UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 14, 2004
| CHURCHILL DOWNS INCORPORATED |
|
|
| (Exact name of registrant as specified in its charter) |
| KENTUCKY | 0-1469 | 61-0156015 |
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
| 700 Central Avenue Louisville, Kentucky |
40208 |
| (Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code (502) 636-4400
| N/A |
| (Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.01 Completion of Acquisition or Disposition of Assets.
On October 14, 2004, Churchill Downs Incorporated (the “Company”), through its wholly owned subsidiary Churchill Downs Louisiana Horseracing Company, L.L.C. (“CDI Louisiana”), completed its previously announced acquisition of Fair Grounds Race Course in New Orleans, Louisiana, including a thoroughbred race track, 145 acres, support facilities and off-track betting facilities associated with the racetrack, from Fair Grounds Corporation, for $47 million in cash (subject to closing adjustments). The acquisition, pursuant to an asset purchase agreement, as amended, among the Company, CDI Louisiana and Fair Grounds Corporation (the “Fair Grounds Purchase Agreement”), was approved by the United States Bankruptcy Court for the Eastern District of Louisiana pursuant to the amended plan of reorganization of Fair Grounds Corporation in its Chapter 11 bankruptcy case.
In conjunction with the acquisition of Fair Grounds Race Course, the Company, through CDI Louisiana, also completed the acquisition of certain assets of Finish Line Management Corp. (“Finish Line”) for approximately $6.7 million in cash, pursuant to an agreement among CDI Louisiana, the Company, Finish Line and Bryan G. Krantz (the “Finish Line Agreement”). The Finish Line assets acquired consist primarily of five off-track betting (“OTB”) facilities in the New Orleans area. The Company also agreed to forgive a receivable due from Finish Line to Fair Grounds Corporation and to waive any additional claims of Fair Grounds Corporation against Finish Line which the Company acquired in the acquisition of assets from Fair Grounds Corporation. The Company also entered into a 3 year consulting agreement with Bryan G. Krantz, the President of Fair Grounds Corporation and Finish Line. Under the consulting agreement, Mr. Krantz will be paid compensation of $400,000 per year, plus health insurance and a $300,000 bonus paid at the closing. The Finish Line transaction also included a lease of an OTB from Family Racing Venture, L.L.C., an affiliate of Finish Line and Mr. Krantz.
Also in conjunction with the Fair Grounds Race Course acquisition, the Company acquired all of the stock of Video Services, Inc., the owner and operator of more than 700 video poker machines in nine locations, including the Fair Grounds Race Course, from Louisiana Ventures, Inc., Steven M. Rittvo, Ralph Capitelli and T. Carey Wicker III (collectively “Sellers”) for approximately $4 million in cash, pursuant to a Stock Purchase Agreement (the “VSI Agreement”) among the Sellers and Churchill Downs Louisiana Video Poker Company, L.L.C., a wholly owned subsidiary of the Company.
The Fair Grounds Purchase Agreement, the Finish Line Agreement and the VSI Agreement are filed as Exhibits 2.1(a)and 2.1(b), 2.2 and 2.3 to this Current Report on Form 8-K, respectively, and are incorporated by reference herein.
Item 7.01 Regulation FD Disclosure.
On October 15, 2004, the Company issued a press release announcing the acquisition of Fair Grounds Race Course and related transactions. A copy of this press release is attached hereto as Exhibit 99 .1.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
Financial statements will be filed by amendment not later than 71 calendar days after the date on which this initial report on Form 8-K is required to be filed.
(b) Pro forma financial information.
To the extent required by this item, pro forma financial information will be filed by amendment not later than 71 calendar days after the date on which this initial report on Form 8-K is required to be filed.
(c) Exhibits.
| 2.1(a) | Asset Purchase Agreement dated August 31, 2004 among Churchill Downs Incorporated, on behalf of a wholly owned subsidiary to be formed, Fair Grounds Corporation, a Louisiana corporation and debtor-in-possession, and for the sole purpose of the provisions set forth in §11 of the Asset Purchase Agreement, Churchill Downs Incorporated, a Kentucky corporation, incorporated by reference to Exhibit 2.1 to the Company’s Report on Form 8-K/A filed September 2, 2004. |
| 2.1(b) | First Amendment to Asset Purchase Agreement dated as of September 17, 2004 among Churchill Downs Incorporated, on behalf of a wholly owned subsidiary to be formed, Fair Grounds Corporation, a Louisiana corporation and debtor-in-possession, and for the sole purpose of the provisions set forth in Section 5, Churchill Downs Incorporated, a Kentucky corporation, incorporated by reference to Exhibit 2.1 to the Company's Report on Form 8-K filed September 23, 2004. |
| 2.2 | Asset Purchase Agreement dated as of October 14, 2004 by and between Churchill Downs Louisiana Horseracing Company, L.L.C., a Louisiana limited liability company, Finish Line Management Corp., a Louisiana corporation, for the sole purpose of the provisions set forth in §12, Churchill Downs Incorporated, a Kentucky corporation, and for the sole purpose of the provisions set forth in § 2(f) and §6(h), Bryan K. Krantz. |
| 2.3 | Stock Purchase Agreement by and among Churchill Downs Louisiana Video Poker Company, L.L.C., Steven M. Rittvo, Ralph Capitelli, T. Carey Wicker III and Louisiana Ventures, Inc. dated as of the 14th day of October, 2004. |
| 99.1 | Press release dated October 15, 2004 issued by Churchill Downs Incorporated, furnished pursuant to Item 7.01. |
SIGNATURES
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 hereunto duly authorized.
| CHURCHILL DOWNS INCORPORATED | |
| October 20, 2004 | /s/ Michael E. Miller Michael E. Miller Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 14th day of October, 2004, by and between (i) CHURCHILL DOWNS
LOUISIANA HORSERACING COMPANY, L.L.C., a Louisiana limited liability company
("Buyer""), (ii) FINISH LINE MANAGEMENT CORP., a Louisiana corporation
("Seller"), (iii) for the sole purpose of the provisions set forth in ss.12,
CHURCHILL DOWNS INCORPORATED, a Kentucky corporation ("Churchill"), and (iv) for
the sole purpose of the provisions set forth in ss.2(f) and ss.6(h), BRYAN G.
KRANTZ, an individual ("Krantz"). Buyer and Seller are each a "Party" and
collectively, the "Parties."
Recitals
Seller manages five off-track betting facilities for Fair Grounds
Corporation ("Fair Grounds") located in Kenner, Gretna, Houma, Covington and
Slidell, Louisiana (collectively, the "Finish Line OTBs") at which pari-mutuel
wagering and, in some cases, video poker gaming is conducted and, in connection
therewith, Seller is the owner of certain assets associated with such facilities
and operations (all such businesses and activities as are now being conducted by
the Seller are referred to herein collectively as the "Business").
Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, on the terms and conditions set forth in this Agreement, the assets
owned by Seller and/or used or useful in the conduct of the Business.
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, and other good and valuable consideration, the
Parties agree as follows:
1. Definitions.
"ACQUIRED ASSETS" means all of the assets of Seller, other than
the Excluded Assets, INCLUDING all of Seller's (a) Owned Real Property and
Leased Real Property, (b) tangible personal property (such as machinery,
equipment, inventory, furniture, automobiles, trucks, tractors, trailers and
tools), (c) to the extent transferable by Seller, Intellectual Property,
goodwill associated therewith, licenses and sublicenses granted and obtained
with respect thereto (including any trade names or other intellectual property
not owned by Seller but used or useful in the Business), and rights thereunder,
remedies against infringements thereof, and rights to protection of interests
therein under the laws of all jurisdictions, (d) leases, subleases and rights
thereunder, (e) agreements, contracts, indentures, mortgages, instruments,
Liens, guaranties, other similar arrangements, and rights thereunder, (f) notes,
(g) securities (excluding the capital stock in Fair Grounds Corporation), (h)
Cash (subject to ss.2(d) and ss.6(i)), (i) Claims, causes of action, choses in
action, rights of recovery, rights of set off, and rights of recoupment relating
to any Acquired Asset, Assumed Contract or Assumed Liability; (j) accounts
receivable and the proceeds thereof, (k) to the extent transferable by Seller,
all franchises, approvals, permits, licenses, orders, registrations,
certificates, variances, and similar rights obtained from governments and
governmental agencies, (l) to the extent transferable by Seller, any and all
product service records, equipment and parts lists, operating records, operating
manuals, safety manuals and maintenance manuals, engineering design plans,
blueprints and as-built plans,
specifications, architectural plans and drawings, engineering drawings, plats,
environmental compliance and regulatory information, creative materials,
advertising and promotional materials, studies and reports; (m) any and all
prepaid expenses, retainers, customer advances and deposits and security
deposits of Seller relating to the Business and claims for refunds and rights to
offset in respect thereof, (n) Seller's telephone and telecopy numbers,
websites, email addresses and post office boxes, (o) all insurance benefits,
including rights and proceeds, arising from or relating to the Acquired Assets
or the Assumed Liabilities prior to the Closing, (p) any and all goodwill
associated with the Business, (q) any and all business plans and projections,
records of sales, customer lists, supplier lists and vendor lists, used in (or
for the benefit of) the Business, and (r) at Buyer's expense, copies of any and
all employee records, accounting records, accounts, files, correspondence,
credit and sales records, billing records, customer correspondence relating to
the Business, all regulatory filings with the Louisiana State Racing Commission
and/or Louisiana Gaming Control Board (but excluding personal history and
personal financial questionnaires filed by Seller's officers, directors and
shareholders) and other books and records provided or utilized by Seller in
connection with the operation of the Business.
"ASSUMED CONTRACTS" shall mean the written contracts,
agreements, real or personal property leases, commitments, understandings or
instruments which relate to the Business or the Acquired Assets and which are
specifically listed on SCHEDULE 1 attached hereto. Notwithstanding the foregoing
in no event may Assumed Contracts include any contract, agreement, real or
personal property lease, commitment, understanding or instrument included in
Excluded Assets.
"ASSUMED LIABILITIES" means only (a) those liabilities and
obligations of Seller which arise after the Closing Date under the Assumed
Contracts, and (b) those liabilities and obligations which are set forth on
SCHEDULE 2.
"BUSINESS" has the meaning set forth in the recitals above.
"BUSINESS DAY" means a day other than a Saturday, Sunday or
other day on which commercial banks are authorized or required to close under
the laws of the United States or the State of Louisiana.
"BUYER" has the meaning set forth in the preface above.
"CASH" means cash, cash equivalents (including marketable
securities, short term investments, uncollected checks, bank accounts,
certificates of deposit and treasury bills) calculated in accordance with GAAP
applied on a basis consistent with the preparation of Seller's financial
statements.
"CLAIMS" means any action, cause of action, demand, claim,
Proceeding or investigation.
"CLOSING" has the meaning set forth in ss.2(f) below.
"CLOSING DATE" has the meaning set forth in ss.2(f) below.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"DISCLOSURE LETTER" shall mean that certain Disclosure Letter
delivered to Buyer by Seller on or before September 23, 2004, the purpose of
which is to disclose certain matters related to this Agreement and which is
acceptable to Buyer, in its sole discretion.
"ENVIRONMENTAL, HEALTH AND SAFETY REQUIREMENTS" means all Legal
Requirements, including but not limited to federal, state, local and foreign
statutes, regulations, and ordinances concerning health and safety, and
pollution or protection of the environment, including without limitation all
those relating to the presence, use, production, generation, management,
handling, transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, cleanup,
response to or remediation of any hazardous materials, hazardous substances,
hazardous waste, solid waste, petroleum or petroleum products, pollutant,
contaminant or other regulated material or substance.
"ENVIRONMENTAL, HEALTH AND SAFETY LIABILITIES" means any cost,
claims, damages, expense, liability, obligation or other responsibility arising
from under any Environmental, Health and Safety Requirements or any
Environmental Laws.
"ENVIRONMENTAL LAWS" has the meaning set forth in ss.3(q) below.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"EXCLUDED ASSETS" means Seller's (a) corporate charter,
qualifications to conduct business as a foreign corporation, arrangements with
registered agents relating to foreign qualifications, taxpayer and other
identification numbers, seals, minute books, stock transfer books, blank stock
certificates, and other documents relating to the organization, maintenance, and
existence of Seller as a corporation, (b) rights under this Agreement, (c)
non-assignable Permits and (d) those certain Assets set forth on SCHEDULE 3
attached hereto.
"EXCLUDED LIABILITIES" means all liabilities other than Assumed
Liabilities.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
"GOVERNMENTAL ENTITY" means any federal, state, municipal or
local court, legislature, governmental agency, commission or regulatory
authority or instrumentality.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and regulations and rules issued pursuant to that Act.
"INCOME TAX" means any federal, state, local, or foreign income
tax, including any interest, penalty, or addition thereto, whether disputed or
not.
"INTELLECTUAL PROPERTY" means all ideas and tangible expressions
thereof which belong to Seller worldwide and includes without limitation all
patents, patentable inventions,
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trademarks, trade names, service marks, copyrights, copyrightable material,
software, trade secrets and franchises.
"KNOWLEDGE" an individual will be deemed to have "Knowledge" of
a particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonably comprehensive investigation concerning the existence of such fact
or other matter.
Seller will be deemed to have "Knowledge" of a particular fact
or other matter if any living individual who is serving, or who has since 1994
served, as a director, president, vice president, secretary or treasurer of
Seller has, or at any time since January 1, 1995 had, Knowledge of such fact or
other matter.
"LEASED REAL PROPERTY" means all of Seller's leasehold or
subleasehold estates and other rights to use or occupy any land, buildings,
structures, improvements, fixtures or other interest in the real property which
are described on SCHEDULE 4 attached hereto.
"LEGAL REQUIREMENTS" shall mean any federal, state, local,
municipal, foreign, international or other administrative order, constitution,
law, ordinance, common law, regulations, statute or treaty.
"LIENS" means any claim, pledge, option, charge, hypothecation,
easement, security interest, right-of-way, encroachment, mortgage, deed of
trust, covenant, restriction, reservation, agreement of record or other
encumbrance.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA
ss.3(37).
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business consistent with the conduct of Seller's Business since December 31,
2003.
"OWNED REAL PROPERTY" means all of Seller's real property,
together with all buildings, structures, improvements and fixtures located
thereon, and all easements, servitudes and other rights and interests
appurtenant thereto as set forth in Schedule 5 attached hereto.
"PARTY" and "PARTIES" have the meaning set forth in the preface
above.
"PERMITS" shall mean any and all licenses, franchises, permits,
certificates, consents or other authorization or approval granted, given or
otherwise made available by or under the authority of any Governmental Entity or
pursuant to any Legal Requirement.
"PERMITTED ENCUMBRANCE" means: (a) Liens for real estate Taxes
that are not yet due or payable; (b) any laws, regulations or ordinances
(including zoning) adopted or imposed by any Governmental Entity; (c) all
easements, servitudes, rights of way, covenants and restrictions, in each case
of record; (d) as to any lease, any Lien encumbering, attaching to or
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otherwise affecting solely the interest of the lessor thereunder and not the
interest of the lessee thereunder; and (e) any liens, claims, alienations,
encumbrances or other matters listed in schedule B-2 to any title policy
accepted by Buyer at Closing. The Acquired Assets shall only be subject to those
Permitted Encumbrances described in Section (d) of the Disclosure Letter as
required by ss.3(d) of this Agreement.
"PERSON" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted, or heard by or before,
or otherwise involving any Governmental Entity or arbitrator.
"PURCHASE PRICE" has the meaning set forth in ss.2(c) below.
"SELLER" has the meaning set forth in the preface above.
"SUBSIDIARY" means any entity with respect to which a specified
Person (or a Subsidiary thereof) owns or has the power to vote 50% or more of
the equity interests in such entity having general voting power to participate
in the election of the governing body of such entity, including, with respect to
Seller, those entities listed in Section (s) of the Disclosure Letter.
"TAX" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss. 59A),
custom duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, intangible property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other government tax or charge of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THREATENED" shall mean with respect to a claim, Proceeding,
dispute, or other matter that a demand or statement has been made (orally or in
writing) or notice has been given (orally or in writing), or another event has
occurred or other circumstances exist, that would lead a prudent Person to
conclude that such a claim, Proceeding, dispute, or other matter is likely to be
asserted, commenced, taken or otherwise pursued in the future.
"TRANSFER TAXES" shall have the meaning specified in ss.6(e)
below.
"VSI" means Video Services, Inc., a Louisiana corporation.
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"WARN ACT" means the Worker Adjustment and Retraining
Notification Act of 1988, as amended, and any successor or similar state or
local law, and the rules and regulations thereunder and under any successor or
similar state or local law.
2. Basic Transaction.
(a) PURCHASE AND SALE OF ASSETS. On and subject to the
terms and conditions of this Agreement, Buyer agrees to purchase from Seller,
and Seller agrees to sell, assign, transfer, convey and deliver to Buyer, all of
the Acquired Assets at the Closing for the consideration specified below in this
ss.2.
(b) ASSUMPTION OF LIABILITIES. On and subject to the terms
and conditions of this Agreement, Buyer agrees to assume and become responsible
for all of the Assumed Liabilities at the Closing. Buyer will not assume or have
any responsibility, however, with respect to any other obligation or liability
of Seller not included within the definition of Assumed Liabilities.
(c) PURCHASE PRICE. Buyer agrees to pay to Seller an
aggregate amount equal to Two Million Two Hundred Thousand Dollars ($2,200,000)
plus an additional sum of up to Four Million Five Hundred Thousand Dollars
($4,500,000) equal to the balance due on Seller's secured debt obligations to
First Bank and Trust, New Orleans, Louisiana (such aggregate amount, the
"Purchase Price"), adjusted as contemplated by Section 2(d). The Purchase Price
shall be delivered at Closing via wire transfer of immediately available funds
to Seller; provided, however, the amount necessary to pay First Bank and Trust
in order to obtain the release of any Liens affecting any Acquired Assets shall
be paid directly to such bank.
(d) OTHER CLOSING ADJUSTMENTS. Prior to Closing, Seller
shall use its cash only to pay its liabilities incurred in the ordinary course
of business, other than any Claims owed by Seller to Krantz or any person
related directly or indirectly to Krantz. In addition, the following items shall
be prorated as of the Closing Date with Seller being responsible for that
portion of such obligations accruing through the Closing Date and Buyer being
responsible for the portion of such obligations accruing after the Closing Date.
(i) The Purchase Price shall be adjusted at Closing
for real estate taxes and assessments, which shall be prorated as of the
Closing Date on the basis of the latest available rates and valuations
furnished for the Owned Real Property by the taxing authorities.
Further, all water, sewer and other utility bills that are required by
the utility operators to be paid current in order to allow Buyer to open
an account in Buyer's name for such utility shall be prorated as of the
Closing Date.
(ii) Seller shall be responsible for the Transfer
Taxes.
(iii) Seller shall be responsible for the amount of
obligations or liabilities accrued but not yet paid or payable as such
accrual relates to obligations or liabilities relating to Assumed
Contracts through the Closing Date and Buyer shall be responsible for
the obligations or liabilities relating to Assumed Contracts which arise
after the Closing Date.
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(iv) Amounts payable by Seller under subparagraphs
(i), (ii) or (iii) immediately above may be paid by Seller from cash
(prior to the transfer of cash to Buyer) or from the escrow account to
be set up with such cash at or after the Closing. To the extent that
cash is not sufficient to pay the amounts payable by Seller under
subparagraphs (i), (ii) or (iii) immediately above, Buyer may deduct
from the Purchase Price an amount sufficient to pay the unpaid amounts
payable by Seller under subparagraphs (i), (ii) or (iii) immediately
above.
(e) THE CLOSING. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Lemle & Kelleher, L.L.P., 601 Poydras Street, in New Orleans, Louisiana
commencing at 10:00 a.m. local time no later than ten (10) days following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Parties may mutually determine (the "Closing Date")
PROVIDED, HOWEVER, that the Closing Date shall be no later than October 15,
2004.
(f) DELIVERIES AT THE CLOSING. At the Closing, (i) Seller
will deliver to Buyer the various certificates, instruments, and documents
referred to in ss.7(a) below; (ii) Buyer will deliver to Seller the various
certificates, instruments, and documents referred to in ss.7(b) below; (iii)
Seller will execute, acknowledge (if appropriate), and deliver to Buyer, general
warranty deeds, assignments and such other instruments of sale, transfer,
conveyance, and assignment as Buyer and its counsel or the title company
insuring title to the Owned Real Property reasonably may request; (iv) Buyer
will execute, acknowledge (if appropriate), and deliver to Seller an assumption
of Assumed Contracts and such other instruments of assumption as Seller and its
counsel reasonably may request; (v) Buyer will deliver to Seller (and pay to
First Bank and Trust) the consideration specified in ss.2(c) above to be
delivered at Closing, (vi) Krantz will execute and deliver to Buyer the
Consulting Agreement in substantially the form of EXHIBIT B attached hereto;
(vii) Seller and Krantz (for himself and any entities owned or controlled by
him) will execute and deliver, and will cause Vicki Krantz, Family Racing
Venture, LLC, Gentilly Gaming, LLC, Continental Advertising, Inc., F.G. Staffing
Services, Inc., Fair Grounds International Ventures, L.L.C., James Alexander,
Firal Ryder, the Chehardy Law Firm and Fair Grounds Corporation to execute and
deliver, the Releases in substantially the form of EXHIBIT C attached hereto;
(viii) Buyer will execute and deliver, and Seller and Krantz will cause Family
Racing Venture, L.L.C. to execute and deliver, the Lease in substantially the
form of EXHIBIT D attached hereto; (ix) Buyer will deliver to Seller certified
copies of the Board of Directors of Buyer authorizing the transactions
contemplated by this Agreement; and (x) Seller will deliver to Buyer certified
copies of resolutions of the Board of Directors and shareholders of Seller
authorizing the transactions contemplated by this Agreement.
(g) ALLOCATION OF PURCHASE PRICE. Seller and Buyer shall
negotiate in good faith an allocation of the Purchase Price among the Acquired
Assets, consistent with the requirements of the Code and any and all regulations
relating thereto. At the Closing, Buyer and Seller shall agree to an allocation
of the Purchase Price among the Acquired Assets which shall be attached as
EXHIBIT A and shall be binding upon Buyer and Seller for all federal and state
income tax purposes such that Buyer and Seller shall each file their federal and
state income tax
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returns on the basis of such allocation and neither Buyer nor Seller shall take
a tax position inconsistent with such allocation.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents
and warrants to Buyer that the statements contained in this ss.3 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss.3), except as set
forth in the Disclosure Letter. The Disclosure Letter will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this ss.3.
