UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITY
EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported): March 4, 2007
(Exact
name of registrant as specified in its charter)
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Kentucky
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0-1469
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61-0156015
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(State
of incorporation)
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(Commission
file number)
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(IRS
Employer Identification No.)
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700
Central Avenue, Louisville, Kentucky 40208
(Address
of principal executive offices)
(Zip
Code)
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(502) 636-4400
(Registrant’s
telephone number, including area
code)
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Check
the
appropriate box below if the Form 8-K is intended to simultaneously satisfy
the
filing obligation of the registrant under any of the following
provisions:
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[ ]
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Written
communications pursuant to Rule 425 under the Securities Act (18
CFR
230.425)
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[ ]
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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[ ]
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
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[ ]
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
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Item
1.01. Entry into a Material Definitive Agreement.
On
Marcy
4, 2007, Churchill Downs Incorporated (the “Company”) entered into a series of
customer-focused agreements with Magna Entertainment Corp. (“MEC”) to enhance
wagering integrity and security, to own and operate the television network
known
as HRTV, to buy and sell horse racing content, and to promote the availability
of horse racing signals to customers worldwide. Additionally, the Company is
launching its own advance deposit wagering platform, www.twinspires.com.
Effective
March 4, 2007, the Company and MEC have entered into a reciprocal content swap
agreement to exchange their respective horse racing signals with each other.
Through
the agreement, the Company’s racing content will be available for wagering
through MEC-owned tracks and simulcast-wagering facilities and through MEC’s
advance deposit wagering (“ADW”) platform, XpressBet. Similarly, MEC racing
content will be available for wagering through the Company tracks and off-track
betting (“OTB”) facilities and through a Company-owned ADW platform,
www.twinspires.com, that is under development and will launch later this year.
The
Company and MEC have also formed a venture called TrackNet Media Group, LLC
through which their respective horse racing content will be available to third
parties, including racetracks, OTBs, casinos and ADW companies. TrackNet Media
Group, LLC will also purchase horse racing content from third parties to make
available through the Company and MEC’s respective outlets. In addition, the
Company has purchased a 50-percent interest in a venture which will own and
operate the horse racing TV channel currently owned by MEC, HRTV.
The
Company is currently developing its own ADW platform, www.twinspires.com,
which
will launch later this year. The site will offer racing fans the opportunity
to
wager on the Company- and MEC-owned racing content as well as other racing
content made available through TrackNet Media Group, LLC’s licensing agreements.
Copies
of
the Limited Liability Company Operating Agreements are attached hereto as
Exhibits 10.1 and 10.2 and are incorporated herein by reference.
Item
8.01. Other Events.
On
March
5, 2007, the Company issued a press release, a copy of which is attached as
Exhibit 99.1 to this Current Report on Form 8-K and is incorporated by
reference into this Item 8.01.
2
Item
9.01. Financial Statements and Exhibits.
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(d)
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Exhibits
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10.1
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March
4, 2007 Limited Liability Company Operating Agreement of HRTV, LLC
between
Churchill Downs Incorporated, CD
HRTV HC, LLC,
Magna Entertainment Corp. and MEC HRTV HOLDCO, LLC
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10.2
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March
4, 2007 Limited Liability Company Operating Agreement of Tracknet
Media
Group, LLC between Churchill Downs Incorporated, CD
CONTENTCO HC, LLC,
Magna Entertainment Corp. and MEC CONTENT HOLDCO, LLC
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99.1
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Press
Release issued by Churchill Downs Incorporated, dated March 5,
2007
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto,
duly authorized.
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CHURCHILL
DOWNS INCORPORATED
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March
6, 2007
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/s/
Michael W. Anderson
By:
Michael W. Anderson
Title:
Principal Financial Officer
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3
LIMITED
LIABILITY COMPANY OPERATING AGREEMENT
OF
HRTV,
LLC
THIS
OPERATING AGREEMENT of HRTV, LLC, a Delaware limited liability company (the
“Company”), is entered into as of March 4, 2007 by and between CHURCHILL DOWNS
INCORPORATED, a Kentucky corporation (“CDI”), CD HRTV HC, LLC, a Delaware
limited liability company and a wholly owned subsidiary of CDI (“CDI Sub”),
MAGNA ENTERTAINMENT CORP., a Delaware corporation (“MEC”) and MEC HRTV HOLDCO
LLC, a Delaware limited liability company and a wholly owned subsidiary of
MEC
(“MEC Sub”). (Unless otherwise indicated, each term used in this Agreement with
initial capital letters shall have the meaning ascribed to it in Article
12.)
For
and
in consideration of the mutual promises contained herein, and for other good
and
valuable consideration, the receipt and sufficiency of which are acknowledged
by
the parties, CDI, CDI Sub, MEC and MEC Sub desiring to be legally bound agree
as
follows:
ARTICLE
1
FORMATION
1.1 Formation
and Name.
[a] The
Members enter into and form the Company as a limited liability company in
accordance with the Act.
[b] The
name
of the Company shall be HRTV, LLC.
1.2 Term.
The
“Term” of the Company shall commence on the date first above written and shall
continue as set forth in Section 8.2. Notwithstanding the immediately preceding
sentence, the Company shall not conduct the Business or otherwise engage in
the
activities referenced in Section 1.3 until the Closing.
1.3 Purpose
and Scope.
[a] Within
the meaning and for purposes of the Act, the purpose and scope of the Company
shall be the conduct of the Business, and in connection with conducting the
Business, shall include any lawful action or activity permitted to a limited
liability company under the Act.
[b] The
Company will:
[i] Acquire
or lease all of the assets used or useful in the operation of HRTV.
[ii] Operate
the business of HRTV.
Collectively,
[i] and [ii] are referred to herein as the “Business.”
1.4 Principal
Office.
The
Company shall have a single “Principal Office.” The Principal Office initially
shall be located in Arcadia, California at Santa Anita Park, and may thereafter
be changed from time to time by approval of the Board of Managers upon notice
to
the Members.
1.5 Delaware
Office and Agent.
The
Company shall maintain a Delaware registered office and agent for service of
process as required by the Act. In the event the registered agent ceases to
act
as such for any reason or the registered office shall change, the Board of
Managers shall promptly designate a replacement registered agent or file a
notice of change of address, as the case may be, in each case as required by
the
Act.
1.6 Admission
of Members and Additional Members.
[a] Upon
execution of this Agreement each of CDI Sub and MEC Sub is admitted as a
Member.
[b] Additional
Members may be admitted as Members from time to time, with the approval of
the
Board of Managers and with such changes to this Agreement as agreed to by CDI,
CDI Sub, MEC and MEC Sub. The Capital Commitment (as well as the timing of
required capital contributions in respect thereof) and Allocation Percentage
of
each Additional Member shall be determined by approval of the Board of Managers
and set forth on Schedule A. The Allocation Percentage of each Additional Member
shall dilute the Allocation Percentages of the previously admitted Members
in
proportion to their respective Allocation Percentages as in effect immediately
prior to such dilution.
[c] A
Person
shall not be admitted as an Additional Member prior to the execution by such
Person of a counterpart of this Agreement (including Schedule A, as updated
to
reflect such Person’s Interest).
[d] Notwithstanding
the foregoing provisions of this Section 1.6, the provisions of Article 7 shall
apply with regard to the admission of Substitute Members.
[e] CDI
and
MEC shall work together to recruit mutually agreed-upon Third Parties (such
as
horsemen, breeders and other industry participants) to become Additional Members
of the Company. In the event CDI and MEC are successful in recruiting mutually
agreed-upon Additional Members, CDI Sub and MEC Sub will be diluted on a pro
rata basis.
1.7 Names
and Contact Information of the Members.
Set
forth below the name of each Member on Schedule A shall be appropriate contact
information for such Member (including such Member’s mailing address as well as
the name or title of an individual to whom notices and other correspondence
should be directed). Each Member shall promptly provide the Company with the
information required to be set forth for such Member on Schedule A and shall
thereafter promptly notify the Company of any change to such
information.
1.8 Additional
Documents.
The
Board of Managers shall cause to be executed, filed, recorded, published, or
amended any documents, as the Board of Managers in their reasonable discretion
determine to be necessary or advisable, (x) in connection with the formation,
operation, Dissolution, winding-up, or Termination of the Company pursuant
to
applicable law or (y) to otherwise give effect to the terms of this Agreement.
The terms and provisions of each document described in the preceding sentence
shall be initially established and shall be amended as necessary to cause such
terms and provisions to be consistent with the terms and provisions of this
Agreement.
1.9 Title
to Property.
Title
to all Company property shall be held in the name of the Company; provided,
however, that publicly traded securities may be held in “street name” or through
a similar arrangement with a reputable financial institution.
ARTICLE
2
CAPITALIZATION
2.1 Capital
Commitments.
[a] Initial
Capital Commitments.
The
Company shall be owned initially fifty percent (50%) by CDI Sub and fifty
percent (50%) by MEC Sub. Each of CDI Sub and MEC Sub will make initial capital
contributions in the amounts and at such times as set forth on Schedule A.
In
addition, as of the Closing MEC and MEC Sub will directly or indirectly
contribute and/or lease certain property to the Company as more fully described
in the Asset Transfer and Contribution Agreement. All Capital Commitments shall
be made such that each of MEC Sub and CDI Sub contributes fifty percent (50%)
of
the aggregate value contributed to the Company, except as may otherwise be
set
forth in this Agreement or agreed between MEC Sub and CDI Sub.
[b] Increased
Capital Commitments.
MEC Sub
shall have additional Capital Commitments as set forth on Schedule B. Each
of
CDI Sub and MEC Sub shall have additional Capital Commitments as set forth
on
Schedule B-1.
[c] Rights
Covenant.
Upon
execution of this Agreement, CDI Sub and MEC Sub contribute or cause to be
contributed and/or license or cause to be licensed to the Company their
respective rights (including such rights as held by their Affiliates) as set
forth on Schedule 5 of the Business Plan subject to the contractual obligations
existing as of the date hereof as set forth on Schedule C.
[d] Expiration
of Commitments.
CDI Sub
and MEC Sub will not be obligated to fund any additional Capital Commitment
for
the Company after December 31, 2009 (other than any defaulted Capital
Commitments prior to such date).
2.2 Capital
Contributions.
Except
to the extent set forth on Schedule 5 of the Business Plan, set forth in the
Asset Transfer and Contribution Agreement or otherwise agreed by the Members
after the date of this Agreement, all capital contributions shall be in
cash.
[a] Capital
Contributions in Respect of Initial Capital
Commitments.
Concurrently with its execution of this Agreement, each Member shall make a
capital contribution equal to its initial Capital Commitment required upon
execution of this Agreement as set forth in Schedule A. Thereafter each Member
shall make a capital contribution at the times and in the amounts equal to
its
further initial Capital Commitments as set forth in Schedule A.
[b] Capital
Contributions in Respect of Increased Capital
Commitments.
The
Members shall make capital contributions in respect of, and in proportion to,
any increase in their Capital Commitments pursuant to
Section 2.1(b).
2.3 Limitation
on Capital Contributions.
Except
as specifically provided in this Article 2 or Section 3.5(c), no Person shall
be
permitted or required to make a contribution to the capital of the
Company.
2.4 Penalties
for Failure to Make Required Contributions.
In the
event that a Member fails to timely make a capital contribution as required
pursuant to this Agreement (a “Defaulting Member”), the following provisions
shall be applicable:
[a] The
non-Defaulting Member shall have the right (but not the obligation) to make
the
capital contribution in lieu of the Defaulting Member. In such event, the
Interest and Allocation Percentage of the non-Defaulting Member in the Company
shall be proportionately increased, and the Interest and Allocation Percentage
of the Defaulting Member proportionately decreased, as appropriate to reflect
the additional capital contribution by the non-Defaulting Member. If the default
is then cured by the Defaulting Member, as permitted under this Agreement,
the
Defaulting Member shall have the Interests and Allocation Percentages of the
Defaulting Member and the non-Defaulting Member reinstated to where they were
prior to the default with an appropriate distribution to the non-Defaulting
Member of the capital contribution made in lieu of the Defaulting
Member.
[b] Such
Defaulting Member shall be subject to any and all penalties and remedies
available at law or equity, as selected by the members of the Board of Managers
who are not appointed by the Defaulting Member.
2.5 Withdrawal
and Return of Capital.
No
Member may withdraw any portion of its Capital Contribution or Capital Account
balance. Except as provided in Section 2.4[a] and in Articles 4 and 8, no Member
shall be entitled to the return of such Member’s Capital Contribution, a
distribution in respect of such Member’s Capital Account balance, or any other
distribution in respect of such Member’s Interest.
2.6 Loans
to the Company.
No
Member shall be required to lend any money to the Company or to guaranty any
Company indebtedness.
2.7 Interest
on Capital.
No
Member shall be entitled to interest on such Member’s Capital Contribution,
Capital Account balance, or share of unallocated Profits.
2.8 Limitation
of Liability; Return of Certain Distributions.
[a] Except
as
otherwise required by applicable law, a Member shall have no personal liability
for the debts and obligations of the Company.
[b] A
Member
that receives a distribution in violation of this Agreement or that is required
to be returned to the Company under applicable law shall return such
distribution within thirty (30) days after demand therefor by any Member. The
Company may, with the approval of the Board of Managers, elect to withhold
from
any distributions otherwise payable to a Member amounts due to the Company
from
such Member.
[c] Nothing
in this Section 2.8 shall be applied to release any Member from
(i) its obligation to make capital contributions or other payments
specifically required under this Agreement or (ii) its obligations pursuant
to any contractual relationship between the Company and such Member acting
in a
capacity other than as a Member (including, for example, as a borrower or
independent contractor).
2.9 Contributed
Property.
With
respect to any property contributed by a Member to the Company, such Member
shall provide to the Company any information reasonably requested by the Company
for purposes of determining the Company’s tax basis in such
property.
2.10 Seconded
Personnel.
MEC and
CDI shall agree on their respective personnel to be seconded or transferred
to
the Company and the terms thereof. Schedule 1 of the Business Plan sets forth
the organizational chart of the Company, including the names of certain
personnel who are expected to fill various positions and several open positions
for which no candidates have yet been identified by the Members. CDI and MEC
intend to second the personnel listed on Schedule 1 of the Business Plan
immediately upon Closing and CDI and MEC shall cooperate in good faith to
determine whether they mutually agree in the future to transfer such employees
to the Company instead of seconding them to the Company. On or before the tenth
(10th)
day of
each month, each of CDI and MEC will bill the Company for the Employee Costs
incurred by CDI and MEC during the immediately preceding month for its employees
seconded to the Company, prorated as appropriate for any employees seconded
on a
less than full time basis. The Company shall promptly pay to CDI and MEC the
amount set forth in such bills.
ARTICLE
3
PROFITS
AND LOSSES
3.1 Allocations
of Company Profits and Losses.
[a] General
Allocation Provisions.
[i] Hypothetical
Liquidation.
The
items of income, expense, gain and loss of the Company comprising Profits or
Losses for a fiscal year shall be allocated among the Members in a manner that
will, as nearly as possible, cause the Capital Account balance of each Member
at
the end of such fiscal year to equal the excess (which may be negative)
of:
[A] the
hypothetical distribution (if any) that such Member would receive if, on the
last day of the fiscal year, (i) all Company assets, including cash, were sold
for cash equal to their Fair Market Values, taking into account any adjustments
thereto for such fiscal year, (ii) all Company liabilities were satisfied in
cash according to their terms (limited, with respect to each nonrecourse
liability, to the Fair Market Value of the assets securing such liability),
and
(iii) the net proceeds thereof (after satisfaction of such liabilities) were
distributed in full pursuant to Section 8.3[d]; over
[B] the
sum
of (x) the amount, if any, which such Member is obligated to contribute to
the
capital of the Company, (y) such Member’s share of the Company Minimum Gain
determined pursuant to Treasury Regulation Section 1.704-2(g), and (z) such
Member’s share of Member Minimum Gain determined pursuant to Treasury Regulation
Section 1.704-2(i)(5), all computed immediately prior to the hypothetical sale
described above.
[ii] Determination
of Items Comprising Allocations.
[A] In
the
event that the Company has Profit for a fiscal year,
[1] for
any
Member as to whom the allocation under Section 3.1(a)(i) would reduce its
Capital Account, such allocation shall be comprised of a proportionate share
of
each of the Company’s items of expense or loss entering into the computation of
Profit for such fiscal year; and
[2] the
allocation for all other Members shall be comprised of a proportionate share
of
each Company item of income, gain, expense and loss entering into the
computation of Profit for such fiscal year (other than the portion of each
Company item of expense and loss, if any, that is allocated in (ii)(A)(1)
above).
[B] In
the
event that the Company has Loss for a fiscal year,
[1] for
any
Member as to whom the allocation under Section 3.1(a)(i) would increase its
Capital Account, such allocation shall be comprised of a proportionate share
of
the Partnership’s items of income and gain entering into the computation of Loss
for such fiscal year; and
[2] the
allocation for all other Members shall be comprised of a proportionate share
of
each Company item of income, gain, expense and loss entering into the
computation of Loss for such fiscal year (other than the portion of each Company
item of income and gain, if any, that is allocated in (ii)(B)(1)
above).
[b] Allocation
Adjustments Required to Comply With Section 704(b) of the
Code.
[i] Limitation
on Allocation of Losses.
There
shall be no allocation of Losses to any Member to the extent that such
allocation would create a negative balance in the Member’s Capital Account (or
increase the amount by which the Member’s Capital Account balance is negative)
unless such allocation would be treated as valid under Section 704(b) of the
Code. Any Losses that, pursuant to the preceding sentence, cannot be allocated
to a Member shall be reallocated to the other Members (but only to the extent
that such other Members can be allocated Losses without violating the
requirements of the preceding sentence) in proportion to their respective
Allocation Percentages.
[ii] Qualified
Income Offset.
If in
any Fiscal Year a Member receives (or is reasonably expected to receive) a
distribution, or an allocation or adjustment to the Member’s Capital Account,
that creates a negative balance in such Account (or increases the amount by
which the balance in such Account is negative), there shall be allocated to
the
Member such items of Company income or gain as are necessary to satisfy the
requirements of a “qualified income offset” within the meaning of Treasury
Regulation Section 1.704-1(b).
[iii] Member
Nonrecourse Deductions.
In
accordance with the provisions of Treasury Regulation Section 1.704-2(i), each
item of Member Nonrecourse Deduction shall be allocated among the Members in
proportion to the economic risk of loss that the Members bear with respect
to
the nonrecourse liability of the Company to which such item of Member
Nonrecourse Deduction is attributable.
[iv] Minimum
Gain Chargeback.
This
Section 3.1(b)(iv) hereby incorporates by reference the “minimum gain
chargeback” provisions of Treasury Regulation Section 1.704-2. In general, upon
a reduction of the Company’s Minimum Gain, the preceding sentence shall require
that items of income and gain be allocated among the Members in a manner that
reverses prior allocations of Nonrecourse and Member Nonrecourse Deductions
as
well as reductions in the Members’ Capital Account balances resulting from
distributions that, notwithstanding Section 3.2, are allocable to increases
in
the Company’s Minimum Gain. Subject to the provisions of Section 704 of the Code
and the Treasury Regulations thereunder, if the Board of Managers determine
at
any time that operation of such “minimum gain chargeback” provisions likely will
not achieve such a reversal by the conclusion of the liquidation of the Company,
such Members shall adjust the allocation provisions of this Section 3.1 as
necessary to accomplish that result.
[v] Allocations
Subsequent to Certain Allocation Adjustments.
Any
special allocations of items of Profit or Loss pursuant to
Section 3.1(b)(i) or (ii) shall be taken into account in computing
subsequent allocations pursuant to Section 3.1(a) so that, for each Member,
the net amount of any such special allocations and all allocations pursuant
to
Section 3.1(a) shall, to the extent possible and taking into account any
adjustments previously made pursuant to Section 3.1(g), be equal to the net
amount that would have been allocated to such Member pursuant to the provisions
of Section 3.1(a) without application of Section 3.1(b)(i) or
(ii).
[c] Book
- Tax Accounting Disparities.
If
Company property is reflected in the Capital Accounts of the Members at a value
that differs from the adjusted tax basis of such property (whether because
such
property was contributed to the Company by a Member or because of a revaluation
of the Members’ Capital Accounts under Treasury Regulation Section 1.704-1(b)),
allocations of depreciation, amortization, income, gain or loss with respect
to
such property shall be made among the Members in a manner which takes such
difference into account in accordance with Code Section 704(c) and the
Treasury Regulations issued thereunder.
[d] Allocations
in Event of Transfer.
If an
Interest is Transferred in accordance with this Agreement, allocations of
Profits and Losses as between the transferor and transferee shall be made using
any method selected by the Board of Managers and permitted under Section 706
of
the Code.
[e] Adjustment
to Capital Accounts for Distributions of Property.
If
property distributed in kind is reflected in the Capital Accounts of the Members
at a book value that differs from the Fair Market Value of such property at
the
time of distribution, the difference shall be treated as Profit or Loss on
the
sale of the property and shall be allocated among the Members in accordance
with
the provisions of this Section 3.1.
[f] Tax
Credits and Similar Items.
Any tax
credits or similar items not allocable pursuant to Section 3.1(a) through (e)
shall be allocated to the Members in proportion to their respective Allocation
Percentages. Notwithstanding the preceding sentence, if Company expenditures
that give rise to tax credits also give rise to Member Nonrecourse Deductions,
the tax credits attributable to such expenditures shall be allocated in
accordance with Treasury Regulation Section 1.704-1(b)(4)(ii).
[g] Reallocation
of Certain Losses.
To the
extent that: (i) Losses which otherwise would have been allocated to a Member
under this Section 3.1 were allocated to one or more other Members pursuant
to
Section 3.1(b)(i) or any other provision of this Agreement that prohibits the
allocation to a Member of Losses which would reduce such Member’s Capital
Account balance below a specified amount; (ii) such allocation has not been
reversed pursuant to the subsequent operation of Section 3.1(b)(v) or this
Section 3.1(g); and (iii) the Member thereafter returns a distributed amount
as
required under Section 2.8 or otherwise makes a contribution to the capital
of
the Company, the Capital Accounts of the Members shall be adjusted in connection
with such return or contribution (to the extent of the value thereof) to effect
a reallocation, in reverse order, of such Losses to the Member. The foregoing
adjustment shall be made in an equitable manner on a going forward basis,
without amending any prior tax return that has already been filed.
3.2 Compliance
with Regulations.
In
allocating gains, losses and other items, the Company shall comply with the
applicable provisions of the Treasury Regulations under Section 704 of the
Code.
3.3 Allocation
of Liabilities.
Solely
for purposes of determining the Members’ respective shares of the nonrecourse
liabilities of the Company within the meaning of Treasury Regulation Section
1.752-3(a)(3), each Member’s interest in Company Profits shall be equal to the
ratio that such Member’s Allocation Percentage bears to the aggregate Allocation
Percentages of the Members.
3.4 Modifications
to Preserve Underlying Economic Objectives.
If, in
the opinion of counsel to the Company, there is a change in the Federal income
tax law (including the Code as well as the Treasury Regulations, rulings, and
administrative practices thereunder) which makes it necessary or prudent to
modify the allocation provisions of this Article 3 in order to preserve the
underlying economic objectives of the Members as reflected in this Agreement,
the Board of Managers shall make the minimum modification necessary to achieve
such purpose.
3.5 Withholding
Taxes.
[a] The
Company shall withhold taxes from distributions to, and allocations among,
the
Members to the extent required by law (as determined by the Board of Managers
in
their reasonable discretion). Except as otherwise provided in this
Section 3.5, any amount so withheld by the Company with regard to a Member
shall be treated for purposes of this Agreement as an amount actually
distributed to such Member pursuant to Section 4.1. An amount shall be
considered withheld by the Company if, and at the time, remitted to a
governmental agency without regard to whether such remittance occurs at the
same
time as the distribution or allocation to which it relates; provided, however,
that an amount actually withheld from a specific distribution or designated
by
the Board of Managers as withheld from a specific allocation shall be treated
as
if distributed at the time such distribution or allocation occurs.
[b] To
the
extent that operation of Section 3.5(a) would create a negative balance in
a Member’s Updated Capital Account or increase the amount by which such Updated
Capital Account balance is negative, the amount of the deemed distribution
shall
instead be treated as a loan by the Company to such Member, which loan shall
be
payable upon demand by the Company and shall bear interest at a floating rate
equal to the prime rate as announced from time to time by the Bank, compounded
daily.
[c] In
the
event that the Board of Managers determine in their reasonable discretion that
the Company lacks sufficient cash available to pay withholding taxes in respect
of a Member, one or more of the Members may, in their sole and absolute
discretion (but only with the consent of the Board of Managers), make a loan
or
capital contribution to the Company to enable the Company to pay such taxes.
Any
such loan shall be full-recourse to the Company and shall bear interest at
a
floating rate equal to the prime rate as announced from time to time by the
Bank, compounded daily. Notwithstanding any provision of this Agreement to
the
contrary, any loan (including interest accrued thereon) or capital contribution
made to the Company by a Member pursuant to this Section 3.5(c) shall be
repaid or returned as promptly as is reasonably possible.
[d] Each
Member hereby agrees to indemnify the Company and the other Members for any
liability they may incur for failure to properly withhold taxes in respect
of
such Member; moreover, each Member hereby agrees that neither the Company nor
any other Member shall be liable for any excess taxes withheld in respect of
such Member’s Interest and that, in the event of overwithholding, a Member’s
sole recourse shall be to apply for a refund from the appropriate governmental
authority.
[e] Taxes
withheld by third parties from payments to the Company shall be treated as
if
withheld by the Company for purposes of this Section 3.5. Such withholding
shall be deemed to have been made in respect of all the Members in proportion
to
their respective allocative shares under this Article 3 of the underlying
items of Profit to which such third party payments are attributable. In the
event that the Company receives a refund of taxes previously withheld by a
third
party from one or more payments to the Company, the economic benefit of such
refund shall be apportioned among the Members in a manner reasonably determined
by the Board of Managers to offset the prior operation of this
Section 3.5(e) in respect of such withheld taxes.
[f] In
the
event that the Company is required to recognize income or gain for income tax
purposes under Section 684 of the Code (or a similar provision of State or
local
law) in respect of an in-kind distribution to a Member, then, solely for such
income tax purposes, to the maximum extent permitted by applicable law (as
determined by the Board of Managers in their reasonable discretion), the income
or gain shall be allocated entirely to such Member.
3.6 Special
Loss Allocations.
The
allocable share of Losses of MEC Sub for any quarter will be increased by the
amount of Additional MEC Capital related to such quarter.
ARTICLE
4
DISTRIBUTIONS
4.1 Operating
Distributions.
Except
as otherwise provided in this Agreement, distributions prior to the Dissolution
of the Company shall be made in accordance with this Section 4.1 and each Member
actually receiving amounts pursuant to a specific distribution by the Company
shall receive a pro rata share of each item of cash or other property of which
such distribution is constituted (based upon such Member’s Allocation
Percentage).
[a] Mandatory
Tax Distributions.
[i] The
Company shall distribute to each Member, not later than 90 days after the close
of each Fiscal Year, an amount of cash equal to the sum of the
following.
[A] The
product of the Tax Percentage for such Fiscal Year and such Member’s allocated
share of the Company’s net long-term capital gain (as defined in Section 1222(7)
of the Code) for such Fiscal Year as shown on the Company’s Federal income tax
return (subject to the modification described in Section 4.1(a)(iii));
and
[B] The
product of the Tax Percentage for such Fiscal Year and such Member’s allocated
share of the Company’s net ordinary income and net short-term capital gain (as
defined in Section 1222(5) of the Code) for such Fiscal Year as shown on the
Company’s Federal income tax return (subject to the modification described in
Section 4.1(a)(iii)).
[ii] For
purposes of this Section 4.1(a): (x) the “Tax Percentage” with respect to each
specific item of net long-term capital gain shall be the highest blended Federal
and State marginal income tax rate applicable to such specific item of net
long-term capital gain recognized by a corporation doing business, in the State
with the highest marginal corporate income tax rate applicable to items of
net
long-term capital gain; and (y) the “Tax Percentage” with respect to items of
net ordinary income and net short-term capital gain shall be the highest blended
Federal and State marginal income tax rate applicable to ordinary income
recognized by a corporation doing business, in the State with the highest
marginal corporate income tax rate applicable to items of ordinary income.
In
all cases, the highest marginal income tax rate shall be the highest statutory
rate applicable to the specific type of income or gain in question and shall
be
determined without regard to phaseouts of deductions or similar adjustments;
moreover, a corporate franchise tax imposed in lieu of an income tax shall
be
treated as an income tax. The Board of Managers, acting in their reasonable
discretion, may adjust the determination of Tax Percentages pursuant to this
Section 4.1(a)(ii): (x) as necessary to ensure that the distribution required
to
be made to each Member pursuant to Section 4.1(a)(i) for any Fiscal Year is
not
less than such Member’s actual Federal and State income tax liability in respect
of allocations made to such Member by the Company for such Fiscal Year; or
(y)
to reflect any city or other local income tax to which any Member or Members
may
be subject; provided, however, that the Tax Percentage with regard to a
particular type of income or gain shall in all events be the same percentage
for
all Members.
[iii] For
purposes of calculating the Company’s net income and gain under clause (i),
above, there shall be disregarded any items of loss, expense or deduction the
ultimate deductibility of which may, in respect of any Member or equityholder
of
a Member, be subject to limitation under Section 67 of the Code.
[iv] For
purposes of determining whether the Company has satisfied its distribution
obligation under Section 4.1(a)(i), all cash distributions made during a Fiscal
Year shall be treated as distributions made pursuant to Section 4.1(a)(i) in
respect of such Fiscal Year (except to the extent that such distributions were
required to satisfy the obligations of the Company under Section 4.1(a)(i)
in
respect of one or more prior Fiscal Years, in which case such distributions
shall be treated as having been made pursuant to Section 4.1(a)(i) in respect
of
such prior Fiscal Year or Years).
[v] At
the
election of the Board of Managers, no distribution shall be required pursuant
to
Section 4.1(a)(i) in respect of any Fiscal Year if the Company does not have
the
funds necessary to make the distributions.
[b] Certain
Mandatory Distributions.
If on
December 31, 2009, there are funds contributed by the Members pursuant to
Schedule A which have not been expended by the Company, then, after provision
for all current obligations or liabilities of the Company incurred prior to
December 31, 2009, the Board of Managers shall make cash distributions in the
amounts and in the order under [i], [ii] and [iii] below:
[i] First,
to
pay the aggregate unpaid lease payments owed by the Company through December
31,
2009 under the Equipment Lease only with respect to assets acquired by the
lessor thereunder after the date of this Agreement;
[ii] Next,
to
MEC Sub in the amount of the aggregate Additional MEC Capital; and
[iii] Next,
to
the Members in proportion to their Allocation Percentages until CDI Sub has
received an amount which provides CDI Sub with a return of its Capital
Contributions contributed by CDI Sub prior to December 31, 2009 plus a 33 1/3%
rate of return calculated on an annual compounded basis from the date the
Capital Contribution is made on the outstanding amounts thereof.
[c] Certain
Optional Distributions.
If on
any date after December 31, 2009, the Company does not have an Actual Cash
Flow
Deficiency when measured on a last twelve month basis, the Board of Managers
may
elect thereafter to make cash distributions in the amounts and in the order
under [i], [ii], [iii] and [iv] below:
[i] First,
to
pay the aggregate unpaid lease payments owed by the Company through the date
of
such distribution under the Equipment Lease only with respect to assets acquired
by the lessor thereunder after the date of this Agreement, to the extent not
previously paid under Section 4.1 [b];
[ii] Next,
to
the Members in proportion to their Allocation Percentages until CDI Sub has
received an amount which provides CDI Sub with a return of its Capital
Contributions contributed by CDI Sub prior to December 31, 2009 plus a 33 1/3%
rate of return calculated on an annual compounded basis from the date the
Capital Contribution is made on the outstanding amounts thereof, to the extent
not previously paid under Section 4.1[b];
[iii] Next,
$17,000,000 plus the amount of any Additional MEC Capital to MEC Sub, to the
extent not previously paid under Section 4.1(b); and
[iv] Next,
to
the Members in proportion to their respective Allocation
Percentages.
[d] Discretionary
Distributions.
In
addition to the distributions provided for in Section 4.1[a], Section 4.1[b]
and
Section 4.1[c], the Board of Managers may cause the Company to distribute cash
or property to the Members, in proportion to the Members’ respective Allocation
Percentages, at such times and in such amounts as the Board of Managers shall
determine.
4.2 Liquidating
Distributions.
Notwithstanding the provisions of Section 4.1, cash or property of the
Company available for distribution upon the Dissolution of the Company
(including cash or property received upon the sale or other disposition of
assets in anticipation of or in connection with such Dissolution) shall be
distributed in accordance with the provisions of Section 8.3.
4.3 Limitation
on Distributions.
No
distribution shall be made to a Member pursuant to Section 4.1 if and to the
extent that such distribution would: (i) create a negative balance in the
Updated Capital Account of such Member or increase the amount by which such
Updated Capital Account balance is negative; (ii) cause the Company to be
insolvent; (iii) render the Member liable for a return of such distribution
under applicable law; or (iv) result in a Member receiving rights with respect
to Television Rights or Broadband and Mobile Rights it did not contribute to
the
Company.
4.4 No
Right to Distributions of Property.
Except
as otherwise provided in this Agreement, a Member shall have no right to require
that distributions to such Member consist of any specific item or items of
property.
ARTICLE
5
MANAGEMENT
AND ADMINISTRATION
5.1 Management
Powers and Authority of the Board of Managers.
Except
as otherwise specifically provided in this Agreement:
[a] The
Company and its business shall be managed, controlled and operated exclusively
by the Board of Managers consisting of four (4) Managers, who shall be the
“managers” of the Company within the meaning Section 18-101(10) of the Act and
shall have all of the powers and authority in respect of the Company permitted
to managers under the Act;
[b] CDI
Sub
and MEC Sub shall each appoint two (2) Managers to serve on the Board of
Managers who shall be the same managers appointed to the TrackNet board of
managers and shall be employees of CDI and MEC, respectively; provided that
no
such appointee may be the chairman of either CDI or MEC.
