Attractions Hippiques issues formal demand to Loto-Québec to meet its obligations and compensate for damages



    MONTREAL, June 9 /CNW Telbec/ - Attractions Hippiques today sent a legal
demand to Loto-Québec calling on the state-owned corporation to meet its
obligations and compensate it for the significant financial damages it has
suffered due to an important breach of the contract resulting from a public
request for proposals. If Loto-Québec fails to resolve this matter,
Attractions Hippiques will examine all avenues for legal recourse at its
disposal.
    Attractions Hippiques states that Loto-Québec has unilaterally changed
the operating terms and conditions and the type of video lottery terminals
(VLTs) at the Ludoplexes in Trois-Rivières and Quebec City, which have
significantly reduced revenues. Specifically, Attractions Hippiques stresses
that Loto-Québec has introduced a gaming card system that limits the time and
total amount wagered on VLTs, a system that has not been applied anywhere else
in Quebec. Not only did Loto-Québec fail to make the necessary urgent
improvements to the badly received concept, but the government agency recently
dissolved its Ludoplex division. The Ludoplex restaurants at the
Trois-Rivières and Quebec City facilities have been closed, without
notification to Attractions Hippiques and in contravention of its operating
obligations.
    Attractions Hippiques also asserts that the government of Quebec and
Loto-Québec neglected their obligation to work with its private partner in
selecting a site north of Montreal to build a new Ludoplex. Michelle
Courchesne, Minister of Education, Recreation and Sports, and Minister
responsible for the Laval region, actually obstructed the project from the
start in Laval and made a public statement in the May 18, 2008 edition of
Courrier Laval, promising the public that no racetrack would be built in Laval
or north of Laval. At no time did Loto-Québec do anything to correct this
position. In fact, it seemed to be satisfied, noting that it did not want to
build a new Ludoplex either in Laval or north of Laval given the unsuccessful
business model. Without a Ludoplex at this new racetrack, Loto-Québec is
depriving Attractions Hippiques of annual royalties of $20 million from the
1,300 VLTs that would be located in this facility and operated by Loto-Québec.
    Since the 22% of the VLTs' net revenues earmarked for Attractions
Hippiques from the 1,900 machines promised by Loto-Québec has never
materialized, racetrack operations have been seriously undermined. As a
result, Attractions Hippiques has become unable to fulfill its contractual
obligations and was placed in a situation that has caused it significant
damages.
    From the outset, Attractions Hippiques has always acted in good faith and
has invested $74 million to improve its racetracks and in the purse amounts
paid out to participants in race programs. It has used every means to advance
the construction of a new racetrack in Laval or north of Laval. But it now
finds itself with a partner that has no intention of developing a vibrant
horse-racing industry in Quebec. Since Attractions Hippiques does not intend
to bear the consequences of Loto-Québec's bad choices and negligence and the
government's actual obstruction to the implementation of the RFP, it has no
choice but to consider such legal action.

    Copy of legal demand attached

    
             Non-certified translation of French Demand letter.

    June 9th, 2008

    Without Prejudice

    By e-mail and by messenger

    Société des loteries du Quebec
    500 Sherbrooke Street West, 16th floor
    Montreal, Quebec
    H3A 3G6

    Attention: Mr. Alain Cousineau, President
    -----------------------------------------

    RE: Attractions Hippiques (Montréal) L.P.
        Attractions Hippiques (Québec) L.P.
        Attractions Hippiques (Trois-Rivières) L.P.
        Attractions Hippiques (Aylmer) L.P.
        (collectively referred to as "AHQ")

    Dear Sir:

    We represent AHQ, who, as you know, was awarded the Request For Proposals
    of August 2005 issued by Société nationale du cheval de course
    ("SONACC") in collaboration with the Government of Quebec in respect of
    the purchase of the SONACC assets and the operations of the four major
    race tracks and Hippo Clubs in the Province of Quebec (the "RFP").

    The goal of the RFP was to find a party who in collaboration with Loto
    Quebec ("LQ") was prepared to make the necessary financial investment and
    devote the necessary management to develop the horse racing industry in
    the Province of Quebec into a viable industry.

    To this end AHQ undertook, in the contracts which emanated, to rebuild
    and renovate the race tracks at Quebec City, Three Rivers and Aylmer, and
    to move and build a new race track for Montreal in the area defined as
    the Couronne Nord.

    LQ undertook to build and manage new gaming halls adjacent to all race
    tracks other than Aylmer from which AHQ was to derive 22% of the net
    revenues from 1900 Video Lottery Terminals ("VLT") located in there
    gaming halls. Pursuant to the RFP the new gaming halls were to contain
    gaming areas, restaurants and bars with animation and other activities
    specific for each site. This was referred to as LQ's "innovative
    solution" to insure the viability of operating the race tracks and the
    horse racing industry in Quebec.

