(h) On March 4, 2007, MEC entered into a series of customer-focused
agreements with CDI in order to enhance wagering integrity and
security, to own and operate HRTV(R), to buy and sell horseracing
content, and to promote the availability of horseracing signals to
customers worldwide. These agreements involved the formation of a
joint venture, TrackNet Media, a reciprocal content swap agreement
and the purchase by CDI from MEC of a 50% interest in HRTV(R).
TrackNet Media is the vehicle through which MEC and CDI horseracing
content is made available to third parties, including racetracks,
OTB facilities, casinos and advance deposit wagering ("ADW")
companies. TrackNet Media purchases horseracing content from third
parties and makes it available through the respective MEC and CDI
outlets. Under the reciprocal content swap agreement, MEC and CDI
exchange their respective horseracing signals. On March 4, 2007,
HRTV, LLC was created, with an effective date of April 27, 2007, in
order to facilitate the sale of 50% of HRTV(R) to CDI. Both MEC and
CDI are required to make quarterly capital contributions, on an
equal basis, until October 2009 to fund the operations of HRTV,
LLC, however, MEC may, under certain circumstances, be responsible
for additional capital commitments. MEC's share of the required
capital contributions to HRTV, LLC is expected to be approximately
$7.0 million, of which $3.6 million had been contributed prior to
June 30, 2008. (i) On December 8, 2005, legislation authorizing the
operation of slot machines within existing, licensed Broward
County, Florida pari- mutuel facilities that had conducted live
racing or games during each of 2002 and 2003 was passed by the
Florida Legislature. On January 4, 2006, the Governor of Florida
signed the legislation into law and, subsequently, the Division of
Pari-mutuel Wagering developed the governing rules and regulations.
Prior to the opening of the slots facility at Gulfstream Park on
November 15, 2006, MEC was awarded a gaming licence for slot
machine operations at Gulfstream Park in October 2006 despite an
August 2006 decision rendered by the Florida First District Court
of Appeals that ruled that a trial is necessary to determine
whether the constitutional amendment adopting the slots initiative
was invalid because the petitions bringing the initiative forward
did not contain the minimum number of valid signatures. Previously,
a lower court decision had granted summary judgment in favour of
"Floridians for a Level Playing Field" ("FLPF"), a group in which
GPRA is a member. Though FLPF pursued various procedural options in
response to the Florida First District Court of Appeals decision,
the Florida Supreme Court ruled in late September 2007 that the
matter was not procedurally proper for consideration by the court.
Its order effectively remanded the matter to the trial court for a
trial on the merits. MEC has disclosed that it expects that a trial
on the merits will likely take an additional year or more to fully
develop and that it could take as many as three years to achieve a
full factual record and trial court ruling for an appellate court
to review. At June 30, 2008, the carrying value of MEC's fixed
assets related to the slots facility is approximately $27.0
million. If the matter is ultimately decided in a manner adverse to
MEC, a write-down of these fixed assets may be required. (j) In May
2005, MEC entered into a Limited Liability Company Agreement with
Forest City (collectively with MEC, the "Partnership Members")
concerning the planned development of "The Village at Gulfstream
Park(TM)". That agreement contemplates the development of a
mixed-use project consisting of residential units, parking,
restaurants, hotels, entertainment, retail outlets and other
commercial use projects on a portion of the Gulfstream Park
property. Under the Limited Liability Company Agreement, Forest
City is required to contribute up to a maximum of $15.0 million as
an initial capital contribution. MEC is obligated to contribute 50%
of any equity amounts in excess of $15.0 million as and when needed
and, to June 30, 2008, MEC has contributed $4.2 million. At June
30, 2008, approximately $55.0 million of net costs have been
incurred by The Village at Gulfstream Park, LLC, which have been
funded by a construction loan from a third party bank, as well as
equity contributions from MEC and Forest City. Included in MEC's
"accounts payable and accrued liabilities" is an obligation of
approximately $3.0 million reflecting MEC's unpaid share of equity
contributions in excess of $15.0 million. If either of the
Partnership Members fails to make required capital contributions
when due, then the other Partnership Member may advance such funds
to the Limited Liability Company, equal to the required capital
contributions, as a recourse loan or as a capital contribution for
which the capital accounts of the Partnership Members would be
adjusted accordingly. The Limited Liability Company Agreement also
contemplated additional agreements with MEC, including a ground
lease, a reciprocal easement agreement, a development agreement, a
leasing agreement and a management agreement, all of which have
been executed. Upon the opening of The Village at Gulfstream
Park(TM), annual cash receipts (adjusted for certain disbursements
and reserves) will first be distributed to Forest City, subject to
certain limitations, until the initial contribution accounts of the
Partnership Members are equal. Thereafter, the cash receipts are
generally expected to be distributed to the Partnership Members
equally, provided they maintain their equal interest in the
partnership. The annual cash payments made to Forest City to
equalize the Partnership Members' initial contribution accounts
will not exceed the amount of annual ground rent otherwise payable
to a subsidiary of MEC. (k) On September 28, 2006, certain of MEC's
affiliates entered into definitive operating agreements with Caruso
regarding the proposed development of The Shops at Santa Anita on
approximately 51 acres of excess land surrounding Santa Anita Park.