[c] MEC
Sub
shall have the right to designate the first chairperson who shall serve until
December 31, 2008. After December 31, 2008, the chairperson of the Board of
Managers shall rotate annually between a Manager designated by CDI Sub and
a
Manager designated by MEC Sub, unless the party with the right to designate
the
chairperson agrees otherwise. The chairperson shall preside at meetings of
the
Board of Managers and Members, but the chairperson will be a non-executive
position and will not have any operational or management duties.
5.2 Management
and Operations.
The
Company shall generally conduct its business as follows:
[a] All
actions taken and decisions made by the Board of Managers must be approved
unanimously by all members of the Board of Managers. In taking such actions
and
making such decisions, the Board of Managers and each member thereof shall
act
in their sole and absolute discretion, except as otherwise expressly stated
in
this Agreement. The Board of Managers shall make all decisions that are
customarily made by a board of directors of a corporation and shall authorize
the management of the Company to operate the Company in accordance with the
terms set forth in this Agreement. Notwithstanding the foregoing, any action
by
the Company related to a claimed breach of the Asset Transfer and Contribution
Agreement may be authorized by the two members of the Board of Managers
appointed by CDI Sub.
[b] The
Board
of Managers shall each year approve an annual operating budget and annual
capital budget (the 2007 annual budgets will commence May 1, 2007, with calendar
year budgets thereafter). Any modification to the annual operating budget or
annual capital budget must be approved by the Board of Managers. The operating
budget for 2007, 2008 and 2009 is set forth as Schedules 2 and 2-1 of the
Business Plan. The capital budget for 2007, 2008 and 2009 is set forth as
Schedule 2-2 of the Business Plan. The approval of the Board of Managers shall
be required for any Discretionary Expenditures.
[c] The
Company shall receive fees collected by TrackNet to help cover the costs of
producing and distributing television and other video (the “Television Fees”).
In connection with approving the annual budgets, the Board of Managers shall
consult with TrackNet to determine the amount to be charged as Television Fees.
The Television Fees shall be reviewed on an annual basis by the Board of
Managers.
[d] The
approval of the Board of Managers shall be required for (i) the appointment
of
the Chief Executive Officer (who may be the same as the chief executive officer
of TrackNet), the Chief Financial Officer and any employee or consultant who
will earn total compensation in a year in excess of $50,000, whether hired
by
the Company or seconded to the Company, and (ii) any increase in Employee Costs
for any employee, whether such employee has been seconded to or is employed
by
the Company.
[e] The
approval of the Board of Managers shall be required for any contract obligating
the Company in an amount greater than $50,000
or
without a ninety (90) day right of termination.
[f] The
approval of the Board of Managers shall be required for any contract entered
into by the Company for the distribution of HRTV by any means (including without
limitation cable or satellite).
[g] The
approval of the Board of Managers shall be required for any television content
acquisition agreement entered into by the Company and for any agreement between
the Company and TrackNet.
[h] The
approval of the Board of Managers shall be required for any expansion of the
scope of the Business of the Company.
[i] The
approval of the Board of Managers shall be required for the initiation or
settlement of any litigation.
[j] The
approval of the Board of Managers shall be required for any acquisitions or
dispositions of significant assets or businesses or the formation of any
partnerships or joint ventures.
5.3 Management
Team.
The
Company shall have a full time management team that is separate from its Members
headed by such officers as determined by the Board of Managers and shall operate
in accordance with the parameters set by the Board of Managers. In addition
to
executing the tasks identified above in Section 1.3(b), the Company’s management
team shall also be responsible for such other tasks as determined by the Board
of Managers.
5.4 Managers’
Power to Bind the Company.
[a] Notwithstanding
any provision of this Agreement to the contrary, any contract, agreement, deed,
lease, note or other document or instrument executed on behalf of the Company
by
two officers of the Company shall be deemed to have been duly executed; no
Member’s or Manager’s signature shall be required in connection with the
foregoing and Third Parties shall be entitled to rely upon the aforesaid power
to bind the Company without otherwise ascertaining that the requirements of
this
Agreement have been satisfied.
[b] The
Company is authorized to file with any governmental entity, on behalf of itself
and the Members, a certificate or similar instrument that evidences the power
of
any two officers to bind the Company as set forth in the preceding paragraph
(a).
5.5 Duties
to the Company.
[a] A
Member
shall not utilize any assets of the Company other than for the exclusive benefit
of the Company, a purpose reasonably related to protecting such Member’s
Interest (in a manner not inconsistent with the interests of the Company),
or to
comply with the requirements of applicable law.
[b] The
Managers shall devote to the Company such time, effort and attention as shall
be
reasonably necessary to ensure that the Company and its business are diligently
and prudently managed.
5.6 Officers.
The
Board of Managers may appoint, replace and remove, from time to time, Company
officers, who shall otherwise serve in office until the next succeeding December
31 and to whom the Board of Managers shall delegate such powers, authority
and
duties in respect of the Company as the Board of Managers shall determine
consistent with this Agreement.
5.7 Manager
and Member Expenses.
[a] General.
Except
as otherwise provided in Section 2.10 or this Section 5.7, neither CDI, MEC
nor
any Member shall be reimbursed for expenses incurred on behalf of, or otherwise
in connection with, the Company. Any reimbursement paid by a third party for
expenses actually reimbursed by the Company shall be retained by (or paid over
by the recipient thereof to) the Company.
[b] Managers.
Managers shall be reimbursed for expenses incurred on behalf of the Company
only
with the approval of the Board of Managers.
5.8 Tax
Matters Partner.
[a] General.
The Tax
Matters Partner is hereby designated the “tax matters partner” of the Company
within the meaning of Section 6231(a)(7) of the Code. Except to the extent
specifically provided in the Code or the Treasury Regulations (or the laws
of
other relevant taxing jurisdictions), the Tax Matters Partner (after receiving
the approval of the Board of Managers) shall have exclusive authority to act
for
or on behalf of the Company with regard to tax matters, including the authority
to make (or decline to make) any available tax elections.
[b] Partnership
Classification for Tax Purposes.
Except
to the extent otherwise required by applicable law (disregarding for this
purpose any requirement that can be avoided through the filing of an election
or
similar administrative procedure), the Tax Matters Partner shall cause the
Company to take the position that the Company is a “partnership” for Federal,
State and local income tax purposes and shall cause to be filed with the
appropriate tax authorities any elections or other documents necessary to give
due legal effect to such position. A Member shall not file (and represents
that
it has not filed) any income tax election or other document that is inconsistent
with the Company’s position regarding its classification as a “partnership” for
applicable Federal, State and local income tax purposes.
[c] Notice
of Inconsistent Treatment of Company Item.
No
Member shall file a notice with the United States Internal Revenue Service
under
Section 6222(b) of the Code in connection with such Member’s intention to
treat an item on such Member’s Federal income tax return in a manner which is
inconsistent with the treatment of such item on the Company’s Federal income tax
return unless such Member has, not less than thirty (30) days prior to the
filing of such notice, provided the Tax Matters Partner with a copy of the
notice and thereafter in a timely manner provides such other information related
thereto as the Tax Matters Partner shall reasonably request.
[d] Notice
of Settlement Agreement.
Any
Member entering into a settlement agreement with the United States Department
of
the Treasury which concerns a Company item shall notify the Tax Matters Partner
of such settlement agreement and its terms within 60 days after the date
thereof.
5.9 Records
and Financial Statements; Compliance with Laws
[a] The
Company shall maintain true and proper books, records, reports, and accounts
in
accordance with generally accepted principles and practices of accounting
consistently applied, in which shall be entered all transactions of the Company.
The Company shall also maintain all schedules referenced in this Agreement
and
shall update such schedules promptly upon receipt of new information relating
thereto, subject to the approval of the Board of Managers. Copies of such books,
records, reports, accounts and schedules shall be located at the Principal
Office and shall be available to any Member for inspection and copying, upon
at
least two business days’ notice, during reasonable business hours; provided,
however, that items of highly confidential Company information may be withheld
from a Member to the extent reasonably necessary to protect Company interests
as
determined by the Board of Managers in their reasonable discretion.
[b] Within
forty-five (45) days after the end of each Fiscal Year, the Company shall
furnish to each Member the following, which shall be audited by a firm of
independent certified public accountants approved by the Board of Managers:
(i)
a balance sheet of the Company, (ii) an income statement of the Company, (iii)
a
statement of cash flows of the Company, and (iv) the Capital Account balance
of
each Member. In addition, within sixty (60) days after the end of each Fiscal
Year, the Company shall supply all information reasonably necessary to enable
the Members to prepare their Federal and State income tax returns and (upon
request therefor) to comply with other reporting requirements imposed by law.
Within twenty (20) days after the end of each quarter, the Company shall furnish
to each Member the following, which shall be unaudited but prepared in
accordance with generally accepted accounting principles and practices
consistently applied: (i) a balance sheet of the Company, (ii) an income
statement of the Company, (iii) a statement of cash flows of the Company, and
(iv) the Capital Account balance of each Member.
[c] The
Company shall conduct its Business in compliance with applicable laws and shall
provide such information, and shall grant to the Members and their attorneys,
accountants and other representatives such access to the books, records, other
information and personnel of the Company, as is reasonably necessary for the
Members to comply with applicable laws, including without limitation, the
securities laws in general and the Sarbanes-Oxley Act of 2002 in
particular.
5.10 Valuation
of Company Assets and Interests.
[a] General.
In the
event that the fair market value of a Company asset or Interest must be
determined for purposes of this Agreement, such value shall be determined by
the
Board of Managers, acting in good faith.
[b] Dispute.
In the
event that the Board of Managers is unable to determine such value, the matter
shall be submitted for determination to a qualified Third Party valuation expert
acceptable to the Board of Managers.
[c] Binding
Effect.
The
value of any Company asset or Interest determined pursuant to this Section
5.10
shall be binding upon the Company and the Members and shall establish the “Fair
Market Value” of such asset or Interest for all purposes under this
Agreement.
5.11 Removal
or Resignation of Managers.
A
Manager may be removed for any reason upon the notice of such removal by the
Member appointing such Manager and may voluntarily resign as a Manager upon
providing thirty (30) days advance written notice of such resignation to the
Board of Managers.
5.12 Vacancies.
A
vacancy in the Board of Managers caused by the removal, resignation or Permanent
Incapacity of a Manager shall be filled by the Member who originally appointed
the Manager.
5.13 Meetings
of the Board of Managers.
[a] Meetings
of the Board of Managers may be called by any Manager. Any such meeting shall
be
held at a reasonable time and place on not less than two (2) days notice, which
notice shall include an agenda of items to be considered at the meeting.
Reasonable accommodation shall be made for any Manager who elects to attend
a
meeting via telephonic or similar means pursuant to which all Persons attending
the meeting can hear one another. Minutes of the meeting shall be prepared
at
the direction of the Board of Managers.
[b] Any
action of the Board of Managers may be taken by written consent of all the
Managers.
5.14 Acquisition
of Television Rights.
[a] The
Company shall grant TrackNet the exclusive right to acquire Television Rights
and Broadband and Mobile Rights from Third Parties worldwide for use by the
Company worldwide or by any sublicensee approved by the Board of Managers until
December 31, 2009. The Members may jointly agree to earlier terminate or extend
this exclusive grant of rights, in their sole discretion.
[b] TrackNet
shall, on behalf of the Company, collect Television Fees from Third Parties
and
remit such fees to the Company.
ARTICLE
6
REPRESENTATIONS,
WARRANTIES AND COVENANTS
6.1 Other
Ventures and Activities.
[a] Each
Member acknowledges that the other Members and their respective Affiliates
are
involved in other business, financial, investment and professional activities
other than the Business and activities within the scope of Section 1.3(b).
Except as specifically set forth in Section 5.5: (i) neither the Company,
CDI, MEC nor the Members shall have any right by virtue of this Agreement or
the
existence of the Company in and to such ventures or activities or to the income
or profits derived therefrom; and (ii) the Members and their Affiliates
shall have no duty or obligation to make any reports to the Members or the
Company with respect to any such ventures or activities.
[b] The
Members acknowledge that a Member may be prohibited from taking action for
the
benefit of the Company: (i) due to confidential information acquired or
obligations incurred in connection with a permitted outside activity under
this
Section 6.1; or (ii) in connection with activities undertaken prior to
the date of such Member’s admission to the Company. No Person shall be liable to
the Company, CDI, MEC or any Member for any failure to act for the benefit
of
the Company in consequence of a prohibition described in the preceding
sentence.
[c] For
so
long as a Member shall have licensed its Television Rights in the Territory
to
the Company, such Member (and CDI and MEC in the case of CDI Sub and MEC Sub,
as
applicable) shall not, directly or indirectly, own, manage, operate, join,
have
an interest in, control or participate in the ownership, management, operation
or control of, or be otherwise connected in any manner with, any corporation,
limited liability company, partnership or other business entity which: (i)
engages in the exploitation of such Member’s (and CDI’s and MEC’s in the case of
CDI Sub and MEC Sub, as applicable) Television Rights in the Territory, or
(ii)
engages in the business of operating a television network in the Territory
primarily focused on horse racing; in the case of each of (i) and (ii) above,
other than the ownership of less than five percent (5%) of the equity interests
of any publicly traded entity. The above noncompete provision applies even
in
the event the Television Rights become nonexclusive to the Company pursuant
to
Schedule 5 of the Business Plan; provided that nothing herein shall prohibit
(i)
any party from exploiting its Broadband and Mobile Rights as permitted under
this Agreement, or (ii) any party from licensing its Television Rights on a
non-exclusive basis to any Third Party in the event such Television Rights
are
no longer exclusively licensed to the Company. Notwithstanding any other
provision herein, CDI or MEC may each, directly or indirectly, own up to thirty
three and one third percent (33 1/3%) of the equity interests in RTN and such
ownership shall not be deemed a breach or violation of this Section
6.1[c].
6.2 Confidentiality.
All
information provided to the Members or their Affiliates by or on behalf of
the
Company or a Member concerning the business or assets of the Company or any
Member or its Affiliates in connection with the activity of the Company shall
be
deemed strictly confidential and shall not, without the prior consent of the
Board of Managers, be (i) disclosed to any Person (other than a Member, CDI
or MEC) or (ii) used by a Member other than for a Company purpose or a
purpose reasonably related to protecting such Member’s Interest or the business
of such Member (in either case in a manner not inconsistent with the interests
of the Company). The Board of Managers consent to the disclosure by each Member
of Company information to such Member’s accountants, attorneys and similar
advisors bound by a duty of confidentiality. The foregoing requirements of
this
Section 6.2 shall not apply to a Member with regard to any information that
is currently or becomes: (i) required to be disclosed pursuant to
applicable law, including the rules and regulations of the Securities and
Exchange Commission or the rules of Nasdaq, the Toronto Stock Market or any
other stock market on which securities of a Member, CDI or MEC are listed (but
only to the extent of such requirement); (ii) required to be disclosed in
order to protect such Member’s Interest (but only to the extent of such
requirement and only after consultation with the Board of Managers);
(iii) publicly known or available in the absence of any improper or
unlawful action on the part of such Member; or (iv) known or available to
such Member other than through or on behalf of the Company or a Member. For
purposes of this Section 6.2, Company information provided by one Member to
another shall be deemed to have been provided on behalf of the Company. The
Company and the Board of Managers shall similarly refrain from disclosing any
confidential information furnished by a Member pursuant to this
Section 6.2.
6.3 Disclosures.
Each
Member shall furnish to the Company upon request any information with respect
to
such Member reasonably determined by the Board of Managers to be necessary
or
convenient for the formation, operation, Dissolution, winding-up, or Termination
of the Company, and any such information which is confidential shall be treated
as such by the Company and the Members.
6.4 Certain
Member Representations and Covenants.
[a] Each
Member hereby represents that, with respect to its Interest: (i) it is
acquiring or has acquired such Interest for purposes of investment only, for
its
own account (or a trust account if such Member is a trustee), and not with
a
view to resell or distribute the same or any part thereof; and (ii) no
other Person has any interest in such Interest or in the rights of such Member
under this Agreement (other than a shareholder or other owner of an interest
in
the Member by virtue thereof or a spouse having a community property or similar
interest under applicable law.) Each Member also represents that it has the
business and financial knowledge and experience necessary to acquire its
Interest on the terms contemplated herein and that it has the ability to bear
the risks of such investment (including the risk of sustaining a complete loss
of all its capital contributions) without the need for the investor protections
provided by the registration requirements of the Securities Act.
[b] Except
to
the extent set forth in a notice provided to the Company, each Member hereby
represents that allocations, distributions and other payments to such Member
by
the Company are not subject to tax withholding under the Code. Each Member
shall
promptly notify the Company in the event that any allocation, distribution
or
other payment previously exempt from such withholding becomes or is anticipated
to become subject thereto.
[c] Each
Member acknowledges that certain provisions of this Agreement (including
Sections 6.1 and 9.1) have the effect of limiting the fiduciary duties or
obligations of some or all Members to the Company and the other Members under
applicable law. Each Member hereby represents that it has carefully considered
and fully understands each such provision and has made an informed decision
to
consent thereto.
[d] Each
Member hereby represents that: (i) it is a corporation or limited liability
company validly existing and in good standing under the laws of its jurisdiction
of incorporation or formation and has all requisite power and authority to
own,
lease and use its assets and carry on its business as and in the places where
such assets are owned, leased or used or such business is conducted; (ii) it
has
full corporate or limited liability company power and authority to enter into
this Agreement and consummate the transactions contemplated hereby and this
Agreement and the other documents contemplated by this Agreement have been
duly
authorized by all requisite corporate or limited liability company action of
such Member, have been duly executed and delivered by such Member and constitute
the valid and binding obligation of such Member enforceable in accordance with
their terms; and (iii) it is and shall be during the Term in compliance with
all
material laws, statutes, rules or regulations applicable to such Member or
its
assets or business and it shall not be under indictment or grand jury subpoena
with respect to any criminal investigation pursuant to which it has been
identified as a target.
6.5 Avoidance
of Publicly Traded Partnership Status.
[a] Except
to
the extent otherwise set forth in a notice provided to the Company, each Member
hereby represents that at least one of the following statements with respect
to
such Member is true and will continue to be true throughout the period during
which such Member holds an Interest:
[i] Such
Member is not a partnership, grantor trust or S corporation for Federal income
tax purposes;
[ii] With
regard to each Beneficial Owner of such Member, the principal purposes for
the
establishment and/or use of such Member do not include avoidance of the one
hundred (100) partner limitation set forth in Treasury Regulation Section
1.7704-1(h)(1)(ii); or
[iii] With
regard to each Beneficial Owner of such Member, not more than 75 percent of
the
value of such Beneficial Owner’s interest in such Member is attributable to such
Member’s Interest.
[b] In
the
event that a Member’s representation pursuant to Section 6.5(a) shall at any
time fail to be true, or the information set forth in a notice provided by
such
Member to the Company pursuant to Section 6.5(a) shall change, such Member
shall
promptly (and in any event within 10 days) notify the Company of such fact
and
shall promptly thereafter deliver to the Company any information regarding
such
Member and its Beneficial Owners reasonably requested by counsel to the Company
for purposes of determining the number of the Company’s “partners” within the
meaning of Treasury Regulation Section 1.7704-1(h).
[c] Each
Member acknowledges that the Board of Managers will rely upon such Member’s
representations, notices and other information as set forth in this Section
6.5
for purposes of determining whether proposed Transfers of Interests may cause
the Company to be treated as a “publicly traded partnership” within the meaning
of Section 7704 of the Code and that failure by a Member to satisfy its
obligations under this Section 6.5 may cause the Company to be treated as a
corporation for Federal, State or local tax purposes.
6.6 Shared
Services.
MEC
shall share the services of certain MEC personnel with the Company as identified
and described on Schedule 1-1 of the Business Plan.
6.7 CDI
Guaranty; MEC Guaranty.
[a] CDI
hereby absolutely and unconditionally guarantees to the Company, MEC and MEC
Sub, their respective successors and permitted assigns, the due prompt and
punctual performance of all obligations of, and the prompt payment when due
at
all times hereafter of any and all amounts owed by, CDI Sub under this Agreement
(including any extensions, modifications and amendments hereof) to the Company,
MEC or MEC Sub (the “CDI Sub Obligations”). Each of the Company, MEC and MEC Sub
shall have the right of immediate recourse against CDI for full and immediate
performance or payment of the CDI Sub Obligations at any time after the CDI
Sub
Obligations, or any part thereof, have not been performed or paid in full when
due. This is a guaranty of payment, not of collection, and CDI therefore agrees
and acknowledges that the Company, MEC and MEC Sub shall not be obligated,
prior
to seeking recourse against or receiving payment from CDI, to take any of the
following actions (although any of the Company, MEC or MEC Sub may, at its
option, do so in whole or in part) all of which CDI hereby unconditionally
waives: [i] take any steps whatsoever to collect from CDI Sub or file any claim
of any kind against CDI Sub, take any steps whatsoever to accept, perfect a
security interest in, or foreclosure or realize on, collateral security, if
any,
securing or for payment of the CDI Sub Obligations or any guaranty of the CDI
Sub Obligations; or [ii] in any other respect exercise diligence in collecting
or attempting to collect any of the CDI Sub Obligations by any means. CDI
unconditionally and irrevocably waives each and every defense which, under
principles of guaranty or surety law, would operate to impair or diminish the
liability of CDI to the Company, MEC or MEC Sub hereunder. CDI unconditionally
waives: [i] any subrogation to the rights of the Company, MEC or MEC Sub against
CDI Sub until all of the CDI Sub Obligations have been satisfied in full; and
[ii] any acceptance of this guaranty. This guaranty by CDI is personal to the
Company, MEC and MEC Sub and cannot be assigned without the express written
approval of CDI, which may be withheld in CDI’s sole discretion.
[b] MEC
hereby absolutely and unconditionally guarantees to the Company, CDI and CDI
Sub, their respective successors and permitted assigns, the due prompt and
punctual performance of all obligations of, and the prompt payment when due
at
all times hereafter of any and all amounts owed by, MEC Sub under this Agreement
(including any extensions, modifications and amendments hereof) to the Company,
CDI or CDI Sub (the “MEC Sub Obligations”). Each of the Company, CDI and CDI Sub
shall have the right of immediate recourse against MEC for full and immediate
performance or payment of the MEC Sub Obligations at any time after the MEC
Sub
Obligations, or any part thereof, have not been performed or paid in full when
due. This is a guaranty of payment, not of collection, and MEC therefore agrees
and acknowledges that the Company, CDI and CDI Sub shall not be obligated,
prior
to seeking recourse against or receiving payment from MEC, to take any of the
following actions (although any of the Company, CDI or CDI Sub may, at its
option, do so in whole or in part) all of which MEC hereby unconditionally
waives: [i] take any steps whatsoever to collect from MEC Sub or file any claim
of any kind against MEC Sub, take any steps whatsoever to accept, perfect a
security interest in, or foreclose or realize on, collateral security, if any,
securing or for payment of the MEC Sub Obligations or any guaranty of the MEC
Sub Obligations; or [ii] in any other respect exercise diligence in collecting
or attempting to collect any of the MEC Sub Obligations by any means. MEC
unconditionally and irrevocably waives each and every defense which, under
principles of guaranty or surety law, would operate to impair or diminish the
liability of MEC to the Company, CDI or CDI Sub hereunder. MEC unconditionally
waives: [i] any subrogation to the rights of the Company, CDI or CDI Sub against
MEC Sub until all of the MEC Sub Obligations have been satisfied in full; and
[ii] any acceptance of this guaranty. This guaranty by MEC is personal to the
Company, CDI and CDI Sub and cannot be assigned without the express written
approval of MEC, which may be withheld in MEC’s sole discretion.
6.8 Marketing.
Any
marketing or advertising by either CDI or MEC, or their respective advance
deposit wagering businesses, on or with respect to HRTV must be approved by
the
Board of Managers. CDI and MEC intend to market or advertise their respective
advance deposit wagering businesses on HRTV (i) in a substantially similar
manner, in a substantially similar volume and on substantially similar terms,
and (ii) in a manner substantially similar to the past practices of XpressBet,
in all cases, without creating the impression that either CDI or MEC, or its
advance deposit wagering business, is the sole or primary party or advance
deposit wagering business associated with HRTV. For purposes of example only,
neither CDI or MEC may brand its advance deposit wagering business as the
“official” or “preferred” advance deposit wagering business of HRTV (nor request
or permit any commentators on HRTV to suggest it) and neither party may place
graphics on the screen during programming advertising their advance deposit
wagering business, unless expressly agreed to in advance by the Board of
Managers.
6.9 Ownership.
Each of
CDI and MEC agrees to directly or indirectly beneficially own all of the
ownership interests in CDI Sub and MEC Sub, respectively.
ARTICLE
7
TRANSFERS
AND WITHDRAWALS
7.1 Transfers
of Interests.
[a] Prior
to
December 31, 2009, a Member shall not Transfer all or any portion of its
Interest without the prior consent of the Board of Managers, which consent
may
be withheld in the Board of Managers’ sole and absolute discretion. After
December 31, 2009, a Member may Transfer all or any portion of it Interest
to a
Third Party subject to the following:
[i] The
Member (the “Offering Member”) desiring to Transfer all or any portion of it
Interest to a Third Party (the “Offered Interest”) must provide written notice
of the terms and conditions of such proposed Transfer including the identity
of
the proposed transferee (the “Offer Notice”) to the other Member (the
“Nonselling Member”). The Nonselling Member shall have a period of thirty (30)
days after receipt of the Offer Notice (the “Option Period”) to notify the
Offering Member in writing of its election to purchase the Offered Interest
for
the same price and on the same terms and conditions as set forth in the Offer
Notice. If the Nonselling Member exercises this option to purchase the Offered
Interest, the Nonselling Member and the Offering Member shall enter into an
agreement of purchase and sale within thirty (30) days. If the Nonselling Member
fails to respond within the Option Period, it shall be deemed to have elected
not to purchase the Offered Interest. If the Nonselling Member does not timely
exercise the option to purchase the Offered Interest or otherwise declines
to
purchase the Offered Interest, the Offering Member shall be free to sell the
Offered Interest to the proposed Third Party at the price and upon terms no
less
favorable to the Offering Member than those set forth in the Offer Notice,
so
long as such sale is consummated within ninety (90) days from the close of
the
Option Period. If the Offered Interest is not sold within such ninety (90)
day
period, the Offered Interest shall again be subject to the provisions of this
Section.
[ii] If
the
Offering Member sells its Interest to the Third Party, the Nonselling Member
may
elect to require the Offering Member to require the Third Party to acquire
the
Interest of the Nonselling Member under the same terms and conditions (adjusted,
as appropriate, in the event the Members have different Allocation Percentages)
and as part of the same transaction as set forth in the Offer Notice, which
election must be made by the Nonselling Member within the Option
Period.
[b] Unless
admitted as a Member in accordance with the provisions of this Agreement, the
transferee of all or any portion of an Interest shall not be a Member, but
instead shall be subject to the provisions of Section 7.4.
[c] In
connection with each Transfer of an Interest: (i) the transferor and transferee
shall execute and deliver to the Company a written instrument of transfer in
form and substance reasonably satisfactory to the Board of Managers and (ii)
the
transferee shall execute and deliver to the Company a written instrument
pursuant to which the transferee assumes all obligations of the transferor
associated with the transferred Interest and otherwise agrees to comply with
the
terms and provisions of this Agreement.
[d] In
connection with each Transfer, the transferring Member shall provide to the
Company either: (i) an opinion of counsel to such transferring Member
satisfactory in form and substance to counsel for the Company with respect
to
the matters referred to in Section 7.1(j); or (ii) sufficient information
to allow counsel to the Company to make a determination that the proposed
Transfer will not result in any of the consequences referred to in
Section 7.1(j).
[e] In
the
event of any Transfer which results in multiple ownership of a Member’s
Interest, the Board of Managers may require that one or more trustees or
nominees be designated to represent all or a portion of the Interest transferred
for the purpose of receiving all notices which may be given and all payments
which may be made under this Agreement and for the purpose of exercising all
rights of the transferees under this Agreement.
[f] In
the
event a Member Transfers (or proposes to Transfer) all or any portion of its
Interest, all reasonable legal and other out-of-pocket expenses incurred by
the
Company on account of the Transfer (or proposed Transfer) shall be paid by
such
Member. Following the effective date of any Transfer, the transferor and
transferee shall be jointly and severally liable for all such
expenses.
[g] Except
as
otherwise specifically provided in this Agreement or with the consent of the
Board of Managers, all economic attributes of a transferor Member’s Interest
(such as the Member’s Capital Commitment, Capital Contribution, Allocation
Percentage, Capital Account balance, and obligation to return distributions
or
make other payments to the Company) shall carry over to a transferee in
proportion to the percentage of the Interest so transferred.
[h] Once
all
other conditions to the Transfer of a Member’s Interest have been satisfied,
such Transfer shall be effective as of: (x) the Close of Business on the last
day of the next ending fiscal quarter of the Company; or (y) such other time
as
shall be jointly selected by the Board of Managers, the transferor and the
transferee.
[i] Notwithstanding
any provision of this Agreement to the contrary, a Member or Withdrawn Member
shall not, by virtue of having Transferred all or any portion of its Interest,
be relieved of any obligations arising under this Agreement; provided, however,
that a Member or Withdrawn Member shall be relieved of such obligations to
the
extent that: (x) such relief is approved by the Board of Managers (which
approval may be withheld by the Board of Managers in their sole and absolute
discretion); and (y) such obligations are assumed by another Member or Person
admitted to the Company as a Substitute Member.
[j] Notwithstanding
any provision of this Agreement to the contrary, there shall be no Transfer
of
an Interest unless such Transfer will not: (i) give rise to a requirement
that the Company register under the Securities Act; (ii) otherwise subject
the Company, a Member, or any equityholder, member, director, officer, or
employee of a Member to additional regulatory requirements under Federal, State,
local or foreign law, compliance with which would subject the Company or such
other Person to material expense or burden (unless each such affected Person
consents to such Transfer); (iii) constitute a transaction effected through
an “established securities market” within the meaning of Treasury Regulation
Section 1.7704-1(b) or otherwise cause the Company to be a “publicly traded
partnership” within the meaning of Section 7704 of the Code;
(iv) effect a termination of the Company under Section 708 of the Code
(but only if such termination would result in material adverse consequences
to
the Company or any Member under Federal, state or local law); or
(v) violate any law, regulation or other governmental rule, or result in a
violation thereof by the Company, a Member, or any equityholder, member,
director, officer, or employee of a Member.
[k] Any
Transfer in violation of this Article 7: (i) shall be null and void as
against the Company and the other Members; and (ii) shall not be recognized
or permitted by, or duly reflected in the official books and records of, the
Company. The preceding sentence shall not be applied to prevent the Company
from
enforcing any rights it may have in respect of a transferee arising under this
Agreement or otherwise (including any rights arising under
Section 10.8).
[l] Solely
for purposes of this Article 7 (other than Section 7.1(g)), an Interest
shall be deemed to include any Derivative Company Interest held, issued or
created by a Member, Assignee or other Person.
7.2 Withdrawal/Removal
of a Member.
[a] A
Member
shall not withdraw from the Company or otherwise elect to cease to be a Member
without the approval of the Board of Managers.
[b] A
Member
shall not be removed from the Company without its consent.
7.3 Procedures
Following Member Withdrawal/Removal.
A
Member that withdraws or is removed from the Company (including via a deemed
withdrawal) in accordance with the provisions of Section 7.2 or otherwise
ceases to be a member of the Company under the Act (each a “Withdrawal Event”
and a “Withdrawn Member”) shall be treated as an Assignee and, accordingly,
shall have the rights and obligations of an Assignee as described in
Section 7.4. Subject to the preceding sentence, a Withdrawn Member shall
not be entitled to any redemption of its Interest, distribution or payment
in
connection with its Withdrawal Event or otherwise in consequence of its status
as a Withdrawn Member.
7.4 Status
of Assignees.
[a] Notwithstanding
any provision of this Agreement to the contrary, an Assignee shall not be
admitted to the Company as a Substitute Member without the consent of the Board
of Managers, which consent may be withheld in the Board of Managers’ sole and
absolute discretion.
[b] All
rights and privileges associated with an Assignee interest in the Company shall
be derived solely from the Member interest of which such rights and privileges
were previously a component part. No Assignee shall hold, by virtue of such
Assignee’s interest in the Company, any rights and privileges that were not
specifically transferred to such Assignee by the prior holder of such interest.
No Member, Assignee or other rights or privileges arising under this Agreement
or the Act shall apply with respect to a notional or constructive interest
in
the Company, without regard to whether such interest constitutes a Derivative
Company Interest.
[c] Subject
to Section 3.1(d), an Assignee that holds an interest in the Company shall
be entitled to receive the allocations attributable to such interest pursuant
to
Article 4, to receive the distributions attributable to such interest pursuant
to Articles 4 and 8, and to Transfer such interest in accordance with the terms
of this Article 7. Notwithstanding the preceding sentence, the Company and
the
Members shall incur no liability for allocations and distributions made in
good
faith to a transferor until a valid written instrument of Transfer has been
received by the Company and recorded on its books and the effective time of
the
Transfer has passed.
[d] To
the
extent otherwise applicable to the interest in the Company that has been
transferred to an Assignee, the Assignee shall be subject to, and bound by,
all
of the terms and provisions of this Agreement that inure to the benefit of
the
Company or any Member (without regard to whether such Assignee has executed
a
written instrument of Transfer as described in Section 7.4(c) or an assumption
of obligations as described in Section 7.1(c)). Without limitation on the
preceding sentence, an Assignee that holds an interest in the Company shall
be
responsible for any unpaid Capital Commitment and obligation to return
distributions or make other payments to the Company associated with such
interest and shall comply with the provisions of Sections 6.2, 6.3 and
10.14.
