Document:

Exhibit 4(i).3

 

ARTICLE II

 

SHAREHOLDERS’ MEETING

 

2.1           Place of
Meetings. Meetings of shareholders entitled to vote shall be held at
any place within or without the State of Texas designated by the Board of
Directors pursuant to authority hereinafter granted to the Board, or by written
consent of all persons entitled to vote thereat. The Board of Directors may
determine that any meeting may be held solely by remote communication in
accordance with Texas law. Any meeting is valid wherever held if held by the
written consent of all the persons entitled to vote thereat, given either
before or after the meeting and filed with the Secretary of the corporation.

 

2.2           Date and
Time of Annual Meeting. The annual meeting of the shareholders
entitled to vote shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors. At such meeting
Directors shall be elected and any other business may be transacted which is
within the powers of the shareholders.

 

2.3           Notice of
Meetings. Notice of all meetings of shareholders shall be given in
writing to shareholders entitled to vote by the President, or Secretary, or by
the Officer or person calling the meeting, or, in case of his neglect or
refusal, or if there is no person charged with the duty of giving notice, by
any Director or shareholder. The notice shall be given to each shareholder,
either personally or by prepaid mail. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon paid. With the consent of a shareholder,
notice from the Corporation may be given to that shareholder by electronic
transmission.  The shareholder may
specify the form of electronic transmission to be used to communicate
notice.  The shareholder may revoke this
consent by written notice to the Corporation. 
The consent is deemed to be revoked if the Corporation is unable to
deliver by electronic transmission two consecutive notices and the person
responsible for delivering notice on behalf of the Corporation knows that
delivery of these two electronic transmissions was unsuccessful, provided,
however, that the inadvertent failure to treat the unsuccessful transmissions
as a revocation of consent does not invalidate a meeting or other action.  Notice by electronic transmission is deemed
given when the notice is (A) transmitted to a facsimile number provided by
the shareholder for the purpose of receiving notice; (B) transmitted to an
electronic mail address provided by the shareholder for the purpose of
receiving notice; (C) posted on an electronic network, and a message is
sent to the shareholder for the purpose of alerting the shareholder of a posting;
or (D) communicated to the shareholder by any other form of electronic
transmission consented to by the shareholder.

 

2.4           Time of
Notice. Notice of any meeting of shareholders shall be sent to each
shareholder entitled to vote not less than ten (10) days nor more than
fifty (50) days before the meeting, except in the case of a meeting for the
purpose of approving a merger or consolidation agreement, in which case the
notice must be given not less than twenty (20) days prior to the date of the
meeting.

 

2.5           Contents of
Notice. Notice of any meeting of shareholders shall specify the
place, date, and hour of the meeting. The Notice may state the means of any
remote communications by which shareholders may be considered present and may
vote at the meeting.  The notice shall
also specify the purpose of the meeting if it is a special meeting, or if its
purpose, or one of its purposes, will be to consider a proposed amendment of
the Articles of Incorporation, to consider a proposed merger or consolidation,
to consider a proposed reduction of stated capital without amendment, to
consider a voluntary dissolution or the revocation of a voluntary dissolution
by the act of the Corporation, or to consider a proposed disposition of all, or
substantially all, of the assets of the Corporation outside of the ordinary
course of business.

 

2.6           Notice of
Adjourned Meeting. When a shareholders’ meeting is adjourned for
thirty (30) days or more, notice of the adjourned meeting shall be given as in
the case of an original meeting. When a meeting is adjourned for less than
thirty (30) days, it is not necessary to give any notice of the time and place
of the adjourned meeting or of the business to be transacted thereat, other
than by announcement at the meeting at which the adjournment is taken.

 

 

2.7           Call of
Special Meetings. Upon request in writing to the President, a
Vice-President, or the Secretary, sent by registered mail or delivered to the
Officer in person, by any persons entitled to call a meeting of shareholders,
they forthwith shall cause notice to be given to the shareholders entitled to
vote, that a meeting will be held at a time fixed by the Officer, not less than
ten (10) days after the receipt of the request. The request will state the
purposes of the proposed meeting. 
Business transacted at all special meetings will be confined to the
purposes stated in the notice of the meeting unless all shareholders entitled
to vote are present and consent otherwise. 
If the notice is not given within seven (7) days after the date of
delivery, or the date of mailing of the request, the persons calling the
meeting may fix the time of the meeting and give the notice in the manner
provided in these Third Amended and Restated Bylaws (“Bylaws”). Nothing
contained in this section shall be construed as limiting, fixing, or affecting
the time or date when a meeting of shareholders called by action of the Board
of Directors may be held.

 

2.8           Persons
Entitled to Call Special Meetings. Special meetings of the
shareholders, for any purpose whatsoever, may be called at any time by any of
the following: (1) the President; (2) the Board of Directors; or (3) the
President at the request of the holders of not less than Fifty Percent (50%) of
all outstanding shares of the Corporation entitled to vote at such meetings.

 

2.9           Quorum of
Shareholders. The presence in person or by proxy of the persons
entitled to vote Fifty Percent (50%) of the voting shares at any meeting
constitutes a quorum for the transaction of business except as otherwise
provided by statute or these Bylaws.

 

2.10         Loss of
Quorum. In the absence of a quorum, any meeting of shareholders may
be adjourned from time to time by the vote of a majority of the shares entitled
to vote, the holders of which are either present in person or represented by
proxy thereat, but no other business may be transacted. Notwithstanding the
above, shareholders present at a duly organized meeting with a quorum present
may continue to do business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.

 

2.11         Record Date
for Determination of Shareholders. The Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be no more than fifty (50) days and, in case of
meeting of shareholders, not less than ten (10) days prior to the date on
which the particular action requiring such determination of shareholders is to
be taken.

 

2.12         Date of
Notice or Resolution for Determination of Shareholders. If no record
date is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors declaring
such dividend is adopted, as the case may be, is the record date for such
determination of shareholders.

 

2.13         Adjourned
Meetings. When any determination of shareholders entitled to vote at
any meeting of shareholders has been made as provided in this Article, such
determination shall apply to any adjournment thereof.

 

2.14         Inspectors
of Election. The Chairman of each meeting of shareholders shall
appoint one or more persons to act as inspector(s) of election. The
inspector(s) of election shall report to the meeting the number of shares
of each class and series of stock, and of all classes, represented either in
person or by proxy that are entitled to vote. The inspector(s) of election
shall oversee the vote of the shareholders for the election of Directors and
for any other matters that are put to a vote of shareholders entitled to vote
at the meeting; judge the qualifications of shareholders voting; collect,
count, and report the results of ballots cast by any shareholders voting in
person; and perform such other duties as may be required by the Chairman of the
meeting or the shareholders.

 

2.15         Notice of
Shareholder Business. At an annual meeting of shareholders, only
such business shall be conducted as shall have been brought before the meeting (i) by
or at the direction of the Board of Directors or (ii) by any shareholder
of the Corporation entitled to vote who complies with the notice procedure set
forth. For business to be properly brought before an annual meeting by a
shareholder, the shareholder entitled to vote must have given timely notice
thereof in writing to the Secretary of the Corporation.

 

To be timely, a
shareholder’s notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than forty-five (45) days
before the date the Corporation mailed its proxy 

 

 

materials for the prior
year’s annual meeting (such date to be identified in the prior year’s proxy
statement). A shareholder’s notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting the
following information: (a) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting; (b) the name and address of the
shareholder proposing such business; (c) the number of shares of the
Corporation which are beneficially owned by the shareholder; and (d) any
material interest of the shareholder in such business. Notwithstanding anything
in these Bylaws to the contrary, no business shall be conducted at an annual
meeting except in accordance with these procedures. The Chairman of an annual
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in accordance with
these provisions, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.

 

2.16         Voting List.
At least eleven (11) days before each meeting of shareholders, a complete list
of the shareholders entitled to vote at such meeting or any adjournment
thereof, arranged in alphabetical order, with the address of and the type and
number of shares held by each, shall be kept on file at the registered office
of the Corporation and shall be subject to inspection of any shareholder during
the whole time of the meeting. The share logs provided by the Corporation’s
transfer agent shall be prima facie evidence as to who are the shareholders
entitled to examine such list. However, failure to prepare and to make
available such list in the manner provided above shall not affect the validity
of any action taken at the meeting. Alternatively, the list of shareholders may
be kept on a reasonably accessible electronic network, if the information
required to gain access to the list is provided with the notice of the
meeting.  The Corporation is not required
to include any electronic contact information of any shareholder on the
list.  If the Corporation elects to make
the list available on an electronic network, the Corporation will take
reasonable steps to ensure that the information is available only to
shareholders of the Corporation.  The
list will be produced and kept open at the place and for the duration of the
meeting and will be subject to inspection by any shareholder present.  If the meeting is held by remote
communication, the list must be open to the examination of any shareholder for
the duration of the meeting on a reasonable accessible electronic network, and
the information required to access the list must be provided to shareholders
with the notice of the meeting.

 

2.17         Votes Per
Share. Each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote at a meeting of the
shareholders, except to the extent that the voting rights of shares of any
class or classes are limited by the Articles of Incorporation, as amended.

 

2.18         Cumulative
Voting. Directors shall be elected by a plurality vote. Cumulative
voting shall not be permitted.

 

2.19         Voting by
Voice and Ballot. Elections for Directors need not be by ballot
unless a shareholder entitled to vote demands election by ballot at the
election and before the voting begins.

 

2.20         Proxies.
A shareholder may vote either in person or by proxy executed in writing by a
shareholder entitled to vote or by his authorized attorney in fact. No proxy
shall be valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy. Each proxy shall be revocable unless expressly
provided therein to be irrevocable, and in no event shall it remain irrevocable
for a period of more than eleven (11) months. A telegram telex, cablegram, or
similar transmission by the shareholder or a photographic, photostatic,
facsimile, or other similar reproduction of a writing executed by the
shareholder will be treated as an execution in writing.  Any electronic transmission must contain or
be accompanied by information from which it can be determined that the transmission
was authorized by the shareholder.

 

2.21         Waiver of
Notice. Any notice required by law or these Bylaws may be waived by
the execution by the person entitled to the notice of a written waiver of such
notice, which may be signed before or after the time stated in the notice.

 

2.22         Action
Without Meeting. Any action that may be taken at a meeting of the
shareholders, may be taken without a meeting if authorized by a writing dated
and signed by the shareholder or shareholders having not less than the minimum
number of votes that would be necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were present and
voted. The writing authorizing the action without a meeting must be filed with
the President of the Corporation.  An
electronic transmission (if the Corporation can 

 

 

determine that the
transmission was transmitted by the shareholder on the date it was transmitted)
by a shareholder or reproduction of a writing signed by a shareholder is
regarded as signed for the purposes of this Section of the Bylaws.  Consent given by electronic communication is
not regarded as delivered until it is reproduced in paper form and delivered to
the Corporation.  Any signed consent or
consents, or a signed copy thereof, shall be placed in the Minute Book of the
Corporation.  Prompt notice of any action
taken by shareholders without a meeting by less than unanimous written consent,
if permitted, must be given to those shareholders who did not consent in
writing to the action, but advance notice is not required.

 

2.23         Conduct of
Meetings. At every meeting of the shareholders, the President, or in
his absence, the Vice-President designated by the President, or in the absence
of any such designation, a Chairman (who shall be one of the Vice-Presidents,
if any is present) chosen by majority in interest of the shareholders of the
Corporation present in person or by proxy and entitled to vote, shall act as
Chairman. The Secretary of the Corporation, or in his absence, an Assistant
Secretary, shall act as Secretary of all meetings of the shareholders. In the
absence at such meeting of the Secretary or Assistant Secretary, the Chairman
may appoint another person to act as Secretary of the meeting.

 

2.24         Telephone or
Remote Communication Meetings. 
Shareholders may participate in and hold a meeting by means of a
conference telephone or other similar means of remote communication equipment
so that all participants in the meeting can communicate with each other.  Participation in such a meeting will
constitute presence at the meeting, except when a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.  If voting takes place at such a meeting, the
Corporation must (A) implement reasonable measures to verify that each
person considered present and permitted to vote at the meeting is a shareholder
and (B) maintain a record of any vote or other action taken at the
meeting.

 

3.3           Number and
Election of Directors.  The
business and affairs of the Corporation shall be managed by a Board of
Directors, which shall have and may exercise all of the powers of the
Corporation, except such as are expressly conferred upon the Shareholders by
law, by the Articles of Incorporation as amended or by these Bylaws. Subject to
the rights of the holders of shares of any series of preferred stock then
outstanding to elect additional Directors under specific circumstances, the
Board of Directors shall consist of not less than three (3) nor more than
twenty-one (21) persons. The exact number of Directors within the minimum and
maximum limitations specified in the preceding sentence shall be fixed from
time to time by either: (i) the Board of Directors pursuant to a
resolution adopted by a majority of the entire Board of Directors, (ii) the
affirmative vote of the holders of 66 2/3% or more of the voting power of all
of the shares of the Corporation entitled to vote generally in the election of
Directors, voting together as a single class, or (iii) the Articles of
Incorporation, as amended. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director;
provided, however, that the term of existing Directors may be shortened to
comply with Texas law. The Directors shall be divided into two classes, as
nearly equal in number as possible, with the term of office of the first class
to expire at the 2001 annual meeting of shareholders and the term of the second
class to expire at the 2002 annual meeting of shareholders (an initial two (2) year
term),  and with the members of each class to
hold office until their successors have been elected and qualified. At each
annual meeting of shareholders following such initial classification and
election, Directors, elected to succeed those Directors whose terms expire,
shall be elected for a term of office for the class whose term of office
expires at all such future annual meetings.