(a) ORGANIZATION OF SELLER. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) AUTHORIZATION OF TRANSACTION. Seller has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of Seller, enforceable
against it in accordance with its terms and conditions.
(c) NONCONTRAVENTION. Except as set forth in Section (c) of
the Disclosure Letter, no filing with, and no permit, authorization, consent or
approval of, any Governmental Entity or other third party is necessary for the
consummation by Seller of the transactions contemplated by this Agreement.
Except as set forth in Section (c) of the Disclosure Letter, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby (including the assignments and assumptions
referred to in ss.2 above), will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which Seller is
subject or any provision of the charter or bylaws of Seller or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which Seller is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Lien upon any of such assets), except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, failure to give
notice, or Lien would not have a material adverse effect on the financial
condition of Seller or on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
(d) TITLE TO PROPERTIES; ENCUMBRANCES; SUFFICIENCY OF
ASSETS.
(i) As of the Closing, Seller shall transfer to Buyer
with full warranty of title and with all other legal warranties (A) good
and valid record and merchantable title to the Owned Real Property or a
good and valid leasehold interest in all of the Leased Real Property,
free and clear of any and all Liens, claims, interests and encumbrances
provided that the Owned Real Property and Leased Real Property may be
subject to the Permitted Encumbrances described in Section (d) of the
Disclosure Letter (the "Real Property Permitted Encumbrances"), and (B)
good and valid merchantable title to all of the Acquired Assets, other
than the Owned Real Property and Leased Real
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Property, free and clear of any and all Liens, claims, interests and
encumbrances, (in the case of Leased Real Property, subject to the terms
and conditions of the leases).
(ii) Except as set forth in Section (d) of the
Disclosure Letter, the Acquired Assets (A) constitute all of the assets,
tangible and intangible, corporeal and incorporeal, of any nature
whatsoever, necessary to operate the Business in the manner presently
operated by Seller, (B) include all of the operating assets of Seller
related to the Business, and (C) to the extent of the accounts
receivable included therein, represent valid obligations arising from
sales or services actually made or performed by Seller in the Ordinary
Course of Business and as of the Closing Date will be current and
collectible subject to no contest, claim, defense or right of setoff by
the account debtor thereunder in any material amount.
(iii) Except as set forth in Section (d) of the
Disclosure Letter, the Owned Real Property and the Leased Real Property
are not subject to any rights of way, building use restrictions,
exceptions, variances, reservations or limitations of any nature except
(x) minor imperfections of title, if any, none of which detracts from
the value or impairs the use of the property subject thereto or impairs
the operation of Seller, (y) zoning laws and other land use restrictions
that do not impair the contemplated use of the property subject thereto,
and (z) the Real Property Permitted Encumbrances. All buildings, plants
and structures owned by Seller lie wholly within the boundaries of the
Owned Real Property, have adequate access to public roads without
crossing the property of a third party and do not encroach upon the
property of, or otherwise conflict with the property rights of, any
third Person, except for the Real Property Permitted Encumbrances.
(iv) Except as set forth in Section (d) of the
Disclosure Letter, the buildings, plants and structures included in the
Acquired Assets are structurally sound and are in reasonable operating
condition and repair for the age of the respective asset (normal wear
and tear excepted) and are adequate for the uses to which they are being
put and none of such buildings, plants or structures is in need of
maintenance or repairs except for ordinary, routine maintenance and
repairs; the buildings, plants, structures and equipment included in the
Acquired Assets are sufficient for the conduct of the Business and are
adequately served by utilities; and the equipment included in the
Acquired Assets is in reasonable operating condition for the age of the
respective asset, (normal wear and tear excepted).
(e) BOOKS AND RECORDS. The books of account and other
financial records, information and data of Seller related to the Business, all
of which have been made available to Buyer, are correct in all material respects
and represent actual, bona fide transactions and have been maintained in
accordance with sound business practices, including the maintenance of an
adequate system of internal controls.
(f) COMPLIANCE WITH LEGAL REQUIREMENTS; PERMITS.
(i) Except as set forth in Section (f)(i) of the
Disclosure Letter: (A) Seller is and has been in compliance in all
material respects with each Legal
9
Requirement and Permit applicable to it or to the conduct of the
Business or the ownership or use of the Acquired Assets; (B) no event
has occurred or circumstance exists that (with or without notice or
lapse of time) (x) may constitute or result in a violation by Seller of,
or a failure on the part of Seller to comply with, any Legal Requirement
or Permit related to the Business in any material respect or (y) may
give rise to any obligation on the part of the Seller to undertake, or
to bear all or any portion of the cost of, any remedial action of any
nature; and (C) Seller has not received any notice or other
communication from any Governmental Entity or any other Person regarding
(x) any actual, alleged, possible or potential violation of, or failure
to comply with, in any material respect, any Legal Requirement or Permit
related to the Business, or (y) any actual, alleged, possible or
potential obligation on the part of Seller to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature.
(ii) Section (f)(ii) of the Disclosure Letter sets
forth all of the material Permits necessary to permit Seller to lawfully
conduct and operate the Business in the manner it currently conducts and
operates the Business and to permit it to own and use its assets in the
manner in which it currently owns and uses such assets. All such Permits
are currently in full force and effect. All applications required to
have been filed for the renewal of the Permits listed or required to be
listed in Section (f)(ii) of the Disclosure Letter have been duly filed
on a timely basis with the appropriate Governmental Entities, and all
other filings required to have been made with respect to such Permits
have been duly made on a timely basis with the appropriate Governmental
Entities.
(g) LEGAL PROCEEDINGS. Except as disclosed in Section (g)
of the Disclosure Letter, there is no pending or to Seller's Knowledge
Threatened Proceeding: (A) that has been commenced by or against Seller related
to the Business or that otherwise relates to or may affect the Business, or any
of the assets owned or used by Seller related to the Business; or (B) that
challenges, or may have the effect of preventing, delaying, making illegal or
interfering with any of the transactions contemplated by this Agreement.
(h) TAXES. Except as disclosed in Section (h) of the
Disclosure Letter:
(i) Seller has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by Seller (whether or not shown on any Tax
Return) have been paid, including any Taxes of any other Person owed by
Seller under Treasury Regulation 1.1502-6 or any similar provision of
state, local or foreign law, or as a successor or transferee, by
contract or otherwise. Seller currently is not the beneficiary of any
extension of time within which to file any Tax Return. No claim has been
made by an authority in a jurisdiction where Seller does not file Tax
Returns that it may be subject to taxation by that jurisdiction. There
are no security interests or liens on any of the assets of Seller that
arose in connection with the failure (or alleged failure) to pay any
Tax.
(ii) Seller has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or other
third party.
10
(i) Employees; Employee Benefit Plans.
(i) Section (i)(i) of the Disclosure Letter sets forth
as of the date hereof, a list of all full and part time employees of
Seller (including contract employees and each employee on leave of
absence or layoff status), showing (A) name, (B) title, (C) summary of
job description, (D) date of hire, (E) whether hourly or salaried
employee, (F) current salary or wage rate, (G) sick and vacation leave
that is accrued but unused, (H) any obligation or understanding with
such employee to make any severance or other payments to such employee
upon termination of his or her employment and (I) a description of any
employment agreement.
(ii) To the Knowledge of Seller, no officer, director,
agent, employee, consultant or contractor of Seller is bound by any
contract, agreement or understanding that purports to limit the ability
of such officer, director, agent, employee, consultant or contractor (A)
to engage in or continue or perform any conduct, activity, duties or
practice relating to the Business or (B) to assign to Seller or to any
other Person any rights to any invention, improvement, or discovery. To
the Knowledge of Seller, no former or current employee of Seller is a
party to, or is otherwise bound by, any contract, agreement or
understanding that in any way adversely affected, affects or will affect
the ability of Seller, or Buyer to conduct the Business as heretofore
carried on by Seller.
(iii) Section (i)(iii) of the Disclosure Letter
contains a complete and accurate list of the following benefit plans
that are maintained or contributed to by the Seller: (i) "employee
pension benefit plans" as defined in Section 3(2) of ERISA ("Pension
Plans"); (ii) "employee welfare benefit plans" as defined in Section
3(1) of ERISA ("Welfare Plans"); and (iii) all other agreements,
commitments, understandings, policies, obligations, arrangements or
practices, whether written or unwritten, ("Other Plans") that (A) are
maintained or contributed to by Seller or any other corporation or trade
or business controlled by, controlling or under common control with
Seller (within the meaning of Section 414 of the Code or Section
4001(a)(14) or 4001(b) of ERISA) (an "ERISA Affiliate"), and (B) provide
benefits, or describe policies or procedures applicable to any current
or former director, officer, employee, agent or service provider of
Seller or any ERISA Affiliate, or the dependents of any thereof. The
Pension Plans, Welfare Plans and Other Plans are referred to
individually and collectively as the "Benefit Plans." The Seller has
delivered to Buyer (1) true, complete and correct copies of each Benefit
Plan (or, in the case of any unwritten Benefit Plan, a description
thereof), (2) the most recent annual report on Form 5500 with respect to
each Benefit Plan, if any such report was required, (3) the most recent
summary plan description for each Benefit Plan for which such summary
plan description is required. Except as set forth in Section (i)(iii) of
the Disclosure Letter the consummation of the transactions contemplated
by this Agreement will not result in the vesting of, acceleration of, or
obligation to pay, any benefit.
(iv) Except as set forth in Section (i)(iv) of the
Disclosure Letter, (A) each Pension Plan that purports to satisfy Code
Section 401(a) is qualified in form and operation under Code Section
401(a), and each trust relating to each such Pension Plan is exempt from
federal income tax under Code Section 501(a), (B) neither
11
Seller nor any ERISA Affiliate sponsors, contributes to, or is required
to contribute to a defined benefit plan as defined in Section 3(35) of
ERISA or to a Multiemployer Plan, (C) there are no facts or
circumstances concerning the Benefit Plans that may give rise to any
liability of Seller, or Buyer under Title IV of ERISA, (D) no event has
occurred or circumstance exists that presents a risk of the occurrence
of any withdrawal from, or the termination, reorganization, or
insolvency of, any Multiemployer Plan that could result in any liability
of Seller to a Multiemployer Plan, and (E) no Employee Benefit Plan
provides retiree health benefits other than group health plan
continuation coverage under Part 6 of Title I of ERISA and Section 4980B
of the Code.
(v) No transaction prohibited by ERISA Section 406 and
no "prohibited transaction" under Section 4975(c) of the Code has
occurred with respect to any Pension Plan. Seller is in compliance with
the continuation coverage provisions of Part 6 of Title I of ERISA and
Section 4980B of the Code.
(vi) The Benefit Plans are in compliance in all
respects with the applicable provisions of ERISA, the Code and all other
Legal Requirements. All reports, returns, notices, descriptions and
similar documents with respect to the Benefit Plans required by ERISA,
the Code or other applicable Legal Requirements to be filed with any
Governmental Entity or distributed to any Benefit Plan participant or
beneficiary have been duly and timely filed or distributed. There are no
investigations by any Governmental Entity or other claims (except claims
for benefits payable in the normal operation of the Benefit Plans), or
suits or proceedings against or involving any Benefit Plan.
(j) LABOR DISPUTES; COMPLIANCE.
(i) Seller has complied in all material respects with
all Legal Requirements relating to employment practices, terms and
conditions of employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective
bargaining and other requirements, the payment of social security and
similar taxes and occupational safety and health. Seller is not liable
for the payment of any taxes, fines, penalties or other amounts, however
designated, for failure to comply with, or a breach of, any of the
foregoing Legal Requirements.
(ii) Except as provided in Section (j)(ii) of the
Disclosure Letter, Seller has not been, and is not now, a party to any
collective bargaining agreement or other labor contract, and since
January 1, 2004, there has not been, there is not presently pending or
existing, and to Seller's Knowledge there is not Threatened, any strike,
slowdown, picketing, work stoppage or employee grievance process
involving Seller. No event has occurred or circumstance exists that
could provide the basis for any work stoppage or other labor dispute,
and there is not pending or, to Seller's Knowledge, Threatened against
or affecting Seller any Proceeding relating to the alleged violation of
any Legal Requirement pertaining to labor relations or employment
matters, including any charge or complaint filed with the National Labor
Relations Board, the Equal Employment Opportunity Commission or any
other Governmental Entity, and there is no organizational activity or
other labor dispute against or affecting Seller or its facilities.
12
(k) Intellectual Property Rights.
(i) Section (k)(i) of the Disclosure Letter contains a
complete and accurate list, to the extent possible, of all Intellectual
Property Rights of Seller, and Seller has delivered to Buyer accurate
and complete copies of all contracts, agreements, licenses or
understandings relating to the Intellectual Property Rights, except for
any license implied by the sale of a product and perpetual, paid-up
licenses for commonly available Software programs with a value of less
than $1,000 per unit or license under which Seller is the licensee.
There are no outstanding and, to Seller's Knowledge, no Threatened
Proceedings, disputes or disagreements with respect to any such
contract, agreement, license or understanding.
(ii) Except as set forth in Section (k)(ii) of the
Disclosure Letter, the Intellectual Property Rights listed in Section
(k)(i) of the Disclosure Letter are all those necessary for the
operation of the Business as it is currently conducted, provided,
however, Seller does not represent that the foregoing are adaptable for
use by Buyer in the Business. Seller is the owner or licensee of all
right, title and interest in and to each of such Intellectual Property
Rights, free and clear of any and all Liens and Encumbrances, and it has
the right to use without payment to a third party all of such
Intellectual Property Rights, other than in respect of licenses listed
in Section (k)(ii) of the Disclosure Letter.
(l) CONTRACTS; NO DEFAULTS.
(i) Section (l)(i) of the Disclosure Letter contains
an accurate and complete list (including the parties to the contracts,
agreements or understandings), and Seller has delivered to Buyer
accurate and complete copies, of all contracts, agreements, leases,
licenses, understandings and arrangements related to the Business, each
written warranty, guaranty and/or other similar undertaking with respect
to contractual performance by Seller related to the Business and each
amendment, supplement and modification (whether oral or written) in
respect of any of the foregoing.
(ii) Except as set forth in Section (l)(ii) of the
Disclosure Letter, each contract, agreement, lease, license,
understanding and arrangement to which Seller is a party is in full
force and effect and is valid and enforceable in accordance with its
terms; and to the Knowledge of Seller, will not upon completion or
performance thereof have a material adverse affect on the Business or
the assets or the business to be conducted by Buyer with the Acquired
Assets.
(iii) Except as set forth in Section (l)(iii) of the
Disclosure Letter, (A) Seller and to the Knowledge of Seller each other
Person that has or had any obligation or liability under any contract,
agreement, lease, license, understanding and arrangement to which Seller
is a party, is and has been in compliance in all material respects with
all applicable terms and requirements thereof and there are no
renegotiations, attempts to renegotiate or outstanding rights to
renegotiate any of the same; (B) no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene,
conflict with or result in a breach of, or give Seller or
13
other Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or payment
under, or to cancel, terminate or modify, any of the same; (C) no event
has occurred or circumstance exists under or by virtue of any of the
same that (with or without notice or lapse of time) would cause the
creation of any Liens affecting any of the Acquired Assets; and (D)
Seller has not given to or received from any other Person any notice or
other communication (whether oral or written) regarding any actual,
alleged, possible or potential violation or breach of, or default under,
any such contract, agreement, lease, license, understanding and
arrangement.
(m) INSURANCE.
(i) Section (m) of the Disclosure Letter lists all
insurance policies of Seller relating to the Business, the Acquired
Assets and employees of Seller engaged in the Business prior to the
Closing Date. All such insurance policies (A) are outstanding and
enforceable, (B) are issued by one or more financially sound and
reputable insurers, (C) taken together, provide adequate insurance
coverage for the Acquired Assets, the Business and the operations of
Seller until the Closing Date, and (D) are sufficient for compliance
with all Legal Requirements and any contract, agreement, lease, license,
understanding and arrangement included in the Acquired Assets to which
Seller is a party. Except as set forth in Section (m) of the Disclosure
Letter, Seller has paid all premiums due, and has otherwise performed
all of their obligations, under each such insurance policy, and Seller
has given notice to the applicable insurer of all claims that may be
insured thereby.
(ii) Seller has not received (A) any refusal of
coverage or any notice that a defense will be afforded with reservation
of rights, or (B) any notice of cancellation or any other indication
that any policy of insurance is no longer in full force or effect or
that the issuer of any policy of insurance is not willing or able to
perform its obligations thereunder.
(n) RELATED PARTY TRANSACTIONS. Except as set forth in
Section (n) of the Disclosure Letter, to Seller's Knowledge, no employee,
director or officer of Seller or any shareholder of Seller or member of the
immediate family of any of the same has any direct or indirect ownership
interest in any firm or corporation with which Seller is affiliated or with
which Seller has a business relationship, or any firm or corporation that
competes with Seller, except that employees, officers or directors of Seller and
shareholders of Seller and members of their immediate families may own stock in
publicly traded companies that may compete with Seller. Except as set forth in
Section (n) of the Disclosure Letter, no member of the immediate family of any
officer or director of Seller or of a shareholder of Seller is directly or
indirectly interested in any contract, agreement, lease, license, understanding
and arrangement to which Seller is a party.
(o) FINANCIAL STATEMENTS. Seller has delivered to Buyer:
(i) an audited balance sheet of Seller at and as of December 31, 2003, including
the notes thereto, and the related audited statements of income, changes in
shareholders' equity and cash flows for the fiscal year then ended, including in
each case the notes thereto, and (ii) an unaudited balance sheet of Seller at
and as of June 30, 2004 and the related unaudited statements of income,
14
changes in shareholders' equity, and cash flows for the six (6) months then
ended, including in the case of the audited financial statements the notes
thereto as qualified by the Report of the Independent Auditor contained therein.
Such financial statements (the "Financial Statements") fairly present the
financial condition and the results of operations, changes in shareholders'
equity and cash flows of Seller in all material respects at and as of the
respective dates and for the periods referred to in such Financial Statements,
all in accordance with GAAP, except with respect to the unaudited balance sheet
and unaudited statements of income, changes in shareholders' equity, and cash
flows, the absence of footnotes and normal recurring year-end adjustments.
Further, Seller shall deliver to Buyer all monthly operating statements for the
Business from the date of this Agreement through and until the Closing. Since
June 30, 2004, there has not been any material adverse change in the Business,
prospects, operations, properties, assets or condition of Seller, other than
ordinary seasonal variations in the Business.
(p) ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to
the extent reflected or specifically reserved against on the unaudited balance
sheet of Seller at and as of June 30, 2004 or as set forth in Section (p) of the
Disclosure Letter, Seller has no liabilities or obligations (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due,
whether known or unknown, and regardless of when asserted) arising out of
transactions or events heretofore entered into, or any action or inaction, or
state of facts existing, with respect to or based upon transactions or events
heretofore occurring, except liabilities which have arisen after June 30, 2004
in the Ordinary Course of Business (none of which is a liability for breach of
contract, breach of warranty, violation of Legal Requirements, tort,
infringement, claim or lawsuit).
(q) ENVIRONMENTAL MATTERS. Except as set forth in Section
(q) of the Disclosure Letter, (i) Seller and the Owned Properties and Leased
Properties are in compliance with all environmental Permits and with all
Environmental, Health and Safety Requirements and with all other applicable
federal, state and local laws and regulations in effect on the date hereof
relating to pollution or the environment, including, but not limited to the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et
seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 42
U.S.C. Section 7401 et seq., and all other laws and regulations relating to
emissions, spills, leaks, discharges, releases or threatened releases of any
"hazardous substance," "solid waste" or "hazardous waste," as defined therein,
as well as relating to any other regulated substance or material, pollutant,
contaminant, petroleum and petroleum products, natural gas or synthetic gas,
special nuclear or by-product material, as defined by the Atomic Energy Act of
1954, 42 U.S.C. Section 3011 et seq., and the regulations promulgated thereto
and "hazardous chemicals", as defined in 29 C.F.R. Part 1910 or otherwise
relating to the manufacture, possession, distribution, use, treatment, storage,
disposal, transport or handling of such material (such laws and regulations
being hereinafter referred to as "Environmental Laws"); and (ii) Seller has not
been charged with, convicted of, or to Seller's Knowledge, investigated for any
violation, or is in violation of any Environmental Laws by any Governmental
Entity with respect to the Acquired Assets or the Business. There are no
Environmental, Health and Safety Liabilities and no environmental condition
exists on any portion of the Acquired Assets that would likely give rise to any
Environmental, Health and Safety Liabilities or a material claim that Seller is
in violation of any Environmental Laws.
15
(r) [reserved]
(s) SUBSIDIARIES. Seller does not have any ownership
interest in any other corporation, partnership, joint venture or other entity
except the ownership of common stock of Fair Grounds Corporation. Seller does
not control directly or indirectly nor have any direct or indirect equity
participation in any corporation, partnership, trust, or other business
association other than Fair Grounds Corporation; provided, however, this
representation shall not apply to any other legal entity owned by Krantz. The
Parties acknowledge that all representations and warranties as to Fair Grounds
Corporation and/or any Subsidiaries of Fair Grounds Corporation have been
separately addressed in that certain asset purchase agreement by and between
Churchill and Fair Grounds Corporation, dated as of August 31, 2004, and as
subsequently amended, and that no representations and warranties are made by
Seller as to Fair Grounds Corporation and/or any Subsidiaries of Fair Grounds
Corporation, except as set forth in the first two sentences of this ss.3(s).
(t) [reserved]
(u) DISCLOSURE. No representation or warranty of Seller in
this Agreement and no statement contained in any certificate or other instrument
furnished or to be furnished to Buyer hereunder contains or will contain any
untrue statement of material fact or omits or will omit to state any material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading. Promptly after becoming
aware of the same, Seller shall supplement or amend the Disclosure Letter with
respect to any matter arising after the effective date of the Disclosure Letter
which, if existing, occurring or known by it at the effective date of the
Disclosure Letter would have been required to be set forth or described in the
Disclosure Letter and shall provide prompt written notice to Buyer regarding the
same. In the event Seller makes such a supplemental disclosure, Buyer shall be
entitled to review the facts pertaining thereto and may terminate this Agreement
by so notifying Seller within ten (10) Business Days after receipt of such
supplemental disclosure.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller that the statements contained in this ss.4 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss.4).