[e] Solely
to
the extent necessary to give effect to the Assignee rights and obligations
set
forth in Section 7.4(c) and (d), an Assignee shall be treated as a Member for
purposes of this Agreement.
[f] An
Assignee shall not, solely by virtue of its status as such, hold any
non-economic rights in respect of the Company. Without limitation on the
preceding sentence, an Assignee’s interest in the Company shall not entitle such
Assignee to participate in the management, control or operation of the Company
or its business, act for the Company, bind the Company under agreements or
arrangements with third parties, or vote on Company matters. An Assignee shall
not have any right to receive or review Company books, records, reports or
other
information. An Assignee shall not hold itself out as a Member in any forum
or
for any purpose; provided, however, that, to the extent necessary to maintain
consistency with the Company’s income tax returns, reports, and other filings,
an Assignee shall take the position that it is a Member (or “partner”) solely
for income tax purposes.
7.5 Transfers
of Racetracks.
In the
event CDI or MEC voluntarily divests its Control of the racing and wagering
activities of Churchill Downs Racetrack or Arlington Park, in the case of CDI,
or Gulfstream Park or Santa Anita, in the case of MEC (such party, a “Divesting
Party”), to a Third Party who continues to operate such track as a horse racing
track, the Divesting Party shall require, as a condition of the voluntary
divestiture, that the party assuming Control of the racing and wagering
activities of such CDI Track or MEC Track, as the case may be, agree in writing
to comply with all terms and conditions of this Agreement as if the divested
track were still a CDI Track or MEC Track, as the case may be, for the shorter
of (i) twenty four months following the consummation of the divestiture, or
(ii)
such time as such party assuming Control permanently ceases to conduct live
horse racing at such track. The provisions of this Section 7.5 shall apply
to
all voluntary divestitures of Control, including without limitation, the sale
of
a racetrack or of an equity interest in the entity operating the racetrack,
the
voluntary termination of a lease, management agreement or other contractual
arrangement, or any other voluntary action that results in a loss of
Control.
ARTICLE
8
DISSOLUTION
AND LIQUIDATION
8.1 Dissolving
Events.
The
Company shall be Dissolved upon the occurrence of any of the following
events:
[a] Expiration
of the Company’s Term;
[b] Failure
of the Company to have at least one Member;
[c] Permanent
cessation of the Company’s Business;
[d] An
election to Dissolve the Company executed by all members of the Board of
Managers;
[e] Any
other
event which results in a mandatory Dissolution of the Company under the
Act;
[f] The
continuation of a Deadlock of the Board of Managers or the Members, as
applicable, for a period of twelve (12) consecutive months;
[g] At
the
election of a Member when another Member or its advance deposit wagering
business is subject to a Change of Control Transaction, which election may
be
made only within the ninety (90) day period following such event;
[h] At
the
election of the other Member, upon the Bankruptcy, Dissolution or Termination
of
a Member, which election may be made only within the ninety (90) day period
following such event;
[i] At
the
election of the other Member, if a Member or its Affiliate has materially
breached this Agreement or any of the Auxiliary Agreements or the Business
Plan,
which election may be made only within the ninety (90) day period following
notice of such event under Section 10.13 and such breach is not cured as
provided in Section 10.13 hereof; or
[j] Dissolution
of TrackNet.
8.2 Term
and Unwind Provision.
The
term
of this Agreement shall continue for so long as the term of the Limited
Liability Company Operating Agreement of TrackNet shall continue (the “Initial
Term”), subject to such earlier termination as the parties may mutually agree or
as set forth in this Article 8. In the event that the Company is terminated
in
accordance with the terms hereof within the first five year period following
the
execution of this Agreement, then the parties shall continue to operate the
Company for a period of one hundred twenty (120) days from the date of such
termination (the “One Hundred Twenty Day Extension”). During the One Hundred
Twenty Day Extension, the parties shall arrange for the orderly liquidation
of
the Company as set forth in Section 8.3 of this Agreement. The Initial Term
plus
the One Hundred Twenty Day Extension, if applicable, is the “Term”.
8.3 Winding
Up and Liquidation.
[a] Upon
Dissolution of the Company, the Board of Managers shall promptly wind up the
affairs of, liquidate and Terminate the Company. In furtherance thereof, the
Board of Managers shall: (i) have all of the administrative and management
rights and powers of the Board of Managers (including the power to bind the
Company); and (ii) be reimbursed for Company expenses it reasonably incurs.
Following Dissolution, the Company shall sell or otherwise dispose of assets
determined by the Board of Managers to be unsuitable for distribution to the
Members, but shall engage in no business activities other than the Business
except as may be necessary, in the reasonable discretion of the Board of
Managers, to preserve the value of the Company’s assets during the period of
winding-up and liquidation. In any event, the Board of Managers shall use its
Best Efforts to prevent the period of winding-up and liquidation of the Company
from extending beyond the date which is two (2) years after the Company’s date
of Dissolution. At the conclusion of the winding-up and liquidation of the
Company, the Board of Managers shall: (i) designate one Person (who shall be
a
Member unless the parties otherwise agree) to hold the books and records of
the
Company (and to make such books and records available to the Members on a
reasonable basis) for not less than six years following the Termination of
the
Company under the Act; and (ii) execute, file and record, as necessary, a
certificate of termination or similar document to effect the Termination of
the
Company under the Act and other applicable laws.
[b] Distributions
to the Members in liquidation may be made in cash or in kind, or partly in
cash
and partly in kind, as determined by the Board of Managers, provided, however,
the rights granted to the Company by the Members under Section 2.1(c) shall
terminate and vest in the contributing Member. Distributions in kind shall
be
valued at Fair Market Value as determined by the Board of Managers in accordance
with the provisions of Section 5.10 and shall be subject to such conditions
and
restrictions as may be necessary or advisable in the reasonable discretion
of
the Board of Managers to preserve the value of the property so distributed
or to
comply with applicable law.
[c] The
Profits and Losses of the Company during the period of winding-up and
liquidation shall be allocated among the Members in accordance with the
provisions of Article 3. If any property is to be distributed in kind, the
Capital Accounts of the Members shall be adjusted with regard to such property
in accordance with the provisions of Section 3.1(e).
[d] Upon
Dissolution, the assets of the Company (including proceeds from the sale or
other disposition of any assets during the period of winding-up and liquidation)
shall be applied as follows:
[i] First,
to
repay any indebtedness of the Company, whether to third parties or the Members,
in the order of priority required by law; provided that with respect to the
aggregate unpaid lease payments under the Equipment Lease only with respect
to
assets acquired by the lessor thereunder after the date of this Agreement and
only to the extent not previously paid under Section 4.1[b] or Section 4.1[c]
(for avoidance of doubt, MEC Additional Capital is not
“indebtedness”);
[ii] Next,
to
the Members in proportion to their Allocation Percentages until CDI Sub has
received an amount which provides CDI Sub with a return of its Capital
Contributions contributed by CDI Sub prior to December 31, 2009 plus a 33 1/3%
rate of return calculated on an annual compounded basis from the date the
Capital Contribution is made on the outstanding amounts thereof, to the extent
not previously paid under Section 4.1[b] or Section 4.1[c];
[iii] Next,
$17,000,000 plus the amount of any Additional MEC Capital to MEC Sub, to the
extent not previously paid under Section 4.1[b] or Section 4.1[c];
and
[iv] Next,
to
the Members in proportion to their respective Allocation
Percentages.
[e] Except
as
otherwise specifically provided in this Agreement, a Member shall have no
liability to the Company or to any other Member or to any Third Party in respect
of a negative balance in such Member’s Capital Account during the term of the
Company or at the conclusion of the Company’s Termination.
8.4 Elections
to Continue or Discontinue Operations.
[a] If
on
December 31, 2009, the Company does not have an Actual Cash Flow Deficiency
when
measured on a last-twelve-month basis, the elections set forth in Sections
8.4(b) and 8.4(c) shall not apply. In such event, the operations of the Company
shall continue and all further funding of the Company as agreed by the Members
shall be made in accordance with the Allocation Percentages.
[b] If
on
December 31, 2009, the Company has an Actual Cash Flow Deficiency when measured
on a last-twelve-month basis, CDI Sub shall have an election to either continue
or discontinue its participation in the operations of the Company, which
election shall be made by giving written notice to MEC on or before February
15,
2010. (i) If CDI Sub elects to continue its participation in the operations
of
the Company, then the operations of the Company shall continue and all further
funding of the Company as agreed by the Members shall be made in accordance
with
the Allocation Percentages. Furthermore, in such event all future distributions
shall be made in accordance with the provisions of Section 4.1(c)
notwithstanding the fact that the Company had an Actual Cash Flow Deficiency
when measured on a last-twelve-month basis. (ii) If CDI Sub elects to
discontinue its participation in the operations of the Company, then MEC Sub
shall have the election set forth in Section 8.4(c).
[c] If
CDI
Sub elects to discontinue its participation in the operations of the Company,
then MEC Sub shall have an election to either continue or discontinue the
operations of the Company, which election shall be made by giving written notice
to CDI Sub on or before March 31, 2010. (i) If MEC Sub elects to discontinue
the
operations of the Company, then the Term shall be deemed to have concluded
and
the Company shall be Dissolved in accordance with the provisions of this
Agreement. In such event, any costs of Dissolution shall be borne equally by
the
Members. (ii) If MEC Sub elects to continue the operations of the Company,
MEC
Sub shall thereafter fund 100% of the costs of the Company. In such event,
(x)
CDI Sub’s Interest and Allocation Percentage will be diluted and MEC Sub’s
Interest and Allocation Percentage will be increased based on the total Capital
Contributions of MEC Sub (excluding Additional MEC Capital) in relation to
the
total Capital Contributions of both CDI Sub and MEC Sub (excluding Additional
MEC Capital) taken as a whole from the date of this Agreement and (y) CDI Sub
shall no longer have the right to appoint any Managers to serve on the Board
of
Managers, (and any Managers previously appointed by CDI Sub shall be replaced
by
MEC Sub appointees), but CDI Sub would have observer status on the Board of
Managers.
ARTICLE
9
LIABILITY
AND INDEMNIFICATION
9.1 Liability.
Except
as otherwise specifically provided in this Agreement, no Indemnified Person
shall be personally liable for the return of any contributions made to the
capital of the Company by the Members or the distribution of Capital Account
balances. Except to the extent that Material Misconduct on the part of an
Indemnified Person shall have given rise to the matter at issue, such
Indemnified Person shall not be liable to the Company or the Members for any
act
or omission concerning the Company. Without limitation on the preceding
sentence, except to the extent that such action constitutes Material Misconduct,
an Indemnified Person shall not be liable to the Company or to any Member in
consequence of voting for, approving, or otherwise participating in the making
of a distribution by the Company pursuant to Article 4 or 8. An Indemnified
Person shall not be liable to the Company or the Members for losses due to
the
acts or omissions of any independent contractor, employee or other agent of
the
Company unless such Indemnified Person was or should have been directly involved
with the selection, engagement or supervision of such Person and the actions
or
omissions of such Indemnified Person in connection therewith constituted
Material Misconduct.
9.2 Indemnification.
[a] Except
to
the extent that Material Misconduct on the part of an Indemnified Person shall
have given rise to the matter at issue, the Company shall indemnify and hold
such Indemnified Person harmless from and against any loss, expense, damage
or
injury suffered or sustained by such Indemnified Person by reason of any actual
or threatened claim, demand, action, suit or proceeding (civil, criminal,
administrative or investigative) in which such Indemnified Person may be
involved, as a party or otherwise, by reason of its actual or alleged management
of, or involvement in, the affairs of the Company. This indemnification shall
include, but not be limited to: (i) payment as incurred of reasonable attorneys
fees and other out-of-pocket expenses incurred in investigating or settling
any
claim or threatened action (where, in the case of a settlement, such settlement
is approved by the Board of Managers), or incurred in preparing for, or
conducting a defense pursuant to, any proceeding up to and including a final
non-appealable adjudication; (ii) payment of fines, damages or similar amounts
required to be paid by an Indemnified Person; and (iii) removal of liens
affecting the property of an Indemnified Person.
[b] Indemnification
payments shall be made pursuant to this Section 9.2 only to the extent that
the
Indemnified Person is not entitled to receive (or will not in any event receive)
from a third party equal or greater indemnification payments in respect of
the
same loss, expense, damage or injury. In the event, however, that the Board
of
Managers determine that an Indemnified Person would be entitled to receive
indemnification payments from the Company but for the operation of the preceding
sentence, the Board of Managers may cause the Company to advance indemnification
payments to the Indemnified Person (with repayment of such advance to be secured
by the Indemnified Person’s right to receive indemnification payments from the
applicable third party).
[c] As
a
condition to receiving an indemnification payment pursuant to this Section
9.2,
an Indemnified Person shall execute an undertaking in form and substance
acceptable to the Board of Managers in their reasonable discretion providing
that, in the event it is subsequently determined that such Person was not
entitled to receive such payment (whether by virtue of such Person’s Material
Misconduct or otherwise), such Person shall return such payment to the Company
promptly upon demand therefor by any Member.
[d] Notwithstanding
the foregoing provisions of this Section 9.2, the Company shall be under no
obligation to indemnify an Indemnified Person from and against any reduction
in
the value of such Person’s interest in the Company that is attributable to
losses, expenses, damages or injuries suffered by the Company or to any other
decline in the value of the Company’s assets.
[e] The
indemnification provided by this Section 9.2 shall not be deemed to be exclusive
of any other rights to which any Indemnified Person may be entitled under any
agreement, as a matter of law, in equity or otherwise.
9.3 Insurance.
[a] The
Company shall obtain and keep in force officers and directors liability
insurance insuring the officers, employees and Managers of the Company against
claims by third parties as to their activities for and on behalf of the Company,
unless the Board of Managers determines in good faith that there is sufficient
insurance coverage for such Persons under the separate insurance coverage
maintained by CDI and MEC. The specific coverages, limits of liability and
other
terms of such insurance shall be determined by the Board of Managers in their
reasonable discretion.
[b] The
Company shall carry general business and liability insurance in such form and
amounts as are determined from time to time by the Board of Managers. Unless
the
non-MEC Sub members of the Board of Managers determine otherwise, MEC shall
be
obligated to procure such insurance on behalf of the Company; provided, however,
that the Company shall be obligated either to pay for such insurance directly
or
to reimburse MEC for MEC’s costs in procuring such insurance.
ARTICLE
10
GENERAL
PROVISIONS
10.1 Meetings.
Meetings of the Members may be called by any Member as well as by the Board
of
Managers. Any such meeting shall be held at a reasonable time and place on
not
less than two (2) nor more than sixty (60) days notice, which notice shall
include an agenda of items to be considered at the meeting. Reasonable
accommodation shall be made for any Member that elects to attend a meeting
via
telephonic or similar means pursuant to which all Persons attending the meeting
can hear one another. No action may be taken at a meeting of the Members without
the unanimous vote or consent of all of the Members. Minutes of the meeting
shall be prepared at the direction of the Board of Managers. Except as
specifically provided in this Agreement, there shall be no requirement of annual
or periodic meetings of the Members or Board of Managers within the meaning
of
the Act.
10.2 Action
Without a Meeting of All Members.
[a] Any
action of the Members may be taken by written consent of all of the Members
required for such action under this Agreement.
[b]
A Member
may authorize another Person to vote or otherwise act on its behalf through
a
written proxy or power of attorney.
[c] In
order
to facilitate the determination of whether any action of the Members has been
taken by or with the consent of the requisite number or percentage of the
Members under this Agreement, the Board of Managers may adopt, from time to
time
upon not less than ten (10) days notice to the Members, reasonable procedures
for establishing the Members of record entitled to vote, consent or otherwise
take action on any matter; provided, however, that any date as of which Members
of record is determined shall not precede the date of the related action by
more
than sixty (60) days.
10.3 Entire
Agreement.
This
Agreement, together with the Auxiliary Agreements and the Business Plan,
contains the entire understanding among the Members, CDI and MEC concerning
the
subject matter thereof and supersedes any prior written or oral agreement among
them respecting the Company and such matters. There are no representations,
agreements, arrangements, or understandings, oral or written, among the Members,
CDI and MEC relating to the Company which are not fully expressed in this
Agreement or the Auxiliary Agreements or the Business Plan.
10.4 Amendments.
[a] Except
as
otherwise provided in this Section 10.4, this Agreement may be amended, in
whole or in part, only through a written amendment executed by all of the
Members, CDI and MEC. Each Member, CDI and MEC shall be promptly notified of
any
amendment to this Agreement made pursuant to this
Section 10.4.
[b] Except
with regard to amendments otherwise specifically required under this Agreement,
there shall be no amendment to this Agreement except as authorized by Sections
10.4[a] or 10.4[d]. Without limitation of the foregoing, and subject to Section
2.1(b), there shall be no amendment that: (i) increases a Member’s
obligation to make capital contributions to the Company or (ii) imposes
personal liability upon a Member for any debts or obligations of the Company
unless, in each case, the amendment is consented to by such Member.
[c] An
Assignee shall not, solely by virtue of its status as such, have any right
to
consent or withhold consent in respect of an amendment to this
Agreement.
[d] Notwithstanding
the foregoing provisions of this Section 10.4, the Board of Managers may,
without the consent of the other Members, amend this Agreement in any manner
determined by the Board of Managers to be necessary or advisable to reflect
the
admission of an Additional Member in accordance with this Agreement, comply
with
applicable law, supply a missing term or provision, or resolve an ambiguity
in
the existing terms and provisions of this Agreement. The Board of Managers
shall
not have the authority under this Section 10.4(d) to amend this Agreement in
a
manner that is materially adverse to any Member; provided, however, that a
Member’s right to object to an amendment pursuant to this Section 10.4(d) on the
grounds that such amendment is materially adverse to such Member shall expire
at
the Close of Business on the thirtieth (30th) day following notice to such
Member of such amendment.
10.5 Governing
Law.
The
interpretation and enforceability of this Agreement and the rights and
liabilities of the Members, CDI and MEC as such shall be governed by the laws
of
the State of Delaware as such laws are applied in connection with limited
liability company operating agreements entered into and wholly performed in
Delaware by residents of Delaware. To the extent permitted by the Act and other
applicable law, the provisions of this Agreement shall supersede any contrary
provisions of the Act or other applicable law.
10.6 Severability.
In the
event that any provision of this Agreement is determined to be invalid or
unenforceable, such provision shall be deemed severed from the remainder of
this
Agreement and replaced with a valid and enforceable provision as similar in
intent as reasonably possible to the provision so severed, and shall not cause
the invalidity or unenforceability of the remainder of this
Agreement.
10.7 Counterparts;
Binding upon Members and Assignees.
This
Agreement may be executed in any number of counterparts and, when so executed,
all of such counterparts shall constitute a single instrument binding upon
all
parties notwithstanding the fact that all parties are not signatory to the
original or to the same counterpart. In addition, to the maximum extent
permitted by applicable law and without limitation on any other rights of the
Members or the Company, a non-Member shall become bound as an Assignee under
this Agreement if such Person holds an interest in the Company and seeks to
exercise, assert, confirm or enforce any of its rights as an Assignee under
this
Agreement or the Act.
10.8 Survival
of Certain Obligations.
Except
as specifically provided in this Agreement, or to the extent specifically
approved by the Board of Managers (which approval may be withheld by the Board
of Managers in their sole and absolute discretion), as applicable, a Member,
CDI
and MEC shall continue to be subject to all of its obligations to make capital
contributions or other payments arising under this Agreement (including
obligations attributable to a breach of this Agreement), as well as its
obligations to maintain the confidentiality of information pursuant to
Section 6.2 and to provide information pursuant to Section 6.3,
without regard to any Transfer of all or any portion of such Member’s Interest
or any event that terminates such Member’s status as such or the Termination of
the Company. Each Member’s Capital Commitment shall terminate at the time of the
final Termination of the Company under the Act, but such termination shall
not
release a Defaulting Member from obligations arising under
Section 2.4.
10.9 No
Third Party Beneficiaries.
Except
with regard to the Company’s obligation to Indemnified Persons as set forth in
Article 9, the provisions of this Agreement are not intended to be for the
benefit of or enforceable by any Third Party and shall not give rise to a right
on the part of any Third Party to (i) enforce or demand enforcement of a
Member’s Capital Commitment, obligation to return distributions, or obligation
to make other payments to the Company as set forth in this Agreement or (ii)
demand that the Company or the Board of Managers issue any capital
call.
10.10 Notices,
Consents, Elections, Etc.
All
notices, consents, agreements, elections, amendments, and approvals provided
for
or permitted by this Agreement or otherwise relating to the Company shall be
in
writing and signed copies thereof shall be retained with the books of the
Company.
[a] Notice
to Members.
Except
as otherwise specifically provided in this Agreement, notice to a Member shall
be deemed duly given upon the earliest to occur of the following:
(i) personal delivery to such Member, to the address set forth on Schedule
A for such Member, or to any other address which such Member has provided to
the
Company for purposes of this Section 10.10(a); (ii) the Close of Business
on the third day after being deposited in the United States mail, registered
or
certified, postage prepaid and addressed to such Member at the address set
forth
on Schedule A for such Member, or at any other address which such Member
has provided to the Company for purposes of this Section 10.10(a);
(iii) the Close of Business on the first business day after being deposited
in the United States with a nationally recognized overnight delivery service,
for next Business Day delivery, with delivery charges prepaid and addressed
as
provided in the preceding clause; or (iv) actual receipt by such Member via
any
other means (including public or private mail, electronic mail, facsimile,
telex
or telegram); provided, however, that notice sent via electronic mail shall
be
deemed duly given only when actually received and opened by the Member to whom
it is addressed. Notices to CDI shall be provided as set forth above to the
address of CDI Sub. Notices to MEC shall be provided as set forth above to
the
address of MEC Sub.
[b] Notice
to the Company.
Notice
to the Company shall be deemed duly given when clearly identified as such and
duly given to the Board of Managers in accordance with the procedures set forth
in Section 10.10(a).
10.11 No
Usury.
Notwithstanding any provision of this Agreement to the contrary, the rate of
interest charged by the Company to any Member in connection with an obligation
of the Member to the Company shall not exceed the maximum rate permitted by
applicable law. To the extent that any interest otherwise paid or payable by
a
Member to the Company shall have been finally adjudicated to exceed the maximum
amount permitted by applicable law, such interest shall be retroactively deemed
to have been a required repayment of principal (and any such amount paid in
excess of the outstanding principal amount shall be promptly returned to the
payor Member).
10.12 Dispute
Resolution.
[a] Forum
and Venue.
Any
litigation involving any controversy or claim arising out of or relating to
this
Agreement or the Auxiliary Agreements or the Business Plan shall be brought
and
prosecuted solely in the Courts of the State of Delaware or the United States
District Court for the District of Delaware sitting in Wilmington, Delaware,
and
in such appellate courts having jurisdiction over appeals from such courts.
The
Company, CDI, CDI Sub, MEC and MEC Sub (i) consent to the exclusive jurisdiction
and venue of the aforesaid courts; (ii) shall not assert forum inconvenience
or
any other similar defense to the jurisdiction and venue of such courts; and
(iii) waive the right to trial by jury in any such litigation. If needed to
enforce a decision made by a court in Delaware, litigation may be commenced
and
prosecuted in any other courts having jurisdiction.
[b] Fees
and Costs.
The
prevailing party or parties in any proceeding arising out of or relating to
this
Agreement shall be reimbursed by the party or parties who do not prevail for
their reasonable third party or out of pocket attorneys, accountants and experts
fees and related third party or out of pocket expenses and for the costs of
such
proceeding. The court shall be asked to direct the amounts to be paid and the
party to pay the expenses and costs. In the event that two or more parties
are
deemed liable for a specific amount payable or reimbursable under this
Section 10.12(b), such parties shall be jointly and severally liable
therefor.
10.13 Cure
of Breaches.
In the
event of any breach by CDI, CDI Sub, MEC, MEC Sub or the Company of any
provision of this Agreement or of any Auxiliary Agreement or the Business Plan,
the party claiming the breach shall give reasonable notice thereof to the others
within a reasonable time after becoming aware of such breach or such other
notice as required under the Auxiliary Agreement or the Business Plan. The
alleged breaching party shall have, unless otherwise specifically provided
in
this Agreement or such Auxiliary Agreement or the Business Plan, a period of
thirty (30) days from receipt of such notice to cure the alleged breach;
provided that if the alleged breach cannot reasonably be cured within such
period of time, but such breach is susceptible of being cured it shall not
be
considered a breach so long as the alleged breaching party has begun and
diligently pursues curing the alleged breach and completes the cure within
not
more than an additional thirty (30) days.
10.14 Remedies
for Breach of this Agreement.
[a] General.
Except
as otherwise specifically provided in this Agreement, the remedies set forth
in
this Agreement are cumulative and shall not exclude any other remedies to which
a Person may be lawfully entitled.
[b] Specific
Performance.
Without
limiting the rights and remedies otherwise available to the Company, CDI, MEC
or
any Member, each Member, CDI and MEC hereby: (i) acknowledges that the
remedy at law for damages resulting from its default under Article 3, or
Sections 6.1[c], 6.2, 6.3 or 10.14 is inadequate; and (ii) consents to the
institution of an action for specific performance of its obligations in the
event of such a default in accordance with Section 10.12[a] above.
[c] Exercise
of Discretion by the Board of Managers.
In
determining what action, if any, shall be taken against a Member in connection
with such Member’s breach of this Agreement, the Board of Managers shall seek to
obtain the best result for the Company and the non-breaching Members. In the
event a Member violates the terms of this Agreement, such Member shall not
be
entitled to claim that the Company or any of the other Members is precluded,
on
the basis of any fiduciary or other duty arising in respect of such Member’s
status as such, from seeking any of the penalties or other remedies permitted
under this Agreement or applicable law.
10.15 Timing.
All
dates and times specified in this Agreement are of the essence and shall be
strictly enforced. Except as otherwise specifically provided in this Agreement,
all actions that occur after the Close of Business on a given day shall be
deemed for purposes of this Agreement to have occurred at 9:00 a.m. on the
following day. In the event that the last day for the exercise of any right
or
the discharge of any duty under this Agreement would otherwise be a day that
is
not a business day, the period for exercising such right or discharging such
duty shall be extended until the Close of Business on the next succeeding
business day.
10.16 Status
Under the Act.
This
Agreement is the “limited liability company agreement” of the Company within the
meaning of Section 18-101(7) of the Act.
10.17 Partnership
for Tax Purposes.
As set
forth in Section 1.1, the Members hereby form the Company as a limited liability
company under the Act. The Members expressly do not intend hereby to form a
partnership under the laws of any State but intend that the Company shall be
treated as a partnership for tax purposes.
10.18 Miscellaneous.
No
failure or delay by any party in exercising any right, power or privilege under
this Agreement shall operate as a waiver thereof; any actual waiver shall be
contained in a writing signed by the party against whom enforcement of such
waiver is sought. This Agreement shall not be construed for or against any
party
by reason of the authorship or alleged authorship of any provisions hereof
or by
reason of the status of the respective parties.
10.19 No
Grant.
Except
as set forth on Schedule 5 of the Business Plan, each Member and its Affiliates
retains and has not granted to the Company or the other Member or its Affiliates
any rights to its intellectual property or other assets.
10.20 General
Usage.
The
section headings contained in this Agreement are for reference purposes only
and
shall not affect the meaning or interpretation of this Agreement. Except where
the context clearly requires to the contrary: (i) all references in this
Agreement to designated Articles are to the designated Articles and other
subdivisions of this Agreement; (ii) instances of gender or entity-specific
usage (e.g., “his” “her” “its” “person” or “individual”) shall not be
interpreted to preclude the application of any provision of this Agreement
to
any individual or entity; (iii) the word “or” shall not be applied in its
exclusive sense; (iv) “including” shall mean “including, without limitation”;
(v) references to laws, regulations and other governmental rules, as well as
to
contracts, agreements and other instruments, shall mean such rules and
instruments as in effect at the time of determination (taking into account
any
amendments thereto effective at such time without regard to whether such
amendments were enacted or adopted after the effective date of this Agreement)
and shall include all successor rules and instruments thereto; (vi) references
to “$” or “dollars” shall mean the lawful currency of the United States; (vii)
references to “Federal” or “federal” shall be to laws, agencies or other
attributes of the United States (and not to any State or locality thereof);
(viii) the meaning of the terms “domestic” and “foreign” shall be determined by
reference to the United States; (ix) references to “days” shall mean calendar
days; references to “business days” shall mean all days other than Saturdays,
Sundays and days that are legal holidays in the State of Delaware; (x)
references to monthly or annual anniversaries shall be to the actual calendar
months or years at issue (taking into account the actual number of days in
any
such month or year); and (xi) days, business days and times of day shall be
determined by reference to local time in Wilmington, Delaware.
ARTICLE
11
CERTAIN
MATTERS
11.1 Liabilities.
CDI,
CDI Sub and the Company shall not be liable for any liabilities incurred by
HRTV
with respect to the period prior to the consummation of the transactions
contemplated in the Asset Transfer and Contribution Agreement.
11.2 Lease
of Assets.
MEC,
through its wholly-owned subsidiary Horse Racing TV, Inc., will lease certain
tangible assets related to the Business to the Company under the Equipment
Lease. In addition, the real property needed for the conduct of the Business
of
the Company will be subleased to the Company by Los Angeles Turf Club, Inc.
under the Real Property Lease.
11.3 Preferred
Positioning.
The
Company will use Best Efforts to broadcast live on HRTV as many CDI and MEC
Races as possible during the time period in which the CDI and MEC Races are
conducted (i.e., on a live basis rather than delayed); provided, however, that
the Company will not be required to broadcast live CDI Races at the expense
of
the live broadcast of MEC Races of greater quality based on the track groupings
outlined in Schedule 3 of the Business Plan; provided, further, that the Company
will not be required to broadcast live MEC Races at the expense of the live
broadcast of CDI Races of greater quality based on the track groupings outlined
in Schedule 3 of the Business Plan. Furthermore, the Company will be required
to
broadcast live on HRTV a percentage of CDI and MEC Races not less than the
percentage reflected below for the relevant Track Groups, as defined on Schedule
3 of the Business Plan, based on the current schedule of race meets conducted
by
CDI and MEC. If a racetrack or Control thereof is sold by MEC or CDI, its races
shall no longer be considered MEC Races or CDI Races for purposes of this
Section 11.3 except to the extent such racetrack continues to be bound by the
provisions of this Agreement pursuant to Section 7.5.
[a] Group
A:95%
[b] Group
B+:75%
[c] Group
B:65%
[d] Group
C:50%
11.4 iTV
Product.
The
Company shall not (i) develop an iTV product, (ii) acquire an iTV product,
or
(iii) co-venture or co-develop an iTV product with a Third Party, without in
the
case of (i), (ii) and (iii), approval by the Board of Managers and with such
product branded with the brand of the Company. The profits, costs and expenses
of this initiative will be borne by the Company. Either CDI ADW or XpressBet
may
make a proposal to the Board of Managers to provide back office services for
the
iTV product. If both CDI ADW and XpressBet make such proposals, the Board of
Managers will select the lowest cost proposals (assuming both represent a
solution of equal quality.)
ARTICLE
12
DEFINITIONS
As
used
in this Agreement, the following terms shall have the following
meanings:
Act
shall
mean the Delaware Limited Liability Company Act, Title 6, Delaware Code Ann.,
Section 18-101 et seq., as amended.
Actual
Cash Flow Deficiency
shall
mean the amount by which the Company’s expenditures and current payables exceed
cash and cash equivalents for any quarter. For purposes of clarity, this
calculation will be made at the end of a quarter with respect to such
quarter.
Additional
MEC Capital
shall
have the meaning given it in Schedule B.
Additional
Member
shall
mean any Person, other than a Substitute Member, admitted to the Company as
a
Member after the date first above written.
ADW
shall
mean advance deposit wagering.
ADW
Content Rights
shall
mean solely for purpose of ADW all wagering, audio, video, data and replay
rights related to horse racing or dog racing whether distributed through the
internet, wireless, telephone, satellite, television, broadband, mobile or
video
streaming.
Affiliate
shall
mean, with respect to any Person, any other Person with regard to which the
Person is directly or indirectly Controlling, Controlled by or commonly
Controlled with.
Agreement
shall
mean this Operating Agreement of HRTV, LLC, a Delaware limited liability
company, including all schedules and exhibits hereto, as amended from time
to
time in accordance with the terms hereof.
Allocation
Percentage
shall
mean, for each Member, the percentage specified for such Member on Schedule
A.
Asset
Transfer and Contribution Agreement
shall
mean the Asset Transfer and Contribution Agreement of even date herewith between
the Company and Horse Racing TV, Inc., a wholly-owned subsidiary of MEC, as
thereafter amended.
Assignee
shall
mean a Person that has acquired all or any portion of an Interest (including
by
means of a Transfer permitted under Article 6), but that has not been admitted
as a Member.
Auxiliary
Agreements
shall
mean the following agreements entered into or to be entered into between CDI
and
MEC as provided in this Agreement:
(a)
TrackNet Limited Liability Company Operating Agreement of even date herewith,
as
thereafter amended;
(b)
CDI/MEC Content Exchange Agreement; and
(c)
Asset
Transfer and Contribution Agreement.
(d)
Any
other agreement entered into between CDI and MEC or by CDI or MEC for the
benefit of the other and designated as an Auxiliary Agreement.
Bank
shall
mean the bank selected by the Board of Managers from time to time (or any
successor entity thereto).
Bankruptcy
shall
mean, with respect to a Member: (i) an assignment of all or substantially
all of the assets of such Member for the benefit of its creditors generally;
(ii) the commencement of any bankruptcy or insolvency case or proceeding against
such Member which shall continue and remain unstayed and in effect for a period
of 60 consecutive days; (iii) the filing by such Member of a petition,
answer or consent seeking relief under any bankruptcy, insolvency or similar
law; or (iv) the occurrence of any other event that is deemed to constitute
bankruptcy for purposes of the Act.