    The RFP clearly indicated that the gambling controls and preventative
    measures in the new gaming halls would be the same as those in use with
    respect to the existing VLTs in use in the Province of Quebec. LQ's 2004-
    2007 development plan indicated that the expected payment from the
    1900 VLT machines would be $32.6 million per year.

    In addition to the above the new Couronne Nord site was to be selected by
    AHQ in collaboration with LQ and each would co-operate with each other to
    insure the construction of the new Montreal race track and adjacent
    gaming hall within stipulated delays. The gaming hall would contain
    1300 VLT machines to be operated in accordance with the above provisions
    and this was to be the effective motor for the entire investment.


      Events to date with respect to Gaming Halls and Couronne Nord site
      ------------------------------------------------------------------

    AHQ has proceeded to renovate and rebuild the race track buildings and
    sites in Quebec City, Three Rivers and Aylmer at a cost in excess of
    $40,000,000. LQ has proceeded to build its new gaming halls at the
    Quebec City and Three Rivers race tracks (the "Ludoplex"). Both locations
    have been fully operational for several months.

    Without consultation with AHQ, LQ has changed the format under which its
    VLT machines are operated in the Ludoplex locations. The competing VLT
    machines which are operated in locations in the remainder of Quebec do
    not use this new format. In the Ludoplex locations LQ has put in place a
    system that obliges every VLT customer to possess a Ludoplex card. The
    Ludoplex card is required to start a gaming session with a VLT machine
    and a maximum betting amount and time is established. Once the maximum is
    reached the Ludoplex card is deactivated and the customer can no longer
    play the VLT machine.

    The Ludoplex card is not used anywhere else in Québec other than the
    Ludoplex locations. Moreover, to AHQ's knowledge, the Ludoplex card has
    not been tested with respect to its commercial acceptance. The decision
    to implement the Ludoplex card system was made by LQ without consultation
    or advice to AHQ and was not contemplated or mentioned as part of the RFP
    and clearly constitutes a material change in the business venture
    contemplated by the RFP.

    AHQ's gaming experts believe that the Ludoplex card restrictive system is
    one of the major causes of the reduction in projected revenue. The
    Ludoplex card encourages customers to go to the bars and restaurants and
    other locations where no Ludoplex card system exists. Added to this is
    the fact that the Ludoplex gaming halls are non enticing, and lack in
    animation.

    The result of the foregoing is that AHQ only receives approximately 35%
    of the forecasted revenue from the VLT machines located in Trois-Rivières
    and Quebec Ludoplex.

    By simple comparison the 65 VLT machines in Three Rivers and the 100 VLT
    machines in Quebec City managed by AHQ (both in temporary sites without
    Ludoplex card restraints in 2007) generated more revenue than the 200 VLT
    machines in the Three Rivers Ludoplex and the 335 VLT machines in the
    Quebec City Ludoplex managed by LQ (both subject to Ludoplex card
    system).

    This material change in operations constitutes a fundamental breech of
    LQ's obligations to manage and market its Ludoplex VLT operations in the
    manner set forth in the RFP and of AHQ's reasonable expectation at the
    time of submitting its proposal that no material change would be made to
    same which could have a dramatic impact on its main source of revenue.

    To date, the Ludoplex operation has proved to be a financial disaster and
    LQ has publicly declared same to be a failure. Moreover LQ has clearly
    given up on this business model and same has not proven to be its
    "innovative solution" to success. In April 2008 and after much publicity
    as to the construction of a new Ludoplex at Mount Tremblant, LQ announced
    it would not build a Ludoplex but would build a full casino in lieu
    thereof. The Ludoplex division has furthermore been dissolved and its
    employees report to the general VLT division.

    On April 18, 2008 LQ announced in the press that it was removing 100 VLT
    machines from the Ludoplex and was replacing same with 10 Texas Hold'em
    electronic poker tables. AHQ upon learning of same requested information
    in respect of the financial impact of this decision and has yet to
    receive any reply. AHQ is unable to project its future revenues or advise
    its stakeholders, including the racing industry and its bankers as to the
    impact of this unilateral decision which once again has a material impact
    on its revenue.

    Recently AHQ has learned through the media that LQ is closing the
    Ludoplex restaurants in Quebec and Three Rivers, once again without
    consultation or advice to AHQ, and thus effecting a further material
    change to the LQ business model stipulated in the RFP as its "innovative
    solution".

    LQ's above actions in the management and operations of the gaming halls
    are in complete violation of the spirit and intent of the RFP, the
    contracts which emanated from same and the obligations of co-operation
    and collaborations envisioned in the joint effort to achieve the goals of
    the RFP.

    To date AHQ in fulfillment of its obligations has invested in excess of
    $74,000,000 to revive and develop the horse racing industry in Quebec. LQ
    is well aware that a key part of the re-development of the industry was
    the projected construction of the new Montreal race track and the
    Ludoplex facility in the Couronne Nord in which 1300 VLT machines were to
    be located and from which AHQ was to receive 22% of the net revenue.

