As filed with the Securities and Exchange Commission on September 7, 2001
Registration No. 333-
__________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under the Securities Act of 1933
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MAGNA ENTERTAINMENT CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 98-0208374
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
-------------------
337 MAGNA DRIVE
AURORA, ONTARIO L4G 7K1
CANADA
(905) 726-2462
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------
GARY M. COHN
VICE-PRESIDENT, SPECIAL PROJECTS AND SECRETARY
MAGNA ENTERTAINMENT CORP.
337 MAGNA DRIVE
AURORA, ONTARIO L4G 7K1
CANADA
(905) 726-2462
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES OF ALL COMMUNICATIONS TO:
SCOTT M. FREEMAN
Sidley Austin Brown & Wood
875 Third Avenue
New York, New York
10022
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
Calculation of Registration Fee
- --------------------------------------------------------------------------------
Title of Shares to be Proposed Maximum Aggregate Amount of
Registered Offering Price/(1)/ Registration Fee
- --------------------------------------------------------------------------------
Class A Subordinate Voting
Stock, $0.01 Par Value Per
Share $26,110,856/(2)/ $6,528/(2)/
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, and
based on the average of the high and low prices of the registrant's Class
A Subordinate Voting Stock as reported on the Nasdaq National Market on
September 6, 2001.
(2) This amount is calculated with respect to the securities registered
hereby. The fee with respect to the securities registered under our
Registration Statement on Form S-1 (No. 333-94791), was paid concurrently
therewith.
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT OF 1933, WHEN THIS REGISTRATION
STATEMENT IS DECLARED EFFECTIVE, THE PROSPECTUS THAT IS PART OF THIS
REGISTRATION STATEMENT SHALL RELATE TO ANY SECURITIES THAT REMAIN UNSOLD UNDER
THE REGISTRATION STATEMENT ON FORM S-1 (No. 333-94791) OF THE REGISTRANT.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement covers two distributions of the registrant's
Class A Subordinate Voting Stock:
(a) the distribution on a delayed or continuous basis of these shares upon the
redemption or exchange of exchangeable shares issued by a Canadian
subsidiary of the registrant which were distributed by Magna International
Inc. to some of its Canadian shareholders as part of a special dividend to
holders of its Class A subordinate voting shares and Class B shares in
March 2000; and
(b) the distribution on a delayed or continuous basis of shares of the
registrant's Class A Subordinate Voting Stock by some of the holders
thereof.
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PROSPECTUS
MAGNA ENTERTAINMENT CORP.
7,309,884 Shares of Class A Subordinate Voting Stock
-----------------------------------------
This prospectus relates to the distribution on a delayed or continuous
basis by us and by some of our shareholders of up to a total of 7,309,884 shares
of our Class A Subordinate Voting Stock.
We will not receive any cash proceeds from either the shares issued by us
upon the redemption or exchange of Exchangeable Shares of our Canadian
subsidiary, MEC Holdings (Canada) Inc., or the shares sold by our shareholders.
Our Class A Subordinate Voting Stock is traded on the Nasdaq National
Market under the symbol "MIEC" and on The Toronto Stock Exchange under the
symbol "MIE.A." On September 6, 2001, the last sale price on Nasdaq for the
Class A Subordinate Voting Stock was $7.64 per share and the last sale price on
The Toronto Stock Exchange for the Class A Subordinate Voting Stock was $11.80
(in Canadian dollars) per share.
-----------------------------
You should carefully consider the matters affecting our financial condition
and results of operations and the value of shares of our Class A Subordinate
Voting Stock described in detail under the heading "RISK FACTORS" below.
-----------------------------
The Securities and Exchange Commission ("SEC") and state securities
regulators have not approved or disapproved of these securities or determined if
this prospectus is adequate or accurate. Any representation to the contrary is
a criminal offense.
The date of this prospectus is September 7, 2001.
RISK FACTORS
The most significant risks and uncertainties we face are described below,
but other risks and uncertainties that are not known to us or that we currently
believe are not material may also have a material adverse effect on our
business, financial condition, operating results and prospects. You should
carefully consider the following factors in addition to the other information
contained in this prospectus before purchasing any of our Class A Subordinate
Voting Stock.
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If any of the following risks, or any of the risks described in the other
documents we file with the SEC and the Canadian securities regulatory
authorities, actually occur, our business, financial condition, operating
results and prospects could be materially adversely affected. In that case, the
trading price of shares of our Class A Subordinate Voting Stock could decline
substantially and investors may lose all or part of the value of the shares of
our Class A Subordinate Voting Stock held by them.
Risks Regarding Our Company
We are a relatively new company with a short history of racetrack
operations. We must successfully integrate recent racetrack acquisitions or our
operating results may be adversely affected.
We were incorporated less than three years ago and acquired our first
racetrack in December 1998. Accordingly, although all our racetracks have been
in operation for some time, we have a relatively short history of owning and
operating racetracks. The acquisition of Santa Anita Park was completed in
December 1998, the acquisition of Gulfstream Park was completed in September
1999, the acquisition of Remington Park and Thistledown was completed in
November 1999, the acquisition of Golden Gate Fields was completed in December
1999, the acquisition of Great Lakes Downs was completed in February 2000, the
acquisition of Bay Meadows was completed in November 2000 and the acquisition of
The Meadows was completed in April 2001. Prior to their respective acquisitions,
most of these racetracks had been operated separately under different ownership.
Completing the integration of these businesses into our operations will require
a significant dedication of management resources and further expansion of our
information and other operating systems.
If we do not successfully integrate our recent acquisitions and any future
acquisitions, or if this integration consumes a significant amount of our
management's time, then these acquisitions may materially adversely affect our
efficiency and, therefore, our business, financial condition, operating results
and prospects.
If we do not identify, negotiate and complete a sufficient number of
strategic acquisitions, we may not achieve our business plan and our growth
prospects may suffer.
Our current business plan calls for us to continue to actively pursue
strategic acquisitions. Our future profitability will depend to some degree
upon the ability of our management to identify, complete and successfully
integrate commercially viable acquisitions. If we do not do so for any reason,
we may not be able to implement our business plan successfully, or grow as
quickly as we anticipate, and our business, financial condition, operating
results and prospects may be materially adversely affected.
We have recruited most of our senior executive officers from outside the
racetrack industry.
Although our management personnel at our racetracks generally have
extensive experience in the racetrack industry, we have recruited most of our
senior executive officers from outside the industry. Our chief executive
officer, chief operating officer and chief financial
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officer each joined us during the last two years. This lack of racetrack
industry experience may impede the implementation of our strategy and slow our
growth.
We may not be able to obtain financing or may be able to obtain it only on
unfavorable terms, which may affect the viability of our expansion projects or
make expansion more costly.
We may require additional financing in order to expand our operations. It
is possible that this financing will not be available or, if available, will not
be available on terms that are favorable to us. Our controlling stockholder,
Magna International Inc. ("Magna International"), has made a commitment to its
shareholders that it will not, before June 1, 2006, make any further debt or
equity investments in, or otherwise provide financial assistance to, us or any
of our subsidiaries without the prior consent of the holders of a majority of
Magna International's subordinate voting shares. If we are unable to obtain
financing on favorable terms, or at all, we may not be able to expand our
operations, which could have a material adverse effect on our business,
financial condition, operating results and prospects.
Our recent operating income includes substantial gains from the sale of
non-core real estate, which sales will soon decrease and may cause our future
operating income and cash flow to decrease.
Approximately 42% of our pro forma EBITDA for the twelve months ended June
30, 2001 resulted from gains from real estate sales. These gains will likely be
reduced to zero over the next three years as the balance of our non-core real
estate portfolio is sold. If we do not replace these gains with additional
operating income and cash flow from our racetrack operations, our future
operating income and cash flow will decline.
Our business is heavily concentrated at certain of our racetracks.
Four of our racetracks, Santa Anita, Gulfstream, Golden Gate Fields and Bay
Meadows, accounted for approximately 58% of our pro forma revenue and
approximately 82% of our pro forma EBITDA for the twelve months ended June 30,
2001. If a business interruption were to occur and continue for a significant
length of time at any of these racetracks, it could have a material adverse
effect on our business, financial condition, operating results and prospects.
We are controlled by Magna International, and therefore Magna International
is able to prevent any takeover of us by a third party.
Magna International owns all our Class B Stock, which is generally entitled
to 20 votes per share, and therefore is entitled to exercise approximately 98%
of the total voting power of our outstanding stock and is therefore able to
elect all our directors and to control us. As a result, Magna International is
able to cause or prevent a change in our control. See "Description of Our Share
Capital--Takeover Protection".
Our relationship with Magna International is not at "arm's length", and
therefore Magna International may influence us to make decisions that are not in
the best interests of our other stockholders.
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Our relationship with Magna International is not at arm's length. In
addition to the ownership of our stock as described in the preceding risk
factor, four members of our board of directors are also members of Magna
International's board of directors and we have the same chairman. In some
cases, the interests of Magna International may not be the same as those of our
other stockholders, and conflicts of interest may arise from time to time that
may be resolved in a manner detrimental to us or our minority stockholders.
Magna International is able to cause us to effect certain corporate transactions
without the consent of the holders of our Class A Subordinate Voting Stock,
subject to applicable law and the fiduciary duties of our directors and
officers. As a result, transactions effected between us and Magna International
may not be on the same terms as could be obtained from independent parties.
A decline in general economic conditions could adversely affect our
business.
Our operations are affected by general economic conditions, and therefore
our future success is unpredictable. The demand for entertainment and leisure
activities tends to be highly sensitive to consumers' disposable incomes, and
thus a decline in general economic conditions may lead to our customers having
less discretionary income to wager on horse racing. This could have a material
adverse effect on our business, financial condition, operating results and
prospects.
Risks Relating to Our Gaming Operations
Our gaming activities are dependent on governmental regulation and
approvals. Amendments to such regulation or the failure to obtain such approvals
could adversely affect our existing business and our growth.
All our pari-mutuel wagering operations are contingent upon the continued
governmental approval of these operations as forms of legalized gaming. All our
current and proposed gaming operations are subject to extensive governmental
regulation and could be subjected at any time to additional or more restrictive
regulation, or banned entirely.
Although we currently possess all governmental licenses, registrations,
permits and approvals necessary for the operation of our pari-mutuel wagering
facilities, we may be unable to maintain or renew them. The loss of any of our
licenses, registrations, permits or approvals may materially limit the number of
races we conduct or the form or types of pari-mutuel wagering we offer, and
could have a material adverse effect on our business, financial condition,
operating results and prospects. In addition, we currently devote significant
financial and management resources to complying with the various governmental
regulations to which our operations are subject. Any significant increase in
governmental regulation would increase the amount of our resources devoted to
governmental compliance, could substantially restrict our business, and could
materially adversely affect our business, financial condition, operating results
and prospects.
Moreover, any future expansion of our gaming operations will likely require
us to obtain additional licenses, registrations, permits and approvals or, in
some cases, amendments to current laws governing such activities. The licensing
and legislative amendment processes can be both
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lengthy and costly, and we may not be successful in obtaining required licenses,
registrations, permits, approvals and amendments.
The high degree of regulation in the gaming industry is a significant
obstacle to our growth strategy, especially with respect to "account wagering",
including telephone, interactive television and Internet-based wagering. Account
wagering may currently be conducted only through hubs or bases located in
certain states. Our expansion opportunities in this area will be limited unless
more states amend their laws to permit account wagering. The necessary
amendments to those laws may not be enacted.