Beneficial
Owner
shall
mean, with respect to a Member, any Person that holds an equity interest in
such
Member, either directly or indirectly through a nominee or agent or through
one
or more intervening entities qualifying as partnerships, grantor trusts or
S
corporations, in each case as determined for Federal income tax
purposes.
Best
Efforts
shall
mean commercially reasonable good faith efforts that a prudent person would
use
under similar circumstances without being required to expend an unreasonable
amount of funds when considering the benefit likely to be attained.
Board
of Managers
shall
mean the individuals appointed by the Members as the Managers as provided in
this Agreement , taken together or acting unanimously, as
appropriate.
Broadband
and Mobile Rights
shall
mean, other than with respect to ADW, all audio, video, data and replay rights
related to horse racing or dog racing for purposes that are unrelated to ADW
and
are distributed through any broadband or mobile technologies, including the
internet, wireless technologies, or any other on-line system or computer
network, now known or hereafter devised. For purposes of greater
clarity, an
entity
which has been granted a license to Broadband and Mobile Rights (but not ADW
Content Rights) shall not be permitted to present or exploit the Broadband
and
Mobile Rights if such presentation or exploitation contains, includes,
references, or is in any way associated with, wagering, or the promotion or
advertising of wagering, in any manner. By way of example, a website which
has
been granted a license to Broadband and Mobile Rights (but not ADW Content
Rights) shall not be permitted to advertise, promote or utilize a click-through
to any ADW platform or service.
Business
shall
have the meaning given it in Section 1.3(b).
Business
Plan shall
mean the initial business plan adopted and approved by CDI, CDI Sub, MEC, MEC
Sub and the Board of Managers simultaneously with entering into this Agreement,
as thereafter updated, modified or amended by the Board of
Managers.
Capital
Account
shall
mean, for each Member, a separate account that is:
(a) Increased
by: (i) the amount of such Member’s Capital Contribution and
(ii) allocations of Profit to such Member pursuant to
Article 3;
(b) Decreased
by: (i) the amount of cash distributed to such Member by the Company,
(ii) the Fair Market Value of any other property distributed to such Member
by the Company (determined as of the time of distribution, without regard to
Section 7701(g) of the Code, and net of liabilities secured by such property
that the Member assumes or to which the Member’s ownership of the property is
subject) and (iii) allocations of Loss to such Member pursuant to
Article 3;
(c) Revalued
in connection with any event described in Treasury Regulation
Section 1.704-1(b)(2)(iv)(f); and
(d) Otherwise
adjusted so as to conform to the requirements of Sections 704(b) and (c) of
the Code and the Treasury Regulations issued thereunder.
Capital
Commitment
shall
mean the cash and personal property committed by CDI Sub and MEC Sub to be
contributed to the Company.
Capital
Contribution
shall
mean, for any Member, the sum of the net amount of cash and the Fair Market
Value of any other property (determined as of the time of contribution, without
regard to Section 7701(g) of the Code, and net of liabilities secured by
such property that the Company assumes or to which the Company’s ownership of
the property is subject) contributed by such Member to the capital of the
Company. The term “capital contribution” (where not capitalized) shall mean any
contribution to the capital of the Company valued in accordance with the rules
set forth in the preceding sentence. For purposes of this Agreement, each
capital contribution shall be deemed to have been made at the later of:
(i) the Close of Business on the due date of such capital contribution as
determined in accordance with this Agreement; or (ii) the Close of Business
on the date on which such capital contribution is actually received by the
Company.
CDI
ADW
shall
mean any advance deposit wagering service that is Controlled by
CDI.
CDI/MEC
Content Exchange Agreement
shall
mean the Content Exchange Agreement of even date herewith between CDI and MEC,
as thereafter amended.
CDI
Premium Content
shall
mean with respect to Churchill Downs Racetrack: Kentucky Derby Day, Kentucky
Oaks Day, Stephen Foster Day, Derby Trial Day; with respect to Arlington Park:
Arlington Million Day; with respect to Fair Grounds Race Course: Louisiana
Derby
Day, Louisiana Champions Day; and with respect to Calder Race Course: Summit
of
Speed Day and Festival of the Sun Day. CDI may from time to time elect to (i)
replace a CDI Premium Content day with another day, and (ii) designate up to
ten
(10) additional days and/or special wagering products as CDI Premium Content.
Any such election shall take effect upon the giving of written notice to MEC,
and the definition of CDI Premium Content shall thereafter be deemed
amended.
CDI
Races
shall
mean live horse races conducted at a CDI Track.
CDI
Tracks
shall
mean race tracks and off track betting facilities Controlled by
CDI.
Change
of Control Transaction
shall
mean with respect to a Person the first to occur of the following
events:
(a)
the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of the then-outstanding
voting interests of the Person (the “Outstanding Voting
Interests”);
(b)
the
consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Person or the
acquisition of assets of another entity (a “Transaction”), in each case, unless
immediately following such Transaction, (i) all or substantially all of the
individuals and entities who were the beneficial owners of the Outstanding
Voting Interests immediately prior to such Transaction beneficially own,
directly or indirectly, more than 50% of the then-outstanding voting interest
of
the company resulting from such Transaction (including, without limitation,
an
entity which as a result of such transaction owns the Person or all or
substantially all of the Person’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Transaction, of the Outstanding Voting Interests,
(ii)
no Person (excluding any employee benefit plan (or related trust) of the subject
Person or such entity resulting from such Transaction) beneficially owns,
directly or indirectly, 50% or more of the Outstanding Voting Interests
resulting from such Transaction, except to the extent that such ownership
existed prior to the Transaction, and (iii) at least a majority of the members
of the governing body of the company resulting from such Transaction were
members of the Incumbent Board at the time of the execution of the initial
plan
or action of the governing body of the Person providing for such Transaction;
or
(c)
approval by the equity owners of such Person of a complete liquidation or
dissolution of the Person.
Notwithstanding
anything to the contrary contained in this Agreement, a Change of Control
Transaction shall be deemed not to have occurred as a result of any transaction
or group of transactions that result in direct or indirect voting control of
the
applicable Person being transferred to any one or more of the Stronach Trust,
Frank Stronach, members of Frank Stronach’s immediate family (i.e. spouse and
children), any of their respective heirs or any subsidiaries or other entities
Controlled by any of the foregoing.
Close
of Business
shall
mean 5:00 p.m., local time, in Wilmington, Delaware.
Closing
shall
mean April 27, 2007, or such other date as the parties to the Asset Transfer
and
Contribution Agreement agree.
Code
shall
mean the United States Internal Revenue Code of 1986, as amended.
Company
shall
mean HRTV, LLC, a Delaware limited liability company.
Control and
derivatives thereof such as “Controlled” or “Controlling”, shall mean, (i) with
respect to any racetrack or off-track betting facility, the ability to conduct
the day-to-day wagering operations of such race track or facility, directly
or
through a lease, management agreement or other contractual arrangement; and
(ii)
with respect to any Person (including CDI ADW and XpressBet), (a) the beneficial
ownership of 50% or more of the then outstanding voting interests of the Person,
or (b) the power to direct the principal business management and activities
of
the Person, whether through ownership of voting interests, by agreement or
otherwise.
Deadlock
shall
mean the inability to reach agreement on an issue or matter material to the
Company.
Defaulting
Member
shall
have the meaning set forth in Section 2.4.
Derivative
Company Interest
shall
mean any actual, notional or constructive interest in, or right in respect
of,
the Company (other than a Member’s total interest in the capital, profits and
management of the Company) that, under Treasury Regulation
Section 1.7704-1(a)(2), is treated as an interest in the Company for
purposes of Section 7704 of the Code. Pursuant to the foregoing,
“Derivative Company Interest” shall include any financial instrument that is
treated as debt for Federal income tax purposes and (i) is convertible into
or exchangeable for an interest in the capital or profits of the Company or
(ii) provides for one or more payments of equivalent value.
Discretionary
Expenditure
shall
mean a capital expenditure or other expenditure that (i) is approved by the
Board of Managers and designated as a Discretionary Expenditure, (ii) is not
budgeted for as of the date hereof, and (iii) represents an expansion in the
capabilities of HRTV in a manner that is not contemplated as of the date hereof;
provided that, for avoidance of doubt, a Discretionary Expenditure shall not
include replacement of existing equipment or other maintenance capital
expenditures. Any Discretionary Expenditure shall be funded by the Members
when
such Discretionary Expenditure is approved by the Board of Managers in
accordance with Schedule B-1.
Dissolution
or
Dissolved
shall
mean, with respect to a legal entity other than a natural person, that such
entity has “dissolved” within the meaning of the partnership, corporation,
limited liability company, trust or other statute under which such entity was
organized.
Employee
Costs
shall
mean the actual cash salary, other cash compensation and other cash expense
directly attributable to an employee, including base salary, bonus, FICA, FUTA,
health benefits, life and disability benefits and retirement benefits, but
specifically shall not include any non-cash compensation such as equity grants
or stock options.
Equipment
Lease
shall
mean the Asset Lease Agreement between Horse Racing TV, Inc. and the Company
dated as of the Closing, as thereafter amended.
Excess
Cash Flow Deficiency
for any
quarter shall mean the amount by which the Actual Cash Flow Deficiency exceeds
the Projected Cash Flow Deficiency for that quarter. For purposes of clarity,
this calculation shall be made at the end of a quarter with respect to such
quarter.
Fair
Market Value
shall
have the meaning set forth in Section 5.10(c).
Fiscal
Year
shall
mean the period from January 1 through December 31 of each year
(unless otherwise required by law).
GAAP
shall
mean United States generally accepted accounting principles, consistently
applied.
HRTV
shall
mean the television network operated as of the date hereof under the name of
Horse Racing TV which broadcasts, transmits or displays horse racing and related
activities.
Indemnified
Person
shall
mean CDI, MEC, each Member and each equityholder, member, director, officer,
employee, or agent of CDI, MEC or a Member. In addition, “Indemnified Person”
shall mean any Manager or officer of the Company. A Person that has ceased
to
hold a position that previously qualified such Person as an Indemnified Person
shall be deemed to continue as an Indemnified Person with regard to all matters
arising or attributable to the period during which such Person held such
position.
Initial
Term
shall
have the meaning given to it in Section 8.2.
Interest
shall
mean, for each Member, such Member’s rights, duties and interest in respect of
the Company in such Member’s capacity as such (as distinguished from any other
capacity such as employee, debtor or creditor) and shall include such Member’s
right, if any, to vote on Company matters, or receive distributions as well
as
such Member’s obligation, if any, to provide services, make capital
contributions or take any other action. In the case of an Interest held by
an
Assignee, such Interest shall be limited in the manner set forth in Section
7.4.
iTV
shall
mean any application which enhances traditional television exploitation by
enabling ADW, provided that such application is limited to cable television
(including traditional television provided by telephone companies) and direct
broadcast satellite service television.
Manager
shall
mean each Person listed on Schedule A as such, for so long as such Person does
not become a Removed Manager.
Material
Misconduct
shall
mean, with respect to an Indemnified Person, gross negligence, willful and
material breach of this Agreement, fraud, or the commission of a felony (except
in the case of a felony where the Indemnified Person reasonably believed that
no
such felony would occur in consequence of such Indemnified Person’s action or
inaction, as the case may be). For purposes of the preceding sentence: (i)
an
Indemnified Person shall be deemed to have acted in good faith and without
negligence with regard to any action or inaction that is taken in accordance
with the advice or opinion of an attorney, accountant or other expert advisor
so
long as such advisor was selected with reasonable care and the Indemnified
Person made a good faith effort to inform such advisor of all the facts
pertinent to such advice or opinion; and (ii) an Indemnified Person’s reliance
upon the truth and accuracy of any written statement, representation or warranty
of a Member shall be deemed to have been reasonable and in good faith absent
such Indemnified Person’s actual knowledge that such statement, representation
or warranty was not, in fact, true and accurate.
MEC
Premium Content
shall
mean with respect to Gulfstream Park: Donn Handicap Day, Florida Derby Day,
Sunshine Millions Day; with respect to Santa Anita: Santa Anita Handicap Day,
Santa Anita Derby Day, Sunshine Millions Day; with respect to Laurel Park:
Maryland Millions Day, Frank DeFrancis Memorial Day; with respect to Lone Star:
Lone Star Derby Day; and with respect to Pimlico: Preakness Day, Black-eyed
Susan Day. MEC may from time to time elect to (i) replace a MEC Premium Content
day with another day, and (ii) designate up to ten (10) additional days and/or
special wagering products as MEC Premium Content. Any such election shall take
effect upon the giving of written notice to CDI, and the definition of MEC
Premium Content shall thereafter be deemed amended.
MEC
Races
shall
mean live horse races conducted at a MEC Track.
MEC
Tracks
shall
mean race tracks and off track betting facilities Controlled by
MEC.
Member
shall
mean any Person (i) listed on Schedule A as a Member or (ii) admitted
to the Company pursuant to the terms of this Agreement as an Additional Member
or a Substitute Member, but in each case only if such Person has not become
a
Withdrawn Member. A Member shall not cease to be a Member or lose its
non-economic rights in respect of the Company solely by virtue of having
Transferred to one or more Persons its entire economic interest in the Company.
Except where the context requires otherwise, a reference in this Agreement
to
“the Members” shall mean all of the Members (taken together or acting
unanimously, as appropriate).
Member
Nonrecourse Deduction
shall
mean an item of loss, expense or deduction attributable to a nonrecourse
liability of the Company for which a Member bears the economic risk of loss
within the meaning of Treasury Regulation Section 1.704-2(i).
Minimum
Gain
of the
Company shall, as provided in Treasury Regulation Section 1.704-2, mean the
total amount of gain the Company would realize for Federal income tax purposes
if it disposed of all assets subject to nonrecourse liability for no
consideration other than full satisfaction thereof.
Nonrecourse
Deduction
shall
mean an item of loss, expense or deduction (other than a Member Nonrecourse
Deduction) attributable to a nonrecourse liability of the Company within the
meaning of Treasury Regulation Section 1.704-2(b).
Permanent
Incapacity
shall
mean, with respect to an individual, that such individual suffers a mental
or
physical disability which, as of the time of determination, renders such
individual incapable of performing such individual’s duties under this Agreement
and is substantially certain to continue to render such individual incapable
of
performing such duties for a continuous period of at least six months following
the date of determination.
Person
shall
mean an individual, partnership, corporation, limited liability company,
unincorporated organization, trust, joint venture, governmental agency, or
other
entity, whether domestic or foreign.
Point
to Point Content Rights
shall
mean all wagering, audio, video, data and replay rights related to horse racing
or dog racing for purposes of pari-mutuel wagering at a race track or other
location which constitutes a simulcasting facility (i.e., a race track, off
track betting facility or other fixed “brick and mortar” facility open to the
general public) for use at such receiving location.
Point
to Point Simulcasting
shall
mean the distribution, transmission or receipt of Point to Point Content
Rights.
Principal
Office
shall
have the meaning set forth in Section 1.4.
Profit
and Loss or Profits and Losses
means,
for each taxable year of the Company (or other period for which Profit or Loss
must be computed), the Company’s taxable income or loss determined in accordance
with Code Section 703(a), with the following adjustments:
(i) all
items
of income, gain, loss, deduction, or credit required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in computing taxable income
or loss;
(ii) any
tax-exempt income of the Company, not otherwise taken into account in computing
Profit or Loss, shall be included in computing taxable income or
loss;
(iii) any
expenditures of the Company described in Code Section 705(a)(2)(B) (or treated
as such pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i)) and not
otherwise taken into account in computing Profit or Loss, shall be subtracted
from taxable income or loss;
(iv) gain
or
loss resulting from any taxable disposition of Company property shall be
computed by reference to the adjusted book value of the property disposed of,
notwithstanding the fact that the adjusted book value differs from the adjusted
basis of the property for federal income tax purposes;
(v) in
lieu
of the depreciation, amortization, or cost recovery deductions allowable in
computing taxable income or loss, there shall be taken into account the
depreciation computed based upon the adjusted book value of the asset;
and
(vi) notwithstanding
any other provision of this definition, any items which are specially allocated
pursuant to Section 3.1[b] shall not be taken into account in computing Profit
or Loss.
Projected
Cash Flow Deficiency
shall
mean the amount for any quarter set forth on Schedule 4 of the Business
Plan.
Real
Property Lease
shall
mean the Real Property Sublease Agreement between Los Angeles Turf Club,
Incorporated and the Company dated as of the Closing, as thereafter
amended.
Removed
Manager
shall be
a Manager who has been removed pursuant to Section 5.11 of this
Agreement.
RTN
shall
mean Racetrack Television Network (dba RTN).
Securities
Act
shall
mean the United States Securities Act of 1933, as amended, including the rules
and regulations promulgated thereunder.
State
shall
mean any constituent state of the United States, as well as the District of
Columbia.
Subscriber
shall
mean any home that, through traditional television exploitation, including
by
means of UHF and VHF television broadcast, cable television, “over-the-air”
television, subscription television, pay television, pay per view television,
iTV, video on demand television, hotel and other institutional service
television, satellite master antennae television (SMATV), multi-channel
multi-point distribution services television (MMDS), and direct broadcast
satellite service, has the ability to view HRTV. By way of example, a home
which
subscribes to a basic tier of cable television or direct broadcast satellite
service television shall be deemed a Subscriber if such cable television or
direct broadcast satellite service television operator offers HRTV on any
tier.
Substitute
Member
shall
mean a transferee of all or a portion of a Member’s Interest that becomes a
Member and succeeds, to the extent of the Interest transferred, to the rights
and powers and becomes subject to the restrictions and liabilities of the
transferor Member.
Tax
Matters Partner
shall
mean the Member identified as such, from time to time, by the Members. The
initial Tax Matters Partner shall be CDI Sub, and CDI Sub and MEC Sub shall
alternate serving as the Tax Matters Partner each calendar year.
Tax
Percentage
shall
have the meaning set forth in Section 4.1(a)(ii).
Television
Fees
shall
have the meaning set forth in Section 5.2.
Television
Rights
shall
mean, other than with respect to Point to Point Simulcasting, all audio, video,
data and replay rights related to horse racing or dog racing for purposes of
traditional television exploitation, including by means of UHF and VHF
television broadcast, cable television, “over-the-air” television, subscription
television, pay television, pay per view television, iTV, video on demand
television, hotel and other institutional service television, satellite master
antennae television (SMATV), multi-channel multi-point distribution services
television (MMDS), and direct broadcast satellite service, provided however
Television Rights shall not include Broadband and Mobile Rights.
Term
shall
have the meaning set forth in Section 1.2. Where not capitalized, “term”
shall mean the entire period of the Company’s existence, including any period of
winding-up and liquidation following the Dissolution of the Company pursuant
to
Article 8.
Termination
shall
mean, with respect to a legal entity other than a natural person, that such
entity has Dissolved, completed its process of winding-up and liquidation,
and
otherwise ceased to exist.
Territory
shall
mean the United States and whatever additional geographic region, if any, as
the
Board of Managers shall determine from time to time.
Third
Party shall
mean any person or entity other than CDI, CDI Sub, MEC or MEC Sub, or any entity
Controlled by CDI or MEC, respectively.
TrackNet
shall
mean TrackNet Media Group, LLC.
Transfer
shall
mean any direct or indirect sale, exchange, transfer, gift, encumbrance,
assignment, pledge, mortgage, hypothecation or other disposition, whether
voluntary or involuntary.
Treasury
Regulation
shall
mean a regulation issued by the United States Treasury Department and relating
to a matter arising under the Code.
United
States
shall
mean the United States of America.
Updated
Capital Account
shall
mean, with respect to a Member, such Member’s Capital Account determined as if,
immediately prior to the time of determination, all of the Company’s assets had
been sold for Fair Market Value and any previously unallocated Profits or Losses
had been allocated pursuant to Article 3.
Withdrawal
Event
shall
have the meaning set forth in Section 7.3.
Withdrawn
Member
shall
have the meaning set forth in Section 7.3.
XpressBet
shall
mean any advance deposit wagering service that is Controlled by
MEC.
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
CHURCHILL
DOWNS INCORPORATED
By:_/s/
William C. Carstanjen___________
Name:
William C.
Carstanjen
Title:
Executive Vice
President
CD
HRTV
HC, LLC
By:_/s/
William C. Carstanjen___________
Name:
William C.
Carstanjen
Title:
Executive Vice
President
MAGNA
ENTERTAINMENT CORP.
By:__/s/
Michael Newman_____________
Name:
Michael
Newman
Title:
Chief
Executive Officer
By:___/s/
Joseph DeFrancis____________
Name:
Joseph
DeFrancis
Title:
Executive Vice
President
MEC
HRTV
HOLDCO LLC
By:__/s/
Michael Newman_____________
Name:
Michael
Newman
Title:
Chief
Executive Officer
By:___/s/
Joseph DeFrancis____________
Name:
Joseph
DeFrancis
Title:
Executive Vice
President
15181192.10
SCHEDULE
A
MEMBER
INFORMATION
|
Name
and Contact Information
|
Allocation
Percentage
|
|
CD
HRTV HC, LLC; Attn: President
700
Central Avenue
Louisville,
Kentucky 40208
|
50
|
|
MEC
HRTV HOLDCO LLC; Attn: President
337
Magna Drive
Aurora,
Ontario L4G
7K1
Canada
|
50
|
Initial
Capital Commitment
|
2007
|
CDI
Sub
|
MEC
Sub
|
|
Upon
Closing
|
$786,000
|
$786,000
|
|
July
1,
2007
|
$574,000
|
$574,000
|
|
October
1, 2007
|
$599,000
|
$599,000
|
|
January
1, 2008
|
$602,000
|
$602,000
|
|
2008
|
||
|
April
1, 2008
|
$636,000
|
$636,000
|
|
July
1,
2008
|
$621,000
|
$621,000
|
|
October
1, 2008
|
$621,000
|
$621,000
|
|
January
1, 2009
|
$652,000
|
$652,000
|
|
2009
|
||
|
April
1, 2009
|
$648,000
|
$648,000
|
|
July
1,
2009
|
$648,000
|
$648,000
|
|
October
1, 2009
|
$600,000
|
$600,000
|
1.
All
quarterly contributions shall be made on the dates listed above.
2.
Any
quarterly contributions or portions thereof which are not needed to fund the
Actual Cash Flow Deficiency of such quarter shall be segregated in a separate
bank account of the Company until needed to fund an Actual Cash Flow Deficiency
of a future quarter or any distributions permitted or required under this
Agreement.
Capital
Contributions required to be made by a Member under this Schedule shall be
due
and payable on the date indicated and delinquent amounts shall bear interest
at
a floating rate equal to the prime rate as announced from time to time by the
Bank, compounded daily.
MANAGERS
William
Carstanjen.
Joseph
DeFrancis.
James
E.
Gay.
Michael
Neuman.
SCHEDULE
B
Additional
Capital Commitments
In
the
event there is an Excess Cash Flow Deficiency with respect to any quarter
beginning with the Closing through and including the 4th
calendar
quarter of 2009, MEC Sub agrees to fund such Excess Cash Flow Deficiency as
set
forth below. If, in accordance with this Schedule B, additional capital is
required from MEC Sub, a capital call notice will be sent by the Company to
MEC
Sub specifying the amount and time of the contribution for such additional
capital. MEC Sub must make the contribution required by such capital call on
the
indicated due date, and delinquent amounts shall bear interest at a floating
rate equal to the prime rate as announced from time to time by the Bank,
compounded daily. MEC Sub shall solely contribute additional capital to fund
the
Excess Cash Flow Deficiency for such quarter (the “Additional MEC
Capital”).
Any
Additional MEC Capital will not alter the Allocation Percentages.
Notwithstanding
anything to the contrary herein, CDI shall not be required to fund any amounts
with respect to Excess Cash Flow Deficiencies.
The
Board
of Managers may decline to issue a capital call other than as required under
this Schedule or Schedule B-1 in their sole and absolute
discretion.
SCHEDULE
B-1
Additional
Capital Commitments-Discretionary Expenditures
In
the
event there is a Discretionary Expenditure during any quarter, CDI Sub and
MEC
Sub agree to fund such Discretionary Expenditure in accordance with their
respective Allocation Percentages when such Discretionary Expenditure is
approved by the Board of Managers. When, in accordance with this Schedule B-1,
additional capital is required from CDI Sub and MEC Sub, a capital call notice
will be sent by the Company to CDI Sub and MEC Sub specifying the amount and
time of the contribution for such additional capital. CDI Sub and MEC Sub must
make the contribution required by such capital call on the indicated due date,
and delinquent amounts shall bear interest at a floating rate equal to the
prime
rate as announced from time to time by the Bank, compounded
daily.
SCHEDULE
C
Existing
Contractual Obligations
|
Date
of Expiration
|
|
|
Churchill
Downs Incorporated
|
|
|
ODS
Technologies (dba TVG Network) - Hoosier
|
March
13, 2007
|
|
ODS
Technologies (dba TVG Network) - Churchill Downs
|
March
14, 2007
|
|
ODS
Technologies (dba TVG Network) - Fair Grounds
|
March
30, 2007
|
|
ODS
Technologies (dba TVG Network) - Arlington
|
August
6, 2007
|
|
ODS
Technologies (dba TVG Network) - Calder
|
April
15, 2008
|
|
Racing
World
|
April
15, 2009
|
|
Magna
Entertainment Corp.
|
|
|
RTN
|
month
to month
|
|
Racing
World
|
April
15, 2009
|
The
above
contractual obligations of CDI and MEC shall not be renewed or extended after
the date of this Agreement, except (i) Racing World may be extended upon
approval of the Board of Managers, and (ii) RTN may be extended provided that
CDI’s Television Rights are carried on RTN not later than April 27, 2007 on
terms and conditions acceptable to the Board of Managers.
LIMITED
LIABILITY COMPANY OPERATING AGREEMENT
OF
TRACKNET
MEDIA GROUP, LLC
THIS
OPERATING AGREEMENT of TRACKNET MEDIA GROUP, LLC, a Delaware limited liability
company (the “Company”), is entered into as of March 4, 2007 by and between
CHURCHILL DOWNS INCORPORATED, a Kentucky corporation (“CDI”), CD CONTENTCO HC,
LLC, a Delaware limited liability company and a wholly owned subsidiary of
CDI
(“CDI Sub”), MAGNA ENTERTAINMENT CORP., a Delaware corporation (“MEC”) and MEC
CONTENT HOLDCO LLC, a Delaware limited liability company and a wholly owned
subsidiary of MEC (“MEC Sub”). (Unless otherwise indicated, each term used in
this Agreement with initial capital letters shall have the meaning ascribed
to
it in Article 11.)
For
and
in consideration of the mutual promises contained herein, and for other good
and
valuable consideration, the receipt and sufficiency of which are acknowledged
by
the parties, CDI, CDI Sub, MEC and MEC Sub desiring to be legally bound agree
as
follows:
ARTICLE
1
FORMATION
1.1 Formation
and Name.
[a] The
Members enter into and form the Company as a limited liability company in
accordance with the Act.
[b] The
name
of the Company shall be TrackNet Media Group, LLC.
1.2 Term.
The
“Term” of the Company shall commence on the date first above written and shall
continue as set forth in Section 8.2.
1.3 Purpose
and Scope.
[a] Within
the meaning and for purposes of the Act, the purpose and scope of the Company
shall be the conduct of the Business and, in connection with conducting the
Business, shall include any lawful action or activity permitted to a limited
liability company under the Act.
[b] [i]
The
Company, as the sole and exclusive agent for CDI, CDI Sub, MEC and MEC Sub
and
their Affiliates, will on behalf of CDI, CDI Sub, MEC and MEC Sub and their
Affiliates:
1. Conduct
the acquisition of ADW
Content Rights from all Third Parties worldwide for ADW worldwide by CDI ADW
and
XpressBet.
2.
Conduct the acquisition of Point to Point Content Rights from all Third Parties
worldwide for Point-to-Point Simulcasting worldwide by CDI Tracks and MEC
Tracks.
3.
Conduct the acquisition of Rebate Content Rights from all Third
Parties
worldwide for Rebating worldwide by CDI and MEC.
4.
Sublicense CDI and MEC ADW Content Rights to Third Parties worldwide
for ADW worldwide.
5.
Sublicense CDI and MEC Point to Point Content Rights to Third Parties
worldwide for Point-to-Point Simulcasting worldwide.
6.
Sublicense CDI and MEC Rebate Content Rights to Third Parties worldwide for
Rebating worldwide.
Each
of
1-6, to the extent and at the time permitted by contractual obligations existing
as of the date hereof as set forth on Schedule C.
[ii]
The
Company will also:
7.
Acquire
ADW Content Rights from Third Parties worldwide for resale or sublicensing
to
Third Parties worldwide for ADW worldwide.
8.
Acquire
Point to Point Content Rights from Third Parties worldwide for resale or
sublicensing to Third Parties worldwide for Point to Point Simulcasting
worldwide.
9.
Acquire
Rebate Content Rights from Third Parties worldwide for resale or sublicensing
to
Third Parties worldwide for Rebating worldwide.
10.
Acquire
Television Rights from Third Parties worldwide for use by HRTV Entity worldwide
and for redistribution by the Company to Third Parties outside the
Territory.
11. Provide
settlement and collections for CDI and MEC.
12. Improve
the simulcasting production of CDI and MEC.
13.
Conduct
due diligence and implement wagering integrity processes with respect to
ADW,
Point to Point Simulcasting, and Rebating.
Collectively 1-13, are referred to herein as the “Business”.
[c] CDI
may,
at its sole cost and expense, form or purchase CDI ADW. MEC will provide such
technology and/or services in respect of the formation and operation of CDI
ADW
as CDI, in its sole discretion, may reasonably request. Any services or
technology to be provided by MEC (or any affiliates thereof) shall be provided
at a rate that is mutually agreeable to the parties.
1.4 Principal
Office.
The
Company shall have a single “Principal Office.” The Principal Office initially
shall be located at Churchill Downs in Louisville, Kentucky (with a satellite
office at Santa Anita Park), and may thereafter be changed from time to time
by
approval of the Board of Managers upon notice to the Members.
1.5 Delaware
Office and Agent.
The
Company shall maintain a Delaware registered office and agent for service of
process as required by the Act. In the event the registered agent ceases to
act
as such for any reason or the registered office shall change, the Board of
Managers shall promptly designate a replacement registered agent or file a
notice of change of address, as the case may be, in each case as required by
the
Act.
1.6 Admission
of Members and Additional Members.
[a] Upon
execution of this Agreement each of CDI Sub and MEC Sub is admitted as a
Member.
[b] Additional
Members may be admitted as Members from time to time, with the approval of
the
Board of Managers and with such changes to this Agreement as agreed to by CDI,
CDI Sub, MEC and MEC Sub. The Capital Commitment (as well as the timing of
required capital contributions in respect thereof) and Allocation Percentage
of
each Additional Member shall be determined by approval of the Board of Managers
and set forth on Schedule A. The Allocation Percentage of each Additional Member
shall dilute the Allocation Percentages of the previously admitted Members
in
proportion to their respective Allocation Percentages as in effect immediately
prior to such dilution.
[c] A
Person
shall not be admitted as an Additional Member prior to the execution by such
Person of a counterpart of this Agreement (including Schedule A, as updated
to
reflect such Person’s Interest).
[d] Notwithstanding
the foregoing provisions of this Section 1.6, the provisions of Article 7 shall
apply with regard to the admission of Substitute Members.
[e] CDI
and
MEC shall work together to recruit mutually agreed-upon Third Parties (such
as
horsemen, breeders and other industry participants) to become Additional Members
of the Company. In the event CDI and MEC are successful in recruiting mutually
agreed-upon Additional Members, CDI Sub and MEC Sub will be diluted on a pro
rata basis.
1.7 Names
and Contact Information of the Members.
Set
forth below the name of each Member on Schedule A shall be appropriate contact
information for such Member (including such Member’s mailing address as well as
the name or title of an individual to whom notices and other correspondence
should be directed). Each Member shall promptly provide the Company with the
information required to be set forth for such Member on Schedule A and shall
thereafter promptly notify the Company of any change to such
information.
1.8 Additional
Documents.
[a] The
Board
of Managers shall cause to be executed, filed, recorded, published, or amended
any documents, as the Board of Managers in their reasonable discretion determine
to be necessary or advisable, (x) in connection with the formation, operation,
Dissolution, winding-up, or Termination of the Company pursuant to applicable
law or (y) to otherwise give effect to the terms of this Agreement. The terms
and provisions of each document described in the preceding sentence shall be
initially established and shall be amended as necessary to cause such terms
and
provisions to be consistent with the terms and provisions of this
Agreement.
1.9 Title
to Property.
Title
to all Company property shall be held in the name of the Company; provided,
however, that publicly traded securities may be held in “street name” or through
a similar arrangement with a reputable financial institution.
ARTICLE
2
CAPITALIZATION
2.1 Capital
Commitments.
[a] Initial
Capital Commitments.
The
Company shall be owned initially fifty percent (50%) by CDI Sub and fifty
percent (50%) by MEC Sub. Each of CDI Sub and MEC Sub will make initial capital
contributions in the amount and at such times as set forth on Schedule A or
such
lesser amount as the Board of Managers may agree. All Capital Commitments shall
be made such that each of MEC Sub and CDI Sub contributes fifty percent (50%)
of
the aggregate value contributed to the Company, except as may otherwise be
agreed between MEC Sub and CDI Sub. In addition, CDI may lease certain property
to the Company under the Real Property Lease.
[b] Increased
Capital Commitments.
In the
event the Company revenues are insufficient to allow the Company to be self
funding, any additional capital needs will be determined by the Board of
Managers in accordance with Schedule A.
[c] Rights
Covenant.
Upon
execution of this Agreement, CDI
Sub
and MEC Sub contribute or cause to be contributed and/or license or cause to
be
licensed to the Company their respective rights (including such rights as held
by their Affiliates) as set forth on Schedule B subject to the contractual
obligations existing as of the date hereof as set forth on Schedule
C.