(a) ORGANIZATION OF BUYER. Buyer is a limited liability
company, validly existing, and in good standing under the laws of the State of
Louisiana.
(b) AUTHORIZATION OF TRANSACTION. Buyer has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of Buyer, enforceable in accordance with its terms and conditions.
(c) NONCONTRAVENTION. No filing with, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the consummation by Buyer of the transactions contemplated by this Agreement.
Except as shall be cured or resolved by, or not exist as of, the Closing,
neither the execution and the delivery of this Agreement, nor the
16
consummation of the transactions contemplated hereby by Buyer (including the
assignments and assumptions referred to in ss.2 above), will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Buyer or Churchill is subject or any provision of its charter or
bylaws or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which Buyer is a
party or by which it is bound or to which any of its assets is subject.
(d) BUYER'S FINANCIAL STANDING. Buyer has the financial
resources necessary to consummate the transactions contemplated by this
Agreement.
5. PRE-CLOSING COVENANTS. The Parties agree as follows with
respect to the period between the date hereof and the Closing.
(a) GENERAL. Each of the Parties will use its reasonable
best efforts to take all action and to do all things necessary in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
ss.7 below).
(b) NOTICES AND CONSENTS. Each of the Parties will (and
Buyer will cause Churchill to) give any notices to, make any filings with, and
use its reasonable best efforts to obtain any authorizations, consents, and
approvals of governments and governmental agencies in connection with the
matters referred to in ss.3(c) and ss.4(c) above.
(c) OPERATION OF BUSINESS. Seller shall not engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business or as required to perform the obligations set forth in this
Agreement. Seller shall from the date hereof through and until the Closing, use
commercially reasonable efforts to maintain and preserve the condition, value
and goodwill of the Business and the Acquired Assets. Prior to the Closing,
Seller shall use its cash only to pay its liabilities incurred in the ordinary
course of business, other than any Claims owed by Seller to Krantz or any person
related directly or indirectly to Krantz.
(d) FULL ACCESS. Seller will (i) permit representatives of
Buyer to have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of Seller, to the Acquired Assets
and all books, records (including tax records), contracts, and documents of or
pertaining to Seller. Seller will promptly furnish Buyer with such financial and
operating data and other information with respect to the Business and the
Acquired Assets as Buyer may from time to time reasonably request. For purposes
of this Agreement, Buyer will treat and hold as such any confidential
information it receives from Seller in the course of the reviews contemplated by
this ss.5(d) (except any disclosure required by law or order of court or other
governmental agency, or the rules and regulations of the Securities and Exchange
Commission or the Nasdaq Stock Market), will not use any of the confidential
information except in connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, will return to Seller all tangible
embodiments (and all copies) of the
17
confidential information which are in its possession. Notwithstanding anything
to the contrary contained in this Section 5(d), in no event shall Seller be
required to provide (i) materials that would result in a waiver of the attorney
client privilege with respect to any Proceedings to which Seller is a party,
(ii) any attorney work product, or (iii) materials that are subject to
confidentiality agreements with third parties unless Buyer first obtains the
consent of such third parties to the disclosure of said materials.
(e) NOTICE OF DEVELOPMENTS. Each Party will give prompt
written notice to the other Party of any material adverse development causing a
breach of any of its own representations and warranties. No disclosure by any
Party pursuant to this ss.5(e), however, shall be deemed to amend or supplement
the Disclosure Letter or to prevent or cure any misrepresentation or breach of
warranty except as provided in ss.3(u).
(f) MATTERS RELATED TO THE CONDUCT OF BUSINESS. Seller will
not sell, assign, mortgage or encumber any of the Acquired Assets, incur any
indebtedness, or enter into executory contracts or leases of real property or of
personal property other than in the Ordinary Course of Business.
6. ADDITIONAL COVENANTS.
(a) EMPLOYEES. Buyer agrees that prior to the Closing it
shall offer jobs to a sufficient number of current full-time employees of Seller
so as not to trigger any WARN Act liabilities in respect of Seller. Nothing
herein shall obligate Buyer to employ any of Seller's employees for any
particular length of time following the Closing. Seller shall, effective as of
the Closing, terminate all of its employees.
(b) FURTHER ASSURANCES. Subject to the terms and conditions
of this Agreement, each of the parties hereto shall (and Buyer shall cause
Churchill to) use commercially reasonable efforts to take, or cause to be taken,
all action, and to do, or cause to be done, all things reasonably necessary,
proper or advisable under applicable laws and regulations to consummate and make
effective the sale of the Acquired Assets in accordance with this Agreement,
including using commercially reasonable efforts to ensure timely satisfaction of
the conditions precedent to each party's obligations hereunder. Neither Seller,
on the one hand, nor Buyer, on the other hand, shall, without the prior written
consent of the other party, take any action which would reasonably be expected
to prevent or materially impede, interfere with or delay the transactions
contemplated by this Agreement. From time to time on or after the Closing Date,
Seller shall, at its own expense, execute and deliver such documents to Buyer as
Buyer may reasonably request in order to more effectively vest in Buyer Seller's
title to the Acquired Assets. From time to time after the date hereof, Buyer
shall, at its own expense, execute and deliver such documents to Seller as
Seller may reasonably request in order to more effectively consummate the sale
of the Acquired Assets and the assumption and assignment of the Assumed
Liabilities and the Assumed Contracts in accordance with this Agreement. Neither
the foregoing nor any other provision of this Agreement shall in any way impact
or alter, or impose any standard of review upon, or be deemed to do any of the
same, with respect to any determination or decision to be made by Buyer in its
sole discretion with respect to the conditions set forth in Section 7(a) hereof
as expressly set forth therein.
18
(c) TRANSFER TAXES. All excise, sales, use, transfer, value
added, registration, stamp, recording, documentary, conveyance, franchise,
transfer, gains and similar taxes, levies, charges and recording, filing and
other fees (collectively, "Transfer Taxes") incurred in connection with the
transactions contemplated by this Agreement, if any, shall be paid by Seller.
Seller shall, at its own expense, timely pay and file all necessary tax returns
and other documentation with respect to all such Transfer Taxes and, if required
by applicable law, Buyer shall join in the execution of any tax returns and
other documentation at Seller's request.
(d) NAME CHANGE. Seller agrees that at the Closing, or as
soon as practicable thereafter (but in no event later than one (1) Business Day
after the Closing Date), Seller will change its name and will not use the
corporate names "Finish Line" or "Finish Line Management Corp." or any name
similar thereto in any business activity.
(e) DUE DILIGENCE RESPONSES. Seller shall promptly respond
in writing to the due diligence requests or inquiries made in writing by Buyer
or its representatives.
(f) BUSINESS MONITORING. On and after the date hereof until
the Closing, Seller shall permit Buyer to have not more than four (4) executive
personnel on site at the Owned Real Property (in suitable office space) or at
the Leased Real Property. Such executive personnel shall be permitted to inspect
the premises and monitor its operations and the operations of the Business to
assure that the Business is being operated in the Ordinary Course of Business.
Seller shall cooperate in good faith with Buyer and use its best efforts to
prevent the occurrence of any acts outside the Ordinary Course of Business which
could be adverse to Buyer's operation of the Business after the Closing.
(g) RECEIVABLE AND CLAIMS. Upon acquiring the receivables
owed by Seller to Fair Grounds Corporation, Buyer agrees to forgive up to a
maximum amount of $4,500,000 of such receivables. Upon acquiring any claim by
Seller against Fair Grounds Corporation, Buyer shall and hereby waives any such
claim against Fair Grounds Corporation. Upon acquiring any other claim by Fair
Grounds Corporation against Seller, Buyer shall and hereby waives any such claim
against Seller.
(h) COVENANT NOT TO COMPETE. For any reason, without the
express written approval of Buyer, Seller and Krantz shall not, during the term
of the Consulting Agreement attached as EXHIBIT B hereto (the "Term"), and for a
period of one (1) year after the expiration of the Term, carry on or engage in
the business of conducting live horse racing meets and to accept parimutuel
wagers thereon at the race track commonly known as Fair Grounds Race Course (the
"Racetrack"), operate slot machines at the Racetrack and accept parimutuel
wagers and operate video lottery poker at the off-track wagering facilities and
any business ancillary to the foregoing operations in Louisiana parishes of
Orleans, Jefferson, Lafourche, St. Bernard, St. Charles, St. John the Baptist,
St. Tammany, and Terrebonne. Pursuant to this obligation, Seller and Krantz
shall not directly or indirectly own, operate, manage, control or participate in
the ownership, management, operation or control, or be paid or employed by, or
otherwise become associated with, affiliated with or provide assistance to,
whether as an employee, consultant, independent contractor, director, officer,
shareholder, partner, agent, associate, principal, representative or in any
other capacity, any business entity that directly or indirectly competes with
Buyer or Churchill; provided, however, that Krantz: (1) may invest in
19
stocks, bonds, or other securities of any corporation or other entity (but
without participating in the business thereof) if such stocks, bonds, or other
securities are listed for trading on a national stock exchange and Krantz's
investment does not exceed 5% of the issued and outstanding shares of capital
stock, or in the case of bonds or other securities, 5% of the aggregate
principal amount thereof issued and outstanding; (2) shall be permitted to
directly or indirectly (i) own, operate, manage, control, develop or participate
in the ownership, management, operation, control, or development of a hotel,
restaurants and bars (with gaming as allowed under the law currently in effect
in Louisiana) and (ii) pursue the potential relocation of the Treasure Chest
riverboat casino owned by Boyd Gaming Corporation or the potential relocation of
another existing riverboat casino (and collect rents therefrom howsoever based),
but, with respect to both (i) and (ii), only at and to property currently owned
directly or indirectly, in whole or in part by Krantz (collectively, the
"Gabriel Entities") and commonly known as the Gabriel real estate development
(the "Gabriel Development") (provided, however, that no off-track betting
facility (as defined by statute) or truck stop may be located on the Gabriel
Development during the period of time contemplated by this Section 6(h)); and
(3) shall be permitted to operate and/or manage third party video poker
facilities which are located a minimum of two (2) miles from any OTB owned by
Buyer or Churchill. For purposes hereof, the term "Gabriel Development" shall
mean the property which is generally bounded on the west by apartments, on the
south by Joe Yenni Boulevard, on the east by the Duncan Street drainage canal
and the property of the 4th Jefferson Drainage District, and on the north by the
farthest extent of the shoreline, riparian and/or waterbottom rights to which
the Gabriel Entities are or may be entitled and shall include all riparian and
waterbottom rights as now or hereafter may exist.
If the agreements set forth in this ss.6(h) would otherwise
be determined to be invalid or unenforceable by a court of competent
jurisdiction, the parties intend and agree that such court shall exercise its
discretion in reforming such agreements to the end that Seller and Krantz shall
be subject to a covenant not to compete with Buyer which is reasonable under the
circumstances and enforceable by Buyer. It is agreed that no adequate remedy at
law exists for Buyer for violation of such agreements, and these agreements may
be enforced by any equitable remedy, including specific performance and
injunction, without limiting the right of Buyer to proceed at law to obtain such
relief as may be available to it.
(i) APPLICATION OF CASH. From and after the Closing, Seller
shall deposit any cash on hand of Seller in an escrow account approved by Buyer
to be used to pay the pre-Closing ordinary trade expenses of Seller with the
balance of such account, if any, paid to Buyer within ninety (90) days after
Closing.
(j) As of the Closing, Seller's Board of Directors shall
have adopted a resolution providing for (i) termination of Selle's 401k Profit
Sharing Plan (the "Plan") effective as of the Closing Date; (ii) authorizing and
directing Seller's officers to implement the termination, including filing, as
soon as administratively feasible, an application with the Internal Revenue
Service for a determination that termination of the Plan does not adversely
affect the Plan's qualification for federal tax purposes; and (iii) amendment of
applicable Plan documents to provide that transfer of employment to Buyer shall
not be treated as an event of default under any loan from the Plan to a Plan
participant.
20
7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF BUYER. The obligation of
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the transactions under that certain Asset Purchase
Agreement entered into as of August 31, 2004, as amended by a First
Amendment dated as of September 17, 2004, to which Buyer's affiliate is
a party concerning Fair Grounds Corporation shall have closed;
(ii) each of the consents identified in Sections 3(c)
and 4(c) shall have been obtained from the Governmental Entities and
other third parties, as applicable, on terms and conditions satisfactory
to Buyer, in its sole discretion, and shall be in full force and effect;
(iii) Buyer shall have received and approved a survey
acceptable to Buyer of the Owned Real Property and said survey shall
disclose, among other things, (a) that there are no gaps contained
within the Owned Real Property and (b) that there are no unrecorded
easements, servitudes, discrepancies, or conflicts in boundary lines,
shortages in areas or encroachments. Buyer shall have received and
approved a title commitment and form of title insurance policy
acceptable to Buyer (those matters disclosed in the title commitment and
title insurance policy which are Permitted Encumbrances described in
Section (d) of the Disclosure Letter previously accepted by Buyer shall
be deemed acceptable) issued by a reputable title insurance company for
a title insurance policy (which title insurance policy shall contain an
"extended coverage endorsement," a "zoning endorsement," and such other
endorsements as are customary and reasonable) insuring title to the
Owned Real Property in the amount of the Purchase Price allocated to the
Owned Real Property, covering the Owned Real Property, naming Buyer as
the proposed insured and having an effective date after the date of this
Agreement;
(iv) there shall not be any injunction, judgment,
order, decree or ruling in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(v) on or before the Closing Date, there shall not
have occurred any material destruction or significant physical change to
the Acquired Assets of Seller taken as a whole, whether or not insured
(Seller shall be obligated to give Buyer notice of any of the same as
soon as possible after the occurrence thereof);
(vi) the representations and warranties of Seller
contained in ss.3 shall be true and correct in all material respects as
of the Closing with the same effect as though such representations and
warranties had been made on and as of that date;
(vii) Seller shall have performed and complied with
all of its covenants hereunder in all material respects through the
Closing; and
21
(viii) Seller shall have delivered to Buyer a
certificate to the effect that each of the conditions specified above in
ss.7(a)(vi) and (vii) is satisfied in all respects.
Buyer may waive any condition specified in this ss.7(a) if it executes a writing
so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF SELLER. The obligation of
Seller to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the transactions under that certain Asset Purchase
Agreement entered into August 31, 2004, as amended by a First Amendment
dated as of September 17, 2004, to which Buyer's affiliate is a party
concerning Fair Grounds Corporation shall have closed;
(ii) there shall not be any injunction, judgment,
order, decree or ruling in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iii) the representations and warranties of Buyer
contained in ss.4 shall be true and correct in all material respects as
of the Closing with the same effect as though such representations and
warranties had been made on and as of that date;
(iv) Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing;
and
(v) Buyer shall have delivered to Seller a certificate
to the effect that each of the conditions specified above in
ss.7(b)(iii) and (iv) is satisfied in all respects.
Seller may waive any condition specified in this ss.7(b) if Seller executes a
writing so stating at or prior to the Closing.
8. TERMINATION.
(a) PERMITTED TERMINATION.
(i) This Agreement may, prior to or at the Closing, be
terminated by written consent of Seller and Buyer.
(ii) If any of the conditions set forth in ss.7(a)(i)
or ss.7(b)(i) have not been met on or before October 15, 2004, this
Agreement will automatically terminate without further action by either
Buyer or Seller unless otherwise agreed by Buyer and Seller.
22
(iii) If the conditions set forth in ss.7(a)(ii),
(iii), (iv), or (v) have not been met on or prior to October 15, 2004,
Buyer may terminate this Agreement by written notice to Seller.
(iv) If the condition set forth in ss.7(b)(ii) has not
been met on or prior to October 15, 2004, Seller may terminate this
Agreement by written notice to Buyer.
(v) If the Closing has not occurred on or before
October 15, 2004, unless extended by agreement of the parties, this
Agreement shall terminate, but subject to and without affecting in any
way any rights or claims any party to this Agreement may have against
any other party to this Agreement for breach of this Agreement,
including any claim for the remedy of specific performance and
injunction for breach of this Agreement.
(b) TERMINATION UPON DEFAULT.
(i) If the conditions set forth in ss.7(a)(vi), (vii)
or (viii) are not met on or before the Closing, Buyer may terminate this
Agreement by written notice to Seller. It is agreed that Buyer has no
adequate remedy at law for breach of this Agreement by Seller, and Buyer
may pursue any and all remedies, at law or in equity, for such breach,
including specific performance and injunction.
(ii) If the conditions set forth in ss.7(b)(iii), (iv)
or (v) are not met on or before the Closing, then Seller may terminate
this Agreement by written notice to Buyer.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Parties contained in this Agreement shall
survive the Closing for a period of two (2) years; provided, however, the
representations and warranties in ss.3(h), ss.3(i) and ss.3(q) shall survive the
Closing without any time limit. The representations and warranties shall be
unaffected by any investigation made by any party hereto.
10. INDEMNIFICATION.
(a) BY SELLER. Seller shall indemnify and hold harmless
Buyer from and against any damage, deficiency, loss, action, judgment, cost and
expense (including reasonable attorneys' fees to the extent permitted by law)
(collectively, "Buyer's Losses") arising out of or resulting from (i) any breach
by Seller of any representation, warranty, covenant or other provision of this
Agreement, and (ii) any liabilities or obligations of Seller which are not
Assumed Liabilities.
(b) BY BUYER. Buyer shall indemnify and hold harmless
Seller from and against any damage, deficiency, loss, action, judgment, cost and
expense (including reasonable attorneys' fees to the extent permitted by law)
(collectively, "Seller's Losses") arising out of or resulting from (i) any
breach by Buyer of any representation, warranty, covenant or other provision of
this Agreement, and (ii) the Assumed Liabilities.
23
(c) LIMITATIONS ON AMOUNT-SELLER. Seller will have no
liability for indemnification with respect to matters described in ss.10(a)(i)
for breach of a representation or warranty until the total Buyer Losses with
respect to all such matters exceeds $100,000, at which point Seller will be
liable for all Buyer Losses exceeding the first $25,000, but in any event
subject to a maximum of the Purchase Price for all such claims. However, this
ss.10(c) will not apply to any breach of a representation and warranty of which
Seller had Knowledge at any time prior to the date on which such representation
and warranty is made.
(d) LIMITATIONS ON AMOUNT-BUYER. Buyer will have no
liability for indemnification with respect to matters described in ss.10(b)(i)
for a breach of a representation or warranty until the total Seller Losses with
respect to all such matters exceeds $100,000, at which point Buyer will be
liable for all Seller Losses exceeding the first $25,000, but in any event
subject to a maximum of the Purchase Price for all such claims. However, this
ss.10(d) will not apply to any breach of a representation and warranty of which
Buyer had Knowledge at any time prior to the date on which such representation
and warranty is made.
11. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written approval
of the other Party; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Party prior to making the disclosure).
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the
exhibits, schedules and Disclosure Letter referred to herein) constitutes the
entire agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to
the extent they related in any way to the subject matter hereof.
(d) SUCCESSIONS AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without the
prior written approval of the other Party; provided that the Buyer may assign
all or part of its rights and obligations with respect to the Acquired Assets
and the Assumed Liabilities to one or more of its affiliates ("affiliate" being
any entity in which Buyer or Churchill owns a majority of the equity interests
and/or over which either has decisional control).
(e) RISK OF LOSS. Seller shall bear all risk of loss with
respect to the Acquired Assets prior to the Closing Date. Seller agrees to
continue to carry or cause to be
24
carried to the Closing Date the insurance coverage which is presently carried
relating to the Acquired Assets as set forth on Section (m) of the Disclosure
Letter.
(f) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Seller: Finish Line Management Corp.
c/o Bryan G. Krantz
85 Chateau Latour
Kenner, Louisiana 70065
Copy to: David R. Sherman
Chehardy, Sherman, Ellis, Breslin, Murray, Recile
& Griffith, LLP
P.O. Box 931 Metaire,
Louisiana 70004-0931
Facsimile: (504)833-8080
If to Buyer: Churchill Downs Louisiana Horseracing
Company, L.L.C.
c/o Churchill Downs Incorporated
700 Central Avenue
Louisville, Kentucky 40208
Attn: Rebecca C. Reed
Facsimile: (502) 636-4439
Copy to: Wyatt, Tarrant & Combs, LLP
500 West Jefferson Street, Suite 2800
Louisville, Kentucky 40202
Attn: Robert A. Heath
Facsimile: (502) 589-0309
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above, using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, ordinary mail, or electronic mail), but no such notice, request,
demand, claim, or other communication shall be deemed to have been
25
duly given unless and until it actually is received by the intended recipient.
Any Party may change the address to which notices, requests, demands, claims,
and other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Louisiana without
giving effect (to the extent permitted by law) to any choice or conflict of law
provision or rule (whether of the State of Louisiana or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Louisiana.
(j) AMENDMENTS AND WAIVER. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Buyer and Seller. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) EXPENSES. Each of Buyer and Seller, will bear its own
costs and expenses (including fees and expenses of attorneys, accountants,
finders, financial advisors and other professionals) incurred in connection with
this Agreement and the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(m) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits
and Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
12. CHURCHILL COVENANT. Churchill intervenes into this
Agreement, and does hereby jointly, severally and solidarily irrevocably
obligate itself unconditionally with Buyer to the performance of all of the
obligations of Buyer under this Agreement. Churchill's obligations under this
Agreement shall terminate to the extent that Buyer's obligations under this
Agreement terminate.
* * * *
26
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
"BUYER"
CHURCHILL DOWNS LOUISIANA HORSE
RACING COMPANY, L.L.C.
By:/s/ RANDALL E. SOTH
Name: RANDALL E. SOTH
Title: PRESIDENT
"SELLER"
FINISH LINE MANAGEMENT CORP.