 

3.7           Filling
Vacancies by Shareholders – Reduction of Authorized Number of Directors. In
the event a vacancy in the number of generally elected Directors or in the
number of Directors elected pursuant to default dividend voting rights of
preferred shareholders exists and is not filled by the appropriate remaining
Directors, the vacancy may be filled by a vote of either the common
stockholders or the holders of preferred shares with the right to elect the
Director whose vacancy is being filled, as appropriate. If the Board of Directors
accepts the resignation of a Director tendered to take effect at a future time,
the appropriate remaining Directors failing to fill the vacancy within ten (10) days
of the effective date of the resignation, the shareholders may elect a
successor to take office unless the Board fills the vacancy prior to the
shareholders’ vote. A reduction of the authorized number of Directors does not
remove any Director prior to the expiration of his term of office.

 

3.8           Removal of
Directors. Any Director, or the entire Board of Directors, may be
removed from office at any time only for cause and only by the affirmative vote
of the holders of 66 2/3% or more of the voting 

 

 

power of all of the
shares of the Corporation entitled to vote in the election of such Directors. “Cause”
shall be exclusively defined to mean: (a) conviction of a felony, (b) proof
of the gross negligence or willful misconduct of such Director which is
materially detrimental to the Corporation, or (c) proof of a breach of
fiduciary duty of such Director which is materially detrimental to the
Corporation.

 

ARTICLE VI

 

ISSUANCE AND TRANSFER OF CERTIFICATED AND UNCERTIFICATED SHARES

 

6.1           Classes and Series of
Shares. The Corporation may issue shares with such preferences,
rights, privileges, and restrictions as stated in the Articles of
Incorporation, as amended.

 

6.2           Form of
Shares.  The shares of the
Corporation may be either certificated shares or uncertificated shares or a
combination thereof.  A resolution
approved by a majority of the Board of Directors may provide that some or all
of any or all classes and series of the shares of the Corporation will be
uncertificated shares.  If the
Corporation changes to uncertificated shares after certificates have been issued,
a certificated ownership interest subject to the change becomes an
uncertificated ownership interest only after the certificate is surrendered to
the Corporation.

 

6.3           Certificates
for Fully Paid Shares. Neither certificated nor uncertificated
shares may be issued by the Corporation until the full amount of the
consideration has been paid. When such consideration has been paid to the
Corporation, the shares shall be deemed to have been issued and the
certificate, or similar documentation in the case of uncertificated shares,  representing such shares shall be issued to
the shareholder.

 

6.4           Fractional
Shares. The Corporation may, but shall not be obligated to, issue a
certificate, or similar documentation in the case of uncertificated shares, for
a fractional share, and the Board of Directors may, in lieu thereof, arrange
for the disposition thereof by those entitled thereto, by paying the fair value
in cash or issuing scrip in registered or bearer form which shall entitle the
holder to receive a certificate, or similar documentation in the case of
uncertificated shares, for a full share only upon the surrender of such scrip
aggregating a full share.  A certificate,
or similar documentation in the case of uncertificated shares, for a fractional
share shall, but scrip shall not, unless otherwise provided herein, entitle the
holder to exercise voting rights, to receive dividends, or to participate in
any of the assets of the Corporation in the event of liquidation. Such scrip,
if issued, shall become void if not exchanged for certificates, or similar
documentation in the case of uncertificated shares, representing full shares
within one year after its issue, or such scrip may be subject to the condition
that the shares for which it is exchangeable may be sold by the Corporation and
the proceeds thereof distributed to the holders of such scrip, and the same may
be subject to any other conditions which the Board of Directors may deem
advisable.

 

6.5           Consideration
for Shares. The consideration paid for the issuance of shares may
consist of money paid, labor done, property actually received, promissory notes
or the promise of future services.

 

6.6           Contents of
Share Certificates. Certificates for shares, or similar
documentation in the case of uncertificated shares, shall be of such form and
style, printed or otherwise, as the Board of Directors may designate, and each
certificate, or similar documentation in the case of uncertificated
shares,   shall state all of the
following facts:

 

(a)           That
the Corporation is organized under the laws of the State of Texas;

 

(b)           The
name of the person to whom issued;

 

(c)           The
number and class of shares and the designation of the series, if any, which
such certificate represents; and

 

(d)           The
par value of each share represented by such certificate or similar
documentation in the case of uncertificated shares, or a statement that the
shares are without par value.

 

 

6.7           Restriction
on Transfer. Any restrictions imposed by the Corporation on the sale
or other disposition of its shares and on the transfer thereof must be copied
at length or in summary form on the face of each certificate representing
shares to which the restriction applies or similar documentation in the case of
uncertificated shares. The certificate may, however, state on the face or back
that such a restriction exists pursuant to a specified document and that the
Corporation will furnish a copy of the document to the holder of the
certificate without charge upon written request to the Corporation at its
principal place of business.

 

6.8           Preemptive
Rights. In the case of certificated shares, any preemptive rights of
a shareholder to acquire unissued or treasury shares of the Corporation which
are limited or denied by the Articles of Incorporation, as amended, must be set
forth at length on the face or back of the certificate representing shares
subject thereto. In lieu of providing such a statement in full on the
certificate, a statement on the face or back of the certificate may provide
that the Corporation will furnish such information to any shareholder without
charge upon written request to the Corporation at its principal place of
business and that a copy of such information is on file in the office of the
Secretary of State.

 

6.9           Signing
Certificates – Facsimile Signatures. All certificated shares shall
be signed by the President or a Vice-President and the Secretary or an
Assistant Secretary. The signatures of the President or Vice-President,
Secretary or Assistant Secretary may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar either of which
is not the Corporation itself or an employee of the Corporation. If the Officer
who has signed or whose facsimile signature has been placed on the certificate
has ceased to be such Officer before the certificate is issued, the certificate
may be issued by the Corporation with the same effect as if he were such
Officer at the date of its issuance.

 

6.10         Transfer of
Lost or Destroyed Shares. In the case of certificated shares, where
a share certificate has been lost, apparently destroyed, or wrongfully taken
and the owner fails to notify the Corporation of that fact within a reasonable
time after he has notice of it, and the Corporation registers a transfer of the
share represented by the certificate before receiving such a notification, the
owner is precluded from asserting against the Corporation any claim for
registering the transfer or any claim to a new certificate.

 

6.11         Replacement
of Lost or Destroyed Certificates. In the case of certificated
shares, where the holder of a share certificate claims that the certificate has
been lost, destroyed, or wrongfully taken, the Corporation shall issue a new
certificate in place of the original certificate if the owner so requests
(before the Corporation has notice that the share has been acquired by a bona
fide purchaser) and files with the Corporation a sufficient indemnity bond and
satisfies any other reasonable requirements imposed by the Board of Directors.

 

6.12         Transfer
After Replacement. If, after the issue of a new security as a
replacement for a lost, destroyed, or wrongfully taken certificated security, a
bona fide purchaser of the original certificate presents it for registration or
transfer, the Corporation must register the transfer unless registration would
result in overissue. In addition to any rights on the indemnity bond, the
Corporation may recover the new security from the person to whom it was issued
or any person taken under him except a bona fide purchaser.

 

6.13         Transfers of
Shares. Certificated shares of the Corporation will only be
transferred on its books upon the surrender to the Corporation of the share
certificates duly endorsed or accompanied by proper evidence of succession,
assignment, or authority to transfer. 
The surrendered certificates shall be canceled, new certificates issued
to the person entitled to them, and the transaction recorded on the books of
the Corporation.  Uncertificated shares
will only be transferred on the books of the Corporation upon the written
instruction from the registered or beneficial owner of such uncertificated
shares or from a duly authorized attorney, or from an individual presenting
proper evidence of succession, assignment, or authority to transfer the stock.

 

6.14         Transfer
Agents and Registrars. The Board of Directors may appoint one or
more transfer agents or transfer clerks, and one or more registrars which shall
preferably be an incorporated bank or trust company, either domestic or
foreign, who shall be appointed at such times and places as the requirements of
the Corporation may necessitate and the Board of Directors may designate.

 

6.15         Deemed
Ownership. A person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof as regards the
Corporation.

 

 

6.16         Reasonable Doubts
as to Right to Transfer. When a transfer of shares is requested and
there is reasonable doubt as to the right of the person seeking the transfer,
the Corporation or its transfer agent, before recording the transfer of the
shares on its books or issuing any certificate therefor, or similar
documentation in the case of uncertificated shares, may require from the person
seeking the transfer reasonable proof of his right to the transfer. If there
remains a reasonable doubt for the right to the transfer, the Corporation may
refuse a transfer unless the person gives adequate security or a bond or
indemnity executed by a corporate surety or by two individual sureties
satisfactory to the Corporation as to form, amount, and reasonability of
sureties. The bond shall be conditioned to protect the Corporation, its
Officers, transfer agents, and registrars, or any of them, against any loss,
damage, expenses, or other liability to the owner of the issuance of new
shares.

 

7.4           Inspection
of Records by Shareholders. Any person who shall have been a
shareholder of record for at least six (6) months immediately preceding
his demand, or who is the holder of record of at least Five Percent (5%) of all
of the outstanding shares of the Corporation, on written demand stating the
purpose thereof, has the right to examine, in person, or by agent, accountant,
or attorney, at any reasonable time or times, for any proper purpose, its books
and records of account, minutes, and record of shareholders, and is entitled to
make extracts therefrom (after payment of costs).

 

7.6           Annual
Report to Shareholders. The Board of Directors shall cause an annual
report to be sent to the shareholders not later than one hundred twenty (120)
days after the close of the fiscal or calendar year.

 

7.7           Contents of
Annual Reports. The annual report shall include the following
financial statements:

 

(a)           Balance
sheets for the previous two fiscal years;

 

(b)           Statements
of Operations for the previous three fiscal years;

 

(c)           Statements
of Changes in Stockholders’ Equity for the previous three fiscal years; and

 

(d)           Statements
of Cash Flows for the previous three fiscal years.

 

ARTICLE VIII

 

AMENDMENT OF BYLAWS

 

8.1           Adoption,
Amendment, or Repeal of Bylaws by Directors. These Bylaws may be
altered, amended, or repealed, and new Bylaws may be adopted by the affirmative
vote of a majority of either the Board of Directors or the shareholders,
present at any meeting at which a quorum of each respective body is present,
provided that notice of the proposed alteration, amendment, repeal, or adoption
shall be contained in the notice of the meeting. This power to alter, amend, or
repeal the Bylaws, and to adopt new Bylaws, may be modified or divested by
action of shareholders representing a majority of the voting common stock of
the Corporation taken at any regular or special meeting of the shareholders.Exhibit 10.1

TRANSACTION
AGREEMENT

 

	
  TO:

  	
   

  	
  Magna
  Entertainment Corp. (“MEC”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  AND TO:

  	
   

  	
  The Stronach
  Trust, Fair Enterprise Limited and their respective Subsidiaries (including
  445327 Ontario Limited but excluding MI Developments Inc., Magna Entertainment
  Corp. and Magna International Inc. and their respective Subsidiaries)
  (collectively, the “Stronach Group”, with references to the Stronach Group
  also being to each member of the Stronach Group)

  

 

MI Developments Inc. (“MID”)
proposes to submit to its shareholders for approval a reorganization proposal
(the “Transaction”) on the terms set out in
the term sheet (the “Term Sheet”)
dated as of the date hereof and attached hereto as Schedule A, certain of the
steps of which would be implemented pursuant to an arrangement involving MID,
its shareholders, the Stronach Group and MEC
(the “Arrangement”) under the provisions of Section 182
of the Business Corporations Act (Ontario) (the
“OBCA”). 
Certain of the steps of the Transaction will be transactions involving
MEC and the Stronach Group as contemplated herein and this agreement (the “Agreement”) sets out the terms and conditions of such
transactions.