    The building of the new facility requires a large assembly of land. AHQ
    has attempted to assemble the necessary land in the Couronne Nord to
    build the new race track and Ludoplex facility, but has been frustrated
    in this effort by the lack of necessary support, co-operation and
    collaboration of LQ and by the obstruction of a representative of the
    Quebec Government.

    AHQ has investigated approximately 15 sites on a preliminary basis and
    pursued detailed studies in respect of approximately 7 sites. In each
    case AHQ sought the necessary city support and the support of LQ and the
    Government of Quebec to help alleviate concerns of the various Mayors and
    their citizens with respect to the Ludoplex. The support of LQ and the
    Government of Quebec was never forth coming and moreover in the last
    three months there was a constant under current that LQ had no desire to
    build a new Ludoplex location in the Couronne Nord due to its failed
    business plan.

    In addition, a representative of the Quebec Government went out of her
    way to insure that key sites in her riding would not be used for the race
    track and Ludoplex location. However, LQ and the Quebec Government did
    nothing to counter act these actions.

    By way of example AHQ obtained options on various parcels of land in
    Laval and Boisbriand. The Mayor of Laval originally supported the
    proposed sites and project, however Minister Michelle Courchesne in whose
    riding the prime site was located aggressively objected to the sites. She
    convened meetings with the Mayor and LQ not to support any sites in her
    riding.

    At no time did LQ show its support and collaborate with AHQ in order to
    change this attitude. Moreover the aforesaid Minister went public with a
    statement in the Courrier Laval of May 18, 2008 that no hippodrome would
    be built in Laval or the Couronne Nord. LQ at no time did anything to
    correct this position and, to the contrary, seemed to be content and
    agree with same as it had abandoned the project to build a new Ludoplex
    in the Couronne Nord due to its failed business model. This approach is
    contrary to the intent and spirit of the RFP and agreements emanating
    therefrom and has made it virtually impossible for AHQ to acquire a site.

    Moreover in certain conversations with LQ's management it appeared to AHQ
    that neither LQ nor the Ministry of Finance wished to proceed with the
    Couronne Nord project. AHQ was stunned to hear this new preference being
    put forth by LQ and the Government. AHQ immediately advised LQ and the
    Government that if that was their position that AHQ would be entitled to
    be compensated for this material change of heart in respect of the
    project. LQ's management agreed with this principal and felt that same
    was a reasonable assumption.

    Notwithstanding the above LQ and the Government have not authorized a
    reasonable settlement of the matter and, to the contrary, have advised
    AHQ that it must fulfill its contractual obligations to the racing
    industry, this notwithstanding LQ's material changes, failed business
    plan, lack of collaboration in respect of the goals set out in the RFP
    and the specific obstruction of a member of the Government.

    The result of the foregoing is that AHQ which in good faith effected the
    above stated major investments and organized itself to make same in
    respect of the Couronne Nord now finds itself with a partner (LQ) who has
    no intention of collaborating with it in developing the horse racing
    industry in Quebec, and without limitation has:

    (1) made material changes without collaboration with or advice to AHQ in
        the way VLT machines are operated in the Ludoplex locations,
        resulting in significantly reduced revenue to AHQ;

    (2) failed in its business plan in respect of its Ludoplex concept and
        for which it has not taken urgently any significant and diligent
        action to correct;

    (3) abandoned its obligation to collaborate with AHQ and is obstructing
        AHQ in the selection of a Couronne Nord site and the building a
        Ludoplex complex thereon;

    (4) not acted in a loyal and good faith manner with AHQ and has not
        fairly collaborated with AHQ in pursuance of the goal and project
        envisioned by the RFP;

    (5) directly and indirectly made it impossible for AHQ to fulfill its
        contractual obligations;

    (6) placed AHQ in a situation whereby it will suffer significant damages
        as a result of LQ's Bad Faith actions.

    Accordingly be advised that AHQ intends to hold LQ fully responsible for
    all of the foregoing and advises that the damages suffered by AHQ as a
    result of LQ's fault and negligence or want of skill will be substantial.
    Failing a resolution of this matter within a period of one week of these
    presents AHQ will have no other choice other than to institute legal
    proceedings without further notice or delay.

    Do govern yourselves accordingly.

    Yours very truly,

    STEIN & STEIN INC.

    Per: Neil H. Stein

    cc.    Mr. Paul J. Massicotte
           Mrs. Monique Jérôme Forget, Ministre des Finances
           Mr. Jean Houde, Sous-ministre des Finances
    




For further information:

For further information: Ian G. Wetherly, President & Chief Operating
Officer, Attractions Hippiques, (514) 739-2741 ext. 2221

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