Westfield Corporation ("Westfield"), a developer of a neighbouring
parcel of land, has challenged the manner in which the entitlement
process for such development has proceeded. On May 16, 2007,
Westfield commenced civil litigation in the Los Angeles Superior
Court in an attempt to overturn the Arcadia City Council's approval
and granting of entitlements related to the construction of The
Shops at Santa Anita. In addition, on May 21, 2007, Arcadia First!
filed a petition against the City of Arcadia to overturn the
entitlements and named MEC and certain of its subsidiaries as
parties of interest. The first hearings on the merits of the
petitioners' claims were heard in May 2008. On July 23, 2008, the
court issued a tentative opinion in favour of the petitioners in
part, concluding that eleven parts of the final environmental
impact report were deficient. MEC and Caruso are working with the
City of Arcadia to determine how to resolve the deficiencies in the
final environmental impact report. Accordingly, development efforts
may be delayed or suspended. Under an April 2004 Letter of Intent,
MEC is also exploring the possibility of a joint venture with
Caruso to develop excess lands surrounding Golden Gate Fields. To
June 30, 2008, MEC has expended $10.2 million on these development
initiatives, of which $0.3 million was paid in the six months ended
June 30, 2008. These amounts have been included in MEC's "real
estate properties, net" on the Company's consolidated balance
sheets. Under the terms of these arrangements, MEC may be
responsible to fund additional costs. However, to June 30, 2008, no
such payments have been made. (l) In November 2006, MEC sold its
wholly-owned interest in The Meadows, a standardbred racetrack in
Pennsylvania, to PA Meadows, LLC, a company jointly owned by
William Paulos and William Wortman, controlling shareholders of
Millennium Gaming, Inc., and a fund managed by Oaktree Capital
Management, LLC (together, "Millennium- Oaktree"). On closing, MEC
received cash consideration of $171.8 million, net of transaction
costs of $3.2 million, and a $25.0 million holdback note payable to
MEC over a five-year period, subject to offset for certain
indemnification obligations (the "Meadows Holdback Note"). Based on
the indemnification obligations and other terms pertaining to the
Meadows Holdback Note, the Meadows Holdback Note will be recognized
in the consolidated financial statements upon the settlement of the
indemnification obligations and as payments are received. The
parties also entered into a racing services agreement whereby MEC
pays $50 thousand per annum and continues to operate, for its own
account, the racing operations at The Meadows until at least July
2011. On December 12, 2007, Cannery Casino Resorts, LLC, the parent
company of Millennium-Oaktree, announced it had entered into an
agreement to sell Millennium-Oaktree to Crown Limited. If the deal
is consummated, either party to the racing services agreement will
have the option to terminate the arrangement. $5.6 million of the
gain from the sale of The Meadows was initially deferred and
included in MEC's "other long-term liabilities" representing the
estimated net present value of the future operating losses expected
over the term of the racing services agreement. Such amount is
being recognized as a reduction of "general and administrative"
expenses in MEC's results of operations over the term of the racing
services agreement. Effective January 1, 2008, The Meadows entered
into an agreement with the Meadows Standardbred Owners Association,
which expires on December 31, 2009, whereby the horsemen will make
contributions to subsidize backside maintenance and marketing
expenses at The Meadows. As a result, the estimated operating
losses expected over the remaining term of the racing services
agreement have been revised, resulting in an additional $2.0
million of previously deferred gains being recognized in MEC's
"other gains, net" for the six months ended June 30, 2008. Until
December 25, 2007, The Meadows participated in a multi-employer
defined benefit pension plan for which the pension plan's total
vested liabilities exceeded the plan's assets. The New Jersey
Sports & Exposition Authority previously withdrew from the
pension plan effective November 1, 2007. As the only remaining
participant in the pension plan, The Meadows withdrew from the
pension plan effective December 25, 2007, which constituted a mass
withdrawal. An updated actuarial valuation is in the process of
being obtained, however, based on allocation information provided
by the plan, the estimated withdrawal liability of The Meadows is
approximately $6.2 million. This liability may be satisfied by
annual payments of approximately $0.3 million. As part of the
indemnification obligations provided for in the Meadows Holdback
Note, the mass withdrawal liability that has been triggered as a
result of The Meadows' withdrawal from the plan will be set-off
against the amount owing to MEC under the Meadows Holdback Note.