 

Based upon the foregoing and in
consideration of the respective covenants, agreements, representations, warranties
and indemnities of the parties herein contained and for other good and valuable
consideration (the receipt and sufficiency of which are acknowledged by each
party), the parties agree as follows:

 

1.                                      Definitions and Currency

 

(a)           In this Agreement, the following
terms have the respective meanings set out below and grammatical variations
shall have the corresponding meanings:

 

“1933 Act”  means the United States Securities Act of
1933, as amended, and the rules and regulations thereunder;

 

“1934 Act”  means the United States Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder;

 

“Bridge Loan”
means that certain bridge loan agreement, dated September 13, 2007 between
MEC, MID Lender and certain guarantors as specified therein, as amended from
time to time, and the loan or loans outstanding thereunder;

 

“Business
Day” means any day, other than a Saturday, a Sunday or a statutory
holiday in Toronto, Ontario or New York, New York;

 

 

“Closing Date” means the date shown on the certificate
issued by the Director endorsing the Arrangement pursuant to Section 183(2) of
the OBCA;

 

“Consolidation”
has the meaning given to such term in Section 5(d) hereof;

 

“Conversion Date” means the 45th
day following the MEC Note Retirement Date;

 

“Conversion Price” means $1.1519,
being 85% of the MEC Share Price;

 

“Court” means
the Superior Court of Justice of Ontario;

 

“Director”  means the Director appointed under Section 278 of the
OBCA;

 

“Existing Loans”
means, collectively, the Bridge Loan, the Gulfstream Facility and the Remington
Facility;

 

“Final Order”
has the meaning given to such term in Section 13(a)(iii) hereof;

 

“Governmental Authority” means (i) any
multinational, federal, provincial, state, regional, municipal, local or other
government, governmental, regulatory or public department, ministry, central
bank, court, tribunal, arbitral body, commission, commissioner, board, bureau
or agency, domestic or foreign, (ii) any subdivision, agent or authority
of any of the foregoing or (iii) any quasi-governmental body or stock
exchange, including any tribunal, commission, regulatory agency or
self-regulatory organization, exercising any regulatory, expropriation or
taxing authority under or for the account of any of the foregoing;

 

“Gulfstream Facility” means that certain loan agreement, dated as of December 9,
2004 between Gulfstream Park Racing Association, Inc., MID Lender and
certain guarantors as specified therein, as amended from time to time, and the
loan or loans outstanding thereunder;

 

“Information Statement”
means the information statement pursuant to Regulation 14C to be prepared by MEC and
distributed to MEC stockholders in connection with obtaining the approval of
MEC stockholders in respect of (i) the Consolidation and (ii) the issuance of the MEC Issued Shares, in each case by way
of written consent;

 

“Interim Order”
has the meaning given to such term in Section 13(a)(i) hereof;

 

“Laws” means all statutes, acts, laws, by-laws,
rules, regulations, orders, ordinances, protocols, codes, guidelines, policies,
notices, directions and judgments or other requirements of any Governmental
Authority;

 

“Magna Plans”
means, collectively, the Magna Deferred Profit Sharing Plan (Canada) and the
Employees Deferred Profit Sharing Plan (U.S.) of Magna International Inc.;

 

2

 

“Maturity Date”
means December 14, 2009; provided, however, that if the MEC Note
Retirement Date occurs after October 30, 2009 and on or before December 14,
2009, the Maturity Date shall be automatically extended to the Conversion Date;

 

“MEC Class A Shares”
means the shares of Class A Subordinate Voting Stock of MEC;

 

“MEC Class B Shares”
means the shares of Class B Stock of MEC;

 

“MEC Exchanged Shares”
has the meaning given to such term in Section 5(b) hereof;

 

“MEC Issued Shares”
has the meaning given to such term in Section 5(b) hereof;

 

“MEC Note Retirement Date” means the date on
which MEC has fully repaid, fully retired, fully redeemed, fully defeased or
otherwise fully extinguished the MEC Notes in cash, through an equity raise
(including a conversion of the MEC Notes into MEC Class A Shares), asset
sales or by means of any other transaction or series of related transactions
that does not involve MEC incurring additional indebtedness;

 

“MEC Notes”
means, collectively, any and all outstanding 7.25% Convertible Subordinated
Notes of MEC due December 15, 2009 and 8.55% Convertible Subordinated
Notes of MEC due June 15, 2010;

 

“MEC Properties”
has the meaning given to such term in Section 2(a) hereof;

 

“MEC Share Price”
means $1.3552, which price is the volume-weighted
average price of the MEC Class A Shares on NASDAQ for the five trading
days immediately prior to the date hereof;

 

“MI 61-101”
means Multilateral Instrument 61-101 — Protection of Minority
Security Holders in Special Transactions;

 

“MID Circular”
means the management information circular to be prepared by MID in connection
with the MID Meeting;

 

“MID Class A Shares”
means the Class A Subordinate Voting Shares of MID;

 

“MID Class B Shares”
means the Class B Shares of MID;

 

“MID Lender”
means MID Islandi SF, a partnership formed under the laws of Iceland, acting
through its Zug branch, which is wholly-owned, directly or indirectly, by MID;

 

“MID Loan Shares”
has the meaning given to such term in Section 3(d);

 

“MID Meeting”
means the special meeting of the shareholders of MID at which the MID
shareholders will consider and, if deemed advisable, approve the Transaction
and any other matters that may properly come before such meeting, and any
adjournment(s) or postponement(s) thereof;

 

3

 

“MID Provided Information”
has the meaning given to such term in Section 8(e) hereof;

 

“MID Share Price”
means $8.37, which price is the volume-weighted
average price of the MID Class A Shares on the NYSE for the five trading
days immediately prior to the date hereof;

 

“MID Unit” has
the meaning given to such term in Section 4(a) hereof;

 

“MID Warrant”
has the meaning given to such term in Section 4(a) hereof;

 

“Minority Approval”
means the approval of the Transaction Resolution by a majority of the votes
cast by the holders of MID Class A Shares in person or by proxy at the MID
Meeting, excluding the votes attached to MID Class A Shares beneficially
owned or over which control or direction is exercised by persons who would be
excluded for purposes of determining minority approval pursuant to Section 8.1(2) of
MI 61-101;

 

“NASDAQ” means The
NASDAQ Stock Market;

 

“New Loan” means
that certain loan agreement, to be entered into between MID Lender and MEC,
providing for, among other things, loans or advances in the aggregate principal
amount of $125 million (plus applicable costs and fees) consisting of the New
Loan First Tranche and the New Loan Second Tranche;

 

“New Loan  First Tranche” means, subject to the terms and conditions of
the New Loan, the first tranche of the New Loan in the amount of up to $50
million (plus applicable costs and fees in respect of the New Loan) to fund the
operations of MEC up to and including the Closing Date;

 

“New Loan  Second Tranche” means, subject to the terms and conditions
of the New Loan, the second tranche of the New Loan in the amount of up to $75
million to, among other things, fund the costs associated with the application
by Laurel Park, a Subsidiary of MEC, for a Maryland slots license and, provided
that such license is obtained, the construction of the temporary slots
facility;

 

“NYSE” means the
New York Stock Exchange;

 

“OSA” means the Securities Act (Ontario);

 

“Permitted Debt”
has the meaning given to such term in the New Loan;

 

“person”
includes an individual, sole proprietorship, company, partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization, limited liability company, trust, corporation, and a natural
person in his or her capacity as trustee, executor, administrator, or other
legal representative;

 

“Plan Shares”
means, collectively, the MID Class A Shares and MID Class B Shares
held by the Magna Plans;

 

4

 

“Prospectus” has
the meaning given to such term in Section 8(d) hereof;

 

“Regulation 14C”
means Regulation 14C promulgated under the 1934 Act;

 

“Remington Facility”
means that certain loan agreement, dated as of July 14, 2005 between
Remington Park, Inc., MID Lender and certain guarantors as specified
therein, as amended from time to time, and the loan or loans outstanding
thereunder;

 

“SEC” means the
United States Securities and Exchange Commission;

 

“Spin-Off” means
the distribution by MID to the holders of MID Class A Shares and MID Class B
Shares of all the MID Loan Shares;

 

“Spin-Off Registration
Statement” has the meaning given to such term in Section 8(a)
hereof;

 

“Stronach Group MEC
Provided Information” has the meaning given to such term in Section 8(e)
hereof;

 

“Stronach Group MEC Shares”
has the meaning given to such term in Section 5(a) hereof;

 

“Stronach Group MID
Provided Information” has the meaning given to such term in Section 9(b)
hereof;

 

“Stronach Group MID
Securities” has the meaning given to such term in Section 10(a)
hereof;

 

“Stronach Group Purchased
Shares” has the meaning given to such term in Section 6 hereof;

 

“Subsidiary” means, in respect of a person, any other
person of which more than 50% of the outstanding voting securities ordinarily
entitled to elect a majority of the board of directors (or other governing
body) thereof (whether or not securities of any other class or classes shall or
might be entitled to vote upon the happening of any event or contingency) are
at the time owned directly or indirectly by such person, and shall also include
any partnership, joint venture or other entity which is in a like relation to a
Subsidiary, provided that in respect of MID, the term Subsidiary shall exclude
MEC and its Subsidiaries;

 

“Transaction Resolution”
means the resolution of the MID shareholders to approve the Transaction; and

 

“TSX” means the Toronto Stock Exchange.

 

(b)           Unless otherwise indicated, all
dollar amounts referred to in this Agreement are to the lawful currency of the
United States of America.

 

5

 

2.                                      MEC Property Purchase

 

(a)           As soon as reasonably practicable
after the date hereof, MID and MEC shall enter into one or more purchase and
sale agreements on terms
consistent with those that would be entered into by arm’s length parties,
pursuant to which MID shall agree to purchase from MEC (or, as applicable, a
Subsidiary of MEC), and MEC shall (or shall cause its Subsidiary, as applicable,
to) agree to sell to one or more Subsidiaries of MID designated by MID, on the
Closing Date and as one of the steps of the Arrangement, the real property and
joint venture interests identified in the attached Schedule B (each, an “MEC Property” and, collectively, the “MEC
Properties”) at purchase prices equal to the fair market value of
such MEC Properties on the date hereof, as negotiated and determined between
the special committees of the boards of directors of MID and MEC at least five
Business Days before the mailing of the MID Circular.

 

(b)           Immediately upon the receipt by MEC
(or any of its Subsidiaries, as applicable) of any proceeds from MID (or any of
its Subsidiaries, as applicable) in consideration for the sale of the MEC
Properties (such proceeds, net of any amounts required to pay the expenses of
MEC associated with such sale, the “Net  Property Proceeds”), MEC shall apply the Net Property
Proceeds (or cause such Net Property Proceeds to be applied, as applicable) for
the following purposes and in the following order of priority:

 

(i)             first, MEC shall repay or cause to be
repaid all amounts owing under that certain Amended and Restated Credit
Agreement, dated as of July 22, 2005 between, among others, MEC and Bank
of Montreal, as amended (the “MEC Bank Loan”)
and take all actions necessary to terminate and obtain the release of all liens
in favour of the lender under the MEC Bank Loan;

 

(ii)          second, MEC shall repay or cause to be
repaid all amounts owing under that certain Amended and Restated Loan and
Security Agreement, dated October 25, 2007, between AmTote International, Inc.
(a Subsidiary of MEC) and SunTrust Bank (the “AmTote Loan”)
and take all actions necessary to terminate and obtain the release of all liens
in favour of the lender under the AmTote Loan; and

 

(iii)       third, MEC shall use the remainder of the
Net Property Proceeds for operational and working capital purposes in
accordance with the  applicable
provisions set forth in the New Loan.

 

None of MEC or its Subsidiaries shall be
permitted to use the Net Property Proceeds for any purpose other than as
specified in this Section 2(b).

 

3.                                      Amendments  to  Existing Loans
and New Loan

 

On the Closing Date and as one of the steps
of the Arrangement, MEC shall (or shall cause its relevant Subsidiaries to),
and MID shall cause MID Lender to:

 

(a)                                 extend (i) the maturity
date of the Bridge Loan and the New Loan First Tranche, (ii) the repayment
deadline for $100 million under the Gulfstream Facility and 

 

6

 

                                                (iii) the date until
which repayments under the Gulfstream Facility and the Remington Facility will
not be subject to a make-whole payment to, in each case, the Maturity Date;

 

(b)                                 increase the amount of the
commitment under the New Loan First Tranche by $25 million to an aggregate
commitment of up to $75 million, provided that such additional $25 million
shall be available to MEC only for the purpose of contributing to the
repayment, retirement, defeasance or extinguishment of all of the MEC Notes;

 

(c)                                  defer the payment of interest
and principal repayments under the Existing Loans and the New Loan First
Tranche until the date immediately preceding the Maturity Date;

 

(d)                                 amend the Existing Loans and
the New Loan First Tranche such that the Existing Loans and the New Loan First
Tranche shall be repaid in full (together with all deferred interest) on the
Conversion Date, at MEC’s option, (i) in cash and/or (ii) provided
that MEC is not in default hereunder or under the Existing Loans and the New Loan,
through the issuance by MEC to MID of such number of MEC Class A Shares
equal to all amounts outstanding under each of the Existing Loans and the New
Loan First Tranche, divided by the Conversion Price (the “MID Loan
Shares”); and

 

(e)                                  amend the Existing Loans and
the New Loan First Tranche to require that MEC place into escrow with MID (the “Escrow”) the net cash proceeds from any equity raises, asset
sales (other than the purchases by MID of the MEC Properties as provided under Section 2(a)
hereof), joint ventures or other transactions. 
MID shall hold the Escrow as security for the Existing Loans and the New
Loan, and MEC will be permitted to use the funds in the Escrow solely:

 

(i)             to prepay in cash, at the discretion of MEC
and from time to time, in the following order of priority, the Gulfstream
Facility, the Bridge Loan, the New Loan and the Remington Facility (for greater
certainty, without being charged any mark-to-market or make-whole payment in
relation to any such prepayment); and

 

(ii)          to repay, retire, redeem, defease or
otherwise extinguish, in whole but not in part, the MEC Notes.  Notwithstanding the foregoing, MEC shall be
permitted to purchase for cancellation all of the MEC Notes at any time and from
time to time, provided the aggregate consideration payable under an offer to
purchase is held in Escrow at such time as an offer to purchase is
commenced.  For this purpose, the
aggregate consideration required to be held in Escrow shall be the sum of (x) the
aggregate purchase price offered to acquire the MEC Notes assuming the minimum
acceptance condition is satisfied and (y) the aggregate purchase price
required to acquire the balance of the MEC Notes not tendered at their par
value.