2.2 Capital
Contributions.
Except
to the extent set forth on Schedule B or otherwise agreed by the Members after
the date of this Agreement, all capital contributions shall be in
cash.
[a] Capital
Contributions in Respect of Initial Capital
Commitments.
Within
thirty (30) days of execution of this Agreement, each Member shall make a
capital contribution equal to its initial Capital Commitment as set forth on
Schedule A or such lesser amount as the Board of Managers may
agree.
[b] Capital
Contributions in Respect of Increased Capital
Commitments.
The
Members shall make capital contributions in respect of, and in proportion to,
any increase in their Capital Commitments pursuant to Section 2.1(b) and
Schedule A.
2.3 Limitation
on Capital Contributions.
Except
as specifically provided in this Article 2 or Section 3.5(c), no Person shall
be
permitted or required to make a contribution to the capital of the
Company.
2.4 Penalties
for Failure to Make Required Contributions.
In the
event that a Member fails to timely make a capital contribution as required
pursuant to this Agreement (a “Defaulting Member”), the following provisions
shall be applicable:
[a] The
non-Defaulting Member shall have the right (but not the obligation) to make
the
capital contribution in lieu of the Defaulting Member. In such event, the
Interest and Allocation Percentage of the non-Defaulting Member in the Company
shall be proportionately increased, and the Interest and Allocation Percentage
of the Defaulting Member proportionately decreased, as appropriate to reflect
the additional capital contribution by the non-Defaulting Member. If the default
is then cured by the Defaulting Member, as permitted under this Agreement,
the
Defaulting Member shall have the Interests and Allocation Percentages of the
Defaulting Member and the non-Defaulting Member reinstated to where they were
prior to the default with an appropriate distribution to the non-Defaulting
Member of the capital contribution made in lieu of the Defaulting
Member.
[b] Such
Defaulting Member shall be subject to any and all penalties and remedies
available at law or equity, as selected by the members of the Board of Managers
who are not appointed by the Defaulting Member.
2.5 Withdrawal
and Return of Capital.
No
Member may withdraw any portion of its Capital Contribution or Capital Account
balance. Except as provided in Section 2.4[a] and in Articles 4 and 8, no Member
shall be entitled to the return of such Member’s Capital Contribution, a
distribution in respect of such Member’s Capital Account balance, or any other
distribution in respect of such Member’s Interest.
2.6 Loans
to the Company.
No
Member shall be required to lend any money to the Company or to guaranty any
Company indebtedness.
2.7 Interest
on Capital.
No
Member shall be entitled to interest on such Member’s Capital Contribution,
Capital Account balance, or share of unallocated Profits.
2.8 Limitation
of Liability; Return of Certain Distributions.
[a] Except
as
otherwise required by applicable law, a Member shall have no personal liability
for the debts and obligations of the Company.
[b] A
Member
that receives a distribution in violation of this Agreement or that is required
to be returned to the Company under applicable law shall return such
distribution within thirty (30) days after demand therefor by any Member. The
Company may, with the approval of the Board of Managers, elect to withhold
from
any distributions otherwise payable to a Member amounts due to the Company
from
such Member.
[c] Nothing
in this Section 2.8 shall be applied to release any Member from
(i) its obligation to make capital contributions or other payments
specifically required under this Agreement or (ii) its obligations pursuant
to any contractual relationship between the Company and such Member acting
in a
capacity other than as a Member (including, for example, as a borrower or
independent contractor).
2.9 Contributed
Property.
With
respect to any property contributed by a Member to the Company, such Member
shall provide to the Company any information reasonably requested by the Company
for purposes of determining the Company’s tax basis in such
property.
2.10 Seconded
Personnel.
MEC and
CDI shall agree on their respective personnel to be seconded or transferred
to
the Company and the terms thereof. Schedule 11 of the Business Plan sets forth
the organizational chart of the Company, including the names of certain
personnel who are expected to fill various positions and several open positions
for which no candidates have yet been identified by the Members. CDI and MEC
intend to second the personnel listed on Schedule 11 of the Business Plan
immediately upon execution of this Agreement and CDI and MEC shall cooperate
in
good faith to determine whether they mutually agree in the future to transfer
such employees to the Company instead of seconding them to the Company. On
or
before the tenth (10th)
day of
each month, each of CDI and MEC will bill the Company for the Employee Costs
incurred by CDI and MEC during the immediately preceding month for its employees
seconded to the Company, prorated as appropriate for any employees seconded
on a
less than full time basis. The Company shall promptly pay to CDI and MEC the
amount set forth in such bills.
ARTICLE
3
PROFITS
AND LOSSES
3.1 Allocations
of Company Profits and Losses.
[a] General
Allocation Provisions.
[i] Hypothetical
Liquidation.
The
items of income, expense, gain and loss of the Company comprising Profits or
Losses for a fiscal year shall be allocated among the Members in a manner that
will, as nearly as possible, cause the Capital Account balance of each Member
at
the end of such fiscal year to equal the excess (which may be negative)
of:
[A] the
hypothetical distribution (if any) that such Member would receive if, on the
last day of the fiscal year, (i) all Company assets, including cash, were sold
for cash equal to their Fair Market Values, taking into account any adjustments
thereto for such fiscal year, (ii) all Company liabilities were satisfied in
cash according to their terms (limited, with respect to each nonrecourse
liability, to the Fair Market Value of the assets securing such liability),
and
(iii) the net proceeds thereof (after satisfaction of such liabilities) were
distributed in full pursuant to Section 8.3[d]; over
[B] the
sum
of (x) the amount, if any, which such Member is obligated to contribute to
the
capital of the Company, (y) such Member’s share of the Company Minimum Gain
determined pursuant to Treasury Regulation Section 1.704-2(g), and (z) such
Member’s share of Member Minimum Gain determined pursuant to Treasury Regulation
Section 1.704-2(i)(5), all computed immediately prior to the hypothetical sale
described above.
[ii] Determination
of Items Comprising Allocations.
[A] In
the
event that the Company has Profit for a fiscal year,
[1] for
any
Member as to whom the allocation under Section 3.1(a)(i) would reduce its
Capital Account, such allocation shall be comprised of a proportionate share
of
each of the Company’s items of expense or loss entering into the computation of
Profit for such fiscal year; and
[2] the
allocation for all other Members shall be comprised of a proportionate share
of
each Company item of income, gain, expense and loss entering into the
computation of Profit for such fiscal year (other than the portion of each
Company item of expense and loss, if any, that is allocated in (ii)(A)(1)
above).
[B] In
the
event that the Company has Loss for a fiscal year,
[1] for
any
Member as to whom the allocation under Section 3.1(a)(i) would increase its
Capital Account, such allocation shall be comprised of a proportionate share
of
the Partnership’s items of income and gain entering into the computation of Loss
for such fiscal year; and
[2] the
allocation for all other Members shall be comprised of a proportionate share
of
each Company item of income, gain, expense and loss entering into the
computation of Loss for such fiscal year (other than the portion of each Company
item of income and gain, if any, that is allocated in (ii)(B)(1)
above).
[b] Allocation
Adjustments Required to Comply With Section 704(b) of the
Code.
[i] Limitation
on Allocation of Losses.
There
shall be no allocation of Losses to any Member to the extent that such
allocation would create a negative balance in the Member’s Capital Account (or
increase the amount by which the Member’s Capital Account balance is negative)
unless such allocation would be treated as valid under Section 704(b) of the
Code. Any Losses that, pursuant to the preceding sentence, cannot be allocated
to a Member shall be reallocated to the other Members (but only to the extent
that such other Members can be allocated Losses without violating the
requirements of the preceding sentence) in proportion to their respective
Allocation Percentages.
[ii] Qualified
Income Offset.
If in
any Fiscal Year a Member receives (or is reasonably expected to receive) a
distribution, or an allocation or adjustment to the Member’s Capital Account,
that creates a negative balance in such Account (or increases the amount by
which the balance in such Account is negative), there shall be allocated to
the
Member such items of Company income or gain as are necessary to satisfy the
requirements of a “qualified income offset” within the meaning of Treasury
Regulation Section 1.704-1(b).
[iii] Member
Nonrecourse Deductions.
In
accordance with the provisions of Treasury Regulation Section 1.704-2(i), each
item of Member Nonrecourse Deduction shall be allocated among the Members in
proportion to the economic risk of loss that the Members bear with respect
to
the nonrecourse liability of the Company to which such item of Member
Nonrecourse Deduction is attributable.
[iv] Minimum
Gain Chargeback.
This
Section 3.1(b)(iv) hereby incorporates by reference the “minimum gain
chargeback” provisions of Treasury Regulation Section 1.704-2. In general, upon
a reduction of the Company’s Minimum Gain, the preceding sentence shall require
that items of income and gain be allocated among the Members in a manner that
reverses prior allocations of Nonrecourse and Member Nonrecourse Deductions
as
well as reductions in the Members’ Capital Account balances resulting from
distributions that, notwithstanding Section 3.2, are allocable to increases
in
the Company’s Minimum Gain. Subject to the provisions of Section 704 of the Code
and the Treasury Regulations thereunder, if the Board of Managers determine
at
any time that operation of such “minimum gain chargeback” provisions likely will
not achieve such a reversal by the conclusion of the liquidation of the Company,
such Members shall adjust the allocation provisions of this Section 3.1 as
necessary to accomplish that result.
[v] Allocations
Subsequent to Certain Allocation Adjustments.
Any
special allocations of items of Profit or Loss pursuant to
Section 3.1(b)(i) or (ii) shall be taken into account in computing
subsequent allocations pursuant to Section 3.1(a) so that, for each Member,
the net amount of any such special allocations and all allocations pursuant
to
Section 3.1(a) shall, to the extent possible and taking into account any
adjustments previously made pursuant to Section 3.1(g), be equal to the net
amount that would have been allocated to such Member pursuant to the provisions
of Section 3.1(a) without application of Section 3.1(b)(i) or
(ii).
[c] Book
- Tax Accounting Disparities.
If
Company property is reflected in the Capital Accounts of the Members at a value
that differs from the adjusted tax basis of such property (whether because
such
property was contributed to the Company by a Member or because of a revaluation
of the Members’ Capital Accounts under Treasury Regulation Section 1.704-1(b)),
allocations of depreciation, amortization, income, gain or loss with respect
to
such property shall be made among the Members in a manner which takes such
difference into account in accordance with Code Section 704(c) and the
Treasury Regulations issued thereunder.
[d] Allocations
in Event of Transfer.
If an
Interest is Transferred in accordance with this Agreement, allocations of
Profits and Losses as between the transferor and transferee shall be made using
any method selected by the Board of Managers and permitted under Section 706
of
the Code.
[e] Adjustment
to Capital Accounts for Distributions of Property.
If
property distributed in kind is reflected in the Capital Accounts of the Members
at a book value that differs from the Fair Market Value of such property at
the
time of distribution, the difference shall be treated as Profit or Loss on
the
sale of the property and shall be allocated among the Members in accordance
with
the provisions of this Section 3.1.
[f] Tax
Credits and Similar Items.
Any tax
credits or similar items not allocable pursuant to Section 3.1(a) through (e)
shall be allocated to the Members in proportion to their respective Allocation
Percentages. Notwithstanding the preceding sentence, if Company expenditures
that give rise to tax credits also give rise to Member Nonrecourse Deductions,
the tax credits attributable to such expenditures shall be allocated in
accordance with Treasury Regulation Section 1.704-1(b)(4)(ii).
[g] Reallocation
of Certain Losses.
To the
extent that: (i) Losses which otherwise would have been allocated to a Member
under this Section 3.1 were allocated to one or more other Members pursuant
to
Section 3.1(b)(i) or any other provision of this Agreement that prohibits the
allocation to a Member of Losses which would reduce such Member’s Capital
Account balance below a specified amount; (ii) such allocation has not been
reversed pursuant to the subsequent operation of Section 3.1(b)(v) or this
Section 3.1(g); and (iii) the Member thereafter returns a distributed amount
as
required under Section 2.8 or otherwise makes a contribution to the capital
of
the Company, the Capital Accounts of the Members shall be adjusted in connection
with such return or contribution (to the extent of the value thereof) to effect
a reallocation, in reverse order, of such Losses to the Member. The foregoing
adjustment shall be made in an equitable manner on a going forward basis,
without amending any prior tax return that has already been filed.
3.2 Compliance
with Regulations.
In
allocating gains, losses and other items, the Company shall comply with the
applicable provisions of the Treasury Regulations under Section 704 of the
Code.
3.3 Allocation
of Liabilities.
Solely
for purposes of determining the Members’ respective shares of the nonrecourse
liabilities of the Company within the meaning of Treasury Regulation Section
1.752-3(a)(3), each Member’s interest in Company Profits shall be equal to the
ratio that such Member’s Allocation Percentage bears to the aggregate Allocation
Percentages of the Members.
3.4 Modifications
to Preserve Underlying Economic Objectives.
If, in
the opinion of counsel to the Company, there is a change in the Federal income
tax law (including the Code as well as the Treasury Regulations, rulings, and
administrative practices thereunder) which makes it necessary or prudent to
modify the allocation provisions of this Article 3 in order to preserve the
underlying economic objectives of the Members as reflected in this Agreement,
the Board of Managers shall make the minimum modification necessary to achieve
such purpose.
3.5 Withholding
Taxes.
[a] The
Company shall withhold taxes from distributions to, and allocations among,
the
Members to the extent required by law (as determined by the Board of Managers
in
their reasonable discretion). Except as otherwise provided in this
Section 3.5, any amount so withheld by the Company with regard to a Member
shall be treated for purposes of this Agreement as an amount actually
distributed to such Member pursuant to Section 4.1. An amount shall be
considered withheld by the Company if, and at the time, remitted to a
governmental agency without regard to whether such remittance occurs at the
same
time as the distribution or allocation to which it relates; provided, however,
that an amount actually withheld from a specific distribution or designated
by
the Board of Managers as withheld from a specific allocation shall be treated
as
if distributed at the time such distribution or allocation occurs.
[b] To
the
extent that operation of Section 3.5(a) would create a negative balance in
a Member’s Updated Capital Account or increase the amount by which such Updated
Capital Account balance is negative, the amount of the deemed distribution
shall
instead be treated as a loan by the Company to such Member, which loan shall
be
payable upon demand by the Company and shall bear interest at a floating rate
equal to the prime rate as announced from time to time by the Bank, compounded
daily.
[c] In
the
event that the Board of Managers determine in their reasonable discretion that
the Company lacks sufficient cash available to pay withholding taxes in respect
of a Member, one or more of the Members may, in their sole and absolute
discretion (but only with the consent of the Board of Managers), make a loan
or
capital contribution to the Company to enable the Company to pay such taxes.
Any
such loan shall be full-recourse to the Company and shall bear interest at
a
floating rate equal to the prime rate as announced from time to time by the
Bank, compounded daily. Notwithstanding any provision of this Agreement to
the
contrary, any loan (including interest accrued thereon) or capital contribution
made to the Company by a Member pursuant to this Section 3.5(c) shall be
repaid or returned as promptly as is reasonably possible.
[d] Each
Member hereby agrees to indemnify the Company and the other Members for any
liability they may incur for failure to properly withhold taxes in respect
of
such Member; moreover, each Member hereby agrees that neither the Company nor
any other Member shall be liable for any excess taxes withheld in respect of
such Member’s Interest and that, in the event of overwithholding, a Member’s
sole recourse shall be to apply for a refund from the appropriate governmental
authority.
[e] Taxes
withheld by third parties from payments to the Company shall be treated as
if
withheld by the Company for purposes of this Section 3.5. Such withholding
shall be deemed to have been made in respect of all the Members in proportion
to
their respective allocative shares under this Article 3 of the underlying
items of Profit to which such third party payments are attributable. In the
event that the Company receives a refund of taxes previously withheld by a
third
party from one or more payments to the Company, the economic benefit of such
refund shall be apportioned among the Members in a manner reasonably determined
by the Board of Managers to offset the prior operation of this
Section 3.5(e) in respect of such withheld taxes.
[f] In
the
event that the Company is required to recognize income or gain for income tax
purposes under Section 684 of the Code (or a similar provision of State or
local
law) in respect of an in-kind distribution to a Member, then, solely for such
income tax purposes, to the maximum extent permitted by applicable law (as
determined by the Board of Managers in their reasonable discretion), the income
or gain shall be allocated entirely to such Member.
ARTICLE
4
DISTRIBUTIONS
4.1 Operating
Distributions.
Except
as otherwise provided in this Agreement, distributions prior to the Dissolution
of the Company shall be made in accordance with this Section 4.1 and each Member
actually receiving amounts pursuant to a specific distribution by the Company
shall receive a pro rata share of each item of cash or other property of which
such distribution is constituted (based upon such Member’s Allocation
Percentage).
[a] Mandatory
Tax Distributions.
[i] The
Company shall distribute to each Member, not later than 90 days after the close
of each Fiscal Year, an amount of cash equal to the sum of the
following.
[A] The
product of the Tax Percentage for such Fiscal Year and such Member’s allocated
share of the Company’s net long-term capital gain (as defined in Section 1222(7)
of the Code) for such Fiscal Year as shown on the Company’s Federal income tax
return (subject to the modification described in Section 4.1(a)(iii));
and
[B] The
product of the Tax Percentage for such Fiscal Year and such Member’s allocated
share of the Company’s net ordinary income and net short-term capital gain (as
defined in Section 1222(5) of the Code) for such Fiscal Year as shown on the
Company’s Federal income tax return (subject to the modification described in
Section 4.1(a)(iii)).
[ii] For
purposes of this Section 4.1(a): (x) the “Tax Percentage” with respect to each
specific item of net long-term capital gain shall be the highest blended Federal
and State marginal income tax rate applicable to such specific item of net
long-term capital gain recognized by a corporation doing business, in the State
with the highest marginal corporate income tax rate applicable to items of
net
long-term capital gain; and (y) the “Tax Percentage” with respect to items of
net ordinary income and net short-term capital gain shall be the highest blended
Federal and State marginal income tax rate applicable to ordinary income
recognized by a corporation doing business, in the State with the highest
marginal corporate income tax rate applicable to items of ordinary income.
In
all cases, the highest marginal income tax rate shall be the highest statutory
rate applicable to the specific type of income or gain in question and shall
be
determined without regard to phaseouts of deductions or similar adjustments;
moreover, a corporate franchise tax imposed in lieu of an income tax shall
be
treated as an income tax. The Board of Managers, acting in their reasonable
discretion, may adjust the determination of Tax Percentages pursuant to this
Section 4.1(a)(ii): (x) as necessary to ensure that the distribution required
to
be made to each Member pursuant to Section 4.1(a)(i) for any Fiscal Year is
not
less than such Member’s actual Federal and State income tax liability in respect
of allocations made to such Member by the Company for such Fiscal Year; or
(y)
to reflect any city or other local income tax to which any Member or Members
may
be subject; provided, however, that the Tax Percentage with regard to a
particular type of income or gain shall in all events be the same percentage
for
all Members.
[iii] For
purposes of calculating the Company’s net income and gain under clause (i),
above, there shall be disregarded any items of loss, expense or deduction the
ultimate deductibility of which may, in respect of any Member or equityholder
of
a Member, be subject to limitation under Section 67 of the Code.
[iv] For
purposes of determining whether the Company has satisfied its distribution
obligation under Section 4.1(a)(i), all cash distributions made during a Fiscal
Year shall be treated as distributions made pursuant to Section 4.1(a)(i) in
respect of such Fiscal Year (except to the extent that such distributions were
required to satisfy the obligations of the Company under Section 4.1(a)(i)
in
respect of one or more prior Fiscal Years, in which case such distributions
shall be treated as having been made pursuant to Section 4.1(a)(i) in respect
of
such prior Fiscal Year or Years).
[v] At
the
election of the Board of Managers, no distribution shall be required pursuant
to
Section 4.1(a)(i) in respect of any Fiscal Year if the Company does not have
the
funds necessary to make the distributions.
[b] Discretionary
Distributions.
In
addition to the distributions provided for in Section 4.1(a), the Board of
Managers may cause the Company to distribute cash or property to the Members,
in
proportion to the Members’ respective Allocation Percentages, at such times and
in such amounts as the Board of Managers shall determine.
4.2 Liquidating
Distributions.
Notwithstanding the provisions of Section 4.1, cash or property of the
Company available for distribution upon the Dissolution of the Company
(including cash or property received upon the sale or other disposition of
assets in anticipation of or in connection with such Dissolution) shall be
distributed in accordance with the provisions of Section 8.3.
4.3 Limitation
on Distributions.
No
distribution shall be made to a Member pursuant to Section 4.1 if and to the
extent that such distribution would: (i) create a negative balance in the
Updated Capital Account of such Member or increase the amount by which such
Updated Capital Account balance is negative; (ii) cause the Company to be
insolvent; (iii) render the Member liable for a return of such distribution
under applicable law; or (iv) result in a Member receiving rights with respect
to ADW Content Rights, Point to Point Content Rights or Rebate Content Rights
it
did not contribute to the Company.
4.4 No
Right to Distributions of Property.
Except
as otherwise provided in this Agreement, a Member shall have no right to require
that distributions to such Member consist of any specific item or items of
property.
ARTICLE
5
MANAGEMENT
AND ADMINISTRATION
5.1 Management
Powers and Authority of the Board of Managers.
Except
as otherwise specifically provided in this Agreement:
[a] The
Company and its business shall be managed, controlled and operated exclusively
by the Board of Managers consisting of four (4) Managers, who shall be the
“managers” of the Company within the meaning Section 18-101(10) of the Act and
shall have all of the powers and authority in respect of the Company permitted
to managers under the Act;
[b] CDI
Sub
and MEC Sub shall each appoint two (2) Managers to serve on the Board of
Managers who shall be employees of CDI and MEC, respectively; provided that
no
such appointee may be the chairman of either CDI or MEC.
[c] CDI
Sub
shall have the right to designate the first chairperson who shall serve until
December 31, 2008. After December 31, 2008, the chairperson of the Board of
Managers shall rotate annually between a Manager designated by CDI Sub and
a
Manager designated by MEC Sub, unless the party with the right to designate
the
chairperson agrees otherwise. The chairperson shall preside at meetings of
the
Board of Managers and Members, but the chairperson will be a non-executive
position and will not have any operational or management duties.
5.2 Wagering
Security and Integrity Standards.
Within
sixty (60) days of formation, the management of the Company will provide to
the
Board of Managers for review and approval the Wagering Security and Integrity
Standards. The Wagering Security and Integrity Standards will be revisited
and
updated by the Board of Managers on an annual basis.
5.3 Management
and Operations.
The
Company shall generally conduct its business as follows:
[a] All
actions taken and decisions made by the Board of Managers must be approved
unanimously by all members of the Board of Managers. In taking such actions
and
making such decisions, the Board of Managers and each member thereof shall
act
in their sole and absolute discretion, except as otherwise expressly stated
in
this Agreement. The Board of Managers shall make all decisions that are
customarily made by a board of directors of a corporation and shall authorize
the management of the Company to operate the Company in accordance with the
terms set forth in this Agreement.
[b] The
Board
of Managers shall each year approve an annual operating budget and annual
capital budget (the 2007 annual budgets will commence as of the date of this
Agreement, with calendar year budgets thereafter). Any modification to the
annual operating budget or annual capital budget must be approved by the Board
of Managers. The initial annual budget is set forth as Schedules 1 and 1-1
of
the Business Plan. The capital budget shall be agreed to by the Members within
sixty (60) days of the execution of this Agreement and set forth as Schedule
1-2
of the Business Plan.
[c] As
an
agent of HRTV Entity, the Company shall use its Best Efforts to collect fees
to
help cover the costs of producing and distributing television and other video
(the “Television Fees”) with respect to the ADW Content Rights, Point to Point
Content Rights and Rebate Content Rights it sublicenses to Third Parties as
specifically set forth in this Agreement or the Business Plan or as otherwise
agreed by the Board of Managers. In connection with approving the annual
budgets, the Board of Managers after consultation with HRTV Entity shall
determine the percentage amount to be charged as Television Fees to be
calculated as a percentage of handle or takeout or otherwise. The Television
Fees shall be revisited and updated on an annual basis by the Board of Managers.
The Television Fees for 2007 (for all race meets commencing after the date
hereof but on or prior to November 15, 2007) are addressed or set forth on
Schedules 2, 3 and 4 of the Business Plan. The Television Fees will be collected
by the Company on behalf of HRTV Entity and paid over to HRTV
Entity.
[d] The
Board
of Managers must approve any modifications to the Wagering Security and
Integrity Standards.
[e] The
Board
of Managers must approve any modifications to the Territory
Point to Point Distribution Policies and Procedures, the Territory ADW
Distribution Policies and Procedures, the Rebate Distribution Policies and
Procedures, the Territory Point to Point Acquisition Policies and Procedures,
the Territory ADW Acquisition Policies and Procedures, the Territory Rebate
Acquisition Policies and Procedures, the Territory Television Acquisition
Policies and Procedures, the Non-Territory Policies and Procedures, and the
Policies and Procedures
for
Acquiring Territory Content for use Outside the Territory, as set forth in
Schedules 2-10 of the Business Plan.
[f] The
approval of the Board of Managers shall be required for (i) the appointment
of
the Chief Executive Officer (who may be the same as the chief executive officer
of HRTV Entity), the Chief Financial Officer and any employee or consultant
who
will earn total compensation in a year in excess of $50,000, whether hired
by
the Company or seconded to the Company, and (ii) any increase in Employee Costs
for any employee, whether such employee has been seconded to or is employed
by
the Company.
[g] The
approval of the Board of Managers shall be required for any contract obligating
the Company in an amount greater than $50,000
or
without a ninety (90) day right of termination,
in each
case
other
than contracts which are consistent with the Territory Point to Point
Distribution Policies and Procedures, the Territory ADW Distribution Policies
and Procedures, the Rebate Distribution Policies and Procedures, the Territory
Point to Point Acquisition Policies and Procedures, the Territory ADW
Acquisition Policies and Procedures, the Territory Rebate Acquisition Policies
and Procedures, the Territory Television Acquisition Policies and Procedures,
the Non-Territory Policies and Procedures, and the Policies and Procedures
for
Acquiring Territory Content for use Outside the Territory.
[h] The
approval of the Board of Managers shall be required for the standard form
simulcast agreement used by the Company and any simulcast contract that is
not
consistent with the Territory Point to Point Distribution Policies and
Procedures, the Territory ADW Distribution Policies and Procedures, the Rebate
Distribution Policies and Procedures, the Territory Point to Point Acquisition
Policies and Procedures, the Territory ADW Acquisition Policies and Procedures,
the Territory Rebate Acquisition Policies and Procedures, the Territory
Television Acquisition Policies and Procedures, the Non-Territory Policies
and
Procedures, and the Policies and Procedures for Acquiring Territory Content
for
use Outside the Territory.
[i] All
simulcast import agreements for ADW Import Content, Point to Point Import
Content and Rebate Import Content, and simulcast export agreements for ADW
Export Content, Point to Point Export Content and Rebate Export Content entered
into pursuant to this Agreement shall not be executed by the Company on its
own
behalf, but rather shall be executed by the Company as agent for the applicable
CDI Track(s), MEC Track(s), XpressBet and/or CDI ADW. All rights and obligations
under the simulcast import agreements and simulcast export agreements entered
into pursuant to this Agreement shall be rights and obligations of the
applicable CDI Track(s), MEC Track(s), XpressBet and/or CDI/ADW, and shall
not
be rights or obligations of the Company.
[j] The
approval of the Board of Managers shall be required for any expansion of the
scope of the Business of the Company.
[k] The
approval of the Board of Managers shall be required for the initiation or
settlement of any litigation.
[l] The
approval of the Board of Managers shall be required for any acquisitions or
dispositions of significant assets or businesses or the formation of any
partnerships or joint ventures.
5.4 Content
Rights Pricing.
Subject
to applicable regulatory approvals, approvals that may be required from the
relevant party’s horsemen’s group and contractual obligations existing as of the
date hereof as set forth on Schedule C, the pricing parameters set forth in
Schedules 2, 3, 4, 5, 6, and 7 of the Business Plan shall be used to determine
pricing for (i) CDI and MEC ADW Content Rights, CDI and MEC Point to Point
Content Rights and CDI and MEC Rebate Content Rights provided to Third Parties
worldwide for ADW, Point to Point Simulcasting and Rebating worldwide and (ii)
ADW Content Rights, Point to Point Content Rights, and Rebate Content Rights
acquired from Third Parties worldwide for ADW, Point to Point Simulcasting,
and
Rebating by CDI and MEC worldwide.
5.5 Simulcast
Production.
By
September 30, 2007, the management of the Company will deliver to the Board
of
Managers for review and approval a plan to improve the simulcast production
of
CDI and MEC ADW Content Rights, Point to Point Content Rights and Rebate Content
Rights including through the pooling of resources, equipment and personnel
into
the Company.
5.6 Host
and Related Fees.
[a] The
Company shall not be responsible for paying host, source market, or
sub-licensing fees with respect to ADW Content Rights, Point to Point Content
Rights, and Rebate Content Rights it acquires for CDI or MEC. Notwithstanding
the foregoing, the Company, in connection with the settlement functions
described in Section 5.18, may act as agent for CDI, MEC or their respective
racetracks and/or advance deposit wagering operations in connection with the
payment or collection of such fees.
[b] The
Company shall promptly pay to CDI and MEC, as applicable, any host and source
market fees received by the Company with respect to their respective ADW Export
Content, Point to Point Export Content and Rebate Export Content.
5.7 Management
Team.
The
Company shall have a full time management team that is separate from its Members
headed by a Chief Executive Officer and such other officers as determined by
the
Board of Managers and shall operate in accordance with the parameters set by
the
Board of Managers. In addition to executing the tasks identified above in
Section 1.3(b)(1) through (13), the Company’s management team shall also be
responsible for such other tasks as determined by the Board of
Managers.
5.8 Managers’
Power to Bind the Company.
[a] Notwithstanding
any provision of this Agreement to the contrary, any contract, agreement, deed,
lease, note or other document or instrument executed on behalf of the Company
by
the Chief Executive Officer and another officer of the Company shall be deemed
to have been duly executed; no Member’s or Manager’s signature shall be required
in connection with the foregoing and Third Parties shall be entitled to rely
upon the aforesaid power to bind the Company without otherwise ascertaining
that
the requirements of this Agreement have been satisfied.
[b] The
Company is authorized to file with any governmental entity, on behalf of itself
and the Members, a certificate or similar instrument that evidences the power
of
the Chief Executive Officer and another officer to bind the Company as set
forth
in the preceding paragraph (a).
5.9 Duties
to the Company.
[a] A
Member
shall not utilize any assets of the Company other than for the exclusive benefit
of the Company, a purpose reasonably related to protecting such Member’s
Interest (in a manner not inconsistent with the interests of the Company),
or to
comply with the requirements of applicable law.
[b] The
Managers shall devote to the Company such time, effort and attention as shall
be
reasonably necessary to ensure that the Company and its business are diligently
and prudently managed.
5.10 Officers.
The
Board of Managers may appoint, replace and remove, from time to time, Company
officers, who shall otherwise serve in office until the next succeeding December
31 and to whom the Board of Managers shall delegate such powers, authority
and
duties in respect of the Company as the Board of Managers shall determine
consistent with this Agreement.
5.11 Manager
and Member Expenses.
[a] General.
Except
as otherwise provided in Section 2.10 or this Section 5.11, neither CDI, MEC
nor
any Member shall be reimbursed for expenses incurred on behalf of, or otherwise
in connection with, the Company. Any reimbursement paid by a third party for
expenses actually reimbursed by the Company shall be retained by (or paid over
by the recipient thereof to) the Company.
[b] Managers.
Managers shall be reimbursed for expenses incurred on behalf of the Company
only
with the approval of the Board of Managers.
5.12 Tax
Matters Partner.
[a] General.
The Tax
Matters Partner is hereby designated the “tax matters partner” of the Company
within the meaning of Section 6231(a)(7) of the Code. Except to the extent
specifically provided in the Code or the Treasury Regulations (or the laws
of
other relevant taxing jurisdictions), the Tax Matters Partner (after receiving
the approval of the Board of Managers) shall have exclusive authority to act
for
or on behalf of the Company with regard to tax matters, including the authority
to make (or decline to make) any available tax elections.
[b] Partnership
Classification for Tax Purposes.
Except
to the extent otherwise required by applicable law (disregarding for this
purpose any requirement that can be avoided through the filing of an election
or
similar administrative procedure), the Tax Matters Partner shall cause the
Company to take the position that the Company is a “partnership” for Federal,
State and local income tax purposes and shall cause to be filed with the
appropriate tax authorities any elections or other documents necessary to give
due legal effect to such position. A Member shall not file (and represents
that
it has not filed) any income tax election or other document that is inconsistent
with the Company’s position regarding its classification as a “partnership” for
applicable Federal, State and local income tax purposes.
[c] Notice
of Inconsistent Treatment of Company Item.
No
Member shall file a notice with the United States Internal Revenue Service
under
Section 6222(b) of the Code in connection with such Member’s intention to
treat an item on such Member’s Federal income tax return in a manner which is
inconsistent with the treatment of such item on the Company’s Federal income tax
return unless such Member has, not less than thirty (30) days prior to the
filing of such notice, provided the Tax Matters Partner with a copy of the
notice and thereafter in a timely manner provides such other information related
thereto as the Tax Matters Partner shall reasonably request.
[d] Notice
of Settlement Agreement.
Any
Member entering into a settlement agreement with the United States Department
of
the Treasury which concerns a Company item shall notify the Tax Matters Partner
of such settlement agreement and its terms within 60 days after the date
thereof.
5.13 Records
and Financial Statements; Compliance with Laws
[a] The
Company shall maintain true and proper books, records, reports, and accounts
in
accordance with generally accepted principles and practices of accounting
consistently applied, in which shall be entered all transactions of the Company.