In the past, certain state attorneys general, district attorneys and other
law enforcement officials have expressed concern over the legality of interstate
account wagering. In December 2000, legislation was enacted in the United
States that amends the Interstate Horseracing Act of 1978. We believe that this
amendment clarifies that inter-track simulcasting, off-track betting and account
wagering, as currently conducted by the U.S. horse racing industry, are
authorized under U.S. federal law. The amendment may not be interpreted in this
manner by all concerned, however, and there may be challenges to these
activities by both state and federal law enforcement authorities, which could
have a material adverse impact on our business, financial condition, operating
results and prospects.
From time to time, the United States Congress has considered legislation
that would inhibit or restrict the use of certain financial instruments,
including credit cards, to provide funds for account wagering. For example, in
May 2001, the United States Senate Commerce Committee proposed legislation, in
the form of the Unlawful Internet Gambling Funding Bill, that would prohibit
financial institutions from enforcing credit card debts if they knew the debts
were being incurred in order to gamble illegally through the Internet. Further,
in July 2001, a bill was reintroduced into the United States House of
Representatives that would prohibit any person in a gambling business from
knowingly accepting, in connection with the participation of another person in
Internet gambling, credit, an electronic funds transfer, a check, a draft or the
proceeds of credit or an electronic funds transfer. Legislation of this nature,
if enacted, could inhibit account wagering by restricting the use of credit
cards and other commonly used financial instruments to fund wagering accounts.
This could have a material adverse impact on our efforts to expand our account
wagering business.
Implementation of some of the recommendations of the National Gambling
Impact Study Commission may harm our growth prospects.
In August 1996, the United States Congress established the National
Gambling Impact Study Commission to conduct a comprehensive study of the social
and economic effects of the gambling industry in the United States. This
commission reviewed existing federal, state and local policy and practices with
respect to the legalization or prohibition of gambling activities with the aim
of formulating and proposing changes in these policies and practices and
recommending legislation and administrative actions for these proposed changes.
On April 28, 1999, the Commission voted to recommend that the expansion of
gaming be curtailed. On June 18, 1999, the Commission issued a report setting
out its findings and conclusions, together with recommendations for legislation
and administrative actions. Some of the recommendations were:
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. prohibiting Internet gambling that was not already authorized within the
United States or among parties in the United States and any foreign
jurisdiction;
. limiting the expansion of gambling into homes through such mediums as
account wagering; and
. banning the introduction of casino-style gambling into pari-mutuel
facilities for the primary purpose of saving a pari-mutuel facility that
the market has determined no longer serves the community or for the
purpose of competing with other forms of gaming.
The recommendations made by the National Gambling Impact Study Commission
could result in the enactment of new laws and/or the adoption of new regulations
in the United States, which would materially adversely impact the gambling
industry in the United States in general or our segment in particular and
consequently may threaten our growth prospects.
We face significant competition from operators of other racetracks and
other forms of gaming, which could decrease the amount wagered at our facilities
and materially adversely affect our operating results.
We face significant competition in each of the jurisdictions in which we
have wagering operations and we expect this competition to intensify as new
gaming operators enter our markets and existing competitors expand their
operations and consolidate management of multiple racetracks. One of our
competitors, Churchill Downs Inc., has been in operation for a much longer
period of time than we have and may have greater name recognition. We also
compete for customers with other sports, entertainment and gaming operators,
including casinos and government-sponsored lotteries. If we lose customers for
any reason, our business, financial condition, operating results and prospects
may be materially adversely affected.
In addition, Florida tax laws have historically discouraged the three
Miami-area horse racetracks, Gulfstream Park, Hialeah Park and Calder Race
Course, from scheduling concurrent races. A new tax structure, effective as of
July 1, 2001, has eliminated this deterrent. As a result, our Gulfstream Park
will likely face direct competition from the other Miami-area horse racetracks
in the future. This competition could affect the operating results of Gulfstream
Park, which could reduce our overall profitability.
Government sponsored lotteries benefit from numerous distribution channels,
including supermarkets and convenience stores, as well as from frequent and
extensive advertising campaigns. We do not have the same access to the gaming
public or the advertising resources that are available to government-sponsored
lotteries, which may adversely affect our ability to effectively compete with
those lotteries.
A decline in the popularity of horse racing could adversely impact our
business.
The continued popularity of horse racing is important to our growth plans
and our operating results. Our business plan anticipates our attracting new
customers to our racetracks, off-track betting facilities and account wagering
operations. Even if we are successful in making
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acquisitions and expanding and improving our current operations, we may not be
able to attract a sufficient number of new customers to achieve our business
plan. Public tastes are unpredictable and subject to change. Any decline in
interest in horse racing or any change in public tastes may adversely affect our
business, financial condition, operating results and prospects.
Declining on-track attendance and increasing competition in simulcasting
may materially adversely affect our operating results.
There has been a general decline in the number of people attending and
wagering at live horse races at North American racetracks due to a number of
factors, including increased competition from other forms of gaming,
unwillingness of customers to travel a significant distance to racetracks and
the increasing availability of off-track wagering. The declining attendance at
live horse racing events has prompted racetracks to rely increasingly on
revenues from inter-track simulcasting, off-track betting and account wagering.
The industry-wide focus on inter-track simulcasting, off-track betting and
account wagering has increased competition among racetracks for outlets to
simulcast their live races. A continued decrease in attendance at live events
and in on-track wagering, as well as increased competition in the inter-track,
off-track and account wagering markets, could lead to a decrease in the amount
wagered at our facilities and on races conducted at our racetracks and may
materially adversely affect our business, financial condition, operating results
and prospects.
We depend on agreements with our horsemen's industry associations to
operate our business.
The U.S. Interstate Horseracing Act of 1978, as well as various state
racing laws, require that, in order to simulcast races, we have written
agreements with the horsemen at our racetracks, who are represented by industry
associations. In some states, if we fail to maintain operative agreements with
the industry associations, we may not be permitted to conduct live racing or
simulcasting at tracks within those states. In addition, our simulcasting
agreements are generally subject to the approval of the industry associations.
Should we fail to renew existing agreements with the industry associations on
satisfactory terms or fail to obtain approval for new simulcast agreements, then
our business, financial condition, operating results and prospects could be
materially adversely affected.
If we are unable to continue to negotiate satisfactory union contracts,
some of our employees may commence a strike. A strike by our employees or a
work stoppage by backstretch personnel, who are employed by horse owners and
trainers, may lead to lost revenues and could have a material adverse effect on
our business.
As of December 31, 2000, we employed approximately 3,200 full-time
employees, approximately 2,000 of whom were represented by unions. A strike or
other work stoppage by our employees could lead to lost revenues and have a
material adverse effect on our business, financial condition, operating results
and prospects.
Recently enacted legislation in California will facilitate the organization
of backstretch personnel in that state. A strike by backstretch personnel
could, even though they are not our
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employees, lead to lost revenues and have a material adverse effect on our
business, financial condition, operating results and prospects.
We currently face significant competition from Internet and other forms of
account wagering, which may reduce our profitability.
Internet and other account wagering gaming services allow their customers
to wager on a wide variety of sporting events and Las Vegas-style casino games
from home. The National Gambling Impact Study Commission's June 1999 report
estimates that there are over 250 on-line casinos, 64 lotteries, 20 bingo games
and 139 sports wagering services offering gambling over the Internet, most
operating in violation of U.S. law from offshore locations. Amounts wagered in
the Internet gaming market are estimated to have doubled from approximately $445
million in 1997 to over $900 million in 1998, according to Interactive Gaming
News, an Internet gaming publication. Our racetrack business may require
greater ongoing capital expenditures in order to expand our business than the
capital expenditures required by Internet and other account wagering gaming
operators. Currently, we cannot offer the diverse gaming options offered by
Internet and other account wagering gaming operators and may face significantly
greater costs in operating our business. Our inability to compete successfully
with these operators could have a material adverse effect on our business,
financial condition, operating results and prospects.
In addition, the market for account wagering is affected by changing
technology. Our ability to anticipate such changes and to develop and introduce
new and enhanced services on a timely basis will be a significant factor in our
ability to expand, remain competitive and attract new customers.
Expansion of gaming conducted by Native American groups may lead to
increased competition in our industry, which may negatively impact our growth
and profitability.
In March 2000, the California state constitution was amended, resulting in
the expansion of gaming activities permitted to be conducted by Native American
groups in California. This may lead to increased competition and may have an
adverse effect on the profitability of Santa Anita Park, Golden Gate Fields, Bay
Meadows and our future growth in California. It may also affect the purses that
those tracks are able to offer and therefore adversely affect our ability to
attract top horses.
Several Native American groups in Florida have recently expressed interest
in opening or expanding existing casinos in southern Florida, which could
compete with Gulfstream Park and reduce its profitability.
Moreover, other Native American groups may open or expand casinos in other
regions of the country where we currently operate, or plan to operate,
racetracks or other gaming operations. Any such competition from Native
American groups could have a material adverse effect on our business, financial
condition, operating results and prospects.
Some jurisdictions view our operations primarily as a means of raising
taxes and, therefore, we are particularly vulnerable to additional or increased
taxes and fees.
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We believe that the prospect of raising significant additional revenue
through taxes and fees is one of the primary reasons that certain jurisdictions
permit legalized gaming. As a result, gaming companies are typically subject to
significant taxes and fees in addition to the normal federal, state, provincial
and local income taxes, and such taxes and fees may be increased at any time.
From time to time, legislators and officials have proposed changes in tax laws,
or in the administration of such laws, affecting the gaming industry. For
instance, U.S. legislators have proposed the imposition of a U.S. federal tax on
gross gaming revenues. It is not possible to determine with certainty the
likelihood of any such changes in tax laws or their administration; however, if
enacted, such changes could have a material adverse effect on our business,
financial condition, operating results and prospects.
Our operating results fluctuate seasonally and may be impacted by a
reduction in live racing dates, due to inclement weather or regulatory factors.
We experience significant fluctuations in quarterly operating results due
to the seasonality associated with racing schedules at our racetracks.
Generally, our revenues from racetrack operations are greater in the first
quarter of the calendar year than in any other quarter. We have a limited
number of live racing dates at each of our racetracks and the number of live
racing dates varies somewhat from year to year. The allocation of live racing
dates in most of the states in which we operate is subject to regulatory
approval from year to year and, in any given year, we may not receive the same
or more racing dates than we have had in prior years. Recently, the regulatory
agencies in California have announced their intention to reduce live racing
dates. We are also faced with the prospect that competing racetracks may seek
to have some of our historical dates allocated to them. A significant decrease
in the number of live racing dates could have a material adverse effect on our
business, financial condition, operating results and prospects.
Since horse racing is conducted outdoors, unfavorable weather conditions,
including extremely high or low temperatures, excessive precipitation, storms or
hurricanes, may cause races to be cancelled or may reduce attendance and
wagering. Since a substantial portion of our operating expenses is fixed, the
loss of scheduled racing days or a reduction in the number of races held or the
number of horses racing due to unfavorable weather could have a material adverse
effect on our business, financial condition, operating results and prospects.
The current lease of the Bay Meadows property expires in less than two
years and is unlikely to be renewed because the current lessor is in the process
of selling the property.
The Bay Meadows site lease expires on December 31, 2002 (subject to
extension through March 31, 2003 if we are holding a race meet). Although we
are exploring various alternative venues for the conduct of the racing dates
currently held at Bay Meadows, there is a risk that we will be unable to obtain
the necessary regulatory approvals to transfer these racing dates to another
racetrack operated by us in Northern California, which could materially
adversely affect our business, financial condition, operating results and
prospects.