By:/s/ BRYAN G. KRANTZ
Name: BRYAN G. KRANTZ
Title: PRESIDENT
27
"CHURCHILL""
CHURCHILL DOWNS INCORPORATED
By:/s/ M. E. MILLER
Name: /s/ M.E. MILLER
Title: EVP/CFO
"KRANTZ"
/s/ BRYAN G. KRANTZ
BRYAN G. KRANTZ
28
Exhibits and schedules to the Asset Purchase Agreement have been intentionally
omitted because they are not material. The registrant agrees to furnish such
omitted exhibits and schedules supplementally to the Commission upon request.
EXHIBIT 2.3
EXECUTION COPY
STOCK PURCHASE AGREEMENT
By and Between
CHURCHILL DOWNS LOUISIANA VIDEO POKER COMPANY, L.L.C.
(Purchaser)
And
STEVEN M. RITTVO
RALPH CAPITELLI
T. CAREY WICKER III
And
LOUISIANA VENTURES, INC.
(Sellers)
Dated as of October 14, 2004
EXECUTION COPY
TABLE OF CONTENTS
PAGE
RECITALS....................................................................1
DEFINITIONS.................................................................1
ARTICLE 1 SALE AND PURCHASE OF SHARES; CLOSING..............................4
Section 1.01 Sale of Stock.................................................4
Section 1.02 Purchase Price................................................4
Section 1.03 Reimbursements................................................4
Section 1.04 Closing.......................................................4
Section 1.05 Payment and Closing Deliveries................................5
Section 1.06 Dividends Prior To Closing....................................6
Section 1.07 Right to Revenues; Risk of Loss...............................7
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLERS.........................7
Section 2.01 Ownership.....................................................7
Section 2.02 Authority; Enforceability.....................................7
Section 2.03 Organization; Authority.......................................8
Section 2.04 Subsidiaries..................................................8
Section 2.05 Capital Stock.................................................8
Section 2.06 Title to Stock, Liens, Etc....................................9
Section 2.07 Consents and Approvals; Conflicts.............................9
Section 2.08 Financial Statements..........................................9
Section 2.09 Absence of Certain Changes....................................9
Section 2.10 Legal Proceedings; Etc........................................10
Section 2.11 Permits; Compliance With Laws.................................10
Section 2.12 Title to Property; Condition of Property;
Real Property Leases, Etc.....................................11
Section 2.13 Environmental Matters.........................................12
Section 2.14 Insurance.....................................................12
Section 2.15 Contracts.....................................................13
Section 2.16 Employees.....................................................14
Section 2.17 Employee Benefit Plans........................................14
Section 2.18 Labor Relations...............................................16
Section 2.19 Potential Conflicts of Interest...............................17
Section 2.20 Patents, Trademarks, Etc......................................17
Section 2.21 Accounts Receivable...........................................17
Section 2.22 Taxes.........................................................17
Section 2.23 Indebtedness..................................................19
Section 2.24 Officers and Directors, Bank Accounts,
Signing Authority, Powers of Attorney.........................19
Section 2.25 Minute Books, Etc.............................................19
Section 2.26 Broker........................................................20
Section 2.27 Accuracy of Representations and Warranties....................20
i
EXECUTION COPY
Section 2.28 Effectiveness of Representations and Warranties...............20
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................20
Section 3.01 Organization of Purchaser.....................................20
Section 3.02 Authority; Enforceability.....................................20
Section 3.03 Consents and Approvals; Conflicts.............................20
Section 3.04 Investment Representation.....................................21
Section 3.05 No Representations and Warranties; Conduct of Due Diligence...21
Section 3.06 Brokerage Fees................................................21
Section 3.07 Securities Act Representations................................21
Section 3.08 Effectiveness of Representations and Warranties...............22
ARTICLE 4 PRE-CLOSING COVENANTS.............................................22
Section 4.01 Legal Requirements............................................22
Section 4.02 Access To Properties and Records..............................22
Section 4.03 Conduct of Business...........................................22
Section 4.04 Public Statements.............................................24
ARTICLE 5 CLOSING CONDITIONS................................................24
Section 5.01 Conditions Applicable To All Parties..........................24
Section 5.02 Conditions To Obligations of Purchaser........................24
Section 5.03 Conditions to Obligations of Sellers..........................26
ARTICLE 6 POST-CLOSING COVENANTS............................................27
Section 6.01 General.......................................................27
Section 6.02 Employee Retention............................................27
Section 6.03 Non-competition...............................................28
Section 6.04 Alliance Gaming Corporation 401K Profit Sharing Plan..........30
ARTICLE 7 TERMINATION AND AMENDMENT.........................................30
Section 7.01 Termination...................................................30
Section 7.02 Effect of Termination.........................................30
Section 7.03 Amendment.....................................................31
Section 7.04 Extension; Waiver.............................................31
ARTICLE 8 TAX MATTERS.......................................................31
Section 8.01 Additional Definitions........................................31
Section 8.02 Preparation and Filing of Tax Returns.........................31
Section 8.03 Sellers' Contest Rights.......................................32
Section 8.04 Purchaser's Contest Rights....................................32
Section 8.05 Notification Requirements.....................................33
Section 8.06 Cooperation...................................................33
Section 8.07 Retention of Data and Documentation...........................33
Section 8.08 Tax Audit Costs...............................................34
Section 8.09 Tax Sharing Agreements........................................34
Section 8.10 Returns for Periods Through the Closing Date..................34
Section 8.11 Carrybacks....................................................34
ii
EXECUTION COPY
Section 8.12 Retention of Carryovers.......................................34
ARTICLE 9 INDEMNIFICATION; REMEDIES.........................................34
Section 9.01 Indemnification By Sellers....................................34
Section 9.02 Indemnification By Purchaser..................................35
Section 9.03 Notice and Defense of Third Party Claims......................35
Section 9.04 Exclusive Remedy..............................................36
ARTICLE 10 MISCELLANEOUS....................................................36
Section 10.01 Confidentiality...............................................36
Section 10.02 Survival of Representations, Warranties and Agreements........37
Section 10.03 Notices.......................................................37
Section 10.04 Headings; Gender..............................................38
Section 10.05 Entire Agreement; No Third Party Beneficiaries................39
Section 10.06 Governing Law.................................................39
Section 10.07 Assignment....................................................39
Section 10.08 Severability..................................................39
Section 10.09 Counterparts..................................................39
Section 10.10 Expenses......................................................39
Section 10.11 Amendments and Waivers........................................39
Section 10.12 Construction..................................................40
Section 10.13 Understanding.................................................40
Section 10.14 Arbitration...................................................40
ARTICLE 11 INTERVENORS......................................................40
Section 11.01 Spousal Consent...............................................40
EXHIBIT INDEX
Exhibit A- Operating Agreement dated March 9, 1992
Addendum dated November 9, 1995
Second Addendum dated November 1, 2001
Third Addendum dated December 4, 2001
Fourth Addendum dated April 30, 2003
Exhibit B - Form of Escrow Agreement
Exhibit C - Adam and Reese LLP Opinion
Exhibit D - LHBPA Release
Exhibit E - Krantz Release
Exhibit F - Withdrawal of Objection to Assignment
Exhibit G - Spousal Consent
iii
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as
of the day of the 14th day of October, 2004 by and between Churchill Downs
Louisiana Video Poker Company, L.L.C., a Louisiana limited liability company,
("Purchaser"); STEVEN M. RITTVO, RALPH CAPITELLI and T. CAREY WICKER III, all
Louisiana residents, and LOUISIANA VENTURES, INC., a Nevada corporation ("LVI")
(each a "Seller" and all collectively "Sellers").
RECITALS
WHEREAS, Sellers are the owners of all of the issued and outstanding
shares of all classes of common stock of Video Services, Inc., a Louisiana
corporation ("VSI");
WHEREAS, VSI is engaged in the business of selecting, owning,
installing, operating and maintaining video poker devices and other electronic
gaming machines at the Fair Grounds Race Course and at off-track betting parlors
operated in the greater New Orleans, Louisiana area, by or under the auspices of
the Fair Grounds Race Course (the "Business"); and
WHEREAS, Sellers desire to sell to Purchaser and Purchaser desires to
purchase from Sellers, all of the issued and outstanding shares of common stock
of VSI for the consideration and subject to the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and agreements set forth herein, and in reliance upon the
representations and warranties contained herein, Purchaser and Sellers do now
agree as follows:
DEFINITIONS
In addition to the other defined terms used herein, as used in this
Agreement, the following terms when capitalized shall have the meanings
indicated herein. All defined terms shall include the singular and the plural.
(a) "AFFILIATE" shall mean with respect to any specified Person, any
other Person directly or indirectly controlling, controlled by or under direct
or indirect common control with such Person.
(b) "APPLICABLE LAW" shall mean any statute, law, rule or regulation or
any judgment, order, writ, injunction or decree of any Governmental Entity to
which a specified Person or its property is subject.
(c) "BANKROLL AMOUNT" shall mean $824,000 (representing the imprest
bank balances) plus the Undeposited Net Win as of 2:01 A.M. on the Closing Date.
(c) "CHANGE OF CONTROL" shall be deemed to have occurred upon (i) the
1
consummation of a tender for or purchase of more than fifty percent (50%) of a
company's capital stock by a third party, (ii) a merger, consolidation or
recapitalization of a company such that the stockholders of the company
immediately prior to the consummation of such transaction possess less than
fifty percent (50%) of the voting securities of the surviving entity immediately
after the transaction (determined on a fully-diluted basis assuming the
conversion of all convertible securities of such Person), or (iii) the sale,
lease or other disposition of all or substantially all of the assets of a
company.
(d) "CLOSING" shall mean the consummation of the Purchase (as defined
in Section 1.01) and the other transactions contemplated by this Agreement.
(e) "CLOSING DATE" shall mean the date on which the Closing occurs.
(f) "DISCLOSURE LETTER" shall mean that certain Disclosure Letter
delivered to Purchaser by Sellers on or before October 14th, 2004, the purpose
of which is to disclose certain matters related to this Agreement.
(g) "ENCUMBRANCES" shall mean adverse claims, pledges, liens, defects,
leases, licenses, equities, conditional sales contracts, charges, claims,
encumbrances, security interests, easements, restrictions, chattel mortgages,
mortgages or deeds of trust, of any kind or nature whatsoever, and any
preferential arrangement or restriction of any kind, including, without
limitation, any restriction on the use, voting, transfer, receipt of income or
other exercise of any attribute of ownership.
(h) "GOVERNMENTAL ENTITY" shall mean any court or tribunal in any
jurisdiction or any public, governmental or regulatory body, agency, department,
commission, board, bureau or other authority or instrumentality.
(i) "INDEBTEDNESS" shall mean, as applied to any Person, (i) all
indebtedness of such Person for borrowed money, whether current or funded, or
secured or unsecured, (ii) all indebtedness of such Person for the deferred
purchase price of property or services represented by a note or other security,
(iii) all indebtedness of such Person created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), (iv) all indebtedness of such Person secured by a purchase money
mortgage or other lien to secure all or part of the purchase price of property
subject to such mortgage or lien, (v) all pre-Closing obligations under leases
which shall have been or must be, in accordance with generally accepted
accounting principles, recorded as capital leases in respect of which such
Person is liable as lessee, (vi) any liability of such Person in respect of
banker's acceptances or letters of credit, (vii) any liability in respect of
interest, fees or other charges in respect of any indebtedness referred to a
clauses (i) through (vi) above, (viii) all indebtedness referred to in clauses
(i) through (vii) above which is directly or indirectly guaranteed by such
Person or which such Person has agreed (contingently or otherwise) to purchase
or otherwise acquire or in respect of which it has otherwise assured a creditor
against loss and (ix) all other accrued liabilities that appear on the Balance
Sheet.
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(j) "IRS" shall mean the United States Internal Revenue Service.
(k) "KNOWLEDGE" (including, without limitation, the terms "KNOW",
"KNOWING", "KNOWLEDGE", "BEST KNOWLEDGE", or "TO THE BEST KNOWLEDGE OF") shall
mean with respect to each Seller the actual knowledge of such Seller, or where
applicable, their officers or directors, without independent investigation.
(l) "LEASES" shall mean any executory lease to which VSI is subject,
having future rental payments of more than $5,000 in the aggregate and any
executory lease to which VSI is subject where the future rental payments under
such lease, when aggregated with the future rental payments under all other
executory leases to which VSI is a party, are more than $10,000 in the
aggregate, all shown on Section 2.12(d) of the Disclosure Letter.
(m) "MATERIAL ADVERSE EFFECT" shall mean any circumstance, change in,
or effect on the Business that, individually or in the aggregate with any other
circumstances, changes in, or effects on, the Business, is materially adverse to
the Business, operations, results of operations or financial condition of VSI
excluding from the foregoing any event, change or circumstance arising out of
(i) the compliance by VSI with the terms and conditions of this Agreement, (ii)
general economic or financial conditions which are not unique to VSI but also
affect other Persons who participate or are engaged in the lines of business in
which VSI participates or is engaged, or (iii) changes resulting from acts of
terrorism or acts of war or escalation of hostilities, whether occurring within
or outside the United States, or any effect of any such acts of hostilities on
general economic or other conditions.
(n) "OPERATING AGREEMENT" shall mean the agreement between VSI and Fair
Grounds Corporation, Jefferson Downs Corporation and Finish Line Management
Corporation dated March 9, 1992, as amended, attached as Exhibit "A", in globo.
(o) "PARTY" shall mean singularly one of the persons or plurally two or
more of the persons executing this Agreement.
(p) "PERSON" shall mean an individual, firm, corporation, general or
limited partnership, limited liability company, limited liability partnership,
joint venture, trust, governmental authority or body, association,
unincorporated organization or other entity.
(q) "PROCEEDINGS" shall mean any suit, action, proceeding, dispute or
claim before or investigation by any Governmental Entity.
(r) "STOCK" shall mean, collectively, all of the authorized, issued and
outstanding shares of Class A (non-voting) common stock, no par value per share,
and all of the authorized, issued and outstanding shares of Class B (voting)
common stock, no par value per share, of VSI representing 100% of the aggregate
authorized, issued and outstanding capital stock, voting and non-voting, of VSI.
(s) "TAX" shall mean any federal, state, local or foreign income, gross
receipt,
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license, net equity payroll, payroll, employment excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
ss. 59A), custom duties, capital stock, franchise, import and export, profits,
withholding, social security, unemployment, disability, real property, personal
property, intangible property, sales, use, transfer, registration, value added,
alternative, or add-on-minimum, estimated, or other government tax, duty, fee or
charge of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
(t) "UNDEPOSITED NET WIN" shall mean the amount of all of VSI's gross
deposits less all fully paid payouts, to the extent that such amount has not
been deposited in VSI's bank accounts as of 2:01 A.M. on the Closing Date.
(t) "VSI GROUP" shall mean VSI and all entities included in any
affiliated group with VSI for which consolidated or combined Tax Returns were
filed or are or were required to be filed.
ARTICLE 1
SALE AND PURCHASE OF SHARES; CLOSING
SECTION 1.01 SALE OF STOCK. Subject to the terms and conditions herein
stated, at the Closing Sellers shall sell, transfer, assign and deliver to
Purchaser, and Purchaser shall purchase from Sellers, all of the Stock, all with
full warranty of title and free and clear of all Encumbrances, in exchange for
the payment of the Purchase Price described below (the "PURCHASE").
SECTION 1.02 PURCHASE PRICE. Purchaser shall pay to Sellers, as the
purchase price for the Stock, an aggregate amount of Four Million Dollars
($4,000,000) (the "PURCHASE PRICE"), pursuant to the payment instructions,
percentages and wire instructions attached as Section 1.02 of the Disclosure
Letter.
SECTION 1.03 REIMBURSEMENTS. The Purchaser shall, at Closing, reimburse
Sellers as follows (collectively, the "REIMBURSEMENTS").
(a) Purchaser shall reimburse Sellers for the cost of all licenses and
permits paid by VSI for the year 2004-2005 as set forth on Section 1.03(a) of
the Disclosure Letter.
(b) Purchaser shall reimburse Sellers for the pro rata share of all
taxes or other fees paid by or on behalf of VSI prior to Closing as set forth on
Section 1.03(b) of the Disclosure Letter.
SECTION 1.04 CLOSING. Subject to satisfaction or waiver of the
conditions specified in Article 5 hereof, the Closing shall take place at 10:00
am. local time on October 14, 2004 at the law offices of Lemle & Kelleher, 21st
Floor, 601 Poydras Street, New Orleans, Louisiana 70130 or at such other time
and place as Purchaser and Sellers may agree.
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SECTION 1.05 PAYMENT AND CLOSING DELIVERIES.
At the Closing:
(a) Purchaser shall have caused to be delivered the
Purchase Price by wire transfer of immediately
available funds to Sellers in the percentage as set
forth in Section 1.02 of the Disclosure Letter;
(b) Purchaser shall have caused to be delivered the
amounts due as (i) Reimbursements by wire transfer of
immediately available funds pursuant to the
percentages and wire instructions attached as Section
1.02 of the Disclosure Letter hereto, and (ii) the
Bankroll Amount by wire transfer of immediately
available funds pursuant to the terms of Section
1.06;
(c) Sellers shall deliver to Purchaser (i) stock
certificates representing the Stock duly endorsed in
blank, or accompanied by stock powers duly executed
in blank, in a form satisfactory to Purchaser, which
shall transfer to Purchaser good title to the Stock
free and clear of any Encumbrance, and (ii) written
resignations of all officers and directors of VSI
other than Fred Bergquist;
(d) Sellers shall have deposited into the sweep account
designated to the state police as the account from
which video poker taxes are to be paid, in
immediately available funds, a sum sufficient to pay
all video poker taxes due through the Closing Date;
(e) Sellers shall deliver the opinion of Adams and Reese
LLP in substantially the form attached as Exhibit "C"
hereto;
(f) Sellers shall and shall cause VSI to execute and
deliver to Purchaser a Mutual Release with the
Louisiana Horsemen's Benevolent and Protective
Association 1993, Inc. in substantially the form
attached as Exhibit "D" hereto (the "LHBPA RELEASE");
(g) Purchaser shall deliver to Sellers counterparts to
the LHBPA Release, executed by the Louisiana
Horsemen's Benevolent and Protective Association
1993, Inc.;
(h) Sellers shall and shall cause VSI to execute and
deliver to Purchaser a Mutual Release with Fair
Grounds Corporation, Bryan G. Krantz, Vickie Krantz,
Family Racing Venture, L.L.C., Gentilly Gaming,
L.L.C., Finish Line Management Corp., Continental
Advertising, Inc., F.G. Staffing Services, Inc. and
Fair Grounds International Ventures, L.L.C.
(collectively, the "KRANTZ PARTIES") in substantially
the form attached as Exhibit "E" hereto (the "KRANTZ
RELEASE");
5
(i) Purchaser shall deliver to Sellers counterparts to
the Krantz Release, executed by the Krantz Parties;
(j) Sellers shall deliver to Purchaser a Withdrawal of
Objection to Assignment and Assumption of Contract
and Waiver of Cure in substantially the form attached
as Exhibit "F" hereto; and
(k) Sellers and Purchaser shall (i) provide to the other
such certificates, agreements and instruments as are
required to be delivered under Article 5, (ii)
provide to the others proof or indication of the
satisfaction or waiver of the conditions set forth in
Article 5, and (iii) take such other action as is
required to consummate the transactions contemplated
by this Agreement.
SECTION 1.06 INDEBTEDNESS; DIVIDENDS PRIOR TO CLOSING; POST-CLOSING
PAYMENTS.
(a) Sellers shall cause VSI to discharge all Indebtedness outstanding
as of 10:00 A.M. on the Closing Date.
(b) Sellers shall retain as earned income all cash on hand, including
but not limited to cash in all bank accounts, cash in the change bank at each
location and other miscellaneous cash that is used in the daily operation of VSI
as of 2:01 A.M. on the Closing Date after the discharge of Indebtedness under
Section 1.06(a) (the "CASH ON HAND"). Sellers, with a representative of
Purchaser present, will count down the final Cash on Hand in the cage and count
rooms beginning at 8:00 A.M. on the Closing Date (the "FINAL CASH COUNT"). At
the Closing, in the form of a cash dividend, (i) VSI shall disburse all of the
available Cash on Hand MINUS $5,000 in petty cash MINUS the Bankroll Amount, to
Sellers by immediately available funds pursuant to the terms of the Operating
Agreement of VSI and Article 4, Section 4.1(b) of the Articles of Incorporation
of VSI, all in the percentage allocation set forth on Section 1.06 of the
Disclosure Letter, and (ii) Purchaser shall pay to Sellers the Bankroll Amount
PLUS the Reimbursements plus $5,000 in petty cash by (A) making wire transfers
of the Bankroll Amount minus the Undeposited Net Win PLUS the Reimbursements
PLUS $5,000 in petty cash MINUS $500,000 as of the Closing to the Sellers in the
percentage allocation set forth on Section 1.06 of the Disclosure Letter, (B)
writing and delivering a check to each of the Sellers for the Seller's share of
the Undeposited Net Win in the percentage allocation set forth in Section 1.06
of the Disclosure Letter, and (C) making a wire transfer of $500,000 as of the
Closing to Adams & Reese, as escrow agent for the Sellers (the "ESCROW AGENT"),
to be held by the Escrow Agent pursuant to the terms of this Section 1.06
(collectively, the "DIVIDEND").
(c) The Escrow Agent shall retain the $500,000 for sixty days from the
Closing Date in order to discharge any Indebtedness that was outstanding as of
10:00 A.M. on the Closing Date that was not discharged as of the Closing Date.
LVI shall instruct the Escrow Agent, on the date that is sixty days from the
Closing Date, to disburse any funds remaining in the escrow account to the
Sellers by check or immediately available funds pursuant to the terms of the
Operating Agreement of VSI and Article 4, Section 4.1(b) of
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the Articles of Incorporation of VSI, all in the percentage allocation set forth
on Section 1.06 of the Disclosure Letter.
(d) In the event of any dispute between Sellers on the one hand and
Purchaser on the other as to how the funds deposited into escrow should be
disbursed, the Escrow Agent may retain all disputed funds until resolution of
the dispute by the Parties or pursuant to Section 10.14. Seller, Purchasers and
Escrow Agent will execute the Escrow Agreement substantially in the form
attached hereto as Exhibit "B".
