall assume all of the
obligations of the Companies and Subsidiaries under all Multiemployer Plans with
respect to the Employees covered by such plans.
SECTION 6.3 Purchaser's Plans.
-----------------
(a) On the Closing Date, the Employees shall be covered by the
employee benefit plans, programs, and policies established or maintained by the
Purchaser applicable to similarly situated employees of the Purchaser (the
"Purchaser's Plans"). Nothing contained in this Section 6.3 shall obligate or
commit the Purchaser to continue the Purchaser's Plans after the Closing Date or
to maintain in effect any such plan or any level or type of benefits.
(b) In connection with the Purchaser's obligation to provide welfare
benefits to the eligible Employees under the Purchaser's Plans pursuant to
Section 6.3(a), the Purchaser shall cause each group health plan of the
Purchaser, or, with respect to an insured plan, use its best efforts to cause
the insurer, to waive any pre-existing condition exclusions thereunder with
respect to the Employees to extent that such Employees are enrolled in the
applicable group health plan of the Seller as of the Closing Date.
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(c) For purposes of this Article VI, Employees shall receive credit
for purposes of eligibility to participate and vesting (and with respect to
benefit accruals, solely for purposes of calculating entitlement to vacation,
sick days and severance pay) under the Purchaser's Plans for service accrued or
deemed accrued prior to the Closing Date with the Seller, the Companies or any
Subsidiary; provided, however, that such crediting of service shall not operate
to duplicate any benefit or the funding of any such benefit.
SECTION 6.4 Bonus and Severance Obligations; Accrued Vacation Pay.
-----------------------------------------------------
(a) Prior to the Closing Date, the Seller agrees to accrue pro rata
annual incentive and bonus payments as of the Closing Date on behalf of
Employees who are or will become entitled to such payments pursuant to any
Plans, Company Plans or Employee Agreements, all of which are described in
Section 6.4 of the Disclosure Schedule. The Purchaser agrees to make, or to
cause the Companies to make, payments which become payable to Employees on or
after the Closing Date pursuant to the provisions of any such Plans, Company
Plans or Employee Agreements.
(b) Prior to the Closing Date, the Companies shall pay Employees for
any vacation days that are earned and used in accordance with the vacation pay
policy of PRA. As of the Closing Date, the Purchaser shall assume all
obligations pursuant to the vacation pay policy of PRA, with respect to
Employees, for vacations days that are accrued, but unused.
SECTION 6.5 Mutual Cooperation. The Seller and the Purchaser agree,
------------------
in a complete, diligent and timely manner, to exchange such employee census,
actuarial or other data as shall be reasonably necessary to calculate benefits
under any plan and to take any and all actions as shall be reasonably necessary
or advisable to effect the provisions of this Article VI.
SECTION 6.6 Employee Benefits Indemnity. For a period of three years
---------------------------
following the Closing Date:
(a) The Purchaser shall indemnify and hold the Seller harmless from
any losses the Seller may incur as a result of (i) the Purchaser's failure to
honor any obligation expressly assumed under this Article VI by the Purchaser or
a breach by the Purchaser of any covenant of the Purchaser set forth in this
Article VI and (ii) any actions taken by the Purchaser with respect to any
Employee on or after the Closing Date.
(b) The Seller shall indemnify and hold the Purchaser harmless from
any losses the Purchaser may incur as a result of (i) the Seller's failure to
honor any obligations expressly retained or assumed under this Article VI by the
Seller or a breach by the Seller of any covenant of the Seller set forth in this
Article VI and (ii) any actions taken by the Seller with respect to any Employee
prior to the Closing Date.
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SECTION 6.7 Third-Party Claims. Nothing in this Agreement is
------------------
intended, or shall be construed, to confer upon any person, other than the
parties hereto and their successors and permitted assigns, any rights or
remedies by reason of this Article VI.
ARTICLE VII
TAX MATTERS
SECTION 7.1 Indemnity.
---------
(a) The Seller agrees to indemnify and hold harmless the Purchaser,
the Companies and each Subsidiary against the following Taxes in excess of the
amount, if any, reserved for Taxes on the Closing Balance Sheet, and, except as
otherwise provided in Section 7.4, against any loss, damage, liability or
expense, including reasonable fees for attorneys and other outside consultants,
incurred in contesting or otherwise in connection with any such Taxes: (i) Taxes
imposed on the Companies or any Subsidiary with respect to taxable periods of
such Person ending on or before the Closing Date; (ii) with respect to taxable
periods beginning before the Closing Date and ending after the Closing Date,
Taxes imposed on the Companies or any Subsidiary which are allocable, pursuant
to Section 7.1(b), to the portion of such period ending on the Closing Date; and
(iii) Taxes imposed on any member of any affiliated group with which any of the
Companies and the Subsidiaries file or have filed a Return on a consolidated or
combined basis that includes the Companies' and the Subsidiaries' taxable
periods ending on or before the Closing Date. The Purchaser shall be responsible
for Taxes and associated expenses not allocated to the Seller pursuant to the
first sentence hereof.