The Company shall also maintain all schedules referenced in this Agreement
and
shall update such schedules promptly upon receipt of new information relating
thereto, subject to the approval of the Board of Managers. Copies of such books,
records, reports, accounts and schedules shall be located at the Principal
Office and shall be available to any Member for inspection and copying, upon
at
least two business days’ notice, during reasonable business hours; provided,
however, that items of highly confidential Company information may be withheld
from a Member to the extent reasonably necessary to protect Company interests
as
determined by the Board of Managers in their reasonable discretion.
[b] Within
forty-five (45) days after the end of each Fiscal Year, the Company shall
furnish to each Member the following, which shall be audited by a firm of
independent certified public accountants approved by the Board of Managers:
(i)
a balance sheet of the Company, (ii) an income statement of the Company, (iii)
a
statement of cash flows of the Company, and (iv) the Capital Account balance
of
each Member. In addition, within sixty (60) days after the end of each Fiscal
Year, the Company shall supply all information reasonably necessary to enable
the Members to prepare their Federal and State income tax returns and (upon
request therefor) to comply with other reporting requirements imposed by law.
Within twenty (20) days after the end of each quarter, the Company shall furnish
to each Member the following, which shall be unaudited but prepared in
accordance with generally accepted accounting principles and practices
consistently applied: (i) a balance sheet of the Company, (ii) an income
statement of the Company, (iii) a statement of cash flows of the Company, and
(iv) the Capital Account balance of each Member.
[c] The
Company shall conduct its Business in compliance with applicable laws and shall
provide such information, and shall grant to the Members and their attorneys,
accountants and other representatives such access to the books, records, other
information and personnel of the Company, as is reasonably necessary for the
Members to comply with applicable laws, including without limitation, the
securities laws in general and the Sarbanes-Oxley Act of 2002 in
particular.
5.14 Valuation
of Company Assets and Interests.
[a] General.
In the
event that the fair market value of a Company asset or Interest must be
determined for purposes of this Agreement, such value shall be determined by
the
Board of Managers, acting in good faith.
[b] Dispute.
In the
event that the Board of Managers is unable to determine such value, the matter
shall be submitted for determination to a qualified Third Party valuation expert
acceptable to the Board of Managers.
[c] Binding
Effect.
The
value of any Company asset or Interest determined pursuant to this Section
5.14
shall be binding upon the Company and the Members and shall establish the “Fair
Market Value” of such asset or Interest for all purposes under this
Agreement.
5.15 Removal
or Resignation of Managers.
A
Manager may be removed for any reason upon the notice of such removal by the
Member appointing such Manager and may voluntarily resign as a Manager upon
providing thirty (30) days advance written notice of such resignation to the
Board of Managers.
5.16 Vacancies.
A
vacancy in the Board of Managers caused by the removal, resignation or Permanent
Incapacity of a Manager shall be filled by the Member who originally appointed
the Manager.
5.17 Meetings
of the Board of Managers.
[a] Meetings
of the Board of Managers may be called by any Manager. Any such meeting shall
be
held at a reasonable time and place on not less than two (2) days notice, which
notice shall include an agenda of items to be considered at the meeting.
Reasonable accommodation shall be made for any Manager who elects to attend
a
meeting via telephonic or similar means pursuant to which all Persons attending
the meeting can hear one another. Minutes of the meeting shall be prepared
at
the direction of the Board of Managers.
[b] Any
action of the Board of Managers may be taken by written consent of all the
Managers.
5.18 Settlement
and Collections.
Within
one hundred twenty (120) days of formation of the Company, the management of
the
Company will provide to the Board of Managers for review a proposal pursuant
to
which the Company will provide settlement services to CDI, MEC and other members
of the pari-mutuel industry. After review and consideration of the proposal,
the
Board of Managers shall determine whether or not to accept the
proposal.
ARTICLE
6
REPRESENTATIONS,
WARRANTIES AND COVENANTS
6.1 Wagering
Security and Integrity Standards.
CDI
represents and warrants that it will cause CDI ADW and the CDI Tracks to comply
with the Wagering Security and Integrity Standards within ninety (90) days
after
approval of the Wagering Security and Integrity Standards by the Board of
Managers. MEC represents and warrants that it will cause XpressBet and the
MEC
Tracks to comply with the Wagering Security and Integrity Standards within
ninety (90) days after approval of the Wagering Security and Integrity Standards
by the Board of Managers.
6.2 Other
Ventures and Activities.
[a] Each
Member acknowledges that the other Members and their respective Affiliates
are
involved in other business, financial, investment and professional activities
other than the Business and activities within the scope of Section 1.3(b).
Except as specifically set forth in Section 5.9: (i) neither the Company,
CDI, MEC nor the Members shall have any right by virtue of this Agreement or
the
existence of the Company in and to such ventures or activities or to the income
or profits derived therefrom; and (ii) the Members and their Affiliates
shall have no duty or obligation to make any reports to the Members or the
Company with respect to any such ventures or activities.
[b] The
Members acknowledge that a Member may be prohibited from taking action for
the
benefit of the Company: (i) due to confidential information acquired or
obligations incurred in connection with a permitted outside activity under
this
Section 6.2; or (ii) in connection with activities undertaken prior to
the date of such Member’s admission to the Company. No Person shall be liable to
the Company, CDI, MEC or any Member for any failure to act for the benefit
of
the Company in consequence of a prohibition described in the preceding
sentence.
6.3 Confidentiality.
All
information provided to the Members or their Affiliates by or on behalf of
the
Company or a Member concerning the business or assets of the Company or any
Member or its Affiliates in connection with the activity of the Company shall
be
deemed strictly confidential and shall not, without the prior consent of the
Board of Managers, be (i) disclosed to any Person (other than a Member, CDI
or MEC) or (ii) used by a Member other than for a Company purpose or a
purpose reasonably related to protecting such Member’s Interest or the business
of such Member (in either case in a manner not inconsistent with the interests
of the Company). The Board of Managers consent to the disclosure by each Member
of Company information to such Member’s accountants, attorneys and similar
advisors bound by a duty of confidentiality. The foregoing requirements of
this
Section 6.3 shall not apply to a Member with regard to any information that
is currently or becomes: (i) required to be disclosed pursuant to
applicable law, including the rules and regulations of the Securities and
Exchange Commission or the rules of Nasdaq, the Toronto Stock Market or any
other stock market on which securities of a Member, CDI or MEC are listed (but
only to the extent of such requirement); (ii) required to be disclosed in
order to protect such Member’s Interest (but only to the extent of such
requirement and only after consultation with the Board of Managers);
(iii) publicly known or available in the absence of any improper or
unlawful action on the part of such Member; or (iv) known or available to
such Member other than through or on behalf of the Company or a Member. For
purposes of this Section 6.3, Company information provided by one Member to
another shall be deemed to have been provided on behalf of the Company. The
Company and the Board of Managers shall similarly refrain from disclosing any
confidential information furnished by a Member pursuant to this
Section 6.3.
6.4 Disclosures.
Each
Member shall furnish to the Company upon request any information with respect
to
such Member reasonably determined by the Board of Managers to be necessary
or
convenient for the formation, operation, Dissolution, winding-up, or Termination
of the Company, and any such information which is confidential shall be treated
as such by the Company and the Members.
6.5 ADW
Licenses.
Recognizing that some states require an ADW platform to be licensed in order
to
process or accept wagers from residents of such state and that some states
require an ADW platform to enter into a contract with a racetrack and/or
horsemen’s group within such state in order to obtain a license, CDI and MEC
shall each use its Best Efforts to cooperate such that such licenses for CDI
ADW
and XpressBet are obtained and, if reasonably necessary, its Controlled
racetracks shall serve as “host” tracks for the other’s ADW
platform.
6.6 Racing
Cooperatives.
MEC
shall cause the MEC Tracks to withdraw from any racing cooperative in which
any
MEC Track is a member at the earliest practical date following execution of
this
Agreement and in any event by
no
later than June 30, 2007, provided, however, with respect to the Meadows no
later than seven (7) months after the date of this Agreement. CDI shall cause
the CDI Tracks to withdraw from any racing cooperative in which any CDI Track
is
a member at the earliest practical date following execution of this Agreement
and in any event by no later than June 30, 2007.
6.7 Rebate
Platform.
CDI and
MEC shall cooperate to develop a plan on or before September 30, 2007 to jointly
enter Rebating during 2007. CDI and MEC shall not conduct Rebating individually
during 2007 without prior approval of the other party.
6.8 Fee
Payment.
Each of
CDI and MEC acknowledges that it is directly responsible for and shall pay
directly its proportion of any host, source market or sublicensing fees with
respect to ADW Content Rights, Point to Point Content Rights or Rebate Content
Rights acquired by the Company for CDI or MEC, respectively, and shall indemnify
and hold harmless the Company from and against any damage, deficiency, loss,
action, judgment, cost or expense (including reasonable attorneys’ fees) arising
out of or related to such fees. For greater clarity, the proportion of host,
source market or sub-licensing fees paid by CDI and MEC will be determined
by
the amount of handle wagered through CDI Outlets and MEC Outlets rather than
by
CDI and MEC’s Allocation Percentages.
6.9 Florida
Alternative Gaming.
MEC
covenants that it will not fund or otherwise support, directly or indirectly,
any organization or initiative in opposition to an Article X Referendum. MEC
further covenants that it will not make any public statement in opposition
to an
Article X Referendum. The term “Article X Referendum” shall mean a county-wide
referendum conducted in Miami-Dade County, Florida in accordance with Article
X,
Section 23 of the Florida Constitution seeking to authorize slot machines at
Calder Race Course and such other pari-mutuel facilities as conducted live
racing or games within Miami-Dade County in calendar years 2002 and 2003. The
covenants of MEC set forth in this Section 6.9 shall terminate immediately
if:
(a) Calder Race Course ceases to be a CDI Track, or CDI or any Affiliate of
CDI
enters into a definitive sale or other disposition agreement (including without
limitation any option agreement) which if consummated or exercised will result
in Calder Race Course ceasing to be a CDI Track, or (b) this Agreement
terminates for any reason.
6.10 Florida
Legislation.
CDI and
MEC shall cooperate in proposing a single bill to the 2007 Florida legislature
concerning horse racing industry issues in the State of Florida that seeks
to
accomplish the following: [i] permit thoroughbred horse race tracks which act
as
the Hub Distributor to contract with and distribute Point to Point Content
Rights to other pari-mutuel wagering facilities in South Florida ( i.e. Dade
and
Broward Counties) including all horse race tracks on a year round basis, [ii]
permit thoroughbred horse race tracks in Florida to conduct live racing after
7:00 p.m. local Florida time, and [iii] permit the operation of card rooms
at
pari-mutuel wagering facilities in Florida including all horse race tracks
on
all days, including days on which live pari-mutuel races or games do not take
place and at all times of the day.
6.11 California
Import Covenant.
[a] CDI
and
MEC will work together and use Best Efforts to change the existing California
horse racing simulcasting law to eliminate the existing restriction on the
number of simulcast horse races that can be imported into
California.
[b] When
MEC
has the two race track votes (Northern and Southern California) regarding import
simulcasting of horse races under California law, (x) MEC will coordinate with
the Company and use its Best Efforts to cause the importing into California
of
Point to Point Export Content consisting of a number of horse races greater
than
was imported in 2006 (or in the case of Fair Grounds, in 2005) (prioritized
based on the Host Track Groups in Schedule 12 of the Business Plan but with
equal priority within each such Host Track Group), and (y) MEC will import
into
California no less than the number of CDI horse races imported into California
during the same period in 2006 (or in the case of Fair Grounds, in 2005),
provided in either case of (x) and (y) there is no significant change in the
race dates, post times or quality of such races.
[c] Schedule
13 of the Business Plan also sets forth certain other policies and procedures
of
the Company related to California horse racing. For purposes of this Section
6.11, the B and B+ Host Track Groups (as set forth on Schedule 12 of the
Business Plan) will be considered a single Host Track Group.
6.12 Certain
Member Representations and Covenants.
[a] Each
Member hereby represents that, with respect to its Interest: (i) it is
acquiring or has acquired such Interest for purposes of investment only, for
its
own account (or a trust account if such Member is a trustee), and not with
a
view to resell or distribute the same or any part thereof; and (ii) no
other Person has any interest in such Interest or in the rights of such Member
under this Agreement (other than a shareholder or other owner of an interest
in
the Member by virtue thereof or a spouse having a community property or similar
interest under applicable law.) Each Member also represents that it has the
business and financial knowledge and experience necessary to acquire its
Interest on the terms contemplated herein and that it has the ability to bear
the risks of such investment (including the risk of sustaining a complete loss
of all its capital contributions) without the need for the investor protections
provided by the registration requirements of the Securities Act.
[b] Except
to
the extent set forth in a notice provided to the Company, each Member hereby
represents that allocations, distributions and other payments to such Member
by
the Company are not subject to tax withholding under the Code. Each Member
shall
promptly notify the Company in the event that any allocation, distribution
or
other payment previously exempt from such withholding becomes or is anticipated
to become subject thereto.
[c] Each
Member acknowledges that certain provisions of this Agreement (including
Sections 6.2 and 9.1) have the effect of limiting the fiduciary duties or
obligations of some or all Members to the Company and the other Members under
applicable law. Each Member hereby represents that it has carefully considered
and fully understands each such provision and has made an informed decision
to
consent thereto.
[d] Each
Member hereby represents that: (i) it is a corporation or limited liability
company validly existing and in good standing under the laws of its jurisdiction
of incorporation or formation and has all requisite power and authority to
own,
lease and use its assets and carry on its business as and in the places where
such assets are owned, leased or used or such business is conducted; (ii) it
has
full corporate or limited liability company power and authority to enter into
this Agreement and consummate the transactions contemplated hereby and this
Agreement and the other documents contemplated by this Agreement have been
duly
authorized by all requisite corporate or limited liability company action of
such Member, have been duly executed and delivered by such Member and constitute
the valid and binding obligation of such Member enforceable in accordance with
their terms; and (iii) it is and shall be during the Term in compliance with
all
material laws, statutes, rules or regulations applicable to such Member or
its
assets or business and it shall not be under indictment or grand jury subpoena
with respect to any criminal investigation pursuant to which it has been
identified as a target.
6.13 Avoidance
of Publicly Traded Partnership Status.
[a] Except
to
the extent otherwise set forth in a notice provided to the Company, each Member
hereby represents that at least one of the following statements with respect
to
such Member is true and will continue to be true throughout the period during
which such Member holds an Interest:
[i] Such
Member is not a partnership, grantor trust or S corporation for Federal income
tax purposes;
[ii] With
regard to each Beneficial Owner of such Member, the principal purposes for
the
establishment and/or use of such Member do not include avoidance of the one
hundred (100) partner limitation set forth in Treasury Regulation Section
1.7704-1(h)(1)(ii); or
[iii] With
regard to each Beneficial Owner of such Member, not more than 75 percent of
the
value of such Beneficial Owner’s interest in such Member is attributable to such
Member’s Interest.
[b] In
the
event that a Member’s representation pursuant to Section 6.13(a) shall at any
time fail to be true, or the information set forth in a notice provided by
such
Member to the Company pursuant to Section 6.13(a) shall change, such Member
shall promptly (and in any event within 10 days) notify the Company of such
fact
and shall promptly thereafter deliver to the Company any information regarding
such Member and its Beneficial Owners reasonably requested by counsel to the
Company for purposes of determining the number of the Company’s “partners”
within the meaning of Treasury Regulation Section 1.7704-1(h).
[c] Each
Member acknowledges that the Board of Managers will rely upon such Member’s
representations, notices and other information as set forth in this Section
6.13
for purposes of determining whether proposed Transfers of Interests may cause
the Company to be treated as a “publicly traded partnership” within the meaning
of Section 7704 of the Code and that failure by a Member to satisfy its
obligations under this Section 6.13 may cause the Company to be treated as
a
corporation for Federal, State or local tax purposes.
6.14 Acquired
ADW Platform.
If CDI
or MEC directly or indirectly acquires 5% or more of the ownership interest
of
an ADW platform or business, any ADW Content Rights, Point to Point Content
Rights, Rebate Content Rights or Television Rights owned or licensed by the
acquired ADW platform or business (collectively, the “Acquired Rights”) shall be
licensed or transferred to the Company under the terms and conditions of this
Agreement such that the Acquired Rights would be available to both CDI and
MEC
(and HRTV Entity in the case of Television Rights) under the same terms and
conditions. If all or any portion of the Acquired Rights may not be so licensed
or transferred to the Company because of contractual restrictions binding on
the
acquired ADW platform or business, the acquiring party shall cause the acquired
ADW platform or business, and CDI ADW or XpressBet, as applicable, to (i) not
process or accept any wagers on the applicable Acquired Rights and (ii) not
license or transfer the applicable Acquired Rights to any Third Party, in each
case, until such contractual restrictions have been eliminated and the Acquired
Rights licensed or transferred to Company.
6.15 Permitted
Communications.
Neither
CDI, CDI Sub, MEC nor MEC Sub shall make any public statement(s) without prior
approval of the other parties with regard to (i) the Company, or (ii) any other
party in connection with any business venture or proposed business venture
between the parties, except as may be required by law or regulation or the
disclosure rules and regulations of the SEC, NASDAQ or the Toronto Stock
Exchange.
6.16 ADW
Name. Without
the prior approval of the Board of Managers, which consent may be withheld
in
the Board of Managers’ sole and absolute discretion, neither CDI nor MEC shall
operate its advance deposit wagering business under a name similar to the name
under which the Company or HRTV Entity is now or hereafter operated. In
addition, MEC covenants that on or before April 27, 2007 MEC will cause Horse
Racing TV, Inc. to change its name to a name that is not similar to “Horse
Racing TV” or “HRTV”.
6.17 CDI
Guaranty; MEC Guaranty.
[a] CDI
hereby absolutely and unconditionally guarantees to the Company, MEC and MEC
Sub, their respective successors and permitted assigns, the due prompt and
punctual performance of all obligations of, and the prompt payment when due
at
all times hereafter of any and all amounts owed by, CDI Sub under this Agreement
(including any extensions, modifications and amendments hereof) to the Company,
MEC or MEC Sub (the “CDI Sub Obligations”). Each of the Company, MEC and MEC Sub
shall have the right of immediate recourse against CDI for full and immediate
performance or payment of the CDI Sub Obligations at any time after the CDI
Sub
Obligations, or any part thereof, have not been performed or paid in full when
due. This is a guaranty of payment, not of collection, and CDI therefore agrees
and acknowledges that the Company, MEC and MEC Sub shall not be obligated,
prior
to seeking recourse against or receiving payment from CDI, to take any of the
following actions (although any of the Company, MEC or MEC Sub may, at its
option, do so in whole or in part) all of which CDI hereby unconditionally
waives: [i] take any steps whatsoever to collect from CDI Sub or file any claim
of any kind against CDI Sub, take any steps whatsoever to accept, perfect a
security interest in, or foreclosure or realize on, collateral security, if
any,
securing or for payment of the CDI Sub Obligations or any guaranty of the CDI
Sub Obligations; or [ii] in any other respect exercise diligence in collecting
or attempting to collect any of the CDI Sub Obligations by any means. CDI
unconditionally and irrevocably waives each and every defense which, under
principles of guaranty or surety law, would operate to impair or diminish the
liability of CDI to the Company, MEC or MEC Sub hereunder. CDI unconditionally
waives: [i] any subrogation to the rights of the Company, MEC or MEC Sub against
CDI Sub until all of the CDI Sub Obligations have been satisfied in full; and
[ii] any acceptance of this guaranty. This guaranty by CDI is personal to the
Company, MEC and MEC Sub and cannot be assigned without the express written
approval of CDI, which may be withheld in CDI’s sole discretion.
[b] MEC
hereby absolutely and unconditionally guarantees to the Company, CDI and CDI
Sub, their respective successors and permitted assigns, the due prompt and
punctual performance of all obligations of, and the prompt payment when due
at
all times hereafter of any and all amounts owed by, MEC Sub under this Agreement
(including any extensions, modifications and amendments hereof) to the Company,
CDI or CDI Sub (the “MEC Sub Obligations”). Each of the Company, CDI and CDI Sub
shall have the right of immediate recourse against MEC for full and immediate
performance or payment of the MEC Sub Obligations at any time after the MEC
Sub
Obligations, or any part thereof, have not been performed or paid in full when
due. This is a guaranty of payment, not of collection, and MEC therefore agrees
and acknowledges that the Company, CDI and CDI Sub shall not be obligated,
prior
to seeking recourse against or receiving payment from MEC, to take any of the
following actions (although any of the Company, CDI or CDI Sub may, at its
option, do so in whole or in part) all of which MEC hereby unconditionally
waives: [i] take any steps whatsoever to collect from MEC Sub or file any claim
of any kind against MEC Sub, take any steps whatsoever to accept, perfect a
security interest in, or foreclose or realize on, collateral security, if any,
securing or for payment of the MEC Sub Obligations or any guaranty of the MEC
Sub Obligations; or [ii] in any other respect exercise diligence in collecting
or attempting to collect any of the MEC Sub Obligations by any means. MEC
unconditionally and irrevocably waives each and every defense which, under
principles of guaranty or surety law, would operate to impair or diminish the
liability of MEC to the Company, CDI or CDI Sub hereunder. MEC unconditionally
waives: [i] any subrogation to the rights of the Company, CDI or CDI Sub against
MEC Sub until all of the MEC Sub Obligations have been satisfied in full; and
[ii] any acceptance of this guaranty. This guaranty by MEC is personal to the
Company, CDI and CDI Sub and cannot be assigned without the express written
approval of MEC, which may be withheld in MEC’s sole discretion.
6.18 Termination.
Each of
CDI and MEC agrees to serve notice to terminate any existing agreement related
to ADW Export Content set forth on Schedule C that has provisions allowing
termination by CDI or MEC upon thirty (30) days notice, at the earliest possible
date but in any case by no later than May 5, 2007.
6.19 Breeders’
Cup.
In the
event that any CDI Track or any MEC Track is host to the Breeders’ Cup
Championship Day races, CDI and MEC, as the case may be, shall cause the
applicable CDI Track or MEC Track to include in its agreement with Breeders’ Cup
that the ADW Content Rights, Point to Point Content Rights and Rebate Content
Rights for the Breeders’ Cup Championship Day races will be licensed and made
available to all CDI Outlets and all MEC Outlets at pricing no less advantageous
to the CDI or MEC Outlets than the pricing provided to a comparable distribution
channel of any other Third Party.
6.20 Ownership.
Each of
CDI and MEC agrees to directly or indirectly beneficially own all of the
ownership interests in CDI Sub and MEC Sub, respectively.
ARTICLE
7
TRANSFERS
AND WITHDRAWALS
7.1 Transfers
of Interests.
[a] A
Member
shall not Transfer all or any portion of its Interest without the prior consent
of the Board of Managers, which consent may be withheld in the Board of
Managers’ sole and absolute discretion.
[b] Unless
admitted as a Member in accordance with the provisions of this Agreement, the
transferee of all or any portion of an Interest shall not be a Member, but
instead shall be subject to the provisions of Section 7.4.
[c] In
connection with each Transfer of an Interest: (i) the transferor and transferee
shall execute and deliver to the Company a written instrument of transfer in
form and substance reasonably satisfactory to the Board of Managers and (ii)
the
transferee shall execute and deliver to the Company a written instrument
pursuant to which the transferee assumes all obligations of the transferor
associated with the transferred Interest and otherwise agrees to comply with
the
terms and provisions of this Agreement.
[d] In
connection with each Transfer, the transferring Member shall provide to the
Company either: (i) an opinion of counsel to such transferring Member
satisfactory in form and substance to counsel for the Company with respect
to
the matters referred to in Section 7.1(j); or (ii) sufficient information
to allow counsel to the Company to make a determination that the proposed
Transfer will not result in any of the consequences referred to in
Section 7.1(j).
[e] In
the
event of any Transfer which results in multiple ownership of a Member’s
Interest, the Board of Managers may require that one or more trustees or
nominees be designated to represent all or a portion of the Interest transferred
for the purpose of receiving all notices which may be given and all payments
which may be made under this Agreement and for the purpose of exercising all
rights of the transferees under this Agreement.
[f] In
the
event a Member Transfers (or proposes to Transfer) all or any portion of its
Interest, all reasonable legal and other out-of-pocket expenses incurred by
the
Company on account of the Transfer (or proposed Transfer) shall be paid by
such
Member. Following the effective date of any Transfer, the transferor and
transferee shall be jointly and severally liable for all such
expenses.
[g] Except
as
otherwise specifically provided in this Agreement or with the consent of the
Board of Managers, all economic attributes of a transferor Member’s Interest
(such as the Member’s Capital Commitment, Capital Contribution, Allocation
Percentage, Capital Account balance, and obligation to return distributions
or
make other payments to the Company) shall carry over to a transferee in
proportion to the percentage of the Interest so transferred.
[h] Once
all
other conditions to the Transfer of a Member’s Interest have been satisfied,
such Transfer shall be effective as of: (x) the Close of Business on the last
day of the next ending fiscal quarter of the Company; or (y) such other time
as
shall be jointly selected by the Board of Managers, the transferor and the
transferee.
[i] Notwithstanding
any provision of this Agreement to the contrary, a Member or Withdrawn Member
shall not, by virtue of having Transferred all or any portion of its Interest,
be relieved of any obligations arising under this Agreement; provided, however,
that a Member or Withdrawn Member shall be relieved of such obligations to
the
extent that: (x) such relief is approved by the Board of Managers (which
approval may be withheld by the Board of Managers in their sole and absolute
discretion); and (y) such obligations are assumed by another Member or Person
admitted to the Company as a Substitute Member.
[j] Notwithstanding
any provision of this Agreement to the contrary, there shall be no Transfer
of
an Interest unless such Transfer will not: (i) give rise to a requirement
that the Company register under the Securities Act; (ii) otherwise subject
the Company, a Member, or any equityholder, member, director, officer, or
employee of a Member to additional regulatory requirements under Federal, State,
local or foreign law, compliance with which would subject the Company or such
other Person to material expense or burden (unless each such affected Person
consents to such Transfer); (iii) constitute a transaction effected through
an “established securities market” within the meaning of Treasury Regulation
Section 1.7704-1(b) or otherwise cause the Company to be a “publicly traded
partnership” within the meaning of Section 7704 of the Code;
(iv) effect a termination of the Company under Section 708 of the Code
(but only if such termination would result in material adverse consequences
to
the Company or any Member under Federal, state or local law); or
(v) violate any law, regulation or other governmental rule, or result in a
violation thereof by the Company, a Member, or any equityholder, member,
director, officer, or employee of a Member.
[k] Any
Transfer in violation of this Article 7: (i) shall be null and void as
against the Company and the other Members; and (ii) shall not be recognized
or permitted by, or duly reflected in the official books and records of, the
Company. The preceding sentence shall not be applied to prevent the Company
from
enforcing any rights it may have in respect of a transferee arising under this
Agreement or otherwise (including any rights arising under
Section 10.8).
[l] Solely
for purposes of this Article 7 (other than Section 7.1(g)), an Interest
shall be deemed to include any Derivative Company Interest held, issued or
created by a Member, Assignee or other Person.
7.2 Withdrawal/Removal
of a Member.
[a] A
Member
shall not withdraw from the Company or otherwise elect to cease to be a Member
without the approval of the Board of Managers.
[b] A
Member
shall not be removed from the Company without its consent.
7.3 Procedures
Following Member Withdrawal/Removal.
A
Member that withdraws or is removed from the Company (including via a deemed
withdrawal) in accordance with the provisions of Section 7.2 or otherwise
ceases to be a member of the Company under the Act (each a “Withdrawal Event”
and a “Withdrawn Member”) shall be treated as an Assignee and, accordingly,
shall have the rights and obligations of an Assignee as described in
Section 7.4. Subject to the preceding sentence, a Withdrawn Member shall
not be entitled to any redemption of its Interest, distribution or payment
in
connection with its Withdrawal Event or otherwise in consequence of its status
as a Withdrawn Member.
7.4 Status
of Assignees.
[a] Notwithstanding
any provision of this Agreement to the contrary, an Assignee shall not be
admitted to the Company as a Substitute Member without the consent of the Board
of Managers, which consent may be withheld in the Board of Managers’ sole and
absolute discretion.
[b] All
rights and privileges associated with an Assignee interest in the Company shall
be derived solely from the Member interest of which such rights and privileges
were previously a component part. No Assignee shall hold, by virtue of such
Assignee’s interest in the Company, any rights and privileges that were not
specifically transferred to such Assignee by the prior holder of such interest.
No Member, Assignee or other rights or privileges arising under this Agreement
or the Act shall apply with respect to a notional or constructive interest
in
the Company, without regard to whether such interest constitutes a Derivative
Company Interest.
[c] Subject
to Section 3.1(d), an Assignee that holds an interest in the Company shall
be entitled to receive the allocations attributable to such interest pursuant
to
Article 4, to receive the distributions attributable to such interest pursuant
to Articles 4 and 8, and to Transfer such interest in accordance with the terms
of this Article 7. Notwithstanding the preceding sentence, the Company and
the
Members shall incur no liability for allocations and distributions made in
good
faith to a transferor until a valid written instrument of Transfer has been
received by the Company and recorded on its books and the effective time of
the
Transfer has passed.
[d] To
the
extent otherwise applicable to the interest in the Company that has been
transferred to an Assignee, the Assignee shall be subject to, and bound by,
all
of the terms and provisions of this Agreement that inure to the benefit of
the
Company or any Member (without regard to whether such Assignee has executed
a
written instrument of Transfer as described in Section 7.4(c) or an assumption
of obligations as described in Section 7.1(c)). Without limitation on the
preceding sentence, an Assignee that holds an interest in the Company shall
be
responsible for any unpaid Capital Commitment and obligation to return
distributions or make other payments to the Company associated with such
interest and shall comply with the provisions of Sections 6.3, 6.4 and
10.14.
[e] Solely
to
the extent necessary to give effect to the Assignee rights and obligations
set
forth in Section 7.4(c) and (d), an Assignee shall be treated as a Member for
purposes of this Agreement.
[f] An
Assignee shall not, solely by virtue of its status as such, hold any
non-economic rights in respect of the Company. Without limitation on the
preceding sentence, an Assignee’s interest in the Company shall not entitle such
Assignee to participate in the management, control or operation of the Company
or its business, act for the Company, bind the Company under agreements or
arrangements with third parties, or vote on Company matters. An Assignee shall
not have any right to receive or review Company books, records, reports or
other
information. An Assignee shall not hold itself out as a Member in any forum
or
for any purpose; provided, however, that, to the extent necessary to maintain
consistency with the Company’s income tax returns, reports, and other filings,
an Assignee shall take the position that it is a Member (or “partner”) solely
for income tax purposes.
7.5 Transfers
of Racetracks.
In the
event CDI or MEC voluntarily divests its Control of the racing and wagering
activities of Churchill Downs Racetrack or Arlington Park, in the case of CDI,
or Gulfstream Park or Santa Anita, in the case of MEC (such party, a “Divesting
Party”), to a Third Party who continues to operate such track as a horse racing
track, the Divesting Party shall require, as a condition of the voluntary
divestiture, that the party assuming Control of the racing and wagering
activities of such CDI Track or MEC Track, as the case may be, agree in writing
to comply with all terms and conditions of this Agreement as if the divested
track were still a CDI Track or MEC Track, as the case may be, for the shorter
of (i) twenty four months following the consummation of the divestiture, or
(ii)
such time as such party assuming Control permanently ceases to conduct live
horse racing at such track. The provisions of this Section 7.5 shall apply
to
all voluntary divestitures of Control, including without limitation, the sale
of
a racetrack or of an equity interest in the entity operating the racetrack,
the
voluntary termination of a lease, management agreement or other contractual
arrangement, or any other voluntary action that results in a loss of
Control.
ARTICLE
8
DISSOLUTION
AND LIQUIDATION
8.1 Dissolving
Events.
The
Company shall be Dissolved upon the occurrence of any of the following
events:
[a] Expiration
of the Company’s Term;
[b] Failure
of the Company to have at least one Member;
[c] Permanent
cessation of the Company’s Business;
[d] An
election to Dissolve the Company executed by all members of the Board of
Managers;
[e] Any
other
event which results in a mandatory Dissolution of the Company under the
Act;
[f] The
continuation of a Deadlock of the Board of Managers or the Members, as
applicable, for a period of twelve (12) consecutive months;
[g] At
the
election of a Member when another Member or its ADW business is subject to
a
Change of Control Transaction, which election may be made only within the ninety
(90) day period following such event;
[h] At
the
election of the other Member, upon the Bankruptcy, Dissolution or Termination
of
a Member, which election may be made only within the ninety (90) day period
following such event;
[i] At
the
election of the other Member, if a Member or its Affiliate has materially
breached this Agreement or any of the Auxiliary Agreements or the Business
Plan,
which election may be made only within the ninety (90) day period following
notice of such event under Section 10.13 and such breach is not cured as
provided in Section 10.13 hereof; or
[j] Any
other
event or circumstance agreed to by the Members.
8.2 Term
and Unwind Provision.
[a] The
term
of
this Agreement shall be until five (5) years after the date of this Agreement
(the “Initial Term”), subject to such earlier termination as the parties may
mutually agree or as set forth in this Article 8. The Initial Term plus the
applicable Twelve Month Extension or the One Hundred Twenty Day Extension (as
defined below) is the “Term”.
[b] In
the
event that the Company is not extended beyond the Initial Term, then the parties
shall continue to operate the Company and to exchange content pursuant to the
terms hereof and pursuant to the CDI/MEC Content Exchange Agreement for a period
of twelve (12) months after the Initial Term (the “Twelve Month Extension”).
[c] In
the
event that the Company is Dissolved in accordance with the terms hereof prior
to
the expiration of the Initial Term, then the parties shall continue to operate
the Company and to exchange content pursuant to the terms hereof and pursuant
to
the CDI/MEC Content Exchange Agreement for a period of one hundred twenty (120)
days from the date of such Dissolution (the “One Hundred Twenty Day Extension”).