The profitability of our racetracks is partially dependent upon the size of
the local horse population in the areas in which our racetracks are located.
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Horse population is a factor in a racetrack's profitability because it
generally affects the average number of horses (i.e., the average "field size")
that run in races. Larger field sizes generally mean increased wagering and
higher wagering revenues due to a number of factors, including the availability
of exotic bets (such as "exacta" and "trifecta" wagers). Various factors have
led to declines in the horse population in certain areas of the country,
including competition from racetracks in other areas, increased costs and
changing economic returns for owners and breeders and the recent Mare
Reproductive Loss Syndrome, which has caused a large number of mares in Kentucky
to sustain late term abortions or early embryonic loss. If we are unable to
attract horse owners to stable and race their horses at our tracks by offering a
competitive environment, including improved facilities, well-maintained
racetracks, better living conditions for backstretch personnel involved in the
care and training of horses stabled at our tracks and a competitive purse
structure, our business, financial condition, operating results and prospects
may be materially adversely affected.
An earthquake in California could interrupt our operations at Santa Anita
Park, Golden Gate Fields and Bay Meadows, which would adversely impact our cash
flow from these racetracks.
Three of our largest racetracks, Santa Anita Park, Golden Gate Fields and
Bay Meadows, are located in California and are therefore subject to earthquake
risks. We do not maintain significant earthquake insurance on the structures at
our California racetracks. We maintain fire insurance for fire risks, including
those resulting from earthquakes, subject to policy limits and deductibles.
There can be no assurance that earthquakes or the fires often caused by
earthquakes will not seriously damage our California racetracks and related
properties or that the recoverable amount of insurance proceeds will be
sufficient to fully cover reconstruction costs and other losses. If an
uninsured or underinsured loss occurs, we could lose anticipated revenue and
cash flow from our California racetracks.
Our business depends on providers of totalisator services.
In purchasing and selling our pari-mutuel wagering products, our customers
depend on information provided by two of the three main totalisator companies
operating in North America. These totalisator companies provide the computer
systems that accumulate wagers, record sales, calculate payoffs and display
wagering data. The loss of any of the totalisator companies as a provider of
these critical services would decrease competition in the market for those
services and could result in an increase in the cost to obtain them.
Additionally, the failure of the totalisator companies to keep their technology
current could limit our ability to serve customers effectively or develop new
forms of wagering. Because of the highly specialized nature of these services,
replicating these totalisator services would be expensive.
Real Estate Ownership and Development Risks
Our ownership and development of real estate is subject to risks and may
involve significant ongoing expenditures or losses that could adversely affect
our operating results.
All real estate investments are subject to risks including: general
economic conditions, such as the availability and cost of financing; local real
estate conditions, such as an oversupply
14
of residential, office, retail or warehousing space, or a reduction in demand
for real estate in the area; governmental regulation, including taxation of
property and environmental legislation; and the attractiveness of properties to
potential purchasers or tenants. The real estate industry is also capital
intensive and sensitive to interest rates. Further, significant expenditures,
including property taxes, mortgage payments, maintenance costs, insurance costs
and related charges, must be made throughout the period of ownership of real
property, which expenditures may negatively impact our operating results.
We may not be able to sell some of our non-core real estate when we need to
or at the price we want, which may materially adversely affect our financial
condition.
At times, it may be difficult for us to dispose of some of our non-core
real estate. The costs of holding real estate may be high and, during a
recession, we may be faced with ongoing expenditures with little prospect of
earning revenue on our non-core real estate properties. If we have inadequate
cash reserves, we may have to dispose of properties at prices that are
substantially below the prices we desire, and in some cases, below the prices we
originally paid for the properties, which may materially adversely affect our
financial condition and our growth plans.
We require governmental approvals for some of our properties which may take
a long time to obtain or which may not be granted, either of which could
materially adversely affect our existing business or our growth.
Some of our properties will require zoning and other approvals from local
government agencies. The process of obtaining these approvals may take many
months and we might not obtain the necessary approvals. Furthermore, in the case
of certain land to be held by us in Aurora, Ontario, the transfer of this land
to us from Magna International is conditional on our obtaining permission to
sever the land from adjoining properties and other approvals. If we do not
obtain these approvals, we may not ultimately acquire this land. Holding costs,
while regulatory approvals are being sought, and delays may render a project
economically unfeasible. If we do not obtain all of our necessary approvals, our
plans, growth and profitability could be materially adversely affected.
We may not be able to complete expansion projects successfully and on time,
which would materially adversely affect our growth and our operating results.
We intend to further develop our racetracks and expand our gaming
activities. Numerous factors, including regulatory and financial constraints,
could cause us to alter, delay or abandon our existing plans. If we proceed to
develop new facilities or enhance our existing facilities, we face numerous
risks that could require substantial changes to our plans, including timeframes
and projected budgets. These risks include the inability to secure all required
permits and the failure to resolve potential land use issues, as well as risks
typically associated with any construction project, including possible shortages
of materials or skilled labor, unforeseen engineering or environmental problems,
delays and work stoppages, weather interference and unanticipated cost overruns.
For example, Santa Anita Park completed certain upgrades to its facilities in
1999. The disruption caused by these upgrades was greater than anticipated and
reduced the total amount wagered at Santa Anita Park's simulcast wagering
facilities and attendance at The Oak
15
Tree Meet in 1999. Even if completed in a timely manner, our expansion projects
may not be successful, which would affect our growth and could have a material
adverse effect on our business, financial condition, operating results and
prospects.
We face strict environmental regulation and may be subject to liability for
environmental damage that we did not cause, which could materially adversely
affect our financial results.
Various environmental laws and regulations in the United States, Canada and
Europe impose liability on us as a current or previous owner and manager of real
property, for the cost of maintenance, removal and remediation of hazardous
materials released or deposited on or in properties now or previously owned or
managed by us or disposed of in other locations. Our ability to sell properties
with contamination or hazardous or toxic substances or to borrow money using
that property as collateral may also be uncertain. Changes to environmental
laws and regulations, resulting in more stringent terms of compliance, could
expose us to additional liabilities and ongoing expenses.
Risks Relating to Our Class A Subordinate Voting Stock
Our stock price may be volatile, and future issuances or sales of our stock
may decrease our stock price.
The trading price of our Class A Subordinate Voting Stock has experienced,
and may continue to experience, substantial volatility. The following factors
have had, and may continue to have, a significant effect on the market price of
our Class A Subordinate Voting Stock:
. our historical and anticipated operating results;
. the announcement of new wagering and gaming opportunities by us or our
competitors;
. the passage of legislation affecting horse racing or gaming;
. developments affecting the horse racing or gaming industries generally;
. sales or other issuances or the perception of potential sales or
issuances, including in connection with our past and future
acquisitions, of substantial amounts of our shares;
. the possibility that, after the exchangeable shares of our Canadian
subsidiary cease to be outstanding, certain institutional shareholders
of Magna International, who received our stock as a distribution from
Magna International, may sell their holdings of our shares because these
shareholders are restricted in the amount of stock of a non-Canadian
company that they may own;
. a shift in investor interest away from the gaming industry, in general.
These factors could have a material adverse effect on the market price of
our Class A Subordinate Voting Stock, regardless of our financial condition and
operating results.
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The trading price of our Class A Subordinate Voting Stock could decrease as
a result of our issuing additional shares as consideration for future
acquisitions.
We may issue our Class A Subordinate Voting Stock as full or partial
consideration in connection with future acquisitions. To the extent that we do
so, the percentage of our common equity and voting stock that our existing
stockholders own will decrease and, particularly if such acquisitions do not
contribute proportionately to our profitability, the trading price of our shares
may also decrease.
We do not plan to pay dividends until 2004, if at all.
We have not paid any dividends to date on our Class A Subordinate Voting
Stock, we do not plan to pay any dividends until 2004 and we may not pay
dividends then, or ever. See "Corporate Constitution--Required Allocations--
Dividends".
FORWARD-LOOKING STATEMENTS
This prospectus, including documents incorporated by reference, contains
forward-looking statements as defined by the U.S. Securities Act of 1933 and the
U.S. Securities Exchange Act of 1934. These forward-looking statements may
include, among others, statements regarding: expectations as to operational
improvements; expectations as to cost savings, revenue growth and earnings; the
time by which certain objectives will be achieved; estimates of costs relating
to environmental remediation and restoration; proposed new products and
services; expectations that claims, lawsuits, environmental costs, commitments,
contingent liabilities, labor negotiations or agreements, or other matters will
not have a material adverse effect on our consolidated financial position,
operating results, prospects or liquidity; and statements concerning
projections, predictions, expectations, estimates or forecasts as to our
financial and operating results, and future economic performance; and other
similar expressions concerning 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. Forward-looking statements are based on information available at the
time and/or management's good faith belief with respect to future events, and
are subject to risks and uncertainties that could cause actual performance or
results to differ materially from those expressed in the statements.
Important factors that could cause such differences include, but are not
limited to, the factors discussed above under "Risk Factors".
Forward-looking statements speak only as of the date the statement was
made. We assume no obligation to update forward-looking information to reflect
actual results, changes in assumptions or changes in other factors affecting
forward-looking information. 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.
17
THE COMPANY
We acquire, develop and operate horse racetracks and related pari-mutuel
wagering operations, including off-track betting facilities. As a complement to
our horse racing business, we operate an account wagering business known as
"Call-A-Bet" and are exploring the further development of account wagering
operations, including interactive television and Internet-based wagering,
possibly in conjunction with business partners and subject to regulatory
requirements. To support our horse racetracks, we also own and operate a horse
boarding and training center situated approximately 45 miles north of San Diego,
California, and we are currently developing a second horse boarding and training
center in Palm Beach County, Florida. We are also exploring the development of
real estate on the land surrounding certain of our racetracks. These real
estate projects could be pursued in conjunction with developers who would be
expected to provide the necessary financing. In addition, we own a real estate
portfolio which includes a gated residential community under development, a golf
course and related recreational facilities in Oberwaltersdorf, Austria, a golf
course in Aurora, Ontario, Canada and other real estate. We intend to continue
to sell the balance of our non-core real estate portfolio, in order to provide
capital to grow and enhance our business. Accordingly, we are taking steps,
including servicing our land and obtaining zoning and other approvals, to
enhance the value of certain of these properties which should increase the
revenues generated from their sale.
Our principal executive offices are located at 337 Magna Drive, Aurora,
Ontario L4G 7K1 Canada and our telephone number is (905) 726-2462.
DESCRIPTION OF OUR SHARE CAPITAL
Our authorized stock consists of 310,000,000 shares of Class A Subordinate
Voting Stock, par value $0.01, and 90,000,000 shares of Class B Stock, par value
$0.01. As of June 30, 2001, there were 18,138,893 shares of Class A Subordinate
Voting Stock outstanding and 58,466,056 shares of Class B Stock outstanding.
Neither Delaware law nor our articles of incorporation or by-laws limit the
right of non-resident or foreign owners of our Class A Subordinate Voting Stock
or Class B Stock to hold or to vote this type of stock.