 

7

 

4.                                      Issuance of MID Units to Stronach Group

 

(a)           On the Closing Date and as one of the
steps of the Arrangement, MID and the Stronach Group (or a person designated by
the Stronach Group) shall enter into a subscription agreement on customary
terms pursuant to which MID shall issue to the Stronach Group (or such
designated person) and the Stronach Group (or such designated person) shall
purchase from MID on the Closing Date a number of MID Units such that the MID Class A
Shares comprising part of the MID Units will equal 5% of the aggregate number
of MID Class A Shares and MID Class B Shares issued and outstanding
on the Closing Date after giving effect to the Transaction, at a subscription
price equal to the MID Share Price per MID Unit.  Each MID Unit (an “MID Unit”)
shall be comprised of one MID Class A Share and one warrant (an “MID Warrant”) entitling the holder thereof to acquire at any
time prior to the third anniversary of the Closing Date one MID Class A
Share at an exercise price of $10.46, being 125% of the MID Share Price.

 

(b)           On the Closing Date or at such later
time as the Stronach Group shall direct, MID shall issue certificates in the
name of such person or persons as the Stronach Group shall direct for the MID Class A
Shares and the MID Warrants comprising the MID Units.

 

(c)           MID shall at all times reserve and
keep available, free from preemptive rights, out of the authorized, but
unissued, MID Class A Shares, a sufficient number of MID Class A
Shares to permit the issuance of the MID Class A Shares comprising the MID
Units and the MID Class A Shares issuable upon the exercise of the MID
Warrants (collectively, the “MID Issued Shares”).

 

(d)           MID
shall forthwith prepare and file or cause to be prepared and filed all
documents and take or cause to be taken all actions required under the by-laws,
rules, policies and regulations of the TSX and the NYSE in order to issue and
sell to the Stronach Group the MID Units, the MID Warrants and the MID Issued
Shares and to cause the MID Issued Shares to be listed, conditionally listed
and/or posted for trading, as applicable, on the TSX and the NYSE on or prior
to the Closing Date.

 

5.                                      Issuances of MEC Class A Shares and MEC Class B
Shares

 

(a)           On the Closing Date and as one of the
steps of the Arrangement, MEC and the Stronach Group (or a person designated by
the Stronach Group) shall enter into a subscription agreement on customary
terms pursuant to which MEC shall agree to issue to the Stronach Group (or such
designated person) and the Stronach Group (or such designated person) shall
agree to purchase from MEC on the Conversion Date at the Conversion Price (i) such
number of MEC Class B Shares equal to $30 million divided by the
Conversion Price and (ii) at the Stronach Group’s option, such additional
number of MEC Class B Shares, if any (collectively, the “Stronach Group MEC Shares”) such that the Stronach Group MEC
Shares and the Stronach Group Purchased Shares (as defined below) shall, in the
aggregate, represent a 60% voting interest in MEC (after giving effect to the
transactions contemplated hereunder).  On
the Conversion Date or at such later time as the Stronach Group shall direct,
MEC shall issue certificates in the name of such person or persons as the
Stronach Group shall direct for the Stronach Group MEC Shares.

 

8

 

(b)           On the MEC Note Retirement Date or at
such later time as MID shall direct, MEC shall issue certificates in the name
of such person or persons as MID shall direct in respect of the MEC Class A
Shares to which MID is entitled from the conversion of all MEC Class B
Shares (other than the Stronach Group Purchased Shares) into MEC Class A
Shares on a one-for-one basis in accordance with the terms of the MEC Class B
Shares in the Restated Certificate of Incorporation of MEC (the “MEC Exchanged Shares” and, together with the Stronach Group
MEC Shares and the MID Loan Shares, the “MEC  Issued Shares”).

 

(c)           On the Conversion Date or at such
later time as MID shall direct, MEC shall issue certificates in the name of
such person or persons as MID shall direct for the MID Loan Shares.

 

(d)           MEC shall at all times reserve and
keep available, free from preemptive rights, out of its authorized, but
unissued, MEC Class A Shares and MEC Class B Shares, solely for the
purpose of the issuances of the MEC Issued Shares and MEC Class A Shares
issuable upon the conversion of the Stronach Group MEC Shares contemplated in
this Section 5, a sufficient number of MEC Class A Shares and MEC Class B
Shares to permit all issuances of MEC Class A Shares and MEC Class B
Shares contemplated hereby, provided that if the number of MEC Issued Shares
exceeds the number of MEC Class A Shares or MEC Class B Shares
available for issuance, MEC shall propose a consolidation (the “Consolidation”) of its issued and outstanding share capital
to enable MEC to issue the MEC Issued Shares in accordance with the terms
hereof.  MEC shall seek the approval of
the MEC stockholders in respect of the Consolidation by way of written consent
under applicable Laws.  MID shall execute
such written consent, following which MEC shall effect the Consolidation on or
prior to the Conversion Date in accordance with the requirements of Regulation
14C and the General Corporation Law of the State of Delaware.

 

(e)           MEC
shall forthwith prepare and file or cause to be prepared and filed all
documents and take or cause to be taken all actions required under the by-laws,
rules, policies and regulations of the TSX in order to issue the MEC Issued
Shares, and to cause the MID Loan Shares and the MEC Exchanged Shares to be
listed and posted for trading on the TSX as of the MEC Note Retirement Date or
the Conversion Date, as applicable.  MEC
shall apply for the financial hardship exemption provided in Section 604(e) of
the TSX Company Manual and shall comply with all requirements of the TSX in
connection with such exemption.

 

(f)            MEC
shall forthwith prepare and file or cause to be prepared and filed all
documents and take or cause to be taken all actions required under
the by-laws, rules, policies and regulations of NASDAQ in order to issue the
MEC Issued
Shares, and to cause the MID Loan Shares and the MEC Exchanged Shares
to be listed on NASDAQ as of the effectiveness of the Spin-Off Registration
Statement.

 

(g)           Upon
MEC’s material compliance with the provisions of this Section 5, MEC shall
not be liable for any delay or other effect of any action or omission by any
Governmental Authority (including the TSX and NASDAQ) in connection with the
transactions contemplated in this Section 5.

 

9

 

6.                                      Stronach Group Purchase of MEC Class B
Shares

 

On the Closing Date and as one of the steps
of the Arrangement, MID and the Stronach Group (or a person designated by the
Stronach Group) shall enter into an agreement on customary terms pursuant to
which MID shall agree to sell and the Stronach Group (or such designated
person) shall agree to purchase, on the MEC Note Retirement Date, an aggregate
of 335,000 MEC Class B Shares (the “Stronach Group Purchased
Shares”) at a purchase price per share equal to the MEC Share Price.

 

7.                                      Forbearance

 

On the Closing Date, MID and MEC shall
enter into a forbearance agreement (the “Forbearance Agreement”)
pursuant to which MID shall agree that, after the Closing Date, other than
pursuant to arrangements existing on the date hereof or as contemplated
hereunder, MID will not, without the prior approval of the majority of the
votes cast by minority holders of MID Class A Shares, (a) enter the
horseracing or gaming business or enter into any transactions with entities in
the horseracing or gaming business, (b) make any further debt or equity
investment in, or otherwise give financial assistance to, MEC or (c) enter
into any transactions with, or provide any services or personnel to, MEC;
except (i) pursuant to the terms of those arrangements that are summarized
in a list to be provided to MEC concurrent with the execution of the
Forbearance Agreement (which, for greater certainty, shall include the
transactions contemplated hereby) and that are existing on the Closing Date (the
“Existing Arrangements”) or entered into after the
Closing Date in compliance with (a), (b) and (c) above, including the
enforcement of rights thereunder or (ii) amendments, waivers or modifications
to the terms of Existing Arrangements, which amendments, waivers or
modifications are not material, individually or in the aggregate, to MID.  The anticipated list of Existing Arrangements
shall be included in the MID Circular.

 

8.                                      Information Statement; Spin-Off Registration
Statement; Prospectus

 

(a)           As soon as reasonably practicable
and, in any event, within 30 days of the date hereof, MEC shall prepare and
complete the Information Statement and file such completed Information
Statement with the SEC in accordance with Rule 14c-5 under the 1934
Act.  MEC shall use all reasonable
efforts to resolve any comments on the Information Statement from the SEC as
soon as reasonably practicable after the receipt of such comments.  Once such comments are resolved or, if there
are no comments, MEC shall forthwith (i) notify MID thereof and (ii) to
the extent applicable, file with the SEC an amended Information Statement
reflecting such resolved comments, if any, and resolve any further comments
received from the SEC on the amended Information Statement.  As soon as reasonably practicable after the
SEC has completed its review of the Information Statement, MEC shall cause the
Information Statement to be (i) sent to holders of MEC Class A Shares
and MEC Class B Shares and such other MEC security holders entitled to
receive the Information Statement and (ii) filed in all jurisdictions
where such filing is required, in each case, in accordance with applicable
Laws.  MEC shall not make any amendments
to the Information Statement without the prior written consent of MID, which
consent shall not be unreasonably withheld.

 

10

 

(b)           As soon as reasonably practicable
and, in any event, within 30 days of the date hereof, MEC shall file a
registration statement on Form S-1 (or such other form of registration
statement as may be appropriate and available for use by MEC) with the SEC in
respect of the Spin-Off and any offer and sale of MEC Class A Shares by
MID contemplated as part of the Transaction (the “Spin-Off
Registration Statement”).  MEC
shall use all reasonable efforts to resolve any comments on the Spin-Off
Registration Statement from the SEC as soon as reasonably practicable after the
receipt of such comments.  Once any
comments are resolved (or to the extent there are no comments), MEC shall
forthwith (i) notify MID thereof and (ii) to the extent applicable,
file an amended Spin-Off Registration Statement reflecting such resolved
comments with the SEC.  MEC shall (i) cause
the Spin-Off Registration Statement to be declared effective by the SEC as soon
as reasonably practicable after the SEC has completed its review, or notified
MEC that it will not be reviewing, the Spin-Off Registration Statement and, in
any event, on or prior to the Closing Date, and (ii) maintain the
effectiveness of the Spin-Off Registration Statement until the date that is six
months and 10 Business Days after the MEC Note Retirement Date.  MEC shall not amend the Spin-Off Registration
Statement after the date of its effectiveness without the prior written consent
of MID, which consent shall not be unreasonably withheld.

 

(c)           If required, MEC shall prepare and
file a preliminary short form prospectus and a (final) short form prospectus
(the “Prospectus”) and all other necessary documents in order to qualify in
Ontario any distribution of MEC Class B Shares to be issued as
contemplated in this Agreement for which no prospectus or registration
exemption is available under applicable Canadian securities law, such that MEC
shall have obtained a final decision document issued by the Ontario Securities
Commission evidencing that a receipt has been issued in respect of the
Prospectus not later than the Conversion Date.

 

(d)           MEC shall provide MID and the
Stronach Group and their respective counsel with a reasonable opportunity to
review and comment on the Spin-Off Registration Statement, the Information
Statement and, if required, the Prospectus, and shall consult in good faith
with them in connection with all communications with the SEC in connection with
the Information Statement and the Spin-Off Registration Statement and, if
required, with the Ontario Securities Commission in connection with the
Prospectus.

 

(e)           MID and  the Stronach Group shall, if requested by
MEC, furnish information regarding MID and the Stronach Group, respectively,
for inclusion or incorporation by reference in the Information Statement, the Spin-Off
Registration Statement and/or the Prospectus. 
All information so provided in writing by MID or the Stronach Group is
collectively referred to herein as the “MID Provided Information”
or “Stronach Group MEC Provided Information”,
respectively. If MID becomes aware that any MID Provided Information contains (i) any
misrepresentation (as defined in the OSA) or (ii) any untrue statement of
a material fact or any omission to state a material fact necessary in order to
make any of the statements therein, in the light of the circumstances in which
they were made, not misleading, it shall promptly notify MEC of such
misrepresentation, untrue statement or omission, as the case may be, and
provide information which corrects such misrepresentation, untrue statement or
omission. If the Stronach Group becomes aware that any of the Stronach Group
MEC Provided Information contains (A) any misrepresentation (as defined in
the OSA) or (B) any untrue statement of a material fact or any omission to
state a material fact necessary in order to make any of the 

 

11

 

statements
therein, in the light of the circumstances in which they were made, not
misleading, it shall promptly notify MEC of such misrepresentation, untrue
statement or omission, as the case may be, and provide information which
corrects such misrepresentation, untrue statement or omission.