SECTION 1.07 RIGHT TO REVENUES; RISK OF LOSS. Purchaser will be
entitled to all VSI collections and will be subject to all payment and
disbursement obligations and liabilities of VSI arising on and after 10:00 A.M.
on the Closing Date regardless of the actual time of the Closing.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of the representations and warranties set forth herein shall be
separate and independent, and, except as expressly provided herein, shall not be
limited by reference to any other representation or warranty or anything else in
this Agreement. Sellers individually represent and warrant, as provided for
herein, to Purchaser as follows:
SECTION 2.01 OWNERSHIP. Each Seller is, and at the Closing Date will
be, the sole record and beneficial owner of the number of shares of the Stock,
which are represented by the certificates bearing the numbers shown opposite
their names in Section 2.05. Each Seller has and at the Closing Date will have
good and marketable title to the shares of Stock registered in his or its name
and the absolute right to deliver such shares of Stock in accordance with the
terms of this Agreement, free and clear of all Encumbrances. The Stock is duly
authorized, validly issued, fully paid and nonassessable, and was issued by VSI
in compliance with federal and state securities laws. The transfer of the Stock
to Purchaser in accordance with the terms of this Agreement will transfer good
and marketable title to the Stock to Purchaser free and clear of all
Encumbrances, restrictions, and claims of every kind.
SECTION 2.02 AUTHORITY; Enforceability. Each Seller has the full legal
right, power and authority to execute, deliver and perform this Agreement and
the other documents, instruments and agreements contemplated hereby
(collectively, the "TRANSACTION DOCUMENTS") to which any Seller is a party, to
perform Sellers' obligations, as applicable, hereunder and thereunder, each in
accordance with its respective terms, and to sell the Stock to Purchaser. Each
of the Transaction Documents to which any Seller is a party has been duly
authorized, executed and delivered by such Seller, or when executed will be duly
authorized, executed and delivered by such Seller and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of such Seller, enforceable against such Seller in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights generally and equitable principles which may limit the
availability of certain equitable
7
remedies in certain instances.
SECTION 2.03 ORGANIZATION; AUTHORITY. VSI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Louisiana. VSI is duly qualified and in good standing as a foreign entity in all
jurisdictions in which the character of the properties owned or leased or the
nature of the activities conducted by it makes such qualification necessary.
Complete and correct copies of the Articles of Incorporation and By-Laws of VSI
and all amendments thereto are set forth on Section 2.03(a) of the Disclosure
Letter. VSI has all requisite power and authority to own or lease and operate
its properties and to carry on its business as such business is now conducted.
VSI was organized, incorporated and began conducting business in 1992, and,
except as disclosed on Section 2.03(b) of the Disclosure Letter, has been under
the same management and ownership since that time. Except as disclosed on
Section 2.03 of the Disclosure Letter, neither Sellers nor VSI has ever operated
the business conducted by VSI under a fictitious name.
SECTION 2.04 SUBSIDIARIES. VSI has no subsidiaries, owns or holds of
record and/or beneficially no shares of any class in the capital of any
corporations, and owns no legal and/or beneficial interests in any partnerships,
limited liability companies, business trusts or joint ventures or in any other
unincorporated trade or business enterprises.
SECTION 2.05 CAPITAL STOCK. The authorized capital stock of VSI
consists exclusively of five hundred ten (510) shares of Class A (non-voting)
common stock, no par value per share, and four hundred ninety (490) shares of
Class B (voting) common stock, no par value per share. All of the authorized
Stock has been issued, is outstanding and owned of record and beneficially by
Sellers in the following amounts:
SHAREHOLDER NO. OF SHARES CERTIFICATE NO.
----------- ------------- ---------------
Steven M. Rittvo 228.62 shares (Class A) 7
Ralph Capitelli 140.69 shares (Class A) 5
T. Carey Wicker III 140.69 shares (Class A) 6
Louisiana Ventures, Inc. 490 shares (Class B) 2
All of the authorized Class B shares are issued and outstanding and are owned by
LVI which is a subsidiary of Foreign Gaming Ventures, Inc., a Nevada corporation
which is a subsidiary of Alliance Gaming Corporation ("Alliance"). LVI
represents and warrants that it has not created or granted, and there are no
existing Encumbrances, options, warrants, calls, purchase rights, contracts,
commitments, equities, claims, demands or other agreements or rights with
respect to the capital stock of VSI owned by LVI, except as disclosed on Section
2.05 of the Disclosure Letter and there are no convertible or exchangeable
securities of VSI outstanding which, upon conversion or exchange, would require
the issuance of any shares of capital stock or other securities of VSI. The
other Sellers represent and warrant that they have not created or granted, and
there are no existing Encumbrances, options, warrants, calls, purchase rights,
contracts, commitments, equities, claims, demands or other agreements or rights
with respect to the capital stock of VSI held by such Sellers.
8
SECTION 2.06 TITLE TO STOCK, LIENS, ETC. Sellers have, and as of the
consummation of the Closing, Purchaser will have, sole record and beneficial
ownership of all of the Stock, free and clear of any mortgage, lien, pledge,
charge, security interest, Encumbrance, title retention agreement, option,
equity or other adverse claim thereto.
SECTION 2.07 CONSENTS AND APPROVALS; CONFLICTS. Except as set forth in
Section 2.07 of the Disclosure Letter, no filing with or notice to, and no
permit, authorization, consent or approval of, any Governmental Entity is
necessary for the execution and delivery by Sellers of the Transaction Documents
or the consummation by Sellers of the transactions contemplated hereby. The
execution and delivery of the Transaction Documents by Sellers and the
consummation of the transactions contemplated hereby and thereby will not (a)
violate or conflict with any provision of the Articles of Incorporation or
By-Laws of VSI, each as amended to date; or (b) constitute a violation of, or be
in conflict with, or constitute or create a default under, give rise to a right
of termination of, or accelerate the performance required by, or result in the
creation or imposition of any Encumbrance upon any property of VSI pursuant to
(i) any agreement or instrument to which VSI is a party or by which any of its
properties is bound, or (ii) any statute, judgment, decree, order, regulation or
rule of any court or governmental or regulatory authority. Neither the execution
and delivery of this Agreement by Sellers, nor the consummation of the
transactions contemplated hereby, will conflict with or result in a breach of,
or give rise to a right of termination of, or accelerate the performance
required by, any terms of any court order, consent decree, note, bond, mortgage,
indenture, deed of trust, Lease, license, loan agreement, the articles of
incorporation or bylaws of LVI or other instrument or obligation binding on
Sellers or VSI or to which any Seller or VSI is subject or a party, or
constitute a default thereunder, or result in the creation of any Encumbrance
upon any of the assets of Sellers or VSI, except for any such conflict, breach,
termination, acceleration, default or Encumbrance which would not have a
Material Adverse Effect on (a) the business, assets or financial condition of
VSI or (b) Sellers' ability to consummate any of the transactions contemplated
hereby.
SECTION 2.08 FINANCIAL STATEMENTS. LVI will deliver the following
financial statements (the "FINANCIAL STATEMENTS") to Purchaser, and there are
attached as Section 2.08 of the Disclosure Letter the audited balance sheets of
VSI as of June 30, 2004 (such balance sheet as of being referred to herein as
the "BALANCE SHEET"), and the unaudited balance sheet of VSI as of August 31,
2004 (such balance sheet as of being referred to herein as the "INTERIM BALANCE
SHEET"), the related audited statements of income and cash flows of VSI for the
fiscal year ended June 30, 2004 and the unaudited statements of income and cash
flows for the period ended August 31, 2004. LVI represents and warrants that
each of the Financial Statements has been prepared in accordance with GAAP,
consistently applied, is true and correct and has been prepared consistently
with VSI's past practices; each such balance sheet fairly and accurately
presents the financial condition of VSI as of its respective date; and such
statements of income and cash flows fairly and accurately present the results of
operations for the periods covered thereby.
SECTION 2.09 ABSENCE OF CERTAIN CHANGES. LVI represents and warrants
that
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except as set forth on Section 2.09 of the Disclosure Letter, since August 31,
2004, VSI has carried on its business only in the ordinary course, and there has
not been (a) any change in the assets, liabilities, sales, income or business of
VSI or in its relationships with suppliers, customers or lessors, other than
changes which were both in the ordinary course of business and have not been,
either in any case or in the aggregate, materially adverse; (b) any capital
expenditure, capital improvement or capital addition by VSI which in the
aggregate exceeds $25,000, or any other acquisition or disposition by VSI of any
asset or property other than in the ordinary course of business; (c) any damage,
destruction or loss, whether or not covered by insurance, materially and
adversely affecting, either in any case or in the aggregate, the property or
business of VSI; (d) any declaration, setting aside or payment of any dividend
or any other distributions in respect of the shares of the capital stock of VSI;
(e) any issuance of any shares or option or right to acquire shares of capital
stock of VSI or any direct or indirect redemption, purchase or other acquisition
of any of the Stock; (f) any increase in the compensation, pension or other
benefits payable or to become payable by VSI to any of its officers or
employees, or any bonus payments or arrangements made to or with any of them
(other than pursuant to the terms of any existing written agreement or plan of
which the Purchaser has been supplied complete and correct copies); (g) any
forgiveness or cancellation of any debt or claim by VSI or any waiver of any
right of material value other than compromises of accounts receivable in the
ordinary course of business; (h) any entry by VSI into any contract or
transaction other than in the ordinary course of business; (i) any incurrence by
VSI of any obligations or liabilities, whether absolute, accrued, contingent or
otherwise (including, without limitation, liabilities as guarantor or otherwise
with respect to obligations of others), other than obligations and liabilities
incurred in the ordinary course of business; (j) any mortgage, pledge, lien,
lease, security interest or other charge or encumbrance on any of the assets,
tangible or intangible, of VSI; (k) any discharge or satisfaction by VSI of any
lien or encumbrance, or payment by VSI of any obligation or liability (fixed or
contingent) other than (i) current liabilities included in the Balance Sheet and
(ii) current liabilities incurred since the date of the Balance Sheet in the
ordinary course of business, or (l) any amendment to VSI's articles of
incorporation or bylaws.
SECTION 2.10 LEGAL PROCEEDINGS; ETC. LVI represents and warrants that
except as set forth in Section 2.10 of the Disclosure Letter, no action, suit,
proceeding or investigation is pending or, to LVI's Knowledge, threatened
against VSI or any Seller, nor is there any basis therefor known to LVI. The
other Sellers represent, to such Seller's Knowledge, there is no action, suit,
proceeding or investigation pending or threatened against any Seller, nor is
there any basis therefor known to such Sellers.
SECTION 2.11 PERMITS; COMPLIANCE WITH LAWS. To the Knowledge of each
Seller, (a) VSI has all necessary permits, licenses and governmental
authorizations (collectively the "LICENSES") for the lease, ownership, use or
operations of its properties and assets and the carrying on of the business of
VSI as presently conducted, (b) VSI has conducted its business in substantial
compliance with and is in substantial compliance with all Applicable Laws,
regulations, orders, permits, judgments, ordinances or decrees of all
Governmental Entities having jurisdiction over VSI and/or its business
operations, (c) there are no inquiries, pending or threatened, by any
Governmental Entity
10
that would have a Material Adverse Effect, (d) there will be no Material Adverse
Effect as a result of the transactions hereunder or contemplated hereby, and (e)
true and complete copies of such licenses have previously been delivered to
Purchaser.
SECTION 2.12 TITLE TO PROPERTY; CONDITION OF PROPERTY; REAL PROPERTY
LEASES, ETC. LVI represents and warrants that:
(a) Except as set forth in Section 2.12(a) of the Disclosure Letter,
VSI has good and marketable title to all of its properties and assets,
including, without limitation, all those reflected in the Balance Sheet (except
for properties or assets sold or otherwise disposed of in the ordinary course of
business since the date of the Balance Sheet), all free and clear of all liens,
pledges, charges, security interests, Encumbrances or title retention agreements
of any kind or nature.
(b) Section 2.12(b) of the Disclosure Letter sets forth a complete and
correct list of the following personal property of VSI: machinery, tools,
computers and related software, office equipment, furnishings, vehicles,
inventory, spare parts, any fixtures attached to real property leased to VSI,
and any other tangible personal property (collectively, the "TANGIBLE ASSETs").
All of the Tangible Assets are available for use in VSI's business except for
those items being serviced in the ordinary course of business. All of the
Tangible Assets and the state of maintenance thereof are in compliance with all
Applicable Laws, statutes, ordinances, rules and regulations. The Tangible
Assets include all assets and properties that are necessary to conduct VSI's
business as it is now being conducted. The spare parts are usable in the
ordinary course of business and the value of the spare parts included in the
Tangible Assets at the close of business on the Closing Date shall be at least
as much as the value of the spare parts shown on Section 2.12(b) of the
Disclosure Letter.
(c) Section 2.12(c) of the Disclosure Letter sets forth by location a
complete listing by serial number of all video poker gaming devices owned by VSI
(the "Devices"). All of the Devices are owned by VSI free and clear of any
Encumbrance, and are duly licensed and registered with the State of Louisiana.
(d) Section 2.12(d) of the Disclosure Letter sets forth a complete and
correct description of all Leases, including but not limited to, all real
property leased to VSI and all leases of real property to which VSI is a party.
Complete and correct copies of all such Leases have been delivered to Purchaser.
Each such Lease is valid and subsisting and no event or condition exists which
constitutes, or after notice or lapse of time or both would constitute, a
default thereunder. The leasehold interests of VSI are subject to no lien or
other encumbrance, and VSI is in quiet possession of the properties covered by
such Leases. Neither any Seller nor VSI has received any notice that either the
whole or any portion of such leased real property is to be condemned,
requisitioned or otherwise taken by any public authority. Neither any Seller nor
VSI has any Knowledge of any public improvements that may result in special
assessments against or otherwise affect any of such leased real property. VSI
does not presently own and has never owned any real property.
11
SECTION 2.13 ENVIRONMENTAL MATTERS. LVI and, to their Knowledge, other
Sellers represent and warrant that except as set forth on Section 2.13 of the
Disclosure Letter:
(a) VSI is not in violation of nor is there any alleged violation of
any judgment, decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation those arising under any
federal, state or local statute, regulation, ordinance, order or decree relating
to health, safety or the environment (hereinafter "ENVIRONMENTAL LAWS");
(b) Neither Sellers nor VSI has received notice from any third party,
including without limitation any federal, state or local governmental authority,
(i) that VSI has been identified by the United States Environmental Protection
Agency as a potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended (CERCLA), with
respect to a site listed on the National Priorities List, 40 C.F.R. Part 300
Appendix B (1986); (ii) that any hazardous waste, as defined by 42 U.S.C.
ss.6903(5), any hazardous substance as defined by 42 U.S.C. ss.9601(14), any
pollutant or contaminant as defined by 42 U.S.C. ss.9601(33) or any toxic
substance, oil or hazardous material or other chemical or substance (including,
without limitation, asbestos in any form, urea formaldehyde or polychlorinated
biphenyls) regulated by any Environmental Laws ("HAZARDOUS SUBSTANCES") which
VSI has generated, transported or disposed of has been found at any site at
which a federal, state or local agency or other third party has conducted or has
ordered that VSI conduct a remedial investigation, removal or other response
action pursuant to any Environmental Law; or (iii) that VSI is or shall be a
named party to any claim, action, cause of action, complaint, (contingent or
otherwise) legal or administrative proceeding arising out of any third party's
incurrence of costs, expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Substances;
(c) (i) No portion of any real property, leased or operated by VSI has
been used by VSI for the handling, manufacturing, processing, storage or
disposal of Hazardous Substances except in accordance with applicable
Environmental Laws; (ii) in the course of any activities conducted by VSI, no
Hazardous Substances have been generated or are being used on any real property
leased or operated by VSI except in accordance with applicable Environmental
Laws; (iii) all real properties leased or operated by VSI are free from
contamination of every kind through activities of VSI, including without
limitation, groundwater, surface water, soil, sediment and air contamination,
and such properties do not contain any Hazardous Substances; and (iv) there have
been no releases (i.e., any past or present releasing, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping) or threatened releases of Hazardous Substances on, upon,
into or from any real property leased or operated by VSI except in accordance
with applicable Environmental Laws.
SECTION 2.14 INSURANCE. LVI represents and warrants that Section 2.14
of the Disclosure Letter lists all policies of fire, liability, workmen's
compensation, life, property and casualty and other insurance owned or held by
VSI. Such policies of insurance are maintained, to the best of Sellers'
Knowledge, with financially sound and reputable
12
insurance companies, funds or underwriters, and are of the kinds and cover such
risks and are in such amounts and with such deductibles and exclusions as are
consistent with prudent business practice. All such policies (a) are in full
force and effect, (b) are sufficient for compliance by VSI with all requirements
of law and all agreements to which VSI is a party, (c) provide that they will
remain in full force and effect until the Closing Date. VSI is not in default
with respect to its obligations under any of such insurance policies and has not
received any notification of cancellation of any such insurance policies. No
insurance carrier has denied coverage for any claim asserted by VSI in the past
five years, nor has any insurance carrier declined to provide any coverage to
VSI in the past five years.
SECTION 2.15 CONTRACTS. LVI represents and warrants that Section 2.15
of the Disclosure Letter sets forth a complete and accurate list of (i) all
material lease, maintenance, repair and service contracts and agreements of VSI
with customers (collectively, the "CUSTOMER CONTRACTS"), and (ii) all other
contracts to which VSI is a party or by or to which it or any of its assets or
properties is bound or subject (collectively, the "OTHER CONTRACTS" and,
collectively with the Customer Contracts, the "CONTRACTS"). As used in this
Section 2.15, the word "CONTRACT" means and includes every material agreement or
understanding of any kind, written or oral, which is legally enforceable by or
against VSI, and specifically includes (a) equipment leases; (b) telephone book
listing agreements; (c) non-competition, non-solicitation or non-disclosure
agreements; (d) manufacturers' warranties on tangible property; (e) cost sheets
and bills of materials; (f) contracts and other agreements with any current or
former officer, director, employee, consultant or shareholder or any
partnership, corporation, joint venture or any other entity in which any such
Person has an interest; (g) bonds or other security agreements provided by any
party in connection with the business of VSI; (h) contracts and other agreements
for the sale of any assets or properties of VSI other than in the ordinary
course of business or for the grant to any Person of any preferential rights to
purchase any of such assets or properties; (i) contracts or other agreements
under which VSI agrees to indemnify any Person or to share Tax liability of any
Person; (j) any contracts or other agreements with regard to Indebtedness; (k)
contract to provide vision and dental coverage for employees of VSI; or (l) any
other contract or other agreement whether or not made in the ordinary course of
business. Sellers have delivered to Purchaser true, correct and complete copies
of all of the Contracts, together with all modifications and supplements
thereto. Each of the contracts listed on Section 2.15 of the Disclosure Letter
or any of the other Sections of the Disclosure Letter is in full force and
effect, VSI is not in breach of any of the provisions of any such contract, and,
to the Knowledge of Sellers, no other party to any such contract is in default
thereunder, nor does any event or condition exist which with notice or the
passage of time or both would constitute a default thereunder. VSI has in all
material respects performed all obligations required to be performed by it to
date under each such contract. No approval or consent of any Person is needed in
order that the contracts listed on Section 2.15 of the Disclosure Letter and
other Sections of the Disclosure Letter continue in full force and effect
following the consummation of the transactions contemplated by this Agreement,
and no such contract includes any provision the effect of which may be to
enlarge or accelerate any obligations of VSI thereunder or give additional
rights to any other party thereto or will in any other
13
way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. VSI is not a party to any franchise, license,
distributor or other similar type of contract or agreement. VSI is not party to
any contract or instrument nor subject to any restriction which now has or, to
the best of Sellers' Knowledge may have, an adverse effect, financial or
otherwise, upon VSI or its assets.
SECTION 2.16 EMPLOYEES. LVI represents and warrants that Section 2.16
of the Disclosure Letter sets forth the name, title and current annual salary
and other compensation payable by VSI to each employee of VSI.
SECTION 2.17 EMPLOYEE BENEFIT PLANS. LVI represents and warrants that:
(a) except for the arrangements set forth on Section 2.17(a) of the
Disclosure Letter, VSI does not now maintain or contribute to, and has not in
the current or preceding six (6) calendar years maintained or contributed to,
any employee benefit plan or pension, profit-sharing, deferred compensation,
bonus, stock option, share appreciation right, severance, group or individual
health, dental, medical, life insurance, survivor benefit, or similar plan,
agreement, understanding, practice, policy or arrangement, whether formal or
informal, for the benefit of any director, officer, consultant or employee,
whether active or terminated, of VSI. Each of the arrangements set forth on
Section 2.17(a) of the Disclosure Letter is hereinafter referred to as an
"EMPLOYEE BENEFIT PLAN", except that any such arrangement which is a
multi-employer plan shall be treated as an Employee Benefit Plan only for
purposes of Sections 2.17(d)(iv), (vi) and (viii) and 2.17(g) below.
(b) LVI has heretofore delivered to Purchaser true, correct and
complete copies of each Employee Benefit Plan of VSI, and with respect to each
such Employee Benefit Plan (i) any associated trust, custodial, insurance or
service agreements, (ii) any annual report, actuarial report, or disclosure
materials (including specifically any summary plan descriptions) submitted to
any governmental agency or distributed to participants or beneficiaries
thereunder in the current or any of the six (6) preceding calendar years and
(iii) the most recently received IRS determination letters and any governmental
advisory opinions or rulings.
(c) Each Employee Benefit Plan is and has heretofore been maintained
and operated in substantial compliance with the terms of such Employee Benefit
Plan and with the requirements prescribed (whether as a matter of substantive
law or as necessary to secure favorable tax treatment) by any and all statutes,
governmental or court orders, or governmental rules or regulations in effect
from time to time, including but not limited to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and the Internal Revenue Code of
1986, as amended ("CODE") and applicable to such Employee Benefit Plan. Each
Employee Benefit Plan which is intended to qualify under Section 401(a) of the
Code has received a favorable determination letter from the IRS and nothing has
occurred since the date of the last such determination which has resulted or is
likely to result in the revocation of such determination. VSI is in compliance
with the continuation coverage provisions of Part 6 of Title I of ERISA and
Section 4980B of the Code.