Class A Subordinate Voting Stock
The holders of shares of our Class A Subordinate Voting Stock are entitled:
. to one vote for each share of Class A Subordinate Stock held (together
with the holders of our Class B Stock who are entitled to vote at such
meetings on the basis of 20 votes per share of Class B Stock held) at
all meetings of our stockholders other than meetings of the holders of
another class or series of shares;
. on a pro rata basis with the holders of our Class B Stock, to receive
any dividends (except for certain stock dividends as described below)
that may be declared by our board of directors; and
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. after the payment of all our liabilities, to receive, on a pro rata
basis with the holders of our Class B Stock, all our property and assets
available for distribution in the event of our liquidation, dissolution
or winding-up, whether voluntary or involuntary, or any other
distribution of our assets among our stockholders for the purpose of
winding-up our affairs.
Under our restated certificate of incorporation, our board of directors may
declare a simultaneous dividend payable on our Class A Subordinate Voting Stock
in shares of our Class A Subordinate Voting Stock, and payable on our Class B
Stock in shares of our Class A Subordinate Voting Stock or in shares of our
Class B Stock. However, no dividend payable in shares of our Class B Stock may
be declared on shares of our Class A Subordinate Voting Stock.
The holders of shares of our Class A Subordinate Voting Stock have
additional voting rights under our corporate constitution. See "Corporate
Constitution".
Our restated certificate of incorporation provides that if the approval of
the holders of our Class A Subordinate Voting Stock voting as a separate class
is required, such approval shall be given by a majority of the votes cast at a
meeting of such holders, other than the votes attaching to our Class A
Subordinate Voting Stock beneficially owned, directly or indirectly, by Magna
International or by any person who, by agreement, is acting jointly with Magna
International or over which Magna International or any such person exercises
direct or indirect control or direction. These limitations do not apply to any
other holder of our Class A Subordinate Voting Stock.
Class B Stock
The holders of our Class B Stock are entitled:
. to 20 votes for each share of Class B Stock held (together with the
holders of our Class A Subordinate Voting Stock who are entitled to vote
at such meetings on the basis of one vote per share held) at all
meetings of our stockholders other than meetings of the holders of
another class or series of shares;
. on a pro rata basis with the holders of our Class A Subordinate Voting
Stock, to receive any dividends (except for certain stock dividends as
described below) that may be declared by our board of directors;
. after the payment of all our liabilities, to receive, on a pro rata
basis with the holders of our Class A Subordinate Voting Stock, all our
property and net assets available for distribution in the event of our
liquidation, dissolution or winding-up, whether voluntary or
involuntary, or any other distribution of our assets among our
stockholders for the purpose of winding-up our affairs; and
. from time to time, to convert shares of our Class B Stock into shares of
our Class A Subordinate Voting Stock on a one-to-one basis.
19
Under our restated certificate of incorporation, our board of directors may
declare a simultaneous dividend payable on our Class A Subordinate Voting Stock
in shares of our Class A Subordinate Voting Stock, and payable on our Class B
Stock in shares of our Class A Subordinate Voting Stock or in shares of our
Class B Stock. However, no dividend payable in shares of our Class B Stock may
be declared on shares of our Class A Subordinate Voting Stock.
None of our Class B Stock may be issued (other than in connection with a
stock dividend) without the approval by ordinary resolution of the holders of
our Class B Stock, voting as a separate class.
The holders of shares of our Class B Stock have additional voting rights
under our corporate constitution. See "Corporate Constitution".
Amendments to Stock Provisions and Other Matters
Any amendment to our restated certificate of incorporation to add, delete
or vary any right, privilege, restriction or condition attaching to the Class A
Subordinate Voting Stock, which amendment adversely affects the rights of the
holders of Class A Subordinate Voting Stock, requires the prior written approval
of the holders of all our outstanding Class A Subordinate Voting Stock or a
resolution authorized by at least two-thirds of the votes cast at a separate
meeting of the holders of the Class A Subordinate Voting Stock called and held
for that purpose (provided, however, that an amendment to create stock ranking
in priority to or on a parity with the Class A Subordinate Voting Stock shall be
deemed not to adversely affect the rights of the holders of Class A Subordinate
Voting Stock) . It is further required that a majority of the votes cast at
such a meeting, or in any other vote by Class A Subordinate Voting Stock holders
voting as a class, not be votes attaching to the Class A Subordinate Voting
Stock beneficially owned, directly or indirectly, by Magna International, or by
any person who, by agreement, acts jointly with Magna International or over
which Magna International or any such person exercises direct or indirect
control or direction.
Any amendment to our restated certificate of incorporation to add, delete
or vary any right, privilege, restriction or condition attaching to the Class B
Stock or to create stock ranking in priority to or on a parity with the Class B
Stock requires the prior written approval of the holders of all our outstanding
Class B Stock or a resolution authorized by at least two-thirds of the votes
cast at a separate meeting of the holders of Class B Stock called and held for
that purpose.
Our Class A Subordinate Voting Stock is not redeemable, has no preemptive
or conversion rights and is not liable for further assessments or calls. Our
Class B Stock is not redeemable, has no preemptive rights and is not liable for
further assessments or calls. Each share of Class B Stock may be converted at
any time into one fully-paid share of Class A Subordinate Voting Stock. All
shares of Class A Subordinate Voting Stock offered hereby will be fully paid and
non-assessable.
Takeover Protection
Under applicable law, an offer to purchase shares of our Class B Stock
would not necessarily result in an offer to purchase shares of our Class A
Subordinate Voting Stock.
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Magna International, as the holder of all our issued and outstanding Class B
Stock, has entered into a trust agreement with Computershare Trust Company of
Canada (as successor to Montreal Trust Company of Canada) and us. This trust
agreement provides that the holders of our Class A Subordinate Voting Stock will
not be deprived of any rights under applicable takeover bid laws to which they
would have been entitled in the event of a takeover bid (which may include a
private offer to purchase) if our Class B Stock and the Class A Subordinate
Voting Stock were a single class of stock.
Under the trust agreement, Magna International may not sell any Class B
Stock pursuant to a takeover bid, as defined under the securities laws of the
Province of Ontario, at a price per share in excess of 115% of the market price
of our Class A Subordinate Voting Stock. This prohibition will not apply if: (i)
the sale is made pursuant to an offer to purchase only part of the Class B Stock
made to all holders of our Class B Stock and an identical offer in all material
respects is made concurrently to purchase our Class A Subordinate Voting Stock,
which identical offer has no condition attached other than the right not to take
up and pay for shares tendered if no shares are purchased pursuant to the offer
for Class B Stock; or (ii) there is a concurrent unconditional offer to purchase
all our Class A Subordinate Voting Stock at a price per share at least as high
as the highest price per share paid pursuant to the takeover bid for the Class B
Stock.
The trust agreement contains provisions for the authorization of action by
the trustee to enforce the rights of the holders of our Class A Subordinate
Voting Stock. The trustee only has to enforce these rights if either we or the
holders of our Class A Subordinate Voting Stock agree to pay the trustee's costs
and to indemnify the trustee. A holder of our Class A Subordinate Voting Stock
is not entitled to take action unless the trustee refused to act after a request
to do so by holders of at least 10% of our outstanding Class A Subordinate
Voting Stock.
The trust agreement prohibits Magna International from disposing of any
shares of our Class B Stock unless the disposition is conditional upon the
person acquiring those shares becoming a party to the trust agreement.
Conversion of Class B Stock into Class A Subordinate Voting Stock and the
subsequent sale of that Class A Subordinate Voting Stock is excluded from this
prohibition.
The trust agreement provides that it may not be amended and material
provisions cannot be waived, without the approval of The Toronto Stock Exchange
and at least two-thirds of the votes cast by the holders of the Class A
Subordinate Voting Stock. The two-thirds majority must include a simple majority
of the votes cast by holders of the Class A Subordinate Voting Stock, excluding
any of our principal stockholders and their affiliates and any persons who have
an agreement to purchase Class B Stock on terms that would constitute a sale for
the purposes of the trust agreement.
The trust agreement does not prevent the holder of our Class B Stock from:
. granting a security interest in shares of our Class B Stock in connection
with a bona fide borrowing, provided that the secured party concurrently agrees
in writing to become a party to the trust agreement; or
21
. selling, transferring or otherwise disposing of all or any of the shares of
our Class B Stock to a company controlled by or under common control with the
holder, provided that the transferee concurrently agrees in writing to become a
party to the trust agreement.
No provision of the trust agreement limits the rights of any holder of our
Class A Subordinate Voting Stock under any applicable securities legislation.
CORPORATE CONSTITUTION
We have adopted certain long-standing organizational and operating policies
and principles used by Magna International to define the rights of employees and
investors to participate in profits and growth and to impose discipline on
management, some of which have been embodied in our corporate constitution. The
following description summarizes the material terms and provisions of our
corporate constitution, which cannot be amended or varied without the prior
approval of the holders of a majority of our Class A Subordinate Voting Stock
(not including shares held by Magna International or any person who, by
agreement, is acting jointly with Magna International or over which Magna
International or any such person exercises direct or indirect control or
direction) and our Class B Stock, each voting as a separate class.
Board of Directors
Our corporate constitution provides that, unless otherwise approved by the
holders of our Class A Subordinate Voting Stock and our Class B Stock, each
voting as a separate class, (a) a majority of the members of our board of
directors shall be individuals who are not our officers or our employees or
individuals related to these persons, and (b) at least two of our directors
shall be individuals who are not our officers or employees, or directors,
officers or employees of any of our affiliates, including Magna International,
nor persons related to any such officers, employees or directors.
Required Allocations
Employee Profit Sharing Plan
We are currently examining establishing an employee profit sharing plan
pursuant to which a percentage of our pre-tax profits before profit sharing for
each fiscal year would be allocated to our employee profit sharing plan and/or
otherwise be distributed to our employees or the employees of our subsidiaries
who do not participate in a similar plan, and who do not receive management
incentive bonuses, during that year or the immediately following fiscal year.
Dividends
The holders of our Class A Subordinate Voting Stock and Class B Stock are
entitled to receive dividends as and when declared by our board of directors out
of any legally available funds as follows. In respect of our fiscal years
commencing January 1, 2004 and 2005, unless otherwise approved by ordinary
resolution of the holders of each of our Class A Subordinate Voting Stock and
our Class B Stock, each voting as a separate class, the holders of our Class A
22
Subordinate Voting Stock and our Class B Stock will be entitled to receive and
we will pay, as and when declared by our board of directors out of funds
properly applicable to the payment of dividends, non-cumulative dividends in
respect of each fiscal year so that the aggregate of the dividends paid or
payable in respect of that year is at least equal to 10% of our after-tax
profits for that fiscal year; in respect of each fiscal year thereafter, holders
of our Class A Subordinate Voting Stock and our Class B Stock will be entitled
to receive, as and when declared by our board of directors out of funds properly
applicable to the payment of dividends, non-cumulative dividends in respect of
such fiscal year so that the aggregate of the dividends paid or payable in
respect of that year shall be equal to the greater of (1) 10% of our after-tax
profits for that fiscal year and (2) an amount such that the aggregate of the
dividends paid or payable in respect of that fiscal year and the two immediately
preceding fiscal years is at least 20% of our after-tax profits for such three-
year period.
For further information regarding dividends payable with respect to our
share capital, see "Description of Our Share Capital".
Social Objectives
Pursuant to our corporate constitution, a maximum of 2% of our pre-tax
profits beginning with 2004 shall be allocated to the promotion of social
objectives during each fiscal year or the immediately following fiscal year.
Social objectives are objectives that are in our executive management's opinion
of a political, patriotic, philanthropic, charitable, educational, scientific,
artistic, social or other useful nature to the communities in which we or our
affiliates operate.
