AURORA, ON, Nov. 26 /PRNewswire-FirstCall/ -- Magna Entertainment
Corp. ("MEC" or "the Company") (NASDAQ: MECA; TSX: MEC.A) today
announced that it has entered into a transaction agreement (the
"Transaction Agreement") with MI Developments Inc. ("MID"), MEC's
controlling shareholder, and entities affiliated with MEC's
Chairman and Chief Executive Officer, Frank Stronach (the "Stronach
Group"), to implement a proposed reorganization of MID that
includes the spin-off of MEC to MID's existing shareholders. The
Transaction Agreement contemplates, among other things, a
multi-step series of proposed transactions designed to recapitalize
and reposition MEC to enable it to pursue its strategy of horse
racing, gaming and entertainment on a standalone basis. If the
transactions contemplated by the Transaction Agreement are
implemented, MEC will ultimately be controlled directly by the
Stronach Group, MID will no longer have any ownership interest in
MEC and MID will be prohibited from investing any additional funds
into, or entering into any new transactions with, MEC without the
approval of the minority MID Class A shareholders. MEC also
announced that it has extended the maturity date of its $40 million
senior secured revolving credit facility (the "Senior Bank
Facility") with a Canadian chartered bank from November 28, 2008 to
March 16, 2009, subject to certain acceleration provisions. MEC
incurred a fee of $1.75 million in connection with the extension of
the Senior Bank Facility. The Transaction Agreement contemplates
three stages of proposed transactions that, upon completion, will
result in, among other things, the following: Stage One - Immediate
Transactions ---------------------------------- - new financing
being made available to MEC by MID in an aggregate principal amount
up to $50 million (the "New Loan First Tranche") to fund MEC's
operations and up to $75 million (the "New Loan Second Tranche") to
fund MEC's Laurel Park video lottery terminals ("VLTs" or "slots")
license application and related matters and, if Laurel Park is
awarded a slots license, the construction of a temporary slots
facility; - MID has extended to March 31, 2009, subject to certain
acceleration provisions, of (i) the maturity date of the existing
bridge loan (the "Bridge Loan") from an MID subsidiary (the "MID
Lender"), (ii) the repayment deadline for $100 million under the
project financing facility from the MID Lender for Gulfstream Park
(the "Gulfstream Facility") and (iii) the date until which
repayments under the Gulfstream Facility and the project financing
facility from the MID Lender for Remington Park (the "Remington
Facility") will not be subject to a make-whole payment; - MEC has
covenanted to use commercially reasonable efforts to sell or enter
into joint ventures in respect of its assets, including its core
racetrack assets; Stage Two - Transactions following MID
Shareholder Approval
----------------------------------------------------------- - sales
of real estate assets in California and Florida by MEC to MID for
their fair market value; - further extensions of the Bridge Loan,
the New Loan First Tranche and the Gulfstream Facility $100 million
repayment obligation to December 14, 2009; - an increase in the
amount of the New Loan First Tranche by $25 million to up to $75
million; - amendments to the New Loan First Tranche, the Bridge
Loan, the Gulfstream Facility and the Remington Facility to, among
other things, enable MEC to repay such facilities in full with, at
MEC's option, cash and/or MEC Class A Subordinate Voting Stock
("MEC Class A Stock"); - a forbearance agreement that prohibits new
transactions between MID and MEC unless such transactions are
approved by a majority of the minority holders of Class A
Subordinate Voting Shares of MID ("MID Class A Shares"); Stage
Three - Transactions following Retirement of Convertible
Subordinated Notes
-------------------------------------------------------------- -
provided that MEC has fully retired its outstanding 7.25%
Convertible Subordinated Notes due December 15, 2009 and 8.55%
Convertible Subordinated Notes due June 15, 2010 (collectively, the
"MEC Subordinated Notes") by December 14, 2009: - all MEC
indebtedness to MID (other than the New Loan Second Tranche) will
be repaid, at MEC's option, either in cash or MEC Class A Stock (or
a combination of the two), and MID will distribute all such cash
and MEC Class A Stock to MID's shareholders; - MEC will sell to the
Stronach Group $30 million of Class B Stock of MEC ("MEC Class B
Stock"); and - MEC will be controlled directly by the Stronach
Group and MID will no longer have any ownership interest in MEC.