 

(f)            MEC will cause the Information
Statement and the Spin-Off Registration Statement, including all documents
incorporated by reference therein, and all related SEC filings to comply as to
form in all material respects with the requirements of the 1933 Act and 1934
Act applicable thereto as of the date of such filing.

 

9.                                      MID Circular

 

(a)           MID shall provide MEC and the Stronach Group
with a reasonable opportunity to review and comment in advance on those
portions of the MID Circular that refer to, or disclose information regarding,
MEC and the Stronach Group and the transactions contemplated herein (provided
that MID shall, acting reasonably, determine whether and to what extent to take
into account such comments).

 

(b)           MEC and the Stronach Group shall, if
requested by MID, furnish information regarding MEC and the Stronach Group,
respectively, for inclusion or incorporation by reference in the MID Circular,
including pro forma financial statements or
information of MEC for the year ended December 31, 2007 and the nine
months ended September 30, 2008, which pro forma
financial statements or information shall reflect adjustments to MEC’s
historical financial statements to reflect the transactions contemplated
hereunder; provided that, subject to MEC’s compliance with
its other covenants and agreements contained in this Section 9(b), MEC
shall not be required to furnish any information or documentation in the event
that MEC’s board of directors, in its sole discretion, determines that such
information or documentation is confidential in nature and would not have been
otherwise publicly disclosed, so long as the failure to furnish such
information or documentation shall not result in the MID Circular containing (i) any
misrepresentation (as defined in the OSA) or (ii) any untrue statement of
a material fact or any omission to state a material fact necessary in order to
make any of the statements therein, in the light of the circumstances in which
they were made, not misleading.  All
information so provided by MEC is collectively referred to herein as the “MEC Provided Information”. 
All information so provided by the Stronach Group to MID is collectively
referred to herein as the “Stronach Group MID
Provided Information”.  If MEC
becomes aware that any MEC Provided Information contains (i) any
misrepresentation (as defined in the OSA) or (ii) any untrue statement of
a material fact or any omission to state a material fact necessary in order to
make any of the statements therein, in the light of the circumstances in which
they were made, not misleading, it shall promptly notify MID of such
misrepresentation, untrue statement or omission, as the case may be, and
provide information which corrects such misrepresentation, untrue statement or
omission. If the Stronach Group becomes aware that any Stronach Group MID
Provided Information contains (A) any misrepresentation (as defined in the
OSA) or (B) any untrue statement of a material fact or any omission to
state a material fact necessary in order to make any of the statements therein,
in the light of the circumstances in which they were made, not misleading, it
shall promptly notify MID of such misrepresentation, untrue statement or
omission, as the case may be, and provide information which corrects such
misrepresentation, untrue statement or omission.

 

12

 

(c)           MEC shall provide such reasonable
assistance as may be requested by MID in connection with any road shows
conducted by MID management or its representatives prior to the MID Meeting.

 

10.                               Agreement to Vote in Favour of the Transaction
Resolution

 

(a)           Subject to the terms and conditions
hereof and other than as provided in Section 10(b), the Stronach Group
hereby irrevocably covenants and agrees to vote or cause to be voted in favour
of the Transaction Resolution at the MID Meeting, including in connection with
any separate vote of any class of shareholders or other holders of securities
of MID that may be taken and of which class the Stronach Group is a member:

 

(i)             all the MID Class A Shares and MID Class B
Shares that are beneficially owned,  or in respect
of which the voting is controlled or directed (other than the Plan Shares),
directly or indirectly, by the Stronach Group as of the date hereof, which are
set forth on Schedule C hereto; and

 

(ii)          any other securities of MID that become
beneficially owned, or in respect of which the voting is controlled or
directed, directly or indirectly, by the Stronach Group following the date
hereof prior to the MID Meeting,

 

(collectively, the “Stronach
Group MID Securities”).

 

(b)           Notwithstanding the provisions of Section 10(a),
the obligations of the Stronach Group under Section 10(a) shall be
conditional on the receipt at the MID Meeting of Minority Approval.

 

(c)           The Stronach Group shall immediately
revoke or terminate any proxies, voting trusts, voting agreements or similar
arrangements previously given or entered into with respect to the Stronach
Group MID Securities that would prevent the Stronach Group, in any way, from
acting in accordance with the provisions hereof.

 

(d)           Except with the prior written consent
of MID, the Stronach Group agrees that, during the period commencing on the
date hereof and continuing until the earlier of the Conversion Date or the
termination of this Agreement in accordance with its terms, it shall not, other
than to an affiliate of the Stronach Trust that agrees to be bound by the
provisions of this Agreement, sell, assign, transfer, dispose of, hypothecate,
alienate or encumber in any way, or tender to any offer, any Stronach Group MID
Securities or relinquish or modify its right to vote any of the Stronach Group
MID Securities, or enter into any agreement to do any of the foregoing.

 

11.                               Representations and Warranties

 

(a)           Each of MID, MEC and each member of
the Stronach Group represents and warrants to the others and expressly
acknowledges that MID (in the case of representations and warranties by MEC and
the Stronach Group), MEC (in the case of representations and warranties by MID
and the Stronach Group) and the Stronach Group (in the case of representations
and 

 

13

 

warranties by
MID and MEC) are relying upon such representations and warranties in connection
with entering into this Agreement:

 

(i)             it is an entity duly organized, validly
existing and to the extent such concept is applicable to such entity, in good standing
under the laws of its jurisdiction of incorporation, and has the requisite
corporate or other power and authority to carry on its business as currently
conducted and execute and deliver this Agreement and to perform its obligations
hereunder;

 

(ii)          this Agreement has been duly authorized,
executed and delivered by it and constitutes a valid and binding obligation
enforceable against it in accordance with its terms, except as may be limited
by bankruptcy, insolvency and other laws affecting the enforcement of creditors’
rights generally, or by general principles of equity or public policy
(regardless of whether enforcement is considered in a proceeding in equity or
at law);

 

(iii)       none of the execution and delivery of this
Agreement by it and the consummation of the transactions herein provided for
shall result in the breach or violation of any of the provisions of, or
constitute a default under, or conflict with or cause the acceleration of any
of its obligations under, and with respect to sub-clause (A) hereof,
require consent, waiver or approval or give the right of amendment or
cancellation of any material obligation under, (A) any contract to which
it is a party or by which it is bound, (B) any provision of its
organizational documents or (C) any Law to which it is subject or by which
it is bound, except, in each case, as would not have a material adverse effect
on the business, operations or financial condition of such party and its
Subsidiaries taken as a whole (excluding, in the case of MID, a material
adverse effect on the business, operation or financial condition of MEC and its
Subsidiaries and, in the case of MEC, except for such consents, notices,
approvals and filings as may be necessary (a) to effect the Consolidation
and (b) under applicable horse racing or gaming legislation in connection
with the change in ownership of MEC); and

 

(iv)      except for reports under Section 13 of
the 1934 Act, blue sky laws and as required under applicable Canadian
securities law (including the by-laws, rules, regulations and
policies of the TSX and NASDAQ), no filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any Governmental
Authority is necessary or required to be made or obtained by it in connection
with the transactions contemplated herein, except for (A) in the case of
MEC, such consents, notices, approvals and filings as contemplated in
Sections 5(d), 5(e), 5(f), 8(a) and 8(b) and as may be necessary under
applicable horse racing or gaming legislation in connection with the change in
ownership of MEC or (B) in the case of MID, orders of the Court and
filings with the Director in connection with the Arrangement.

 

14

 

(b)           MEC hereby represents and warrants to
MID as follows and expressly acknowledges that MID is relying upon such
representations and warranties in connection with entering into this Agreement:

 

(i)             MEC is exempt from the formal valuation and
minority approval requirements of Part 5 of MI 61-101 with respect to the
transactions contemplated herein;

 

(ii)          MEC reasonably believes that it will be
exempt from the shareholder approval requirement in Section 604 of the TSX
Company Manual with respect to the transactions contemplated herein;

 

(iii)       the MEC Provided Information to be provided
by it to MID for inclusion or incorporation by reference in the MID Circular
shall not, as of the date such information is provided and as of the date of
the MID Circular, contain (i) any misrepresentation (as defined in the
OSA) or (ii) any untrue statement of a material fact or any omission to
state a material fact necessary in order to make any of the statements therein,
in the light of the circumstances in which they were made, not misleading; and

 

(iv)      other than with respect to any MID
Provided Information or Stronach Group MEC Provided Information contained
therein, the Information Statement and the Spin-Off Registration Statement to
be filed by MEC with the SEC in connection with the transactions contemplated
hereby, at the time they are filed with the SEC, and, in the case of the
Information Statement, at the time it is first mailed to the MEC stockholders,
shall not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.

 

(c)           Each member of the Stronach Group
hereby represents and warrants to MID as follows and expressly acknowledges
that MID is relying upon such representations and warranties in connection with
entering into this Agreement:

 

(i)             it is the beneficial owner (as defined in Rule 13d-3
under the 1934 Act) of the Stronach Group MID Securities listed on Schedule C
hereto applicable to it, and it does not own beneficially any other MID
securities;

 

(ii)          it has the right to vote, or control or
direct the voting rights in respect of the Stronach Group MID Securities listed
on Schedule C hereto applicable to it, and it does not have the right to vote,
or control or direct the voting rights in respect of, any other MID securities;

 

(iii)       no person has any agreement or option, or
any right or privilege (whether by Law, pre-emptive or contractual) capable of
becoming an agreement or option, for the purchase, acquisition or transfer from
it of any of its Stronach Group MID Securities or any interest therein or right
thereto;

 

15

 

(iv)      to its knowledge, after reasonable inquiry,
(A) neither it nor its respective directors or officers, as applicable,
are aware of any MID Class A Shares or MID Class B Shares that are
beneficially owned by or over which control or direction is exercised by any of
the persons identified in clauses (b) to (d) of Section 8.1(2) of
MI 61-101 other than the Stronach Group MID Securities identified on Schedule C
and the MID Class A Shares and/or MID Class B Shares beneficially
owned by each of 865714 Ontario Inc., the Magna Plans, MIC Trust, Donald Walker
and Elfriede Stronach and (B) as of the date of this agreement, 865714
Ontario Inc. beneficially owns 45,870 MID Class B Shares, MIC Trust
beneficially owns 28,482 MID Class B Shares, Donald Walker beneficially
owns 5,000 MID Class B Shares and Elfriede Stronach beneficially owns 350
MID Class A Shares;

 

(v)         it is not a party to any shareholders’
agreement, voting trust, voting agreement or other agreement, nor, to its
knowledge, does it have any right or privilege (whether by Law, pre-emptive or
contractual) capable of becoming a shareholders’ agreement, voting trust,
voting agreement or other agreement, affecting the Stronach Group MID
Securities held by it or its ability to exercise all ownership rights thereto,
including the voting of any of the Stronach Group MID Securities held by it, in
a manner that would prevent it, in any way, from acting in accordance with the
provisions hereof;

 

(vi)      no proceedings are pending against it
which, if adversely determined, will have an adverse effect on its ability to
vote any of its Stronach Group MID Securities and it has not previously
assigned or sold any of its Stronach Group MID Securities to any third party;
and

 

(vii)   the Stronach Group MID Provided Information to be
provided by it to MID for inclusion or incorporation by reference in the MID
Circular shall not, as of the date such information is provided and as of the
date of the MID Circular, contain (i) any misrepresentation (as defined in
the OSA) or (ii) any untrue statement of a material fact or any omission
to state a material fact necessary in order to make any of the statements
therein, in the light of the circumstances in which they were made, not
misleading.

 

(d)           Each member of the Stronach
Group hereby represents and warrants to MEC and acknowledges that MEC is
relying upon such representation and warranty in connection with entering into
this Agreement that the Stronach Group MEC Provided Information provided by it
to MEC for inclusion or incorporation by reference in the Information Statement
and/or the Spin-Off Registration Statement does not, as of the date such
information is provided and as of the date of the Information Statement and/or
the Spin-Off Registration Statement, as the case may be, contain (i) any
misrepresentation (as defined in the OSA) or (ii) any untrue statement of
a material fact or any omission to state a material fact necessary in order to
make any of the statements therein, in the light of the circumstances in which
they were made, not misleading.

 

16

 

(e)           MID hereby represents and
warrants to MEC and expressly acknowledges that MEC is relying upon such
representation and warranty in connection with entering into this Agreement
that the MID Provided Information to be provided by it to MEC for inclusion or
incorporation by reference in the Information Statement and/or the Spin-Off
Registration Statement shall not, as of the date such information is provided
and as of the date of the Information Statement and/or the Spin-Off
Registration Statement, as the case may be, contain (i) any
misrepresentation (as defined in the OSA) or (ii) any untrue statement of
a material fact or any omission to state a material fact necessary in order to
make any of the statements therein, in the light of the circumstances in which
they were made, not misleading.