(b) In the case of Taxes that are payable with respect to a taxable
period that begins before the Closing Date and ends after the Closing Date, the
portion of any such Tax that is allocable to the portion of the period ending on
the Closing Date shall be:
(i) in the case of Taxes that are either (x) based upon or
related to income or receipts, or (y) imposed in connection with
any sale or other transfer or assignment of property (real or
personal, tangible or intangible) (other than conveyances
pursuant to this Agreement, as provided under Section 7.7),
deemed equal to the amount which would be payable if the taxable
year ended with the Closing Date; and
(ii) in the case of Taxes imposed on a periodic basis with
respect to the assets of the Companies or any Subsidiary, or
otherwise measured by the level of any item, deemed to be the
amount of such Taxes for the entire period (or, in the case of
such Taxes determined on an arrears basis, the amount of such
Taxes for the immediately preceding period), multiplied by a
fraction the numerator of which is the number of calendar days in
the period ending on the Closing Date and the denominator of
which is the number of calendar days in the entire period.
(c) Any indemnity payable under this Section 7.1 shall be net of any
tax benefit enjoyed by Purchaser, the Companies or any Subsidiary.
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SECTION 7.2 Returns and Payments.
--------------------
(a) From the date of this Agreement through and after the Closing
Date, the Seller shall prepare and file or otherwise furnish in proper form to
the appropriate Governmental Authority (or cause to be prepared and filed or so
furnished) in a timely manner all Tax returns, reports and forms ("Returns")
relating to the Companies and the Subsidiaries that are due on or before or
relate to any taxable period ending on or before the Closing Date (and the
Purchaser shall do the same with respect to any taxable period ending after the
Closing Date). Returns of the Companies and the Subsidiaries not yet filed for
any taxable period that begins before the Closing Date shall be prepared in a
manner consistent with past practices employed with respect to the Companies and
the Subsidiaries (except to the extent counsel for the Seller or the Companies
renders a legal opinion that there is no reasonable basis in law therefor or
determines that a Return cannot be so prepared and filed without being subject
to penalties). With respect to any Return required to be filed by the Purchaser
or the Seller with respect to the Companies and the Subsidiaries and as to which
an amount of Tax is allocable to the other party under Section 7.1(b), the
filing party shall provide the other party and its authorized representatives
with a copy of such completed Return and a statement certifying the amount of
Tax shown on such Return that is allocable to such other party pursuant to
Section 7.1(b), together with appropriate supporting information and schedules
at least 20 Business Days prior to the due date (including any extension
thereof) for the filing of such Return, and such other party and its authorized
representatives shall have the right to review and comment on such Return and
statement prior the filing of such Return.
(b) The Seller shall pay or cause to be paid when due and payable
all Taxes with respect to the Companies and the Subsidiaries for any taxable
period that includes the Companies' or the Subsidiaries' taxable periods ending
on or before the Closing Date to the extent such Taxes exceed the amount, if
any, accrued for such Taxes as current Taxes payable on the Closing Balance
Sheet, and the Purchaser shall so pay or cause to be paid Taxes for any taxable
period ending after the Closing Date (subject to its right of indemnification
from the Seller by the date set forth in Section 7.5 for Taxes attributable to
the portion of any Tax period that includes the Closing Date pursuant to
Sections 7.1(a) and 7.1(b)).
SECTION 7.3 Refunds. Any Tax refund (including any interest with
-------
respect thereto), and any equivalent benefit through a reduction in tax
liability for a post-Closing Date period, relating to the Companies or any
Subsidiary for any taxable period prior to the Closing Date (except for any
refund included on the Reference Balance Sheet, which shall be the property of
the Purchaser, and if paid to the Seller, shall be paid over promptly to the
Purchaser) shall be the property of the Seller, and if received by the Purchaser
or the Companies or any Subsidiary shall be paid over to the Seller within five
Business Days of the earlier of receipt or entitlement thereto; provided,
--------
however, that any Tax benefit obtained by the Purchaser, the Companies or any
- -------
Subsidiary as a result of utilizing any net operating loss carryforward or other
carryforward which is allocable to the Companies or any Subsidiary shall be
retained by the Purchaser, the Companies or such Subsidiary. The Purchaser
shall, if the Seller so requests and at the Seller's expense, cause the relevant
entity to file for and obtain any refunds or equivalent amounts to which the
Seller is entitled under this Section 7.3. Purchaser shall permit the Seller to
control (at the Seller's expense) the prosecution of any such refund claim, and
shall cause the
37
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relevant entity to authorize by appropriate power of attorney such persons as
the Seller shall designate to represent such entity with respect to such refund
claim.
SECTION 7.4 Contests.
--------
(a) After the Closing, the Purchaser shall promptly notify the
Seller in writing upon the commencement of any tax audit or administrative or
judicial proceeding that could affect the Seller, and shall also separately
notify the Seller, in writing, of a proposed assessment or claim in an audit or
administrative or judicial proceeding of the Purchaser or of any of the
Companies and the Subsidiaries which, if determined adversely to the taxpayer,
would be grounds for indemnification under this Article VII.