Certain of the transactions are proposed to be effected by way of a
statutory plan of arrangement involving MID, MEC and the Stronach
Group that would be subject to approval by MID's shareholders and
the Ontario Superior Court of Justice. MEC understands that MID's
shareholder meeting to consider the reorganization proposal is
expected to take place in first quarter of 2009. The transactions
proposed to be undertaken by MEC following MID shareholder approval
and the retirement of the MEC Subordinated Notes are subject to
regulatory approval, including the approval of the Toronto Stock
Exchange. Additional Details - Immediate Transactions
------------------------------------------- MEC Asset Sales and
Joint Ventures ---------------------------------- Pursuant to the
Transaction Agreement, MEC has agreed to use its commercially
reasonable efforts to sell or enter into joint ventures in respect
of its assets, including its core racetrack assets, that will
result in MEC receiving net sale proceeds or joint venture payments
sufficient to retire the MEC Subordinated Notes no later than
December 14, 2009. MID Loans to MEC ---------------- The maturity
dates and repayment deadlines under all existing loans from the MID
Lender to MEC and its subsidiaries (comprised of the Bridge Loan
and the Gulfstream Facility and Remington Facility) will be
extended to March 31, 2009. In the event that the reorganization
transaction does not receive the requisite MID shareholder approval
or is abandoned or withdrawn, the maturity dates and repayment
deadlines will be accelerated to thirty days following such event.
In connection with the extension to March 31, 2009 of the Bridge
Loan maturity date and the Gulfstream Facility $100 million
repayment obligation, MEC incurred fees of $2.5 million and $2.0
million, respectively. MID will make available to MEC a new loan in
two tranches (collectively the "New Loan"). The New Loan First
Tranche will be in the amount of up to $50 million (plus costs and
fees) and is intended to support MEC's operations through to the
special meeting of MID's shareholders to consider the
reorganization proposal. The funds are to be used solely to fund
(i) operations, (ii) payments of principal or interest and other
costs under the New Loan and under other loans provided by MID to
MEC, (iii) mandatory payments of interest in connection with other
of MEC's existing debt, (iv) maintenance capital expenditures and
(v) capital expenditures required pursuant to the terms of MEC's
joint venture arrangements with Forest City Enterprises in Florida
and Caruso Affiliated in California. The New Loan First Tranche
will mature on March 31, 2009, subject to the same accelerated
maturity as described above for the existing loans. MEC incurred a
fee of $1.0 million in connection with the New Loan First Tranche.