 

12.                               Covenants

 

(a)           MID hereby covenants in favour of the
Stronach Group that MID shall:

 

(i)             as soon as reasonably practicable following
the date hereof, bring an application before the Court for the grant of the
Interim Order providing for, among other things, the calling and holding of the
MID Meeting as soon as reasonably practicable following the date hereof;

 

(ii)          as soon as reasonably practicable following
the date hereof, prepare the MID Circular, and mail the MID Circular to the MID
shareholders not later than 21 days before the MID Meeting;

 

(iii)       as soon as reasonably practicable after the
Interim Order has been obtained, convene and hold the MID Meeting for the
purpose of having the MID shareholders consider the Transaction Resolution;

 

(iv)      if the Transaction Resolution is approved
at the MID Meeting as required by the Interim Order, bring an application, as
soon as reasonably practicable after the MID Meeting, before the Court for the
Final Order approving the Arrangement; and

 

(v)         if the Final Order is obtained, as soon as
reasonably practicable thereafter, send Articles of Arrangement and such other
documents as may be required in connection therewith under the OBCA to the
Director to give effect to the Arrangement.

 

(b)           MID hereby covenants in favour of MEC
that, subject to the terms and conditions hereof, MID shall vote or cause to be
voted and to consent in writing to all such matters that are the subject of the
Information Statement.

 

(c)           MEC hereby covenants in favour of MID
that:

 

(i)             MEC shall use commercially reasonable
efforts to sell or enter into joint ventures in respect of its assets,
including, without limitation, its core racetrack assets, that will result in
MEC receiving net cash sale proceeds or joint venture payments sufficient to
repay, retire, redeem, defease or extinguish all MEC Notes by no later than the
Maturity Date; and

 

17

 

(ii)          until the earlier to occur of (i) the
repayment, retirement, redemption, defeasance or extinguishment in full of the
Existing Loans and the New Loan and (ii) the Conversion Date, MEC shall
not, and shall not permit its Subsidiaries to, directly or indirectly, incur,
assume or suffer to exist any new indebtedness or enter into any guarantees,
hypothecation or other agreements which would make MEC or any such Subsidiary
liable for any indebtedness or expense other than Permitted Debt.

 

(d)           The Stronach Group hereby covenants
in favour of MID that the Stronach Group shall not tender any MID Class A
Shares in the substantial issuer bid(s) and any normal course issuer bid(s) to
be made by MID as contemplated by the Transaction.

 

13.                               Conditions to Implementation of Arrangement

 

(a)           The obligations of MID to file
Articles of Arrangement as contemplated under Section 12(a)(v) are subject
to the fulfillment of the following conditions, which conditions are for the
sole benefit of MID and may be waived by it in whole or in part by notice in
writing to the Stronach Group and MEC without prejudice to the rights of MID to
rely on any other condition:

 

(i)                  the Transaction Resolution shall have been
approved by MID shareholders in accordance with the interim order of the Court
in respect of the Arrangement (the “Interim Order”)
and Minority Approval shall have been obtained, as provided in the Interim
Order;

 

(ii)               the Interim Order and a final order of the
Court with respect to the Arrangement (the “Final Order”)
shall each have been granted in form and substance satisfactory to MID, acting
reasonably, and shall not have been set aside or modified in a manner
unacceptable to MID  on appeal or
otherwise;

 

(iii)            all representations and warranties of MEC
and the Stronach Group contained in this Agreement shall be true as of the
Closing Date in all material respects, as though made on and as of the Closing
Date, and a certificate of an officer of each of MEC and the Stronach Group to
that effect shall have been delivered to MID, such certificate to be in form
and substance satisfactory to MID, acting reasonably;

 

(iv)           each of MEC and the Stronach Group shall
have performed each of their respective obligations under this Agreement in all
material respects to the extent required to be performed on or before the
Closing Date or the Conversion Date, as the case may be, and a certificate of
an officer of each of MEC and the Stronach Group to that effect shall have been
delivered to MID, such certificate to be in form and substance satisfactory to
MID, acting reasonably;

 

(v)              all customary regulatory approvals relating
to the issuance of the MEC Issued Shares, including the conditional listing of
the MID Loan Shares 

 

18

 

                             and MEC Exchanged Shares on
the TSX and NASDAQ as provided under Sections 5(e) and 5(f), shall have
been obtained;

 

(vi)           there shall have been no change, effect,
event, circumstance, fact or occurrence after the date hereof that,
individually or in the aggregate, is, or would reasonably be expected to be,
material and adverse to the business, operations, condition (financial or
otherwise), assets (tangible or intangible), liabilities (contingent or
otherwise) or results of operations of MEC and its Subsidiaries, taken as a
whole, other than any change, effect, event, circumstance, fact or occurrence (A) relating
primarily to general political, economic or financial conditions, (B) relating
primarily to the state of securities or commodities markets in general, (C) primarily
attributable to the announcement of the transactions contemplated hereunder, (D) relating
primarily to the industries in which MEC and its Subsidiaries operate in
general and not to MEC or its Subsidiaries in any specific manner or (E) relating
primarily to non-cash impairment charges or changes in Canadian or United
States generally accepted accounting principles, and in the case of clauses (A) and
(D), not having or reasonably expected to have a materially disproportionate
effect on MEC and its Subsidiaries, taken as a whole, as compared to other
persons in the industries in which MEC and its Subsidiaries operate;

 

(vii)        the Spin-Off Registration Statement shall
have become effective in accordance with the provisions of the 1933 Act.  No stop order suspending the effectiveness of
the Spin-Off Registration Statement shall have been issued by the SEC and
remain in effect and no proceedings for that purpose shall have been initiated
or, to the knowledge of MEC, threatened by the SEC and not been dismissed.  All necessary state securities or blue sky
authorizations shall have been received;

 

(viii)     no proceeding shall have been commenced
before or by a Governmental Authority that has not been terminated, nor any
order having been issued and not withdrawn by such Governmental Authority, to
suspend or cease trading in MEC shares or to otherwise prevent consummation of
the transactions contemplated hereunder; and

 

(ix)             this Agreement shall not have been
terminated pursuant to Section 14 hereof.

 

(b)           MID will give prompt notice to MEC
and the Stronach Group of the occurrence, or failure to occur, of any event or
state of facts which occurrence or failure would, or would be likely to, result
in the failure to satisfy any of the conditions precedent in Section 13(a)
hereof.

 

14.                               Termination

 

This Agreement may be terminated by any
party at any time prior to the filing of Articles of Arrangement as
contemplated under Section 12(a)(v) hereof:

 

19

 

(a)                                  by any party if the
Transaction Resolution shall not have been approved by MID shareholders at the
MID Meeting in accordance with the Interim Order;

 

(b)                                 by any party if the Court
issues a final non-appealable order that it does not approve the Arrangement;

 

(c)                                  by MID upon the occurrence or
non-occurrence of an event that causes MID to determine, acting reasonably,
that a condition precedent in Section 13(a) is not capable of being
satisfied;

 

(d)                                 by the Stronach Group in the
event that the terms of the transactions contemplated hereunder, taken as a
whole, presented for approval by the MID shareholders at the MID Meeting,
approved by the Court pursuant to the Final Order, or contained in the
Transaction Resolution are inconsistent with those set forth in the Term Sheet;
provided, however, that the Stronach Group may not terminate this Agreement
under this Section 14(d) if such inconsistent term is caused to be
included by, consented to, acquiesced in, or approved by, any member of the
Stronach Group;

 

(e)                                  by MEC in the event that the
terms of the transactions contemplated hereunder, taken as a whole, presented
for approval by the MID shareholders at the MID Meeting, approved by the Court
pursuant to the Final Order, or contained in the Transaction Resolution are
inconsistent with those set forth in the Term Sheet in a manner that is
materially adverse to MEC; provided, however, that MEC may not terminate this
Agreement under this Section 14(e) if such inconsistent term is caused to
be included by, consented to, acquiesced in, or approved by, MEC;

 

(f)                                    by any party in the event that
MEC becomes subject to any proceeding to adjudicate it as bankrupt or
insolvent, or seeking liquidation, dissolution, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee or other similar official for it or for any substantial part
of its property; and

 

(g)                                 by any party if the Closing
Date has not occurred on or prior to March 31, 2009.

 

15.                               Indemnification

 

(a)           MEC shall indemnify MID and its
directors, partners, officers, employees, agents and controlling persons (the “MEC Indemnified Parties”) and defend and hold them harmless
from and against any and all losses (other than losses of profit), claims,
costs, damages and liabilities (“Losses”), joint
or several, caused by or arising directly or indirectly by reason of: (i) any
MEC Provided Information contained in the MID Circular or any amendment or
supplement thereto being or being alleged to be a misrepresentation (as defined
in applicable Canadian securities laws), or, relating solely to the MEC
Provided Information, there being any untrue statement or alleged untrue
statement of material fact or any omission or alleged omission to state therein
any material fact necessary to make any of the statements therein not
misleading in 

 

20

 

the light of
the circumstances in which they were made; (ii) any information or
statement (except MID Provided Information or the Stronach Group MEC Provided
Information) contained in the Information Statement, the Spin-Off Registration
Statement or, if required, the Prospectus, or any amendment or supplements
thereto or in any other document or material filed or delivered by MEC in
connection with the approval of the Arrangement, being or being alleged to be a
misrepresentation (as defined in applicable Canadian securities laws), or
(except in respect of  MID Provided
Information or the Stronach Group MEC Provided Information) any untrue
statement or alleged untrue statement of material fact or any omission or
alleged omission to state therein any material fact necessary to make any of
the statements therein not misleading in the light of the circumstances in
which they were made, or (iii) MEC not complying in all material respects
with applicable Canadian or U.S. securities laws in connection with the
transactions contemplated by this Agreement. 
MEC will reimburse the MEC Indemnified Parties for all reasonable costs,
charges and expenses (including reasonable fees and expenses of legal counsel),
as incurred, which any of them may pay or incur in connection with
investigating and defending any claim or action in respect of subparagraphs (i) through
(iii) hereof.  This indemnity is in
addition to any liability to the MEC Indemnified Parties which MEC may
otherwise have.

 

(b)           MID shall indemnify MEC and its
respective directors, partners, officers, employees, agents and controlling
persons (the “MID Indemnified Parties”) and
defend and hold them harmless from and against any and all Losses, joint or
several, caused by or arising directly or indirectly by reason of: (i) any
MID Provided Information contained in the Information Statement, the Spin-Off
Registration Statement or, if required, the Prospectus or any amendment or
supplement thereto being or being alleged to be a misrepresentation (as defined
in the OSA), or, relating solely to the MID Provided Information, there being
any untrue statement or alleged untrue statement of material fact or any
omission or alleged omission to state therein any material fact necessary to
make any of the statements therein not misleading or not misleading in the
light of the circumstances in which they were made,  (ii) any information or statement
(except MEC Provided Information and the Stronach Group MID Provided
Information) contained in the MID Circular, or any amendment or supplements
thereto or in any other document or material filed or delivered by MID in
connection with the approval of the Arrangement, being or being alleged to be a
misrepresentation (as defined in applicable Canadian securities laws), or
(except in respect of MEC Provided Information and the Stronach Group MID
Provided Information) any untrue statement or alleged untrue statement of
material fact or any omission or alleged omission to state therein any material
fact necessary to make any of the statements therein not misleading in the
light of the circumstances in which they were made; or (iii) MID not
complying in all material respects with applicable Canadian or U.S. securities
laws in connection with the transactions contemplated by this Agreement.  MID will reimburse the MID Indemnified
Parties for all reasonable costs, charges and expenses (including reasonable
fees and expenses of legal counsel), as incurred, which any of them may pay or
incur in connection with investigating and defending any claim or action in
respect of subparagraphs (i) through (iii) hereof. This indemnity is
in addition to any liability to the MID Indemnified Parties which MID may
otherwise have.

 

(c)           Each member of the Stronach Group, on
a several basis, shall indemnify MEC and MID and their respective directors,
partners, officers, employees, agents and controlling persons (the “Stronach Group Indemnified Parties”, and together with the
MEC Indemnified 

 

21

 

Parties and
the MID Indemnified Parties, the “Indemnified Parties”)
and defend and hold them harmless from and against any and all Losses, joint or
several, caused by or arising directly or indirectly by reason of: (i) its
Stronach Group MEC Provided Information or its Stronach Group MID Provided
Information contained in the Information Statement, the Spin-Off Registration
Statement, the Prospectus or the MID Circular or any amendment or supplement
thereto being or being alleged to be a misrepresentation (as defined in the
OSA), or, relating solely to its Stronach Group MID Provided Information or its
Stronach Group MEC Provided Information, there being any untrue statement or
alleged untrue statement of material fact or any omission or alleged omission
to state therein any material fact necessary to make any of the statements
therein not misleading in the light of the circumstances in which they were
made; or (ii) such member of the Stronach Group not complying with
applicable Canadian or U.S. securities laws in connection with the transactions
contemplated by this Agreement.  Each
member of the Stronach Group, on a several basis, will reimburse the Stronach
Group Indemnified Parties for all reasonable costs, charges and expenses
(including reasonable fees and expenses of legal counsel), as incurred, which
any of them may pay or incur in connection with investigating and defending any
claim or action in respect of subparagraphs (i) or (ii) hereof.  This indemnity is in addition to any
liability to the Stronach Group Indemnified Parties which the Stronach Group
may otherwise have.