During the One Hundred Twenty Day Extension, the parties shall arrange for
the
orderly liquidation of the Company as set forth in Section 8.3 of this
Agreement.
[d] During
the Twelve Month Extension, the parties shall arrange for the orderly
liquidation of the Company as set forth in Section 8.3 of this Agreement. During
the first three months of the Twelve Month Period, CDI and MEC will determine
who between them will have the exclusive right of first negotiation for the
services of the existing employees and executives of the Company (i.e. the
nonseconded personnel of the Company) as follows: MEC will identify one
executive / employee of the Company for whom MEC will have exclusive right
of
first negotiation. Then CDI will identify two executives / employees of the
Company for whom CDI will have exclusive right of first negotiation. Then MEC
and CDI will alternate identifying one executive / employee of the Company
for
whom either CDI or MEC will have exclusive right of first negotiation until
all
the executives / employees of the Company have been so identified. CDI and
MEC
will each then have the exclusive right as between each other to negotiate
the
employment by CDI or MEC, as appropriate, of the identified executives /
employees of the Company until the conclusion of the eighth month of the Twelve
Month Period. Beginning on the first day of the ninth month of the Twelve Month
Period, either CDI or MEC may attempt to negotiate the employment of any
executive / employee of the Company who has not yet been retained by either
CDI
or MEC.
8.3 Winding
Up and Liquidation.
[a] Upon
Dissolution of the Company, the Board of Managers shall promptly wind up the
affairs of, liquidate and Terminate the Company. In furtherance thereof, the
Board of Managers shall: (i) have all of the administrative and management
rights and powers of the Board of Managers (including the power to bind the
Company); and (ii) be reimbursed for Company expenses it reasonably incurs.
Following Dissolution, the Company shall sell or otherwise dispose of assets
determined by the Board of Managers to be unsuitable for distribution to the
Members, but shall engage in no business activities other than the Business
except as may be necessary, in the reasonable discretion of the Board of
Managers, to preserve the value of the Company’s assets during the period of
winding-up and liquidation. In any event, the Board of Managers shall use its
Best Efforts to prevent the period of winding-up and liquidation of the Company
from extending beyond the date which is two (2) years after the Company’s date
of Dissolution. At the conclusion of the winding-up and liquidation of the
Company, the Board of Managers shall: (i) designate one Person (who shall be
a
Member unless the parties otherwise agree) to hold the books and records of
the
Company (and to make such books and records available to the Members on a
reasonable basis) for not less than six years following the Termination of
the
Company under the Act; and (ii) execute, file and record, as necessary, a
certificate of termination or similar document to effect the Termination of
the
Company under the Act and other applicable laws.
[b] Distributions
to the Members in liquidation may be made in cash or in kind, or partly in
cash
and partly in kind, as determined by the Board of Managers, provided, however,
the rights granted to the Company by the Members under Section 2.1(c) shall
terminate and vest in the contributing Member along with the relevant export
and
import agreements entered into by the Company as agent related thereto.
Distributions in kind shall be valued at Fair Market Value as determined by
the
Board of Managers in accordance with the provisions of Section 5.14 and shall
be
subject to such conditions and restrictions as may be necessary or advisable
in
the reasonable discretion of the Board of Managers to preserve the value of
the
property so distributed or to comply with applicable law.
[c] The
Profits and Losses of the Company during the period of winding-up and
liquidation shall be allocated among the Members in accordance with the
provisions of Article 3. If any property is to be distributed in kind, the
Capital Accounts of the Members shall be adjusted with regard to such property
in accordance with the provisions of Section 3.1(e).
[d] Upon
Dissolution, the assets of the Company (including proceeds from the sale or
other disposition of any assets during the period of winding-up and liquidation)
shall be applied as follows:
[i] First,
to
repay any indebtedness of the Company, whether to third parties or the Members,
in the order of priority required by law;
[ii] Next,
to
any reserves which the Board of Managers reasonably deems necessary for
contingent or unforeseen liabilities or obligations of the Company (which
reserves when they become unnecessary shall be distributed in accordance with
the provisions of clause (iii), below); and
[iii] Next,
to
the Members in proportion to their respective positive Capital Account balances
(after taking into account all adjustments to the Members’ Capital Accounts
required under Section 8.3(c)).
[e] Except
as
otherwise specifically provided in this Agreement, a Member shall have no
liability to the Company or to any other Member or to any Third Party in respect
of a negative balance in such Member’s Capital Account during the term of the
Company or at the conclusion of the Company’s Termination.
ARTICLE
9
LIABILITY
AND INDEMNIFICATION
9.1 Liability.
Except
as otherwise specifically provided in this Agreement, no Indemnified Person
shall be personally liable for the return of any contributions made to the
capital of the Company by the Members or the distribution of Capital Account
balances. Except to the extent that Material Misconduct on the part of an
Indemnified Person shall have given rise to the matter at issue, such
Indemnified Person shall not be liable to the Company or the Members for any
act
or omission concerning the Company. Without limitation on the preceding
sentence, except to the extent that such action constitutes Material Misconduct,
an Indemnified Person shall not be liable to the Company or to any Member in
consequence of voting for, approving, or otherwise participating in the making
of a distribution by the Company pursuant to Article 4 or 8. An Indemnified
Person shall not be liable to the Company or the Members for losses due to
the
acts or omissions of any independent contractor, employee or other agent of
the
Company unless such Indemnified Person was or should have been directly involved
with the selection, engagement or supervision of such Person and the actions
or
omissions of such Indemnified Person in connection therewith constituted
Material Misconduct.
9.2 Indemnification.
[a] Except
to
the extent that Material Misconduct on the part of an Indemnified Person shall
have given rise to the matter at issue, the Company shall indemnify and hold
such Indemnified Person harmless from and against any loss, expense, damage
or
injury suffered or sustained by such Indemnified Person by reason of any actual
or threatened claim, demand, action, suit or proceeding (civil, criminal,
administrative or investigative) in which such Indemnified Person may be
involved, as a party or otherwise, by reason of its actual or alleged management
of, or involvement in, the affairs of the Company. This indemnification shall
include, but not be limited to: (i) payment as incurred of reasonable attorneys
fees and other out-of-pocket expenses incurred in investigating or settling
any
claim or threatened action (where, in the case of a settlement, such settlement
is approved by the Board of Managers), or incurred in preparing for, or
conducting a defense pursuant to, any proceeding up to and including a final
non-appealable adjudication; (ii) payment of fines, damages or similar amounts
required to be paid by an Indemnified Person; and (iii) removal of liens
affecting the property of an Indemnified Person.
[b] Indemnification
payments shall be made pursuant to this Section 9.2 only to the extent that
the
Indemnified Person is not entitled to receive (or will not in any event receive)
from a third party equal or greater indemnification payments in respect of
the
same loss, expense, damage or injury. In the event, however, that the Board
of
Managers determine that an Indemnified Person would be entitled to receive
indemnification payments from the Company but for the operation of the preceding
sentence, the Board of Managers may cause the Company to advance indemnification
payments to the Indemnified Person (with repayment of such advance to be secured
by the Indemnified Person’s right to receive indemnification payments from the
applicable third party).
[c] As
a
condition to receiving an indemnification payment pursuant to this Section
9.2,
an Indemnified Person shall execute an undertaking in form and substance
acceptable to the Board of Managers in their reasonable discretion providing
that, in the event it is subsequently determined that such Person was not
entitled to receive such payment (whether by virtue of such Person’s Material
Misconduct or otherwise), such Person shall return such payment to the Company
promptly upon demand therefor by any Member.
[d] Notwithstanding
the foregoing provisions of this Section 9.2, the Company shall be under no
obligation to indemnify an Indemnified Person from and against any reduction
in
the value of such Person’s interest in the Company that is attributable to
losses, expenses, damages or injuries suffered by the Company or to any other
decline in the value of the Company’s assets.
[e] The
indemnification provided by this Section 9.2 shall not be deemed to be exclusive
of any other rights to which any Indemnified Person may be entitled under any
agreement, as a matter of law, in equity or otherwise.
9.3 Insurance.
[a] The
Company shall obtain and keep in force officers and directors liability
insurance insuring the officers, employees and Managers of the Company against
claims by third parties as to their activities for and on behalf of the Company,
unless the Board of Managers determines in good faith that there is sufficient
insurance coverage for such Persons under the separate insurance coverage
maintained by CDI and MEC. The specific coverages, limits of liability and
other
terms of such insurance shall be determined by the Board of Managers in their
reasonable discretion.
[b] The
Company shall carry general business and liability insurance in such form and
amounts as are determined from time to time by the Board of Managers. Unless
the
non-MEC Sub members of the Board of Managers determine otherwise, MEC shall
be
obligated to procure such insurance on behalf of the Company; provided, however,
that the Company shall be obligated either to pay for such insurance directly
or
to reimburse MEC for MEC’s costs in procuring such insurance.
ARTICLE
10
GENERAL
PROVISIONS
10.1 Meetings.
Meetings of the Members may be called by any Member as well as by the Board
of
Managers. Any such meeting shall be held at a reasonable time and place on
not
less than two (2) nor more than sixty (60) days notice, which notice shall
include an agenda of items to be considered at the meeting. Reasonable
accommodation shall be made for any Member that elects to attend a meeting
via
telephonic or similar means pursuant to which all Persons attending the meeting
can hear one another. No action may be taken at a meeting of the Members without
the unanimous vote or consent of all of the Members. Minutes of the meeting
shall be prepared at the direction of the Board of Managers. Except as
specifically provided in this Agreement, there shall be no requirement of annual
or periodic meetings of the Members or Board of Managers within the meaning
of
the Act.
10.2 Action
Without a Meeting of All Members.
[a] Any
action of the Members may be taken by written consent of all of the Members
required for such action under this Agreement.
[b]
A Member
may authorize another Person to vote or otherwise act on its behalf through
a
written proxy or power of attorney.
[c] In
order
to facilitate the determination of whether any action of the Members has been
taken by or with the consent of the requisite number or percentage of the
Members under this Agreement, the Board of Managers may adopt, from time to
time
upon not less than ten (10) days notice to the Members, reasonable procedures
for establishing the Members of record entitled to vote, consent or otherwise
take action on any matter; provided, however, that any date as of which Members
of record is determined shall not precede the date of the related action by
more
than sixty (60) days.
10.3 Entire
Agreement.
This
Agreement, together with the Auxiliary Agreements and the Business Plan,
contains the entire understanding among the Members, CDI and MEC concerning
the
subject matter thereof and supersedes any prior written or oral agreement among
them respecting the Company and such matters. There are no representations,
agreements, arrangements, or understandings, oral or written, among the Members,
CDI and MEC relating to the Company which are not fully expressed in this
Agreement or the Auxiliary Agreements or the Business Plan.
10.4 Amendments.
[a] Except
as
otherwise provided in this Section 10.4, this Agreement may be amended, in
whole or in part, only through a written amendment executed by all of the
Members, CDI and MEC. Each Member, CDI and MEC shall be promptly notified of
any
amendment to this Agreement made pursuant to this
Section 10.4.
[b] Except
with regard to amendments otherwise specifically required under this Agreement,
there shall be no amendment to this Agreement except as authorized by Sections
10.4[a] or 10.4[d]. Without limitation of the foregoing, and subject to Section
2.1(b), there shall be no amendment that: (i) increases a Member’s
obligation to make capital contributions to the Company or (ii) imposes
personal liability upon a Member for any debts or obligations of the Company
unless, in each case, the amendment is consented to by such Member.
[c] An
Assignee shall not, solely by virtue of its status as such, have any right
to
consent or withhold consent in respect of an amendment to this
Agreement.
[d] Notwithstanding
the foregoing provisions of this Section 10.4, the Board of Managers may,
without the consent of the other Members, amend this Agreement in any manner
determined by the Board of Managers to be necessary or advisable to reflect
the
admission of an Additional Member in accordance with this Agreement, comply
with
applicable law, supply a missing term or provision, or resolve an ambiguity
in
the existing terms and provisions of this Agreement. The Board of Managers
shall
not have the authority under this Section 10.4(d) to amend this Agreement in
a
manner that is materially adverse to any Member; provided, however, that a
Member’s right to object to an amendment pursuant to this Section 10.4(d) on the
grounds that such amendment is materially adverse to such Member shall expire
at
the Close of Business on the thirtieth (30th) day following notice to such
Member of such amendment.
10.5 Governing
Law.
The
interpretation and enforceability of this Agreement and the rights and
liabilities of the Members, CDI and MEC as such shall be governed by the laws
of
the State of Delaware as such laws are applied in connection with limited
liability company operating agreements entered into and wholly performed in
Delaware by residents of Delaware. To the extent permitted by the Act and other
applicable law, the provisions of this Agreement shall supersede any contrary
provisions of the Act or other applicable law.
10.6 Severability.
In the
event that any provision of this Agreement is determined to be invalid or
unenforceable, such provision shall be deemed severed from the remainder of
this
Agreement and replaced with a valid and enforceable provision as similar in
intent as reasonably possible to the provision so severed, and shall not cause
the invalidity or unenforceability of the remainder of this
Agreement.
10.7 Counterparts;
Binding upon Members and Assignees.
This
Agreement may be executed in any number of counterparts and, when so executed,
all of such counterparts shall constitute a single instrument binding upon
all
parties notwithstanding the fact that all parties are not a signatory to the
original or to the same counterpart. In addition, to the maximum extent
permitted by applicable law and without limitation on any other rights of the
Members or the Company, a non-Member shall become bound as an Assignee under
this Agreement if such Person holds an interest in the Company and seeks to
exercise, assert, confirm or enforce any of its rights as an Assignee under
this
Agreement or the Act.
10.8 Survival
of Certain Obligations.
Except
as specifically provided in this Agreement, or to the extent specifically
approved by the Board of Managers (which approval may be withheld by the Board
of Managers in their sole and absolute discretion), as applicable, a Member,
CDI
and MEC shall continue to be subject to all of its obligations to make capital
contributions or other payments arising under this Agreement (including
obligations attributable to a breach of this Agreement), as well as its
obligations to maintain the confidentiality of information pursuant to
Section 6.3 and to provide information pursuant to Section 6.4,
without regard to any Transfer of all or any portion of such Member’s Interest
or any event that terminates such Member’s status as such or the Termination of
the Company. Each Member’s Capital Commitment shall terminate at the time of the
final Termination of the Company under the Act, but such termination shall
not
release a Defaulting Member from obligations arising under
Section 2.4.
10.9 No
Third Party Beneficiaries.
Except
with regard to the Company’s obligation to Indemnified Persons as set forth in
Article 9, the provisions of this Agreement are not intended to be for the
benefit of or enforceable by any Third Party and shall not give rise to a right
on the part of any Third Party to (i) enforce or demand enforcement of a
Member’s Capital Commitment, obligation to return distributions, or obligation
to make other payments to the Company as set forth in this Agreement or (ii)
demand that the Company or the Board of Managers issue any capital
call.
10.10 Notices,
Consents, Elections, Etc.
All
notices, consents, agreements, elections, amendments, and approvals provided
for
or permitted by this Agreement or otherwise relating to the Company shall be
in
writing and signed copies thereof shall be retained with the books of the
Company.
[a] Notice
to Members.
Except
as otherwise specifically provided in this Agreement, notice to a Member shall
be deemed duly given upon the earliest to occur of the following:
(i) personal delivery to such Member, to the address set forth on Schedule
A for such Member, or to any other address which such Member has provided to
the
Company for purposes of this Section 10.10(a); (ii) the Close of Business
on the third day after being deposited in the United States mail, registered
or
certified, postage prepaid and addressed to such Member at the address set
forth
on Schedule A for such Member, or at any other address which such Member
has provided to the Company for purposes of this Section 10.10(a);
(iii) the Close of Business on the first business day after being deposited
in the United States with a nationally recognized overnight delivery service,
for next Business Day delivery, with delivery charges prepaid and addressed
as
provided in the preceding clause; or (iv) actual receipt by such Member via
any
other means (including public or private mail, electronic mail, facsimile,
telex
or telegram); provided, however, that notice sent via electronic mail shall
be
deemed duly given only when actually received and opened by the Member to whom
it is addressed. Notices to CDI shall be provided as set forth above to the
address of CDI Sub. Notices to MEC shall be provided as set forth above to
the
address of MEC Sub.
[b] Notice
to the Company.
Notice
to the Company shall be deemed duly given when clearly identified as such and
duly given to the Board of Managers in accordance with the procedures set forth
in Section 10.10(a).
10.11 No
Usury.
Notwithstanding any provision of this Agreement to the contrary, the rate of
interest charged by the Company to any Member in connection with an obligation
of the Member to the Company shall not exceed the maximum rate permitted by
applicable law. To the extent that any interest otherwise paid or payable by
a
Member to the Company shall have been finally adjudicated to exceed the maximum
amount permitted by applicable law, such interest shall be retroactively deemed
to have been a required repayment of principal (and any such amount paid in
excess of the outstanding principal amount shall be promptly returned to the
payor Member).
10.12 Dispute
Resolution.
[a] Forum
and Venue.
Any
litigation involving any controversy or claim arising out of or relating to
this
Agreement or the Auxiliary Agreements or Business Plan shall be brought and
prosecuted solely in the Courts of the State of Delaware or the United States
District Court for the District of Delaware sitting in Wilmington, Delaware,
and
in such appellate courts having jurisdiction over appeals from such courts.
The
Company, CDI, CDI Sub, MEC and MEC Sub (i) consent to the exclusive jurisdiction
and venue of the aforesaid courts; (ii) shall not assert forum inconvenience
or
any other similar defense to the jurisdiction and venue of such courts; and
(iii) waive the right to trial by jury in any such litigation. If needed to
enforce a decision made by a court in Delaware, litigation may be commenced
and
prosecuted in any other courts having jurisdiction.
[b] Fees
and Costs.
The
prevailing party or parties in any proceeding arising out of or relating to
this
Agreement shall be reimbursed by the party or parties who do not prevail for
their reasonable third party or out of pocket attorneys, accountants and experts
fees and related third party or out of pocket expenses and for the costs of
such
proceeding. The court shall be asked to direct the amounts to be paid and the
party to pay the expenses and costs. In the event that two or more parties
are
deemed liable for a specific amount payable or reimbursable under this
Section 10.12(b), such parties shall be jointly and severally liable
therefor.
10.13 Cure
of Breaches.
In the
event of any breach by CDI, CDI Sub, MEC, MEC Sub or the Company of any
provision of this Agreement or of any Auxiliary Agreement or the Business Plan,
the party claiming the breach shall give reasonable notice thereof to the others
within a reasonable time after becoming aware of such breach or such other
notice as required under the Auxiliary Agreement or the Business Plan. The
alleged breaching party shall have, unless otherwise specifically provided
in
this Agreement or such Auxiliary Agreement or the Business Plan, a period of
thirty (30) days from receipt of such notice to cure the alleged breach;
provided that if the alleged breach cannot reasonably be cured within such
period of time, but such breach is susceptible of being cured it shall not
be
considered a breach so long as the alleged breaching party has begun and
diligently pursues curing the alleged breach and completes the cure within
not
more than an additional thirty (30) days.
10.14 Remedies
for Breach of this Agreement.
[a] General.
Except
as otherwise specifically provided in this Agreement, the remedies set forth
in
this Agreement are cumulative and shall not exclude any other remedies to which
a Person may be lawfully entitled.
[b] Specific
Performance.
Without
limiting the rights and remedies otherwise available to the Company, CDI, MEC
or
any Member, each Member, CDI and MEC hereby: (i) acknowledges that the
remedy at law for damages resulting from its default under Article 3, or
Sections 6.3, 6.4 or 10.14 is inadequate; and (ii) consents to the
institution of an action for specific performance of its obligations in the
event of such a default in accordance with Section 10.12[a] above.
[c] Exercise
of Discretion by the Board of Managers.
In
determining what action, if any, shall be taken against a Member in connection
with such Member’s breach of this Agreement, the Board of Managers shall seek to
obtain the best result for the Company and the non-breaching Members. In the
event a Member violates the terms of this Agreement, such Member shall not
be
entitled to claim that the Company or any of the other Members is precluded,
on
the basis of any fiduciary or other duty arising in respect of such Member’s
status as such, from seeking any of the penalties or other remedies permitted
under this Agreement or applicable law.
10.15 Timing.
All
dates and times specified in this Agreement are of the essence and shall be
strictly enforced. Except as otherwise specifically provided in this Agreement,
all actions that occur after the Close of Business on a given day shall be
deemed for purposes of this Agreement to have occurred at 9:00 a.m. on the
following day. In the event that the last day for the exercise of any right
or
the discharge of any duty under this Agreement would otherwise be a day that
is
not a business day, the period for exercising such right or discharging such
duty shall be extended until the Close of Business on the next succeeding
business day.
10.16 Status
Under the Act.
This
Agreement is the “limited liability company agreement” of the Company within the
meaning of Section 18-101(7) of the Act.
10.17 Partnership
for Tax Purposes.
As set
forth in Section 1.1, the Members hereby form the Company as a limited liability
company under the Act. The Members expressly do not intend hereby to form a
partnership under the laws of any State but intend that the Company shall be
treated as a partnership for tax purposes.
10.18 Miscellaneous.
No
failure or delay by any party in exercising any right, power or privilege under
this Agreement shall operate as a waiver thereof; any actual waiver shall be
contained in a writing signed by the party against whom enforcement of such
waiver is sought. This Agreement shall not be construed for or against any
party
by reason of the authorship or alleged authorship of any provisions hereof
or by
reason of the status of the respective parties.
10.19 No
Grant.
Except
as set forth on Schedule B, each Member and its Affiliates retains and has
not
granted to the Company or the other Member or its Affiliates any rights to
its
intellectual property or other assets.
10.20 General
Usage.
The
section headings contained in this Agreement are for reference purposes only
and
shall not affect the meaning or interpretation of this Agreement. Except where
the context clearly requires to the contrary: (i) all references in this
Agreement to designated Articles are to the designated Articles and other
subdivisions of this Agreement; (ii) instances of gender or entity-specific
usage (e.g., “his” “her” “its” “person” or “individual”) shall not be
interpreted to preclude the application of any provision of this Agreement
to
any individual or entity; (iii) the word “or” shall not be applied in its
exclusive sense; (iv) “including” shall mean “including, without limitation”;
(v) references to laws, regulations and other governmental rules, as well as
to
contracts, agreements and other instruments, shall mean such rules and
instruments as in effect at the time of determination (taking into account
any
amendments thereto effective at such time without regard to whether such
amendments were enacted or adopted after the effective date of this Agreement)
and shall include all successor rules and instruments thereto; (vi) references
to “$” or “dollars” shall mean the lawful currency of the United States; (vii)
references to “Federal” or “federal” shall be to laws, agencies or other
attributes of the United States (and not to any State or locality thereof);
(viii) the meaning of the terms “domestic” and “foreign” shall be determined by
reference to the United States; (ix) references to “days” shall mean calendar
days; references to “business days” shall mean all days other than Saturdays,
Sundays and days that are legal holidays in the State of Delaware; (x)
references to monthly or annual anniversaries shall be to the actual calendar
months or years at issue (taking into account the actual number of days in
any
such month or year); and (xi) days, business days and times of day shall be
determined by reference to local time in Wilmington, Delaware.
ARTICLE
11
DEFINITIONS
As
used
in this Agreement, the following terms shall have the following
meanings:
Act
shall
mean the Delaware Limited Liability Company Act, Title 6, Delaware Code Ann.,
Section 18-101 et seq., as amended.
Additional
Member
shall
mean any Person, other than a Substitute Member, admitted to the Company as
a
Member after the date first above written.
ADW
shall
mean advance deposit wagering.
ADW
Content Rights
shall
mean solely for purposes of ADW all wagering, audio, video, data and replay
rights related to horse racing or dog racing whether distributed through
internet, wireless, telephone, satellite, television, broadband, mobile or
video
streaming.
ADW
Export Content
shall
mean CDI and MEC’s and their Affiliates’ ADW Content Rights sold or distributed
or sublicensed to Third Parties.
ADW
Import Content
shall
mean ADW Content Rights acquired from Third Parties for ADW by CDI ADW and
XpressBet or for sublicensing or other resale to Third Parties.
Affiliate
shall
mean, with respect to any Person, any other Person with regard to which the
Person is directly or indirectly Controlling, Controlled by or commonly
Controlled with.
Agreement
shall
mean this Operating Agreement of TrackNet Media Group, LLC, a Delaware limited
liability company, including all schedules and exhibits hereto, as amended
from
time to time in accordance with the terms hereof.
Allocation
Percentage
shall
mean, for each Member, the percentage specified for such Member on Schedule
A.
Asset
Transfer and Contribution Agreement
shall
mean the Asset Transfer and Contribution Agreement of even date herewith between
HRTV Entity and Horse Racing TV, Inc., a wholly owned subsidiary of MEC, as
thereafter amended.
Assignee
shall
mean a Person that has acquired all or any portion of an Interest (including
by
means of a Transfer permitted under Article 7), but that has not been admitted
as a Member.
Auxiliary
Agreements
shall
mean the following agreements entered into or to be entered into between CDI
and
MEC as provided in this Agreement:
(a)
HRTV
Entity Limited Liability Company Operating Agreement of even date herewith,
as
thereafter amended;
(b)
CDI/MEC Content Exchange Agreement;
(c)
Asset
Transfer and Contribution Agreement;
(d)
Any
other agreement entered into between CDI and MEC or by CDI or MEC for the
benefit of the other which is designated as an Auxiliary Agreement.
Bank
shall
mean the bank selected by the Board of Managers from time to time (or any
successor entity thereto).
Bankruptcy
shall
mean, with respect to a Member: (i) an assignment of all or substantially
all of the assets of such Member for the benefit of its creditors generally;
(ii) the commencement of any bankruptcy or insolvency case or proceeding against
such Member which shall continue and remain unstayed and in effect for a period
of 60 consecutive days; (iii) the filing by such Member of a petition,
answer or consent seeking relief under any bankruptcy, insolvency or similar
law; or (iv) the occurrence of any other event that is deemed to constitute
bankruptcy for purposes of the Act.
Beneficial
Owner
shall
mean, with respect to a Member, any Person that holds an equity interest in
such
Member, either directly or indirectly through a nominee or agent or through
one
or more intervening entities qualifying as partnerships, grantor trusts or
S
corporations, in each case as determined for Federal income tax
purposes.
Best
Efforts
shall
mean commercially reasonable good faith efforts that a prudent person would
use
under similar circumstances without being required to expend an unreasonable
amount of funds when considering the benefit likely to be attained.
Board
of Managers
shall
mean the individuals appointed by the Members as the Managers as provided in
this Agreement , taken together or acting unanimously, as
appropriate.
Broadband
and Mobile Rights
shall
mean, other than with respect to ADW, all audio, video, data and replay rights
related to horse racing or dog racing for purposes that are unrelated to ADW
and
are distributed through any broadband or mobile technologies, including the
internet, wireless technologies, or any other on-line system or computer
network, now known or hereafter devised. For purposes of greater clarity, an
entity which has been granted a license to Broadband and Mobile Rights (but
not
ADW Content Rights) shall not be permitted to present or exploit the Broadband
and Mobile Rights if such presentation or exploitation contains, includes,
references, or is in any way associated with, wagering, or the promotion or
advertising of wagering, in any manner. By way of example, a website which
has
been granted a license to Broadband and Mobile Rights (but not ADW Content
Rights) shall not be permitted to advertise, promote, or utilize a click-through
to any ADW platform or service.
Business
shall
have the meaning given it in Section 1.3(b).
Business
Plan
shall
mean the initial business plan adopted and approved by CDI, CDI Sub, MEC, MEC
Sub and the Board of Managers simultaneously with entering into this Agreement,
as thereafter updated, modified or amended by the Board of
Managers.
Capital
Account
shall
mean, for each Member, a separate account that is:
(a) Increased
by: (i) the amount of such Member’s Capital Contribution and
(ii) allocations of Profit to such Member pursuant to
Article 3;
(b) Decreased
by: (i) the amount of cash distributed to such Member by the Company,
(ii) the Fair Market Value of any other property distributed to such Member
by the Company (determined as of the time of distribution, without regard to
Section 7701(g) of the Code, and net of liabilities secured by such property
that the Member assumes or to which the Member’s ownership of the property is
subject) and (iii) allocations of Loss to such Member pursuant to
Article 3;
(c) Revalued
in connection with any event described in Treasury Regulation
Section 1.704-1(b)(2)(iv)(f); and
(d) Otherwise
adjusted so as to conform to the requirements of Sections 704(b) and (c) of
the Code and the Treasury Regulations issued thereunder.
Capital
Commitment
shall
mean the cash and personal property committed by CDI Sub and MEC Sub to be
contributed to the Company.
Capital
Contribution
shall
mean, for any Member, the sum of the net amount of cash and the Fair Market
Value of any other property (determined as of the time of contribution, without
regard to Section 7701(g) of the Code, and net of liabilities secured by
such property that the Company assumes or to which the Company’s ownership of
the property is subject) contributed by such Member to the capital of the
Company. The term “capital contribution” (where not capitalized) shall mean any
contribution to the capital of the Company valued in accordance with the rules
set forth in the preceding sentence. For purposes of this Agreement, each
capital contribution shall be deemed to have been made at the later of:
(i) the Close of Business on the due date of such capital contribution as
determined in accordance with this Agreement; or (ii) the Close of Business
on the date on which such capital contribution is actually received by the
Company.
CDI
ADW
shall
mean any advance deposit wagering service that is Controlled by
CDI.
CDI/MEC
Content Exchange Agreement
shall
mean the Content Exchange Agreement of even date herewith between CDI and MEC,
as thereafter amended.
CDI
Outlets
shall
mean CDI Controlled wagering outlets, including CDI ADW and CDI
Tracks.
CDI
Premium Content
shall
mean with respect to Churchill Downs Racetrack: Kentucky Derby Day, Kentucky
Oaks Day, Stephen Foster Day, Derby Trial Day; with respect to Arlington Park:
Arlington Million Day; with respect to Fair Grounds Race Course: Louisiana
Derby
Day, Louisiana Champions Day; and with respect to Calder Race Course: Summit
of
Speed Day and Festival of the Sun Day. CDI may from time to time elect to (i)
replace a CDI Premium Content day with another day, and (ii) designate up to
ten
(10) additional days and/or special wagering products as CDI Premium Content.
Any such election shall take effect upon the giving of written notice to MEC,
and the definition of CDI Premium Content shall thereafter be deemed
amended.
CDI
Premium ADW Content
shall
mean the ADW Content Rights with respect to CDI Premium Content, provided,
however, that all video rights with respect to the Kentucky Derby are
excluded.
CDI
Premium Point to Point Content
shall
mean the Point to Point Content Rights with respect to CDI Premium
Content
CDI
Premium Rebate Content
shall
mean the Rebate Content Rights with respect to CDI Premium Content, provided,
however, that all video rights with respect to the Kentucky Derby are
excluded.
CDI
Tracks
shall
mean race tracks and off track betting facilities Controlled by
CDI.
Change
of Control Transaction
shall
mean with respect to a Person the first to occur of the following
events:
(a)
the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of the then-outstanding
voting interests of the Person (the “Outstanding Voting
Interests”);
(b)
the
consummation of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Person or the
acquisition of assets of another entity (a “Transaction”), in each case, unless
immediately following such Transaction, (i) all or substantially all of the
individuals and entities who were the beneficial owners of the Outstanding
Voting Interests immediately prior to such Transaction beneficially own,
directly or indirectly, more than 50% of the then-outstanding voting interest
of
the company resulting from such Transaction (including, without limitation,
an
entity which as a result of such transaction owns the Person or all or
substantially all of the Person’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Transaction, of the Outstanding Voting Interests,
(ii)
no Person (excluding any employee benefit plan (or related trust) of the subject
Person or such entity resulting from such Transaction) beneficially owns,
directly or indirectly, 50% or more of the Outstanding Voting Interests
resulting from such Transaction, except to the extent that such ownership
existed prior to the Transaction, and (iii) at least a majority of the members
of the governing body of the company resulting from such Transaction were
members of the Incumbent Board at the time of the execution of the initial
plan
or action of the governing body of the Person providing for such Transaction;
or
(c)
approval by the equity owners of such Person of a complete liquidation or
dissolution of the Person.
Notwithstanding
anything to the contrary contained in this Agreement, a Change of Control
Transaction shall be deemed not to have occurred as a result of any transaction
or group of transactions that result in direct or indirect voting control of
the
applicable Person being transferred to any one or more of the Stronach Trust,
Frank Stronach, members of Frank Stronach’s immediate family (i.e. spouse and
children), or any of their respective heirs or any subsidiaries or other
entities Controlled by any of the foregoing.
Close
of Business
shall
mean 5:00 p.m., local time, in Wilmington, Delaware.
Code
shall
mean the United States Internal Revenue Code of 1986, as amended.
Company
shall
mean TrackNet Media Group, LLC, a Delaware limited liability
company.
Control
and
derivatives thereof such as “Controlled” or “Controlling”, shall mean, (i) with
respect to any racetrack or off-track betting facility, the ability to conduct
the day-to-day wagering operations of such race track or facility, directly
or
through a lease, management agreement or other contractual arrangement; and
(ii)
with respect to any Person (including CDI ADW and XpressBet), (a) the beneficial
ownership of 50% or more of the then outstanding voting interests of the Person,
or (b) the power to direct the principal business management and activities
of
the Person, whether through ownership of voting interests, by agreement or
otherwise.
Deadlock
shall
mean the inability to reach agreement on an issue or matter material to the
Company.
Defaulting
Member
shall
have the meaning set forth in Section 2.4.
Derivative
Company Interest
shall
mean any actual, notional or constructive interest in, or right in respect
of,
the Company (other than a Member’s total interest in the capital, profits and
management of the Company) that, under Treasury Regulation
Section 1.7704-1(a)(2), is treated as an interest in the Company for
purposes of Section 7704 of the Code. Pursuant to the foregoing,
“Derivative Company Interest” shall include any financial instrument that is
treated as debt for Federal income tax purposes and (i) is convertible into
or exchangeable for an interest in the capital or profits of the Company or
(ii) provides for one or more payments of equivalent value.