(b) The Seller may elect to direct, through counsel of its own
choosing and at its own expense, any audit, claim for refund and administrative
or judicial proceeding involving any asserted liability with respect to which
indemnity may be sought under this Article VII (any such audit, claim for refund
or proceeding relating to an asserted tax liability are referred to herein
collectively as a "Contest"). If the Seller elects to direct the Contest of an
asserted tax liability, it shall within 30 calendar days of receipt of the
notice of asserted tax liability notify Purchaser of its intent to do so, and
Purchaser shall cooperate and shall cause each Subsidiary and any successor to a
Subsidiary or its successor to cooperate, at the Seller's expense, in each phase
of such Contest. The Purchaser also may participate in any such audit or
proceeding and, if the Seller does not assume the defense of any such audit or
proceeding, the Purchaser may defend the same in such manner as it may deem
appropriate, including, but not limited to, settling such audit or proceeding
after giving five Business days' prior written notice to the Seller setting
forth the terms and conditions of settlement. In the event that issues relating
to a potential adjustment for which the Seller would be liable are required to
be dealt with in the same proceeding as separate issues relating to a potential
adjustment for which the Purchaser would be liable, the Purchaser shall have the
right, at its expense, to control the audit or proceeding with respect to the
latter issues. If the Seller chooses to direct the Contest, Purchaser shall
promptly empower and shall cause the appropriate Subsidiary or its successor
promptly to empower (by power of attorney and such other documentation as may be
appropriate) such representatives of the Seller as it may designate to represent
Purchaser or the Subsidiary or its successor in the Contest insofar as the
Contest involves an asserted tax liability for which the Seller would be liable
under this Article VII. If the Seller assumes the defense of a Contest, the
Seller shall not enter into any compromise or agree to settle any claim pursuant
to any Tax audit or proceeding which would adversely affect the Purchaser for
any taxable year without the written consent of the Purchaser, which consent
shall not be unreasonable withheld.
SECTION 7.5 Time of Payment. Payment by the Seller of any amounts
---------------
due under this Article VII shall be made (i) at least three Business Days before
the due date of the applicable estimated or final Return required to be filed by
the Purchaser on which is required to be reported income for a period ending
after the Closing Date for which the Seller is responsible under Sections 7.1(a)
and 7.1(b) and with respect to which Tax must be paid, and (ii) within five
Business Days following an agreement between the Seller and the Purchaser that
an indemnity amount is payable or a "determination" as defined in Section
1313(a) of the Code. If liability under this Article VII is in respect of costs
or expenses other than Taxes, payment by the Seller of any amounts due under
this Article VII shall be made within five Business Days after the date
38
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when the Seller has been notified by the Purchaser that the Seller has a
liability for a determinable amount under this Article VII and is provided with
calculations or other materials supporting such liability.
SECTION 7.6 Cooperation and Exchange of Information. Upon the terms
---------------------------------------
set forth in Section 5.2 of this Agreement, the Seller and the Purchaser will
provide each other with such cooperation and information as either of them
reasonably may request of the other in filing any Return, amended Return or
claim for refund, determining a liability for Taxes or a right to a refund of
Taxes, participating in or conducting any audit or other proceeding in respect
of Taxes or making representations to or furnishing information to parties
subsequently desiring to purchase any of the Companies or the Subsidiaries or
any part of the Business from the Purchaser. Such cooperation and information
shall include providing copies of relevant Returns or portions thereof, together
with accompanying schedules, related work papers and documents relating to
rulings or other determinations by Tax authorities. Each of the Seller and the
Purchaser shall retain all Returns, schedules and work papers, records and other
documents in its possession relating to Tax matters of the Companies and the
Subsidiaries for each taxable period first ending after the Closing Date and for
all prior taxable periods until the later of (i) the expiration of the statute
of limitations of the taxable periods to which such Returns and other documents
relate, without regard to extensions except to the extent notified by the other
party in writing of such extensions for the respective Tax periods, or (ii) six
years following the due date (without extension) for such Returns. Any
information obtained under this Section 7.6 shall be kept confidential except as
may be otherwise necessary in connection with the filing of Returns or claims
for refund or in conducting an audit or other proceeding.
SECTION 7.7 Conveyance Taxes. The Seller and the Purchaser shall
----------------
each pay 50% of any real property transfer or gains, sales, use, transfer, value
added, stock transfer, and stamp taxes, any transfer, recording, registration,
and other fees, and any similar Taxes which become payable in connection with
the transactions contemplated by this Agreement, and shall file such
applications and documents as shall permit any such Tax to be assessed and paid
on or prior to the Closing Date in accordance with any available pre-sale filing
procedure. Each party hereto shall execute and deliver all instruments and
certificates necessary to enable the other party or parties to comply with the
foregoing.
SECTION 7.8 Miscellaneous.
-------------
(a) The Seller and the Purchaser agree to treat all payments made by
either of them to or for the benefit of the other (including any payments to the
Companies or any Subsidiary) under this Article VII, under other indemnity
provisions of this Agreement and for any misrepresentations or breaches of
warranties or covenants as adjustments to the Purchase Price or as capital
contributions for Tax purposes and that such treatment shall govern for purposes
hereof.
All amounts payable under any tax sharing agreement or arrangement
between the Seller and the Companies or any Subsidiary for any taxable period
ending on or prior to the Closing Date shall be calculated on a basis consistent
with that used to date and shall be considered as Indebtedness owing to or from
an Affiliate as of the Closing Date for purposes of Section 5.10. Except as
otherwise provided above, any tax sharing agreement or arrangement
39
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between the Seller and the Companies or any Subsidiary shall be terminated
immediately prior to the Closing.
(b) Notwithstanding any provision in this Agreement to the contrary,
the obligations of the Seller to indemnify and hold harmless the Purchaser, the
Companies and the Subsidiaries pursuant to this Article VII, and the
representations and warranties contained in Section 3.20, shall terminate at the
close of business on the 60th day following the expiration of the applicable
statute of limitations with respect to the Tax liabilities in question (giving
effect to any waiver, mitigation or extension thereof).
(c) For purposes of this Article VII, "the Purchaser" and "the
Seller", respectively, shall include each member of the affiliated group of
corporations of which it is or becomes a member (other than the Companies and
the Subsidiaries, except to the extent expressly referenced).