Incentive Bonuses
Our corporate constitution provides that the incentive bonuses paid or
payable to our corporate management in respect of each fiscal year, beginning
with 2004, shall not, in the aggregate, exceed 6% of our pre-tax profits before
profit sharing for such fiscal year. Our executive management, with the
approval of our board of directors or a duly appointed committee of our board,
has the right to allocate the amount to be paid to individuals within our
corporate management as well as to determine the timing and manner of payment
(whether in cash or in our shares or otherwise).
Authorized Share Capital
Our corporate constitution provides that no resolution of our board of
directors purporting to:
. increase the maximum number of authorized shares of any class of our
stock; or
. create a new class or series of stock having voting rights of any kind
(other than on default of payment of dividends) or having rights to
participate in our profits in whatever manner (other than a class or
series of stock which is convertible into existing classes of stock or
a class or series of stock having a fixed dividend or a dividend
determined without regard to profits);
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shall be effective unless such resolution is approved by ordinary
resolution of the holders of each of our Class A Subordinate Voting Stock and
our Class B Voting Stock voting separately as a class.
DESCRIPTION OF EXCHANGEABLE SHARES
The following is a summary of the rights, privileges, restrictions and
conditions attaching to the exchangeable shares (the "Exchangeable Shares") of
our Canadian subsidiary, MEC Holdings (Canada) Inc., and the terms of the
Exchangeable Share Support Agreement and the Voting and Exchange Agreement, two
agreements relating to the Exchangeable Shares to which we are a party, each
dated as of December 30, 1999. As of August 31, 2001, there were 2,516,841
Exchangeable Shares outstanding, excluding those held by us.
General
The Exchangeable Shares were issued by our subsidiary MEC Holdings (Canada)
Inc. ("Exchangeco"). The Exchangeable Shares, together with certain ancillary
rights, are economically equivalent to the shares of our Class A Subordinate
Voting Stock. The Exchangeable Shares are exchangeable at any time at the option
of the holder, on a one-for-one basis, for shares of our Class A Subordinate
Voting Stock. By furnishing instructions to Magna International under the Voting
and Exchange Agreement, holders of the Exchangeable Shares are able to exercise
essentially the same voting rights with respect to us as they would have if they
exchanged their Exchangeable Shares for shares of our Class A Subordinate Voting
Stock. Holders of Exchangeable Shares are also entitled to receive from
Exchangeco dividends that are economically equivalent to any dividends paid on
shares of our Class A Subordinate Voting Stock. The Exchangeable Shares are
subject to adjustment or modification in the event of a stock split, stock
dividend or other change to our capital structure so as to maintain the one-to-
one relationship between the Exchangeable Shares and the shares of our Class A
Subordinate Voting Stock.
Voting, Dividend and Liquidation Rights
Voting Rights with Respect to Exchangeco
Except as required by law or under the Exchangeable Share Support
Agreement, the terms of the Exchangeable Shares with respect to the amendment
thereof or the Voting and Exchange Agreement, the holders of Exchangeable Shares
are not entitled to receive notice of or attend any meeting of shareholders of
Exchangeco or to vote at any such meeting.
Voting Rights with Respect to Us
Pursuant to the Voting and Exchange Agreement, each holder of an
Exchangeable Share, other than us and our subsidiaries, on the record date for
any meeting at which our stockholders are entitled to vote, will be entitled to
instruct Magna International, and Magna International has agreed, to exercise
one of the votes attached to a share of our Class A Subordinate Voting Stock or
a share of our Class B Stock for each Exchangeable Share held by that holder.
Under that agreement Magna International has agreed that, for so long as any of
the Exchangeable Shares
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are outstanding, it will at all times hold the power to cast an identical number
of votes attaching to our Class A Subordinate Voting Stock or our Class B Stock.
If we are required to hold a class vote of our Class A Subordinate Voting Stock,
Magna International may not use the voting rights attaching to any of the shares
of our Class B Stock that it holds to satisfy its obligation to cast votes as
instructed by holders of Exchangeable Shares, but may only exercise the voting
rights attaching to our Class A Subordinate Voting Stock held by it for that
purpose. If necessary, Magna International will convert shares of our Class B
Stock into shares of our Class A Subordinate Voting Stock in order to have
enough shares of that class available to honor all the voting instructions that
it receives. If Magna International does not receive voting instructions
covering all the outstanding Exchangeable Shares, it will refrain from
exercising a number of voting rights attaching to our shares that it holds that
is equal to the number of Exchangeable Shares for which no voting instructions
were received. A holder of Exchangeable Shares may, upon request to Magna
International, obtain a proxy from Magna International entitling the holder to
vote directly at the relevant meeting the votes attached to our shares held by
Magna International to which the Exchangeable Share holder is entitled to give
Magna International voting instructions.
We will send to the holders of the Exchangeable Shares, at our own expense,
a notice of each meeting at which our stockholders are entitled to vote,
together with the related meeting materials and a statement as to the manner in
which the holder may instruct Magna International to exercise voting rights or
to deliver a proxy to the holder. This mailing shall commence on the same day as
we send the notice and materials to our stockholders. We will also send to the
holders of Exchangeable Shares copies of all information statements, interim and
annual financial statements, reports and other materials sent by us to
stockholders at the same time as such materials are sent to them. To the extent
these materials are provided to us, we will also send to the holders of
Exchangeable Shares all materials sent by third parties to our stockholders,
including dissident proxy circulars and tender and exchange offer circulars, as
soon as reasonably practicable after such materials are delivered to us.
All rights of a holder of an Exchangeable Share to instruct Magna
International to exercise votes attached to a share of our stock held by Magna
International will cease upon the exchange, whether by redemption, retraction or
liquidation, or through the exercise of any of the rights as described below, of
that holder's Exchangeable Share for a share of our Class A Subordinate Voting
Stock.
In accordance with the terms of the Exchangeable Share Support Agreement,
we and our subsidiaries will not exercise any voting rights with respect to any
Exchangeable Shares held by us or our subsidiaries, although we will appoint
proxyholders with respect to such Exchangeable Shares for the sole purpose of
attending meetings of the holders of Exchangeable Shares in order to be counted
as part of the quorum for these meetings.
Dividend Rights
Holders of Exchangeable Shares will be entitled to receive, subject to
applicable law and to the next paragraph, dividends: (i) in the case of a cash
dividend declared on shares of our Class A Subordinate Voting Stock, in an
amount in cash for each Exchangeable Share
25
corresponding to the cash dividend declared on each of the shares of our Class A
Subordinate Voting Stock; (ii) in the case of a stock dividend declared on the
shares of our Class A Subordinate Voting Stock to be paid in shares of our Class
A Subordinate Voting Stock, in that number of Exchangeable Shares for each
Exchangeable Share as is equal to the number of shares of our Class A
Subordinate Voting Stock to be paid on each such outstanding share; or (iii) in
the case of a dividend declared on the shares of our Class A Subordinate Voting
Stock in property other than cash or shares of our Class A Subordinate Voting
Stock, in such type and amount of property as is the same as, or economically
equivalent to, the type and amount of property declared as a dividend on each of
the shares of our Class A Subordinate Voting Stock. Cash dividends on the
Exchangeable Shares are payable in U.S. dollars or the Canadian dollar
equivalent thereof, at the option of Exchangeco. The declaration date, record
date and payment date for dividends on the Exchangeable Shares will be the same
as the relevant date for the corresponding dividends on the shares of our Class
A Subordinate Voting Stock.
In the case of a stock dividend declared on the shares of our Class A
Subordinate Voting Stock to be paid in shares of our Class A Subordinate Voting
Stock, in lieu of declaring a corresponding stock dividend on the Exchangeable
Shares, the Board of Directors of Exchangeco may, in its discretion and subject
to applicable law, subdivide, redivide or change (collectively referred to as a
subdivision), each Exchangeable Share on the basis that each Exchangeable Share
before the subdivision becomes a number of Exchangeable Shares as is equal to
the sum of: (i) a share of our Class A Subordinate Voting Stock; and (ii) the
number of shares of our Class A Subordinate Voting Stock to be paid as a stock
dividend on each share of our Class A Subordinate Voting Stock. In this
instance, the subdivision shall become effective on the effective date for the
dividend declared on the shares of our Class A Subordinate Voting Stock without
any further act or formality on the part of the board of directors of Exchangeco
or of the holders of Exchangeable Shares. No approval of the holders of
Exchangeable Shares to an amendment to the articles of Exchangeco shall be
required to give effect to the subdivision. The record date for the
determination of the holders of Exchangeable Shares entitled to receive
Exchangeable Shares in connection with any subdivision of Exchangeable Shares
and the effective date of the subdivision shall be the same dates as the record
date and payment date, respectively, for the corresponding stock dividend
declared on the shares of our Class A Subordinate Voting Stock.
Rights Upon an Event of Insolvency
Upon the occurrence and during the continuance of an event of insolvency of
Exchangeco, each holder of Exchangeable Shares, other than us and our
subsidiaries, will be entitled to exercise an exchange right with respect to any
or all of the Exchangeable Shares held by the holder, thereby requiring us to
purchase each Exchangeable Share from the holder of our Class A Subordinate
Voting Stock, the purchase price for which will be satisfied by the delivery of
one share of our Class A Subordinate Voting Stock. As soon as practicable
following the occurrence of an event of insolvency of Exchangeco, or any event
which may, with the passage of time and/or the giving of notice, become such an
event, we or Exchangeco will give notice thereof to each holder of Exchangeable
Shares, which notice will advise the holder of the rights described in this
paragraph. The purchase price payable by us for each Exchangeable Share
26
purchased under this exchange right will be the same amount as Exchangeco would
pay holders of Exchangeable Shares upon a liquidation.
Liquidation Rights with Respect to Exchangeco
In the event of the liquidation, dissolution or winding-up of Exchangeco or
any other distribution of the assets of Exchangeco among its shareholders for
the purpose of winding-up its affairs, holders of the Exchangeable Shares will
have, subject to applicable law, preferential rights to receive from Exchangeco
a specified liquidation amount, being the then current market price of a share
of our Class A Subordinate Voting Stock, for each Exchangeable Share held,
payable in shares of our Class A Subordinate Voting Stock, plus all declared and
unpaid dividends. Upon the occurrence of a liquidation, dissolution or winding-
up, we will have an overriding liquidation call right to purchase all the
outstanding Exchangeable Shares, other than Exchangeable Shares held by us or
our subsidiaries, from the holders thereof on the liquidation date for a
purchase price per share equal to the specified liquidation amount.
Liquidation Rights with Respect to Us
In order for the holders of the Exchangeable Shares to participate on a pro
rata basis with the holders of shares of our Class A Subordinate Voting Stock,
on the fifth business day prior to the effective date of our voluntary or
involuntary liquidation, dissolution or winding-up, each Exchangeable Share,
other than those held by us or our subsidiaries, will, pursuant to an automatic
exchange right under the Voting and Exchange Agreement, automatically be
exchanged for a share of our Class A Subordinate Voting Stock together with an
amount of cash equal to any declared but unpaid dividends on each Exchangeable
Share. The certificates previously evidencing the Exchangeable Shares shall
automatically be deemed to evidence an equal number of shares of our Class A
Subordinate Voting Stock. Upon a holder's request and the surrender of the
Exchangeable Share certificates, we will deliver to the holder certificates
representing an equivalent number of shares of our Class A Subordinate Voting
Stock.