 

(d)           If the indemnification provided for
in subsections (a), (b) or (c) of this Section 15
is unavailable to or insufficient to hold harmless an Indemnified Party under
subsections (a), (b) or (c) in respect of any Losses referred to
therein, then each party otherwise obligated to provide indemnification
hereunder shall contribute to the amount paid or payable by such Indemnified
Party as a result of such Losses, in such proportion as is appropriate to
reflect the relative faults of MID, MEC, or the members of the Stronach Group,
as applicable in connection with the statements or omissions which resulted in
such Losses, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
MID, MEC, or the Stronach Group, as applicable and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.  The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in
this Section 15(d) shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or  defending any such action or
claim.  No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.  The
rights to contribution provided in this paragraph shall be in addition to and
not in derogation from any other right to contribution which MID, MEC or any
member of the Stronach Group may have by statute or otherwise at law.

 

16.                               General

 

(a)           MEC shall use reasonable commercial
efforts to obtain before the MEC Note Retirement Date such consents, notices,
approvals and filings as may be necessary under applicable horse racing or
gaming legislation in connection with the change in ownership of MEC upon the
consummation of the transactions contemplated hereunder, except for such
consents, notices, approvals and filings the failure of which to obtain would not
reasonably be expected to have a material adverse effect on MEC and its
Subsidiaries taken as a whole.

 

22

 

(b)           Each party to this Agreement
covenants and agrees that, from time to time subsequent to the Closing Date, it
will execute and deliver all such documents, including, without limitation, all
such additional conveyances, transfers, consents and other assurances and do
all such other acts and things as any other party hereto, acting reasonably,
may from time to time request be executed or done in order to better evidence
or perfect or effectuate any of the transactions contemplated herein.

 

(c)           MEC shall provide MID with an
opportunity to review and comment on any press release or other public
statement to be made by MEC in respect of the transactions contemplated
herein.  MID shall provide MEC with an
opportunity to review and comment on the relevant text of any press release or
other public statement to be made by MID in respect of the transactions
contemplated herein that refers to MEC (other than a reference solely to
describe the terms of the transactions contemplated herein).  None of the members of the Stronach Group
shall issue any press release or make any other public statement in respect of
the transactions contemplated herein.

 

(d)           All notices, requests, demands and
other communications hereunder shall be in writing and shall be (i) delivered
in person, (ii) transmitted by facsimile transmission (with written
confirmation of a successful transmission), (iii) sent by e-mail (with a
copy of such notice to be sent by prepaid first class registered or certified
mail, return receipt requested or recognized prepaid overnight courier service)
or (iv) delivered by a nationally recognized prepaid overnight courier
service (return receipt requested) addressed as follows:

 

If to MID:

 

	
  MI Developments Inc.

  
	
  455 Magna Drive

  
	
  Aurora, Ontario L4G 7A9

  
	
   

  	
   

  
	
  Attention:

  	
  General
  Counsel

  
	
   

  	
   

  
	
  Email:

  	
  richard_crofts@midevelopments.com

  
	
  Fax No.:

  	
  (905) 726-2095

  

 

If to MEC:

 

	
  Magna Entertainment
  Corp.

  
	
  337 Magna
  Drive

  
	
  Aurora, Ontario L4G 7K1

  
	
   

  	
   

  
	
  Attention:

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
  Email:

  	
  blake.tohana@magnaent.com

  
	
  Fax
  No.:

  	
  (905) 726-2585

  

 

 

23

 

If to 445327 Ontario Limited:

 

Belinda Stronach

c/o Magna International Inc.

337 Magna Drive

Aurora, Ontario

L4G 7K1

 

If to the Stronach Trust:

 

Belinda Stronach

c/o Magna International Inc.

337 Magna Drive

Aurora, Ontario

L4G 7K1

 

If to Fair Enterprise Limited:

 

EFG Trust Company Limited

P.O. Box 641, No 1 Seaton Place

St. Helier, Jersey

JE4 8YJ

Attention: Sean Coughlan

 

Any such notice or other communication
shall be deemed to have been given and received on the day on which it was
delivered or transmitted (or, if such day is not a Business Day, on the next
following Business Day), provided that it is delivered or transmitted during
normal business hours, failing which it shall be deemed to have been given and
received on the next Business Day.

 

(e)           This Agreement (together with the
Schedules attached hereto and any other agreements between the parties hereto
required to give effect to the Transaction) sets forth the entire agreement and
understanding among the parties hereto in respect of the transactions
contemplated hereby.  Notwithstanding
anything to the contrary provided in this Agreement, this Agreement shall not
affect any of the rights of MID or MID Lender under the Existing Loans or the
New Loan, including as the Existing Loans and the New Loan may be amended
pursuant to Section 3 hereof.  In
the event of any conflict or inconsistency between the provisions contained in
this Agreement and the provisions of the Term Sheet, the provisions of this
Agreement shall prevail.  There are no
warranties, representations, terms, conditions or collateral agreements,
expressed, implied or statutory, between the parties other than as expressly
set forth in this Agreement (together with any other agreements between the
parties hereto required to give effect to the transactions contemplated
hereby).  This Agreement and the rights
hereunder are not transferable or assignable by the parties.

 

(f)            This Agreement shall be governed by
and construed in accordance with the laws of the Province of Ontario and the
federal laws of Canada applicable therein. 
Each party hereby 

 

24

 

irrevocably
attorns to the exclusive jurisdiction of the courts of the Province of Ontario
in respect of all matters arising under or in relation to this Agreement.

 

(g)           Time is of the essence in the
performance of this Agreement.

 

(h)           This Agreement may not be amended or
modified except by a written instrument executed by all parties hereto, and no
waiver of any provision of this Agreement shall be effective unless in writing
and executed by the party against whom such waiver is sought to be enforced.

 

(i)            This Agreement shall inure to the
benefit of and be binding upon the parties and their respective successors and
permitted assigns.  Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any party without the prior written consent of the other parties.

 

(j)            This Agreement may be executed by
facsimile transmission and in counterparts, each of which shall be deemed to be
an original but all of which together shall constitute one and the same
agreement.

 

(k)           Each of the parties hereto recognizes
and acknowledges that a breach by it of any of its covenants or agreements
contained in this Agreement shall cause the other parties to sustain damages
for which such non-breaching parties would not have an adequate remedy at law
for money damages and, therefore, each of the parties agrees that in the event
of such a breach, the non-breaching parties shall be entitled to the remedy of
specific performance of such covenant or agreement and to injunctive and other
equitable relief in addition to any other remedy to which they may be entitled
at law or in equity.

 

25

 

If the foregoing accurately reflects the
terms and conditions of our agreement, would you kindly indicate your
acceptance hereof by signing, dating and returning to MID the enclosed duplicate
original of this Agreement by facsimile or otherwise.

 

	
   

  	
  MI DEVELOPMENTS
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  by

  	
  “signed”

  
	
   

  	
   

  	
  Name: 

  	
  Dennis Mills

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive
  Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “signed”

  
	
   

  	
   

  	
  Name:

  	
  Richard J. Crofts

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice-President, Corporate Development,
  General Counsel and Secretary

  

 

Irrevocably accepted and agreed to this 26th
day of November, 2008.

 

	
   

  	
  MAGNA ENTERTAINMENT
  CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  by

  	
  “signed”

  
	
   

  	
   

  	
  Name:

  	
  Blake Tohana

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice President and Chief
  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “signed”

  
	
   

  	
   

  	
  Name:

  	
  William Ford

  
	
   

  	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  STRONACH TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  by

  	
  “signed”

  
	
   

  	
   

  	
  Name:

  	
  Belinda Stronach

  
	
   

  	
   

  	
  Title:

  	
  Trustee

  
					

 

 

	
   

  	
  445327 ONTARIO LIMITED

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  by

  	
  “signed”

  
	
   

  	
   

  	
  Name:

  	
  Belinda Stronach

  
	
   

  	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  FAIR
  ENTERPRISE LIMITED

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  by

  	
  “signed”

  
	
   

  	
   

  	
  Name:

  	
  EFG Trust Company Limited, by its director Sean Coughlan

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “signed”

  
	
   

  	
   

  	
  Name:

  	
  EFG Corporate Services Limited, by its
  director Kevin Mercury

  
	
   

  	
   

  	
  Title:

  	
  Director

  

 

 

SCHEDULE A

 

TERM SHEET

 

 

 

INDICATIVE TERM SHEET

 

NOVEMBER 26, 2008

(all amounts are US$)

 

The transactions contemplated by this Term
Sheet are collectively referred to herein as the “Transactions”.  Certain of the Transactions to be effected on
or after the closing date (referred to herein as the “Closing Date”) will be
subject to approval by MID’s shareholders (including by a majority of the votes
cast by MID’s minority Class A shareholders).  The date on which the Transactions are
publicly announced is referred to herein as the “Announcement Date”.

 

MI Developments Inc. is referred to herein as
“MID” and Magna Entertainment Corp. is referred to herein as “MEC”.  The Class A Subordinate Voting Shares of
MID are referred to herein as “MID Class A Shares”, the shares of Class A
Subordinate Voting Stock of MEC are referred to herein as “MEC Class A
Shares” and the shares of Class B Stock of MEC are referred to herein as “MEC
Class B Shares”.  Frank Stronach,
together with Stronach Trust and Fair Enterprise Limited and their respective
subsidiaries (but, for greater certainty, excluding MID, MEC and Magna
International Inc. and their respective subsidiaries), are collectively
referred to herein as “Stronach Group”. 
References to MID or MEC will be deemed to include references to such
parties’ subsidiaries or successors, as applicable.

 

On the
Announcement Date, MID, MEC and Stronach Group will enter into an agreement
(the “Transaction Agreement”) whereby each of them will agree to complete as
promptly as commercially reasonable the respective transactions referred to in
this Term Sheet to which they are a party.

 

1.                                      New Loan to MEC and
Changes to Existing Loans

 

(a)                                  MEC
will covenant in the Transaction Agreement to use commercially reasonable
efforts to sell or enter into joint ventures in respect of its assets,
including without limitation its core racetrack assets, that will result in MEC
receiving net sale proceeds or joint venture payments sufficient to retire or
extinguish no later than December 14, 2009 all of its $75 million 7.25%
convertible subordinated notes due December 15, 2009 and its $150 million
8.55% convertible subordinated notes due June 15, 2010 (collectively, the “MEC
Subordinated Notes”).

 

(b)                                 On
the Announcement Date, MID will make available to MEC a new loan (the “New Loan”).  The New Loan will have two tranches: (i) a
first tranche in the amount of up to $50 million (plus costs and fees in
respect of the New Loan) to fund MEC through the Closing Date (the “New Loan
First Tranche”) and (ii) a second tranche in the amount of up to $60
million (the “New Loan Second Tranche”) to fund costs associated with the
application by Laurel Park, a subsidiary of MEC, for a Maryland slots license
and, provided that such license is awarded, the costs associated with building
the temporary slots facility.  The New
Loan will bear interest at the rate of LIBOR plus 12%, will be guaranteed by
certain subsidiaries of MEC and will be secured by substantially all the assets
of MEC and the guarantors (subject to prior encumbrances).  The New Loan will contain customary terms and
conditions acceptable to MID.

 

 

·                  The New Loan
First Tranche will be available for drawdown on the Announcement Date and all
requests for drawdowns under the New Loan First Tranche will be in accordance
with weekly cash flow forecast reports to be delivered by MEC to MID and used
solely to fund (i) operations, (ii) payments of principal or interest
and other costs under the New Loan and under other loans provided by MID to
MEC, (iii) mandatory payments of interest in connection with permitted
debt (as defined in the New Loan), (iv) maintenance capital expenditures
and (v) capital expenditures required pursuant to the terms of MEC’s joint
venture arrangements with Forest City Enterprises and Caruso Affiliated.  The New Loan First Tranche will mature on March 31,
2009, subject to accelerated maturity in the event that the Transactions do not
receive the requisite MID shareholder approval or are abandoned or withdrawn
(any such event, a “Transaction Termination Event”) to thirty (30) days
following such Transaction Termination Event.

 

·                  The New Loan
Second Tranche will be available for drawdown (i) in an amount of up to
$30 million to fund the initial license fee and any additional slots license
application costs for the application by Laurel Park for a Maryland slots
license, subject to MID’s satisfaction, in its sole and absolute discretion,
with such application and (ii) following receipt of the Maryland slots
license, in an amount of up to an additional $30 million to fund the
construction of the temporary slots facility at Laurel Park, subject to MID’s
satisfaction, in its sole and absolute discretion, with the municipal
approvals, design and construction of such facility.  Laurel Park is a subsidiary of The Maryland
Jockey Club group of companies (“MJC”), which are subsidiaries of MEC.  At such time as the New Loan Second Tranche
is made available to MEC, the New Loan will be guaranteed by MJC and secured by
a charge over all of such companies’ assets that ranks prior to all
encumbrances on such assets other than encumbrances that secure the existing
third party bank loans to MJC as of the Announcement Date up to an aggregate
maximum of $15 million (the “MJC Existing Loans”) and customary permitted
encumbrances.  In the event that the
third party bank will not permit second-ranking encumbrances to be registered
against the MJC assets, the amount of the New Loan Second Tranche will be
increased by the amount necessary to pay out in full the MJC Existing Loans
(subject to an aggregate maximum of $75 million).  The New Loan Second Tranche will mature on December 31,
2011, subject to accelerated maturity to (i) ninety (90) days following
the Laurel slots application being denied or withdrawn, (ii) immediately
on the closing of any sale of Laurel Park or (iii) immediately on the
closing of any new financing in connection with Laurel slots.  MEC will be required to repay the New Loan
Second Tranche upon receipt of any refunds of any license fees and license
application fees if the Laurel slots application is denied or withdrawn.