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.1 Conditions to Obligations of the Seller. The obligations
---------------------------------------
of the Seller to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Purchaser contained in this Agreement shall have been true
and correct when made and shall be true and correct as of the Closing, with the
same force and effect as if made as of the Closing Date, other than such
representations and warranties as are made as of another date, which shall be
true and correct as of such date, except as would not have a Purchaser Material
Adverse Effect, and the covenants and agreements contained in this Agreement to
be complied with by the Purchaser on or before the Closing shall have been
complied with in all material respects, and the Seller shall have received a
certificate from the Purchaser to such effect signed by a duly authorized
officer thereof;
(b) HSR Act. Any waiting period (and any extension thereof) under
-------
the HSR Act applicable to the purchase of the Shares contemplated hereby shall
have expired or shall have been terminated;
(c) No Proceeding or Litigation. No Action shall have been commenced
---------------------------
by or before any Governmental Authority against either the Seller or the
Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated by this Agreement which, is likely to render it
impossible or unlawful to consummate such transactions; provided, however, that
the provisions of this Section 8.1(c) shall not apply if the Seller has directly
or indirectly solicited or encouraged any such Action; and
(d) Legal Opinion. The Seller shall have received from O'Melveny &
-------------
Myers LLP a legal opinion, addressed to the Seller and dated the Closing Date,
substantially in the form of Exhibit 8.1(d).
40
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(e) Registration Rights Agreement. The Purchaser shall have executed
-----------------------------
and delivered to the Seller the Registration Rights Agreement.
SECTION 8.2 Conditions to Obligations of the Purchaser. The
------------------------------------------
obligations of the Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Seller contained in this Agreement shall have been true
and correct when made and shall be true and correct as of the Closing Date with
the same force and effect as if made as of the Closing, other than such
representations and warranties as are made as of another date, which shall be
true and correct as of such date, except as would not have a Material Adverse
Effect, and the covenants and agreements contained in this Agreement to be
complied with by the Seller on or before the Closing shall have been complied
with in all material respects, and the Purchaser shall have received a
certificate of the Seller to such effect signed by a duly authorized officer
thereof;
(b) HSR Act. Any waiting period applicable to the purchase of the
-------
Shares contemplated hereby shall have expired or shall have been terminated;
(c) No Proceeding or Litigation. No Action shall have been commenced
---------------------------
or threatened by or before any Governmental Authority against either the Seller
or the Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated hereby which is likely to render it impossible or
unlawful to consummate such transactions; provided, however, that the provisions
of this Section 8.2(c) shall not apply if the Purchaser has solicited or
encouraged any such Action;
(d) Legal Opinion. The Purchaser shall have received from Shearman &
-------------
Sterling a legal opinion, addressed to the Purchaser and dated the Closing Date,
substantially in the form of Exhibit 8.2(d);
(e) Consents and Approvals. The Purchaser and the Seller shall have
----------------------
received, each in form and substance satisfactory to the Purchaser in its
reasonable discretion, all authorizations, consents, orders and approvals of all
Governmental Authorities and officials which are necessary for the consummation
of the transactions contemplated by this Agreement and all third party consents
and estoppel certificates identified on Section 3.5(c) of the Disclosure
Schedule;
(f) Resignations of the Companies' Directors. The Purchaser shall
----------------------------------------
have received the resignations, effective as of the Closing, of all the
directors and officers of the Companies and each Subsidiary, except for such
persons as shall have been designated in writing prior to the Closing by the
Purchaser to the Seller;
(g) Certificate of Non-Foreign Status. The Purchaser shall have
---------------------------------
received from the Seller a certificate of non-foreign status, substantially in
the form of Exhibit 8.2(g) hereto, executed in accordance with the provisions of
the Foreign Investment in Real Property Tax Act; and
41
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(h) Title Insurance. The Purchaser shall have received an ALTA
---------------
extended owner's coverage title insurance policy (the "Title Policy") issued by
------------
First American Title Insurance Company, or another reputable nationally
recognized title insurance company selected by the Purchaser, insuring LL's fee
title in the Real Property in the amount of $87,000,000, subject only to such
exceptions as are identified on Exhibit 8.2(h) and containing such endorsements
as are identified on Exhibit 8.2(h). Other than the incremental cost of the
zoning endorsement referred to on Exhibit 8.2(h), which shall be borne by the
Purchaser, the entire expense of the Title Policy shall be borne by the Seller.
(i) Termination of Interests in Real Property. The Purchaser shall
-----------------------------------------
have received executed documents in recordable form effective to terminate
immediately prior to the Closing (i) the Ladbroke Leases and (ii) the concession
and lease agreement dated January 1, 1975 between Hillside Catering Co. and PRA,
as amended.
(j) Termination of Agreements. The Purchaser shall have received
-------------------------
evidence of the termination and cancellation of the following agreements: (i)
that certain Loan Agreement between Ladstock Holding Corporation and PRA,
effective as of January 3, 1989, as amended or supplemented, and any and all
promissory notes issued in respect thereof, and (ii) the Limited Partnership
Agreement of Ladbroke I L.P., a California limited partnership, dated as of
July, 1996 between PRA, as general partner, and LRC, as limited partner (the
"Limited Partnership Agreement").
