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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) June 23, 2000
CHURCHILL DOWNS INCORPORATED
(Exact name of registrant as specified in its charter)
Kentucky 0-01469 61-0156015
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
700 Central Avenue, Louisville, KY 40208
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (502) 636-4400
Not Applicable
(Former name or former address, if changed since last report.)
Item 5. Other Events.
On June 23, 2000, Churchill Downs Incorporated ("CDI"), a Kentucky
corporation, Duchossois Industries, Inc. ("DII"), an Illinois corporation,
A. Acquisition Corp., an Illinois corporation, A. Management Acquisition
Corp., an Illinois corporation, T. Club Acquisition Corp., an Illinois
corporation, (A. Acquisition Corp., A. Management Acquisition Corp. and T.
Club Acquisition Corp. being collectively referred to as the "Merger
Companies"), Arlington International Racecourse, Inc., an Illinois
corporation, Arlington Management Services, Inc., an Illinois corporation
and Turf Club of Illinois, Inc., an Illinois corporation (Arlington
International Racecourse, Inc., Arlington Management Services, Inc. and
Turf Club of Illinois, Inc. being collectively referred to as the "Acquired
Companies") entered into an Agreement and Plan of Merger (the "Merger
Agreement". Pursuant to the Merger Agreement and subject to the terms and
conditions set forth therein, the Merger Companies will be merged with and
into the Acquired Companies, with the Acquired Companies being the
surviving corporations of such mergers (the "Mergers"). At the Effective
Time (as defined in the Merger Agreement) of the Mergers, each issued and
outstanding share of common stock of the Acquired Companies will be
converted into the right to receive an aggregate of 3,150,000 shares of
common stock, no par value, of CDI ("CDI Common Stock"), subject to an
additional earn-out payment of up to 1,250,000 shares of CDI Common Stock,
as provided in the Merger Agreement.
In connection with the execution of the Merger Agreement, CDI and DII
have agreed to enter into Stockholder's Agreement at the Closing (as
defined in the Merger Agreement) of the Mergers. Pursuant to the
Stockholder's Agreement, DII, as the sole stockholder of the Acquired
Companies, will be granted certain governance rights of CDI, and will be
subject to certain voting and transfer restrictions on the CDI Common Stock
it receives in the Mergers. In addition, DII will be entitled initially to
designate three members of the CDI board of directors, which will be
expanded from 12 to 15 members.
A copy of the Merger Agreement is being filed herewith as Exhibit
2(i) and a copy of the form of Stockholder's Agreement is attached thereto
as an exhibit.
The foregoing description is qualified in its entirety by reference
to the full text of such exhibit.
Item 7. Financial Statements and Exhibits.
(c) The following exhibits are filed with this report:
2(i) Agreement and Plan of Merger, dated as of June 23, 2000, among
Churchill Downs Incorporated, Duchossois Industries, Inc., A.
Acquisition Corp., A. Management Acquisition Corp., T. Club
Acquisition Corp., Arlington International Racecourse, Inc.,
Arlington Management Services, Inc. and Turf Club of Illinois,
Inc., including as an exhibit thereto, the form of the
Stockholder's Agreement, between Churchill Downs Incorporated,
Duchossois Industries, Inc., and certain other persons who may
become party to the Agreement.
99(a) Press Release, dated as of June 23, 2000 (incorporated herein
by reference to CDI's Schedule 14A, dated as of June 23,
2000, filed pursuant to Rule 14a-12 under the Securities
Exchange Act of 1934, as amended).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: June 23, 2000 CHURCHILL DOWNS INCORPORATED
By: /s/ Robert L. Decker
-----------------------------------------
Name: Robert L. Decker
Title: Executive Vice President and
Chief Financial Officer
EXHIBIT INDEX
2(i) Agreement and Plan of Merger, dated as of June 23, 2000, among
Churchill Downs Incorporated, Duchossois Industries, Inc., A.
Acquisition Corp., A. Management Acquisition Corp., T. Club
Acquisition Corp., Arlington International Racecourse, Inc.,
Arlington Management Services, Inc. and Turf Club of Illinois,
Inc., including as an exhibit thereto, the form of the
Stockholder's Agreement, between Churchill Downs Incorporated,
Duchossois Industries, Inc., and certain other persons who may
become party to the Agreement.
99(a) Press Release, dated as of June 23, 2000 (incorporated herein
by reference to CDI's Schedule 14A, dated as of June 23,
2000, filed pursuant to Rule 14a-12 under the Securities
Exchange Act of 1934, as amended).
EXHIBIT 2(i)
=============================================================
AGREEMENT AND PLAN OF MERGER
Dated as of June 23, 2000
Among
CHURCHILL DOWNS INCORPORATED,
A. ACQUISITION CORP.,
A. MANAGEMENT ACQUISITION CORP.,
T. CLUB ACQUISITION CORP.,
ARLINGTON INTERNATIONAL RACECOURSE, INC.,
ARLINGTON MANAGEMENT SERVICES, INC.,
TURF CLUB OF ILLINOIS, INC.,
And
DUCHOSSOIS INDUSTRIES, INC.
=============================================================
TABLE OF CONTENTS
Page
ARTICLE I
Definitions and Usage..................................................2
SECTION 1.01. Definitions.............................................2
ARTICLE II
The Mergers............................................................7
SECTION 2.01. The Mergers.............................................7
SECTION 2.02. Closing.................................................8
SECTION 2.03. Effective Time..........................................8
SECTION 2.04. Effects of the Mergers..................................8
SECTION 2.05. Certificate or Articles of Incorporation and By-laws....9
SECTION 2.06. Directors...............................................9
SECTION 2.07. Officers................................................9
ARTICLE III
Effect of the Mergers on the Capital Stock of the
Constituent Corporations; Exchange of Certificates.....................9
SECTION 3.01. Effect on Capital Stock.................................9
SECTION 3.02. Exchange of Certificates...............................13
SECTION 3.03. Post-Closing Adjustment of the Merger Consideration.....14
ARTICLE IV
Representations and Warranties........................................15
SECTION 4.01. Representations and Warranties of D Corp...............15
SECTION 4.02. Representations and Warranties of Parent and Subs......33
SECTION 4.03. Acknowledgment.........................................38
ARTICLE V
Covenants Relating to Conduct of Business.............................39
SECTION 5.01. Conduct of Business....................................39
SECTION 5.02. No Negotiation or Solicitation.........................42
ARTICLE VI
Additional Agreements.................................................42
SECTION 6.01. Preparation of Proxy Materials.........................42
SECTION 6.02. Access to Information; Confidentiality.................43
SECTION 6.03. Reasonable Efforts; Notification.......................44
SECTION 6.04. Rights Agreement.......................................44
SECTION 6.05. Fees and Expenses......................................44
SECTION 6.06. Public Announcements...................................44
SECTION 6.07. Transfer Taxes.........................................45
SECTION 6.08. Management Agreement...................................45
SECTION 6.09. Funding................................................45
SECTION 6.10. Tax Allocation of the Merger Consideration and
the Contingent Merger Consideration..................45
SECTION 6.11. Other Operative Agreements.............................46
SECTION 6.12. Retained Assets........................................46
SECTION 6.13. Employment Matters.....................................46
SECTION 6.14. Liability Insurance....................................48
SECTION 6.15. June 30, 2000 Balance Sheet............................48
SECTION 6.16. Real Estate Tax Rebates................................49
SECTION 6.17. Nevada Matters.........................................49
SECTION 6.18. Environmental Matters.................................50
ARTICLE VII
Conditions Precedent..................................................50
SECTION 7.01. Conditions to Each Party's Obligation to Effect
the Mergers..........................................50
SECTION 7.02. Conditions to Obligations of Parent and Subs...........51
SECTION 7.03. Conditions to Obligation of D Corp. and the
Companies............................................52
ARTICLE VIII
Termination, Amendment and Waiver.....................................53
SECTION 8.01. Termination............................................53
SECTION 8.02. Effect of Termination..................................54
SECTION 8.03. Amendment..............................................54
SECTION 8.04. Extension; Waiver......................................54
SECTION 8.05. Procedure for Termination, Amendment, Extension
or Waiver............................................55
SECTION 8.06. Termination Fee........................................55
ARTICLE IX
General Provisions....................................................55
SECTION 9.01. Notices................................................55
SECTION 9.02. Interpretation.........................................56
SECTION 9.03. Counterparts...........................................56
SECTION 9.04. Entire Agreement; No Third-Party Beneficiaries.........56
SECTION 9.05. Governing Law..........................................56
SECTION 9.06. Assignment.............................................56
SECTION 9.07. Enforcement............................................56
SECTION 9.08. Further Assurances.....................................57
SECTION 9.09. Shareholder Action.....................................57
ARTICLE X
Indemnification; Remedies.............................................57
SECTION 10.01. Survival; Right to Indemnification Not Affected
By Knowledge........................................57
SECTION 10.02. Indemnification and Payment of Damages By D Corp......57
SECTION 10.03. Indemnification and Payment of Damages by Parent......58
SECTION 10.04. Time Limitations......................................58
SECTION 10.05. Limitations on Amount -- D Corp.......................58
SECTION 10.06. Limitations on Amount -- Parent.......................58
SECTION 10.07. Right of Set-Off......................................59
SECTION 10.08. Procedure for Indemnification -- Third Party
Claims..............................................59
SECTION 10.09. Procedure for Indemnification - Other Claims..........60
SECTION 10.10. Insurance and Tax Benefit; Reserve....................60
SECTION 10.11. Exclusive Remedy......................................60
SECTION 10.12. Subrogation...........................................62
SECTION 10.13. Limitation on Damages.................................62
EXHIBITS
Exhibit A Stockholders' Agreement
Exhibit B Designated Directors
Exhibit C Voting Agreements
Exhibit D Initial Press Release
Exhibit E A Corp. Allocation Schedule
Exhibit F Lease
Exhibit G Legal Opinion of Counsel to D Corp.
Exhibit H Legal Opinion of Counsel to Parent
AGREEMENT AND PLAN OF MERGER dated as of June 23, 2000, among
CHURCHILL DOWNS INCORPORATED, a Kentucky corporation ("Parent"), A.
ACQUISITION CORP., an Illinois corporation ("A Sub") and a direct or
indirect wholly owned subsidiary of Parent, A. MANAGEMENT ACQUISITION
CORP., an Illinois corporation ("A Management Sub") and a direct or
indirect wholly owned subsidiary of Parent, T. CLUB ACQUISITION CORP., an
Illinois corporation ("T Club Sub") and a direct or indirect wholly owned
subsidiary of Parent, ARLINGTON INTERNATIONAL RACECOURSE, INC., an Illinois
corporation ("A Corp."), ARLINGTON MANAGEMENT SERVICES, INC., an Illinois
corporation ("A Management Corp."), TURF CLUB OF ILLINOIS, INC., an
Illinois corporation ("T Club") and DUCHOSSOIS INDUSTRIES, INC., an
Illinois corporation ("D Corp."). A Corp., A Management Corp. and T Club
are referred to in this Agreement collectively as the "Companies." A Sub, A
Management Sub and T Club Sub are referred to in this Agreement
collectively as the "Subs."
WHEREAS, the respective Boards of Directors of Parent, A Sub, A
Management Sub, T Club Sub, A Corp., A Management Corp., T Club and D Corp.
have approved the strategic combination of A Corp., A Management Corp. and
T Club with Parent on the terms and subject to the conditions set forth in
this Agreement;
WHEREAS, the respective Boards of Directors of Parent, A Sub, A
Management Sub, T Club Sub, A Corp., A Management Corp., T Club and D Corp.
have approved the mergers (the "Mergers") of A Sub into A Corp., of A
Management Sub into A Management Corp. and of T Club Sub into T Club on the
terms and subject to the conditions set forth in this Agreement, whereby
each issued share of common stock, par value $1.00 per share, of A Corp.
(the "A Corp. Common Stock"), each issued share of common stock, par value
$1.00 per share, of A Management Corp. (the "A Management Corp. Common
Stock"), and each issued share of common stock, no par value, of T Club
(the "T Club Common Stock") shall be converted into the right to receive
shares of common stock, no par value, of Parent ("Parent Common Stock"). A
Corp. Common Stock, A Management Corp. Common Stock and T Club Common Stock
are referred to collectively in this Agreement as "Common Stock;"
WHEREAS, the respective Boards of Directors of Parent and D Corp.
have approved the execution and delivery at the Closing (as defined below)
of the Stockholder's Agreement (the "Stockholder's Agreement" and together
with this Agreement and the other agreements required to be executed and
delivered pursuant to this Agreement, the "Operative Agreements") among
Parent and D Corp., in substantially the form of Exhibit A;
WHEREAS, Parent, A Sub, A Management Sub, T Club Sub, A Corp., A
Management Corp., T Club and D Corp. desire to make certain
representations, warranties, covenants and agreements in connection with
the Mergers and also to prescribe various conditions to the Mergers.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
Definitions and Usage
SECTION 1.01. Definitions. For purposes of this Agreement, the
following terms have the meanings specified or referred to in this Section:
(a) "Affiliate" of any Person means another Person that
directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with, such first Person;
(b) "Applicable Contract" means any Contract (i) to which any
Merger Company is a party, (ii) under which any Merger Company has or
may become subject to any obligation or liability, or (iii) by which
any Merger Company or its assets is or may become bound.
(c) "Best Efforts" means the efforts that a prudent Person
desirous of achieving a result would use in similar circumstances to
ensure that such result is achieved as expeditiously as possible
without incurring undue expense.
(d) "Consent" means any approval, consent, ratification,
waiver, or other authorization (including any Governmental
Authorization).
(e) "Contract" means any agreement or contract (whether written
or oral and whether express or implied) that is legally binding.
(f) "D Corp. Disclosure Letter" means the disclosure letter
delivered by D Corp. to Parent to disclose matters pursuant to this
Agreement.
(g) "Encumbrance" means any charge, claim, community property
interest, equitable interest, lien, security interest, mortgage,
option, pledge, right of first refusal or restriction of any kind,
including any restriction on use, voting, transfer, receipt of
income, or exercise of any other attribute of ownership.
(h) "Environment" means soil, land surface or subsurface
strata, surface waters (including navigable waters, ocean waters,
streams, ponds, drainage basins, and wetlands), ground waters,
drinking water supply, stream sediments, ambient air (including
indoor air), and any other environmental medium.
(i) "Environmental, Health, and Safety Liabilities" means any
cost, damage, expense, liability or obligation arising pursuant to
Environmental Law or Occupational Safety and Health Law.
(j) "Environmental Law" means any Legal Requirement as of the
date hereof or as of the Effective Time concerning or relating to the
Environment applicable to the operations of any Facility.
(k) "ERISA" means the Employee Retirement Income Security Act
of 1974 or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.
(l) "Exchange Act" means the Securities Exchange Act of 1934 or
any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
(m) "Facilities" means any real property, leaseholds, or other
interests currently or formerly owned or operated by any Merger
Company and any buildings, plants, structures, or equipment
(including motor vehicles) currently or formerly owned or operated by
any Merger Company.
(n) "GAAP" means United States generally accepted accounting
principles, applied on a consistent basis;
(o) "Governmental Authorization" means any approval, consent,
license, permit, waiver, or other authorization issued, granted,
given, or otherwise made available by or under the authority of any
Governmental Body or pursuant to any Legal Requirement.
(p) "Governmental Body" means any:
(i) nation, state, county, city, town, village, district,
or other jurisdiction of any nature;
(ii) federal, state, local, municipal, foreign, or other
government;
(iii) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch,
department, official, or entity and any court or other
tribunal); or
(iv) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
(q) "Hazardous Materials" means any waste or other substance
that is listed, defined, designated, or classified as, or otherwise
determined to be, hazardous, radioactive, or toxic or a pollutant or
a contaminant under or pursuant to any Environmental Law, including
any admixture or solution thereof, and specifically including
petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
(r) "HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and regulations and rules issued pursuant to
that Act.
(s) "Intellectual Property" has the meaning assigned in Section
4.01(w).
(t) "IRC" means the Internal Revenue Code of 1986 or any
successor law, and regulations issued by the IRS pursuant to the
Internal Revenue Code or any successor law.
(u) "IRS" means the United States Internal Revenue Service or
any successor agency, and, to the extent relevant, the United States
Department of the Treasury.
(v) "Knowledge" means an individual will be deemed to have
"Knowledge" of a particular fact or other matter if such individual
is actually aware of such fact or other matter after due inquiry.
A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual
who is serving, or who has at any time served, as a director,
officer, management employee, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had,
Knowledge of such fact or other matter; provided, however, [x] that
with respect to D Corp., "Knowledge" means the Knowledge of the
current Chairman, President, Chief Financial Officer, Controller or
any Vice President of A Corp., and [y] that with respect to Parent,
"Knowledge" means the Knowledge of the current President, Executive
Vice Presidents or Senior Vice Presidents of Parent.
(w) "Legal Requirement" means any federal, state, local,
municipal, foreign, international, multinational, or other
administrative order, constitution, law, ordinance, common law,
regulation, statute, or treaty.
(x) "Material Adverse Change" or "Material Adverse Effect"
means, when used in connection with the Merger Companies or Parent,
any change or effect that (i) is materially adverse to the business,
properties, assets, condition (financial or otherwise) or results of
operations of such party and its subsidiaries taken as a whole; (ii)
would materially impair the ability of such party to perform its
obligations under this Agreement; or (iii) would prevent or
materially delay the consummation by such party of any of the
Transactions. In no event will a change in the trading price of the
Parent Common Stock be considered a Material Adverse Change in
Parent.
(y) "Merger Companies" means the Companies and their
Subsidiaries, collectively.
(z) "Occupational Safety and Health Law" means the Occupational
Safety and Health Act of 1970, 29 U.S.C.ss.ss. 651-678, as amended as
of the Closing Date.
(aa) "Order" means any award, decision, injunction, judgment,
order, ruling, subpoena, or verdict entered, issued, made, or
rendered by any court or other Governmental Body or by any
arbitrator.
(bb) "Ordinary Course of Business" means an action taken by a
Person will be deemed to have been taken in the "Ordinary Course of
Business" only if such action is consistent with the past practices
of such Person and is taken in the ordinary course of the normal
operations of such Person. In the case of the Merger Companies, such
past practices and normal operations shall be in reference to the
practices and operations for the period prior to the Merger Companies
ceasing operations, but including operations to the date of this
Agreement, unless such practices or operations were not affected by
such cessation of operations.
(cc) "Organizational Documents" means (i) the articles or
certificate of incorporation and the bylaws of a corporation; (ii)
the partnership agreement and any statement of partnership of a
general partnership; (iii) the limited partnership agreement and the
certificate of limited partnership of a limited partnership; (iv) the
articles of organization and operating agreement of a limited
liability company; (v) any charter or similar document adopted or
filed in connection with the creation or formation of a Person; and
(vi) any amendment to any of the foregoing.
(dd) "Parent Disclosure Letter" means the disclosure letter
delivered by Parent to D Corp. to disclose matters pursuant to this
Agreement.
(ee) "Permitted Encumbrances" means (i) Encumbrances (other
than Encumbrances imposed under ERISA or any Environmental Law, or in
connection with any claim thereunder) for ad valorem taxes or other
similar assessments or charges of Governmental Bodies that are not
yet delinquent or that are being contested in good faith by
appropriate proceedings, in each case, with respect to which adequate
reserves are being maintained by the Merger Companies to the extent
required by GAAP, (ii) statutory Encumbrances of landlords, carriers,
warehousemen, mechanics, materialmen and other Encumbrances (other
than Encumbrances imposed under ERISA or any Environmental Law or in
connection with any claim thereunder) imposed by law and created in
the Ordinary Course of Business for amounts not yet overdue or which
are being contested in good faith by appropriate proceedings, in each
case, with respect to which adequate reserves or other appropriate
provisions are being maintained by the Merger Companies to the extent
required by GAAP, (iii) easements, rights-of-way, covenants and
restrictions which are customary and typical for properties similar
to the Merger Companies' properties and which do not (x) interfere
materially with the ordinary conduct of any Merger Companies'
property or the business of the Merger Companies or (y) detract
materially from the value or usefulness of the Merger Companies
properties to which they apply, and (iv) Encumbrances described or
disclosed on Schedule B of any title insurance policy held by the
Companies and heretofore provided by D Corp. to, and accepted by,
Parent;
(ff) "Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association,
organization, labor union, Governmental Body or other entity.
(gg) "Proceeding" means any action, arbitration, known
investigation, litigation, or suit (whether civil, criminal,
administrative or investigative) commenced, brought, conducted, or
heard by or before any Governmental Body or arbitrator.
(hh) "Proxy Materials" has the meaning assigned thereto in
Section 6.01(a).
(ii) "Related Person" with respect to a particular individual
means:
(i) each other member of such individual's Family;
(ii) any Person that is directly or indirectly controlled
by such individual or one or more members of such
individual's Family;
(iii) any Person in which such individual or members of
such individual's Family hold (individually or in the
aggregate) a Material Interest; and
(iv) any Person with respect to which such individual or
one or more members of such individual's Family serves as
a director, officer, partner, executor, or trustee (or in
a similar capacity).
With respect to a specified Person other than an
individual means:
(i) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or
indirectly under common control with such specified
Person;
(ii) any Person that holds a Material Interest in such
specified Person;
(iii) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or
in a similar capacity);
(iv) any Person in which such specified Person holds a
Material Interest;
(v) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar
capacity); and
(vi) any Related Person of any individual described in
clause (ii) or (iii).
For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual, (ii) the individual's spouse,
and (iii) any other natural person who is related to the individual
or the individual's spouse within the second degree, and (b)
"Material Interest" means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of voting securities or
other voting interests representing at least 5% of the outstanding
voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity
securities or equity interests in a Person.
(jj) "Release" means any spilling, leaking, emitting,
discharging, depositing, escaping, leaching, dumping, or other
releasing into the Environment, whether intentional or unintentional.
(kk) "Representative" means with respect to a particular
Person, any director, officer, employee, agent, consultant, advisor,
or other representative of such Person, including legal counsel,
accountants, and financial advisors.
(ll) "Securities Act" means the Securities Act of 1933 or any
successor law, and regulations and rules issued pursuant to that Act
or any successor law.
(mm) "Shareholders Meeting" has the meaning assigned thereto in
Section 6.01(b).
(nn) "Subsidiary" means with respect to any Person (the
"Owner"), any corporation or other Person of which securities or
other interests having the power to elect a majority of that
corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business
and policies of that corporation or other Person, are held by the
Owner or one or more of its Subsidiaries; when used without reference
to a particular Person, "Subsidiary" means a Subsidiary of the
Companies.
(oo) "Threat of Release" means a substantial likelihood of a
Release that may require action in order to prevent or mitigate
damage to the Environment that may result from such Release.
(pp) "Threatened" means a claim, Proceeding, dispute, action,
or other matter will be deemed to have been "Threatened" if any
demand or statement has been made (orally (and which is credible) or
in writing) or any notice has been given (orally (and which is
credible) or in writing).
ARTICLE II
The Mergers
SECTION 2.01. The Mergers. (a) A Corp. Merger. Upon the terms and
subject to the conditions set forth in this Agreement, and in accordance
with the Illinois Business Corporation Act (the "CL"), A Sub shall be
merged with and into A Corp. (the "A Merger") at the Effective Time of the
A Merger (as hereinafter defined). Following the A Merger, the separate
corporate existence of A Sub shall cease and A Corp. shall continue as the
surviving corporation (the "A Surviving Corporation") and shall succeed to
and assume all the rights and obligations of A Sub in accordance with the
CL.
(b) T Club Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the CL, T Club Sub shall be
merged with and into T Club (the "T Club Merger") at the Effective Time of
the T Club Merger (as hereinafter defined). Following the T Club Merger,
the separate corporate existence of T Club Sub shall cease and T Club shall
continue as the surviving corporation (the "T Club Surviving Corporation")
and shall succeed to and assume all rights and obligations of T Club Sub in
accordance with the CL.
(c) A Management Corp. Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the CL, A
Management Sub shall be merged with and into A Management Corp. (the "A
Management Merger") at the Effective Time of the A Management Merger (as
hereinafter defined). Following the A Management Merger, the separate
corporate existence of A Management Sub shall cease and A Management Corp.
shall continue as the surviving corporation (the "A Management Surviving
Corporation") and shall succeed to and assume all rights and obligations of
A Management Sub in accordance with the CL.
(d) Mergers. The A Merger, the A Management Merger and the T Club
Merger are referred to in this Agreement collectively as the "Mergers." The
Mergers and the other transactions contemplated by the Operative Agreements
are referred to in this Agreement collectively as the "Transactions". The A
Surviving Corporation, the A Management Surviving Corporation and the T
Club Surviving Corporation are referred to in this Agreement collectively
as the "Surviving Corporations."
SECTION 2.02. Closing. The closing of the Mergers (the "Closing")
will take place at 10:00 a.m. on a date to be specified by the parties,
which (subject to satisfaction or waiver of the conditions set forth in
Sections 7.02 and 7.03) shall be no later than the fifth business day after
satisfaction or waiver of the conditions set forth in Section 7.01,
contemplated to be no later than August 15, 2000 (the "Closing Date"), at
the offices of Wyatt, Tarrant & Combs, 2800 Citizens Plaza, Louisville,
Kentucky at 10:00 a.m. local time, unless another date or place is agreed
to in writing by the parties hereto.