 

(c)                                  On
the Announcement Date, each of the maturity date of the existing bridge loan to
MEC from MID (the “Bridge Loan”), the repayment deadline for $100 million under
the project financing facility for Gulfstream Park (the “Gulfstream Facility”)
and the date until which repayments under the Gulfstream Facility and the
project financing facility for Remington Park (the “Remington Facility”) would
not be subject to a make-whole 

 

2

 

                                                payment,
will be extended by MID as permitted under the terms of the agreements
governing such loans, to March 31, 2009, subject to accelerated maturity
in the event of a Transaction Termination Event to thirty (30) days following
such Transaction Termination Event.

 

(d)                                 The
transactions set forth in Sections 1(b) and 1(c) above are
conditional on MEC extending its $40 million credit facility with a Canadian
chartered bank such that it matures no earlier than March 16, 2009,
subject to accelerated maturity to fifteen (15) days following a Transaction
Termination Event.

 

(e)                                  MEC
will agree to pay to MID fees in connection with the New Loan, the extensions
to the Bridge Loan, Gulfstream Facility and the Remington Facility that are
substantially similar to the fees historically paid by MEC to MID in connection
with the existing loans.

 

(f)                                    On
the Closing Date, (i) each of the maturity date of the New Loan First
Tranche, the Bridge Loan, the repayment deadline for $100 million under the
Gulfstream Facility and the date until which repayments under the Gulfstream
Facility and the Remington Facility would not be subject to a make-whole
payment, will be extended to December 14, 2009 (subject to further
extension in the event that the MEC Subordinated Notes Retirement Date occurs
after October 30, 2009 and on or before December 14, 2009, to the
Conversion Date), (ii) the amount of the New Loan First Tranche will be
increased by $25 million to $75 million, with such additional $25 million to be
available to MEC only for the purpose of contributing to the retirement or
extinguishment of all of the MEC Subordinated Notes and (iii) the New Loan
First Tranche, the Bridge Loan, the Gulfstream Facility and the Remington
Facility will be amended to provide for (A) the deferral of interest and
principal repayments until the day immediately preceding the maturity date, (B) the
obligation of MEC on the Conversion Date to repay such facilities in full
(including all deferred interest) with, at MEC’s option, cash and/or MEC Class A
Shares as set forth in Section 3(b) below and (C) the
requirement that MEC place into escrow with MID (the “Escrow”) the net proceeds
from any equity raises, asset sales (other than the MID Real Estate Purchases
described in Section 2(a) below), joint ventures or other
transactions.  MID will hold the Escrow
as security for the loans to MEC, and MEC will be permitted to use the funds in
the Escrow solely (i) to prepay in cash, from time to time, in the
following order of priority, the Gulfstream Facility, the Bridge Loan, the New
Loan and the Remington Facility (for greater certainty, without being charged
any mark-to-market or make-whole payment in relation to any such prepayment)
and (ii) to retire or extinguish, in whole but not in part, the MEC
Subordinated Notes.  Any cash received by
MID pursuant to a prepayment of the Gulfstream Facility, the Bridge Loan, the
New Loan First Tranche and the Remington Facility will be distributed to MID
shareholders, either as a special distribution or pursuant to an issuer bid for
MID Class A Shares.

 

(g)                                 In
the Transaction Agreement, MEC will covenant not to incur any additional
indebtedness until the earlier of (i) the repayment in full of all loans
owing to MID (other

 

3

 

                                                than
the New Loan Second Tranche) and (ii) the Loan Conversion (as defined in Section 3(b) below).

 

2.                                      MID Real Estate
Purchases

 

(a)                                  On
the Closing Date, MID will purchase from MEC for cash development lands in
Aventura, Florida, Ocala, Florida and Dixon, California, additional acreage in
Palm Beach, Florida, and MEC’s membership interest in, and land underlying, the
joint venture with Forest City Enterprises at Gulfstream Park (collectively,
the “MID Real Estate Purchases”).  The
purchase price for the MID Real Estate Purchases will be the fair market value
of such assets as of the Announcement Date as determined by negotiation between
the Special Committees of MID and MEC. 
For illustrative purposes, MID estimates that the purchase price will be
approximately $100 - $120 million.  The
actual purchase price for the MID Real Estate Purchases will be included in the
management information circular prepared by MID in connection with the
Transactions.

 

(b)                                 MEC
will use the proceeds from the MID Real Estate Purchases to (i) repay its
$40 million credit facility with a Canadian chartered bank, (ii) repay the
$4.5 million term loan to a U.S. bank in connection with MEC’s Amtote
International subsidiary and (iii) for operational and working capital
purposes in accordance with the restrictions on use of proceeds set forth for
the New Loan First Tranche as described above.

 

3.                                      Separation of MID and
MEC

 

(a)                                  On
the date (the “MEC Subordinated Notes Retirement Date”) on which MEC has
retired or extinguished all of the MEC Subordinated Notes in cash, through an
equity raise (including a conversion of such notes into MEC Class A
Shares), asset sales or by means of any other transaction that does not involve
MEC incurring additional indebtedness, MID will (i) sell to Stronach Group
335,000 MEC Class B Shares for a price per share of $1.3552, being the
volume-weighted average price of the MEC Class A Shares on NASDAQ for the
five trading days immediately prior to the Announcement Date (the “MEC Share
Price”) and (ii) convert its remaining 2,588,302 MEC Class B Shares
into MEC Class A Shares on a one-for-one basis in accordance with the
existing terms of the MEC Class B Shares and dispose of such shares and
the 218,116 MEC Class A Shares currently owned by MID to one or more
non-related third parties.

 

(b)                                 On
the date (the “Conversion Date”) that is forty-five (45) days after the MEC
Subordinated Notes Retirement Date, the New Loan First Tranche, the Bridge
Loan, the Gulfstream Facility and the Remington Facility (including, in each
case, all deferred interest) will, at MEC’s option, either (i) be repaid
in cash by MEC, in whole or in part, or (ii) be converted (the “Loan
Conversion”) into MEC Class A Shares. 
The conversion price for all such loans that form part of the Loan
Conversion will be $1.1519 per share, being the MEC Share Price less a 15%
discount (the “Conversion Price”).

 

4

 

(c)                                  On
the Conversion Date, MEC will issue to Stronach Group at a price per share
equal to the Conversion Price (i) $30 million of MEC Class B Shares
and (ii) at the option of Stronach Group, up to that additional number of
MEC Class B Shares, if any, that, together with the MEC Class B
Shares sold to Stronach Group by MID and the MEC Class B Shares acquired
by Stronach Group pursuant to clause (i) of this Section 3(c), will
represent a 60% voting interest in MEC after giving effect to the Transactions
and the Loan Conversion.

 

(d)                                 As
soon as reasonably practicable following the Conversion Date, MID will spin
off, by way of return of capital, to holders of MID shares (including Stronach
Group on its existing MID shares and the MID shares acquired by Stronach Group
as contemplated in Section 5 below) on a pro rata basis, all MEC Class A
Shares received pursuant to the Loan Conversion.  MID will apply to the Canada Revenue Agency
for a tax ruling with respect to the MEC spin-off by way of return of
capital.  The receipt of a tax ruling is
not a condition to the completion of the Transactions and, in the event that
the tax ruling is not obtained or is delayed, MID will determine in its sole
discretion how to effect the MEC spin-off.

 

4.                                      MEC Forbearance

 

MID will agree that, after the Closing Date, other
than pursuant to arrangements existing at the Announcement Date or contemplated
by this Term Sheet, it will not, without the prior approval of the majority of
the votes cast by minority holders of MID Class A Shares, (a) enter
the horseracing or gaming business or enter into any transactions with entities
in the horseracing or gaming business, (b) make any further debt or equity
investment in, or otherwise give financial assistance to, MEC or (c) enter
into any transactions with, or provide any services or personnel to, MEC;
except (i) pursuant to the terms of arrangements existing on the Closing Date
or entered into after the Closing Date in compliance with this Section 4,
including the enforcement of rights thereunder or (ii) amendments, waivers
or modifications to the terms of arrangements existing on the Closing Date,
which amendments, waivers or modifications are not material.

 

5.                                      Stronach Group Equity
Interest in MID

 

On the Closing Date, Stronach Group will purchase
from MID a number of units (the “Units”) equal to 5% of the outstanding number
of MID Class A Shares and MID Class B Shares as at, and after taking
into account the impact of, the closing of the Transactions.  Each Unit will be comprised of (a) one
MID Class A Share and (b) one three-year warrant to purchase an MID Class A
Share.  The purchase price for the Units
will be $8.37 per Unit, being the volume-weighted average price of the MID Class A
Shares on the NYSE for the five trading days immediately prior to the
Announcement Date (the “Unit Purchase Price”). 
The exercise price for the warrants will be $10.46, representing a 25%
premium to the Unit Purchase Price (without any adjustment for the MEC
spin-off).

 

5

 

6.                                   New Debt and
Substantial Issuer Bid

 

(a)                                  MID
will use commercially reasonable efforts to arrange approximately $325 million
of new debt financing (the “New  Debt”)
that will be available on the Closing Date to fund the MID Real Estate
Purchases and a substantial issuer bid (“SIB”) to acquire MID Class A
Shares.  The New Debt may include a
public bond issue, term bank facilities and/or a bank revolving credit
facility, and MID will publicly disclose the amount of New Debt for which it
has commitments in place in advance of the MID shareholder meeting to be held
to consider the Transactions.  After
incurring the New Debt, MID’s pro forma debt-to-capitalization ratio (assuming
the separation of MID and MEC as described above under Section 3 and after
giving effect to the SIB) will be approximately 40%, but in no event will
exceed 40%.

 

(b)                                 MID
intends to redeem not less than $240 million of MID Class A Shares
pursuant to the SIB.  If MID is not able
to arrange sufficient New Debt to undertake a $240 million SIB commencing
promptly following the Closing Date, MID will proceed with the SIB in a lesser
amount and undertake to redeem additional MID Class A Shares pursuant to a
subsequent substantial issuer bid and/or a normal course issuer bid as soon as
additional financing is available to MID on commercially reasonable terms, such
that the total amount expended by MID to acquire MID Class A Shares
pursuant to the SIB and the subsequent substantial issuer bid and/or normal
course issuer bid is not less than $240 million.  MID will determine the SIB price per share at
the time that the SIB is commenced, which price will be not less than the
market price for the MID Class A Shares at such time.  For greater certainty, the Stronach Group
will not tender any MID Class A Shares to the SIB (or any subsequent stock
buybacks necessary to increase the amount of MID Class A Shares acquired
by MID to $240 million).  MID anticipates
that no formal valuation of the MID Class A Shares will be required given
the availability of the liquid market exemption under Multilateral Instrument
61-101.

 

7.                                   Dividend Distribution
Policy

 

On the Closing Date, MID will adopt a policy of
distributing 40% of its annual funds from operations (adjusted to exclude
deferred interest and other income from MEC) to MID shareholders as
dividends.  The policy will become
effective for the first full fiscal quarter following the Closing Date.

 

8.                                   Required MID Approvals

 

Those Transactions to be completed on or after the
Closing Date will not be effected until such time as all required legal,
regulatory and shareholder approvals have been obtained, including approval by (a) a
majority of the votes cast by MID’s minority Class A shareholders and (b) the
Ontario Superior Court of Justice of the statutory plan of arrangement pursuant
to which certain of the Transactions will be effected.

 

6

 

SCHEDULE B

 

MEC PROPERTIES(1)

 

(1)           All
acreages are approximate.

 

Florida

 

Aventura (26 acres)

 

Village of Gulfstream Park membership
interest and land underlying the ground lease (64 acres)

 

Palm Meadows Estates (17 acres)

 

Ocala (492 acres)

 

California

 

Dixon (257 acres)

 

 

 

SCHEDULE C

 

STRONACH GROUP MID SECURITIES

 

	
  Name of Shareholder

  	
   

  	
  Number of MID
  Class A

  Subordinate Voting Shares

  Beneficially Owned

  	
   

  	
  Number of

  MID Class B Shares

  Beneficially Owned

  	
   

  
	
  445327 Ontario Limited

  	
   

  	
     N/A

  	
   

  	
  363,414

  	
   

  
	
  Fair Enterprise Limited

  	
   

  	
  50,000

  	
   

  	
    20,000

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00150-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00150-of-00352.parquet"}]]