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Survival of Representations, Warranties and
-------------------------------------------
Indemnification Obligations. (a) The representations and warranties of the
- ---------------------------
Seller contained in this Agreement, and all statements contained in this
Agreement, the Exhibits to this Agreement and the Disclosure Schedule
(collectively, the "Acquisition Documents"), shall survive the Closing until
---------------------
March 31, 2001; provided, however, that (a) the representations and warranties
-----------------
dealing with Tax matters shall survive as provided in Section 7.8, (b) insofar
as any claim is made by the Purchaser for the breach of any representation or
warranty of the Seller contained herein relating to environmental matters, such
representations and warranties shall, for purposes of such claims by the
Purchaser, survive the Closing Date until the third anniversary of the Closing
Date, (c) the representation and warranty in the penultimate sentence of Section
3.3 shall survive the Closing indefinitely and (d) the covenant contained in
Section 5.18 shall survive the Closing indefinitely. Neither the period of
survival nor the liability of the Seller with respect to the Seller's
representations and warranties shall be reduced by any investigation made at any
time by or on behalf of the Purchaser. If written notice of a claim specifying
in reasonable detail the basis of such claim has been given prior to the
expiration of the applicable representations and warranties by the Purchaser to
the Seller, then the relevant representations and warranties shall survive as to
such claim, until such claim has been finally resolved.
(b) The indemnification obligations set forth in Sections
9.2(a)(iv)-(vii) shall survive the Closing until the later of (i) termination of
all payment obligations under the applicable Action or agreement and (ii) entry
of a final Governmental Order, or similar order of
42
<PAGE>
any arbitral or other body, in any Action or similar proceeding brought in
respect of such payment obligations.
SECTION 9.2 Indemnification by the Seller.
-----------------------------
(a) The Purchaser, its Affiliates and their successors and assigns,
and the officers, directors, employees and agents of the Purchaser, its
Affiliates and their successors and assigns (each an "Indemnified Party"), shall
-----------------
be indemnified and held harmless by the Seller for any and all Liabilities,
losses, damages, claims, costs and expenses, interest, awards, judgments and
penalties (including, without limitation, attorneys' and consultants' fees and
expenses) actually suffered or incurred by them (including, without limitation,
any Action brought or otherwise initiated by any of them) (hereinafter a
"Loss"), arising out of or resulting from:
----
(i) the breach of any representation or warranty made by the
Seller contained in the Acquisition Documents;
(ii) the breach of any covenant or agreement by the Seller
contained in the Acquisition Documents;
(iii) the late filing of, or the omission to file, a Form
5500 with respect to the Pacific Racing Association 401(k) plan
for plan years 1997 and 1998;
(iv) Article XII of the Option Agreement;
(v) the Actions disclosed in paragraphs 1, 2, 5, 6, 7 and 9
(vi) the Limited Partnership Agreement, or the relationship
established thereby; or
(vii) the Development Agreement.
To the extent that the Seller's undertakings set forth in this Section 9.2 may
be unenforceable, the Seller shall contribute the maximum amount that it is
permitted to contribute under applicable law to the payment and satisfaction of
all Losses incurred by the Purchaser, the Companies and the Subsidiaries.
(b) An Indemnified Party shall give the Seller notice (a "Claim
-----
Notice") of any matter which an Indemnified Party has determined has given or
- ------
could give rise to a right of indemnification under this Agreement, within 60
days of such determination, stating the amount of the Loss, if known, and method
of computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises. The obligations and Liabilities of the Seller under this Article IX with
respect to Losses arising from claims of any third party which are subject to
the indemnification provided for in this Article IX ("Third Party Claims") shall
------------------
be governed by and contingent upon the following additional terms and
conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give the Seller a Claim Notice relating to
such Third Party Claim within 30 days of the receipt by the Indemnified Party of
notice of the Third Party Claim;
43
<PAGE>
provided, however, that any failure of the Indemnified Party to provide such
Claim Notice shall not release the Seller from any of its obligations under this
Article IX except to the extent the Seller is materially prejudiced by such
failure and shall not relieve the Seller from any other obligation or Liability
that it may have to any Indemnified Party otherwise than under this Article IX.
If the Seller acknowledges in writing its obligation to indemnify the
Indemnified Party hereunder against any Losses that may result from such Third
Party Claim, then the Seller shall be entitled to assume and control the defense
of such Third Party Claim at its expense and through Shearman & Sterling if it
gives notice of its intention to do so to the Indemnified Party within five days
of the receipt of such notice from the Indemnified Party; provided, however,
that if there exists or is reasonably likely to exist a conflict of interest
that would make it inappropriate in the judgment of the Indemnified Party, in
its sole and absolute discretion, for the same counsel to represent both the
Indemnified Party and the Seller, then the Indemnified Party shall be entitled
to retain its own counsel, in each jurisdiction for which the Indemnified Party
determines counsel is required, at the expense of the Seller. In the event the
Seller exercises the right to undertake any such defense against any such Third
Party Claim as provided above, the Indemnified Party shall cooperate with the
Seller in such defense and make available to the Seller, at the Seller's
expense, all witnesses, pertinent records, materials and information in the
Indemnified Party's possession or under the Indemnified Party's control relating
thereto as is reasonably required by the Seller. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Seller shall cooperate with the Indemnified Party in
such defense and make available to the Indemnified Party, at the Seller's
expense, all such witnesses, records, materials and information in the Seller's
possession or under the Seller's control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
the Seller without the prior written consent of the Indemnified Party. No
Indemnified Party shall make any voluntary admissions in connection with any
Third Party Claim that materially prejudice the Seller.