(m) MJC was party to agreements with the Maryland Thoroughbred
Horsemen's Association and the Maryland Breeders' Association,
which expired on December 31, 2007, under which the horsemen and
the breeders each contributed 4.75% of the costs of simulcasting to
MJC. Without similar arrangements in effect, costs are expected to
increase by approximately $2.0 million for the year ending December
31, 2008. At this time, it is uncertain whether these agreements
will be renewed on comparable terms. (n) On February 12, 2008, MEC
received notice from the Nasdaq Stock Market ("Nasdaq") advising
that, in accordance with Nasdaq Marketplace Rule 4450(e)(2), MEC
had until August 11, 2008 to regain compliance with the minimum bid
price required for the continued listing of the MEC Class A Stock
on Nasdaq, as set forth in Nasdaq Marketplace Rule 4450(a)(5). MEC
received this notice because the bid price of its publicly held MEC
Class A Stock closed below the $1.00 per share minimum for 30
consecutive business days prior to February 12, 2008. In order to
provide MEC with flexibility in addressing market-related issues
affecting its capitalization and to address the Nasdaq continuous
listing requirements, MEC's Board of Directors adopted a
resolution, approved by MEC stockholders on May 6, 2008, to amend
MEC's Certificate of Incorporation to permit a one-time reverse
stock split of MEC's Class A Stock and MEC Class B Stock, prior to
May 6, 2009, in any whole number consolidated ratio from 1:10 to
1:20. On July 3, 2008, MEC announced that its Board of Directors
had approved a reverse stock split of MEC's Class A Stock and MEC
Class B Stock utilizing a 1:20 consolidation ratio. The reverse
split became effective on July 22, 2008. On August 5, 2008, MEC
received notice from Nasdaq that it had regained compliance with
the minimum bid continued listing requirement and the matter had
been closed. As a result of the reverse stock split, every twenty
shares of MEC Class A Stock and MEC Class B Stock have been
consolidated into one share of MEC Class A Stock and MEC Class B
Stock, respectively. The reverse stock split affects all shares of
common stock, stock options and convertible securities of MEC
outstanding prior to the effective date. The 58.6 million
outstanding shares of MEC Class A Stock (4.4 million of which were
held by MID) and 58.4 million outstanding shares of MEC Class B
Stock (all of which were held by MID) were reduced to 2.9 million
shares of MEC Class A Stock (0.2 million of which are held by MID)
and 2.9 million shares of MEC Class B Stock (all of which continue
to be held by MID), respectively. Because the reverse stock split
applies to all issued shares of MEC Class A Stock and MEC Class B
Stock, it does not alter the relative rights and preferences of
MID's interest in MEC, nor does it affect MID's proportionate
equity or voting interest in MEC, except to the extent the reverse
stock split resulted in fractional shares being cashed out. As a
result of the reverse stock split, the conversion price for which
each of MEC's $150.0 million of 8.55% convertible subordinated
notes and $75.0 million of 7.25% convertible subordinated notes are
convertible into shares of MEC Class A Stock has been adjusted from
$7.05 and $8.50 per share, respectively, to $141.00 and $170.00 per
share, respectively. (o) On May 8, 2008, one of MEC's wholly-owned
subsidiaries, Los Angeles Turf Club, Incorporated, commenced civil
litigation in the District Court in Los Angeles for breach of
contract. It is seeking damages in excess of $8.4 million from
Cushion Track Footing USA, LLC and other defendants for failure to
install a racing surface at Santa Anita Park suitable for the
purpose for which it was intended. DATASOURCE: MI Developments Inc.
CONTACT: PRNewswire - - 08/08/2008
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