SECTION 2.03. Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VII, the
parties shall file articles or certificates of merger or other appropriate
documents, including attached plans of merger (in any such case, the
"Certificates of Merger") executed in accordance with the relevant
provisions of the CL and shall make all other filings or recordings
required under the CL. The Mergers shall become effective at such time as
the Certificates of Merger are duly filed with the Illinois Secretary of
State, or at such other time as A Sub, A Management Sub, T Club Sub, A
Corp., A Management Corp. and T Club shall agree and specify in the
Certificates of Merger (the time the Mergers become effective being the
"Effective Time of the Mergers").
SECTION 2.04. Effects of the Mergers. The Mergers shall have the
effects set forth in Section 5/11.50 of the CL.
SECTION 2.05. Certificate or Articles of Incorporation and By-laws.
(a) The Certificates or Articles of Incorporation of A Corp., A Management
Corp. and T Club, respectively, as in effect immediately prior to the
Effective Time of the Mergers, shall be the Certificates or Articles of
Incorporation of the A Surviving Corporation, the A Management Surviving
Corporation and T Club Surviving Corporation, respectively, until
thereafter changed or amended as provided therein or by applicable law.
(b) The By-laws of A Sub, A Management Sub and T Club Sub,
respectively, as in effect at the Effective Time of the Mergers shall be
the By-laws of the A Surviving Corporation, the A Management Surviving
Corporation and T Club Surviving Corporation, respectively, until
thereafter changed or amended as provided therein or by applicable law.
SECTION 2.06. Directors. At the Effective Time of the Mergers Richard
Duchossois, Scott Mordell, Thomas Meeker, John Long, Rebecca Reed, and
Robert Decker shall be the directors of each of A Surviving Corporation, A
Management Surviving Corporation and T Club Surviving Corporation,
respectively, until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may
be.
SECTION 2.07. Officers. At the Effective Time of the Mergers Richard
Duchossois as Chairman, Scott Mordell as President, those persons serving
as the vice presidents of such corporations at the Effective Time as vice
presidents, Michael Miller as treasurer and Rebecca Reed as secretary shall
be the officers of each of A Surviving Corporation, A Management Surviving
Corporation and T Club Surviving Corporation, respectively, until the
earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
ARTICLE III
Effect of the Mergers on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 3.01. Effect on Capital Stock. As of the Effective Time of
the Mergers, by virtue of the Mergers and without any action on the part of
the holder of any shares of A Corp. Common Stock, A Management Corp. Common
Stock or T Club Common Stock or any shares of capital stock of A Sub, A
Management Sub or T Club Sub:
(a) Capital Stock of A Sub, A Management Sub and T Club Sub.
Each issued and outstanding share of the capital stock of A Sub shall
be converted into and become 1 fully paid and nonassessable share of
common stock, par value $1.00 per share, of A Surviving Corporation.
Each issued and outstanding share of the capital stock of A
Management Sub shall be converted into and become 1 fully paid and
nonassessable share of common stock, par value $1.00 per share, of A
Management Surviving Corporation. Each issued and outstanding share
of capital stock of T Club Sub shall be converted into and become 1
fully paid and nonassessable share of common stock, no par value per
share, of T Club Surviving Corporation.
(b) Treasury Stock. Each share of A Corp. Common Stock that is
owned by A Corp., each share of A Management Corp. Common Stock that
is owned by A Management Corp. and each share of T Club Common Stock
that is owned by T Club shall automatically be canceled and retired
and shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(c) Conversion of T Club Common Stock. All issued and
outstanding shares of T Club Common Stock (other than shares to be
canceled in accordance with Section 3.01(b)) shall be converted into
the right to receive in the aggregate 1,346,000 shares of Parent
Common Stock (the "T Club Merger Consideration"). As of the Effective
Time of the Mergers, all such shares of T Club Common Stock shall no
longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate
representing any such shares of T Club Common Stock shall cease to
have any rights with respect thereto, except the right to receive the
T Club Merger Consideration, without interest.
(d) Conversion of A Management Corp. Common Stock. All issued
and outstanding shares of A Management Corp. Common Stock (other than
shares to be canceled in accordance with Section 3.01(b)) shall be
converted into the right to receive in the aggregate 366,000 shares
of Parent Common Stock (the "A Management Corp. Merger
Consideration"). As of the Effective Time of the Mergers, all such
shares of A Management Corp. Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any
such shares of A Management Corp. Common Stock shall cease to have
any rights with respect thereto, except the right to receive the A
Management Corp. Merger Consideration, without interest.
(e) Conversion of A Corp. Common Stock. (i) All issued and
outstanding shares of A Corp. Common Stock, (other than shares to be
canceled in accordance with Section 3.01(b)), shall be converted into
the right to receive in the aggregate 1,438,000 shares of Parent
Common Stock (the "A Corp. Merger Consideration," and together with
the T Club Merger Consideration and the A Management Corp. Merger
Consideration, the "Merger Consideration"). As of the Effective Time
of the Mergers, all such shares of A Corp. Common Stock shall no
longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate
representing any such shares of A Corp. Common Stock shall cease to
have any rights with respect thereto, except the right to receive the
A Corp. Merger Consideration and the Contingent Merger Consideration
(hereinafter defined), without interest.
(ii) In addition, all issued and outstanding shares of A Corp.
Common Stock (other than shares to be canceled in accordance with
Section 3.01(b)) shall be converted into the right to receive 833,000
shares of Parent Common Stock (the "Second Tranche Payment") to be
issued no later than fifteen (15) business days following the date
(the "Fund Payment Date") on which Parent or any of its Affiliates,
including the Surviving Corporations (the "Parent Recipients"), shall
have first earned or received all payments owing to them with respect
to the Initial Year (hereinafter defined) from the Illinois Horse
Racing Equity Fund ("IHREF"), or any successor, substitute or
replacement fund, or any similar program established in the State of
Illinois for the purpose or having the effect of distributing
revenues from casino gaming in the State of Illinois ("Gaming
Revenues") to operators or licensees ("Racing Operators") of Illinois
horse racing establishments or organizations ("Illinois Racing Fund
Payments"); provided, that (A) the Fund Payment Date shall occur no
later than the sixth anniversary of the Effective Time of the Mergers
(the "Second Tranche Payment Period"), and (B) as of the first day of
the Initial Year, there shall not be pending any litigation
challenging the constitutionality of the Riverboat Gambling Act,
Section 230 ILCS 10/1 et seq. which Act includes the law providing
for Illinois Racing Fund Payments by the IHREF (the "Act") (any such
litigation referred to herein as "Adverse Litigation"). If Adverse
Litigation is pending, and (I) within two years after the first day
of the Initial Year, a final, nonappealable order is entered in such
litigation that the Act is not unconstitutional, the Second Tranche
shall be issued within fifteen (15) business days after the later of
the Fund Payment Date or the date such order becomes final and
nonappealable, or (II) within two years after the first day of the
Initial Year, a final nonappealable order shall not have been entered
in such litigation, the Second Tranche shall be issued within fifteen
(15) business days after the later of the Fund Payment Date or the
date of such two year anniversary, or (III) within two years after
the first day of the Initial Year, a final nonappealable order is
entered in such litigation that the Act is unconstitutional, the
Second Tranche shall not be issued, unless: (X) within two years
after such order becomes final and nonappealable, alternative
legislation ("Alternative Legislation") is enacted in Illinois which
provides payments of a nature similar to the Illinois Racing Fund
Payments payable under the IHREF, in which event the Second Tranche
shall be issued within fifteen (15) business days after twelve (12)
consecutive months of payments have been received under Alternative
Legislation, if the effect of such legislation is to provide payments
at least equal to the Illinois Racing Fund Payments the Parent
Recipient would have received from the IHREF absent such finding of
unconstitutionality, and otherwise the Second Tranche shall be
reduced in proportion to the amount by which the Alternative
Legislation does not provide payments at least equal to the Illinois
Racing Fund Payments that would have been received under the IHREF,
but in no event shall the Second Tranche be less than the amount
determined in (Y) hereafter; or (Y) if such litigation finds that the
Act is unconstitutional and no Alternative Legislation is enacted as
described in (X) above, but payments similar to or in substitution
for the Illinois Racing Fund Payments are received by the Parent
Recipients from the IHREF which, despite the finding of the
unconstitutionality of the Act, are fully earned and not refundable,
Second Tranche shares, calculated in accordance with the following
formula, shall be issued within fifteen (15) business days after each
twelve (12) month period during which IHREF payments similar to or in
substitution for the Illinois Racing Fund Payments become fully
earned and not refundable by the Parent Recipients:
833,000 x [FEP/37,500,000], where FEP equals the fully earned
and nonrefundable payments similar to or in substitution for
the Illinois Racing Fund Payments received under the IHREF.
Second Tranche shares to be issued pursuant to (X) or (Y) shall not
be duplicative, and in no event shall the number of Second Tranche
shares to be issued exceed 833,000. "Initial Year" shall mean the
period commencing with the first day in which Illinois Racing Fund
Payments are made to the governmental or administrative authority
authorized to disburse such payments to Racing Operators and ending
365 days thereafter. All of the foregoing, collectively, shall be
referred to herein as "Consequences of Litigation."
(iii) In addition, all issued and outstanding shares of A Corp.
Common Stock (other than shares to be canceled in accordance with
Section 3.01(b)), shall be converted into the right to receive, no
later than fifteen (15) business days after the Fund Payment Date,
provided that as of the first day of the Initial Year there shall not
be pending any Adverse Litigation, shares of Parent Common Stock,
calculated in accordance with the following formula, up to a maximum
number of 417,000 shares (the "Third Tranche Payment"):
.18052 x [IRFP - 4,042,500]
Where IRFP equals the total amount of Illinois Racing Fund
Payments owing or paid to Parent Recipients, as a result of the
operations of A Racecourse (but excluding the amount of any Illinois
Racing Fund Payments owing or paid to Parent Recipients, excluding
the Surviving Corporations, because of other business activities and
enterprises) with respect to Gaming Revenues generated during the
Initial Year (such additional consideration to be provided pursuant
to this subsection (iii) and the immediately preceding subsection
(ii) shall be referred to collectively as the "Contingent Merger
Consideration").
If, as of the Fund Payment Date, there is pending Adverse
Litigation, then the Consequences of Litigation shall apply,
substituting "Third Tranche" for "Second Tranche" therein, and
substituting "417,000" for "833,000" therein.
(f) Capital Adjustments and Mergers. In the event of a stock
dividend, stock split, reorganization, merger or a combination or
exchange of shares, the number of shares of Parent Common Stock
issuable in the Second Tranche and the Third Tranche shall be
automatically adjusted to take into account such capital adjustment.
In the event Parent merges with another Person surviving a merger
with Parent, or all or a substantial portion of Parent's assets or
outstanding capital stock are acquired (whether by merger, purchase
or otherwise) by a Person (such Person, a "Successor"), the shares of
Parent Common Stock issuable in the Second Tranche and the Third
Tranche shall automatically be converted into and replaced by shares
of common stock, or such other class of securities having rights and
preferences no less favorable than Parent Common Stock, of the
Successor, and the number of shares of Parent Common Stock issuable
in the Second Tranche and the Third Tranche shall be correspondingly
adjusted to that number of shares of common stock, or other class of
securities, of the Successor that have a value equal, as of the date
of the merger, conversion or acquisition, to the value, as of the
date of the merger, conversion or acquisition, of the shares of
Parent Common Stock issuable in the Second Tranche and the Third
Tranche. The obligation to issue shares of Parent Common Stock in the
Second Tranche and the Third Tranche shall not affect in any way the
right and power of Parent to make adjustments, reorganizations,
reclassifications, or changes in its capital or business structure or
to merge, dissolve, liquidate, sell or transfer all or any part of
its business or assets.
SECTION 3.02. Exchange of Certificates.
(a) Exchange Procedure. As of the Closing, Parent shall provide
to D Corp. a letter of transmittal concerning the certificates for
outstanding shares of Common Stock (the "Certificates") (which shall
specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the
Certificates to the Parent and shall be in a form and have such other
provisions as Parent may reasonably specify). Upon surrender of the
Certificates for cancellation to Parent or to such other agent or
agents as may be appointed by Parent, together with such letter of
transmittal, duly executed, and such other documents as may
reasonably be required by Parent, D Corp. shall be entitled to
receive in exchange therefor one or more certificates (properly
issued, executed and countersigned, as appropriate) representing that
number of whole shares of Parent Common Stock into which the shares
of Common Stock theretofore represented by such Certificates shall
have been converted pursuant to Section 3.01, and the Certificates so
surrendered shall forthwith be canceled. Fractional shares shall be
paid in cash. Until surrendered as contemplated by this Section 3.02,
each Certificate shall be deemed at any time after the Effective Time
of the Mergers to represent only the right to receive upon such
surrender the shares of Parent Common Stock, into which the shares of
A Corp. Common Stock, A Management Corp. Common Stock or T Club
Common Stock theretofore represented by such Certificate shall have
been converted pursuant to Section 3.01. No interest will be paid or
will accrue on any cash payable upon the surrender of any
Certificate.
(b) No Further Ownership Rights in Common Stock. The shares of
Parent Common Stock issued upon the surrender of Certificates in
accordance with the terms of this Article III shall be deemed to have
been paid in full satisfaction of all rights pertaining to the shares
of A Corp. Common Stock, A Management Corp. Common Stock and T Club
Common Stock theretofore represented by such Certificates (subject to
any obligation concerning Contingent Merger Consideration), and there
shall be no further registration of transfers on the stock transfer
books of A Corp., A Management Corp. or T Club of the shares of
Common Stock which were outstanding immediately prior to the
Effective Time of the Mergers. If, after the Effective Time of the
Mergers, Certificates are presented to A Surviving Corporation, A
Management Surviving Corporation or T Club Surviving Corp. for any
reason, they shall be canceled and exchanged as provided in this
Article III.
SECTION 3.03. Post-Closing Adjustment of the Merger Consideration.
(a) Closing Statement. As soon as practicable, but in no event
later than 30 days after the Closing Date, D Corp. and Parent shall
prepare and agree on a written statement (the "Closing Statement") of
the aggregate fair market value of the assets of T Club(the "Closing
Date T Club Asset Value"), the aggregate fair market value of the
assets of A Management Corp. (the "Closing Date A Management Corp.
Asset Value"), the aggregate fair market value of the assets of A
Corp. (the "Closing Date A Corp. Asset Value") and the fair market
value of the Merger Consideration (the "Closing Date Merger
Consideration Value"), in each case as of the Closing Date. The
Closing Date T Club Asset Value, the Closing Date A Management Corp.
Asset Value, the Closing Date A Corp. Asset Value and the Closing
Date Merger Consideration Value as set forth on the Closing Statement
shall be equal to the values determined by the appraisals undertaken
pursuant to Section 6.10(b). On the basis of the Closing Statement,
D. Corp. and Parent shall prepare and agree on a written statement of
the Adjusted T Club Merger Consideration (as hereinafter defined),
the Adjusted A Management Corp. Merger Consideration (as hereinafter
defined) and the Adjusted A Corp. Merger Consideration (as
hereinafter defined). For purposes of this Section 3.03, (i) the
"Adjusted T Club Merger Consideration" shall mean the Closing Date T
Club Asset Value divided by the Closing Date Parent Share Value (as
hereinafter defined), (ii) the "Adjusted A Management Corp. Merger
Consideration" shall mean the Closing Date A Management Corp. Asset
Value divided by the Closing Date Parent Share Value, (iii) the
"Adjusted A Corp. Merger Consideration" shall mean (X) 3,150,000
minus (Y) the sum of the Adjusted T Club Merger Consideration and the
Adjusted A Management Corp. Merger Consideration, and (iv) the
"Closing Date Parent Share Value" shall mean the Closing Date Merger
Consideration Value divided by 3,150,000.
(b) Adjustment of the Merger Consideration. If and to the
extent that the Adjusted T Club Merger Consideration exceeds the T
Club Merger Consideration, the Adjusted A Management Corp. Merger
Consideration exceeds the A Management Corp. Merger Consideration, or
the Adjusted A Corp. Merger Consideration exceeds the A Corp. Merger
Consideration, Parent shall deliver to D Corp., not later than 30
days after the Closing Date, a number of shares of Parent Common
Stock equal to each and any such difference. If and to the extent
that the T Club Merger Consideration exceeds the Adjusted T Club
Merger Consideration, the A Management Corp. Merger Consideration
exceeds the Adjusted A Management Corp. Merger Consideration, or the
A Corp. Merger Consideration exceeds the Adjusted A Corp. Merger
Consideration D Corp. shall return to Parent, not later than 30 days
after the Closing Date, a number of shares of Parent Common Stock
equal to each and any such difference. The respective obligations of
Parent and D Corp. to deliver or return shares of Parent Common Stock
under this Section 3.03(b) may be offset against the other's
obligation to deliver or return such shares under this Section
3.03(b). Notwithstanding the foregoing, in no event will Parent be
obligated to issue more than 3,150,000 shares of Parent Stock
pursuant to Sections 3.01 (c), (d) and (e)(i) of this Agreement.
ARTICLE IV
Representations and Warranties
SECTION 4.01. Representations and Warranties of D Corp. D Corp.
represents and warrants to Parent, A Sub, A Management Sub and T Club Sub
as follows:
(a) Organization and Corporate Power. Part 4.01(a) of the D
Corp. Disclosure Letter contains a complete and accurate list for
each Merger Company of its name, its jurisdiction of incorporation,
other jurisdictions in which it is authorized to do business, and its
capitalization (including the identity of each stockholder and the
number of shares held by each). Each Merger Company is a corporation
duly organized, validly existing, and in good standing under the laws
of its jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted, and
to own or use the properties and assets that it purports to own or
use. D Corp. is a corporation duly organized, validly existing and in
good standing under the laws of the State of Illinois. Each Merger
Company is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties
owned or used by it, or the nature of the activities conducted by it,
requires such qualification and where the failure to be so qualified
would have a Material Adverse Effect. D Corp. has delivered to Parent
copies of the Organizational Documents of each Merger Company, as
currently in effect.
(b) Authority; No Conflict. Each Merger Company and D Corp. has
the corporate power and authority to execute and deliver this
Agreement and the other Operative Agreements, as applicable, and to
incur and perform its obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and the other
Operative Agreements, as applicable, and the consummation of the
transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of each
Company and D Corp. This Agreement constitutes the legal, valid, and
binding obligation of each Company and D Corp., enforceable against
each Company and D Corp. in accordance with its terms. Upon execution
and delivery of the other Operative Agreements, the other Operative
Agreements will constitute the legal, valid and binding obligation of
D Corp., enforceable against D Corp. in accordance with their terms.
Each Company and D Corp. has the absolute and unrestricted right,
power and authority to execute and deliver the Operative Agreements
and to perform its obligations under the Operative Agreements. Except
as set forth in Part 4.01(b) of the D. Corp. Disclosure Letter,
neither the execution and delivery of this Agreement or the other
Operative Agreements nor the consummation or performance of any of
the Transactions will, directly or indirectly (with or without notice
or lapse of time):
(i) contravene, conflict with, or result in a violation
of (A) any provision of the Organizational Documents of the Merger
Companies or D Corp., or (B) any resolution adopted by the board of
directors or the stockholders of the Merger Companies or D Corp.;
(ii) contravene, conflict with, or result in a violation
of any Legal Requirement or any Order to which any Merger Company or
D Corp., or any of the assets of any Merger Company or D Corp., may
be subject;
(iii) contravene, conflict with, or result in a violation
of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate, or modify,
any Governmental Authorization that is held by any Merger Company or
that otherwise relates to the business of, or any of the assets of,
any Merger Company;
(iv) cause any Merger Company to become subject to, or to
become liable for the payment of, any tax;
(v) contravene, conflict with, or result in a violation
or breach of any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any
material Applicable Contract; or
(vi) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets of any Merger
Company.
Except as set forth in Part 4.01(b) of the D Corp.
Disclosure Letter, neither D Corp. nor any Merger Company is required
to give any notice to or obtain any Consent from any Person under any
material Contract or other item in connection with the execution and
delivery of the Operative Agreements or the consummation or
performance of any of the Transactions.
(c) Capitalization. Part 4.01(c) of the D Corp. Disclosure
Letter sets forth the authorized equity securities of the Merger
Companies and the number of such shares which are issued and
outstanding. D Corp. is and will be on the Closing Date the record
and beneficial owner and holder of the Common Stock, free and clear
of all Encumbrances. With the exception of the shares of the
Companies (which are owned by D Corp.), all of the outstanding equity
securities and other securities of each Merger Company are owned of
record and beneficially by one or more of the Merger Companies, free
and clear of all Encumbrances. No legend (other than a customary
restrictive legend under the Securities Act) or other reference to
any purported Encumbrance appears upon any certificate representing
equity securities of any Merger Company. All of the outstanding
equity securities of each Merger Company have been duly authorized
and validly issued and are fully paid and nonassessable. There are no
Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of any Merger Company. None of the
outstanding equity securities or other securities of any Merger
Company was issued in violation of the Securities Act or any other
Legal Requirement. No Merger Company owns, or has any Contract to
acquire, any equity securities or other securities of any Person or
any direct or indirect equity or ownership interest in any other
business.
(d) Financial Statements; Information. D Corp. has delivered to
Parent: the audited financial statements of the Merger Companies for
the year ended December 31, 1999 (the "Year End Financials"); and the
unaudited financial statements of the Merger Companies for the five
months ended May 31, 2000 (the "Interim Financials") (collectively
the "Financial Statements"). The Financial Statements fairly present
the financial condition and the results of operations, cash flows and
changes in stockholders' equity of the Merger Companies as at the
respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, except as otherwise noted
therein and subject, in the case of the Interim Financials, to normal
year end adjustments and any other adjustments noted therein; the
Financial Statements reflect the consistent application of such
accounting principles throughout the periods involved, except as
disclosed in the notes, if any, to such financial statements. None of
the information supplied or to be supplied by D Corp. or the Merger
Companies for inclusion or incorporation by reference in the Proxy
Materials will, at the times the Proxy Materials are first published,
sent or given to Parent's shareholders, or at the time of the
Shareholders Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
(e) Books and Records; Accounts. The books of account, minute
books and stock record books of the Merger Companies, all of which
have been made available to Parent, are complete and correct in all
material respects and have been maintained in accordance with sound
business practices including the maintenance of an adequate system of
internal controls. At the Closing, all of those books and records
will be in the possession of the Merger Companies. Part 4.01(e) of
the D Corp. Disclosure Letter contains a complete and accurate list
of all checking, savings or other deposit accounts of the Merger
Companies, and the authorized signatories thereof.
(f) ERISA Compliance. (i) Part 4.01(f) of the D Corp.
Disclosure Letter contains a list of all "employee pension benefit
plans" (as defined in Section 3(2) of ERISA), but excluding any
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA (each
a "Multiemployer Plan") (sometimes referred to herein as "Pension
Plans"), "employee welfare benefit plans" (as defined in Section 3(1)
of ERISA) and all other bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding (whether or not legally
binding) providing benefits to any current or former employee,
officer or director of the Merger Companies (collectively, including
Pension Plans, referred to herein as "Benefit Plans") maintained, or
contributed to, by the Merger Companies for the benefit of any
current or former employees, officers or directors of the Merger
Companies. The Merger Companies have delivered to Parent true,
complete and correct copies of (w) each collective bargaining
agreement providing for contributions by the Merger Companies to any
Benefit Plan, (x) each Multiemployer Plan to which any of the Merger
Companies is obligated to contribute after the Closing, (y) the most
recent summary plan description for each Benefit Plan for which such
summary plan description is required, and (z) the most recent
actuarial or financial valuation prepared with respect to any Benefit
Plan. Part 4.01(f) of the D Corp. Disclosure Letter also lists each
Multiemployer Plan maintained or contributed to by the Merger
Companies for the benefit of any current or former employee of the
Merger Companies. The Merger Companies maintain no Benefit Plans or
Multiemployer Plans other than those listed on Part 4.01(f) of the D
Corp. Disclosure Letter.
(ii) Contributions and expenses accrued with respect to all
Benefit Plans and Multiemployer Plans are current and paid as of the
Closing.
(iii) Each Benefit Plan (excluding for this purpose each
Pension Plan) has been operated in material compliance with its terms
and the provisions of all applicable laws, including ERISA and the
IRC.
(iv) No Pension Plan had, as of the respective last annual
valuation date for each such Pension Plan, an "unfunded benefit
liability" (as such term is defined in Section 4001(a)(18) of ERISA),
based on actuarial assumptions which have been furnished to Parent.
None of the Pension Plans has an "accumulated funding deficiency" (as
such term is defined in Section 302 of ERISA or Section 412 of the
IRC), whether or not waived. Except as set forth in Part 4.01(f) of
the D Corp. Disclosure Letter, no withdrawal liability would result
to the Merger Companies' controlled group (as defined in Section 414
of the IRC) in the event that any Merger Company withdrew in a
complete or partial withdrawal, as defined respectively in ERISA
Sections 4203 and 4205, as of the date hereof from any Multiemployer
Plan based on the Plan's most recent actuarial report available to
date. None of the Merger Companies, any officer of the Merger
Companies, any trustee of any trust created under any of the Benefit
Plans or any other fiduciary with responsibilities with respect to
such trusts has engaged in a nonexempt "prohibited transaction" (as
such term is defined in Section 406 of ERISA or Section 4975 of the
IRC) involving a Benefit Plan that is subject to ERISA (including the
Pension Plans) or any other breach of fiduciary responsibility that
could subject the Merger Companies, or any officer of the Merger
Companies, to the tax or penalty on prohibited transactions imposed
by such Section 4975 or to any material liability under Section
502(i) or (1) of ERISA.