(c) The Purchaser hereby gives the Seller a Claim Notice in respect
of the Actions listed in clause 9.2(a)(v) above, and the Seller hereby
acknowledges its obligation to indemnify the Indemnified Parties against any
Losses that may result from such Actions and gives notice of its intention to
assume and control the defense of such Actions at its expense.
SECTION 9.3 [Intentionally Omitted].
---------------------
SECTION 9.4 Limits on Indemnification; Jurisdiction; Guaranty.
-------------------------------------------------
(a) Notwithstanding anything to the contrary contained in this
Agreement, the Seller shall not be liable for (i) Losses arising out of or
enumerated in Section 9.2(a)(i)-(iii) which are less than $20,000 individually,
(ii) the first $1,000,000 in the aggregate of Losses arising out of or
enumerated in Section 9.2(a)(i)-(iii) which are in excess of $20,000
individually and (iii) Losses arising out of or enumerated in Section
9.2(a)(i)-(iii) which are in the aggregate in excess of $50,000,000. This
Section 9.4 shall not apply to any Loss arising out of or enumerated in Sections
9.2(a)(iv)-(vii).
(b) Any indemnity payment under Section 9.2 shall be net of any tax
benefit or insurance proceeds received by the Indemnified Party; provided that
the amount of any insurance proceeds received by the Indemnified Party in
respect of any Loss shall be deemed to
44
<PAGE>
be reduced by the amount of (i) any incremental cumulative additional insurance
costs which are reasonably attributable to such Loss or (ii) any Tax liability
which is attributable to the receipt of such insurance proceeds by the
Indemnified Party.
(c) Anything in this Article IX to the contrary notwithstanding, the
rights and obligations of the parties with respect to indemnification for any
and all Tax matters shall be governed by Article VII.
(d) (i) The Seller and the Guarantor hereby consent to the
non-exclusive jurisdiction of any court in which an Action is brought against
any Indemnified Party for purposes of any claim that an Indemnified Party may
have under this Agreement with respect to such Action or the matters alleged
therein and agree that process may be served on the Seller and Guarantor with
respect to such a claim at the address specified in this Agreement.
(ii) The Guarantor hereby guarantees to the Purchaser the prompt
payment in full of all amounts from time to time owing by the Seller to the
Purchaser hereunder, in each case strictly in accordance with the terms hereof
(such obligations being herein collectively called the "Guaranteed
Obligations"). The Guarantor hereby further agrees that if the Seller shall fail
to pay in full when due any of the Guaranteed Obligations, the Guarantor will
promptly pay the same. The Guarantor hereby expressly waives diligence,
presentment, demand, protest, and all notices whatsoever with regard to any of
the Guaranteed Obligations and any requirement that the Purchaser exhaust any
right, power or remedy or proceed against the Seller hereunder.
(iii) The obligations of the Guarantor hereunder are unconditional
regardless of (A) the value, genuineness or regularity of any of the Guaranteed
Obligations, (B) any lack of validity or enforceability of any Guarantied
Obligations arising from the failure of the Seller to properly authorize,
execute and deliver this Agreement or any other agreement executed in connection
herewith, (C) whether or not any Guarantied Obligation is unenforceable or not
allowable, in either case due to the existence of a bankruptcy, reorganization
or similar proceeding involving the Seller, and (D) any other circumstance with
regard to any of the Guaranteed Obligations which may or might in any manner
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent hereof that the obligations of the Guarantor hereunder shall
be absolute and unconditional under any and all circumstances.
ARTICLE X
TERMINATION AND WAIVER
SECTION 10.1 Termination. This Agreement may be terminated at any
-----------
time prior to the Closing:
(a) by either the Seller or the Purchaser if the Closing shall not
have occurred by December 31, 1999; provided, however, that the right to
-----------------
terminate this Agreement under this Section 10.1(a) shall not be available to
any party whose failure to fulfill any obligation under this Agreement shall
have been the cause of, or shall have resulted in, the failure of the Closing to
occur on or prior to such date; or
45
<PAGE>
(b) by either the Purchaser or the Seller in the event that any
Governmental Authority shall have issued an order, decree or ruling or taken any
other action restraining or enjoining the transactions contemplated by this
Agreement and such order, decree, ruling or other action shall have become final
and nonappealable; or
(c) by the Purchaser, upon a breach of any representation, warranty,
covenant or agreement of the Seller set forth in this Agreement, or if any
representation or warranty of the Seller shall have become untrue, in each case
such that the conditions set forth in Section 8.2 would not be satisfied if such
breach or untruth were to exist on the Closing Date (a "Terminating Seller
Breach"); provided, however, that if such Terminating Seller Breach is cured by
-----------------
the Seller by the earlier of the Closing Date or 15 days from the date on which
the Seller became obligated under Section 5.9 to notify the Purchaser thereof,
the Purchaser may not terminate this Agreement solely by reason of such
Terminating Seller Breach;
(d) by the Seller, upon a breach of any representation, warranty,
covenant or agreement of the Purchaser set forth in this Agreement, or if any
representation or warranty of the Purchaser shall have become untrue, in each
case such that the conditions set forth in Section 8.1 would not be satisfied if
such breach or untruth were to exist on the Closing Date (a "Terminating
Purchaser Breach"); provided, however, that if such Terminating Purchaser Breach
is cured by the Purchaser by the earlier of the Closing Date or 15 days from the
date on which the Purchaser became obligated under Section 5.9 to notify the
Seller thereof, the Seller may not terminate this Agreement solely by reason of
such Terminating Purchaser Breach; or
(e) by the mutual written consent of the Seller and the Purchaser.