Retraction
Subject to the exercise by us of our retraction call right, holders of the
Exchangeable Shares will be entitled, at any time following the effective time
of the retraction, to retract, i.e., require Exchangeco to redeem, any or all of
the Exchangeable Shares held by that holder for a retraction price per share
equal to the then current market price of a share of our Class A Subordinate
Voting Stock, which retraction price will be satisfied by the delivery of one
share of our Class A Subordinate Voting Stock, plus all declared and unpaid
dividends. Holders of the Exchangeable Shares may effect this retraction by
presenting: (i) a certificate or certificates to Exchangeco representing the
number of Exchangeable Shares the holder desires to retract; (ii) a duly
executed retraction request indicating the number of Exchangeable Shares the
holder desires to retract and the retraction date and acknowledging the
retraction call right described in the paragraph below; and (iii) any other
documents as may be required to effect the retraction of the Exchangeable
Shares.
27
When a holder retracts Exchangeable Shares, we will have an overriding call
right to purchase on the retraction date all but not less than all of the
retracted shares, at a purchase price per share equal to the retraction price,
which purchase price will be satisfied by the delivery of one share of our Class
A Subordinate Voting Stock for each Exchangeable Share so purchased. Upon
receipt of a retraction request, Exchangeco will immediately notify us of it. We
must then advise Exchangeco within five business days as to whether we will
exercise our retraction call right. If we do not so advise Exchangeco,
Exchangeco will notify the holder as soon as possible thereafter that we will
not exercise our retraction call right. If we advise Exchangeco that we will
exercise our retraction call right within this five business day period, then
provided the retraction request is not revoked by the holder as described below,
the retraction request shall thereupon be considered only to be an offer by the
holder to sell the retracted shares to us in accordance with our retraction call
right.
A holder may revoke his or her retraction request, in writing, at any time
prior to the close of business on the business day preceding the retraction
date, in which case the retracted shares will neither be purchased by us nor be
redeemed by Exchangeco. If a holder does not revoke his or her retraction
request, on the retraction date the retracted shares will either be purchased by
us or redeemed by Exchangeco, as the case may be.
If, as a result of solvency requirements or applicable law, Exchangeco is
not permitted to redeem all retracted shares tendered by a retracting holder,
Exchangeco will redeem only those retracted shares tendered by the holder,
rounded down to a whole number of shares, as would not be contrary to the
provisions of applicable law. We will be required to purchase the retracted
shares not redeemed on the retraction date.
Redemption
Subject to applicable law and the redemption call right described in the
next paragraph, on the redemption date, Exchangeco will redeem all but not less
than all of the then outstanding Exchangeable Shares for a redemption price per
share equal to the then current market price of a share of our Class A
Subordinate Voting Stock, which redemption price will be satisfied by the
delivery of one share of our Class A Subordinate Voting Stock together with all
declared but unpaid dividends for each Exchangeable Share so purchased.
Exchangeco will, at least 60 days prior to the redemption date, or any number of
days as the Board of Directors of Exchangeco may determine to be reasonably
practicable under the circumstances in respect of a redemption date arising in
connection with, among other events, a change of control of us or an event in
respect of which the approval of holders of Exchangeable Shares is required,
provide the registered holders of the Exchangeable Shares with written notice of
the proposed redemption of the Exchangeable Shares by Exchangeco or the purchase
of the Exchangeable Shares by us pursuant to the redemption call right.
We will have an overriding call right to purchase on the redemption date
all, but not less than all, of the Exchangeable Shares then outstanding, other
than Exchangeable Shares held by us and our subsidiaries, for a purchase price
per share equal to the redemption price, which purchase price will be satisfied
by the delivery of one share of our Class A Subordinate Voting Stock for each
Exchangeable Share so purchased. Upon our exercise of the redemption call right,
28
holders will be obligated to sell their Exchangeable Shares to us. If we
exercise the redemption call right, Exchangeco's right and obligation to redeem
the Exchangeable Shares on the redemption date will terminate.
Date for Redemption
Exchangeco has the right to redeem all of the Exchangeable Shares on any
date after October 1, 2001 that the board of directors of Exchangeco may
determine, provided that written notice is provided to holders of the
Exchangeable Shares at least 60 days in advance.
In some circumstances, Exchangeco has the right to require a redemption of
the Exchangeable Shares prior to October 1, 2001. Subject to the terms and
conditions of the Exchangeable Share Support Agreement, and subject to the
redemption call right, an early redemption may occur upon:
(a) the number of Exchangeable Shares then outstanding, other than Exchangeable
Shares held by us and our subsidiaries, constituting less than 5% of the
aggregate of the number of shares of our Class A Subordinate Voting Stock
then outstanding and the total number of Exchangeable Shares then
outstanding, including all Exchangeable Shares held by us and our
subsidiaries;
(b) the occurrence of a change of control of us, provided that the board of
directors of Exchangeco determines (i) that it is not reasonably
practicable to substantially replicate the terms and conditions of the
Exchangeable Shares in connection with the change of control transaction,
and (ii) that the redemption of the Exchangeable Shares is necessary to
enable the completion of the change of control transaction;
(c) a proposal being made for any matter relating to Exchangeco that requires
the approval of the holders of Exchangeable Shares, provided that the board
of directors of Exchangeco determines that it is not reasonably practicable
to accomplish the business purpose intended by the matter, which business
purpose must be bona fide and not for the primary purpose of causing the
occurrence of an early redemption, in any other commercially reasonable
manner; or
(d) the failure by the holders of the Exchangeable Shares to approve or
disapprove, as applicable, a matter relating to Exchangeco that requires
the approval of the holders of Exchangeable Shares for the purpose of
maintaining the equivalence of the Exchangeable Shares and the shares of
our Class A Subordinate Voting Stock.
Ranking
The Exchangeable Shares will be entitled to a preference over the common
shares of Exchangeco and any other shares ranking junior to the Exchangeable
Shares with respect to the payment of dividends and the distribution of assets
in the event of a liquidation, dissolution or winding-up of Exchangeco, whether
voluntary or involuntary, or any other distribution of the assets of Exchangeco
among its shareholders for the purpose of winding-up its affairs.
29
Certain Restrictions
Exchangeco will not take any of the following actions without the approval
of the holders of Exchangeable Shares as set forth below under "Description of
Exchangeable Shares--Amendment and Approval":
(a) pay any dividends on the common shares of Exchangeco, or any other shares
ranking junior to the Exchangeable Shares, other than stock dividends
payable in common shares of Exchangeco, or any other shares ranking junior
to the Exchangeable Shares, as the case may be;
(b) redeem, purchase or make any capital distribution in respect of common
shares of Exchangeco, or any other shares ranking junior to the
Exchangeable Shares;
(c) redeem or purchase any other shares of Exchangeco ranking equally with the
Exchangeable Shares with respect to the payment of dividends or any
liquidation distribution;
(d) issue any Exchangeable Shares other than: (i) pursuant to any shareholder
rights plan adopted by Exchangeco; (ii) by way of stock dividend to the
holders of Exchangeable Shares, or (iii) by way of any subdivision
described above under the heading "Description of Exchangeable Shares--
Dividend Rights"; or
(e) issue any shares of Exchangeco ranking equally with, or superior to, the
Exchangeable Shares other than by way of stock dividend to the holders of
the Exchangeable Shares.
The restrictions in clauses (a), (b), (c) and (d) above will not apply at
any time when the dividends on the outstanding Exchangeable Shares corresponding
to dividends declared and paid on the shares of our Class A Subordinate Voting
Stock from its first date of issue through that time have been declared and paid
in full.
Amendment and Approval
The rights, privileges, restrictions and conditions attaching to the
Exchangeable Shares may be added to, changed or removed only with the approval
of the holders thereof. Any such approval or any other approval or consent to be
given by the holders of the Exchangeable Shares will be deemed to have been
sufficiently given if given in accordance with applicable law subject to a
minimum requirement that such approval or consent be evidenced by a resolution
passed by not less than two-thirds of the votes cast on that resolution at a
meeting of the holders of Exchangeable Shares duly called and held at which
holders of at least 25% of the then outstanding Exchangeable Shares are present
or represented by proxy. In the event that no such quorum is present at this
meeting within one-half hour after the time appointed therefor, then the meeting
will be adjourned to a place and time, not less than five days later as may be
designated by the Chairman of such meeting. At the adjourned meeting, the
holders of Exchangeable Shares present or represented by proxy may transact the
business for which the meeting was originally
30
called and a resolution passed thereat by the affirmative vote of not less than
two-thirds of the votes cast on that resolution will constitute the approval or
consent of the holders of the Exchangeable Shares.
Support Obligation
Pursuant to the Exchangeable Share Support Agreement, for so long as any
Exchangeable Shares, other than Exchangeable Shares owned by us or our
subsidiaries, remain outstanding:
(a) we will not declare or pay dividends on the shares of our Class A
Subordinate Voting Stock unless Exchangeco is able to (x) declare and pay
and simultaneously declares or pays, as the case may be, an equivalent
dividend on the Exchangeable Shares or (y) subdivide and simultaneously
subdivides the Exchangeable Shares in lieu of declaring a stock dividend;
(b) we will advise Exchangeco in advance of the declaration of any dividend on
the shares of our Class A Subordinate Voting Stock and ensure that (x) the
declaration date, record date and payment date for dividends on the
Exchangeable Shares are the same as those for the corresponding dividend
on the shares of our Class A Subordinate Voting Stock or (y) the record
date and effective date for a subdivision of the Exchangeable Shares in
lieu of declaring a stock dividend are the same as the record date and
payment date for the corresponding stock dividend on the shares of our
Class A Subordinate Voting Stock;
(c) we will ensure that the record date for any dividend declared on the
shares of our Class A Subordinate Voting Stock is not less than 10
business days after the declaration date of the dividend;
(d) we will take all actions and do all things reasonably necessary or
desirable to enable and permit Exchangeco, in accordance with applicable
law, to pay to the holders of the Exchangeable Shares the applicable
liquidation amount, redemption price and retraction price in the event of
a liquidation, dissolution or winding-up of Exchangeco, a retraction
request by a holder of Exchangeable Shares or a redemption of Exchangeable
Shares by Exchangeco; and
(e) we will take all actions and do all things reasonably necessary or
desirable to enable and permit us, in accordance with applicable law, to
perform our obligations arising upon the exercise by us of our call
rights, including the delivery of shares of our Class A Subordinate Voting
Stock in accordance with the provisions of the applicable call right.
The Exchangeable Share Support Agreement and the terms of the Exchangeable
Shares provide that, without the prior approval of Exchangeco and the holders of
the Exchangeable Shares given in the manner set forth above under "Description
of Exchangeable Shares--Amendment and Approval", we will not issue or distribute
additional shares of our Class A Subordinate Voting Stock, securities
exchangeable for or convertible into or carrying rights to acquire shares of our
Class A Subordinate Voting Stock, rights, options or warrants to subscribe
31
therefor, evidences of indebtedness or other assets, to all or substantially all
holders of shares of our Class A Subordinate Voting Stock, nor shall we change
the shares of our Class A Subordinate Voting Stock, unless the same or an
economically equivalent distribution on or change to the Exchangeable Shares (or
in the rights of the holders thereof) is made simultaneously. The Exchangeco
board of directors is conclusively empowered to determine in good faith and in
its sole discretion whether any corresponding distribution on or change to the
Exchangeable Shares is the same as or economically equivalent to any proposed
distribution on or change to the shares of our Class A Subordinate Voting Stock.