(v) There are no pending claims or suits, or to the Knowledge
of the Merger Companies, investigations or Threatened claims, suits
or investigations regarding the Benefit Plans (other than claims for
benefits in the ordinary course) that would result in any material
liability to the Merger Companies.
(vi) Except as disclosed in Part 4.01(f) of the D Corp.
Disclosure Letter, the consummation of the Transactions (either alone
or with any other event) shall not entitle any director or employee
of the Merger Companies to any severance payments, additional
compensation or benefits or accelerate the vesting, payment or
funding of any compensation or benefits.
(vii) None of the Merger Companies nor any entity required to
be treated with the Merger Companies as a single employer under
Section 414 of the IRC has any material unsatisfied liability under
Title IV of ERISA, except as provided in Part 4.01(f) of the D Corp.
Disclosure Letter.
(viii) With respect to any Benefit Plan that is an employee
welfare benefit plan, except as disclosed in Part 4.01(f) of the D
Corp. Disclosure Letter, (x) each such Benefit Plan that is a "group
health plan," as such term is defined in Section 5000(b)(1) of the
IRC, complies in all material respects with the applicable
requirements of Section 4980B(f) of the IRC and (y) no employee or
former employee of the Merger Companies is receiving any
post-retirement healthcare or other post-retirement welfare benefits
under any Benefit Plan as of the Closing, or, except as provided in
Part 4.01(f) of the D Corp. Disclosure Letter, as of the Closing
would satisfy the eligibility requirements for receiving any such
post-retirement benefits. D Corp. will assume responsibility for
providing any post-retirement healthcare coverage to the individuals
set forth in Part 4.01(f) of the D Corp. Disclosure Letter through
the D Corp. Group Benefits Plan. To the Knowledge of D Corp., each
such Benefit Plan (including any such Plan covering retirees or other
former employees) may be amended or terminated without material
liability to the Merger Companies on or at any time after the
consummation of the Mergers.
(g) Taxes. Except as set forth on Part 4.01 (g) of the D Corp.
Disclosure Letter, (i) each of the Merger Companies has timely filed
(or D Corp. has filed on its behalf) all Tax Returns required to be
filed by it, and as of the time of filing, each such return was true,
complete and correct in all material respects; (ii) each of the
Merger Companies has timely paid (or the Companies or D Corp. have
paid on its behalf) all Taxes shown to be due on such Tax Returns and
all other Taxes currently due and payable; (iii) the Financial
Statements reflect an adequate reserve (other than a reserve for
deferred income taxes established to reflect differences between book
basis and tax basis of assets and liabilities) for all Taxes payable
by the Merger Companies for all taxable periods and portions thereof
through the date of the Financial Statements; (iv) no deficiencies
for any Taxes have been proposed, asserted or assessed against the
Merger Companies, and no requests for waivers of the time to assess
any such Taxes are pending; (v) the Federal income Tax Returns of D
Corp. and each of its subsidiaries consolidated in such returns have
been examined by and settled with the IRS and are not subject to
audit for all fiscal years through the fiscal year ended March 31,
1994; (vi) all assessments for Taxes due with respect to such
completed and settled examinations or any concluded litigation have
been fully and timely paid; (vii) there are no Encumbrances for Taxes
(other than for current taxes not yet due and payable) on the assets
of the Merger Companies; (viii) no Federal or state income Tax
Returns of the Merger Companies with respect to a period beginning on
or after January 1, 1996 have ever been (and no such returns are
currently being) examined by the IRS or any state taxing authority;
and (ix) none of the Merger Companies is bound by any agreement or
arrangement with respect to Taxes. For the Tax periods beginning
April 1, 1997, through the day immediately prior to the Closing Date,
each of the Merger Companies was a qualified Subchapter S subsidiary
under Section 1363(b)(3) of the IRC.
For the purposes of this Agreement, the term "Tax" or,
collectively, "Taxes" shall mean (i) any and all federal, state,
local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including, but not limited to,
taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions
imposed with respect to such amounts, (ii) any liability for the
payment of any amounts of the type described in clause (i) of this
definition as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period, and (iii) any
liability for the payment of any amounts of the type described in
clauses (i) or (ii) of this definition as a result of any express or
implied obligation to indemnify any other person or as a result of
any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for
taxes of a predecessor or transferor entity. For purposes of this
Agreement "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.
(h) Title to Properties; Encumbrances. Part 4.01(h) of the D
Corp. Disclosure Letter contains a complete and accurate list and
description of all real property and real property leaseholds owned
by any Merger Company, including any structures or improvements
thereon. D Corp. has delivered or made available to Parent copies of
the deeds and other instruments (as recorded) by which the Merger
Companies acquired such real property and real property leaseholds,
and copies of all title insurance policies, opinions, abstracts, and
surveys in the possession of the Merger Companies and relating to
such real property or real property leaseholds. Except as set forth
in Part 4.01(h) of the D Corp. Disclosure Letter, the Merger
Companies own (with good and marketable title in the case of owned
property, and a valid leasehold interest in, in the case of leased
property, subject only to the matters permitted by the following
sentence) all the properties and assets (whether real, personal, or
mixed and whether tangible or intangible) that they purport to own or
lease located in the facilities owned or operated by the Merger
Companies or reflected as owned or leased in the books and records of
the Merger Companies, including all of the properties and assets
reflected in the Financial Statements (except for personal property
sold since the date of the Financial Statements in the Ordinary
Course of Business), and all of the properties and assets purchased
or otherwise acquired by the Merger Companies since the date of the
Financial Statements (except for personal property acquired and sold
since the date of the Financial Statements in the Ordinary Course of
Business). All properties and assets of the Merger Companies are free
and clear of all Encumbrances and are not, in the case of real
property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature
except, with respect to all such properties and assets, (a) Permitted
Encumbrances, and (b) with respect to real property, (i) minor
imperfections of title, if any, none of which materially detracts
from the value or impairs the use of the property subject thereto as
a racetrack or off track betting facility, including uses related or
incidental thereto, including lottery ticket terminals, or impairs
the operations of the Merger Companies, and (ii) zoning laws and
other land use restrictions that do not impair the use of the
property subject thereto as a racetrack or off track betting
facility, including uses related or incidental thereto, including
lottery ticket terminals. All buildings, plants, and structures owned
by the Merger Companies lie wholly within the boundaries of the real
property owned by the Merger Companies, 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 other Person.
(i) Condition and Sufficiency of Assets. To the Knowledge of D
Corp., the buildings, plants, and structures of the Merger Companies
are structurally sound and are in good operating condition and repair
(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 that are not material in nature or
cost. To the Knowledge of D Corp, the buildings, plants, structures,
and equipment of the Merger Companies are sufficient for the conduct
of the Merger Companies' businesses as currently being conducted and
are adequately served by utilities. To the Knowledge of D Corp., the
equipment of the Merger Companies is in good operating condition and
repair, normal wear and tear excepted, and none of such equipment is
in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost.
(j) Accounts Receivable; Accounts Payable. All accounts
receivable of the Merger Companies (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising
from sales actually made or services actually performed in the
Ordinary Course of Business. Unless paid prior to the Closing Date,
the Accounts Receivable are or will be as of the Closing Date current
and collectible net of the respective reserves shown on the
accounting records of the Merger Companies as of the Closing Date
(which reserves are adequate and calculated consistent with past
practice). Subject to such reserves, each of the Accounts Receivable
either has been or will be collected in full within ninety days after
the day on which it first became due and payable. There is no
contest, claim, or right of set-off under any Contract with any
obligor of an Accounts Receivable relating to the amount or validity
of such Accounts Receivable. Part 4.01(j) of the D Corp. Disclosure
Letter contains a complete and accurate list of all Accounts
Receivable as of the date of May 31, 2000, which list sets forth the
aging of such Accounts Receivable. The accounts payable of the Merger
Companies were incurred in the Ordinary Course of Business.
(k) Inventory. All inventory of the Merger Companies consists
of a quality and quantity usable and salable in the Ordinary Course
of Business. All Inventory has been priced at the lower of cost or
market on a FIFO basis.
(l) No Undisclosed Liabilities. To the Knowledge of D Corp.,
except as set forth in Part 4.01(l) of the D Corp. Disclosure Letter
or as otherwise disclosed pursuant to the D Corp. Disclosure Letter,
the Merger Companies have no material liabilities or obligations of
any nature (whether known or unknown and whether absolute, accrued,
contingent, or otherwise).
(m) No Material Adverse Change. Since the date of the Year End
Financials, with respect to the Merger Companies there has not been
any Material Adverse Change.
(n) Compliance With Legal Requirements; Governmental
Authorizations.
(i) Except as set forth in Part 4.01(n) of the D Corp.
Disclosure Letter and without reference to any matters covered by
Section 4.01(s):
(a) to the Knowledge of D Corp., each Merger
Company is in compliance in all material respects with each
Legal Requirement applicable to it or to the conduct of its
business or the ownership or use of any of its assets; and
(b) no Merger Company has received any notice or
other communication from any Governmental Body or any other
Person regarding any violation of, or failure to comply with,
any Legal Requirement in any material respect, which is
outstanding or unresolved as of the date hereof.
(ii) Part 4.01(n) of the D Corp. Disclosure Letter
contains a complete and accurate list of each material Governmental
Authorization that is held by any Merger Company. Each Governmental
Authorization listed or required to be listed in Part 4.01(o) of the
D Corp. Disclosure Letter is valid and in full force and effect.
Except as set forth in Part 4.01(n) of the D Corp. Disclosure Letter:
(a) to the Knowledge of D Corp., each Merger
Company is in compliance in all material respects with all of
the terms and requirements of each Governmental Authorization
held by it;
(b) no Merger Company has received, at any time,
any written notice or other written communication from any
Governmental Body regarding (A) any violation of or failure to
comply with any term or requirement of any Governmental
Authorization in any material respect, or (B) any actual,
proposed, possible, or potential revocation, withdrawal,
suspension, cancellation, termination of, or modification to
any Governmental Authorization, which is outstanding or
unresolved as of the date hereof; and
(c) all applications required to have been filed
for the renewal of the Governmental Authorizations listed or
required to be listed in Part 4.01(n) of the D Corp. Disclosure
Letter have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings required
to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies.
The Merger Companies have all of the material Governmental
Authorizations necessary to permit the Merger Companies to lawfully conduct
and operate their businesses in the manner they currently conduct and
operate (and propose to conduct and operate) such businesses and to permit
the Merger Companies to own and use their assets in the manner in which
they currently own and use (and propose to own and use) such assets.
(o) Legal Proceedings; Orders.
(i) Except as set forth in Part 4.01(o) or Part 4.01(s)
of the D Corp. Disclosure Letter, as of the date hereof there is no
pending Proceeding:
(a) that has been commenced by or against any
Merger Company or any of the assets of any Merger Company; or
(b) that challenges, or seeks to prevent any of the
Transactions.
To the Knowledge of D Corp. no such Proceeding has been Threatened. D
Corp. has delivered or made available to Parent copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in
Part 4.01(o) of the D Corp. Disclosure Letter.
(ii) Except as set forth in Part 4.01(o) of the D Corp.
Disclosure Letter, as of the date hereof:
(a) there is no material Order to which any of the
Merger Companies, or any of its assets is subject;
(b) D Corp. is not subject to any material Order
that relates to the business of, or any of the assets owned or
used by, any Merger Company; and
(c) to the Knowledge of D Corp. no officer,
director, agent, or employee of any Merger Company is subject
to any Order that prohibits such officer, director, agent, or
employee from engaging in or continuing any conduct, activity,
or practice relating to the business of the Merger Companies.
(iii) Except as set forth in Part 4.01(o) of the D Corp.
Disclosure Letter, as of the date hereof:
(a) each Merger Company is, and at all times has
been, in compliance in all material respects with all of the
terms and requirements of each material Order to which it, or
any of its assets is or has been subject; and
(b) no Merger Company has received, at any time any
notice or communication from any Governmental Body or any other
Person regarding any actual or alleged violation of, or failure
to comply with, any term or requirement of any material Order
to which any Merger Company, or any of its assets is or has
been subject which is outstanding or unresolved as of the date
hereof.
(p) Absence of Certain Changes and Events. Except as set forth
in Part 4.01(p) of the D Corp. Disclosure Letter, since the date of
the Year End Financials, the Merger Companies have conducted their
businesses only in the Ordinary Course of Business and there has not
been any:
(i) change in any Merger Company's authorized or issued
capital stock; grant of any stock option or right to purchase shares
of capital stock of any Merger Company; issuance of any security
convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by any
Merger Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or
payment in respect of shares of capital stock;
(ii) amendment to the Organizational Documents of any
Merger Company;
(iii) payment or increase (except in the Ordinary Course
of Business) by any Merger Company of any bonuses, salaries, or other
compensation to any director, officer, or employee or entry into any
employment, severance, or similar Contract with any director,
officer, or employee;
(iv) adoption of, or increase in the payments to or
benefits under, any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement, or other employee benefit
plan for or with any employees of any Merger Company;
(v) damage to or destruction or loss of any asset or
property of any Merger Company, whether or not covered by insurance,
which has had a Material Adverse Effect;
(vi) entry into, termination of, or receipt of notice of
termination of (i) any joint venture, credit, or similar agreement,
or (ii) any Contract or transaction involving a total remaining
commitment by or to any Merger Company of at least $50,000;
(vii) sale (other than sales of inventory or services in
the Ordinary Course of Business), lease, or other disposition of any
asset or property of any Merger Company in the amount of $50,000 or
more, or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of any Merger Company;
(viii) cancellation or waiver of any claims or rights
with a value to any Merger Company in excess of $25,000;
(ix) material change in the accounting methods used by
any Merger Company or any change of or disagreement with the
independent accountants of any Merger Company;
(x) agreement, whether oral or written, by any Merger
Company to do any of the foregoing; or
(xi) cancellation of any material insurance policy
covering any of the Merger Companies, or any material adverse change
in coverage under any such policy.
(q) Contracts; No Defaults.
(i) Part 4.01(q) of the D Corp. Disclosure Letter
contains as of the date hereof a complete and accurate list, and D
Corp. has delivered to Parent true and complete copies, of:
(a) each Applicable Contract that involves
performance of services or delivery of goods or materials by
the Merger Companies of an amount or value in excess of
$50,000;
(b) each Applicable Contract that involves
performance of services or delivery of goods or materials to
the Merger Companies of an amount or value in excess of
$50,000;
(c) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves
expenditures or receipts of the Merger Companies in excess of
$50,000;
(d) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Applicable Contract affecting the ownership of, leasing of,
title to, use of, or any leasehold or other interest in, any
real or personal property (except personal property leases and
installment and conditional sales agreements having a value per
item or aggregate payments of less than $50,000 and with terms
of less than one year);
(e) each licensing agreement or other Applicable
Contract with respect to material patents, trademarks,
copyrights, or other intellectual property, including
agreements with current or former employees, consultants, or
contractors regarding the appropriation or the non-disclosure
of any of the Intellectual Property;
(f) each collective bargaining agreement and other
Applicable Contract to or with any labor union or other
employee representative of a group of employees and each
employment agreement;
(g) each joint venture, partnership, and other
Applicable Contract (however named) involving a sharing of
profits, losses, costs, or liabilities by any Merger Company
with any other Person;
(h) each Applicable Contract containing covenants
that in any way purport to restrict the business activity of
any Merger Company or any Affiliate of any Merger Company or
limit the freedom of any Merger Company or any Affiliate of any
Merger Company to engage in any line of business or to compete
with any Person;
(i) each Applicable Contract providing for payments
to or by any Person based on sales, purchases, or profits,
other than direct payments for goods;
(j) each power of attorney that is currently
effective and outstanding;
(k) each Applicable Contract for capital
expenditures in excess of $50,000;
(l) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance
extended by any Merger Company other than in the Ordinary
Course of Business;
(m) each Applicable Contract not otherwise listed
above concerning (i) the simulcasting of horse races (sending
or receiving) that extends beyond the current meet, (ii)
sponsorships, (iii) tote services, (v) horsemen, and (v) audio
visual services including satellite uplinking and downlinking;
and
(n) each material amendment, supplement, and
modification (whether oral or written) in respect of any of the
foregoing.
(ii) Except as set forth in Part 4.01(q) of the D Corp.
Disclosure Letter:
(a) neither D Corp. nor any Affiliate of D Corp.
has or may acquire any rights under, and neither D Corp. nor
any such Affiliate has or may become subject to any obligation
or liability under, any material Contract that relates to the
business of, or any of the assets of any Merger Company; and
(b) to the Knowledge of D Corp, no officer,
director, or employee of any Merger Company is bound by any
Contract that purports to limit the ability of such officer,
director, or employee to (A) engage in or continue any conduct,
activity, or practice relating to the business of any Merger
Company, or (B) assign to any Merger Company or to any other
Person any rights to any invention, improvement, or discovery.
(iii) Except as set forth in Part 4.01(q) of the D Corp.
Disclosure Letter, as of the date hereof each Contract identified or
required to be identified in Part 4.01(q) of the D Corp. Disclosure
Letter is in full force and effect and is valid and enforceable in
accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, fraudulent conveyancing, preferential
transfer, moratorium, or similar laws of general application and
court decisions affecting the rights of creditors and general
principles of equity.
(iv) Except as set forth in Part 4.01(q) of the D Corp.
Disclosure Letter, as of the date hereof:
(a) each Merger Company is in compliance in all
material respects with all applicable terms and requirements of
each Contract identified or required to be identified in Part
4.01(q) of the D Corp. Disclosure Letter;
(b) to the Knowledge of D Corp., each other Person
that has any obligation or liability under any such Contract is
in compliance, in all material respects, with all applicable
terms and requirements of such Contract; and
(c) to the Knowledge of D Corp., no event has
occurred or circumstance exists that (with or without notice or
lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give any Merger Company or any other
Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to
cancel, terminate, or modify, any such Contract.
(v) There are no renegotiations of or outstanding rights
to renegotiate any material amounts paid or payable to any Merger
Company under any Contracts identified or required to be identified
in Part 4.01(q) of the D Corp. Disclosure Letter and, to the
Knowledge of D Corp. no such Person has Threatened such
renegotiation.
(vi) The Contracts relating to the sale, design or
provision of products, simulcast signal or services by the Merger
Companies have been entered into in the Ordinary Course of Business
and have been entered into without the commission of any act alone or
in concert with any other Person, or any consideration having been
paid or promised, that is or would be in violation of any Legal
Requirement.
(r) Insurance.
(i) D Corp. has delivered to Parent true and complete
copies of all policies of insurance to which any Merger Company is a
party as of the date hereof, or under which any Merger Company, or
any director (in respect of director liability) of any Merger
Company, is covered as of the date hereof, and the Merger Companies
have maintained substantially equivalent insurance coverage as set
forth in such current policies within the period beginning three
years preceding the date of this Agreement and ending the date of
this Agreement.
(ii) Part 4.01(r) of the D Corp. Disclosure Letter
describes, as of the date hereof:
(a) any self-insurance arrangement by or affecting
any Merger Company, including any reserves established
thereunder; and
(b) any contract or arrangement, other than a
policy of insurance, for the transfer or sharing of any risk by
any Merger Company.
(iii) Except as set forth on Part 4.01(r) of the D Corp.
Disclosure Letter:
(a) all policies to which any Merger Company is a
party or that provide coverage to any Merger Company or any
director or officer of any Merger Company:
1. do not provide for any retrospective
premium adjustment or other experienced-based liability
on the part of any Merger Company; and
2. will not, as the result of an audit,
require the payment of any earned premiums.
(b) With respect to the policies of insurance
delivered to Parent as described in Section 4.01(r), neither D
Corp. nor any Merger Company has 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 insurance policy is no longer in full
force or effect or will not be renewed or that the issuer of
any policy is not willing or able to perform its obligations
thereunder.
(c) With respect to the policies of insurance
delivered to Parent as described in Section 4.01(r), the Merger
Companies have paid all premiums due, and have otherwise
performed all of their obligations, under each such policy.
(s) Environmental Matters. Except as set forth in Part 4.01(s)
of the D Corp. Disclosure Letter:
(i) To the Knowledge of D Corp., each Merger Company is
in compliance in all material respects with Environmental Law. To the
Knowledge of D Corp., neither D Corp. nor any Merger Company has
received any written communication from (i) any Governmental Body or
(ii) the current or prior owner or operator of any Facilities, of any
actual or potential violation of any Environmental Law. To the
Knowledge of D Corp. and except as set forth in Part 4.01(o) of the D
Corp. Disclosure Letter, there is no pending or Threatened litigation
against D Corp. relating to the Facilities brought by a private
citizen acting in the public interest pursuant to any applicable
Environmental Law.
(ii) There are no pending or, to the Knowledge of D
Corp., Threatened claims or Encumbrances resulting from or arising
under or pursuant to any Environmental Law, with respect to or
affecting any of the Facilities or any other properties and assets
(whether real, personal, or mixed) in which any Merger Company has or
had an interest.
(iii) To the Knowledge of D Corp., there has been no
Release or Threatened Release nor are Hazardous Materials present on
or in the Environment at the Facilities in amounts or locations in
violation of applicable Environmental Law nor has any Merger Company
permitted or conducted its operations at any Facilities or any other
properties except in compliance in all material respects with
applicable Environmental Laws.
(iv) To the Knowledge of D Corp., D Corp. has delivered
to Parent true and complete copies and results of any reports,
studies, analyses, tests, or monitoring currently in the possession
of D Corp. or any Merger Company provided by D Corp. to any
Governmental Authority concerning compliance by any Merger Company,
or any other Person for whose conduct they are or may be held
responsible, with Environmental Laws.
(v) D Corp. and/or the Merger Companies applied for
renewal of the National Pollution Discharge Elimination System permit
issued in 1993 to the Arlington International Racecourse facility in
a timely manner and, to the Knowledge of D Corp., there is no
information indicating that the renewal application will be denied or
that a renewed permit will not be issued by the Illinois
Environmental Protection Agency in the usual course of business.
(t) Employees.
(i) Part 4.01(t) of the D Corp. Disclosure Letter
contains a complete and accurate list as of the date hereof of the
following information for each full time employee of the Merger
Companies, whose annual base compensation exceed $50,000, including
each such employee on leave of absence or layoff status: name; job
title; vacation accrued; date of hire; salary; and whether a
participant in any 401(k) plan or other Pension Plans listed in Part
4.01(f) of the D Corp. Disclosure Letter.
(ii) To the Knowledge of D Corp., no employee of any
Merger Company is a party to, or is otherwise bound by, any
agreement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such employee and any other
Person ("Proprietary Rights Agreement") that in any way materially
adversely affects or will materially adversely affect (i) the
performance of his duties as an employee of any Merger Company, or
(ii) the ability of any Merger Company to conduct its business. To D
Corp.'s Knowledge, no officer, or other key employee of any Merger
Company intends to terminate his employment with any Merger Company.
(u) Labor Relations; Compliance. Except as set forth in Part
4.01(u) of the D Corp. Disclosure Letter, as of the date hereof no
Merger Company is a party to any collective bargaining or other labor
Contract. Except as set forth in Part 4.01(u) of the D Corp.
Disclosure Letter, there is not presently pending or existing, and to
D Corp.'s Knowledge there is not Threatened, (a) as of the date
hereof, any strike, slowdown, picketing, or work stoppage which could
affect the operations of the Merger Companies, (b) any Proceeding
against or affecting any Merger Company relating to the alleged
material violation of any Legal Requirement pertaining to labor
relations or employment matters, including any charge or complaint
filed by an employee or union with the National Labor Relations
Board, the Equal Employment Opportunity Commission, or any comparable
Governmental Body, organizational activity, employee grievance
process, or other labor or employment dispute against or affecting
any Merger Company or its premises, or (c) as of the date hereof, any
application for certification of a collective bargaining agent for
any employees of any Merger Company. There is no lockout of any
employees by any Merger Company, and no such action is contemplated
by any Merger Company. Each Merger Company has complied in all
material respects with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social
security and similar taxes, occupational safety and health, and plant
closing. No Merger Company is liable for the payment of any material
compensation, damages, taxes, fines, penalties, or other amounts,
however designated, for any failure to comply with any of the
foregoing Legal Requirements.
(v) Intellectual Property.
(i) Intellectual Property -- The term "Intellectual
Property" includes:
(a) the names and marks of the Merger Companies set
forth on Part 4.01(v) of the D Corp. Disclosure Letter, which
is a true and accurate list thereof (collectively, "Marks");
and
(b) all know-how, trade secrets, confidential
information, customer or client lists, software, technical
information, data, process technology, plans, drawings, and
blue prints (collectively, "Trade Secrets") that are material
to the operation of the business of the Merger Companies and
that are owned, used, or licensed by any Merger Company as
licensee or licensor.
(ii) Agreements -- Part 4.01(v) of the D Corp. Disclosure
Letter contains as of the date hereof a complete and accurate list of
all Contracts relating to the Intellectual Property to which any
Merger Company is a party or by which any Merger Company is bound,
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 under which any Merger Company is
the licensee. There are no outstanding and, to D Corp.'s Knowledge,
no Threatened disputes or disagreements with respect to any such
Contract.