SECTION 10.2 Effect of Termination. In the event of termination of
---------------------
this Agreement as provided in Section 10.1, all further obligations under this
Agreement shall terminate and there shall be no liability on the part of either
party hereto except (a) as set forth in Sections 5.3 and 11.1 and (b) that
nothing herein shall relieve either party from liability for any breach of this
Agreement.
SECTION 10.3 Waiver. Either party to this Agreement may (a) extend
------
the time for the performance of any of the obligations or other acts of the
other party, (b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered by the other party
pursuant hereto or (c) waive compliance with any of the agreements or conditions
of the other party contained herein. Any such extension or waiver shall be valid
only if set forth in an instrument in writing signed by the party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver
of any subsequent breach or a subsequent waiver of the same term or condition,
or a waiver of any other term or condition, of this Agreement. The failure of
any party to assert any of its rights hereunder shall not constitute a waiver of
any of such rights
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.1 Expenses. Except as otherwise specified in this
--------
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial
46
<PAGE>
advisors and accountants, incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses, whether or not the Closing shall have occurred. The Purchaser will
pay the HSR filing fee, and, except as provided in Section 8.2(h), the Seller
will pay the cost of the Title Policy. The Seller will cause the Companies and
the Subsidiaries not to incur any out-of-pocket expenses for legal fees and
expenses of outside counsel or other advisors in connection with this Agreement.
SECTION 11.2 Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by facsimile or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 11.2):
(a) if to the Seller:
Ladbroke Racing Corporation
c/o Hilton Group plc
Maple Court Central Park
Reeds Crescent
Watford, Hertfordshire
England WD1 1HZ
Facsimile: 011-44-171-856-8495
Attention: Mr. Russell Foreman
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Facsimile: (212) 848-7179
Attention: John A. Marzulli, Jr., Esq.
47
<PAGE>
(b) if to the Guarantor:
Ladbroke Hotels U.S.A. Corporation
c/o Hilton Group plc
Maple Court Central Park
Reeds Crescent
Watford, Hertfordshire
England WD1 1HZ
Facsimile: 011-44-171-856-8495
Attention: Mr. Russell Foreman
(c) if to the Purchaser:
MI Venture Inc.
c/o Magna International Inc.
337 Magna Drive
Aurora, Ontario, Canada L4G7K1
Facsimile: 905-726-7177
Attention: Mr. James Nicol
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
Facsimile: 213-430-6407
Attention: Frederick B. McLane, Esq.
SECTION 11.3 Public Announcements. No party to this Agreement shall
--------------------
make, or cause to be made, any press release or public announcement in respect
of this Agreement, the transactions contemplated hereby or in connection with
any Third Party Claim or otherwise communicate with any news media without the
prior written consent of the other party, and the parties shall cooperate as to
the timing and contents of any such press release or public announcement.
SECTION 11.4 Headings. The descriptive headings contained in this
--------
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 11.5 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
48
<PAGE>
SECTION 11.6 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, between
the Seller and the Purchaser with respect to the subject matter hereof.
SECTION 11.7 Assignment. This Agreement may not be assigned by
----------
operation of law or otherwise without the express written consent of the Seller
and the Purchaser (which consent may be granted or withheld in the sole
discretion of the Seller or the Purchaser).
SECTION 11.8 No Third Party Beneficiaries. Except for the provisions
----------------------------
of Article IX relating to Indemnified Parties, this Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other Person any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
SECTION 11.9 Amendment. This Agreement may not be amended or
---------
modified except (a) by an instrument in writing signed by, or on behalf of, the
Seller and the Purchaser or (b) by a waiver in accordance with Section 10.3.
SECTION 11.10 Jurisdiction; Service of Process. Any action or
------------
proceeding seeking to enforce any provision of, or based on any right arising
out of, this Agreement shall be brought against Guarantor or the Seller only in
the courts of the State of New York, County of New York, or, if it has or can
acquire jurisdiction, in the United States District Court for the Southern
District of New York, and Guarantor and the Seller consent to the jurisdiction
of such courts (and of the appropriate appellate courts) in any such action or
proceeding and waive any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on Guarantor
or the Seller at their respective addresses specified in this Agreement.
SECTION 11.11 WAIVER OF JURY TRIAL. EACH OF THE PURCHASER AND THE
--------------------
SELLER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE PURCHASER OR
THE SELLER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT
THEREOF.
SECTION 11.12 Governing Law. This Agreement shall be governed by the
-------------
laws of the State of New York.
SECTION 11.13 Counterparts. This Agreement may be executed in one or
------------
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 11.14 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
49
<PAGE>
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
LADBROKE RACING CORPORATION
By:_________________________________
Name:
Title:
MI VENTURE INC.
By:_________________________________
Name:
Title:
Guarantor hereby unconditionally guarantees the payment obligations of the
Seller pursuant to this Agreement, including the Seller's indemnification
obligations, and acknowledges and agrees to the provisions of Sections 9.4(d)
and 11.10 hereof.
LADBROKE HOTELS U.S.A. CORPORATION
By: ______________________
Name:
Title:
S-1
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
As of January 14, 2000, the Company and its subsidiaries are comprised of the
following entities:
<TABLE>
<S> <C>
United States
MI Entertainment Corp.
The Santa Anita Companies, Inc.
Los Angeles Turf Club, Inc.
SLRD Thoroughbred Training Center, Inc.
Gulfstream Park Racing Association, Inc.