The New Loan Second Tranche will be available for drawdown: (i) in
an amount of up to $45 million to fund the application by the MEC
subsidiary that owns and operates Laurel Park in Anne Arundel
County for a Maryland slots license, following MID's satisfaction
with the slots license application and related matters; and (ii) in
an amount of up to an additional $30 million to fund the
construction of the temporary slots facility at Laurel Park,
following receipt of the Maryland slots license and following MID's
satisfaction with the municipal approvals, design and construction
of the temporary facility. At such time as the New Loan Second
Tranche is made available, the New Loan will be guaranteed by The
Maryland Jockey Club ("MJC") group of companies and secured by all
of such companies' assets. The New Loan Second Tranche matures on
December 31, 2011, but will become due (i) ninety days following
the Laurel Park slots application being denied or withdrawn, (ii)
immediately on the closing of any sale of Laurel Park or (iii)
immediately on the closing of any new debt financing in connection
with Laurel Park slots. MEC will be required to repay the New Loan
Second Tranche with any refunds of any fees if the Laurel Park
slots application is denied or withdrawn. Additional Details -
Transactions Following MID Shareholder Approval
--------------------------------------------------------------------
The following proposed transactions are conditional upon MID
shareholder approval being obtained at MID's meeting of
shareholders to consider the reorganization proposal, expected to
take place in the first of quarter of 2009. MID Real Estate
Purchases ------------------------- MID will purchase for cash from
MEC development lands in Aventura and Ocala, Florida and Dixon,
California, additional acreage in Palm Meadows, Florida (required
to complete MID's existing recently rezoned development) and MEC's
membership interest in, and land underlying, MEC's joint venture
with Forest City Enterprises at Gulfstream Park. The purchase price
for such real estate assets will be the fair market value of such
assets as of the date hereof as determined by negotiation between
the Special Committees of MID and MEC. MEC estimates the aggregate
price will be approximately $100 - $120 million. MEC will use part
of the proceeds from the asset sales to MID to repay its $40
million Senior Bank Facility and its $4.5 million bank term loan in
connection with MEC's subsidiary AmTote International, Inc. MID
Loans to MEC ---------------- MID will: i. extend the maturity
dates of the Bridge Loan, the New Loan First Tranche and the
Gulfstream Facility $100 million repayment obligation to December
14, 2009; ii. increase the amount of the New Loan First Tranche by
$25 million to up to $75 million for use by MEC solely to
contribute to the retirement of the MEC Subordinated Notes; and
iii. amend all loans between MID and MEC (other than the New Loan
Second Tranche) to provide for (a) the deferral of interest and
principal repayments until maturity or repayment, (b) the right of
MEC to repay such loans either in cash or MEC Class A Stock (or a
combination of the two) following the retirement by MEC of all of
the MEC Subordinated Notes) and (c) the requirement that any
proceeds received by MEC from equity raises, asset sales (other
than to MID as part of the reorganization), joint ventures or other
transactions be placed into an escrow account with MID. The
conversion price for the loans (the "Loan Conversion Price") will
be $1.1519 per share, being the volume-weighted average price of
the MEC Class A Stock on NASDAQ for the five trading days
immediately preceding the date of this press release less a 15%
discount. MID will hold the escrow funds as security for the loans
to MEC, and MEC will be permitted to use the funds held in escrow
solely (i) to prepay in cash, from time to time, in the following
order of priority, the Gulfstream Facility, the Bridge Loan, the
New Loan First Tranche and the Remington Facility (without being
charged any mark-to-market or make-whole payment in relation to any
such prepayment) and (ii) to retire all of the MEC Subordinated
Notes. Any cash received by MID pursuant to a prepayment of the
Gulfstream Facility, the Bridge Loan, the New Loan First Tranche or
the Remington Facility will be distributed to MID shareholders,
either as a special distribution or pursuant to an issuer bid for
MID Class A Shares. MID Forbearance with MEC
------------------------ MID will agree that, other than pursuant
to existing arrangements or as contemplated by the reorganization
proposal, it will not, without the prior approval of the majority
of the votes cast by minority holders of MID Class A Shares, (a)
enter the horseracing or gaming business or enter into any
transactions with entities in the horseracing or gaming business,
(b) make any further debt or equity investment in, or otherwise
give financial assistance to, MEC or (c) enter into any
transactions with, or provide any services or personnel to, MEC
except for enforcing its rights under the terms of existing
arrangements and/or making non-material amendments, waivers or
modifications thereto. Additional Details - Transactions Following
Retirement of MEC Subordinated Notes
-------------------------------------------------------------
Existing MEC Class B Stock Held by MID
-------------------------------------- On the date on which MEC has
retired all of the MEC Subordinated Notes, MID will sell to the
Stronach Group 335,000 shares of MEC Class B Stock for $1.3552 per
share, representing the volume-weighted average price of the MEC
Class A Stock on NASDAQ for the five trading days immediately
preceding the date of this press release. Conversion of MID Debt
and Spin-off of MEC ------------------------------------------ On
the date that is 45 days following MEC's retirement of all of the
MEC Subordinated Notes, all indebtedness (including deferred