(iii) Know-How Necessary for the Business -- To the
Knowledge of D Corp., the Intellectual Property are all those
necessary for the operation of the Merger Companies' businesses as
they are currently conducted or as reflected in the business plan.
Except as set forth in Part 4.01(v) of the D Corp. Disclosure Letter,
the Merger Companies are the owners of all right, title and interest
in and to each item of Intellectual Property to the Knowledge of D
Corp. free and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims, and has the right to
use without payment to a third party all of the Intellectual
Property.
(iv) Trademarks
(a) One or more of the Merger Companies is the
owner of all right, title, and interest in and to each of the
Marks, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims.
(b) All Marks that have been registered with the
United States Patent and Trademark Office are currently in
compliance with all formal legal requirements (including the
timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or
taxes or actions falling due within ninety days after the
Closing Date.
(c) No Mark has been or is now involved in any
opposition, invalidation, or cancellation and, to D Corp.'s
Knowledge, no such action is Threatened with the respect to any
of the Marks.
(d) To D Corp.'s Knowledge, there is no potentially
interfering trademark or trademark application of any third
party.
(e) To D Corp.'s Knowledge, no Mark is infringed or
has been challenged or Threatened in any way and none of the
Marks used by any Merger Company infringes or is alleged to
infringe any trade name, trademark, or service mark of any
third party.
(v) Trade Secrets The Merger Companies have taken all
reasonable precautions to protect the secrecy, confidentiality, and
value of the Trade Secrets.
(w) Certain Payments. No Merger Company or any director,
officer, or to D Corp.'s Knowledge, agent or employee of any Merger
Company, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment
to any Person, private or public, regardless of form, whether in
money, property, or services (i) to obtain favorable treatment in
securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of any Merger Company
or any Affiliate of any Merger Company, or (iv) in violation of any
Legal Requirement, or (b) established or maintained any fund or asset
that has not been recorded in the books and records of any Merger
Company.
(x) Relationships with Related Persons. Except as set forth in
Part 4.01(x) of the D Corp. Disclosure Letter, neither D Corp. nor
any Related Person of D Corp. or of any Merger Company has, or has
had, any interest in any property (whether real, personal, or mixed
and whether tangible or intangible), used in the Merger Companies'
businesses. Neither D Corp. nor any Related Person of D Corp. or any
Merger Company is, or has owned (of record or as a beneficial owner)
an equity interest or any other financial or profit interest in, a
Person that has (i) had business dealings with or a material
financial interest in any transaction with any Merger Company other
than business dealings or transactions conducted in the Ordinary
Course of Business with any Merger Company at substantially
prevailing market prices and on substantially prevailing market
terms, or (ii) engaged in competition with any Merger Company with
respect to any line of the products or services of any Merger Company
(a "Competing Business") in any market presently served by any Merger
Company. Except as set forth in Part 4.01(x) of the D Corp.
Disclosure Letter, neither D Corp. nor any Related Person of D Corp.
or any Merger Company is a party to any Contract with, or has any
claim or right against, any Merger Company.
(y) Brokers or Finders. D Corp. and its agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in
connection with this Agreement.
(z) Projections. (i) Attached to the D Corp. Disclosure Letter
is a letter from the Illinois Racing Board (the "Board"), dated
December 28, 1999, setting forth the pari-mutuel tax credit under
Section 230 ILCS 5/32.1 of the Horse Racing Act (the "Act") for the
year 2000; (ii) attached to the D Corp. Disclosure Letter is a letter
from the Board, dated February 7, 2000, advising as to recapture
funding under Section 230 ILCS 5/26(g)(13) of the Act; (iii) D Corp.
has made available a true and correct copy of the Letter Agreement,
dated as of June 29, 1998, among Levy (Arlington) Limited Partnership
and A Corp., which details $1,000,000 in payments made by A Corp. to
Levy in 1998 and 1999 that will be recovered in subsequent years
(2000 and 2001 to the extent food and beverage levels are at least
equal to that contained in the Arlington International Racecourse
Consolidated-All Locations Proforma 2000-2004 previously provided by
Parent by D Corp.) as payments to A Corp. over and above that which
would be normally received by A Corp. as its share of food and
beverage net operating income; and (iv) attached to the D Corp.
Disclosure Letter is a copy of the calculation made by A Corp. of the
amount of Illinois Racing Fund Payments to be received by it under
Section 230 ILCS 5/54 of the Act, including the amount to be received
as commissions and the amount to go to the purse account of A Corp.
(aa) Investment Intent. D Corp. is acquiring the shares of
Parent Common Stock pursuant to this Agreement for its own account
and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act. D Corp. is an "accredited
investor" as such term is defined in Rule 501(a) under the Securities
Act and has such knowledge and expertise concerning financial and
business matters to evaluate the merits and risks of an investment in
Parent Common Stock.
SECTION 4.02. Representations and Warranties of Parent and Subs.
Parent and Subs represent and warrant to D Corp. as follows:
(a) Organization and Corporate Power. Each of Parent and Subs
is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, with
full corporate power and authority to conduct its business as it is
now being conducted and to own or use the properties and assets that
it purports to own or use.
(b) Authority; No Conflict.
(i) Subject to the shareholder approval at the
Shareholders Meeting, each of Parent and Subs has the corporate power
and authority to execute and deliver this Agreement and the other
Operative Agreements, as applicable, and to incur and perform its
obligations hereunder and thereunder. Subject to the shareholder
approval at the Shareholders Meeting, the execution, delivery and
performance of this Agreement and the other Operative Agreements, as
applicable, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary
corporate action on the part of Parent and Subs. Subject to the
shareholder approval at the Shareholders Meeting, this Agreement and
the other Operative Agreements, as applicable, constitute the legal,
valid, and binding obligations of Parent and Subs, as applicable,
enforceable against Parent and Subs in accordance with their terms.
(ii) Except for approvals required under the HSR Act,
from the Kentucky Racing Commission, from the Illinois Racing Board,
by the shareholders of Parent at the Shareholders Meeting, as set
forth in Part 4.02(b) of the Parent Disclosure Letter, and as
otherwise contemplated by this Agreement, neither the execution and
delivery of this Agreement or the other Operative Agreements by
Parent and Subs nor the consummation or performance of any of the
Transactions by Parent and Subs will, directly or indirectly (with or
without notice or lapse of time):
(a) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents
of Parent or the Subs, or (B) any resolution adopted by the
board of directors or the shareholders of Parent or the Subs;
(b) contravene, conflict with, or result in a
violation of any Legal Requirement or any Order to which Parent
or any of the assets of Parent may be subject;
(c) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate, or modify, any Governmental Authorization
that is held by Parent or that otherwise relates to the
business of, or any of the assets of Parent;
(d) cause Parent to become subject to, or to become
liable for the payment of, any tax;
(e) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel,
terminate, or modify, any material Contract of Parent; or
(f) result in the imposition or creation of any
Encumbrance upon or with respect to any assets of Parent.
Parent is not and will not be required to obtain any Consent from any
Person under any material Contract or other item in connection with the
execution and delivery of this Agreement or the consummation or performance
of any of the Transactions except as set forth in Part 4.02(b) of the
Parent Disclosure Letter, or this Agreement.
(c) Capitalization. The authorized capitalization of Parent
consists of 50,000,000 shares of no par value common stock and
250,000 shares of no par value preferred stock. As of the date
hereof, Parent has issued and outstanding 9,853,627 shares of no par
value common stock and no shares of no par value preferred stock. All
of the outstanding equity securities of Parent have been duly
authorized and are fully paid and nonassessable. There are no
Contracts relating to the issuance, sale or transfer by Parent of any
equity securities or other securities of Parent other than under the
employee compensation plans of Parent and the rights plan of Parent.
(d) SEC Documents. Parent has filed all required reports,
schedules, forms, statements and other documents that it has been
required to file under the Exchange Act and the Securities Act with
the SEC since January 1, 1999 (the "SEC Documents"). As of their
respective dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as
the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents. As of the date thereof,
no such document contained an untrue statement of material fact or
omitted to state any material fact necessary to make the statements
therein, in light of the circumstances in which made, not misleading.
(e) Certain Proceedings. There is no pending Proceeding that
has been commenced against Parent or the Subs and that challenges, or
may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Transactions. To Parent's
Knowledge, no such Proceeding has been Threatened.
(f) Brokers or Finders. Parent and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar
payment in connection with this Agreement other than to CIBC World
Markets, which will be paid by Parent.
(g) Financial Statements. The financial statements of Parent
for the year ended December 31, 1999 and for the quarter ended March
31, 2000 previously made available to D Corp. by Parent ("Parent
Financial Statements") comply as to form in all material respects
with applicable accounting requirements and the published rules of
the SEC with respect thereto, were prepared in accordance with GAAP
applied on a consistent basis during the periods presented (except as
may be indicated in the notes thereto and subject to normal year end
adjustments) and fairly present the consolidated financial position
of Parent and its subsidiaries, as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended. Since the date of the Parent Financial
Statements, there has been no Material Adverse Change in Parent.
(h) Subs; No Prior Activities. Subs were formed solely for the
purpose of engaging in the transactions contemplated by this
Agreement. As of the date hereof and the Effective Time of the
Mergers, except for obligations or liabilities incurred in connection
with their organization or to be incurred in connection with the
consummation of the Transactions, Subs have not incurred any
obligations or liabilities or engaged in any business activity of any
type or any kind whatsoever or entered into agreements or
arrangements with any person, other than the Operative Agreements.
(i) Books and Records. The books of account, minute books and
stock record books of Parent are complete and correct in all material
respects and have been maintained in accordance with sound business
practices including the maintenance of an adequate system of internal
controls.
(j) ERISA Compliance. Neither Parent nor Subs maintain or have
maintained during the five full calendar years preceding the date
hereof a defined benefit pension plan subject to Title IV of ERISA,
other than Multiemployer Plans. Except as listed on Part 4.02(j) of
the Parent Disclosure Letter, no withdrawal liability would result to
any member of Parent's controlled group (as defined in Code Section
414) (each an "ERISA Affiliate") in the event that Parent or any Sub
withdrew in a complete or partial withdrawal, as defined respectively
in ERISA Sections 4203 and 4205, as of the date hereof from any
Multiemployer Plan to which Parent or Sub contributes or is obligated
to contribute. Neither Parent nor any Sub nor any ERISA Affiliate has
incurred any liability under Title IV of ERISA. Each employee welfare
benefit plan that is a "group health plan," as such term is defined
in Section 5000(b)(1) of the IRC, maintained by Parent or any Sub
complies in all respects with the applicable requirements of Section
4908(f) of the IRC. Each employee benefit plan, policy and
arrangement maintained by, or contributed to, by Parent or any Sub
("Parent Plan") complies with applicable law and has been
administered in accordance with its terms. To the extent any Parent
Plan is intended to qualify under Section 401(a) of the IRC, such
Parent Plan is so qualified and has obtained a favorable
determination letter from the Internal Revenue Service covering such
matters for which the applicable remedial amendment period has not
yet expired, and nothing has occurred since such favorable
determination letter was issued to impair the qualified status of any
such Parent Plan. None of Parent, Subs, any officer of either of them
or any fiduciary of any Parent Plan (1) has engaged in a nonexempt
"prohibited transaction" within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the IRC for which a material penalty would
be imposed or (2) has participated in any fiduciary breach under
ERISA with respect to any Parent Plan subject to ERISA. To the
Knowledge of Parent and Subs, there are no pending claims, suits,
audits or investigations pending with respect to any Parent Plan that
could result in material liability for Parent or any Sub, except as
provided on Part 4.02(j) of the Parent Disclosure Letter. The
consummation of the Transactions (either alone or with any other
event) shall not entitle any director or employee of Parent or any
Sub to severance payments, additional compensation or benefits or
acceleration of vesting, payment or funding of any compensation or
benefits, other than under the stock option plans of Parent. Except
as set forth in Part 4.02(j) of the Parent Disclosure Letter, neither
Parent nor any Sub has any liability for providing post-retirement
welfare benefits other than those provided by a Multiemployer Plan.
(k) Taxes. Except as set forth in Part 4.02(k) of the Parent
Disclosure Letter, (i) Parent has timely filed all Tax Returns and
reports required to be filed by it, and as of the time of filing,
each such return was true, complete and correct in all material
respects; (ii) Parent has timely paid all Taxes shown to be due on
such Tax Returns and all other Taxes currently due and payable; (iii)
the Parent Financial Statements reflect an adequate reserve (other
than a reserve for deferred income taxes established to reflect
differences between book basis and tax basis of assets and
liabilities) for all Taxes payable by Parent for all taxable periods
and portions thereof through the date of the Parent Financial
Statements; (iv) no material deficiencies for any Taxes have been
proposed, asserted or assessed against Parent, and no requests for
waivers of the time to assess any such Taxes are pending; (v) the
Federal income Tax Returns of Parent and each of its Subsidiaries
have been examined by and settled with the IRS and are not subject to
audit for all years through 1995; (vi) all assessments for Taxes due
with respect to such completed and settled examinations or any
concluded litigation have been fully and timely paid; (vii) there are
no Encumbrances for Taxes (other than for current taxes not yet due
and payable) on the assets of Parent; (viii) no Federal or state
income Tax Returns of Parent with respect to a taxable period
beginning on or after January 1, 1996 have ever been (and no such
returns are currently being) examined by the IRS or any state taxing
authority; and (ix) Parent is not bound by any agreement or
arrangement with respect to Taxes.
(l) Compliance With Legal Requirements; Governmental
Authorizations.
(i) Except as set forth in Part 4.02(l) of the Parent
Disclosure Letter and without reference to any matters covered by
Section 4.02(m):
(a) To the Knowledge of Parent, each of Parent and
its Subsidiaries is in compliance in all material respects with
each Legal Requirement applicable to it or to the conduct of
its business or the ownership or use of any of its assets; and
(b) None of Parent or its Subsidiaries has received
any notice or other communication from any Governmental Body or
any other Person regarding any violation of, or failure to
comply with, any Legal Requirement in any material respect,
which is outstanding or unresolved as of the date hereof.
(ii) Each material Governmental Authorization held by
Parent or its Subsidiaries is valid and in full force and effect.
Except as set forth in Part 4.02(l) of the Parent Disclosure Letter:
(a) to the Knowledge of Parent, each of Parent and
its Subsidiaries is in compliance in all material respects with
all of the terms and requirements of each Governmental
Authorization held by it;
(b) none of Parent or its Subsidiaries has
received, at any time, any written notice or other written
communication from any Governmental Body regarding (A) any
violation of or failure to comply with any term or requirement
of any Governmental Authorization in any material respect, or
(B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or
modification to any Governmental Authorization, which is
outstanding or unresolved as of the date hereof; and
(c) all applications required to have been filed
for the renewal of the material Governmental Authorizations of
Parent or its Subsidiaries have been duly filed on a timely
basis with the appropriate Governmental Bodies, and all other
filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
Parent and its Subsidiaries have all of the material Governmental
Authorizations necessary to permit Parent and its Subsidiaries to lawfully
conduct and operate (and propose to conduct and operate) their businesses
in the manner they currently conduct and operate (and propose to conduct
and operate) such businesses and to permit Parent and its Subsidiaries to
own and use their assets in the manner in which they currently own and use
(and propose to own and use) such assets.
(m) Environmental Matters. Except as set forth in Part 4.02(m)
of the Parent Disclosure:
(i) To the Knowledge of Parent, Parent and its
Subsidiaries are in compliance in all material respects with
Environmental Law. To the Knowledge of Parent, neither Parent nor any
of its Subsidiaries has received any written communication from (i)
any Governmental Body or (ii) the current or prior owner or operator
of any property, of any actual or potential violation of any
Environmental Law. To the Knowledge of Parent, there is no pending or
Threatened litigation against Parent or its Subsidiaries brought by a
private citizen acting in the public interest pursuant to any
applicable Environmental Law.
(ii) There are no pending or, to the Knowledge of Parent,
Threatened claims or Encumbrances resulting from or arising under or
pursuant to any Environmental Law, with respect to or affecting any
properties and assets (whether real, personal, or mixed) in which
Parent or its Subsidiaries has or had an interest.
(iii) To the Knowledge of Parent, there has been no
Release or Threatened Release nor are Hazardous Materials present on
or in the Environment at the properties at which Parent or its
Subsidiaries currently or formerly operated in amounts or locations
in violation of applicable Environmental Law nor has Parent or its
Subsidiaries permitted or conducted its operations at any property
except in compliance in all material respects with applicable
Environmental Laws.
(iv) To the Knowledge of Parent, Parent has delivered to
D Corp. true and complete copies and results of any reports, studies,
analyses, tests, or monitoring currently in the possession of Parent
or its Subsidiaries provided by Parent or its Subsidiaries to any
Governmental Authority concerning compliance by Parent or its
Subsidiaries, or any other Person for whose conduct they are or may
be held responsible, with Environmental Laws.
(n) Acquisition Matters. To the Knowledge of Parent and except
as set forth in Part 4.02(n) of the Parent Disclosure Letter, there
is no claim by any party to any acquisition transaction with Parent
or any of its Subsidiaries which constitutes a material unrecorded
liability of Parent or its Subsidiaries.
(o) No Undisclosed Liabilities. To the knowledge of Parent,
except as set forth in Part 4.02(o) of the Parent Disclosure Letter
or as otherwise disclosed pursuant to the Parent Disclosure Letter,
Parent has no material liabilities or obligations of any nature
(whether known or unknown) and whether absolute, accrued, contingent,
or otherwise.
SECTION 4.03. Acknowledgment. Parent and Subs acknowledge and agree
that (a) the representations and warranties set forth in Section 4.01 are
the only representations, warranties or other assurances of any kind given
by or on behalf of D Corp. or the Companies and on which Parent and the
Subs are relying in entering into this Agreement; (b) as of the date of
this Agreement Parent is not aware of any matter which constitutes a breach
by D Corp. of its representations and warranties in Section 4.01, and (c)
no other statement, promise, forecast or projection made by or on behalf of
D. Corp. or the Merger Companies or any of their Representatives may form
the basis of, or be pleaded in connection with, any claim by Parent or Subs
under or in connection with this Agreement. D Corp. acknowledges and agrees
that (a) the representation and warranties set forth in Section 4.02 are
the only representations, warranties or other assurances of any kind given
by or on behalf of Parent and on which D Corp. is relying in entering into
this Agreement; and (b) as of the date of this Agreement, D Corp. is not
aware of any matter which constitutes a breach by Parent of its
representations and warranties in Section 4.02; and (c) no other statement,
promise, forecast or projection made by or on behalf of Parent or any of
its Representatives may form the basis of, or be pleaded in connection
with, any claim by D. Corp. or Subs under or in connection with this
Agreement.
ARTICLE V
Covenants Relating to Conduct of Business
SECTION 5.01. Conduct of Business. (a) Ordinary Course. During the
period from the date of this Agreement to the Effective Time of the
Mergers, D Corp. shall cause the Merger Companies to, and the Merger
Companies shall, carry on their respective businesses in the Ordinary
Course of Business and, to the extent consistent therewith, use Best
Efforts to preserve intact their current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with them. Without
limiting the generality of the foregoing, without the prior written consent
of Parent, during the period from the date of this Agreement to the
Effective Time of the Mergers, D Corp. shall cause the Merger Companies not
to, and the Merger Companies shall not:
(i) (x) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of their capital
stock, (y) split, combine or reclassify any of their capital stock or
issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of their capital stock
or (z) purchase, redeem or otherwise acquire any shares of capital
stock of the Merger Companies or any other securities thereof or any
rights, warrants or options to acquire any such shares or other
securities;
(ii) issue, deliver, sell, pledge or otherwise encumber
any shares of their capital stock, any other voting securities or any
securities convertible into or exchangeable for, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities;
(iii) amend their Organizational Documents;
(iv) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business
organization or division thereof or (y) any assets that are material,
individually or in the aggregate, to the Merger Companies, except
purchases of inventory in the Ordinary Course of Business consistent
with past practice or materials or services required for the start of
the Merger Companies' race meet;
(v) (A) grant to any employee, officer or director of the
Merger Companies any increase in compensation, other than as
contemplated by the 2000 budget of A Corp. heretofore provided by D
Corp. to Parent, (B) grant to any employee, officer or director of
the Merger Companies any increase in severance or termination pay,
(C) enter into any employment, consulting, indemnification, severance
or termination agreement with any such employee, officer or director,
(D) establish, adopt, enter into or amend in any material respect any
collective bargaining agreement or Benefit Plan, except as otherwise
provided for by Section 6.14 of this Agreement or (E) take any action
to accelerate any material rights or benefits, or make any material
determinations under any collective bargaining agreement or Benefit
Plan, except as otherwise required by applicable law or regulation;
(vi) make any change in accounting methods, principles or
practices affecting the reported consolidated assets, liabilities or
results of operations of the Merger Companies, except insofar as may
have been required by a change in GAAP or other applicable laws or
regulations;
(vii) sell, lease, mortgage or otherwise encumber or
subject to any Encumbrance or otherwise dispose of any of properties
or assets of the Merger Companies having a fair market value in
excess of $25,000;
(viii) (A) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any
debt securities or warrants or other rights to acquire any debt
securities of the Merger Companies, guarantee any debt securities of
another Person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another Person or enter
into any arrangement having the economic effect of any of the
foregoing, or (B) make any loans, advances or capital contributions
to, or investments in, any other person, other than to the Merger
Companies;
(ix) make or agree to make any new capital expenditure
or expenditures which, in the aggregate, are in excess of $50,000;
(x) inconsistent with prior practices, make any Tax
election, amend any Tax Return or settle or compromise any Tax
liability or refund;
(xi) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise),other than those incurred in the Ordinary Course of
Business consistent with past practice, or waive the benefits of, or
agree to modify in any manner, any confidentiality, standstill or
similar agreement to which the Merger Companies is a party;
(xii) except as part of the Transactions as contemplated
by this Agreement, enter into any transaction, agreement, arrangement
or understanding with D Corp. or any of its affiliates; or
(xiii) authorize any of, or commit or agree to take any
of, the foregoing actions or take any action which would be
prohibited by Section 4.01(p).
Notwithstanding the foregoing or any other provision contained in
this Agreement to the contrary, A Corp. may distribute to D Corp. (i) the
issued and outstanding stock of T Club, and (ii) the assets referenced in
Part 5.01(a) of the D Corp. Disclosure Letter. Upon distribution to D Corp.
of the assets referenced in (ii), D Corp. may then transfer such assets to
a third party.
(b) Other Actions. D Corp. shall not, and D Corp. shall cause the
Merger Companies not to, take any action that would, or that could
reasonably be expected to, result in any of the representations and
warranties of D Corp. set forth in this Agreement becoming untrue.
(c) Continuation of Insurance. D Corp. shall use its Best Efforts to
keep in effect until the Effective Time all insurance policies to which any
Merger Company is a party or that provides coverage to any Merger Company
as of the date hereof.
(d) Advice of Proceedings. D Corp. and each of the Merger Companies
shall promptly advise Parent orally and in writing if any of the Merger
Companies shall become subject to any material Order or material Proceeding
or become aware of any Threatened material claim.
(e) Certain Actions by Parent. During the period of time from the
date of this Agreement until the Effective Time of the Mergers, Parent
shall not, and shall not permit any of its Subsidiaries to:
(i) (x) declare, set aside or pay any extraordinary
dividends on, or make any other extraordinary distributions in
respect of, any of Parent's capital stock or (y) split, combine
or reclassify any of Parent's capital stock or issue or
authorize the issuance of any other securities in respect of,
in lieu of or in substitution of shares of Parent's capital
stock other than under Parent's rights plan;
(ii) except pursuant to the employee compensation plans
of Parent, the rights plan of Parent or the principal credit
facility of Parent with respect to the pledge of the shares of
Parent's Subsidiaries, issue, deliver, sell, pledge or
otherwise encumber any shares of Parent or its Subsidiaries;
(iii) amend the Organization Documents of Parent;
(iv) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any material business or
any material corporation, partnership, joint venture,
association of other business organization or material division
thereof or(y) any assets that are material individually or in
the aggregate to Parent, except purchases of assets in the
Ordinary Course of Business consistent with past practice;
(v) make any material change in accounting methods,
principles or practices affecting the reported consolidated
assets, liabilities or results of operation of Parent, except
insofar as may have been required by a change in GAAP or other
applicable laws or regulations;
(vi) sell, transfer or otherwise dispose of any of its
assets out of the Ordinary Course of Business unless it
receives consideration equal to the fair market value of such
assets (as determined in good faith by the board of directors
of Parent) and except for the pending sale of a portion of
Parent's interest in Hoosier Park, L.P.; or
(vii) authorize any of, or commit or agree to take any
of, the foregoing actions.
(f) Prior to the Effective Time of the Mergers, D Corp. shall not
revoke the Qualified Subchapter S Subsidiary elections of A Corp., A
Management Corp. and T Club under Treas. Reg. Section 1.1361-3(b) of the
IRC or terminate its Subchapter S election under Treas. Reg.
Section1.1362-2 of the IRC.
SECTION 5.02. No Negotiation or Solicitation. Until such time, if
any, as this Agreement is terminated pursuant to Article VIII, D Corp. will
not, and will cause each Merger Company and each of their Representatives
not to, directly or indirectly, solicit, initiate, or encourage any
inquires or proposals from, discuss or negotiate with, or provide any
non-public information to, any Person (other than Parent) relating to any
transaction involving the sale of the business or the assets (other than in
the Ordinary Course of Business) of any Merger Company, or any of the
capital stock of any Merger Company, or any merger, consolidation, business
combination, or similar transaction involving the change in control of any
Merger Company.