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(d) Except as set forth on Section 2.17(d) of the Disclosure Letter,
(i) there is no pending or threatened legal action,
proceeding or investigation, other than routine
claims for benefits, concerning any Employee Benefit
Plan or, to the best Knowledge of Sellers, any
fiduciary or service provider thereof and, to the
best Knowledge of Sellers, there is no basis for any
such legal action, proceeding or investigation;
(ii) no liability (contingent or otherwise) to the Pension
Benefit Guaranty Corporation ("PBGC") or any
multi-employer plan has been incurred by either VSI
or any affiliate thereof;
(iii) no reportable event, or event or condition which
presents a material risk of termination by the PBGC,
has occurred with respect to any Employee Benefit
Plan, or any retirement Employee Benefit Plan of an
affiliate of VSI, which is subject to Title IV of
ERISA;
(iv) no Employee Benefit Plan, nor to the best Knowledge
of LVI, any party in interest or fiduciary with
respect thereof, has engaged in a prohibited
transaction which could subject VSI directly or
indirectly to any material liability under Section
409 or 502(i) of ERISA or Section 4975 of the Code;
(v) no communication, report or disclosure has been made
which, at the time made, did not accurately reflect
the terms and operations of any Employee Benefit
Plan;
(vi) no Employee Benefit Plan provides welfare benefits
subsequent to termination of employment to employees
or their beneficiaries (except to the extent required
by applicable state insurance laws and Title I, Part
6 of ERISA) except as required to obtain favorable
tax treatment therefor; provided, however, that any
contribution required for such favorable tax
treatment for any period through the Closing Date
shall be considered part of the Indebtedness of VSI
as of the Closing which Purchasers are obligated to
discharge;
(vii) no benefits due under any Employee Benefit Plan have
been forfeited subject to the possibility of
reinstatement (which possibility would still exist at
or after Closing) except to the extent of immaterial
amounts as may be required under Section 411(a)(7)(C)
of the Code; and
(viii) VSI has not undertaken to maintain any Employee
Benefit Plan for any period of time and each such
Employee Benefit Plan is terminable with respect to
employees of VSI at the sole discretion of VSI
without vesting or acceleration of any benefits,
except vesting
15
required under Section 411(a)(3) of the Code.
(e) With respect to each Employee Benefit Plan for which a separate
fund of assets is maintained, full payment has been made of all amounts that VSI
is required, under the terms of each such Employee Benefit Plan, to have paid as
contributions to that Employee Benefit Plan as of the end of the most recently
ended plan year or plan quarter, if applicable, of that Employee Benefit Plan,
and no accumulated funding deficiency (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, exists with respect to any such
Employee Benefit Plan. Except as shown on Section 2.17(e) of the Disclosure
Letter, the current value of the assets of each such funded Employee Benefit
Plan, as of the end of the most recently ended plan year of that Employee
Benefit Plan equaled or exceeded the current value of all accrued benefits under
that Employee Benefit Plan; PROVIDED, HOWEVER, that any employer contributions
shown on Section 2.17(e) of the Disclosure Letter or otherwise required in order
to maintain the favorable tax qualification of such Employee Benefit Plan for
any plan year ending on or before the Closing Date or, in the case of a plan
year ending after the Closing Date, that portion of the plan year through the
Closing Date shall be considered part of the Indebtedness of VSI as of the
Closing which Purchasers are obligated to discharge unless such amounts have
been paid as of the Closing Date;
(f) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not result in any payment (whether of
severance pay or otherwise) becoming due from any Employee Benefit Plan to any
current or former director, officer, consultant or employee of VSI or result in
the vesting (except as may be required by Section 411 of the Code), acceleration
of payment or increases in the amount of any benefit payable to or in respect of
any such current or former director, officer, consultant or employee.
(g) No Employee Benefit Plan is a multi-employer plan, and no Employee
Benefit Plan is subject to any funding standard under Section 302 of ERISA or
Section 412 of the Code.
(h) For purposes of this Section 2.17, "employee benefit plan",
"multi-employer plan", "party in interest", "fiduciary", "current value",
"accrued benefit", "reportable event" and "benefit liability" have the same
meaning assigned such terms under Sections 3, 4043(b) or 4001(a) of ERISA, and
"affiliate" means any entity which under Section 414 of the Code is treated as a
single employer with VSI or any entity which under Section 4001(a)(14) of ERISA
is treated as under common control with VSI.
SECTION 2.18 LABOR RELATIONS. LVI represents and warrants that, (a) VSI
is in compliance in all material respects, with all federal and state laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours and nondiscrimination in employment, and is not
engaged in any unfair labor practice, (b) there is no charge pending or, to
LVI's Knowledge, threatened against VSI alleging unlawful discrimination in
employment practices before any court or agency and there is no charge of or
proceeding with regard to any unfair labor practice against VSI pending
16
before the National Labor Relations Board, (c) there is no labor strike,
dispute, slow-down or work stoppage actually pending or to LVI's Knowledge
threatened against or involving VSI, (d) none of the employees of VSI is covered
by any collective bargaining agreement, and no collective bargaining agreement
is currently being negotiated by VSI and (e) VSI has not experienced any work
stoppage during the last five years.
SECTION 2.19 POTENTIAL CONFLICTS OF INTEREST. Except as set forth on
Section 2.19 of the Disclosure Letter, no officer, director or stockholder of
VSI (a) owns, directly or indirectly, any interest in (excepting not more than
5% stock holdings for investment purposes in securities of publicly held and
traded companies) or is an officer, director, employee or consultant of any
Person which is a competitor, lessor, lessee, customer or supplier of VSI; (b)
owns, directly or indirectly, in whole or in part, any tangible or intangible
property which VSI is using or the use of which is necessary for the business of
VSI; or (c) has any cause of action or other claim whatsoever against, or owes
any amount to, VSI, except for claims in the ordinary course of business, such
as for accrued vacation pay, accrued benefits under Employee Benefit Plans and
similar matters and agreements.
SECTION 2.20 PATENTS, TRADEMARKS, ETC. LVI represents and warrants that
Section 2.20 of the Disclosure Letter hereto sets forth a complete and accurate
list of (a) all patents, trademarks, trade names and copyrights registered in
the name of VSI or used or proposed to be used by VSI, all applications
therefor, and all licenses (as licensee or licensor) and other agreements
relating thereto, and (b) all material written agreements relating to other
technology, know-how and processes which VSI is licensed or authorized by others
to use or which VSI has licensed or authorized for use by others. Except to the
extent set forth in Section 2.20 of the Disclosure Letter, VSI owns or has the
right to use all patents, trademarks, trade names and copyrights, and has the
right to use all technology, know-how and processes, used or necessary for the
ordinary course of business as presently conducted or proposed to be conducted,
and the consummation of the transactions contemplated hereby will not alter or
impair any such right. To LVI's Knowledge, (a) no claims have been asserted, and
no claims are pending, by any Person regarding the use of any such patents,
trademarks, trade names, copyrights, technology, know-how or processes, or
challenging or questioning the validity or effectiveness of any license or
agreement, and there is no basis for such claim and (b) the use by VSI of such
patents, trademarks, trade names, copyrights, technology, know-how or processes
in the ordinary course of business does not infringe on the rights of any
Person.
SECTION 2.21 ACCOUNTS RECEIVABLE. LVI represents and warrants that all
accounts and notes receivable reflected on the Interim Balance Sheet have arisen
in the ordinary course of business, represent valid obligations owing to VSI and
have been collected or are in line for collection the aggregate recorded amounts
thereof in accordance with their terms, net of the reserve for uncollected
accounts set forth on the Interim Balance Sheet.
SECTION 2.22 TAXES.
17
(a) VSI and VSI Group have filed all Tax Returns that they were
required to file. All such Tax Returns are true, correct and complete in all
material respects. All Taxes owed by VSI and/or the VSI Group (whether or not
shown on any Tax Return) have been paid. Neither VSI nor the VSI Group are
currently the beneficiaries of any extension of time within which to file any
Tax Return. No claims have ever been made by an authority in a jurisdiction
where VSI and or the VSI Group has not or does not file Tax Returns that they
may be subject to taxation by that jurisdiction. There are no security interests
or liens on any of the assets of either VSI or any member of the VSI Group that
arose in connections with the failure (or alleged failure) to pay any Tax.
(b) VSI and the VSI Group have withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(c) No director or officer (or employee responsible for Tax matters) of
any of VSI and the VSI Group expect any authority to assess any additional Taxes
for any period for which Tax Returns have been filed. There is no dispute or
claim concerning any Tax liability of VSI or the VSI Group either (A) claimed or
raised by any authority in writing or (b) as to which any of the directors and
officers (and employees responsible for Tax matters) of VSI or the VSI Group had
knowledge based upon personal contact with any agent of such authority. Section
2.22(c) of the Disclosure Letter lists all federal, state, local, and foreign
income Tax Returns filed with respect to VSI and the VSI Group for taxable
periods ended on or after January 1, 1998, indicates those Tax Returns that have
been audited, and indicates those Tax Returns that are the subject of audit.
Sellers have delivered to Buyer correct and complete copies of all federal
income Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by any of VSI and the VSI Group since January 1, 1998.
(d) None of VSI and the VSI Group has waived any statues of limitations
in respect of Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency.
(e) Neither VSI nor the VSI Group has made any payments, if obligated
to make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Code ss. 280G. Neither VSI nor the VSI Group has been a United States real
property holding corporation within the meaning of Code ss. 897(c)(2) during the
applicable period specified in Code ss. 897(c)(1)(A)(ii). VSI and the VSI Group
have disclosed on their Federal Tax Return all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Code ss. 6666. Neither VSI nor the VSI Group is a party to any Tax
allocation or sharing agreement. Neither VSI nor the VSI Group (i) has been a
member of an affiliated group filing a consolidated federal income Tax Return
(other than a group the common parent of which was the parent of the VSI Group)
or (ii) has any liability for the
18
Taxes of any person or entity (other than under Reg ss. 1.1502-6 or any similar
provision of state, local or foreign law), as transferee or successor, by
contract, or otherwise.
(f) Section 2.22(f) of the Disclosure Letter sets forth the following
information (with respect to each as of the most recent practicable date): (i)
the basis of each of VSI's assets; (ii) the amount of any net operating loss,
net capital loss, unused investment or other credit, unused foreign tax, or
excess charitable contribution allocable to VSI; and (iii) the amount of any
deferred gain or loss allocable to VSI or any member of the VSI Group arising
out of any deferred intercompany transactions.
(g) The unpaid Taxes of VSI and the VSI Group (i) did not, as of the
most recent fiscal month end, exceed the reserve for Tax liability (other than
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the most recent balance sheet
(rather than in any notes thereto) and (ii) do not exceed that reserve as
adjusted for the passage of time through the Closing date in accordance with the
past custom and practice of VSI and the VSI Group.
SECTION 2.23 INDEBTEDNESS. LVI represents and warrants that (a) Section
2.23(a) of the Disclosure Letter sets forth a true, complete and correct list of
each of the creditors of VSI as of the date hereof and the amount due from VSI
to each creditor, (b) except for Indebtedness described on Section 2.23(a) of
the Disclosure Letter, VSI has no Indebtedness outstanding at the date hereof,
(c) VSI is not in material default with respect to any outstanding Indebtedness
or any instrument relating thereto and no such Indebtedness or any instrument or
agreement relating thereto purports to limit the issuance of any securities by
VSI or the operation of the business of VSI and (d) VSI will have no
Indebtedness outstanding as of 10:00 A.M. on the Closing Date. Complete and
correct copies of all instruments (including all amendments, supplements,
waivers and consents) relating to any Indebtedness of VSI have been furnished to
Purchaser by LVI.
SECTION 2.24 OFFICERS AND DIRECTORS, BANK ACCOUNTS, SIGNING AUTHORITY,
POWERS OF ATTORNEY. LVI represents and warrants that except as set forth on
Section 2.24(a) of the Disclosure Letter, VSI has no accounts or safe deposit
boxes in any bank and no Person has any power, whether singly or jointly, to
sign any checks on behalf of VSI, to withdraw any money or other property from
any bank, brokerage or other account of VSI or to act under any power of
attorney granted by VSI at any time for any purpose. LVI represents and warrants
that Section 2.24(b) of the Disclosure Letter also sets forth the names of (a)
all incumbent officers and directors of VSI, (b) all persons authorized to
borrow money or sign notes on behalf of VSI and (c) all persons holding credit
cards of VSI (and specifying the issuer of the card and the card number).
SECTION 2.25 MINUTE BOOKS, ETC. LVI represents and warrants that except
as set forth on Section 2.25 of the Disclosure Letter, the minute books of VSI
made available to
19
Purchaser for inspection accurately record therein all actions taken by the
Board of Directors and shareholders of VSI. The stock books of VSI made
available to Purchaser or inspection are true, correct and complete.
SECTION 2.26 BROKER. Sellers have not retained, utilized or been
represented by any broker, agent, finder or intermediary in connection with the
negotiation or consummation of the transactions contemplated by this Agreement.
SECTION 2.27 ACCURACY OF REPRESENTATIONS AND WARRANTIES. No
representation or warranty by Sellers in this Agreement or in any exhibit or
section to the Disclosure Letter contains or will contain any untrue statement
of a material fact.
SECTION 2.28 EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES. All of
the representations and warranties of Sellers in this Agreement shall be true in
all material respects at Closing Date and shall be deemed to have been made
again by Sellers on and as of the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Sellers that the statements in
this Article 3 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date.
SECTION 3.01 ORGANIZATION OF PURCHASER. Purchaser is a limited
liability company, validly existing and in good standing under the laws of the
State of Louisiana, having all requisite powers and authority to own its
property and to carry on its business as it is now being conducted.
SECTION 3.02 AUTHORITY; ENFORCEABILITY. Purchaser has the full legal
right, power and authority to execute, deliver and perform this Agreement and
the Transaction Documents to which Purchaser is a party, to perform all of
Purchaser's obligations hereunder and thereunder, each in accordance with its
respective terms. Each of the Transaction Documents to which Purchaser is a
party has been duly executed and delivered by Purchaser, or when executed will
be duly executed and delivered by Purchaser and constitutes, or when executed
and delivered will constitute a valid and legally binding obligation of
Purchaser, enforceable against Purchaser in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights generally and equitable principles which may limit the available of
certain equitable remedies in certain instances.
SECTION 3.03 CONSENTS AND APPROVALS; CONFLICTS. No filing with or
notice to, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the execution and delivery by Purchaser of
this Agreement or the consummation by Purchaser of the transactions contemplated
hereby. Neither the execution and delivery of this Agreement by Purchaser, nor
the consummation of the
20
transactions contemplated hereby, will violate any of the provisions of the
Articles of Organization or Operating Agreement of Purchaser; or conflict with
or result in a breach of, or give rise to a right of termination of, or
accelerate the performance required by, any terms of any court order, consent
decree, note, bond, mortgage, indenture, deed of trust, Lease, license, loan
agreement or other instrument or obligation binding on Purchaser or to which
Purchaser is subject or a party, or constitute a default thereunder, or result
in the creation of any Encumbrance upon any of the assets of Purchaser, except
for any such conflict, breach, termination, acceleration, default or Encumbrance
which would not have a Material Adverse Effect on (a) the business, assets or
financial condition of Purchaser or (b) Purchaser's ability to consummate any of
the transactions contemplated hereby.
SECTION 3.04 INVESTMENT REPRESENTATION. Purchaser, together with its
attorneys, accountants and other advisors, possess such Knowledge and experience
in financial matters and in matters pertaining to video poker gaming as to be
able to evaluate the merits and risks of the purchase of the Stock from Sellers.
SECTION 3.05 NO REPRESENTATIONS AND WARRANTIES; CONDUCT OF DUE
DILIGENCE. Other than the express representations and warranties, covenants and
agreements made by Sellers in this Agreement and any of the exhibits and
schedules hereto, none of the Sellers, nor any person or entity acting by or on
behalf of any of the Sellers has made any representation, warranty, inducement,
promise, agreement, assurance or statement, oral or written, of any kind to
Purchaser in this Agreement or elsewhere, upon which Purchaser is relying in
entering into this Agreement and the transactions contemplated hereby. Purchaser
has conducted such investigation and inspection of the business, operations,
assets and liabilities, results of operations and financial condition of VSI as
Purchaser may have deemed necessary or appropriate for the purpose of entering
into this Agreement and the transactions contemplated hereby. In executing this
Agreement, Purchaser is relying only on its own investigation of VSI and the
accuracy of the express representations and warranties, covenants and agreements
made by Sellers in the Transaction Documents, and not on any other
representations, warranties, inducements, promises, agreements, assurances,
omissions or statements of any kind or nature.
SECTION 3.06 BROKERAGE FEES. No Person is entitled to any brokerage or
finder's fee or other commission from Purchaser in respect of this Agreement or
the transactions contemplated hereby.
SECTION 3.07 SECURITIES ACT REPRESENTATIONS. Purchaser is acquiring the
Stock for investment for its own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof in violation of
the Securities Act of 1933, as amended (the "SECURITIES ACT"). Purchaser does
not have any present intention of selling, granting any participation in, or
otherwise distributing any of the Stock otherwise than pursuant to an effective
registration statement under the Securities Act or in a transaction exempt from
the registration requirements under the Securities Act and applicable state
securities laws. Purchaser does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Stock.
21
SECTION 3.08 EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES. All of
the representations and warranties of Purchaser in this Agreement shall be true
in all respects on the Closing Date and shall be deemed to have been made again
by Purchaser on and as of the Closing Date.
ARTICLE 4
PRE-CLOSING COVENANTS
SECTION 4.01 LEGAL REQUIREMENTS. Subject to the conditions set forth in
Article 5 and to the other terms and provisions of this Agreement, each of the
Parties to this Agreement agrees to take, or cause to be taken, all reasonable
actions necessary to comply promptly with all legal requirements applicable to
it with respect to the transactions contemplated by this Agreement and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon any of them. Purchaser and Sellers will take
all reasonable actions necessary to obtain, and will cooperate with each other
in obtaining, any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity or other public or private party, required to be
obtained or made by it or the taking of any action contemplated by this
Agreement.
SECTION 4.02 ACCESS TO PROPERTIES AND RECORDS. Until the Closing Date,
Sellers shall cause VSI to allow Purchaser and its authorized representatives
reasonable access, during normal business hours and on reasonable notice, to
VSI's properties, offices, vehicles, equipment, inventory and other assets,
documents, files, books and records, contracts and other documents in order to
allow Purchaser a full opportunity to make such investigation and inspection as
it desires of VSI's business and assets. Sellers shall further cause VSI to use
reasonable efforts to cause the employees, counsel and regular independent
certified public accountants of VSI to be available upon reasonable notice to
answer questions of VSI's representatives concerning the business and affairs of
VSI, and shall further use reasonable efforts to cause them to make available
all relevant books and records in connection with such inspection and
examination, including without limitation, work papers for all audits and
reviews of financial statements of VSI. Purchaser shall be subject to
confidentiality provisions of Article 9.
SECTION 4.03 CONDUCT OF BUSINESS. LVI covenants and agrees that, from
and after the date of this Agreement and until the Closing, except as otherwise
specifically consented to or approved by Purchaser in writing:
(a) Carry on in Regular Course. Sellers shall cause VSI to maintain its
owned and leased properties in good operating condition and repair, and to make
all necessary renewals, additions and replacements thereto, to carry on its
business diligently and substantially in the same manner as heretofore and not
make or institute any unusual or novel methods of manufacture, purchase, sale,
lease, management, accounting or operation, and to maintain its net working
capital and stockholders' equity in a manner consistent with its operations
during the twelve-month period prior to the date hereof.
(b) No General Increases. Other than raises or bonuses granted to
employees
22
in connection with annual reviews conducted in accordance with past company
practices, Sellers shall not permit VSI to grant any general or uniform increase
in the rates of pay of employees of VSI, nor grant any general or uniform
increase in the benefits under any bonus or pension plan or other contract or
commitment to, for or with any employees; and VSI shall not increase the
compensation payable or to become payable to officers, key salaried employees or
agents, or increase any bonus, insurance, pension or other benefit plan, payment
or arrangement made to, for or with any such officers, key salaried employees or
agents.
(c) No Dividends, Issuances, Repurchases, etc. Except as set forth on
Section 4.03(c) of the Disclosure Letter or as otherwise expressly provided in
this Agreement or the Disclosure Letter hereto, Sellers shall not permit VSI to
declare or pay any dividends (whether in cash, shares of stock or otherwise) on,
or make any other distribution in respect of, any shares of its capital stock,
or issue, purchase, redeem or acquire for value any shares of its capital stock
or any options or other rights related thereto.
(d) Contracts and Commitments. Sellers shall not permit VSI to enter
into any contract or commitment or engage in any transaction not in the usual
and ordinary course of business or not consistent with the customary business
practices of VSI.
(e) Purchase and Sale of Assets. Sellers shall not permit VSI to
purchase any capital asset with a market value in excess of $5,000, or any
capital assets of market value aggregating in excess of $10,000 unless done so
in the ordinary course of business. Sellers shall not permit VSI to sell or
otherwise dispose of any capital asset.
(f) Insurance. Sellers shall cause VSI, to the best Knowledge of
Sellers, to maintain up until the Closing Date with financially sound and
reputable insurance companies, funds or underwriters, adequate insurance
(including without limitation the insurance described on Section 2.14 of the
Disclosure Letter) of the kinds, covering such risks and in such amounts and
with such deductibles and exclusions as are consistent with prudent business
practice.
(g) Preservation of Organization. Sellers shall cause VSI to use all
reasonable efforts to preserve its business organization intact, and to preserve
for Purchaser the present relationships of VSI's suppliers and customers and
others having business relations with VSI.
(h) No Default. Sellers shall not permit VSI to do any act or omit to
do any act, or permit any act or omission to act, which will cause a material
breach of any contract, commitment or obligation of VSI or which might
jeopardize any of the Licenses.
(i) Compliance with Laws. Sellers shall cause VSI to comply with all
laws, regulations and orders applicable with respect to its business.
(j) Advice of Change. Sellers will promptly advise Purchaser in writing
of any Material Adverse Effect.
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(k) No Shopping. Sellers will not, prior to the Closing Date or
Termination of this Agreement pursuant to Section 7.01, and will not permit any
of their respective Affiliates or VSI to, negotiate for, solicit or enter into
any agreement with respect to the sale or transfer of any shares of Stock or any
substantial portion of the assets of VSI or any merger or other business
combination of VSI to or with any Person other than Purchaser.