interest) owed by MEC and its subsidiaries to MID and its
subsidiaries (other than the New Loan Second Tranche) that has not
been repaid in cash will be converted into MEC Class A Stock at the
Loan Conversion Price. As soon as reasonably practicable
thereafter, MID will spin off to holders of MID shares (including
the Stronach Group on all its MID shares) on a pro rata basis all
the MEC Class A Stock received on conversion of the loans. Issuance
of Stock to the Stronach Group by MEC
---------------------------------------------- MEC will issue to
the Stronach Group at a price per share equal to the Loan
Conversion Price (i) $30 million of MEC Class B Stock and (ii) at
the option of the Stronach Group, an additional number of MEC Class
B Stock that, together with the MEC Class B Stock sold to the
Stronach Group by MID and those acquired from MEC, will represent a
pro forma 60% voting interest in MEC. Following the spin-off and
the issuance of MEC Class B Stock to the Stronach Group, MEC will
be controlled directly by the Stronach Group and MID will no longer
have any ownership interest in MEC. Additional Details
------------------ The terms of the Transaction Agreement were
considered by the Special Committee of MEC's board of directors
consisting of Jerry D. Campbell (Chairman), Anthony Campbell and
William J. Menear. The Transaction Agreement was unanimously
approved by MEC's board following a favorable recommendation of the
Special Committee. The Special Committee retained independent legal
and financial advisors to assist in its deliberations in respect of
the Transaction Agreement. Additional details of the proposed
reorganization are set out in MEC's material change report that
will be filed with securities regulatory authorities and that will
be available at MEC's website at http://www.magnaent.com/, on SEDAR
at http://www.sedar.com/ and on the SEC's website at
http://www.sec.gov/. The material change report will be filed less
than 21 days before the date on which the New Loan is provided,
which, in MID's view, is both reasonable and necessary in the
circumstances as the terms of the New Loan were settled, and
approved by MEC's Board of Directors, on November 26, 2008, and MEC
requires immediate funding to address its short-term liquidity
concerns. MEC cautions shareholders and others considering trading
in securities of MEC that the transactions contemplated by the
reorganization proposal are subject to certain material conditions,
some of which are beyond MEC's control, and there can be no
assurance that the transactions contemplated by the reorganization
proposal, or any other transaction, will be completed. The
transactions proposed to be undertaken following MID shareholder
approval and the retirement of the MEC Subordinated Notes are
subject to approval by the Toronto Stock Exchange. About MEC
--------- MEC, North America's largest owner and operator of horse
racetracks, based on revenue, develops, owns and operates horse
racetracks and related pari-mutuel wagering operations, including
off-track betting facilities. MEC also develops, owns and operates
casinos in conjunction with its racetracks where permitted by law.
MEC owns and operates AmTote International, Inc., a provider of
totalisator services to the pari-mutuel industry, XpressBet(R), a
national Internet and telephone account wagering system, as well as
MagnaBet(TM) internationally. Pursuant to joint ventures, MEC has a
fifty percent interest in HorseRacing TV(R), a 24-hour horse racing
television network, and TrackNet Media Group LLC, a content
management company formed for distribution of the full breadth of
MEC's horse racing content. FORWARD-LOOKING STATEMENTS This press
release contains "forward-looking statements" within the meaning of
applicable securities legislation, including Section 27A of the
United States Securities Act of 1933, as amended (the "Securities
Act"), and Section 21E of the United States Securities Exchange Act
of 1934, as amended (the "Exchange Act") and forward-looking
information as defined in the Securities Act (Ontario)
(collectively referred to as forward-looking statements). These
forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995
and the Securities Act (Ontario) and include, among others, our
plans to sell certain real estate assets in California and Florida
to MID; further extensions to the Bridge Loan and the Gulfstream
Facility to December 14, 2009; an increase in the amount of the New
Loan First Tranche to $75 million; amendments to the New Loan First
Tranche, the Bridge Loan, the Gulfstream Facility and the Remington
Facility to, among other things, enable the Company to repay such
facilities in full with MEC Class A Stock; expectations as to the
Company's ability to fully retire the MEC Subordinated Notes by
December 14, 2009; the sale of MEC Class B Stock to the Stronach
Group; sales and joint ventures with regard to core racetrack
assets; the application for a VLT license and the construction of a
temporary VLT facility and other matters that are not historical
facts. Forward-looking statements should not be read as guarantees
of future performance or results, and will not necessarily be
accurate indications of whether or the times at or by which such
performance or results will be achieved. Undue reliance should not
be placed on such statements. Forward-looking statements are based
on information available at the time and/or management's good faith
assumptions and analyses made in light of the Company's perception
of historical trends, current conditions and expected future
developments, as well as other factors we believe are appropriate
in the circumstances and are subject to known and unknown risks,
uncertainties and other unpredictable factors, many of which are
beyond the Company's control, that could cause actual events or
results to differ materially from such forward-looking statements.