ARTICLE VI
Additional Agreements
SECTION 6.01. Preparation of Proxy Materials. (a) As soon as
practicable following the execution of this Agreement, Parent will prepare
and file with the SEC a preliminary Proxy Statement and Proxy (the "Proxy
Materials"). Parent will use its Best Efforts to respond to any comments of
the SEC or its staff concerning the Proxy Materials and to cause the Proxy
Statement to be mailed to the Parent's shareholders as promptly as
practicable after such filing. Parent will notify D Corp. promptly of the
receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the Proxy Materials or
for additional information and will supply D Corp. with copies of all
correspondence between Parent or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the
Proxy Materials or the Mergers. If at any time prior to the approval of the
issuance of shares of Parent Common Stock pursuant to this Agreement by
Parent's shareholders there shall occur any event that should be set forth
in an amendment or supplement to the Proxy Materials, Parent will promptly
prepare and mail to its shareholders such an amendment or supplement.
Parent will not mail any Proxy Materials or any amendment or supplement
thereto without two (2) days prior notice to D Corp. or if D Corp.
reasonably objects thereto. Each of D Corp., the Companies, Parent and Subs
agrees promptly to correct any information provided by it for use in the
Proxy Materials if and to the extent that such information shall have
become false or misleading in any material respect, and Parent further
agrees to take all steps necessary to amend or supplement the Proxy
Materials and to cause the Proxy Materials as so amended or supplemented to
be filed with the SEC and the Proxy Materials to be disseminated to Parents
stockholders, in each case as and to the extent required by applicable
Federal securities laws. Parent agrees to provide D Corp. and its counsel
copies of any written comments Parent or its counsel may receive from the
SEC or its staff with respect to the Proxy Materials promptly after the
receipt of such comments. D Corp. and the Merger Companies will cooperate
with Parent in connection with the matters described in this Section.
(b) Subject to any necessary SEC approvals of the Proxy Materials,
Parent will, as soon as practicable following the date of this Agreement,
duly call, give notice of, convene and hold a meeting of its shareholders
(the "Shareholders Meeting") for the purpose of approving the issuance of
shares of Parent Common Stock pursuant to this Agreement and the
Transactions. Parent will, through its Board of Directors, recommend to its
shareholders approval of the issuance of shares of Parent Common Stock
pursuant to this Agreement and the Transactions. Notwithstanding the
foregoing, the Board of Directors of Parent, to the extent required by the
fiduciary obligations thereof, as determined in good faith by a majority of
the members based on the advice of outside counsel, may withdraw or modify
its approval or recommendation; provided that no such withdrawal or
modification shall be permissible under this provision (i) because of a
change in the trading price of the Parent Common Stock, or (ii) because of
any change or effect that is adverse to the business, prospects, assets,
condition (financial or otherwise) or results of operations of the Merger
Companies, taken as a whole, which does not constitute a Material Adverse
Effect. Within ten (10) business days after the date hereof, Parent shall
obtain from its directors listed on Exhibit B to this Agreement (the
"Designated Directors") voting agreements in substantially the form of
Exhibit C to this Agreement (the "Voting Agreements").
Parent's obligations under this Section 6.01 are not qualified by the
condition in Section 7.01(a), and failure of Parent to comply with its
obligations under this Section 6.01 shall give D Corp. the right to assert
a claim under Section 10.03.
SECTION 6.02. Access to Information; Confidentiality. D Corp. shall
cause the Merger Companies to, and the Merger Companies, shall afford to
Parent, and to Parent's officers, employees, accountants, counsel,
financial advisers and other Representatives, reasonable access during
normal business hours during the period prior to the Effective Time of the
Merger to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, the Merger Companies shall
furnish promptly to Parent all other information concerning their business,
properties and personnel as Parent may reasonably request. Parent shall
afford to D Corp. and to D Corp.'s officers, employees, accountants,
counsel, financial advisors and other Representatives, reasonable access
during normal business hours during the period prior to the Effective Time
of the Merger to all its properties, books, contracts, commitments,
personnel and records and, during such period, Parent shall furnish
promptly to D Corp. all other information governing its business,
properties and personnel as D Corp. may reasonably request. All such
information shall be held in accordance with the confidentiality agreement
(the "Confidentiality Agreement") dated September 15, 1999, as amended.
SECTION 6.03. Reasonable Efforts; Notification. Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use its Best Efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Mergers
and the other Transactions, including (i) the obtaining of all necessary
actions or nonactions, waivers, consents and approvals from Governmental
Bodies (including the racing regulators referenced in Section 7.01(e)) and
the making of all necessary notifications, registrations and filings
(including filings with Governmental Bodies, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from,
or to avoid an action or proceeding by, any Governmental Body including
those referenced in Section 7.01(e) hereof, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, and (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of any of
the Transactions, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Body vacated
or reversed.
SECTION 6.04. Rights Agreement. (a) The Board of Directors of Parent
shall amend its Rights Agreement in order to provide that D Corp. shall not
be an acquiring person under the rights plan solely by virtue of the
Mergers and the other Transactions.
SECTION 6.05. Fees and Expenses. (a) All fees and expenses incurred
in connection with the Mergers, this Agreement and the Transactions shall
be paid by the party incurring such fees or expenses, whether or not the
Mergers are consummated. Any real estate appraisal fees in connection with
subdividing the property as contemplated by Section 7.01(d) shall be borne
50% by each of D Corp. and Parent.
(b) For purposes of this Agreement, the term "Expenses" shall mean,
with respect to a party hereto, all reasonable out-of-pocket fees and
expenses incurred or paid by or on behalf of such party or any of its
affiliates in connection with the Mergers or the consummation of any of the
Transactions, including all fees and expenses of counsel, investment
banking firms, accountants, experts and consultants to such party or any or
its affiliates and all fees and expenses of banks, investment banking firms
and other financial institutions and their respective counsel, accountants
and agents in connection with arranging or providing financing
(collectively, the "Expenses").
SECTION 6.06. Public Announcements. Parent and Subs, on the one hand,
and D Corp. and the Merger Companies, on the other hand, will consult with
each other before issuing, and provide each other the opportunity to review
and comment upon, any press release or other public statements with respect
to the Transactions, including the Mergers, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by applicable law, court process or by
obligations imposed by the Nasdaq Stock Market. The parties agree that (a)
the initial press release to be issued with respect to the Transactions is
set forth in Exhibit D to this Agreement, and (b) the Parent shall be
entitled to prepare (in its sole discretion) and file reports on Form 8-K
with the SEC pursuant to the Exchange Act concerning the amendment to its
rights plan and the announcement of the Transactions and a subsequent
report on Form 8-K describing this Agreement and the Mergers and file the
Operative Agreements as exhibits to such Form 8-K.
SECTION 6.07. Transfer Taxes. D Corp. shall pay any state, local,
foreign or provincial sales, use, real property transfer, stock, transfer,
stock or similar tax (including any interest or penalties with respect
thereto) payable in connection with the consummation of the Transactions
(collectively, the "Transfer Taxes"). Parent agrees to cooperate with D
Corp. in the filing of any returns with respect to the Transfer Taxes.
SECTION 6.08. Management Agreement. Contemporaneously with the
execution of this Agreement, A Corp. and Churchill Downs Management Company
shall enter into a management agreement to be effective only after
expiration or earlier termination of the waiting period under the HSR Act.
SECTION 6.09. Funding. D Corp. agrees to consider providing Parent
and its Affiliates with funding in an amount up to $15,000,000.
Accordingly, if requested by Parent, D Corp. will discuss with Parent an
investment of such funds in Parent and the terms and conditions of such
investment; provided, however, that D Corp. shall have no obligation to
provide such funds. If D Corp. in its sole and absolute discretion decides
to provide such funds, they shall be provided only on terms and conditions
acceptable to it.
SECTION 6.10. Tax Allocation of the Merger Consideration and the
Contingent Merger Consideration.
(a) The elections of T Club, A Management Corp., and A Corp. to
be taxed as qualified Subchapter S subsidiaries under Section
1361(b)(3)(B) of the IRC, will terminate on the Closing Date. As a
result, for federal and state income tax purposes, the Mergers will
be treated as (i) deemed taxable sale by D Corp. of all assets of T
Club (the "T Club Acquired Assets"), (ii) a deemed taxable sale by D
Corp. of all of the assets of A Management Corp. (the "A Management
Corp. Acquired Assets"), and (iii) a deemed taxable sale by D Corp.
of all of the assets of A Corp. (the "A Corp. Acquired Assets").
(b) D Corp. and Parent shall cooperate in good faith to agree
on the selection of an appraisal firm to value, as of the Closing
Date, the T Club Acquired Assets, the A Management Corp. Acquired
Assets and the A Corp. Acquired Assets, and the Merger Consideration
and the Contingent Merger Consideration. Such appraisals, absent
manifest error, shall be used by, and shall be binding on, both D
Corp. and Parent for purposes of preparing the Allocation Schedules
(as defined in Section 6.10(c)) and for purposes of the post-closing
adjustment of the Merger Consideration pursuant to Section 3.03.
(c) Parent and D Corp. agree that for federal and state income
tax purposes (i) the fair market value of the Adjusted T Club Merger
Consideration received by D Corp. in the deemed sale of the T Club
Acquired Assets shall be allocated among the T Club Acquired Assets
in accordance with a schedule (the "T Club Allocation Schedule"),
(ii) the fair market value of the Adjusted A Management Corp. Merger
Consideration received by D Corp. in the deemed sale of the A
Management Corp. Acquired Assets shall be allocated among the A
Management Corp. Acquired Assets in accordance with a schedule (the
"A Management Corp. Allocation Schedule"), and (iii) the fair market
value of the Adjusted A Corp. Merger Consideration and the Contingent
Merger Consideration received by D Corp. in the deemed sale of the A
Corp. Acquired Assets shall be allocated among the A Corp. Acquired
Assets in accordance with the methodology set forth on a schedule in
the form of Exhibit E attached hereto (the "A Corp. Allocation
Schedule," and together with the T Club Allocation Schedule and the A
Management Corp. Allocation Schedule, the "Allocation Schedules").
Each of the Allocation Schedules shall be agreed by the parties and
executed and delivered to each other not later than 30 days after the
Closing Date. The Allocation Schedules shall comply with the
requirements of Section 1060 of the IRC and the Treasury Regulations
promulgated thereunder and will reflect the respective fair market
values, as of the Closing Date, of the T Club acquired Assets, the A
Management Corp. Acquired Assets and the A Corp. Acquired Assets as
determined by the appraisals undertaken pursuant to Section 6.10(b).
Each of the parties shall report the Mergers for federal and state
income tax purposes, including without limitation in all Tax Returns
prepared and filed by or for such party, in accordance with the
allocations set forth in the Allocation Schedules. Parent and D Corp.
shall each prepare and file three separate Asset Acquisition
Statements on IRS Form 8594 for the deemed sale of the T Club
Acquired Assets, the deemed sale of the A Management Corp. Acquired
Assets and the deemed sale of the A Corp. Acquired Assets, in each
case reflecting such allocations, with their respective federal
income Tax Returns for the taxable year that includes the Closing
Date. Each of the parties shall give prompt notice to the others of
the commencement of any tax audit or the assertion of any proposed
deficiency or adjustment by any taxing authority or agency that
challenges the allocation set forth in the Allocation Schedules.
SECTION 6.11. Other Operative Agreements. At the Closing Parent, D
Corp. and the Companies, as applicable, shall enter into the other
Operative Agreements.
SECTION 6.12. Retained Assets. The Companies shall transfer to D
Corp. the assets contemplated by the last sentence of Section 5.01(a).
SECTION 6.13. Employment Matters.
(a) Parent shall cause the Surviving Corporations to provide
(1) each employee of the Surviving Corporation (excluding any former
employee and the dependent(s) of any former employee), (2) each
employee of the Surviving Corporation on a leave of absence or on
disability as of the Closing Date; and (3) each former employee of
the Merger Companies who, as of the Closing Date, is covered by
Section 601 et seq. of ERISA or Section 4980B of the IRC ("COBRA
Beneficiaries") (collectively, the "Employees") such employee
benefits (including without limitation, hospitalization, medical,
prescription, dental, disability, salary continuation, retirement,
deferred compensation, pre-tax premium payment, vacation, life and
accidental death and disability, disability, travel accident,
incentive, bonus, supplemental retirement, severance, fringe benefits
and other similar benefits) as are provided by Parent to its
similarly situated employees or COBRA Beneficiaries. Notwithstanding
the foregoing, the Surviving Corporations shall not be required to
continue the employment of any particular Employee after the Closing,
and the employment of any such Employee may be terminated after the
Closing in accordance with the applicable law. For a period of at
least one year immediately following the Closing Date, the Surviving
Corporations shall take all actions necessary so that the Employees
other than COBRA Beneficiaries will receive credit for eligibility
and vesting purposes but, except as otherwise provided herein, not
for the accrual of benefits, other than vacation, for their periods
of service with the Merger Companies and Affiliates prior to the
Closing Date under any employee benefit plan, program or arrangement
established, maintained, continued or made available by the Surviving
Corporations after the Closing in which such Employees are eligible
to participate other than under Parent's stock purchase and bonus
plans.
(b) Prior to the Closing Date, A Corp. and D Corp. shall take
all action necessary to transfer sponsorship of the A Corp. Salaried
Employees Retirement Savings Plan and the A Corp. Hourly Employees
Retirement Savings Plan to D Corp. (collectively, the "A Corp. 401(k)
Plans") and shall, prior to Closing, provide Parent with any plan
amendments, board resolutions or other instruments evidencing such
transfer. From and after the Closing Date, D Corp. shall be solely
responsible for each of the Pension Plans and shall, in accordance
with the procedures set forth in Section 10.08, but without regard to
the time limitations of Section 10.04 or to the limitations on
amounts set forth in Section 10.05, indemnify and hold the Merger
Companies and Parent harmless from any and all liability and/or
expense that may arise with respect to any such Pension Plan,
including benefit claims by employees or former employees of the
Merger Companies under each such Pension Plan. To the extent
permitted by law, Parent shall permit each Employee other than a
COBRA Beneficiary to roll over his account balance from an A Corp.
401(k) Plan, including without limitation, promissory notes relating
to participant loans from such A Corp. 401(k) Plans which are
outstanding as of the Closing Date, to a qualified plan maintained by
Parent.
(c) D Corp. shall be responsible for all claims for welfare
benefits (except for medical and dental claims) which are incurred
prior to the Closing Date by any Employee (or the eligible dependent
of any Employee) that are payable under the terms and conditions of
any Benefit Plan. The Surviving Corporations shall be responsible (1)
for all medical and dental claims incurred by any Employee (or
eligible dependent of any Employee) that are payable under the terms
and conditions of the Duchossois Industries, Inc. Group Benefits
Plan, regardless of whether such claims were incurred before, on or
after the Closing Date, and, to the extent such claims are paid by D
Corp. pursuant to such Benefit Plan, the Surviving Corporations shall
promptly reimburse D Corp. for the amount of such payments, and (2)
for other welfare benefits which are incurred from and after the
Closing Date by any Employee (or any eligible dependent of any such
Employee) that are payable under the terms and conditions of the
welfare benefit plans established by the Surviving Corporations with
respect to the Employees. For purposes of this Section, a claim for
welfare benefits shall be deemed to be incurred: in the case of
medical, health or dental benefits, when the medical, health or
dental service or supply is provided, and in the case of disability,
life insurance and any other welfare benefits, when the event
directly giving rise to the claim occurs. A reserve shall be noted on
the financial statements of the Merger Companies in the amount of One
Hundred Fifty Thousand Dollars ($150,000) to reflect the liability
for medical and dental claims of the Employees of the Merger
Companies and their eligible dependents. The Surviving Corporations
shall recognize such co-payments and deductibles paid by such
Employee or dependent under the Plans prior to the Closing Date as
are disclosed at Closing by D Corp. and shall not exclude any
preexisting conditions of any such Employee or dependent that were
not excluded under the Plans immediately prior to the Closing.
(d) Nothing herein expressed or implied by this Agreement shall
confer upon any Employee, or legal representative thereof, any rights
or remedies, including, without limitation, any right to employment
for any specified period, or any nature or kind whatsoever, under or
by reason of this Agreement.
(e) The Surviving Corporations shall cooperate with D Corp. in
providing reasonable access to each Employee's personnel file from
and after the Closing Date and shall use their Best Efforts to make
such personnel files, or complete copies thereof, available to D
Corp. in connection with a legal or regulatory claim, action or
sanction concerning D Corp., provided that D Corp. provides
reasonable advance notice of its intent to review such files.
(f) D Corp. and Merger Companies shall take such necessary
steps before the Closing as they may determine, and which are
reasonably acceptable to Parent upon inspection prior to the Closing,
to provide that the Merger Companies will, effective as of or before
the Closing, cease to be participating employers in, and no employee
of the Merger Companies shall be eligible to participate in, any
Benefit Plan.
SECTION 6.14. Liability Insurance. Parent shall have in effect, as of
the effective date of the Management Agreement, general liability insurance
coverage for the Merger Companies, which coverage shall be primary as to
coverage held by D Corp. or the Merger Companies, in amounts and with such
coverages as customarily maintained by Parent on its other operations with
respect to the operations of the Companies from and after the effective
date of the Management Agreement.
SECTION 6.15. June 30, 2000 Balance Sheet. As of June 30, 2000 (the
"Balance Sheet Date"), the Companies shall close their books in accordance
with GAAP consistent with past practices, except for footnote disclosures
and normal year-end adjustments. As of the Balance Sheet Date:
(a) all intercompany accounts between and among the Companies
and any Affiliates of the Companies shall be canceled and reflect no
amount payable to, or receivable from, such Affiliates;
(b) cash on hand shall be the sum of:
(i) cash required in the Ordinary Course of Business to
operate the cash rooms of the Companies; plus
(ii) $951,000, reflecting the balance due after June 30,
2000 ,with respect to all payments relating to start-up
expenses and capital expenditures required to commence racing
operations for the year 2000 meet; plus
(iii) $1,325,000; and
(c) any funded debt of the Companies shall have been repaid.
After the Balance Sheet Date, no funds shall be remitted to D Corp. by the
Companies other than as set forth in the following paragraph.
Commencing July 1, 2000 and continuing through the Closing
Date, D Corp. shall provide loans without interest or fees to the Companies
to fund the operations of the Companies in the Ordinary Course of Business,
which loans shall be repaid to D Corp. without interest or fees by Parent
or the Companies not later than the tenth business day following the
Closing Date. Such loans shall be recorded on the books and records of the
Companies and shall represent bona fide indebtedness of the Companies.
After the date of the Interim Financials, no change in
collections procedures for accounts receivable, or disbursement policies
for accounts payable, has or shall occur. Parent shall be entitled to
conduct a review of the financial statements as of the Balance Sheet Date,
provided that such review or audit shall be conducted at such time and
manner as may be mutually agreeable between Parent and D Corp.
SECTION 6.16. Real Estate Tax Rebates. Parent or the Companies shall
pay to D Corp. thirty percent (30%) of any real estate tax refunds or
rebates (net of commissions or related attorneys' fees and costs) relating
to challenged property tax assessments of the Companies for the periods
1992 through 1997, up to a maximum aggregate payment of $1,000,000. Such
payments by Parent to D Corp. shall be made within ten (10) business days
of receipt by Parent of any real estate tax refunds or rebates (net of
commissions or related attorneys' fees and costs).
SECTION 6.17. Nevada Matters. In connection with the licensure of the
Companies in the State of Nevada, D Corp. will assist Parent in such
licensure process, including the provision of information in connection
with such process, to the extent reasonably requested by Parent.
SECTION 6.18. Environmental Matters. D Corp. agrees that it will
remain responsible for taking those actions required by applicable
Environmental Law to address the following issues following Closing:
(a) The leaking underground storage tanks reported to the
Illinois Environmental Protection Agency at the Arlington
International Racecourse facility;
(b) The leaking underground storage tanks reported to the
Illinois Environmental Protection Agency at the Quad Cities Downs
facility; and
(c) The limited soil staining at the Arlington International
Racecourse and Quad Cities Downs facilities identified in the Reports
of Phase I Environmental Site Assessments prepared by Law Engineering
and Environmental Services, Inc. dated May 26, 2000.
(d) Any operating costs incurred by the Companies in excess of
those ordinarily incurred related to the presence of radium in the
well water on the back side of the main Arlington facility, after a
determination has been made by Parent that capital improvements are
necessary to remedy such matter (which determination must be made by
Parent within one year after the Closing and with notification to D
Corp. of such determination), until the earlier of one year after the
date of such notification or the date such capital improvements are
in place, and with the requirement that D Corp. shall participate in
the determination of the actions to be taken which give rise to such
operating costs.
The Merger Company agrees to provide D Corp. and its authorized
representatives with reasonable access to the Facilities following Closing
in order to fulfill these obligations (including, but not limited to, the
right to perform environmental sampling and remediation as required by
applicable Environmental Law) provided, however, that D Corp. will not
unreasonably interfere with the Merger Company's business operations. The
Merger Company will reasonably cooperate with D Corp. by executing any
documents necessary for D Corp. to fulfill its obligations. D Corp. will
promptly provide the Merger Company with copies of any documents received
from or sent to Governmental Agencies relating to these matters.
ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Each Party's Obligation to Effect the
Mergers. The respective obligation of each party to effect the Mergers are
subject to the satisfaction or waiver on or prior to the Closing Date of
the following conditions:
(a) Shareholder Approval. Parent shall have obtained the
approval of its shareholders at the Shareholders Meeting.
(b) HSR Act. The waiting periods (and any extension thereof)
applicable to the Mergers under the HSR Act shall have been
terminated or shall have expired.
(c) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Mergers shall be in
effect; provided, however, that each of the parties shall have used
its Best Efforts to prevent the entry of any such injunction or other
order and to appeal as promptly as possible any injunction or other
order that may be entered.
(d) Lease. A Corp. and D Corp. shall have executed the Lease in
substantially the form of Exhibit F (the "Lease") and the real
property subject thereto shall have been subdivided from the adjacent
real estate of the Surviving Corporations (if required by law) in a
manner reasonably acceptable to the parties.
(e) Racing Board Approvals. The Illinois Racing Board shall
have approved the Transactions on terms satisfactory to Parent, in
its sole discretion, if the Illinois Racing Board determines such
approval is necessary and the Indiana Horse Racing Commission, the
California Horse Racing Board and the Florida Department of Business
and Professional Regulation Division of Pari-Mutuel Wagering shall
have approved the Transactions on terms satisfactory to Parent, in
its sole discretion.
(f) Stockholders Agreement. The Stockholders Agreement shall
be executed by the parties thereto.
(g) No Litigation. There shall not be pending or Threatened (by
a Governmental Body only) any suit, action or proceeding by any
Governmental Body or any other Person, or before any court or
governmental authority, agency or tribunal, domestic or foreign, in
each case that has a reasonable likelihood of success, (i) involving
any challenge to, or seeking material damages or other relief in
connection with, any of the Transactions; or (ii) that may have the
effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Transactions.
(h) Rosemont Litigation. There shall not have occurred after
the date hereof any material adverse development in the Rosemont
litigation, including the matter more particularly styled as Davis
Companies, Inc. vs. Emerald Casino et al., N.D. Ill. E. Div., Civil
Action No. 99C6822.
SECTION 7.02. Conditions to Obligations of Parent and Subs. The
obligations of Parent and Subs to effect the Mergers are further subject to
the following conditions:
(a) Representations and Warranties. The representations and
warranties of D Corp. set forth in the Agreement shall be true and
correct in all material respects, in each case as of the Closing Date
(except for representations and warranties confined to a specified
date, which speak only to such date), and Parent shall have received
a certificate signed on behalf of D Corp. by an executive officer of
D Corp. to such effect.
(b) Performance of Obligations of D Corp. and the Companies. D
Corp. and the Companies 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, and Parent shall have received a
certificate signed on behalf of D Corp. and the Companies by an
executive officer of D Corp. and the Companies to such effect.
(c) Material Filings and Notices. There shall have been made by
D Corp. and the Merger Companies, as applicable, all material filings
and notifications required to be made to any Governmental Body in
connection with the Mergers, and all material consents, approvals,
authorizations and permits required to be obtained by Parent, D
Corp., the Merger Companies and their subsidiaries from any
Governmental Body at or prior to the Effective Time of the Mergers
shall have been obtained.
(d) Dissenters' Rights. No more than 500,000 shares of Parent's
Common Stock shall have dissented to the Transactions; provided that
the shares of Parent's Common Stock covered by the Voting Agreements
which may have dissented to the Transactions, if any, shall not be
included in calculating such 500,000.
(e) Opinion. Parent shall have received a legal opinion from
counsel to D Corp. and the Companies substantially in the form of
Exhibit G.
(f) Liabilities. All intercompany liabilities and long term
liabilities of the Merger Companies shall have been paid or released
by D Corp.
(g) Change. There shall not have been a Material Adverse Change
in the Merger Companies.
(h) Survey. Parent shall have received a current survey of the
main track of the Merger Companies, which survey shall not disclose
the presence of any encroachments by or upon such property or other
matters not disclosed on the survey of such property heretofore
delivered by D Corp. to Parent which do or reasonably could
materially and adversely affect the Surviving Corporations' use,
operation or financing of such property.