Pacific Racing Association, Inc.
Ladbroke Land Holdings, Inc.
Remington Park, Inc.
Thistledown, Inc.
MI Racing, Inc.
5321 Industries Inc.
DLR, Inc.
OTL, Inc.
Vista Hospitality, Inc.
Canada
MI Venture (Canada) Inc.
1207032 Ontario Inc.
1180482 Ontario Inc.
Europe
MI Entertainment Holding GmbH
Magna Ventures Management GmbH
SDP Landholding GmbH
Steyr-Barter Handels GmbH
Steyr-Industrie-Commerz und Handels GmbH
Gemeinniitzige Wohnungs-Gesellschaft,
"Steyr-Daimler-Puch" GmbH & Co. KG
MI Air Flugbetriebs GmbH
Magna Vierte Beteiligungs AG
Magna Projektentwicklungs AG
Magna Grundstucksentwicklungs GmbH
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our audit report dated November 8, 1999 (Except as to
Note 16, which is as of January 14, 2000) with respect to the consolidated
financial statements of MI Entertainment Corp. in the Registration Statement on
Form S-1 of MI Entertainment Corp. for the registration of its shares of Class A
Subordinate Voting Stock.
Our audits also included the financial statement schedule of MI Entertainment
Corp. listed in item 16(b). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
January 14, 2000 Ernst & Young LLP
Los Angeles, California Certified Public Accountants
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our audit report dated June 11, 1999 with respect to
the financial statements of Los Angeles Turf Club, Inc. in the Registration
Statement on Form S-1 of MI Entertainment Corp. for the registration of its
shares of Class A Subordinate Voting Stock.
January 14, 2000 Ernst & Young LLP
Los Angeles, California Certified Public Accountants
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated March 10, 1999, except for Note 9 as
to which the date is September 1, 1999, with respect to the consolidated
financial statements of Gulfstream Park Racing Association, Inc. and Subsidiary,
in the Registration Statement on Form S-1 of MI Entertainment Corp. for the
registration of its Class A Subordinate Voting Stock.
January 14, 2000 PricewaterhouseCoopers LLP
Miami, Florida Certified Public Accountants
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 19, 1999 (except Note I for
which the date is October 21, 1999) with respect to the financial statements of
Remington Park, Inc., in the Registration Statement on Form S-1 of MI
Entertainment Corp. for the registration of its Class A Subordinate Voting
Stock.
January 14, 2000 Hill, Barth & King LLC
Boardman, Ohio Certified Public Accountants
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated October 12, 1999 (except Note I for
which the date is October 21, 1999) with respect to the financial statements of
Thistledown, Inc., in the Registration Statement on Form S-1 of MI Entertainment
Corp. for the registration of its Class A Subordinate Voting Stock.
January 14, 2000 Hill, Barth & King LLC
Boardman, Ohio Certified Public Accountants
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated October 4, 1999 except paragraph 1 of
Note 5 as to which the date is October 19, 1999 with respect to the combined
financial statements of Golden Gate Fields consisting of Pacific Racing
Association's operations subject to the licensing provisions of the California
Horse Racing Board, Ladbroke Racing California, Inc. and Ladbroke Land Holdings,
Inc. (wholly owned subsidiaries of Ladbroke Racing Corporation), in the
Registration Statement on Form S-1 of MI Entertainment Corp. for the
registration of its Class A Subordinated Voting Stock.
January 14, 2000 Ernst & Young LLP
Walnut Creek, California Certified Public Accountants
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 8-MOS 8-MOS 5-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998 JUL-31-1998 JUL-31-1997
<PERIOD-END> AUG-31-1999 AUG-31-1998 DEC-31-1998 JUL-31-1998 JUL-31-1997
<CASH> 15,629 265 17,503 295 220
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 6,963 1,020 8,979 1,088 788
<ALLOWANCES> 0 0 0 0 0
<INVENTORY> 597 483 1,050 461 438
<CURRENT-ASSETS> 24,518 2,161 29,054 1,913 1,516
<PP&E> 361,950 189,290 340,408 186,548 113,404
<DEPRECIATION> 9,078 4,420 5,497 3,659 1,745
<TOTAL-ASSETS> 377,390 187,031 364,142 184,802 113,175
<CURRENT-LIABILITIES> 66,570 10,776 43,532 10,643 13,649
<BONDS> 15,363 19,799 20,446 19,330 14,661
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 0 0 0 0
<OTHER-SE> 296,941 159,989 302,502 158,275 87,917
<TOTAL-LIABILITY-AND-EQUITY> 377,390 187,031 364,142 184,802 113,175
<SALES> 68,531 16,375 10,549 20,486 15,276
<TOTAL-REVENUES> 68,531 16,375 10,549 20,486 15,276
<CGS> 52,850 20,694 12,087 25,864 13,879
<TOTAL-COSTS> 52,850 20,694 12,087 25,864 13,879
<OTHER-EXPENSES> 4,041 1,430 1,649 1,852 1,824
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 522 1,010 1,221 1,380 955
<INCOME-PRETAX> 11,118 (6,759) (4,408) (8,610) (1,382)
<INCOME-TAX> 5,342 0 (177) 0 0
<INCOME-CONTINUING> 5,776 (6,759) (4,231) (8,610) (1,382)
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 5,776 (6,759) (4,231) (8,610) (1,382)
<EPS-BASIC> 0 0 0 0 0
<EPS-DILUTED> 0 0 0 0 0
</TABLE>