SECTION 4.04 PUBLIC STATEMENTS. Prior to the Closing Date, none of the
Parties to this Agreement shall, and each party shall use all reasonable efforts
so that none of its or his advisors, officers, directors or employees shall,
except with the prior written consent of the other Parties, publicize, announce
or describe to any third person, except their respective advisors and employees,
the execution or terms of this Agreement, the Parties hereto or the transactions
contemplated hereby, except as required by law, applicable gaming authorities,
the rules of the New York Stock Exchange, the Nasdaq Stock Market, the rules and
regulations of the SEC, or as required pursuant to this Agreement to obtain the
consent of such third person.
ARTICLE 5
CLOSING CONDITIONS
SECTION 5.01 CONDITIONS APPLICABLE TO ALL PARTIES. The respective
obligations of each party to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction or, where permissible, waiver by
such party of the following conditions at or prior to the Closing Date:
(a) No statute, rule, regulation, executive order, decree, preliminary
or permanent injunction or restraining order shall have been enacted, entered,
promulgated or enforced by any court of competent jurisdiction or other
Governmental Entity which prohibits or restricts the consummation of the
transactions contemplated by this Agreement, and no action, suit, claim or
proceeding by a state or federal Governmental Entity before any court or other
Governmental Entity shall have been commenced and be pending which seeks to
prohibit or restrict the consummation of the transactions contemplated by this
Agreement.
(b) The transactions under the Asset Purchase Agreement entered into
August 31, 2004 between Churchill Downs Incorporated and Fair Grounds
Corporation, as amended, shall have closed; provided, however, that the
obligations of Purchaser to consummate the transaction contemplated by this
Agreement shall not be subject to this condition to the extent that such
transaction does not close based on any action of Purchaser which constitutes a
breach of that agreement.
(c) The Parties shall have agreed upon and executed a Flow of Funds
Memorandum that details the payment instructions and wiring information for all
of the payments due pursuant to Section 1.03 and Section 1.06.
SECTION 5.02 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate the transactions contemplated by this Agreement are
subject
24
to the satisfaction of the following conditions unless waived by Purchaser:
(a) The representations and warranties of Sellers, as set forth in this
Agreement, shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by this Agreement, and Sellers
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date,
including the delivery of all closing items for the benefit of Purchaser.
(b) All consents and approvals of third parties necessary for the
consummation of the transactions contemplated by this Agreement shall have been
obtained on reasonable commercial terms and conditions. Sellers shall obtain all
necessary permits, authorizations, consents and approvals required by
Governmental Entities prior to the Closing Date, other than permits, authorized
consents and approvals, the lack of which will not have a Material Adverse
Effect.
(c) There shall not have been any material damage to or loss or
destruction of any properties or assets owned or leased by VSI that would cause
a Material Adverse Effect.
(d) There shall be no mortgages, unsatisfied judgments, or pending
litigation with any claim for injunctive relief or for damages in excess of
$10,000 filed against VSI and there shall be no mortgages or liens against the
Stock.
(e) LVI shall have delivered to Purchaser an accurate, complete and
up-to-date aging of all of the accounts receivable of VSI which existed as of a
date that is not more than two days prior to the Closing Date.
(f) All corporate and other approvals required to be obtained by
Sellers in connection with the transactions contemplated by the Transaction
Documents and the form and substance of all certificates and other documents
delivered hereunder shall be reasonably satisfactory in form and substance to
Purchaser.
(g) All of the directors and officers of VSI shall have resigned their
positions with VSI effective as of the Closing other than Fred Bergquist, and
prior thereto shall have executed appropriate releases of VSI and such
appropriate documents with respect to the transfer or establishment of bank
accounts, signing authority, etc., as Purchaser shall have reasonably requested.
(h) Sellers shall have delivered to Purchaser:
(i) a Certificate of Good Standing, issued by the
Secretary of State of the State of Louisiana
evidencing VSI's corporate good standing in such
state;
(ii) a copy of the Articles of Incorporation and By-laws
of VSI (each as
25
amended to date) and an incumbency certificate
listing the officers and directors of VSI, each duly
certified by an officer of VSI;
(iii) the minute books, stock certificate and transfer
books, corporate seal and other corporate records of
VSI;
(iv) a consent from the spouse of each individual Seller,
duly executed and in the form of Exhibit "G" (the
"SPOUSAL CONSENT");
(v) all keys and authorizations for transfer of VSI's
post office boxes;
(vi) all funds required to be delivered or paid by Sellers
at the Closing; and
(vii) a certificate of a duly authorized officer of LVI,
dated as of the Closing Date, certifying as to the
incumbency of any person executing this Agreement or
any certificate or other document delivered in
connection with this Agreement on behalf of LVI and
certifying such other matters as Purchaser reasonably
requests.
(i) Sellers shall have delivered to Purchaser in writing, at and as of
the Closing, a certificate duly executed by Sellers, in form and substance
reasonably satisfactory to Purchaser and Purchaser's counsel, certifying that
the conditions in each of Sections 5.02(a) - (h) have been satisfied.
SECTION 5.03 CONDITIONS TO OBLIGATIONS OF SELLERS. The obligations of
Sellers to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions unless waived by all
Sellers:
(a) The representations and warranties of Purchaser as set forth in
this Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by this Agreement, and Purchaser
shall have performed in all material respects all obligations required to be
performed by it in this Agreement at or prior to the Closing Date, including the
delivery of all closing items for the benefit of Sellers.
(b) Sellers shall have received a certificate of a duly authorized
officer of Purchaser, dated as of the Closing Date, certifying as to the
incumbency of any person executing this Agreement or any certificate or other
document delivered in connection with this Agreement and certifying such other
matters as Sellers shall reasonably request.
(c) Purchaser shall have paid (i) the Sellers the Purchase Price
pursuant to the percentages and wire instructions set forth on Section 1.02 of
the Disclosure Letter, (ii) the Sellers the Bankroll Amount PLUS the
Reimbursements PLUS $5,000 in petty cash by (A) making wire transfers of the
Bankroll Amount MINUS the Undeposited Net Win PLUS the Reimbursements PLUS
$5,000 in petty cash MINUS $500,000 as of the Closing to the
26
Sellers in the percentage allocation set forth on Section 1.06 of the Disclosure
Letter, (B) writing and delivering a check to each of the Sellers for writing
and delivering a check to each of the Sellers for the Seller's share of the
Undeposited Net Win in the percentage allocation set forth in Section 1.06 of
the Disclosure Letter, and (C) making a wire transfer of $500,000 as of the
Closing to the Escrow Agent.
(d) All corporate and other approvals required to be obtained by
Purchaser in connection with the transactions contemplated by the Transaction
Documents and the form of all certificates and other documents delivered
hereunder shall be reasonably satisfactory to LVI.
(e) The suit entitled Fair Grounds Corporation and Finish Line
Management Corp. v. Video Services, Inc. in U.S. Bankruptcy Court, Eastern
District of Louisiana, shall have been dismissed with prejudice.
(f) Purchaser shall have delivered to Sellers, in writing, at and as of
the Closing, a certificate duly executed by Purchaser, in form and substance
reasonably satisfactory to Sellers and Sellers' counsel, certifying that the
condition in each of Sections 5.03 (a) - (e) have been satisfied.
ARTICLE 6
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing Date:
SECTION 6.01 GENERAL. In case, at any time after the Closing Date, any
further action is necessary to carry out the purposes of this Agreement
(specifically but without limitation those matters required to satisfy Section
5.01), each of the Parties will take such further action as any other party
reasonably may request.
SECTION 6.02 EMPLOYEE RETENTION.
(a) Purchaser may, in its discretion, offer employment to any employees
of VSI, but it is under no obligation to offer employment to any employee of
VSI. Sellers shall be responsible for all payroll, vacation pay, sick pay,
severance pay and other benefits and obligations owed to or accrued to any
employee of VSI as of the Closing Date. Sellers shall use all reasonable efforts
to cause all employees of VSI to return to VSI all company property, including
credit cards. With respect to any employee of VSI who is not retained by
Purchaser, Sellers shall be responsible for any severance expenses and all other
contractually or legally imposed obligation and liabilities, including without
limitation any requirements, if applicable, of the Worker's Adjustment and
Retraining Notification Act of 1988 ("WARN ACT"). With respect to such
employees, Sellers will comply fully with the WARN Act and hold Purchaser
harmless against liabilities that arise out of its violation by Sellers. With
respect to any termination or layoff by Purchaser of employees after the Closing
Date, Purchaser will comply fully with the WARN Act and hold Sellers harmless
against liabilities that arise out of such termination by Purchaser.
27
(b) Notwithstanding anything in this Section 6.02 to the contrary, from
the Closing Date to the first anniversary of the Closing Date, Purchaser shall,
or shall cause VSI to, provide Fred Bergquist and Leslie Hepting, salaries and
wages at no less than the levels of such salaries and wages paid to them
immediately prior to the Closing Date, and bonus opportunities and employee
benefits that are the same as those provided to other similarly situated
employees of Purchaser and its affiliates.
SECTION 6.03 NON-COMPETITION; NON-SOLICITATION.
(a) For a period of two years from the Closing Date, Alliance and the
other Sellers shall not, and Alliance shall cause its subsidiaries, successors
and assigns, not to:
(i) carry on or engage in a business similar to that of
the Business in the Louisiana parishes of Orleans,
Jefferson, Lafourche, St. Bernard, St. Charles, St.
John the Baptist, St. Tammany, and Terrebonne;
pursuant to this obligation, Alliance shall not
directly or indirectly own, operate, manage, control
or participate in the ownership, management,
operation or control, or be paid or employed by, or
otherwise become associated with, affiliated with or
provide assistance to, whether as a consultant,
independent contractor, shareholder, partner, agent,
associate, principal, representative or in any other
capacity, any business entity that directly or
indirectly competes with the Business; or
(ii) not directly or indirectly, for itself or on behalf
of any other person or entity, solicit or induce any
person, firm, corporation or other entity who is, was
or had been a customer of the Business, or any
prospective customer of the Business, to transfer or
divert their patronage or business from the Business
to any other entity engaged in a business that
directly or indirectly competes with the Business in
the Louisiana parishes of Orleans, Jefferson,
Lafourche, St. Bernard, St. Charles, St. John the
Baptist, St. Tamman, and Terrebonne; or
(iii) solicit the employment of any employee of Purchaser
or, after the Closing, VSI, unless (A) such employee
resigns voluntarily (without any solicitation from
Alliance or any of its subsidiaries, successors and
assign), or (B) Purchaser consents in writing to such
solicitation, or (C) such employee is terminated by
his or her employer or the Purchaser after the
Closing Date.
(b) In the event any provision set forth in Section 6.03(a) of this
Agreement should be deemed unenforceable under controlling law, Alliance and the
Purchaser agree that such provision shall be reformed by the court to permit
enforcement of such provision to the maximum extent permitted under applicable
law. Alliance acknowledges that its breach or threatened or attempted breach of
its obligations under Section 6.03(a) of this Agreement will cause irreparable
harm to the Purchaser not compensable by monetary
28
damages alone and that the Purchaser shall be entitled, in addition to all other
available remedies, to temporary and permanent injunctive relief without being
required to prove irreparable harm or furnish any bond of other security.
(c) Notwithstanding anything in this Section 6.03 to the contrary,
nothing contained in this Agreement shall prohibit Alliance or any of its
subsidiaries, successors and assigns from:
(i) purchasing and holding as an investment not more than
5% of any class of the issued and outstanding and
publicly traded (on a recognized national or regional
securities exchange or in the over-the-counter
market) security of any corporation, partnership or
other business entity that conducts a business in
competition with the Business; or
(ii) the placement, distribution and advertising by
Alliance and its Affiliates through sales or leases
in the ordinary course of their business of gaming
devices, systems or games under participation
agreements or daily fee arrangements, or in wide area
progressive networks under authority of the Louisiana
licenses held by Alliance or its Affiliates, or other
activities of a distributor or manufacturer of gaming
devices or systems, so long as Alliance or its
Affiliates perform the customary activities of a
distributor or manufacturer of gaming devices or
systems or an operator of an inter-casino linked
system.
(d) Notwithstanding anything in this Section 6.03 to the contrary, the
provisions of this Section 6.03 shall not be deemed to be violated in the event
that a Change of Control of Alliance, causes Alliance or its successor entity to
compete with the Business as conducted on the Closing Date if (i) the Company or
entity causing the Change of Control was already competing with the Business
prior to such Change of Control and (ii) the consummation of such Change of
Control occurs at least six months after the Closing Date.
(e) Notwithstanding anything in this Section 6.03 to the contrary,
nothing contained in this Agreement shall prohibit the Sellers from purchasing
and holding as an investment not more than 5% of any class of the issued and
outstanding and publicly traded (on a recognized national or regional securities
exchange or in the over-the-counter market) security of any corporation,
partnership or other business entity that conducts a business in competition
with the Business.
(f) Notwithstanding anything in this Section 6.03 to the contrary,
nothing contained in this Agreement shall prohibit Steven M. Rittvo from
engaging in the business of consulting, providing financial advice and capital
raising activities for entities in the gaming industry (provided that Mr. Rittvo
does not acquire any ownership interest in connection with any such capital
raising activities), including but not limited to operating his current
businesses, The Innovation Group, Innovation Capital, L.L.C. and Urban
29
Systems, Inc., and any new businesses which he may form to offer consulting
services, providing financial advice and capital raising activities for gaming
entities in the state of Louisiana.
SECTION 6.04 ALLIANCE GAMING CORPORATION 401K PROFIT SHARING PLAN. LVI
covenants to take such action to remove VSI as a participating employer under
the Alliance Gaming Corporation 401(k) Savings Plan (the "ALLIANCE PLAN"). LVI
agrees to take all action so that all employees of VSI who are participants in
the Alliance Plan and are actively employed by VSI on the Closing Date shall be
100 percent vested in their account balances under the Alliance Plan.
ARTICLE 7
TERMINATION AND AMENDMENT
SECTION 7.01 TERMINATION. This Agreement may be terminated and may be
abandoned at any time prior to the Closing Date:
(a) By unanimous mutual consent of Purchaser and all Sellers;
(b) By Purchaser if (i) there shall have been a material breach of any
representation, warranty, covenant or agreement on the part of Sellers and such
breach shall not have been cured prior to the latest of (A) ten (10) days
following notice of such breach (provided that if such breach cannot be cured
within 10 days with the exercise of reasonable diligence, then Seller shall have
such additional time to cure such breach), and (B) the Closing Date; or (ii) any
permanent injunction or other order of a court or other competent Governmental
Entity preventing the transactions contemplated by this Agreement shall have
become final and non-appealable;
(c) By Sellers if (i) there shall have been a material breach of any
representation, warranty, covenant or agreement on the part of Purchaser, and
such breach shall not have been cured prior to the latest of (A) ten (10) days
following notice of such breach (provided that if such breach cannot be cured
within 10 days with the exercise of reasonable diligence, then Purchaser shall
have such additional time to cure such breach) and (B) the Closing Date; or (ii)
any permanent injunction or other order of a court or other competent
Governmental Entity preventing the transactions contemplated by this Agreement
shall have become final and non-appealable; or
(d) By Purchaser or Sellers if the transactions contemplated by this
Agreement shall not have been consummated on or before December 15, 2004;
provided, that the right to terminate this Agreement under Section 7.01(d) shall
not be available to any party whose breach of its representations and warranties
in this Agreement or whose failure to perform any of its covenants and
agreements under this Agreement has resulted in the failure of the transactions
contemplated by this Agreement to occur on or before such date.
SECTION 7.02 EFFECT OF TERMINATION. In the event of a termination of
this Agreement as provided in Section 7.01, this Agreement shall forthwith
become void and
30
there shall be no liability or obligation under any provisions hereof on the
part of Purchaser or Sellers, except (a) pursuant to the covenants and
agreements contained in Section 10.01 and (b) to the extent that such
termination results from the willful material breach by a party hereto of any of
its representations, warranties, covenants or agreements set forth in this
Agreement, in which case the non-breaching party shall have a right to recover
its damages caused thereby as limited by Article 9 hereof.
SECTION 7.03 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by each of the Parties hereto.
SECTION 7.04 EXTENSION; WAIVER. At any time prior to the Closing Date,
Purchaser and Sellers may, in their respective sole discretion and to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the Parties hereto; (b) waive any inaccuracies in
the representations and warranties contained herein or in any documents
delivered pursuant thereto; and (c) waive compliance with any of the agreements
or conditions contained herein. Any agreement on the part of a Party hereto to
any such extension or waiver shall be valid only if set forth in a written
instrument signed by or on behalf of such Party.
ARTICLE 8
TAX MATTERS
SECTION 8.01 ADDITIONAL DEFINITIONS. As used in this Agreement, the
following terms shall have the following definitions:
"PRE-CLOSING PERIOD" means any taxable period that ends on or before
the Closing Date.
"POST-CLOSING PERIOD" means any taxable period that ends after the
Closing Date.
"TAX RETURN" means any return, declaration, report, claim for refund,
information return, statement or other document (including any related or
supporting estimates, elections, schedules, statements, attachments or
information) filed or required to be filed in connection with the determination
assessment or collection of any Tax or the administration of any law, regulation
or administrative requirements relating to any Tax, and including any amendments
thereto.
SECTION 8.02 PREPARATION AND FILING OF TAX RETURNS.
(a) LVI will be responsible for preparing and filing (or causing the
preparation and filing) of all VSI Tax Returns for any Pre-Closing Period. Any
such Tax Return shall be prepared in a manner consistent with the prior
practices and positions of VSI in the preparation of its Tax Returns, as
determined in the good faith judgment of Sellers; PROVIDED, HOWEVER, that in all
events such Tax Returns shall be prepared in a manner consistent with applicable
law. Sellers shall permit Purchaser to review and comment on each such Tax
Return prior to filing and shall make such revisions to such Tax Returns as
Sellers deem acceptable in their sole and absolute discretion. Purchaser and
Sellers
31
shall cooperate (each at their own expense) in the preparation and filing of any
Tax Returns referred to in this clause (a). On or before the due date of such
Tax Returns, Sellers shall pay (or advance to Purchaser or VSI the funds to
pay), all Taxes arising with respect to such Tax Returns. Sellers shall be
responsible for all Taxes and additions, including all assessments, interest,
penalties and fines, for all Tax periods within the Pre-Closing Period,
including without limitation for Taxes of any entity other than VSI which are
required to be paid by VSI. Should there be a refund on any Tax Return due VSI
with regard to the Pre-Closing Period, the net amount of such refund after
deduction of any expenses incurred by VSI and Purchaser directly related to the
cost associated with obtaining the refund shall be paid to Sellers.
(b) Purchaser shall be responsible for preparing and filing all VSI Tax
Returns for any Post-Closing Period. Any such Tax Returns shall be prepared in a
manner consistent with the prior practices and positions of VSI in the
preparation of its Tax Returns, as determined in the good faith judgment of
Purchaser; provided, however, that in all events such Tax Returns shall be
prepared in a manner consistent with applicable law. For any Post-Closing Period
which includes any period prior to the Closing, Purchaser shall permit Sellers
to review and comment on such Tax Return prior to filing and shall make such
revisions to such Tax Return as Purchaser deems acceptable in its sole and
absolute discretion. Sellers shall not be responsible for any Taxes for any Tax
period which begins after the Pre-Closing Period. For any Tax period in the
Post-Closing Period which begins prior to the Closing, Sellers shall be
responsible for those Taxes attributable to that portion of the Tax period prior
to and through the Closing Date.
SECTION 8.03 SELLERS' CONTEST RIGHTS. Sellers shall have the sole right
(but not the obligation) to control, defend, settle, compromise or prosecute in
any manner any audit, examination, investigation, hearing or other proceeding
with respect to any Tax Return of VSI involving only Pre-Closing Periods.
Sellers shall not settle, compromise or abandon without Purchaser's prior
consent, which consent shall not be unreasonably withheld, conditioned or
delayed, any issue within Sellers' control under the preceding sentence. In
addition, (a) Sellers shall keep Purchaser duly informed of any proceedings with
respect to a Pre-Closing Period in a timely manner and (b) Purchaser (or its
properly authorized representative) shall be entitled to receive in a timely
manner copies of all correspondence and documents relating to such proceedings
and may, at its option, observe such proceedings (including any associated
meetings or conferences) and participate (at its own expense) in such
proceedings.
SECTION 8.04 PURCHASER'S CONTEST RIGHTS. Except as expressly provided
in Section 8.03, Purchaser shall have the sole right (but not the obligation) to
control, defend, settle, compromise, or prosecute in any manner an audit,
examination, investigation, hearing or other proceeding with respect to any Tax
Return of VSI that relate to (a) only Post-Closing Periods, or (b) both
Pre-Closing and Post-Closing Periods; provided, however, that Taxes or Tax
issues for a Pre-Closing Period may not be settled or compromised without the
prior written consent of Sellers, which consent shall not be unreasonably
withheld, conditioned or delayed. In addition, (i) Purchaser shall keep Sellers
duly informed of any proceedings in connection with a Pre-Closing Period in a
32
timely manner and (ii) Sellers (or their properly authorized representatives)
shall be entitled to receive in a timely manner copies of all correspondence and
documents relating to such proceedings and may, at their option, observe such
proceedings (including any associated meetings or conferences).
SECTION 8.05 NOTIFICATION REQUIREMENTS.
(a) Purchaser shall promptly forward to Sellers all written
notifications and other written communications from any Tax authority received
by Purchaser or VSI relating to any Pre-Closing Period of VSI. Purchaser shall
execute or cause to be executed any power of attorney or other document or take
such actions as required by Sellers to enable Sellers to take any action Sellers
reasonably deem appropriate with respect to any proceedings relating to any
Pre-Closing Period.
(b) Sellers shall promptly forward (or cause to be forwarded) to
Purchaser all written notifications and other written communications from any
Tax authority received by Sellers relating to any Post-Closing Period of VSI.
Sellers shall execute or cause to be executed any power of attorney or other
document or take such actions as requested by Purchaser to enable Purchaser to
take any action Purchaser reasonably deems appropriate with respect to any
proceedings relating to any Post-Closing Period of VSI.