In the event of any proposed tender offer, share exchange offer, issuer bid,
take-over bid or similar transaction with respect to the shares of our Class A
Subordinate Voting Stock which is recommended by our board of directors and in
connection with which the Exchangeable Shares are not redeemed by Exchangeco or
purchased by us pursuant to the redemption call right, we will use reasonable
efforts to take all actions necessary or desirable to enable holders of
Exchangeable Shares to participate in this type of transaction to the same
extent and on an economically equivalent basis as the holders of shares of our
Class A Subordinate Voting Stock.
In order to assist us to comply with our obligations under the Exchangeable
Share Support Agreement and to permit us to exercise the call rights, Exchangeco
is required to notify us of the occurrence of some events, including the
liquidation, dissolution or winding-up of Exchangeco, and Exchangeco's receipt
of a retraction request from a holder of Exchangeable Shares.
USE OF PROCEEDS
We will not receive any cash proceeds from either the shares issued by us
upon the redemption or exchange of the Exchangeable Shares or the shares sold by
the selling shareholders. The selling shareholders will receive all of the net
proceeds from their sale of shares of our Class A Subordinate Voting Stock.
SELLING SHAREHOLDERS
The following table sets forth certain information as of July 31, 2001
regarding the beneficial ownership of the shares of Class A Subordinate Voting
Stock held by the shareholders who may sell their shares under this prospectus.
The shares are being registered to permit public secondary trading of these
shares, and each selling shareholder may offer the shares for resale from time
to time, in whole or in part. Once sold by a selling shareholder, the Class A
Subordinate Voting Stock will not thereafter be covered by this prospectus, even
if it is subsequently acquired or reacquired by a selling shareholder.
Unless otherwise indicated below, to our knowledge, all persons listed
below have sole voting and investment power with respect to their shares of
Class A Subordinate Voting Stock, except to the extent authority is shared by
spouses under applicable law. Beneficial ownership is determined in accordance
with the rules of the SEC, based on factors including voting and investment
power with respect to shares, subject to applicable community property laws.
Shares of Class A Subordinate Voting Stock subject to options exercisable within
60 days of July 31, 2001 are deemed outstanding for the purpose of computing the
percentage ownership of the
32
person holding such options, but are not deemed outstanding for computing the
percentage ownership of any other person.
- ------------------------------------------------------------------------------------------------
BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING
- ------------------------------------------------------------------------------------------------
NAME OF NUMBER PERCENTAGE
SELLING SHAREHOLDER OF SHARES OF CLASS/(1)/
- ------------------------------------------------------------------------------------------------
DeBartolo Corporation 650,695 3.5
- ------------------------------------------------------------------------------------------------
Ladbroke Racing Corporation 733,620 4.0
- ------------------------------------------------------------------------------------------------
Ladbroke Racing Wyoming, Inc. 3,178,297 17.3
- ------------------------------------------------------------------------------------------------
Jerry D. Campbell 230,431 3.0/(2)/
- ------------------------------------------------------------------------------------------------
Total 4,793,043 27.8/(2)/
- ------------------------------------------------------------------------------------------------
(1) Percentage is based on 18,340,293 shares of outstanding Class A Subordinate
Voting Stock as of July 31, 2001, and does not take into account the
outstanding Exchangeable Shares.
(2) Percentage is based on 230,431 shares of Class A Subordinate Voting Stock
and options to purchase 333,333 shares of Class A Subordinate Voting Stock,
exercisable within 60 days of July 31, 2001, held by Mr. Campbell.
Because the selling shareholders may offer all or some of the Class A
Subordinate Voting Stock that they hold pursuant to this prospectus, and because
this offering is not as of the date of this prospectus being underwritten on a
firm commitment basis, no estimate can be given as to the amount of Class A
Subordinate Voting Stock that will be held by the selling shareholders after
completion of this distribution. See "Plan of Distribution" for further details
regarding sales of our Class A Subordinate Voting Stock by the selling
shareholders. In addition, the selling shareholders may have sold, transferred
or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any
time or from time to time since the date on which they provided the information
regarding the shares of Class A Subordinate Voting Stock beneficially owned by
them, all or a portion of the shares of Class A Subordinate Voting Stock
beneficially owned by them in transactions exempt from the registration
requirements of the Securities Act of 1933.
PLAN OF DISTRIBUTION
This prospectus relates to two distributions of our Class A Subordinate
Voting Stock:
. the distribution on a delayed or continuous basis of our Class A Subordinate
Voting Stock upon the redemption or exchange of the Exchangeable Shares
distributed by Magna International to some of its Canadian shareholders as
part of a special dividend to holders of its Class A subordinate voting
shares and Class B shares in March 2000; and
. the distribution on a delayed or continuous basis of our Class A Subordinate
Voting Stock by some of the holders thereof.
The first distribution set forth above is described under "Description of
Exchangeable Shares". As of August 31, 2001, there were 2,516,841 Exchangeable
Shares outstanding, excluding those held by us. The second distribution set
forth above is described below.
33
The selling shareholders will pay any underwriting or selling discounts and
commissions and expenses incurred by them for brokerage, accounting, tax, legal
services or other expenses incurred by them in disposing of their shares. We
will bear all other costs, fees and expenses incurred in effecting the
registration of the shares covered by this prospectus, including, without
limitation, all registration and filing fees, Nasdaq National Market listing
fees, fees and expenses of our counsel and fees of our accountants.
Any or all of the 4,793,043 shares of our Class A Subordinate Voting Stock
held by the selling shareholders may be offered and sold from time to time to
purchasers directly by any of the selling shareholders in privately negotiated
transactions, on the Nasdaq National Market, in the over-the-counter market, or
through a combination of such methods of sale. Alternatively, the selling
shareholders may from time to time offer and sell our Class A Subordinate Voting
Stock through underwriters, dealers or agents, who may receive compensation in
the form of underwriting discounts, concessions or commissions from the selling
shareholders and/or the purchasers of our Class A Subordinate Voting Stock for
whom they may act as agents. The selling shareholders and any such
underwriters, dealers or agents that participate in the distribution of these
shares may be deemed to be underwriters, and any profit on the sale of these
shares by them and any discounts, commissions or concessions received by them
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933. At the time a particular underwritten offering of these shares is
made, to the extent required, a supplement to this prospectus will be
distributed which will set forth the aggregate principal amount of our Class A
Subordinate Voting Stock being offered and the terms of the offering, including
the name or names of any underwriters, dealers or agents, the purchase price
paid by any underwriter for our Class A Subordinate Voting Stock purchased from
the selling shareholders, any discounts, commissions and other items
constituting compensation from the selling shareholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
The 4,793,043 shares of our Class A Subordinate Voting Stock held by the
selling shareholders may be sold from time to time in one or more transactions
at a fixed offering price, which may be changed, or at varying prices determined
at the time of sale or at negotiated prices. These prices will be determined by
the selling shareholders or by agreement between the selling shareholders and
underwriters or dealers.
Each selling shareholder will be subject to applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations thereunder,
including Regulation M, which provisions may limit the timing of purchases and
sales of any of the Class A Subordinate Voting Stock by the selling
shareholders. All the foregoing may affect the marketability of these shares
and the ability of any person to engage in market making activities with respect
to our Class A Subordinate Voting Stock.
We have agreed to indemnify certain of the selling shareholders against
certain civil liabilities, including certain liabilities arising under the
Securities Act of 1933.
INCORPORATION BY REFERENCE
34
The SEC requires us to "incorporate by reference" certain information we
file with them, which means that we will disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this prospectus. Any information that we file with the
SEC after the date of this prospectus as part of an incorporated document will
automatically update and supersede information contained in this prospectus.
We incorporate by reference the documents listed below:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
2000 and filed on April 2, 2001;
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001
and filed on May 14, 2001;
3. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001
and filed on August 14, 2001;
4. Our Current Report on Form 8-K filed on January 10, 2001;
5. Our Current Report on Form 8-K filed on February 2, 2001;
6. Our Current Report on Form 8-K filed on February 14, 2001;
7. Our Current Report on Form 8-K filed on February 20, 2001;
8. Our Current Report on Form 8-K/A filed on March 27, 2001;
9. Our Definitive Proxy Statement on Schedule 14A filed on April 9, 2001;
10. Our Current Report on Form 8-K filed on April 16, 2001;
11. Our Current Report on Form 8-K filed on May 3, 2001;
12. Our Current Report on Form 8-K/A filed on May 4, 2001;
13. Our Current Report on Form 8-K/A filed on June 19, 2001;
14. Our Current Report on Form 8-K filed on August 2, 2001; and
15. Our Current Report on Form 8-K filed on August 7, 2001.
We incorporate by reference the following financial statements by reference
to our Registration Statement on Form S-1 (No. 333-94791), except for the
financial statements listed in clauses (vi), (vii), (viii) and (ix), which we
incorporate by reference to Exhibits 99.1, 99.2, 99.3 and 99.4, respectively:
(i) Audited Financial Statements of Los Angeles Turf Club, Inc. as at
December 10, 1998 and for the period from January 1, 1998 through
December 10, 1998.
(ii) Audited Consolidated Financial Statements of Gulfstream Park Racing
Association, Inc. and Subsidiary as of December 31, 1998 and for the
year ended December 31, 1998.
(iii) Audited Financial Statements of Remington Park, Inc. as at December
31, 1998 and for the year ended December 31, 1998.
(iv) Audited Financial Statements of Thistledown, Inc. as at December 31,
1998 and for the year ended December 31, 1998.
(v) Audited Combined Financial Statements of Golden Gate Fields
(consisting of
35
Pacific Racing Association's operations subject to the licensing
provisions of the California Horse Racing Board, Ladbroke Racing
California, Inc. and Ladbroke Land Holdings, Inc. (wholly owned
subsidiaries of Ladbroke Racing Corporation)) as at December 31,
1998 and for the year ended December 31, 1998.
(vi) Unaudited Combined Financial Statements of Ladbroke Racing
Pennsylvania, Inc. and Subsidiaries as at April 4, 2001 and for the
period from January 1, 2001 to April 4, 2001.
(vii) Unaudited Financial Statements of Sport Broadcasting, Inc. as at
March 31, 2001 and for the period from January 1, 2001 to March 31,
2001.
(viii) Unaudited Pro Forma Consolidated Financial Statements of the Company
for the three month period ended March 31, 2001.
(ix) Unaudited Pro Forma Consolidated Statement of Operations and
Comprehensive Income of the Company for the six month period ended
June 30, 2001.
We also incorporate by reference any filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this prospectus but before the termination of the offering of
securities under this prospectus.
This means that important information about us appears or will appear in
these documents and will be regarded as appearing in this prospectus. To the
extent that information appearing in a document filed later is inconsistent with
prior information, the later statement will control and the prior information,
except as modified or superseded, will no longer be a part of this prospectus.
You may request a copy of any filings referred to above, excluding
exhibits, at no cost by telephoning or writing to us at the following address:
Magna Entertainment Corp., 337 Magna Drive, Aurora, Ontario L4G 7K1 Canada,
telephone number (905) 726-2462.
ADDITIONAL INFORMATION
We have filed a Registration Statement on Form S-3 with the SEC registering
the shares of our Class A Subordinate Voting Stock that are being offered by
this prospectus. This prospectus is a part of the registration statement and, as
the SEC rules permit, does not contain all the information that stockholders can
find in the registration statement or the exhibits to the registration
statement.
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the SEC's regional offices in New York (7 World Trade Center, Suite 1300,
New York, New York 10048) and Chicago (Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois, 60661-2511). In addition,
36
registration statements and certain other filings made with the SEC through its
"EDGAR" system are publicly available through the SEC's Web site on the Internet
located at http://www.sec.gov. This registration statement, including all
exhibits, has been filed with the SEC through EDGAR. Reports, proxy and
information statements and other information concerning us can be inspected at
the offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006-1506.