SECTION 7.03. Conditions to Obligation of D Corp. and the Companies.
The obligation of D Corp. and the Companies to effect the Mergers are
subject to the following conditions:
(a) Performance of Obligations of Parent and Subs. Parent and
Subs shall have performed in all material respects all obligations to
be performed by them under this Agreement at or prior to the Closing
Date, and D Corp. shall have received a certificate signed on behalf
of Parent and Subs by an executive officer of Parent and Subs to such
effect.
(b) Representations and Warranties. The representations and
warranties of Parent and Subs set forth in this Agreement shall be
true and correct, in all material respects, in each case as of the
Closing Date (except for representations and warranties confined to a
specified date, which speak only to such date), and D Corp. shall
have received a certificate signed on behalf of Parent and Subs by an
executive officer of Parent and Subs to such effect.
(c) Opinions. D Corp. shall have received a legal opinion
from counsel to Parent substantially in the form of Exhibit H.
(d) Change. There shall not have been a Material Adverse
Change in Parent.
(e) Material Filings and Notices. There shall have been made by
Parent all material filings and notifications required to be made to
any Governmental Body in connection with the Mergers, and all
material consents, approvals, authorizations and permits required to
be obtained by Parent, D Corp. the Merger Companies and their
subsidiaries from any Governmental Body at or prior to the Effective
Time of the Mergers shall have been obtained.
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time of the Mergers, whether before or after
approval of matters presented in connection with the Mergers by the
shareholders of Parent:
(a) by mutual written consent of Parent, Subs, D Corp. and the
Companies;
(b) by either Parent or the Companies:
(i) if, upon a vote at a duly held Shareholders Meeting
(or any adjournment thereof), the approval of Parent's shareholders
shall not have been obtained;
(ii) if the Mergers are not consummated on or before
September 30, 2000 (the "Outside Date"), unless the failure to
consummate the Mergers is the result of a willful and material breach
of this Agreement by the party seeking to terminate this Agreement;
provided, however, that the passage of such period shall be tolled
for any part thereof during which any party shall be subject to a
nonfinal order, decree, ruling or action restraining, enjoining or
otherwise prohibiting the consummation of the Mergers;
(iii) if any Governmental Body issues an order, decree or
ruling or takes any other action permanently enjoining, restraining
or otherwise prohibiting the Mergers and such order, decree, ruling
or other action shall have become final and nonappealable; or
(iv) if any condition to the obligation of such party to
consummate the Mergers set forth in Section 7.01 or in Sections 7.02
(in the case of Parent and Subs) or 7.03 (in the case of D Corp. and
the Companies) becomes incapable of satisfaction prior to the Outside
Date; provided, however, that the terminating party is not then in
willful and material breach of any representation, warranty or
covenant contained in this Agreement;
(c) by Parent, if D Corp. or the Companies breach or fail to
perform in any material respect any of their representations,
warranties or covenants contained in this Agreement, which breach or
failure to perform (i) would give rise to the failure of a condition
set forth in Section 7.02(a) or 7.02(b) and (ii) cannot be or has not
been cured within 30 days after the giving of written notice to D
Corp. of such breach (provided that Parent is not then in willful and
material breach of any representation, warranty or covenant contained
in this Agreement);
(d) by D Corp. or the Companies, if either Parent or Subs
breaches or fails to perform in any material respect any of its
representations, warranties or covenants contained in this Agreement,
which breach or failure to perform (i) would give rise to the failure
of a condition set forth in Section 7.03(a) or 7.03(b) and (ii)
cannot be or has not been cured within 30 days after the giving of
written notice to Parent of such breach (provided that D Corp. and
the Companies are not then in wilful and material breach of any
representation, warranty or covenant in this Agreement); or
(e) by D Corp. or the Companies if any Person (other than Brad
Kelley or any director or officer of Parent, including any group
thereof with the meaning of Section 13(d) of the Exchange Act) has
acquired or proposed to acquire (or publicly announced or otherwise
disclosed a bona fide intention to acquire) more than 10% of the
issued and outstanding voting securities of Parent, or if Parent has
entered into any agreement with any Person with respect to the
foregoing.
SECTION 8.02. Effect of Termination. In the event of termination of
this Agreement by either D Corp. and the Companies or Parent and Subs, as
provided in Section 8.01, this Agreement shall forthwith become void and
have no effect, without any liability or obligation on the part of Parent,
Subs, D Corp. or the Companies, other than the provisions of the last
sentence of Section 6.02, Section 6.05, and this Section 8.02 and except to
the extent that such termination results from the wilful and material
breach by a party of any of its representations, warranties, covenants or
agreements set forth in the Operative Agreements.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
at any time before or after receipt of the approval of Parent's
shareholders; provided, however, that after any such approval, there shall
not be made any amendment that by law requires further approval by such
shareholders without the further approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
SECTION 8.04. Extension; Waiver. At any time prior to the Effective
Time of the Mergers, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the other parties,
(b) waive any inaccuracies in the representations and warranties contained
in this Agreement or in any document delivered pursuant to this Agreement
or (c) waive compliance with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
SECTION 8.05. Procedure for Termination, Amendment, Extension or
Waiver. (a) A termination of this Agreement pursuant to Section 8.01, an
amendment of this Agreement pursuant to Section 8.03 or an extension or
waiver pursuant to Section 8.04 shall, in order to be effective, require
action by the duly authorized designee of the Board of Directors of a
party.
SECTION 8.06. Termination Fee. If this Agreement is terminated
pursuant to the provisions of this Article VIII, other than (i) pursuant to
Section 8.01(c); (ii) due to failure to obtain approval of the Illinois
Racing Board as contemplated by Section 7.01(e) solely because of a matter
related to D Corp. or the Companies; or (iii) because of failure to obtain
approval under the HSR Act, then Parent shall pay to D Corp. a termination
fee in the amount of $ 4,000,000.
ARTICLE IX
General Provisions
SECTION 9.01. Notices. All notices, requests, claims, demands and
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier
(providing proof of delivery) to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
(a) if to Parent or Subs, to
Churchill Downs Incorporated
700 Central Avenue
Louisville, Kentucky 40208
Attention: Chief Financial Officer
with a copy to:
Churchill Downs Incorporated
700 Central Avenue
Louisville, Kentucky 40208
Attention: General Counsel
(b) if to D Corp. or the Companies, to
Duchossois Industries, Inc.
845 Larch Avenue
Elmhurst, Illinois 60126
Attention: Corporate Secretary
with a copy to:
Jones, Day, Reavis and Pogue
77 West Wacker
Chicago, Illinois 60601
Attention: William P. Ritchie
SECTION 9.02. Interpretation. When a reference is made in this
Agreement to a Section, Exhibit, the D Corp. Disclosure Letter, or the
Parent Disclosure Letter such reference shall be to a Section of, or an
Exhibit, or the D Corp. Disclosure Letter, or the Parent Disclosure Letter
to, 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. Whenever the words "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words
"without limitation."
SECTION 9.03. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other parties.
SECTION 9.04. Entire Agreement; No Third-Party Beneficiaries. The
Operative Agreements and the Confidentiality Agreement, taken together, (a)
constitute the entire agreement, and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter of the Transactions and (b) are not intended to confer
upon any person other than the parties any rights or remedies hereunder.
SECTION 9.05. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Illinois, regardless
of the laws that might otherwise govern under applicable principles of
conflict of laws thereof.
SECTION 9.06. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties. Any purported
assignment without such consent shall be void. Subject to the preceding
sentences, this Agreement will be binding upon, inure to the benefit of,
and be enforceable by, the parties and their respective successors and
assigns.
SECTION 9.07. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement.
SECTION 9.08. Further Assurances. The parties agree (a) to furnish
upon request to each other such further information, (b) to execute and
deliver to each other such other documents, and (c) to do such other acts
and things, all as the other party may reasonably request for the purpose
of carrying out this Agreement.
SECTION 9.09. Shareholder Action. Execution of this Agreement by D
Corp. shall constitute written action by D Corp. pursuant to the CL
approving the Mergers as the sole shareholder of the Companies.
ARTICLE X
Indemnification; Remedies
SECTION 10.01. Survival; Right to Indemnification Not Affected By
Knowledge. All representations, warranties, covenants, and obligations in
this Agreement including in the D Corp. Disclosure Letter and Parent
Disclosure Letter will survive the Closing and shall be unaffected by any
investigation made by any of the parties hereto.
SECTION 10.02. Indemnification and Payment of Damages By D Corp. D
Corp. shall indemnify and hold harmless Parent, the Merger Companies and
their Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the
Indemnified Persons the amount of, any loss, liability, claim, damage (but
excluding incidental and consequential damages, which shall include, but
not be limited to, damages related to lost profits, revenues or earnings)
or expense (including reasonable costs of investigation and defense and
reasonable attorneys' fees) whether or not involving a third-party claim
(collectively, "Damages"), resulting from:
(a) any breach of any representation or warranty made by D
Corp. in this Agreement (as of the date of this Agreement and as if
made as of the Effective Time (except for representations and
warranties confined to a specific date, which speak only to such
date) );
(b) any breach by D Corp. or the Companies of any covenant or
agreement of D Corp. or the Companies in this Agreement;
(c) any amounts payable or alleged to be payable by any Merger
Company to D Corp.; or
(d) any claim against any of the Merger Companies asserted
between the date hereof and Closing (x) prior to the effective date
of the Management Agreement and which involves a claim for more than
$50,000, or (y) after the effective date of the Management Agreement
which is (i) not covered by general liability insurance, and (ii)
involves a claim for more than $50,000; or
(e) the presence of Hazardous Materials in violation of
applicable Environmental Law in groundwater, surface water or soil at
the Facilities to the extent existing prior to the Closing Date and
not disclosed in the D Corp. Disclosure Letter or at any property to
which Hazardous Materials generated by D Corp.'s operations at the
Facilities were sent to the extent existing prior to the Closing Date
and not disclosed on the D Corp. Disclosure Letter.
SECTION 10.03. Indemnification and Payment of Damages by Parent.
Parent shall indemnify and hold harmless D Corp. and its Representatives,
stockholders, controlling persons and affiliates (collectively, the
"Indemnified Persons") for, and will pay to the Indemnified Persons the
amount of any Damages resulting from (a) any breach of any representation
or warranty made by Parent in this Agreement (as of the date of this
Agreement and as if made as of the Effective Time (except for
representations and warranties confined to a specific date, which speak
only to such date)), or and (b) any breach by Parent of any covenant or
agreement of Parent in this Agreement.
SECTION 10.04. Time Limitations. If the Closing occurs, D Corp. will
have no liability (for indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, other than those in Sections
4.01(c), 4.01(f), 4.01(g) and 4.01(s), unless on or before two (2) years
from the Closing Date Parent notifies D Corp. in writing of a claim
specifying the factual basis of that claim in reasonable detail to the
extent then known by Parent; a claim with respect to Sections 4.01(c) may
be made at any time, a claim with respect to Sections 4.01(f) or 4.01(g)
may be made within the applicable statute of limitations, a claim for
indemnification or reimbursement under Sections 10.02(b) based on any
covenant or obligation to be performed and complied with after the Closing
Date, Section10.02(c) or (d) may be made at any time, a claim with respect
to Section 4.01(s) may be made within four (4) years of the Closing Date,
and a claim for indemnification under Section 10.02(e) may be made for ten
(10) years after the Closing Date. If the Closing occurs, Parent will have
no liability (for indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, unless on or before two (2) years
from the Closing Date D Corp. notifies Parent in writing of a claim
specifying the factual basis of that claim in reasonable detail to the
extent then known by D Corp.
SECTION 10.05. Limitations on Amount -- D Corp. D Corp. will have no
liability (for indemnification or otherwise) with respect to the matters
described in clause (a) of Section 10.02 until the total of all Damages
with respect to such matters exceeds $575,000; at which point D Corp. shall
be liable for all Damages in excess of $100,000 (i.e., Parent shall bear
$100,000 of such Damages), but in any event subject to a maximum of
$25,000,000. However, this Section 10.05 will not apply to Section
10.02(b), (c), (d) or (e) or to any breach of any of D Corp.'s
representations and warranties of which D Corp. had Knowledge at any time
prior to the date on which such representation and warranty is made, and
D Corp. will be liable for all Damages with respect to such breaches.
SECTION 10.06. Limitations on Amount -- Parent. Parent will have no
liability (for indemnification or otherwise) with respect to the matters
described in clause (a) of Section 10.03 until the total of all Damages
with respect to such matters exceeds $575,000, at which point Parent shall
be liable for all damages in excess of $100,000 (i.e., D Corp. shall bear
$100,000 of such Damages), but in any event subject to a maximum of
$25,000,000. However, this Section 10.06 will not apply to Section 10.03(b)
or to any breach of any of Parent's representations and warranties of which
Parent had Knowledge at any time prior to the date on which such
representation and warranty is made and Parent will be liable for all
Damages with respect to such breaches.
SECTION 10.07. Right of Set-Off. Parent may set off any amount to
which it may have been determined by a final, non appealable judgment to be
entitled to under this Article X and for which D Corp. has failed to make
payment after demand by Parent, against amounts otherwise payable by A
Corp. pursuant to the Lease. The exercise of such right of set-off by
Parent will not constitute a breach of this Agreement or the Lease. Neither
the exercise of nor the failure to exercise such right of set-off will
constitute an election of remedies or limit Parent in any manner in the
enforcement of any other remedies that may be available to it.
SECTION 10.08. Procedure for Indemnification -- Third Party Claims.
(a) Promptly after receipt by an indemnified party under
Section 10.02 or Section 10.03 of notice of the commencement of any
Proceeding against it, such indemnified party will, if a claim is to
be made against an indemnifying party under such Section, give notice
to the indemnifying party of the commencement of such claim, but the
failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the
indemnifying party's failure to give such notice.
(b) If any Proceeding referred to in Section 10.08(a) is
brought against an indemnified party and it gives notice to the
indemnifying party of the commencement of such Proceeding, the
indemnifying party will be entitled to participate in such Proceeding
and, to the extent that it wishes (unless the indemnifying party is
also a party to such Proceeding and the indemnified party determines
in good faith that joint representation would be inappropriate, or
the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding
and provide indemnification with respect to such Proceeding, in which
case the indemnified party may retain its own counsel and be
reimbursed for its expenses incurred in connection therewith pursuant
to this Article X), to assume the defense of such Proceeding with
counsel reasonably satisfactory to the indemnified party and, after
notice from the indemnifying party to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying
party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Article X for any fees of
other counsel or any other expenses with respect to the defense of
such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding,
other than reasonable costs of investigation and except as provided
above. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this
Agreement that the claims made in that Proceeding are within the
scope of and subject to indemnification; (ii) no compromise or
settlement of such claims may be effected by the indemnifying party
without the indemnified party's consent unless (A) there is no
finding or admission of any violation of Legal Requirements by an
indemnified person and no effect on any other claims that may be made
against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by or other determination
binding solely on the indemnifying party; and (iii) the indemnified
party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is
given to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within fifteen (15) days after
the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination
made in such Proceeding or any reasonable compromise or settlement
effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that
a Proceeding may adversely affect it or its Affiliates other than as
a result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent
(which may not be unreasonably withheld).
SECTION 10.09. Procedure for Indemnification - Other Claims. A claim
for indemnification for any matter not involving a third-party claim may be
asserted by notice to the party from whom indemnification is sought.
SECTION 10.10. Insurance and Tax Benefit; Reserve. The amount of
Damages subject to indemnification under this Article X shall be reduced by
(i) the amount, if any, which the indemnified party receives under any
insurance policy with respect to such Damages and the indemnified party
will, in good faith, pursue claims for insurance proceeds to which it is
entitled; (ii) the amount, if any, of the present value of any tax benefit
which the indemnified party may receive or otherwise enjoy with respect to
the matter which gave rise to the Damages; and (iii) the amount, if any, of
any specific designated reserve or accrued liabilities provided for in the
Financial Statements in respect of the subject matter of the claim for
indemnification.
SECTION 10.11. Exclusive Remedy. In the absence of fraud or
intentional misrepresentation, an indemnified party's rights under this
Article X shall be its sole and exclusive remedy for Damages arising from
any breach or noncompliance with any term of this Agreement by the parties
hereto. Except as provided in the previous sentence, the parties hereby
waive, release and discharge forever each other from all liabilities
(including, but not limited to, Environmental, Health, and Safety
Liabilities), whether known or unknown, and any right of contribution
and/or indemnity the party may have under applicable law, including, but
not limited to, Environmental Law. The provisions of this Section 10.11
shall be absolute and continuing and shall survive the Closing.
SECTION 10.12. Subrogation. To the extent that any indemnified party
has the right to recover the amount of (or part of the amount of) any
claims such indemnified party may seek to assert against an indemnifying
party pursuant to Article X by way of a claim against any third party on
the basis of the same or substantially similar facts or circumstances as
gave rise to the claim against the indemnifying party, the indemnified
party shall cause the indemnifying party to be subrogated to the
indemnified party in respect of its claim against any such third party. In
such case the indemnifying party shall be entitled to conduct in the name
of the indemnified party any claim, action, suit or other proceeding
against that third party and the indemnified party shall make available or
cause its Affiliates to make available to the indemnifying party such
persons and all such information or materials as the indemnifying party may
reasonably require for pursuing the claim against such third party, subject
to reimbursement for out of pocket expenses related thereto and without
unreasonable disruption of the business or operations of the indemnified
party.
SECTION 10.13. Limitation on Damages. Notwithstanding any other
provision of this Agreement, D Corp. shall have no indemnification
obligation for breaches of representations and warranties contained in
Section 4.01(s) pursuant to Section 10.02(a) and with respect to Section
10.02(e) and Parent shall have no indemnification obligation pursuant to
Section 10.03:
(a) For Damages relating to or involving capital expenditures
or operational changes to the Facilities resulting from alleged
violations of Environmental Law prior to the Closing Dates; provided,
however, that nothing in this Section 10.13(a) shall be interpreted
to limit the Indemnified Parties' rights pursuant to Section
10.02(e); or
(b) For Damages resulting from, arising out of, or caused by
(i) the failure of the Indemnified Parties to use the Facilities
(other than in the Ordinary Course of Business) in a manner that
would avoid giving rise to an indemnification claim against D Corp.;
(ii) any testing, analysis or monitoring of the Environment at the
Facilities conducted, permitted or authorized by any Indemnified
Party; (iii) the failure of the Indemnified Parties to refrain from
advocating or seeking the performance of any testing, analysis or
monitoring of the Environment by any third party at the Facilities;
or (iv) the Indemnified Parties taking any voluntary or discretionary
action to accelerate the timing or increase the cost of any
indemnification obligation of D Corp. under this Agreement; provided,
however, that nothing in this Section 10.13(b) shall be interpreted
to limit the Indemnified Parties' right to do testing, monitoring, or
analysis that is required by applicable Environmental Laws.
[END OF TEXT OF AGREEMENT]
IN WITNESS WHEREOF, Parent, Subs, D Corp. and the Companies have
caused this Agreement to be signed by their respective officers, thereunto
duly authorized, all as of the date first written above.
CHURCHILL DOWNS INCORPORATED
By: __________________________________
Title:__________________________________
A. ACQUISITION CORP.
By: __________________________________
Title:__________________________________
A. MANAGEMENT ACQUISITION CORP.
By: __________________________________
Title:__________________________________
T. CLUB ACQUISITION CORP.
By: __________________________________
Title:__________________________________
ARLINGTON INTERNATIONAL RACECOURSE, INC.
By: __________________________________
Title:__________________________________
ARLINGTON MANAGEMENT SERVICES, INC.
By: __________________________________
Title:__________________________________
TURF CLUB OF ILLINOIS, INC.
By: __________________________________
Title:__________________________________
DUCHOSSOIS INDUSTRIES, INC.
By: __________________________________
Title:__________________________________
EXHIBIT A
FORM OF STOCKHOLDER'S AGREEMENT
STOCKHOLDER'S AGREEMENT, dated as of _________, 2000, among
Churchill Downs Incorporated, a Kentucky corporation (the "Company") and
Duchossois Industries, Inc., an Illinois corporation ("D Corp." and
together with any other party who executes a counterpart of this Agreement
and agrees to be bound by the provisions hereof, the "Stockholder").
WHEREAS, the Stockholder and the Company have executed an
Agreement and Plan of Merger (the "Merger Agreement"), dated as of June
___, 2000, pursuant to which the Company will acquire Arlington
International Racecourse, Inc. ("A Corp."), an Illinois corporation,
Arlington Management Services, Inc. ("A Management Corp."), an Illinois
corporation and Turf Club of Illinois, Inc. ("T Club Corp."), an Illinois
corporation (each of A Corp., A Management Corp. and T Club Corp. being
wholly owned subsidiaries of D Corp.), and in partial consideration
therefor, the Company will issue to the Stockholder, and such other
designee or designees of the Stockholder who may execute a counterpart of
this Agreement and agree to be bound by the provisions hereof, up to
4,400,000 shares of the Company's common stock, no par value (the "Common
Stock"), some of which may be issued upon the happening of certain events
specified in the Merger Agreement (the Common Stock acquired by the
Stockholder pursuant to the Merger Agreement, together with any equity
securities of the Company acquired by the Stockholder during the Agreement
Period (as hereinafter defined), are sometimes collectively referred to
herein as the "Shares"), subject to the terms and conditions of the Merger
Agreement and this Agreement; and
WHEREAS, capitalized terms not otherwise defined herein shall
have the meanings given them in the Merger Agreement;
NOW, THEREFORE, in consideration of the mutual agreements
contained herein and in the Merger Agreement and intending to be legally
bound hereby, the parties hereto agree as follows:
Section 1. The Company's Representations and Warranties.
The Company represents and warrants to the Stockholder as
follows:
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Kentucky;
(b) The Company has the full power and authority to
execute, deliver and carry out the terms and provisions of this Agreement
and to consummate the transactions contemplated hereby, and has taken all
necessary action to authorize the execution, delivery and performance of
this Agreement;
(c) This Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that (i) such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect affecting
creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to certain
equitable defenses and to the discretion of the court before which any
proceedings thereof may be brought; and
(d) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict
with, result in the breach of any of the terms or conditions of, constitute
a default under or violate, accelerate or permit the acceleration of any
other similar right of any other party under, the Organizational Documents
of the Company, any law, rule or regulation or any agreement, lease,
mortgage, note, bond, indenture, license or other document or undertaking,
to which the Company is a party or by which the Company or its properties
may be bound, nor will such execution, delivery and consummation violate
any order, writ, injunction or decree of any federal, state, local or
foreign court, administrative agency or governmental or regulatory
authority or body (each, an "Authority") to which the Company or any of its
properties is subject, the effect of any of which, either individually or
in the aggregate, would impair the ability of the Company to perform its
obligations hereunder.
Section 2. The Stockholder's Representations and Warranties.
The Stockholder represents and warrants to the Company as
follows:
(a) The Stockholder is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Illinois;
(b) The Stockholder has the full power and authority to
execute, deliver and carry out the terms and provisions of this Agreement
and consummate the transactions contemplated hereby, and has taken all
necessary action to authorize the execution, delivery and performance of
this Agreement;
(c) This Agreement has been duly and validly authorized,
executed and delivered by the Stockholder, and constitutes a legal, valid
and binding agreement of the Stockholder, enforceable against the
Stockholder in accordance with its terms, except to the extent that (i)
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
affecting creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to certain equitable defenses and to the discretion of the court
before which any proceedings therefor may be brought;
(d) Except for 15,000 shares of Common Stock owned by Mr.
Richard Duchossois, neither the Stockholder nor any of its Affiliates (for
the purposes of this Agreement, the term "Affiliates" shall be defined as
such term is defined on the date hereof under the rules and regulations
promulgated by the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act")),
beneficially owns any equity securities of the Company entitled to vote at
any meeting of stockholders of the Company ("Voting Securities" which, for
purposes of this Agreement, shall be deemed to be outstanding only if
actually entitled to vote at the time the calculation of outstanding Voting
Securities is to be made) and, except for the rights to acquire Shares
pursuant to the Merger Agreement, does not possess any rights to acquire
any Voting Securities;
(e) The Stockholder is an "accredited investor" within
the meaning of Regulation D under the Securities Act and it is acquiring
the Shares of its own account and not with a view to the public
distribution thereof; and
(f) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not conflict
with, result in the breach of any of the terms or conditions of, constitute
a default under or violate, accelerate or permit the acceleration of any
other similar right of any other party under, the Organizational Documents
of the Stockholder, any law, rule or regulation, or any agreement, lease,
mortgage, note, bond, indenture, license or other document or undertaking,
to which the Stockholder is a party or by which the Stockholder or its
properties may be bound, nor will such execution, delivery and consummation
violate any order, writ, injunction or decree of any Authority to which the
Stockholder or any of its properties is subject, the effect of any of
which, either individually or in the aggregate, would impair the ability of
the Stockholder to perform its obligations hereunder.
Section 3. Covenants and Agreements of the Stockholder.