SECTION 8.06 COOPERATION. Subject to Section 8.07, the Parties shall
each at their own expense cooperate with, and make available to, each other such
Tax data and other information as may be reasonably required in connection with
(a) the preparation or filing of any Tax Return, election, consent, or
certification, or any claim for refund, (b) any determinations of liability of
Taxes, or (c) an audit, examination or other proceeding with respect to Taxes
("TAX DATA"). Such cooperation shall include, without limitation, making their
respective employees and independent auditors or accountants reasonably
available on a mutually convenient basis for all reasonable purposes, including,
without limitation, to provide explanations and background information and to
permit the copying of books, records, schedules, workpapers, notices, revenue
agent reports, settlement or closing agreements and other documents containing
the Tax Data ("TAX DOCUMENTATION"). Notwithstanding the foregoing, Purchaser
shall not be obligated to provide to Sellers any Tax Data or Tax Documentation
for Tax periods commencing after the Closing Date, unless specifically requested
by Sellers in connection with a Tax matter for which Sellers are responsible.
SECTION 8.07 RETENTION OF DATA AND DOCUMENTATION. The Tax Data and the
Tax Documentation shall be retained by VSI until one year after the expiration
of all applicable statutes of limitations (including extensions thereof);
provided, however, that in the event an audit, examination, investigation or
other proceeding has been instituted prior to the expiration of an applicable
statute of limitations, the Tax Data and Tax Documentation relating thereto
shall be retained by VSI until there is a final determination thereof (and the
time for any appeal has expired). VSI covenants to provide access and copies any
of such materials as promptly as practicable upon request to any of the Sellers.
33
SECTION 8.08 TAX AUDIT COSTS. Sellers shall be responsible in the
percentages set forth on Section 1.06 of the Disclosure Letter for paying all
costs and fees incurred with respect to any proceedings described in Section
8.03 (except for those costs and fees incurred directly by Purchaser) and
Purchaser shall be responsible for paying all costs and fees incurred with
respect to any proceedings described in Section 8.04 (except for those costs and
fees incurred directly by Sellers).
SECTION 8.09 TAX SHARING AGREEMENTS. Any tax sharing agreement between
VSI and any other entity is terminated as of the Closing Date and will have no
further effect for any taxable year (whether the current year, a future year, or
a past year).
SECTION 8.10 RETURNS FOR PERIODS THROUGH THE CLOSING DATE. Sellers will
include the income of VSI (including any deferred income triggered into income
by Reg. ss. 1.1502-3 and any excess loss accounts taken into income under Reg
ss. 1.1502-19) on the VSI Group's consolidated federal income Tax Returns for
all periods through the Closing Date and pay any federal income Taxes
attributable to such income. Sellers will take no position or cause to be taken
any position on such returns that would adversely affect VSI after the Closing
Date. The income of VSI will be apportioned to the period up to and including
the Closing Date and the period after the Closing Date by closing the books of
VSI as of the end of the Closing Date.
SECTION 8.11 CARRYBACKS. Sellers will immediately pay to Purchaser any
Tax refund (or reduction in Tax liability) resulting from a carryback of any
post acquisition Tax attribute to VSI into the VSI Group's consolidated Tax
Return, when such refund or reduction is received. Sellers will cooperate with
VSI in obtaining such refunds (or reductions in Tax liability), including
through the filing of amended Tax Returns or refund claims.
SECTION 8.12 RETENTION OF CARRYOVERS. Sellers will not elect to retain
any net operating carryovers or capital loss carryovers of VSI under Reg. ss.
1.1502-20(g).
ARTICLE 9
INDEMNIFICATION; REMEDIES
SECTION 9.01 INDEMNIFICATION BY SELLERS. Except as otherwise expressly
provided in this Article 9, LVI (and Alliance jointly, severally, and solidarily
with LVI) and the other Sellers severally shall defend, indemnify and hold
harmless Purchaser and its officers, directors, employees, affiliates,
successors and assigns (collectively, "PURCHASER'S INDEMNIFIED PERSONS"), for
its own acts and shall reimburse Purchaser or Purchaser's Indemnified Persons,
for, from and against each and every demand, claim, action, loss (which shall
include any diminution in value), liability, judgment, damage, cost and expense
(including, without limitation, interest, penalties, costs of preparation and
investigation, and the reasonable fees, disbursements and expenses of attorneys,
accountants and other professional advisors) (collectively, "LOSSES") imposed on
or incurred by Purchaser or Purchaser's Indemnified Persons, directly or
indirectly, relating to, resulting from or arising out of: (a) any material
inaccuracy in a representation or warranty made by such Seller in this Agreement
or any certificate, document or other
34
instrument delivered or to be delivered pursuant hereto in any respect whether
or not Purchaser or Purchaser's Indemnified Persons relied thereon or had
Knowledge thereof or (b) any material breach or nonperformance of any covenant,
agreement or other obligation of such Seller or any certificate, document or
other instrument delivered or to be delivered pursuant hereto; this
indemnification obligation set forth herein shall be subject to the following:
(i) No amount shall be payable by any Seller pursuant to
this Section 9.01, unless and until the aggregate
amount of Losses actually suffered or incurred by
Purchaser exceeds $100,000.00 ("SELLERS' INDEMNITY
BASKET") and then each Seller, as applicable, shall
indemnify Purchaser for such Losses including the
Sellers' Indemnity Basket; notwithstanding anything
in the foregoing to the contrary, Sellers' Indemnity
Basket shall not apply to any claim by Purchaser for
indemnity based upon there being any Indebtedness
outstanding at the Closing and Sellers shall be
obligated to indemnify Purchaser for all Losses
resulting from there being any Indebtedness
outstanding at the Closing; and
(ii) The maximum indemnity obligation of all Sellers,
collectively, shall not exceed $2,000,000.00.
SECTION 9.02 INDEMNIFICATION BY PURCHASER. Except as otherwise
expressly provided in this Article 9, Purchaser shall defend, indemnify and hold
harmless each Seller, LVI's officers, directors, employees, affiliates,
successors and assigns (collectively, "LVI'S INDEMNIFIED PERSONS") and shall
reimburse Sellers or LVI's Indemnified Persons, for, from and against all Losses
imposed on or incurred by Sellers or LVI's Indemnified Persons, directly or
indirectly, relating to, resulting from or arising out of: (a) any material
inaccuracy in any representation or warranty of Purchaser in this Agreement or
any certificate, document or other instrument delivered or to be delivered
pursuant hereto in any respect whether or not Sellers' or LVI's Indemnified
Persons relied thereon or had Knowledge thereof or (b) any material breach or
nonperformance of any covenant, agreement or other obligation of Purchaser or
any certificate, document or other instrument delivered or to be delivered
pursuant hereto; this indemnification obligation set forth herein shall be
subject to the following:
(i) No amount shall be payable by Purchaser pursuant to
this Section 9.02, unless and until the aggregate
amount of losses actually suffered or incurred by
Sellers and LVI's Indemnified Persons exceeds
$100,000.00 ("PURCHASER'S INDEMNITY BASKET") and then
Purchaser shall indemnify Sellers and LVI's
Indemnified Persons for such losses including the
Purchaser's Indemnity Basket.
(ii) The maximum indemnity obligation of Purchaser shall
not exceed $2,000,000.00.
SECTION 9.03 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS. If any third
party
35
demand, claim, action or proceeding shall be brought or asserted under this
Article 9 against an indemnified person or any successor thereto (the
"INDEMNIFIED PERSON") in respect of which indemnity may be sought under this
Article 9 from an indemnifying person or any successor thereto (the
"INDEMNIFYING PERSON"), the Indemnified Person shall give prompt written notice
thereof to the Indemnifying Person who shall have the right to assume its
defense, including the hiring of counsel reasonably satisfactory to the
Indemnified Person and the payment of all expenses; except that any delay or
failure to so notify the Indemnifying Person shall relieve the Indemnifying
Person of its obligations under this Article 9 only to the extent, if at all,
that it is prejudiced by reason of such delay or failure. The Indemnified Person
shall have the right to employ separate counsel in any of the foregoing actions,
claims or Proceedings and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the Indemnified Person
unless both the Indemnified Person and the Indemnifying Person are named as
parties and the Indemnified Person shall in good faith determine that
representation by the same counsel is inappropriate. In the event that the
Indemnifying Person, within ten (10) days after notice of any such action or
claim, does not assume the defense thereof, the Indemnified Person shall have
the right to undertake the defense, compromise or settlement of such action,
claim or proceeding for the account of the Indemnifying Person, subject to the
right of the Indemnifying Person to assume the defense of such action, claim or
proceeding with counsel reasonably satisfactory to the Indemnified Person at any
time prior to the settlement, compromise or final determination thereof.
Anything in this Article 9 to the contrary notwithstanding, the Indemnifying
Person shall not, without the Indemnified Person's prior consent, settle or
compromise any action, claim or proceeding or consent to the entry of judgment
with respect to any action, claim or proceeding for anything other than money
damages paid by the Indemnifying Person. The Indemnifying Person may, without
the Indemnified Person's prior consent, settle or compromise any such action,
claim or proceeding or consent to entry of any judgment with respect to any such
action, claim or proceeding that requires solely the payment of money damages by
the Indemnifying Person and that includes as an unconditional term thereof the
release by the claimant or the plaintiff of the Indemnified Person from all
liability in respect of such action, claim or proceeding.
SECTION 9.04 EXCLUSIVE REMEDY. The Parties acknowledge and agree that
the foregoing indemnification provisions in this Article 9 shall be the
exclusive remedy of the Sellers and Purchaser whether in contract, tort or other
applicable law, with respect to the transactions contemplated by this Agreement.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01 CONFIDENTIALITY. Until the Closing Date and subsequent to
the termination of this Agreement pursuant to Section 7.01, Purchaser will keep
confidential and will not disclose to any third party any information obtained
by it from Sellers in connection with this Agreement, except (a) that
information may be disclosed by Purchaser to its advisors in connection with the
negotiation of and the activities conducted pursuant to this Agreement, (b) to
the extent that such information is or becomes
36
generally available to the public through no act or omission of Purchaser in
violation of this Agreement, (c) as may be ordered by any court or other
governmental body having authority to compel such disclosure, or (d) as
otherwise required by applicable law, applicable gaming authority, the rules of
the New York Stock Exchange and the Nasdaq Stock Market or the rules and
regulations of the SEC.
SECTION 10.02 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) The representations and warranties in this Agreement (or in any
exhibit hereto) or in any instrument delivered pursuant to this Agreement shall
survive for two (2) years after Closing.
(b) The agreements and covenants provided for in this Agreement (or in
any exhibit or schedule hereto) shall survive the Closing for the period
provided in such covenant; provided however if no such period is provided, such
covenant or agreement shall survive for forty-two (42) months after Closing;
provided further that the agreements and covenants provided for in Article 8
shall survive until the expiration of the applicable statute of limitation. The
agreements provided for in any other instruments delivered pursuant to this
Agreement shall survive the Closing in accordance with the terms of such
instruments.
SECTION 10.03 NOTICES. All notices hereunder must be in writing and
shall be deemed to have been given upon receipt of delivery by: (a) personal
delivery to the designated individual, (b) certified or registered mail, postage
prepaid, return receipt requested, (c) a nationally recognized overnight courier
service (against a receipt therefore) or (d) facsimile transmission with
confirmation of receipt. All such notices must be addressed as follows or to
such other addresses as to which any party hereto may have notified the others
in writing:
If to Purchaser, then to:
c/o Churchill Downs Incorporated
700 Central Avenue
Louisville, Kentucky 40208
ATTN: Rebecca C. Reed
Fax number: 502-636-4439
With a copy to:
Wyatt, Tarrant & Comb, LLP
500 West Jefferson Street
Louisville, Kentucky 40202
ATTN: Robert A. Heath
Fax number: 502-589-0309
If to Sellers, then to:
37
Steven M. Rittvo
P. O. Box 2210
New Orleans, LA 70176
Fax number: (504) 523-5522
Ralph Capitelli
1100 Poydras St., Suite 2950
New Orleans, LA 70163
Fax number: (504) 582-2422
T. Carey Wicker III
1100 Poydras St., Suite 2950
New Orleans, LA 70163
Fax number: (504) 582-2422
With a copy to:
David J. Lukinovich
5740 Citrus Blvd., Suite 102
Harahan, LA 70123
Fax Number: (504) 818-0408
If to LVI, then to:
Robert L. Saxton
Louisiana Ventures, Inc.
c/o Alliance Gaming Corporation
6601 S. Bermuda Rd.
Las Vegas, NV 89119
Fax number: (702) 270-7679
With a copy to:
Daniel K. Rester
Adams and Reese, LLP
451 Florida St., 19th Floor
Bank One Center
Baton Rouge, LA 70801
Fax Number: (225) 336-5220
SECTION 10.04 HEADINGS; GENDER. When a reference is made in this
Agreement to a section, exhibit or schedule, such reference shall be to a
section, exhibit or schedule of this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. All personal pronouns used in this Agreement shall include the
other genders, whether used in the masculine, feminine or neuter gender, and the
singular shall include the plural and vice versa, whenever and as
38
often as may be appropriate.
SECTION 10.05 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement (including the documents, exhibits, and instruments referred to
herein), and the other Transaction Documents (a) constitute the entire agreement
and supersede all prior agreements, understandings and communications, both
written and oral, between Sellers on the one hand and Purchaser on the other
hand with respect to the subject matter hereof, and (b) are not intended to
confer upon any person other than the Parties hereto and VSI any rights or
remedies hereunder.
SECTION 10.06 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Louisiana without regard
to any applicable principles of conflicts of law.
SECTION 10.07 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the Parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other Parties.
SECTION 10.08 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by reason of any
rule of law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any adverse manner to either party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
Parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the Parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible, and in any such case such term or provision
shall be deemed amended to the extent necessary to make it no longer invalid,
illegal or unenforceable.
SECTION 10.09 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same document. Fax signatures will be
valid and deemed original for all purchases under this Agreement.
SECTION 10.10 EXPENSES. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accounts, incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the Party incurring such cost and expenses, whether or not the Closing
shall have occurred. No Party shall remit any brokerage fees in connection with
this Agreement.
SECTION 10.11 AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Purchaser and Sellers' Representatives. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or
39
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
SECTION 10.12 CONSTRUCTION. The Parties have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
SECTION 10.13 UNDERSTANDING. The Parties stipulate and agree that at
all times during the course of the negotiations surrounding the execution and
delivery of this Agreement, they, to the extent deemed necessary or advisable in
their sole discretion, have been advised and assisted by competent counsel of
their own choosing and that they have been fully advised by such counsel of the
effect of each term, condition, provision and stipulation contained herein.
SECTION 10.14 ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association under its
Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
hearings for any such arbitration shall be held in New Orleans, Louisiana.
ARTICLE 11
INTERVENORS
SECTION 11.01 SPOUSAL CONSENT. LEE RETZGER RITTVO, wife of Steven M.
Rittvo, LINDA CAPITELLI, wife of Ralph Capitelli, and FREDERICKA WICKER, wife of
T. Carey Wicker III, each acknowledges and declares that she intervenes and
appears herein for the express purpose of joining in the sale of the Stock by
her respective husband and hereby expressly consents to this Stock Purchase
Agreement. Each represents that she has duly executed the Spousal Consent.
[Signatures on following page]
40
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
signed themselves or by their respective duly-authorized officers as of the date
first above written.
PURCHASER:
CHURCHILL DOWNS LOUISIANA
VIDEO POKER COMPANY, L.L.C.
BY:/s/ M.E. MILLER
Title: TREASURER
SELLERS:
/s/ STEVEN M. RITTVO
STEVEN M. RITTVO
/s/ RALPH CAPITELLI
RALPH CAPITELLI
/s/ T. CAREY WICKER III
T. CAREY WICKER III
LOUISIANA VENTURES, INC.
By:/s/ ROBERT L. SAXTON
Robert L. Saxton
INTERVENORS:
/s/ LEE RETZGER RITTVO
LEE RETZGER RITTVO
/s/ LINDA CAPITELLI
LINDA CAPITELLI
41
/s/ FREDERICKA WICKER
FREDERICKA WICKER
FOR PURPOSES OF SECTION 6.03
AND SECTION 9.01:
ALLIANCE GAMING CORPORATION
By:/s/ ROBERT L. SAXTON
Title:EXEC VICE PRESIDENT
42
EXHIBIT INDEX
Exhibit A - Operating Agreement dated March 9, 1992 Addendum
dated November 9, 1995 Second Addendum dated November
1, 2001 Third Addendum dated December 4, 2001 Fourth
Addendum dated April 30, 2003
Exhibit B - Form of Escrow Agreement
Exhibit C - Adam and Reese LLP Opinion
Exhibit D - LHBPA Release
Exhibit E - Krantz Release
Exhibit F - Withdrawal of Objection to Assignment
Exhibit G - Spousal Consent
43
Exhibits and schedules to the Stock Purchase Agreement have been intentionally
omitted because they are not material. The registrant agrees to furnish such
omitted exhibits and schedules supplementally to the Commission upon request.
44
EXHIBIT 99.1
| FOR IMMEDIATE RELEASE | Contact: Mike Ogburn Churchill Downs Incorporated (502) 636-4415(office) (502)262-0224(mobile> mogburn@kyderby.com |
CHURCHILL DOWNS INCORPORATED COMPLETES FAIR GROUNDS RACE COURSE
AND RELATED ACQUISITIONS
LOUISVILLE, Ky. (Oct. 15, 2004) — Churchill Downs Incorporated (Nasdaq: CHDN) (“CDI” or the “Company”) today announced that it successfully closed its $47 million transaction to acquire Fair Grounds Race Course (“Fair Grounds”) in New Orleans and its five off-track betting (“OTB”) facilities. CDI also announced it closed the acquisitions of two related New Orleans-area operations, Finish Line Management Corp. (“Finish Line”) and Video Services, Inc. (“VSI”).
Thomas H. Meeker, CDI’s president and chief executive officer, said the racetrack acquisition marks a new chapter for both CDI and Fair Grounds.
“This is an exciting day for CDI, Fair Grounds, horsemen and racing fans across the country as we bring together a legendary racing company and the nation’s third-oldest racetrack,” said Meeker. “Under our stewardship, we will work to renew Fair Grounds’ legacy as one of the nation’s top destinations for winter racing. We will reinvest in the facility, deliver an outstanding live racing product and distribute this product through CDI’s unrivaled simulcast platform.
“In acquiring Fair Grounds, we also advance our Company’s strategic objectives,” continued Meeker. “We enter the Louisiana market and create a broader racing circuit for our horsemen. We supplement our full-year racing calendar and offer a full-year simulcast product. In addition, for the first time in our history, we are afforded the opportunity to utilize alternative gaming as a means to strengthen the racetrack’s purse program.”
Meeker added, “Now that we have completed the acquisition, we can turn 100 percent of our focus to the upcoming race meet. Our staff and Fair Grounds management have made great strides in recent weeks to prepare for this meet and the racetrack’s integration with CDI. We will concentrate on improving conditions in the stable area and creating marquee racing days that will showcase Louisiana racing at its finest. Most important, we will continue meeting with neighborhood, business and political leaders with a view toward building strong and lasting partnerships with the community.”
In the related transactions, CDI acquired the assets of Finish Line, which consists primarily of five OTB facilities in the New Orleans area. CDI also acquired VSI, the owner and operator of more than 700 video poker machines in nine locations that include Fair Grounds, the racetrack’s five OTBs and three Finish Line OTBs. CDI acquired Finish Line and VSI for a total of $10.5 million.
“These acquisitions provide CDI with existing OTBs and video poker operations as well as management expertise that will provide a seamless experience for our customers,” explained Meeker. “For the first time, Fair Grounds, Finish Line OTBs and VSI will have unified ownership, which we believe will bring operational synergies and efficiencies that will benefit our patrons and our Company.”
— MORE —
700 CENTRAL AVENUE o LOUISVILLE, KY 40208 o P: (502) 636-4400 o churchilldownsincorporated.com
Churchill Downs
Incorporated Completes Fair Grounds Race Course And Related Acquisitions
Page 2
Oct. 15, 2004
The Fair Grounds and related acquisitions increase CDI’s portfolio to seven racetracks and 22 OTBs in six states. CDI’s live racing operations are as follows: Arlington Park in Arlington Heights, Ill.; Calder Race Course in Miami; Churchill Downs in Louisville, Ky.; Ellis Park in Henderson, Ky.; Fair Grounds Race Course in New Orleans; Hollywood Park in Inglewood, Calif.; and Hoosier Park in Anderson, Ind.
CDI’s financial advisor for the Fair Grounds and related acquisitions was Lazard. Legal advisors for CDI were Lemle & Kelleher L.L.P., Wyatt, Tarrant & Combs LLP, and Skadden, Arps, Slate, Meagher & Flom LLP.
Churchill Downs Incorporated, headquartered in Louisville, Ky., owns and operates world-renowned horse racing venues throughout the United States. The Company’s seven racetracks in California, Florida, Illinois, Indiana, Kentucky and Louisiana host 123 graded-stakes events and many of North America’s most prestigious races, including the Kentucky Derby and Kentucky Oaks, Hollywood Gold Cup and Arlington Million. CDI racetracks have hosted nine Breeders’ Cup World Thoroughbred Championships – more than any other North American racing company. CDI also owns off-track betting facilities and has interests in various television production, telecommunications and racing services companies that support CDI’s network of simulcasting and racing operations. CDI trades on the Nasdaq National Market under the symbol CHDN and can be found on the Internet at www.churchilldownsincorporated.com.
This news release contains forward-looking statements made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. 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. We 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 we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from our 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 financial performance of our 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 we operate; costs associated with our efforts in support of alternative gaming initiatives; costs associated with our Customer Relationship Management initiative; a substantial change in law or regulations affecting our pari-mutuel activities; a substantial change in allocation of live racing days; litigation surrounding the Rosemont, Illinois, riverboat casino; changes in Illinois law that impact revenues of racing operations in Illinois; a decrease in riverboat admissions subsidy revenue from our Indiana operations; the impact of an additional Indiana racetrack and its wagering facilities near our operations; our continued ability to effectively compete for the country’s top horses and trainers necessary to field high-quality horse racing; our continued ability to grow our share of the interstate simulcast market; our ability to execute our acquisition strategy and to complete or successfully operate planned expansion projects; our ability to adequately integrate acquired businesses; market reaction to our expansion projects; any business disruption associated with our facility renovations; the loss of our totalisator companies or their inability to keep their technology current; our accountability for environmental contamination; the loss of key personnel and the volatility of our stock price.
— END —