Important factors that could cause actual results to differ
materially from the Company's forward-looking statements include,
but may not be limited to the risk that one or more of
reorganization transactions contemplated by the Transaction
Agreement may, for various reasons, not proceed, the terms of any
reorganization transaction may differ from those currently
contemplated by the Transaction Agreement, the MID shareholders
failing to approve the reorganization proposal, an inability to
obtain regulatory approval from securities and other regulators in
connection with proposed reorganization matters that are intended
to result in the issuance, registration and listing of shares of
the Company's capital stock, the possible termination of the
Transaction Agreement for any reason, the acceleration of the
maturity dates and repayment deadlines under the Bridge Loan, the
Gulfstream Facility and the Remington Facility, a failure by the
Company to fully retire the MEC Subordinated Notes by December 14,
2009, a failure by the Company to negotiate and close, on
acceptable terms, asset sale transactions (including potential core
asset sales), and material adverse changes in: general economic
conditions; the popularity of racing and other gaming activities as
recreational activities; the regulatory environment affecting the
horse racing and gaming industries; the Company's ability to obtain
or maintain government and other regulatory approvals necessary or
desirable to proceed with proposed real estate developments;
increased regulation affecting certain of the Company's
non-racetrack operations, such as broadcasting ventures; and the
Company's ability to develop, execute or finance the Company's
strategies and plans within expected timelines or budgets. In
drawing conclusions set out in our forward-looking statements
above, we have assumed, among other things, that we will continue
with our efforts to implement our September 12, 2007 adopted plan
to eliminate the Company's debt, although not on the originally
contemplated time schedule, negotiate and close, on acceptable
terms, one or more core asset sale transactions, comply with the
terms of and/or obtain waivers or other concessions from our
lenders and refinance or repay on maturity our existing financing
arrangements (including the Senior Bank Facility and the Bridge
Loan), possibly obtain additional financing on acceptable terms to
fund our ongoing operations and there will not be any material
further deterioration in general economic conditions or any further
significant decline in the popularity of horse racing and other
gaming activities beyond that which has already occurred in the
current economic downturn; nor any material adverse changes in
weather and other environmental conditions at our facilities, the
regulatory environment or our ability to develop, execute or
finance our strategies and plans as anticipated. Forward-looking
statements speak only as of the date the statements were made. We
assume no obligation to update forward-looking statements to
reflect actual results, changes in assumptions or changes in other
factors affecting forward-looking statements. If we update one or
more forward-looking statements, no inference should be drawn that
we will make additional updates with respect thereto or with
respect to other forward-looking statements. SOURCE Magna
Entertainment Corp. DATASOURCE: Magna Entertainment Corp. CONTACT:
Blake Tohana, Executive Vice-President and Chief Financial Officer,
Magna Entertainment Corp., 337 Magna Drive, Aurora, ON L4G 7K1,
Tel: (905) 726-7493
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