(a) During the Agreement Period (as defined below),
except (w) in connection with the consummation of the transactions
contemplated by the Merger Agreement, (x) by way of stock dividend, stock
split, reorganization, recapitalization, merger, consolidation or other
like distributions made available to holders of Common Stock generally, (y)
as specifically permitted by the terms of this Agreement or (z) pursuant to
the terms of any director's stock option, stock purchase or other similar
plans, if any, the Stockholder will not, and will cause each of its
Affiliates not to, acquire, offer or propose to acquire, or agree to
acquire, directly or indirectly, by purchase or otherwise, or exercise any
attribute of beneficial ownership (as defined on the date hereof in Rule
13d-3 of the Commission under Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "1934 Act")) with respect to, any Voting
Securities of the Company, or direct or indirect rights or options to
acquire (through purchase, exchange, conversion or otherwise) any Voting
Securities of the Company. The term "Agreement Period" means the period
beginning on the date hereof (such date being referred to herein as the
"Closing Date") and ending on the occurrence of any of the following: (i)
on or after the tenth anniversary hereof but prior to the fifteenth
anniversary hereof, the date on which the Stockholder beneficially owns
less than 10% of the then outstanding Voting Securities; (ii) on or after
the fifteenth anniversary hereof but prior to the twentieth anniversary
hereof, the date on which the Stockholder beneficially owns less than 15%
of the then outstanding Voting Securities; (iii) on or after the twentieth
anniversary hereof but prior to the twenty-fifth anniversary hereof, the
date on which the Stockholder beneficially owns less than 20% of the then
outstanding Voting Securities; and (iv) the thirtieth anniversary hereof.
(b) During the Agreement Period, except (i) upon the
prior written invitation of the Company or (ii) as otherwise specifically
permitted by this Agreement, the Stockholder will not, directly or
indirectly, through one or more intermediaries or otherwise, and will cause
each of its Affiliates not to, singly or as part of a partnership, limited
partnership, syndicate or other group (as those terms are used within the
meaning of Section 13(d)(3) of the 1934 Act, which meanings shall apply for
all purposes of this Agreement):
(i) make, or in any way participate in, any
"solicitation" of "proxies" (as such terms are defined or used in
Regulation 14A under the 1934 Act) with respect to any Voting
Securities (including by the execution of actions by written
consent), become a "participant" in any "election contest" (as such
terms are defined or used in Regulation 14A under the 1934 Act) with
respect to the Company or seek to advise, encourage or influence any
person or entity (except for persons described in Section 5(a) hereof
who are otherwise bound by this Agreement) with respect to the voting
of any Voting Securities; provided, however, that the Stockholder
shall not be prevented hereunder from being a "participant" in
support of the management of the Company, by reason of the membership
of the Stockholder's designees on the Company's Board of Directors or
the inclusion of the Stockholder's designees on the slate of nominees
for election to the Board of Directors proposed by the Company;
(ii) initiate, propose or otherwise solicit, or
participate in the solicitation of, stockholders for the approval of
one or more stockholder proposals with respect to the Company as
described in Rule 14a-8 under the 1934 Act or knowingly induce any
other individual or entity to initiate any stockholder proposal
relating to the Company;
(iii) form, join or in any way participate in a
"group," act in concert with any other person or entity or otherwise
take any action or actions which would cause it to be deemed a
"person" (for purposes of Section 13(d) of the 1934 Act) (other than
to the extent it is a "person" at the time of consummation of the
transactions contemplated by the Merger Agreement and this
Agreement), with respect to acquiring, disposing of or voting any
Voting Securities of the Company, except as may result from transfers
permitted by this Agreement;
(iv) participate in or encourage the formation of
any group which owns or seeks or offers to acquire beneficial
ownership of securities of the Company or rights to acquire such
securities or which seeks or offers to affect control of the Company
or for the purpose of circumventing any provision of this Agreement;
(v) solicit, seek or offer to effect, negotiate
with or provide any information to any party, other than persons
specified in Section 5(a)(ii) and 5(a)(iii) hereof, with respect to,
make any statement or proposal, whether written or oral, either alone
or in concert with others, to the Board of Directors of the Company,
to any director or officer of the Company or to any other stockholder
of the Company with respect to, or otherwise formulate any plan or
proposal or make any public announcement, proposal, offer or filing
under the 1934 Act, any similar or successor statute or otherwise, or
take action to cause the Company to make any such filing, with
respect to: (A) any form of business combination or transaction
involving the Company (other than transactions contemplated by this
Agreement, including, without limitation, giving the Company an Offer
pursuant to Section 5(c), or the Merger Agreement) or any Affiliate
thereof, including, without limitation, a merger, exchange offer or
liquidation of the Company's assets, (B) any form of restructuring,
recapitalization or similar transaction with respect to the Company
or any Affiliate thereof, including, without limitation, a merger,
exchange offer or liquidation of the Company's assets, (C) any
acquisition or disposition of assets material to the Company, (D) any
request to amend, waive or terminate the provisions of this Agreement
or (E) any proposal or other statement inconsistent with the terms of
this Agreement; provided, however, that the Stockholder and its
Affiliates may discuss the affairs and prospects of the Company, the
status of the Stockholder's investment in the Company and any of the
matters described in clauses (A) through (E) of this paragraph at any
time, and from time to time, with the Board of Directors of the
Company or any director or executive officer of the Company or any
director or executive officer of any subsidiary of the Company and
the Stockholder, its Affiliates and any person specified in Section
5(a)(ii) or 5(a)(iii) hereof may discuss any matter, including any of
the foregoing, with or among each other, or with its outside legal
and financial advisors, if as a result of any such discussions the
Stockholder is not required to make, and does not make, any public
announcement or filing under the 1934 Act otherwise prohibited by
this Agreement as a result thereof;
(vi) otherwise act, alone or in concert with
others (including by providing financing for another party), to seek
or offer to control or influence, in any manner, the management,
Board of Directors or policies of the Company; provided, however,
that this provision shall not prevent the Stockholder's designees
from participating in, or otherwise seeking to affect the outcome of,
discussions and votes of the Board of Directors of the Company with
respect to matters coming before it; or
(vii) knowingly instigate or encourage any third
party to take any of the actions enumerated in this Section 3(b).
(c) During the Agreement Period, except as permitted by
Section 5(a)(ii) hereof, the Stockholder will not (i) merge with or into,
or consolidate or combine with, any other corporation unless (A) the
Stockholder is the surviving corporation or the surviving corporation and
its Affiliates and any person controlling it agree in writing to be bound
by this Agreement and (B) after consummation of the transaction, the
surviving corporation and its Affiliates and any person controlling it do
not beneficially own equity securities of the Company in excess of the
aggregate number of Shares the Stockholder was permitted to own pursuant to
this Agreement immediately prior to the consummation of such transaction,
or (ii) liquidate, dissolve or otherwise make a distribution of all of its
assets to its stockholders unless, after such liquidation or other
distribution, each person receiving equity securities of the Company in
such liquidation or other distribution and each of such person's Affiliates
and each person controlling such person does not beneficially own equity
securities of the Company representing 5% or more of the total outstanding
equity securities of the Company or agrees to be bound by the provisions of
this Agreement.
(d) During the Agreement Period, the Stockholder shall be
present, in person or by proxy, and without further action hereby agrees
that it shall be deemed to be present, at all properly called meetings of
stockholders of the Company of which the Stockholder has notice so that all
Voting Securities beneficially owned by the Stockholder shall be counted
for purposes of determining the presence of a quorum at such meetings.
Except as otherwise expressly permitted by this Agreement, during the
Agreement Period, all Voting Securities beneficially owned by the
Stockholder and its Affiliates shall be voted by the Stockholder and its
Affiliates in accordance with the recommendation or direction of the
Company's Board of Directors, including, without limitation (i) in all
elections of directors of the Company in which the designees of the
Stockholder are included in the slate of nominees in accordance with the
terms of this Agreement and (ii) on all matters (A) submitted to the vote
of stockholders of the Company which have been proposed by any stockholder
or stockholders, (B) relating to the compensation or benefits of directors,
officers or employees of the Company and (C) relating to matters concerning
the continued independent, publicly traded nature of the Company or any
potential change in control of the Company (other than the matters set
forth in items (V) - (X) below) or concerning federal or state statutes
relating to such matters; provided that the Stockholder and its Affiliates
may vote the Voting Securities owned by them as the Stockholder determines
in its sole discretion with respect to any of the following transactions
initiated by the Board of Directors of the Company which are presented at a
meeting of stockholders of the Company for their approval (any such
transaction being referred to herein as a "Strategic Transaction"): (V) any
disposition of the Company (by way of merger, sale of assets or otherwise)
or a substantial part of its assets, (W) any recapitalization of the
Company (other than a recapitalization for the purpose of forming a holding
company or to effect a change in the Company's state of incorporation),
including, without limitation, any leveraged buyout of the Company or
similar going-private transaction, (X) any liquidation of, or consolidation
involving, the Company, (Y) any increase in the Company's authorized shares
or (Z) any transaction not otherwise provided for in this paragraph (d)
that could reasonably be expected to have a material adverse effect on the
Stockholder's investment in the Shares, such as, without limitation, any
issuance of Voting Securities requiring approval of the stockholders of the
Company pursuant to the rules or regulations of the New York Stock
Exchange, any national securities exchange or the Nasdaq Stock Market, as
applicable.
Section 4. The Stockholder's Right to Purchase.
(a) If, after the Closing Date, the Company issues any
additional Voting Securities (an "Additional Issuance"), except for
issuances pursuant to (i) any presently outstanding stock option, warrant,
convertible security or other right to purchase shares of any equity
securities of the Company, (ii) any benefit plan or other employee or
director arrangement, (iii) an employee stock ownership plan not in excess
of 15% of the outstanding Voting Securities, (iv) any stock split, stock
dividend or similar distribution made available to holders of Common Stock
generally or (v) any merger or other acquisition of substantially all of
the assets of an operating business (each a "Permitted Issuance"), then the
Stockholder shall be entitled to purchase from the Company during the
90-day period following the date on which the Company has given the
Stockholder written notice of the occurrence of the Additional Issuance, at
the then Market Price of the Shares, that number of shares of Voting
Securities equal to the quotient of (1) the difference between (A) the
product of (y) the number of shares of Voting Securities owned by the
Stockholder immediately prior to the Additional Issuance and (z) the
aggregate number of shares to be issued by the Company in the Additional
Issuance and (B) the product of (y) the aggregate number of outstanding
shares of Voting Securities immediately prior to the Additional Issuance
and (z) the number of shares of Voting Securities, if any, issued to the
Stockholder and its Affiliates in such Additional Issuance divided by (2)
the difference between (A) the aggregate number of outstanding shares of
Voting Securities immediately prior to the Additional Issuance and (B) the
number of shares of Voting Securities owned by the Stockholder immediately
prior to the Additional Issuance; provided, however, that the Stockholder
shall not have the right to acquire any shares of Voting Securities
pursuant to this Section 4(a) to the extent that the percentage of
outstanding Voting Securities the Stockholder would own after the
application of this Section 4(a) would exceed the percentage of outstanding
Voting Securities owned by the Stockholder immediately prior to the
Additional Issuance (without giving effect to any increase in such
percentage as a result of any repurchase of Voting Securities by the
Company within one year prior to the Additional Issuance); provided
further, however, that the Stockholder shall not have the right to acquire
any shares of Voting Securities pursuant to this Section 4(a) to the extent
that the acquisition of such shares would result in the Stockholder owning
more than the applicable Permitted Percentage (as hereinafter defined) of
outstanding Voting Securities.
(b) The Stockholder may purchase from time to time, in
the open market or in privately negotiated transactions, up to an aggregate
number of shares of Voting Securities which, when added to the shares of
Voting Securities then owned by the Stockholder and its Affiliates, would
result in the Stockholder and its Affiliates owning no more than 31% of the
then outstanding shares of Voting Securities (such percentage being
referred to herein as the "Permitted Percentage"). Without prior approval
of the Board of Directors, the Stockholder and its Affiliates may at no
time collectively own more than the Permitted Percentage of Voting
Securities; provided, however, that the Stockholder and its Affiliates may
collectively own more than the Permitted Percentage of Voting Securities
without prior approval of the Board of Directors if any repurchase of
Voting Securities by the Company results in the Stockholder and its
Affiliates collectively owning more than the Permitted Percentage of Voting
Securities.
Section 5. Disposition of Shares and the Company's Right of
First Refusal.
(a) Except as otherwise provided in this Section 5,
during the Agreement Period and subject to the provisions of Section 5(c)
hereof, the Stockholder will not sell, transfer, pledge, encumber or
dispose of, directly or indirectly, any Shares except:
(i) to the Company or in a transaction approved
by the Board of Directors of the Company;
(ii) to (x) any shareholder, partner, member or
other equity holder, or any Affiliate, of the Stockholder, or (y) any
beneficiary or settlor of any Stockholder that is a trust or (z) any
other Stockholder; provided that any such person in (x) or (y) above
agrees to be bound by this Agreement;
(iii) in any transaction permitted by Section 3(c);
(iv) after the second anniversary of the date
hereof and prior to the fifth anniversary of the date hereof, up to
225,000 Shares per year; provided, however, that the right of the
Stockholder to transfer Shares pursuant to this Section 5(a)(iv)
shall be cumulative (for example, if the Stockholder transfers no
Shares in year 3, the Stockholder will be permitted to transfer
450,000 Shares in year 4, consisting of the 225,000 Shares permitted
to be transferred in year 3 and the 225,000 Shares permitted to be
transferred in year 4); provided further, however, that transfers
permitted by Section 5(a)(i), 5(a)(ii), 5(a)(iii), 5(a)(viii) or
5(a)(ix) hereof shall not be counted in the 225,000 Shares per year
permitted to be transferred pursuant to this Section 5(a)(iv);
(v) after the fifth anniversary of the date
hereof, to a person other than the Stockholder or any Affiliate of
the Stockholder (a "Third Person") pursuant to Rule 144 under the
Securities Act; provided, however, that (A) the Stockholder will use
all reasonable efforts to insure that such Third Person and such
Third Person's Affiliates, or any group of which such Third Person
may be a member does not hold in the aggregate more than 5% (any such
Third Person who would hold in excess of such limit being referred to
herein as a "Prohibited Holder") of the outstanding Voting Securities
after such transaction or (B) such Third Person agrees in writing to
be bound by the terms of this Agreement and the Board of Directors of
the Company approves such transaction;
(vi) after the fifth anniversary of the date
hereof, in a valid private placement to a person that (A) the
Stockholder reasonably believes after due inquiry would not be a
Prohibited Holder following such transaction and obtains a written
representation from the purchaser to that effect or (B) agrees in
writing to be bound by the terms of this Agreement and the Board of
Directors approves such transaction;
(vii) after the fifth anniversary of the date
hereof and prior to the seventh anniversary of the date hereof,
pursuant to an underwritten public offering under the Securities Act
in accordance with the terms for registration rights attached hereto
as Exhibit A, subject to approval of the Board of Directors (such
approval not to be unreasonably withheld), and thereafter pursuant to
an underwritten public offering under the Securities Act in
accordance with the terms for registration rights attached hereto as
Exhibit A, pursuant to which the managing underwriter agrees to
effect the sale of the Voting Securities in a manner which will
effect a broad distribution thereof and provided that the Stockholder
shall use all reasonable efforts to insure that no sales of Voting
Securities are made to any Prohibited Holder (other than the
underwriters or any selected dealers);
(viii)pursuant to any tender or exchange offer
made pursuant to Section 14(d) of the 1934 Act by a person with
respect to which the Company does not recommend rejection (it being
understood that the Stockholder may not tender its Shares pursuant to
such tender or exchange offer until the Company has publicly taken a
position with respect to such offer or has stated that it will remain
neutral or is unable to take a position with respect thereto) in
accordance with Rule 14e-2 of the1934 Act, any successor regulation
or otherwise; or
(ix) to a bona fide financial institution in
connection with the grant of a pledge or other encumbrance securing a
bona fide loan so long as the pledgee agrees in writing prior to the
execution of the pledge that upon any transfer to the pledgee of any
Shares upon any foreclosure, such Shares and the pledgee thereof will
remain and become subject to the restrictions contained in this
Agreement.
The Stockholder shall give the Company notice promptly upon the disposition
hereunder of any Shares. Purchases, transfers or other distributions of
Shares in violation of the provisions of this Agreement shall be null and
void and the Shares subject to such purchase, transfer or other disposition
shall remain subject to this Agreement. Notwithstanding anything herein to
the contrary, to the extent that any transfer of Shares by the Stockholder
pursuant to Section 5(a)(ii), (iii), (iv), (vi) or (ix) jeopardizes any
permit or license of the Company under any statute or regulation relating
to the horse racing industry, such transfer shall be void and the Company
shall be entitled to continue to treat the Stockholder as the owner of such
Shares.
(b) [RESERVED]
(c) During the Agreement Period, notwithstanding any
other provision of this Agreement, any sale, transfer or other disposition
of the Shares by the Stockholder permitted by this Agreement shall not be
made without first making an offer in writing to sell such Shares to the
Company or the directors thereof on a pro rata basis as the Board of
Directors of the Company shall determine at the bona fide proposed price
per Share (the "Offer Price") or Market Price (as defined in paragraph (d)
below), as applicable, and upon such other bona fide terms and conditions
upon which the Stockholder proposes to make such sale, transfer or
disposition (the "Offer"). Notwithstanding the foregoing, no such Offer by
the Stockholder need be made during any calendar year unless and until the
Stockholder has transferred or proposes to transfer, pursuant to the terms
of this Agreement, an aggregate of more than 150,000 Shares during such
calendar year. Upon receipt of such Offer (which shall also set forth the
method of payment, the amount and class of Shares to be sold, the identity
(if known) of the person or persons to whom the Stockholder proposes to
sell, transfer or otherwise dispose of such Shares, the other material
terms (to the extent known) upon which such sale is to be made and all
other relevant information reasonably requested by the Company), the
Company shall have that number of days set forth in the following sentence
within which to accept such Offer by delivering a written notice to the
Stockholder irrevocably electing to purchase all, but not less than all, of
the Shares covered thereby. Subject to Section 5(f), if the Offer is with
respect to Shares having an aggregate market value on the date of such
notice (a) of less than or equal to $5 million, the Company shall have 10
days to accept such Offer, or (b) greater than $5 million, the Company
shall have 20 days to accept such Offer; provided, however, that if the
proposed sale is to be made pursuant to a tender or exchange offer, the
Company shall have one day less than the number of days remaining before
the tender or exchange offer expires to accept such Offer . If the Company
elects to accept such Offer, the closing of the purchase pursuant thereto
shall occur, with payment in immediately available funds, on the latest of
(i) 20 days after the acceptance by the Company of such Offer, (ii) the
closing date provided for in the Offer or (iii) the end of such period of
time as the Company and the Stockholder may reasonably require in order to
comply with applicable laws and regulations. Transfers pursuant to Section
5(a)(i), 5 (a)(ii), 5(a)(iii) and 5(a)(ix) hereof are not subject to the
provisions of this Section 5(c).
(d) If the Offer specifies that the Shares are to be sold
in the market in a method whereby the price cannot be determined at the
time of the making of the Offer (a "Market Sale"), the purchase price for
the Shares proposed to be sold shall be equal to the greater of (i) the
negotiated price, if any, between the Company and the Stockholder and (ii)
the Market Price of such Shares on the date of such Offer. For purposes of
this Agreement, the term "Market Price" shall mean the average of the daily
Closing Prices of the Shares for the 20 consecutive trading days
immediately prior to the date on which the Market Price is to be
determined. The "Closing Price" for each day with respect to any securities
shall be the last sale price of such securities on the national securities
exchange on which such securities are listed and principally traded or, if
such securities are not listed on any national securities exchange, as
reported by NASDAQ, or, if not so reported by NASDAQ, the average of the
high bid and low asked quotations for such securities as reported by the
NASD automated quotation system or, if on any such date such securities are
not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in
such securities mutually selected by the Company and the Stockholder.
Market Sales shall be deemed to be for cash.
(e) If the purchase price specified in the Offer includes
any property other than cash, such purchase price shall be deemed to be the
amount of any cash included in the purchase price plus the value
(determined as provided below) of such other property included in such
price. The value of any non-cash property shall be determined in the
following manner:
(i) The value of securities which are publicly
traded shall be deemed to be the Market Price of such securities on
the date of the Offer; and
(ii) The value of any other property shall be
determined by an appropriate expert mutually selected by the Company
and the Stockholder. The determination of the dollar value of the
non-cash consideration at issue by any such expert shall be made
promptly (but in no event more than 15 business days after receipt of
the Offer) and shall be conclusive and binding on all the parties
hereto.
(f) The sale, transfer or other disposition to any third
party of such Voting Securities shall not be made until such determination
referred to in Section 5(e)(ii) has been completed and delivered to all the
parties hereto. The Company shall have the later of (i) five business days
after the receipt of such determination by the expert referred to in
Section 5(e)(ii) and (ii) the applicable time period set forth in Section
5(c) within which to accept such Offer.
(g) If the Company has not exercised its option to
purchase the Shares pursuant to the Offer, the Stockholder shall be free,
for a period of 60 days (or, if longer, 60 days from the effective date of
a registration statement under the Securities Act, if such registration is
required) from the date of the Company's rejection of the Offer (which,
unless the Company shall have given written notice of its rejection of the
Offer, shall be deemed to have occurred on the last day on which the
Company could accept the Offer in accordance herewith), to sell all of the
Shares proposed to be sold to the third party transferee, subject to the
provisions of this Agreement, at a price equal to or greater than the price
specified in the Offer and in the manner and on terms no less favorable to
the Stockholder than were specified in the Offer. If the Shares are not
sold within such 60-day period, they shall again become subject to the
procedures provided in this Section 5.
Section 6. Confidential Information. During the Agreement
Period, each party to this Agreement agrees that it will maintain any
information provided to it by the other party in confidence and take all
reasonable precautions to prevent the inadvertent exposure of Proprietary
Information to unauthorized persons. Proprietary Information shall not
include any information disclosed by a party that (i) is already known to
the other party at the time of its disclosure or becomes known thereafter;
provided that such information is not known by such other party to be
subject to a confidentiality agreement with, or other obligation of secrecy
to, such party or another person, (ii) is or becomes publicly known without
breach of any obligation of confidentiality of the other party, (iii) is
communicated to a third person with the express written consent of such
party, or (iv) is required to be disclosed under compulsion of law or to
the other party's regulators or independent auditors.
Section 7. Legend on Certificates. The Stockholder hereby
acknowledges and agrees that each of the certificates representing the
Shares held by the Stockholder shall be subject to stop transfer
instructions and shall include the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY BE OFFERED OR
SOLD ONLY IF REGISTERED UNDER THE SECURITIES ACT OF 1933 OR IF AN
EXEMPTION FROM REGISTRATION IS AVAILABLE. THESE SHARES ARE SUBJECT TO
CERTAIN LIMITATIONS ON TRANSFER SET FORTH IN A STOCKHOLDER'S
AGREEMENT DATED AS OF _____, 2000 BETWEEN CHURCHILL DOWNS
INCORPORATED AND DUCHOSSOIS INDUSTRIES, INC., INCLUDING, BUT NOT
LIMITED TO, RESTRICTIONS ON THE SALE, TRANSFER, PLEDGE, ENCUMBRANCE
OR OTHER DISPOSITION TO ANY PERSON AND THAT PERSON'S AFFILIATES OR
ANY GROUP THAT PERSON MAY BE A MEMBER OF THAT WOULD HOLD IN THE
AGGREGATE MORE THAN 5% OF THE OUTSTANDING VOTING SECURITIES AFTER
SUCH TRANSACTION. A COPY OF SUCH AGREEMENT IS ON FILE WITH THE
SECRETARY OF CHURCHILL DOWNS INCORPORATED.
Within one business day after receipt by the Company of a
demand by the Stockholder, the Company agrees to (i) terminate the stop
transfer instructions and remove the legend in connection with transfers
pursuant to Section 5(a)(v) or 5(a)(vii) of this Agreement, (ii) terminate
stop transfer instructions and remove all but the first sentence of the
above legend after the Agreement Period or in connection with transfers
pursuant to Section 5(a)(i), 5(a)(iv), 5(a)(vi)(A) or 5(a)(viii) and (iii)
remove the first sentence of the above legend if the Company is furnished
an opinion of counsel reasonably satisfactory to the Company that such
Shares may be freely transferred under applicable securities laws.
Promptly upon the acquisition by the Stockholder of any shares
of Voting Securities other than pursuant to the Merger Agreement, the
Stockholder shall surrender the certificates representing such Shares to
the Company and the Company shall place the last two sentences of the
foregoing legend on such certificates and thereafter reissue such
certificates to the Stockholder.
Section 8. Directors Designated by the Stockholder. As promptly
as practicable after the date which is one month after the Closing Date,
and subject to applicable law, the Company will take or cause to be taken
all necessary actions to appoint or elect to the Board of Directors of the
Company, and at each annual meeting of the stockholders of the Company
following the Closing Date and prior to the end of the Agreement Period,
the Company will nominate, or cause to be nominated, for so long as the
number of members of the Board of Directors is between twelve (12) and
fifteen (15), inclusive, (i) three (3) individuals (the initial three such
individuals to be Mr. Richard L. Duchossois, Mr. Craig Duchossois and Mr.