LEGAL MATTERS
Certain legal matters in connection with the distribution of shares of our
Class A Subordinate Voting Stock will be passed upon by Sidley Austin Brown &
Wood, our United States counsel.
AUDITORS, TRANSFER AGENT AND REGISTRAR
Our auditors are Ernst & Young LLP, Ernst & Young Tower, 222 Bay Street,
Box 251, Toronto Dominion Centre Tower, Toronto, Ontario, M5K 1J7 Canada.
The transfer agent and registrar for our Class A Subordinate Voting Stock
is Computershare Trust Company, Inc. at its principal office in Lakewood,
Colorado and the co-transfer agent for our Class A Subordinate Voting Stock is
Computershare Trust Company of Canada at its principal office in Toronto,
Ontario. Computershare Trust Company of Canada at its principal office in
Toronto, Ontario is the transfer agent and registrar for the Exchangeable
Shares.
EXPERTS
The financial statements incorporated into this prospectus by reference to
our annual report on Form 10-K for the fiscal year ended December 31, 2000 have
been so incorporated in reliance on the report of Ernst & Young LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements incorporated into this prospectus by reference to
our Registration Statement on Form S-1 (No. 333-94791) and our Current Reports
on Form 8-K have been so incorporated in reliance on the reports of the
following firms of independent accountants, given on the authority of said firms
as experts in auditing and accounting:
- -----------------------------------------------------------------------------------------------
Statements Independent Accountants
---------- -----------------------
- -----------------------------------------------------------------------------------------------
Magna Entertainment Corp. Ernst & Young LLP
- -----------------------------------------------------------------------------------------------
Los Angeles Turf Club, Inc. Ernst & Young LLP
- -----------------------------------------------------------------------------------------------
Gulfstream Park Racing Association, Inc. and PricewaterhouseCoopers LLP
Subsidiary
- -----------------------------------------------------------------------------------------------
Remington Park, Inc. Hill, Barth & King LLC
- -----------------------------------------------------------------------------------------------
Thistledown, Inc. Hill, Barth & King LLC
- -----------------------------------------------------------------------------------------------
Golden Gate Fields (Pacific Racing Ernst & Young LLP
Association and related entities)
- -----------------------------------------------------------------------------------------------
37
- -----------------------------------------------------------------------------------------------
Bay Meadows Operating Company LLC Ernst & Young LLP
- -----------------------------------------------------------------------------------------------
Ladbroke Racing Pennsylvania, Inc. Ernst & Young LLP
- -----------------------------------------------------------------------------------------------
Sport Broadcasting, Inc. Ernst & Young LLP
- -----------------------------------------------------------------------------------------------
No dealer, salesman or other person has
been authorized to give any information
or to make any representations other than
those contained in this prospectus in
connection with the offer made hereby,
and, if given or made, such information
or representations must not be relied
upon as having been authorized by
Magna Entertainment Corp. This
prospectus does not constitute an offer
to sell, or a solicitation of an offer to
buy, the securities offered hereby to any
person in any state or other jurisdiction
in which such offer or solicitation is
unlawful. Neither the delivery of this
prospectus nor any sale made hereunder
shall, under any circumstances, imply
that information contained herein is
correct as of any time subsequent to its
date or that there has not been any change in
the facts set forth in this prospectus or in
our affairs since the date hereof.
MAGNA ENTERTAINMENT CORP.
7,309,884 SHARES OF CLASS A SUBORDINATE
VOTING STOCK
..........
PROSPECTUS
..........
September 7, 2001
38
TABLE OF CONTENTS
PAGE
RISK FACTORS................................... 4
FORWARD-LOOKING STATEMENTS..................... 15
THE COMPANY.................................... 16
DESCRIPTION OF OUR SHARE CAPITAL............... 17
CORPORATE CONSTITUTION......................... 20
DESCRIPTION OF EXCHANGEABLE SHARES............. 22
USE OF PROCEEDS................................ 31
SELLING SHAREHOLDERS........................... 31
PLAN OF DISTRIBUTION........................... 32
INCORPORATION BY REFERENCE..................... 33
ADDITIONAL INFORMATION......................... 35
LEGAL MATTERS.................................. 35
AUDITORS, TRANSFER AGENT
AND REGISTRAR................................. 35
EXPERTS........................................ 36
II-1
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
Registration fees............................................. $ 6,528
Accounting fees............................................... 20,000
Legal fees.................................................... 30,000
Printing, mailing and administrative fees..................... 5,200
Miscellaneous................................................. 5,000
TOTAL.................................................... $66,728
* All amounts are estimated except for the registration fees.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, our
by-laws require us to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that such person is or was or has
agreed to become one of our directors, officers, employees or agents, or has
agreed to serve at our request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. Our
indemnification obligation extends to costs, charges, expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by any such person or on his or her behalf in connection
with such an action, suit or proceeding and any appeal therefrom, if any such
person acted in good faith in a manner he or she reasonably believed to be in or
not opposed to our best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Our restated certificate of incorporation also provides that, to the extent
permitted by law, our directors will have no liability to us or our stockholders
for monetary damages for breach of fiduciary duty as a director. Our officers
and directors and the officers and directors of our subsidiaries are covered by
liability insurance, subject to a deductible for executive indemnification. The
policy does not provide coverage for losses arising from the violation of, or
the enforcement of, environmental laws and regulations.
II-2
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
5.1 Opinion of Sidley Austin Brown & Wood*
23.1 Consent of Ernst & Young LLP in respect of the Audited Consolidated
Financial Statements of Magna Entertainment Corp.*
23.2 Consent of Ernst & Young LLP in respect of the Audited Financial
Statements of Los Angeles Turf Club, Inc.*
23.3 Consent of PricewaterhouseCoopers LLP in respect of the Audited
Consolidated Financial Statements of Gulfstream Park Racing
Association, Inc. and Subsidiary*
23.4 Consent of Hill, Barth & King LLC in respect of the Audited Financial
Statements of Remington Park, Inc.*
23.5 Consent of Hill, Barth & King LLC in respect of the Audited Financial
Statements of Thistledown, Inc.*
23.6 Consent of Ernst & Young LLP in respect of the Audited Combined
Financial Statements of Golden Gate Fields*
23.7 Consent of Ernst & Young LLP in respect of the Audited Combined
Financial Statements of Bay Meadows Operating Company, LLC and Bay
Meadows Catering*
23.8 Consent of Ernst & Young LLP in respect of the Audited Combined
Financial Statements of Ladbroke Racing Pennsylvania, Inc. and
Subsidiaries*
23.9 Consent of Ernst & Young LLP in respect of the Audited Financial
Statements of Sport Broadcasting, Inc.*
23.10 Consent of Sidley & Austin (included in Exhibit 5.1)
24 Power of Attorney*
99.1 Unaudited Combined Financial Statements of Ladbroke Racing
Pennsylvania, Inc. and Subsidiaries as at April 4, 2001 and for the
period from January 1, 2001 to April 4, 2001*
99.2 Unaudited Financial Statements of Sport Broadcasting, Inc. as at March
31, 2001 and for the period from January 1, 2001 to March 31, 2001*
99.3 Unaudited Pro Forma Consolidated Financial Statements of the Company
for the three month period ended March 31, 2001*
99.4 Unaudited Pro Forma Consolidated Statement of Operations and
Comprehensive Income of the Company for the six month period ended
June 30, 2001*
* Filed herewith.
II-3
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of the
securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement which, individually or
in the aggregate, represent a fundamental change in the information
set forth in this Registration Statement. Notwithstanding the
foregoing, any increases or decreases in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in
the form of prospectus filed with the SEC pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided however, that the undertakings set forth in paragraphs (i) and
(ii) of this section do not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by us pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities Act of
1933, each filing of registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Magna Entertainment Corp. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Aurora, Ontario, Canada, on the 7/th/ day of
September, 2001.
MAGNA ENTERTAINMENT CORP.
By: /s/ Jim McAlpine
-----------------------------------------
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on the 7/th/ day of September, 2001.
Signature Title
/s/ Jim McAlpine
- ---------------------------
Jim McAlpine President and Chief Executive Officer and
Director (Principal Executive Officer)
/s/ Graham J. Orr
- ---------------------------
Graham J. Orr Executive Vice-President and Chief
Financial Officer (Principal Financial
Officer)
/s/ Douglas R. Tatters
- ---------------------------
Douglas R. Tatters Vice-President and Controller (Principal
Accounting Officer)
*
- ---------------------------
Jerry D. Campbell Vice-Chairman and Director
II-6
- ---------------------------
William G. Davis Director
*
- ---------------------------
Peter M. George Director
*
- ---------------------------
Joseph W. Harper Director
*
- ---------------------------
J. Terrence Lanni Director
*
- ---------------------------
Edward C. Lumley Director
*
- ---------------------------
James Nicol Vice-Chairman and Director
*
- ---------------------------
Gino Roncelli Director
*
- ---------------------------
Andrew Stronach Vice-President, Corporate Development and
Director
*
- ---------------------------
Frank Stronach Chairman and Director
II-7
*
- -------------------------
Ronald J. Volkman Director
- -------------------------
John C. York II Director
/s/ Gary M. Cohn As attorney-in-fact for the officers and/or
directors marked by an asterisk
- -------------------------
Gary M. Cohn
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
5.1 Opinion of Sidley & Austin #
23.1 Consent of Ernst & Young LLP in respect of the Audited Consolidated
Financial Statements of Magna Entertainment Corp.*
23.2 Consent of Ernst & Young LLP in respect of the Audited Financial
Statements of Los Angeles Turf Club, Inc.*
23.3 Consent of PricewaterhouseCoopers LLP in respect of the Audited
Consolidated Financial Statements of Gulfstream Park Racing Association,
Inc. and Subsidiary*
23.4 Consent of Hill, Barth & King LLC in respect of the Audited Financial
Statements of Remington Park, Inc.*
23.5 Consent of Hill, Barth & King LLC in respect of the Audited Financial
Statements of Thistledown, Inc.*
23.6 Consent of Ernst & Young LLP in respect of the Audited Combined Financial
Statements of Golden Gate Fields*
23.7 Consent of Ernst & Young LLP in respect of the Audited Combined Financial
Statements of Bay Meadows Operating Company, LLC and Bay Meadows
Catering*
23.8 Consent of Ernst & Young LLP in respect of the Audited Combined Financial
Statements of Ladbroke Racing Pennsylvania, Inc. and Subsidiaries*
23.9 Consent of Ernst & Young LLP in respect of the Audited Financial
Statements of Sport Broadcasting, Inc.*
23.10 Consent of Sidley & Austin (included in Exhibit 5.1)#
24 Power of Attorney (included in signature page)*
99.1 Unaudited Combined Financial Statements of Ladbroke Racing Pennsylvania,
Inc. and Subsidiaries as at April 4, 2001 and for the period from January
1, 2001 to April 4, 2001*
99.2 Unaudited Financial Statements of Sport Broadcasting, Inc. as at March
31, 2001 and for the period from January 1, 2001 to March 31, 2001*
99.3 Unaudited Pro Forma Consolidated Financial Statements of the Company for
the three month period ended March 31, 2001*
99.4 Unaudited Pro Forma Consolidated Statement of Operations and
Comprehensive Income of the Company for the six month period ended June
30, 2001*
* Filed herewith.
# Previously filed.