Dissolution
or
Dissolved
shall
mean, with respect to a legal entity other than a natural person, that such
entity has “dissolved” within the meaning of the partnership, corporation,
limited liability company, trust or other statute under which such entity was
organized.
Employee
Costs shall
mean the actual cash salary, other cash compensation, and other cash expense
directly attributable to an employee, including base salary, bonus, FICA, FUTA,
health benefits, life and disability benefits and retirement benefits, but
specifically shall not include any non-cash compensation such as equity grants
or stock options.
Fair
Market Value
shall
have the meaning set forth in Section 5.14(c).
Fiscal
Year
shall
mean the period from January 1 through December 31 of each year
(unless otherwise required by law).
GAAP
shall
mean United States generally accepted accounting principles, consistently
applied.
HRTV
shall
mean the television network operated by the Members pursuant to the Limited
Liability Company Operating Agreement of HRTV Entity which broadcasts, transmits
or displays horse racing and related activities.
HRTV
Entity
shall
mean HRTV, LLC.
Hub
Distributor shall
mean a simulcasting facility which receives Point to Point Content Rights in
a
given jurisdiction and has the sole or exclusive responsibility, under the
laws
or regulations of that jurisdiction, to redistribute such Point to Point Content
Rights to other simulcasting facilities within that jurisdiction.
iTV
shall
mean any application which enhances traditional television exploitation by
enabling ADW, provided that such application is limited to cable television
(including traditional television provided by telephone companies) and direct
broadcast or satellite service television.
Indemnified
Person
shall
mean CDI, MEC, each Member and each equityholder, member, director, officer,
employee, or agent of CDI, MEC, or a Member. In addition, “Indemnified Person”
shall mean any Manager or officer of the Company. A Person that has ceased
to
hold a position that previously qualified such Person as an Indemnified Person
shall be deemed to continue as an Indemnified Person with regard to all matters
arising or attributable to the period during which such Person held such
position.
Initial
Term
shall
have the meaning given to it in Section 8.2.
Interest
shall
mean, for each Member, such Member’s rights, duties and interest in respect of
the Company in such Member’s capacity as such (as distinguished from any other
capacity such as employee, debtor or creditor) and shall include such Member’s
right, if any, to vote on Company matters, or receive distributions as well
as
such Member’s obligation, if any, to provide services, make capital
contributions or take any other action. In the case of an Interest held by
an
Assignee, such Interest shall be limited in the manner set forth in Section
7.4.
Manager
shall
mean each Person listed on Schedule A as such, for so long as such Person does
not become a Removed Manager.
Material
Misconduct
shall
mean, with respect to an Indemnified Person, gross negligence, willful and
material breach of this Agreement, fraud, or the commission of a felony (except
in the case of a felony where the Indemnified Person reasonably believed that
no
such felony would occur in consequence of such Indemnified Person’s action or
inaction, as the case may be). For purposes of the preceding sentence: (i)
an
Indemnified Person shall be deemed to have acted in good faith and without
negligence with regard to any action or inaction that is taken in accordance
with the advice or opinion of an attorney, accountant or other expert advisor
so
long as such advisor was selected with reasonable care and the Indemnified
Person made a good faith effort to inform such advisor of all the facts
pertinent to such advice or opinion; and (ii) an Indemnified Person’s reliance
upon the truth and accuracy of any written statement, representation or warranty
of a Member shall be deemed to have been reasonable and in good faith absent
such Indemnified Person’s actual knowledge that such statement, representation
or warranty was not, in fact, true and accurate.
MEC
Outlets
shall
mean MEC Controlled wagering outlets, including XpressBet and MEC
Tracks.
MEC
Premium Content
shall
mean with respect to Gulfstream Park: Donn Handicap Day, Florida Derby Day,
Sunshine Millions Day; with respect to Santa Anita: Santa Anita Handicap Day,
Santa Anita Derby Day, Sunshine Millions Day; with respect to Laurel Park:
Maryland Millions Day, Frank DeFrancis Memorial Day; with respect to Lone Star:
Lone Star Derby Day; and with respect to Pimlico: Preakness Day, Black-eyed
Susan Day. MEC may from time to time elect to (i) replace a MEC Premium Content
day with another day, and (ii) designate up to ten (10) additional days and/or
special wagering products as MEC Premium Content. Any such election shall take
effect upon the giving of written notice to CDI, and the definition of MEC
Premium Content shall thereafter be deemed amended.
MEC
Premium ADW Content
shall
mean the ADW Content Rights with respect to MEC Premium Content, provided,
however, that all video rights with respect to the Preakness are
excluded.
MEC
Premium Point to Point Content
shall
mean the Point to Point Content Rights with respect to MEC Premium
Content.
MEC
Premium Rebate Content
shall
mean the Rebate Content Rights with respect to MEC Premium Content, provided,
however, that all video rights with respect to the Preakness are
excluded.
MEC
Tracks
shall
mean race tracks and off track betting facilities Controlled by
MEC.
Member
shall
mean any Person (i) listed on Schedule A as a Member or (ii) admitted
to the Company pursuant to the terms of this Agreement as an Additional Member
or a Substitute Member, but in each case only if such Person has not become
a
Withdrawn Member. A Member shall not cease to be a Member or lose its
non-economic rights in respect of the Company solely by virtue of having
Transferred to one or more Persons its entire economic interest in the Company.
Except where the context requires otherwise, a reference in this Agreement
to
“the Members” shall mean all of the Members (taken together or acting
unanimously, as appropriate).
Member
Nonrecourse Deduction
shall
mean an item of loss, expense or deduction attributable to a nonrecourse
liability of the Company for which a Member bears the economic risk of loss
within the meaning of Treasury Regulation Section 1.704-2(i).
Minimum
Gain
of the
Company shall, as provided in Treasury Regulation Section 1.704-2, mean the
total amount of gain the Company would realize for Federal income tax purposes
if it disposed of all assets subject to nonrecourse liability for no
consideration other than full satisfaction thereof.
Nonrecourse
Deduction
shall
mean an item of loss, expense or deduction (other than a Member Nonrecourse
Deduction) attributable to a nonrecourse liability of the Company within the
meaning of Treasury Regulation Section 1.704-2(b).
Permanent
Incapacity
shall
mean, with respect to an individual, that such individual suffers a mental
or
physical disability which, as of the time of determination, renders such
individual incapable of performing such individual’s duties under this Agreement
and is substantially certain to continue to render such individual incapable
of
performing such duties for a continuous period of at least six months following
the date of determination.
Person
shall
mean an individual, partnership, corporation, limited liability company,
unincorporated organization, trust, joint venture, governmental agency, or
other
entity, whether domestic or foreign.
Point
to Point Content Rights
shall
mean all wagering, audio, video, data and replay rights related to horse racing
or dog racing for purposes of pari-mutuel wagering at a race track or other
location which constitutes a simulcasting facility (i.e., a race track, off
track betting facility or other fixed “brick and mortar” facility open to the
general public) for use at such receiving location.
Point
to Point Export Content
shall
mean CDI and MEC’s and their Affiliates’ Point to Point Content Rights sold,
distributed or sublicensed to Third Parties for Point to Point
Simulcasting.
Point
to Point Import Content
shall
mean Point to Point Content Rights acquired from Third Parties for use by CDI
and MEC Tracks or for sublicensing or other resale to Third
Parties.
Point
to Point Simulcasting
shall
mean the distribution, transmission or receipt of Point to Point Content
Rights.
Principal
Office
shall
have the meaning set forth in Section 1.4.
Profit
and Loss or Profits and Losses means,
for each taxable year of the Company (or other period for which Profit or Loss
must be computed), the Company’s taxable income or loss determined in accordance
with Code Section 703(a), with the following adjustments:
(i) all
items
of income, gain, loss, deduction, or credit required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in computing taxable income
or loss;
(ii) any
tax-exempt income of the Company, not otherwise taken into account in computing
Profit or Loss, shall be included in computing taxable income or
loss;
(iii) any
expenditures of the Company described in Code Section 705(a)(2)(B) (or treated
as such pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i)) and not
otherwise taken into account in computing Profit or Loss, shall be subtracted
from taxable income or loss;
(iv) gain
or
loss resulting from any taxable disposition of Company property shall be
computed by reference to the adjusted book value of the property disposed of,
notwithstanding the fact that the adjusted book value differs from the adjusted
basis of the property for federal income tax purposes;
(v) in
lieu
of the depreciation, amortization, or cost recovery deductions allowable in
computing taxable income or loss, there shall be taken into account the
depreciation computed based upon the adjusted book value of the asset;
and
(vi) notwithstanding
any other provision of this definition, any items which are specially allocated
pursuant to Section 3.1[b] shall not be taken into account in computing Profit
or Loss.
Real
Property Lease shall
mean the Real Property Sublease Agreement which may be entered into between
CDI
and the Company, as thereafter amended.
Rebating
shall
mean the practice by an entity that conducts ADW of providing volume based
incentives (i) exceeding two percent (2%) of the total handle wagered through
such entity, or (ii) to any ADW customer in excess of four percent (4%) of
the
total handle wagered by such ADW customer.
Rebate
Content Rights
shall
mean all wagering, audio, video, data, and replay rights related to horse racing
or dog racing for purposes of Rebating.
Rebate
Export Content
shall
mean CDI and MEC’s and their Affiliates’ Rebate Content Rights sold or
distributed or sublicensed to Third Parties.
Rebate
Import Content
shall
mean Rebate Content Rights acquired from Third Parties for use by CDI and MEC
or
for sublicensing or other resale to Third Parties.
Receiving
Location shall
mean a simulcast facility which receives Point to Point Content Rights from
a
Hub Distributor.
Removed
Manager
shall be
a Manager who has been removed pursuant to Section 5.15 of this
Agreement.
Securities
Act
shall
mean the United States Securities Act of 1933, as amended, including the rules
and regulations promulgated thereunder.
State
shall
mean any constituent state of the United States, as well as the District of
Columbia.
Substitute
Member
shall
mean a transferee of all or a portion of a Member’s Interest that becomes a
Member and succeeds, to the extent of the Interest transferred, to the rights
and powers and becomes subject to the restrictions and liabilities of the
transferor Member.
Tax
Matters Partner
shall
mean the Member identified as such, from time to time, by the Members. The
initial Tax Matters Partner shall be CDI Sub, and CDI Sub and MEC Sub shall
alternate serving as the Tax Matters Partner each calendar year.
Tax
Percentage
shall
have the meaning set forth in Section 4.1(a)(ii).
Television
Fees
shall
have the meaning set forth in Section 5.3.
Television
Rights
shall
mean, other than with respect to Point to Point Simulcasting, all audio, video,
data and replay rights related to horse racing or dog racing for purposes of
traditional television exploitation, including by means of UHF and VHF
television broadcast, cable television, “over-the-air” television, subscription
television, pay television, pay per view television, iTV, video on demand
television, hotel and other institutional service television, satellite master
antennae television (SMATV), multi-channel multi-point distribution services
television (MMDS), and direct broadcast satellite service, provided however
Television Rights shall not include Broadband and Mobile Rights.
Term
shall
have the meaning set forth in Section 1.2. Where not capitalized, “term”
shall mean the entire period of the Company’s existence, including any period of
winding-up and liquidation following the Dissolution of the Company pursuant
to
Article 8.
Termination
shall
mean, with respect to a legal entity other than a natural person, that such
entity has Dissolved, completed its process of winding-up and liquidation,
and
otherwise ceased to exist.
Territory
shall
mean the United States and Canada and whatever additional geographic region,
if
any, as the Board of Managers shall determine from time to time.
Third
Party shall
mean any person or entity other than CDI, CDI Sub, MEC or MEC Sub, or any entity
Controlled by CDI or MEC, respectively.
Transfer
shall
mean any direct or indirect sale, exchange, transfer, gift, encumbrance,
assignment, pledge, mortgage, hypothecation or other disposition, whether
voluntary or involuntary.
Treasury
Regulation
shall
mean a regulation issued by the United States Treasury Department and relating
to a matter arising under the Code.
United
States
shall
mean the United States of America.
Updated
Capital Account
shall
mean, with respect to a Member, such Member’s Capital Account determined as if,
immediately prior to the time of determination, all of the Company’s assets had
been sold for Fair Market Value and any previously unallocated Profits or Losses
had been allocated pursuant to Article 3.
Wagering
Security and Integrity Standards
shall
mean those standards approved by the Board of Managers for the wagering security
and integrity operations of the Company and Third Parties.
Withdrawal
Event
shall
have the meaning set forth in Section 7.3.
Withdrawn
Member
shall
have the meaning set forth in Section 7.3.
XpressBet
shall
mean any advance deposit wagering service that is Controlled by
MEC.
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
CHURCHILL
DOWNS INCORPORATED
By:_/s/
William C. Carstanjen___________
Name:
William C.
Carstanjen
Title:
Executive Vice
President
CD
CONTENTCO HC, LLC
By:__/s/
William C. Carstanjen__________
Name:
William C.
Carstanjen
Title:
Vice
President
MAGNA
ENTERTAINMENT CORP.
By:__/s/
Michael Newman_____________
Name:
Michael
Newman
Title:
Chief
Executive Officer
By:___/s/
Joseph DeFrancis____________
Name:
Joseph DeFrancis
Title:
Executive Vice
President
MEC
CONTENT HOLDCO LLC
By:__/s/
Michael Newman_____________
Name:
Michael
Newman
Title:
Chief
Executive Officer
By:___/s/
Joseph DeFrancis____________
Name:
Joseph
DeFrancis
Title:
Executive Vice
President
15179407.19
SCHEDULE
A
MEMBER
INFORMATION
|
Name
and Contact Information
|
Allocation
Percentage
|
Initial
Capital Commitment
|
|
CD
CONTENTCO HC, LLC; Attn: President
700
Central Avenue
Louisville,
Kentucky 40208
|
50
|
$300,000
|
|
MEC
CONTENT HOLDCO LLC; Attn: President
337
Magna Drive
Aurora,
Ontario L4G
7K1
Canada
|
50
|
$300,000
|
Before
the beginning of each quarter the Board of Managers shall determine the capital
needed by the Company for such quarter and will provide a notice of this
determination to each Member specifying the amount and time of the contribution
for such additional capital (to be borne by CDI Sub and MEC Sub in proportion
to
their Allocation Percentages). Both CDI Sub and MEC Sub must make the
contribution required by such capital call on the indicated due date, and
delinquent amounts shall bear interest at a floating rate equal to the prime
rate as announced from time to time by the Bank, compounded daily.
MANAGERS
William
Carstanjen.
Joseph
DeFrancis.
James
E.
Gay
Michael
Neuman.
SCHEDULE
B
Licensed
Rights
A. From
the
date of the Agreement through the end of the Term, each of CDI and MEC and
their
Affiliates shall, for all race meets of each of its race tracks that commence
during the Term, (i) exclusively license to the Company under the terms of
the
Agreement such track’s ADW Content Rights, Point to Point Content Rights and
Rebate Content Rights, and (ii) grant to the Company the exclusive right to
sublicense such track’s respective ADW Content Rights, Point to Point Content
Rights and Rebate Content Rights, to any Third Party worldwide, or any direct
or
indirect sublicensee of a Third Party, in the case of (i) and (ii) subject
to
the contractual obligations existing as of the date hereof as set forth on
Schedule C. For greater clarity the preceding sentence is not intended to limit
the ability of any Member and its Affiliates to use their own ADW Content
Rights, Point to Point Content Rights and Rebate Content Rights, or use as
a
permitted licensee the ADW Content Rights, Point to Point Content Rights or
Rebate Content Rights of the other Member and its Affiliates, (i) with respect
to CDI ADW or XpressBet or (ii) with respect to the CDI Tracks or MEC Tracks,
all as more fully set forth in the CDI/MEC Content Exchange
Agreement.
B. From
the
date of the Agreement through the end of the Term, CDI and MEC and their
Affiliates grant and license to the Company the right to conduct the following
activities, as the sole and exclusive agent for CDI and MEC and their
Affiliates, subject to the contractual obligations existing as of the date
hereof as set forth on Schedule C:
|
1.
|
Conduct
the acquisition of ADW Content Rights from all Third Parties worldwide
for
ADW worldwide by CDI ADW and
XpressBet
|
|
2.
|
Conduct
the acquisition of Point to Point Content Rights from all Third Parties
worldwide for Point-to-Point Simulcasting worldwide at CDI Tracks
and MEC
Tracks.
|
|
3.
|
Conduct
the acquisition of Rebate Content Rights from all Third
|
|
Parties
worldwide for Rebating worldwide by CDI and
MEC.
|
|
4.
|
Sublicense
any Third Party Point to Point Content Rights, ADW Content Rights
or
Rebate Content Rights made available to CDI, MEC or any of their
Affiliates.
|
|
5.
|
Sublicense
CDI and MEC ADW Content Rights to Third Parties
|
|
worldwide
for ADW worldwide.
|
|
6.
|
Sublicense
CDI and MEC Point to Point Content Rights to Third
|
|
Parties
worldwide for Point-to-Point Simulcasting
worldwide.
|
|
7.
|
Sublicense
CDI and MEC Rebate Content Rights to Third Parties worldwide for
Rebating
worldwide.
|
|
8.
|
Conduct
the acquisition of Television Rights and Broadband and Mobile Rights
from
all Third Parties worldwide for:
|
|
a.
use by HRTV Entity worldwide
|
|
b.
sublicensing outside the Territory as the Board of Managers may
determine
|
|
9.
|
Sublicense
CDI, MEC and Third Party Television Rights and Broadband and Mobile
Rights
to Third Parties worldwide; provided, however, that each of CDI and
MEC
shall be permitted to sublicense directly its own Broadband and Mobile
Rights to Third Parties worldwide.
|
SCHEDULE
C
Existing
Contractual
Obligations
|
Date
of Expiration
|
|
|
Churchill
Downs Incorporated
|
|
|
ODS
Technologies (dba TVG Network) - Hoosier
|
March
13, 2007
|
|
ODS
Technologies (dba TVG Network) - Churchill Downs
|
March
14, 2007
|
|
ODS
Technologies (dba TVG Network) - Fair Grounds
|
March
30, 2007
|
|
ODS
Technologies (dba TVG Network) - Arlington
|
August
6, 2007
|
|
ODS
Technologies (dba TVG Network) - Calder
|
April
15, 2008
|
|
New
York City OTB
|
December
31, 2007
|
|
Western
Region OTB
|
December
31, 2007
|
|
Southern
Region OTB
|
December
31, 2007
|
|
Catskills
Regional OTB
|
December
31, 2007
|
|
Capital
Regional OTB
|
December
31, 2007
|
|
Nassau
Regional OTB
|
December
31, 2007
|
|
Nevada
Pari-Mutuel Association
|
March
31, 2009
|
|
Customary
Simulcast Agreements for Fair Grounds’ 2006/2007 Meet
|
April
30, 2007
|
|
Magna
Entertainment Corp.
|
|
|
Ladbroke
Xtra
|
December
31, 2007
|
|
SIS
|
December
31, 2007
|
|
Admiral
Bet Shops
|
August
31, 2007
|
|
Wettpunk
Bet Shops
|
Month
to Month
|
|
Youbet
|
30
day notice given anytime after May 1, 2007
|
|
AmericaTAB
|
April
22, 2007
|
|
Philly
PhoneBet
|
April
22, 2007
|
|
Connecticut
OTB
|
April
22, 2007
|
|
Customary
Simulcast Agreements for the following:
|
|
|
Gulfstream
Park’s 2007 Meet
|
April
22, 2007
|
|
Santa
Anita Park’s 2006-07 Meet
|
April
22, 2007
|
|
Golden
Gate Field’s 2006-07 Meet
|
February
11, 2007
|
|
Laurel
Park’s 2006-07 Meet
|
April
15, 2007
|
|
Portland
Meadows’ 2006-07 Meet
|
May
5, 2007
|
|
The
Meadows 2006-07 Meet
|
September
1, 2007
|
|
Remington
Park’s 2007 Spring Quarterhorse Meet
|
June
31, 2007
|
|
Magna
Racino
|
December
31, 2007
|
|
CDI
and MEC
|
|
|
Racing
World
|
April
15, 2009
|
The
above
contractual obligations of CDI and MEC shall not be renewed or extended after
the date of this Agreement, except Racing World may be extended upon approval
of
the Board of Managers.
FOR
IMMEDIATE RELEASE
CHURCHILL
DOWNS INCORPORATED AND MAGNA ENTERTAINMENT CORP. ANNOUNCE CUSTOMER-FOCUSED
AGREEMENTS
AURORA,
Ontario/LOUISVILLE, Ky. (March 5, 2007) - North
America’s leading horse racing companies, Churchill Downs Incorporated (NASDAQ:
CHDN) (“Churchill Downs”) and Magna Entertainment Corp. (NASDAQ:
MECA; TSX: MEC.A) (“Magna Entertainment”) today announced a series of
customer-focused agreements.
Through
the agreements, Magna Entertainment and Churchill Downs hope to accomplish
four
objectives:
| 1. |
Foster
an open and competitive business environment where horse racing content
is
readily available to customers through a wide variety of distribution
points and wagering platforms;
|
| 2. |
Create
an innovation-based environment of sustainable growth for the North
American horse racing industry domestically and
internationally;
|
| 3. |
Enhance
wagering integrity and security to address horse racing signal piracy
and
ensure content creators are compensated;
and
|
| 4. |
Benefit
the horsemen and racetracks that together create racing content through
new industry growth.
|
The
specific agreements are as follows:
Churchill
Downs and Magna Entertainment Form Media Management Company, TrackNet Media
Group LLC, to Buy Content from and Sell Content to Third
Parties
Churchill
Downs and Magna Entertainment have formed a joint venture called TrackNet Media
Group LLC (“TrackNet Media”) through which the full breadth of the companies’
respective horse racing content will be available to each company’s various
distribution platforms, including Magna Entertainment’s advance deposit wagering
(“ADW”) platform, XpressBet® (www.xpressbet.com),
a
Churchill Downs-owned ADW platform, www.twinspires.com,
under
development, and to third parties, including racetracks, OTBs, casinos and
other
ADW providers. TrackNet Media will also purchase horse racing content from
third
parties to make available through Churchill Downs’ and Magna Entertainment’s
respective distribution platforms. Both companies believe that a single
organization performing these important functions will promote optimal
distribution of content across a broader spectrum of platforms, including ADW
providers, international outlets and distributors that offer rebates. By
creating a single cost-effective organization to more efficiently buy and sell
racing content, TrackNet Media will have the resources to pursue wagering
integrity and security objectives, with a view toward generating revenue for
horsemen and racetracks that create content.
“Both
Churchill Downs and Magna Entertainment believe that our industry must embrace
change and drive innovation to make our products more appealing to our
customers,” said Churchill Downs’ President and Chief Executive Officer Robert
L. Evans. “We believe that our customers and our industry will benefit from
broader distribution of our racing signals and that integrity and security
with
respect to our signals is paramount. We hope other content owners will endorse
our approach in similar reciprocal agreements with TrackNet Media to ensure
the
broadest possible distribution of racing content to markets
worldwide.”
“To
better serve our customers and grow the financial return for our horsemen,
Magna
Entertainment and Churchill Downs believe the time has come to make our
simulcast content available through as many trusted and eligible distribution
platforms as possible,” said Magna Entertainment Chief Executive Officer Michael
Neuman. “In doing so, we can maximize the content available to customers and the
revenue available to the horsemen and racetracks who create the industry’s
content.”
Churchill
Downs Purchases 50-Percent Interest in HRTV™
In
addition, Churchill Downs has purchased a 50-percent interest in Magna
Entertainment’s horse racing TV channel, HRTV™.
Both
Churchill Downs and Magna Entertainment will work to offer as much of their
respective live export simulcast content as possible on HRTV™ and will actively
explore how the television medium can be used to more effectively serve horse
racing customers - and the industry as a marketing vehicle. HRTV™
will
seek additional content providers who wish to televise their horse racing
content alongside the Churchill Downs and Magna Entertainment content.
As
part
of its 2007 offerings, HRTV™
will
broadcast “Target Louisville,” a 30-minute television program highlighting the
training, workouts and final preparations of Kentucky Derby contenders. “Target
Louisville” will air daily during the week leading up to the 133rd
Kentucky
Derby at Churchill Downs.
“With
the
inclusion of Churchill Downs-owned racing content on HRTV™, this television
channel becomes a significant destination for horse racing fans,” continued
Neuman. “With Magna Entertainment and Churchill Downs serving as anchor tenants,
HRTV™ represents a subscriber acquisition opportunity for carriers and a
distribution opportunity for content providers to consider as their television
rights become available.”
Churchill
Downs to Launch ADW Service, www.twinspires.com
Churchill
Downs is currently developing its own ADW platform, www.twinspires.com,
which
will launch later this year. The site will offer racing fans the opportunity
to
watch and wager on Churchill Downs- and Magna Entertainment-owned racing content
as well as other racing content made available through TrackNet Media licensing
agreements. Customers can visit www.twinspires.com
to learn
more about its future offerings and sign up for e-mail alerts. Churchill Downs
will share more information about www.twinspires.com,
including the target date for launch, with customers and members of the media
in
the next few weeks.
One
of
the primary focuses for the companies’ joint venture, TrackNet Media, will be
enhanced wagering integrity. TrackNet Media will invest significant resources
to
better monitor the entities that have access to the companies’ racing content
and wagering pools. TrackNet Media staff will work closely with domestic and
international outlets licensed to simulcast and accept wagers on TrackNet
Media-licensed products to ensure that content offered through TrackNet Media
is
being used appropriately and in ways that provide compensation to the horsemen
and racetracks that produce the content. Third parties will not be allowed
to
sublicense TrackNet Media content to other tracks, OTBs, casinos, rebate shops
or ADW providers, thereby reducing the risk of horse racing signal piracy and
other integrity issues.
Both
Churchill Downs and Magna Entertainment will continue to honor all existing
contractual obligations with respect to their content. TrackNet Media’s ability
to license simulcast content from Churchill Downs-owned racetracks to ADW
providers other than the Television Games Network (“TVG”) will commence with the
expiration of those tracks’ individual TVG agreements. TrackNet Media will have
immediate access to racing signals from Churchill Downs racetrack for its 2007
Spring Meet, which begins April 28, and to signals from Fair Grounds Race Course
when the track begins its 2007-08 meet in November 2007. TVG will continue
to
have access to simulcast content from Arlington Park through Aug. 6, 2007,
and
from Calder Race Course through the end of its 2007-08 racing season, which
ends
Jan. 2, 2008.
Churchill
Downs 2007 Spring Meet will be available on HRTV™.
Arlington Park, Calder Race Course and Fair Grounds Race Course will join the
HRTV™ line-up as their respective TVG contracts expire.
“We
believe the business initiatives we’re launching will benefit customers in many
ways, including the optimal distribution of simulcast content originating from
Churchill Downs- and Magna Entertainment-owned racetracks to other tracks,
OTBs,
casinos and ADW providers,” said Evans. “We hope other content providers and
content licensees will follow our example, and make their content available
as
well.
“The
transition to a new and more competitive business model may cause some temporary
disruptions for some customers. We acknowledge that and want to apologize in
advance for any inconvenience to them. In the end, we believe customers will
benefit greatly from the approach we’re taking, and we appreciate their patience
and understanding.”
TrackNet
Media will be headquartered in Louisville, Ky. TrackNet Media and HRTV™ will
have offices in Louisville and Arcadia, Calif. Scott Daruty, formerly the chief
U.S. counsel for Magna Entertainment, will serve as TrackNet Media’s chief
executive officer. Patrick Troutman, who served as vice president and general
manager for the Churchill Downs Simulcast Network (“CDSN”) and Churchill Downs
Simulcast Productions, will serve as TrackNet Media’s executive vice president.
Current members of CDSN’s support staff will join TrackNet Media, as will
certain members of MEC’s simulcast operations.
Representatives
from Magna Entertainment, Churchill Downs and TrackNet Media will discuss their
new customer-focused partnership in a teleconference with members of the media
today (March 5) at 10 a.m. EST. Journalists may participate in the
teleconference by dialing (866)
713-8565 or
(617)
597-5324 for international participants and
entering the pass code 30351265
at
least
10 minutes before the appointed time.
Churchill
Downs Incorporated (“Churchill Downs”), headquartered in Louisville, Ky., owns
and operates world-renowned horse racing venues throughout the United States.
Churchill Downs’ five racetracks in Florida, Illinois, Indiana, Kentucky and
Louisiana host many of North America’s most prestigious races, including the
Kentucky Derby and Kentucky Oaks, Arlington Million, Princess Rooney Handicap,
Louisiana Derby and Indiana Derby. Churchill Downs’ racetracks have hosted seven
Breeders’ Cup World Championships. Churchill Downs also owns off-track betting
facilities and has interests in various advance deposit wagering, television
production, telecommunications and racing services companies that support
Churchill Downs’ network of simulcasting and racing operations. Churchill Downs
trades on the NASDAQ Global Select Market under the symbol CHDN and can be
found
on the Internet at www.churchilldownsincorporated.com.
Magna
Entertainment is North America’s largest owner and operator of horse racetracks,
based on revenue, including such major venues as Santa Anita Park, Gulfstream
Park and Pimlico Race Course, home of the Preakness Stakes, the middle jewel
of
racing’s Triple Crown. It develops, owns and operates horse racetracks and
related pari-mutuel wagering operations, including off-track betting facilities.
Magna Entertainment also develops, owns and operates casinos in conjunction
with
its racetracks where permitted by law. Magna Entertainment owns and operates
AmTote International, Inc., a provider of totalisator services to the
pari-mutuel industry, XpressBet®, a national Internet and telephone account
wagering system, as well as MagnaBet™ internationally. Magna Entertainment
trades on the NASDAQ Global Select Market under the symbol MECA
and
the Toronto Stock Exchange under the symbol MEC.A and can be found on the
Internet at www.magnaent.com.
Magna
Entertainment and Churchill Downs previously formed a joint venture with Racing
UK, a media rights company and subscription television channel owned by 31
leading British racecourses, to operate the international television channel
Racing
World, which
brings the best North American and international racing five days a week, six
hours a day to British and Irish viewers. British and Irish customers
can wager though the British bookmaker Victor Chandler. Racing World plans
to
continue to add additional bookmakers throughout 2007.
HRTVTM
is a
24-hour television network providing up to 15 hours per day of wire-to-wire
coverage of live horse racing action from more than 70 thoroughbred, harness
and
quarter horse racetracks in the United States, Canada and Australia. The
award-winning network is available from major satellite and cable companies
throughout the country. Additional background information on HRTV can be found
on www.hrtv.com.
Information
set forth in this news release contains various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E
of the Securities Exchange Act of 1934 and forward-looking information as
defined in the Securities
Act (Ontario)
(collectively referred to as “forward-looking statements”).
The
Private Securities Litigation Reform Act of 1995 and the Securities
Act (Ontario)
provide certain "safe harbor" provisions for forward-looking statements. The
reader is cautioned that such forward-looking statements are based on
information available at the time and/or management’s good faith belief with
respect to future events, and are subject to risks and uncertainties that could
cause actual performance or results to differ materially from those expressed
in
the statements. Forward-looking statements speak only as of the date the
statement was made. Churchill Downs and Magna Entertainment assume no obligation
to update forward-looking information to reflect actual results, changes in
assumptions or changes in other factors affecting forward-looking information.
Forward-looking statements are typically identified by the use of terms such
as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may,"
"might," "plan," "predict," "project," "should," "will," and similar words,
although some forward-looking statements are expressed differently. Although
MEC
and Churchill Downs believe that the expectations reflected in such
forward-looking statements are reasonable, Churchill Downs and Magna
Entertainment can give no assurance that such expectations will prove to be
correct. Important factors that could cause actual results to differ materially
from expectations include: the effect of global economic conditions; the effect
(including possible increases in the cost of doing business) resulting from
future war and terrorist activities or political uncertainties; the economic
environment; the impact of increasing insurance costs; the impact of interest
rate fluctuations; the effect of any change in our accounting policies or
practices; the financial performance of our companies’ racing operations; the
impact of gaming competition (including lotteries and riverboat, cruise ship
and
land-based casinos) and other sports and entertainment options in those markets
in which our companies operate; the impact of live racing day competition with
other racetracks in the jurisdictions in which our companies operate; costs
associated with our companies’ efforts in support of alternative gaming
initiatives; costs associated with Customer Relationship Management or other
marketing initiatives; a substantial change in law or regulations affecting
pari-mutuel and gaming activities; resistance to our business strategies; a
substantial change in allocation of live racing days; our companies’ continued
ability to effectively compete for the country’s top horses and trainers
necessary to field high-quality horse racing; our companies’ continued ability
to grow our share of the interstate simulcast market; our companies’ ability to
execute acquisition strategies and to complete or successfully operate planned
expansion projects; our companies’ ability to successfully complete any
divestiture transaction; our companies’ ability to adequately integrate acquired
businesses; market reaction to our companies’ expansion projects; any business
disruption associated with facility renovations or construction at our
companies’ operations; the loss of industry totalisator companies or their
inability to provide our companies with assurance of the reliability of their
internal control processes through Statement on Auditing Standards No. 70 audits
or to keep their technology current; the need for various alternative gaming
approvals in states where our companies operate; our companies’ accountability
for environmental contamination; the loss of key personnel; the impact of
natural disasters, including severe weather on our companies’ operations and the
extent of our companies’ property and business interruption insurance coverage
for any related losses; any business disruption associated with a natural
disaster and/or its aftermath; and the volatility of our companies’ stock price.
For
more information, contact:
Churchill
Downs Incorporated
Julie
Koenig Loignon
Phone:
(502) 636-4502
E-mail:
juliek@kyderby.com
Magna
Entertainment Corp.
Mike
Gathagan
Phone:
(310) 470-5461
E-mail:
mgathagan@marylandracing.com
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