Robert L. Fealy) and (ii) following the Fund Payment Date (as defined in
the Merger Agreement) four (4) individuals (provided, however, that the
number of members of the Board of Directors shall in no event exceed
sixteen (16), unless otherwise agreed by the Board of Directors in
accordance with the Bylaws of the Company), to be designated by D. Corp (or
by Mr. Craig Duchossois if D. Corp no longer exists or ceases to be
controlled by Mr. Richard Duchossois, or by the person designated by the
holders of the majority of the Shares then outstanding if Mr. Craig
Duchossois is unable or unwilling to designate such individuals) on behalf
of the Stockholder for election as members of the Board of Directors (which
designees shall not include individuals whose membership on the Board of
Directors would be a violation of law; the initial designees and subsequent
designees shall be individuals of stature and experience consistent with
the Stockholder's initial designees, in the reasonable judgment of the
Board of Directors), and to nominate one of such designees, at the
Stockholder's option, to be appointed by the Board of Directors to each of
the Executive Committee and the Compensation Committee of the Board of
Directors of the Company; provided, however, that such number of designees
shall be increased or reduced, as necessary (but in no event shall such
number of designees exceed four (4) for so long as there are no more than
sixteen (16) total directors), such that the percentage of the total number
of members of the Board of Directors designated by the Stockholder equals
the percentage of Voting Securities then beneficially owned by the
Stockholder and its Affiliates (rounded down to the nearest whole number).
Should the Board of Directors of the Company determine that any such
designee of the Stockholder is inappropriate, consistent with the standards
set forth in this Section 8, the Stockholder shall be entitled to designate
an additional individual for election as a member of the Board of
Directors. The members of the Board of Directors of the Company that have
been designated by the Stockholder pursuant to this Section 8 shall be
allocated as equally as possible among the three classes of the Company's
Board of Directors. In the event one or more of the Stockholder's designees
resigns or is removed from the Board of Directors of the Company and the
Stockholder indicates that the Stockholder does not wish to designate a
nominee to fill the vacancy, the Company will take or cause to be taken all
necessary actions to reduce the size of the Board of Directors of the
Company by the number of designees of the Stockholder not replaced by the
Stockholder. Upon the date the Stockholder is no longer entitled to
designate nominees for election to the Board of Directors of the Company,
the Stockholder shall cause the members of the Board of Directors of the
Company that have been designated by the Stockholder to resign from the
Board of Directors, effective immediately. For all purposes of this
Agreement, whenever action is permitted to be taken by the Stockholder, the
Company will be entitled to rely, and shall be fully protected in relying
for all purposes on the direction of D Corp. (or of Mr. Craig Duchossois if
D Corp. no longer exists or ceases to be controlled by Mr. Richard
Duchossois, or of the person designated by the holders of the majority of
the Shares then outstanding if Mr. Craig Duchossois is unable or unwilling
to so direct).
Section 9. Covenants of the Company.
(a) Issuance of Securities Having Disproportionate Voting
Rights. During the Agreement Period, the Company shall not issue Voting
Securities having voting rights disproportionately greater than the equity
investment in the Company represented by such Voting Securities.
(b) For so long as the Stockholder owns Shares which
represent more than 3% of the voting power of the Company's then
outstanding Voting Securities:
(i) the Company, as soon as practicable and in any
event within 50 days after the end of each quarterly period (other
than the last quarterly period) in each fiscal year, will furnish to
the Stockholder statements of consolidated net income and cash flows
and a statement of changes in consolidated stockholders' equity of
the Company and its subsidiaries for the period from the beginning of
the then current fiscal year to the end of such quarterly period, and
a consolidated balance sheet of the Company and its subsidiaries as
of the end of such quarterly period, setting forth in each case in
comparative form figures for the corresponding period or date in the
preceding fiscal year, all in reasonable detail and certified by an
authorized financial officer of the Company, subject to changes
resulting from year-end adjustments; provided, however, that
delivery pursuant to paragraph (iii) below of a copy of the Quarterly
Report on Form 10-Q (without exhibits unless requested by the
Stockholder) of the Company for such quarterly period filed with the
Commission shall be deemed to satisfy the requirements of this
paragraph (i);
(ii) the Company, as soon as practicable and in
any event within 95 days after the end of each fiscal year, will
furnish to the Stockholder statements of consolidated net income and
cash flows and a statement of changes in consolidated stockholders'
equity of the Company and its subsidiaries for such year, and a
consolidated balance sheet of the Company and its subsidiaries as of
the end of such year, setting forth in each case in comparative form
the corresponding figures for the preceding fiscal year, all in
reasonable detail and examined and reported on by independent public
accountants of recognized standing selected by the Company; provided,
however, that delivery pursuant to paragraph (iii) below of a copy of
the Annual Report on Form 10-K (without exhibits unless requested by
the Stockholder) of the Company for such fiscal year filed with the
Commission shall be deemed to satisfy the requirements of this
paragraph (ii);
(iii) the Company, promptly upon transmission
thereof, will furnish to the Stockholder copies of all such financial
statements, proxy statements, notices and reports as it shall send to
its stockholders and copies of all such registration statements
(without exhibits) and all such regular and periodic reports as it
shall file with the Commission; and
(iv) the Company will furnish to the Stockholder
such other non-confidential financial data of the Company and its
Subsidiaries as the Stockholder may reasonably request.
Section 10. Exceptions to Restrictions. Notwithstanding anything
contained in this Agreement to the contrary, the restrictions set forth in
Sections 3(a), 3(c), 3(d) and 5 shall terminate and be of no further force
and effect upon the occurrence of any of the following events:
(a) (i) At any time, any Third Person (other than the
Company, an employee stock ownership plan or other pension, stock bonus or
stock incentive plan of the Company or any of its subsidiaries) is or
becomes the beneficial owner of, or makes a tender or exchange offer
pursuant to Section 14(d) of the 1934 Act with respect to which the Company
does not recommend rejection (it being understood that such restrictions
shall not be terminated until the Company has publicly taken a position
with respect to such offer or has stated that it will remain neutral or is
unable to take a position with respect thereto) in accordance with Rule
14e-2 of the 1934 Act, any successor regulation or otherwise for, an amount
of Voting Securities greater than one-half of the excess of (A) the number
of outstanding Voting Securities over (B) the number of Voting Securities
which result from multiplying the number of outstanding Voting Securities
by the then Permitted Percentage of Voting Securities, (ii) during any
period of two consecutive years (not including any period prior to the
execution of this Agreement), individuals who at the beginning of such
period constitute the Board of Directors of the Company and any new
director whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so approved, cease for any reason to constitute a majority thereof or (iii)
at any time any Third Person, by way of ownership of Voting Securities,
representation on the Board of Directors of the Company or both, is in fact
controlling the operations of the Company; or
(b) The Company's Board of Directors determines to
effect, or to solicit proposals to effect a Sale of the Company or causes
the Company to enter into a definitive agreement providing for the Sale of
the Company.
For purposes of this Section 10, a "Sale of the Company" shall mean a
merger (other than a merger for the purpose of forming a holding company or
to effect a change in the Company's state of incorporation), combination
or, in any one or more related transactions, sale of all or substantially
all of the Company's assets as a result of which the Directors of the
Company immediately prior to such transaction do not represent a majority
of the board of directors, or the stockholders of the Company immediately
prior to such transaction do not continue to own equity securities
representing more than 50% of the vote and of the equity of the Company, of
the ultimate controlling corporation following such merger or combination
or succeeding to ownership of all or substantially all of the Company's
assets.
Notwithstanding anything contained in this Agreement to the contrary, upon
the consummation of a Sale of the Company, the restrictions set forth in
Section 3(b) shall terminate and be of no further force and effect.
Section 11. Affiliates. A person or entity who at any time may
be an Affiliate of the Stockholder shall be deemed to be an Affiliate of
the Stockholder for purposes of this Agreement while such person is an
Affiliate of the Stockholder regardless of whether such person was such an
Affiliate on the date hereof.
Section 12. Specific Performance. Each of the parties hereto
recognizes and acknowledges that this Agreement is an integral part of the
transactions contemplated in the Merger Agreement, that the Company would
not have entered into the Merger Agreement unless this Agreement was
executed and that a breach by a party of any covenants or agreements
contained in this Agreement will cause the other party to sustain injury
for which it would not have an adequate remedy at law for money damages.
Therefore each of the parties hereto agrees that in the event of any such
breach, the aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and agreements and preliminary
and permanent injunctive and other equitable relief in addition to any
other remedy to which it may be entitled, at law or in equity, and the
parties hereto further agree to waive any requirement for the securing or
posting of any bond in connection with the obtaining of any such injunctive
or other equitable relief.
Section 13. Amendment and Modification. This Agreement may be
amended, modified and supplemented only by written agreement of the
Stockholder and the Company.
Section 14. Notices. All notices, requests, demands and other
communications required or permitted shall be made in writing by
hand-delivery, registered first-class mail, telex, telecopier or air
courier guaranteeing overnight delivery:
(a) If to the Stockholder, to:
(with a copy to:)
or to such other person or address as the Stockholder shall furnish to the
Company; provided that if D Corp. no longer exists or ceases to be
controlled by Mr. Richard Duchossois, notice shall be deemed given to the
Stockholder if given to Mr. Craig Duchossois at [set forth address] or such
other address furnished by him to the Company, or, if Mr. Craig Duchossois
is unable or has notified the Company that he is unwilling to accept such
notices, to a person designated by the holders of a majority of the Shares
then outstanding;
(b) If to the Company, to:
Robert L. Decker
Executive Vice President and
Chief Financial Officer
700 Central Avenue
Louisville, Kentucky 40208
(with a copy to:)
Rebecca C. Reed
Senior Vice President, General
Counsel and Secretary
700 Central Avenue
Louisville, Kentucky 40208
or to such other person or address as the Company shall furnish to the
Stockholder in writing.
All such notices, requests, demands and other communications
shall be deemed to have been duly given; at the time delivered by hand, if
personally delivered; five business days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
Section 15.Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Agreement is held
to be prohibited by or invalid under applicable law, such provision shall
fail to be in effect only to the extent of such prohibition or invalidity,
without invalidating the remainder of this Agreement or of any such
provision.
Section 16. Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but except as
otherwise provided for or permitted herein neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any
party hereto without the prior written consent of the other party.
Section 17. Governing Law. This Agreement and the legal
relations among the parties hereto shall be governed by and construed in
accordance with the laws of the state of incorporation of the Company,
regardless of the laws that might otherwise govern under applicable
principles of conflict of laws thereof.
Section 18. All references to specific numbers of shares in
this Agreement and in Exhibit A hereto shall be with regard to the
capitalization of the Company on the date hereof; in the event of any stock
dividend, stock split, reverse stock split or share-for-share exchange or
similar event with respect to any of the Company's securities, the
references in this Agreement and in Exhibit A hereto shall be considered
changed pro tanto.
Section 19. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
Section 20. Headings. The headings of the Sections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this
Agreement.
Section 21. Entire Agreement. This Agreement, the Merger
Agreement, the Operative Agreements and the Confidentiality Agreement set
forth the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein, and supersede all prior
agreements, promises, covenants, arrangements, communications,
representations or warranties, whether oral or written, by any officer,
employee or representative of any party hereto, except the Confidentiality
Agreement dated as of September 15, 1999, as extended, between the
Stockholder and the Company shall remain in effect until the earlier of (x)
the Closing Date and (y) the date on which each such agreement terminates
in accordance with its terms.
Section 22. Third Parties. Except as specifically set forth or
referred to herein, nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any person or corporation,
other than the parties hereto and their successors or assigns, any rights
or remedies under or by reason of this Agreement.
Section 23. Tax Reporting. The Stockholder agrees to provide the
Company with, and shall retain, for the time periods prescribed by law, all
of the information concerning the Stockholder and its Subsidiaries which is
reasonably required to be included in the Company's tax returns as a result
of the Stockholder's direct and/or indirect ownership of Common Stock.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first above
written.
Churchill Downs Incorporated Duchossois Industries, Inc.
By: ____________________________ By: ___________________________
Title: Title:
________________________________________
Agreeing to be bound by the terms hereof
as if it were a party hereto
Exhibit A
REGISTRATION RIGHTS
Capitalized terms used herein shall have the meanings defined
in the Stockholder's Agreement.
1. "Piggyback" Registration. Whenever the Company proposes to
file a registration statement relating to any of its capital stock under
the Securities Act (other than a registration statement required to be
filed in respect of employee benefit plans of the Company on Form S-8 or
any similar form from time to time in effect or any registration statement
on form S-4 or similar successor form), the Company shall, at least
twenty-one days (or if such twenty-one day period is not practicable, then
a reasonable shorter period which shall not be less than seven days) prior
to such filing, give written notice of such proposed filing to the
Stockholder. Upon receipt by the Company not more than seven days (unless
the notice given to the Stockholder pursuant to the previous sentence is
less than ten days, in which case such seven-day period shall be shortened
to five days) after such notice of a written request from the Stockholder
for registration of Shares (i) the Company shall include such Shares in
such registration statement or in a separate registration statement
concurrently filed, and shall use all reasonable efforts to cause such
registration statement to become effective with respect to such Shares,
unless the managing underwriter therefor concludes in its reasonable
judgment that compliance with this clause (i) would materially adversely
effect such offering, in which event the Company shall cause such Shares to
be registered under a separate registration statement a limited period of
time thereafter, which in no event shall be more than 60 days and (ii) if
such proposed registration is in connection with an underwritten offering
of Common Stock, upon request of the Stockholder, the Company shall use all
reasonable efforts to cause the managing underwriter therefor to include in
such offering the Shares as to which the Stockholder requests such
inclusion, on terms and conditions comparable to those of the securities
offered on behalf of the Company, unless the managing underwriter therefor
concludes in its reasonable judgment that the inclusion of such Shares in
such offering would materially adversely affect such offering.
2. Demand Registration. If the Company shall receive at any
time or from time to time a written request from the Stockholder requesting
the Company to register under the Securities Act on Form S-3 (or if the
Company is not eligible to use Form S-3, then on Form S-1 or S-2), or any
other similar form then in effect, at least 500,000 Shares, the Company
agrees that it will use all reasonable efforts to cause the prompt
registration of all Shares as to which such request is made. The Company
may postpone for a limited time, which in no event shall be longer than 90
days, compliance with a request for registration pursuant to this Section 2
if (i) such compliance would materially adversely affect (including,
without limitation, through the premature disclosure thereof) a proposed
financing, reorganization, recapitalization, merger, consolidation or
similar transaction or (ii) the Company is conducting a public offering of
capital stock and the managing underwriter concludes in its reasonable
judgment that such compliance would materially adversely affect such
offering. Notwithstanding anything in this Section 2 to the contrary, the
Company shall not be required to: (a) comply with more than two (2)
requests of the Stockholder pursuant to this Section 2 in any twelve (12)
month period or (b) prepare or cause to be prepared audited financial
statements of the Company other than those prepared in the normal course of
the Company's business, whether at its fiscal year end or at other times
when such audited financial statements are required to be filed by the
Securities and Exchange Commission. Any underwriter selected by the
Stockholder to act as such in connection with a registration pursuant to
this Section 2 shall be reasonably acceptable to the Company. For purposes
of this Section 2, the Company shall be entitled to accept as written
requests from the Stockholder a request from D Corp. (or from Mr. Craig
Duchossois if D Corp. no longer exists or ceases to be controlled by Mr.
Richard Duchossois, or from the person designated by the holders of a
majority of the Shares then outstanding if Mr. Craig Duchossois is unable
or unwilling to so serve).
3. General Provisions: The Company will use all reasonable
efforts to cause any registration statement referred to in Sections 1 and 2
to become effective and to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the earlier of 45
days from the effective date of the registration statement and the date the
Stockholder completes its distribution of Shares. The Company will use all
reasonable efforts to effect such qualifications under applicable Blue Sky
or other state securities laws as may be reasonably requested by the
Stockholder (provided that the Company shall not be obligated to file a
general consent to service of process or qualify to do business as a
foreign corporation or otherwise subject itself to taxation in any
jurisdiction solely for the purpose of any such qualification) to permit or
facilitate such sale or other distribution. The Company will cause the
Shares to be listed on the principal stock exchange on which the shares of
Common Stock are listed.
4. Information, Documents, Etc. Upon making a request for
registration pursuant to Sections 1 or 2, the Stockholder shall furnish to
the Company such information regarding its holdings and the proposed manner
of distribution thereof as the Company may reasonably request and as shall
be required in connection with any registration, qualification or
compliance referred to herein. The Company agrees that it will furnish to
the Stockholder the number of prospectuses, offering circulars or other
documents, or any amendments or supplements thereto, incident to any
registration, qualification or compliance referred to herein as the
Stockholder from time to time may reasonably request.
5. Expenses. The Company will bear all expenses of
registrations (other than underwriting discounts and commissions and
brokerage commissions and fees, if any, payable with respect to Shares sold
by the Stockholder and fees and expenses of counsel and any accountants for
the Stockholder), including, without limitation, registration fees,
printing expenses, expenses of compliance with Blue Sky or other state
securities laws, and legal and audit fees incurred by the Company in
connection with such registration and amendments or supplements in
connection therewith.
6. Cooperation. In connection with any registration of
Shares, the Company agrees to:
(a) enter into such customary agreements (including an
underwriting agreement containing such representations and warranties by
the Company and such other terms and provisions, including indemnification
provisions, as are customarily contained in underwriting agreements for
comparable offerings and, if no underwriting agreement is entered into, an
indemnification agreement on such terms as is customary in transactions of
such nature) and take all such other actions as the Stockholder or the
underwriters, if any, participating in such offering and sale may
reasonably request in order to expedite or facilitate such offering and
sale;
(b) furnish, at the request of the Stockholder or any
underwriters participating in such offering and sale, (i) a comfort letter
or letters, dated the date of the final prospectus with respect to the
Shares and/or the date of the closing for the sale of the Shares from the
independent certified public accountants of the Company and addressed to
the Stockholder and any underwriters participating in such offering and
sale, which letter or letters shall state that such accountants are
independent with respect to the Company within the meaning of Rule 1.01 of
the Code of Professional Ethics of the American Institute of Certified
Public Accountants and shall address such matters as the Stockholder and
underwriters may reasonably request and as may be customary in transactions
of a similar nature for similar entities and (ii) an opinion, dated the
date of the closing for the sale of the Shares, of the counsel representing
the Company with respect to such offering and sale (which counsel may be
the General Counsel of the Company or other counsel reasonably satisfactory
to the Stockholder), addressed to the Stockholder and any such
underwriters, which opinion shall address such matters as they may
reasonably request and as may be customary in transactions of a similar
nature for similar entities;
(c) make available for inspection by the Stockholder, the
underwriters, if any, participating in such offering and sale (which
inspecting underwriters shall, if reasonably possible, be limited to any
manager or managers for such participating underwriters), the counsel for
the Stockholder, one accountant or accounting firm retained by the
Stockholder and any such underwriters, or any other agent retained by the
Stockholder or such underwriters, all financial and other records,
corporate documents and properties of the Company, and supply such
additional information, as they shall reasonably request; provided that any
such party shall keep the contents thereof confidential.
7. Action to Suspend Effectiveness; Supplement to Registration
Statement. (a) The Company will notify the Stockholder and its counsel
promptly of (i) any action by the Commission to suspend the effectiveness
of the registration statement covering the Shares or the institution or
threatening of any proceeding for such purpose (a "stop order") or (ii) the
receipt by the Company of any notification with respect to the suspension
of the qualification of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose. Immediately
upon receipt of any such notice, the Stockholder shall cease to offer or
sell any Shares pursuant to the registration statement in the jurisdiction
to which such stop order or suspension relates. The Company will use all
reasonable efforts to prevent the issuance of any such stop order or the
suspension of any such qualification and, if any such stop order is issued
or any such qualification is suspended, to obtain as soon as possible the
withdrawal or revocation thereof, and will notify the Stockholder and its
counsel at the earliest practicable date of the date on which the
Stockholder may offer and sell Shares pursuant to the registration
statement.
(b) Within the applicable period referred to in Section 3
following the effectiveness of a registration statement filed pursuant to
these registration rights, the Company will notify the Stockholder and its
counsel promptly of the occurrence of any event or the existence of any
state of facts that, in the judgment of the Company, should be set forth in
such registration statement. Immediately upon receipt of such notice, the
Stockholder shall cease to offer or sell any Shares pursuant to such
registration statement, cease to deliver or use such registration statement
and, if so requested by the Company, return to the Company, at its expense,
all copies (other than permanent file copies) of such registration
statement. The Company will, as promptly as practicable, take such action
as may be necessary to amend or supplement such registration statement in
order to set forth or reflect such event or state of facts. The Company
will furnish copies of such proposed amendment or supplement to the
Stockholder and its counsel and will not file or distribute such amendment
or supplement without the prior consent of the Stockholder, which consent
shall not be unreasonably withheld.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Stockholder in respect of Shares offered pursuant to a registration
statement and the Affiliates, directors, officers, agents, representatives
and employees of the Stockholder or its Affiliates, and each other person,
if any, who controls any such person or its Affiliates within the meaning
of either Section 15 of the Securities Act or Section 20 of the 1934 (each,
a "Participant"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, the reasonable legal fees and
other expenses actually incurred in connection with any suit, action or
proceeding or any claim asserted) caused by, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact
contained in any registration statement pursuant to which the offering of
such Shares is registered (or any amendment thereto) or related final
prospectus (or any amendments or supplements thereto) or any related
preliminary prospectus, or caused by, arising out of or based upon any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided,
however, that the Company will not be required to indemnify the Stockholder
if (i) such losses, claims, damages or liabilities are caused by any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished to the Company
in writing by or on behalf of the Stockholder expressly for use therein or
(ii) if such untrue statement or omission or alleged untrue statement or
omission was contained or made in any preliminary prospectus and corrected
in the final prospectus or any amendment or supplement thereto and the
final prospectus does not contain any other untrue statement or omission or
alleged untrue statement or omission of a material fact that was the
subject matter of the related proceeding.
(b) The Stockholder agrees to indemnify and hold harmless
the Company, its directors and officers and each person who controls the
Company within the meaning of Section 15 of the Securities Act or Section
20 of the 1934 Act to the same extent as the foregoing indemnity from the
Company to the Stockholder, but only (i) with reference to information
furnished to the Company in writing by or on behalf of the Stockholder
expressly for use in any registration statement or final prospectus, any
amendment or supplement thereto, or any preliminary prospectus or (ii) with
respect to any untrue statement or representation made in connection with
the offering by the Stockholder in writing to the Company. The liability of
the Stockholder under this paragraph shall in no event exceed the proceeds
received by it from sales of Shares giving rise to such obligations. In
connection with any underwritten public offering, the underwriting
agreement shall include customary indemnification of the Company by the
underwriters.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought
or asserted against any person in respect of which indemnity may be sought
pursuant to either of the two preceding paragraphs, such person (the
"Indemnified Person") shall promptly notify the Person against whom such
indemnity may be sought (the "Indemnifying Person") in writing, and the
Indemnifying Person, upon request of the Indemnified Person, shall retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided,
however, that the failure to so notify the Indemnifying Person shall not
relieve it of any obligation or liability which it may have hereunder or
otherwise (unless and only to the extent that such failure results in the
loss or compromise of any material rights or defenses by the Indemnifying
Person). In any such proceeding, any Indemnified Person shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless (i) the
Indemnifying Person and the Indemnified Person shall have mutually agreed
in writing to the contrary, (ii) the Indemnifying Person shall have failed
within a reasonable period of time to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any
such proceeding (including any impleaded parties) include both the
Indemnifying Person and the Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Person shall not, in connection with any one such proceeding
or separate but substantially similar related proceeding in the same
jurisdiction arising out of the same general allegations, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses
shall be reimbursed promptly as they are incurred. Any such separate firm
for the Stockholder and such control persons of the Stockholder shall be
designated in writing by the Stockholder and any such separate firm for the
Company, its directors, its officers and such control persons of the
Company shall be designated in writing by the Company. The Indemnifying
Person shall not be liable for any settlement of any proceeding effected
without its prior written consent, but if settled with such consent or if
there be a final non-appealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to these
provisions, the Indemnifying Person agrees to indemnify and hold harmless
each Indemnified Person from and against any loss or liability by reason of
such settlement or judgment. No Indemnifying Person shall, without the
prior written consent of the Indemnified Person, effect any settlement or
compromise of any pending or threatened proceeding in respect of which any
Indemnified Person is or has been a party, and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement (A)
includes an unconditional written release of such Indemnified Person, in
form and substance reasonably satisfactory to such Indemnified Person, from
all liability on claims that are the subject matter of such proceeding and
(B) does not include any statement as to an admission of fault, culpability
or failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and
second paragraphs of this Section 8 is for any reason unavailable to, or
insufficient to hold harmless, an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein (other than by
reason of the exceptions provided therein), then each Indemnifying Person
under such paragraphs, in lieu of indemnifying such Indemnified Person
thereunder and in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such Indemnified Person
as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the
Indemnifying Person or Persons on the one hand and the Indemnified Person
or Persons on the other in connection with the statements or omissions or
alleged statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof). The relative fault
of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Stockholder or
such other Indemnified Person, as the case may be, on the other, the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances. The contribution required
of the Stockholder under this paragraph shall in no event exceed the
proceeds received by it from sales of Shares giving rise to such
obligations.
(e) The parties agree that it would not be just and
equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Participants were treated as one entity for
such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Person as
a result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any reasonable legal or other expenses
actually incurred by such Indemnified Person in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, in no event shall a Participant be required
to contribute any amount in excess of the amount by which proceeds received
by such Participant from sales of Shares exceeds the amount of any damages
that such Participant has otherwise been required to pay or has paid by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) The indemnity and contribution agreements contained in
this Section 8 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.