Exhibit 10.14


 


CONFIDENTIAL


 


RACING
SERVICES AGREEMENT


 


among


 


MEC RACING
MANAGEMENT


 


MOUNTAIN
LAUREL RACING, INC.


 


WASHINGTON
TROTTING ASSOCIATION, INC.


 


MEC PENNSYLVANIA
RACING, INC.


 


MEC
PENNSYLVANIA FOOD SERVICE, INC.


 


and


 


MEC
PENNSYLVANIA RACING SERVICES, INC.


 


 


Dated July 26,
2006


 

















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
   

  	
  DEFINITIONS

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
   

  	
  APPOINTMENT

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
   

  	
  RACING SERVICES

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  General

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  3.2

  	
   

  	
  Additional Covenants and
  Obligations of Operator

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  3.3

  	
   

  	
  Access to Racing Premises

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  3.4

  	
   

  	
  Cooperation in Stock
  Transfer

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
   

  	
  RESERVATION OF OWNERS’ AUTHORITY AND RIGHTS

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  Reservation of Rights

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  4.2

  	
   

  	
  Right of Inspection and
  Information

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  4.3

  	
   

  	
  Right to Take Certain Actions

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
   

  	
  TERM

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
   

  	
  COMMON SPACES

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Duty to Preserve Common
  Spaces

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  6.2

  	
   

  	
  Costs and Expenses
  Relating to Common Spaces

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  6.3

  	
   

  	
  Revenues Relating to
  Common Spaces

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
   

  	
  TABLE OF ORGANIZATION; BUSINESS PLAN; STATUS CONFERENCES

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  Submission of Table of
  Organization and Business Plan

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  7.2

  	
   

  	
  Table of Organization

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  7.3

  	
   

  	
  Annual Business Plan

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  7.4

  	
   

  	
  Approval Process

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  7.5

  	
   

  	
  Status Conferences

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
   

  	
  EMPLOYEES AND PERSONNEL

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  Employer

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  8.2

  	
   

  	
  Duties

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  8.3

  	
   

  	
  Costs and Expenses of
  Employees and Personnel

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  8.4

  	
   

  	
  Management; Compliance
  with Laws Relating to Employees

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  8.5

  	
   

  	
  Employee Policies and
  Reports

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  8.6

  	
   

  	
  Hiring of Casino Employees

  	
  22

  



 


i

















 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  8.7

  	
   

  	
  Employee Compensation;
  Benefits

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  8.8

  	
   

  	
  Resolution of
  Disagreements Over Employee Matters

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  8.9

  	
   

  	
  Local 137 Health Plan

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  8.10

  	
   

  	
  Gaming Employees

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
   

  	
  REPRESENTATIVES

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
   

  	
  CONSTRUCTION

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  Casino

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  10.2

  	
   

  	
  Renovated Racing Areas

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  10.3

  	
   

  	
  Consultation

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
   

  	
  CAPITAL IMPROVEMENTS/ALTERATIONS AND REPAIRS

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  11.1

  	
   

  	
  Maintenance Capital
  Replacements

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  11.2

  	
   

  	
  Racing Capital
  Replacements and Shared Capital Replacements

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  11.3

  	
   

  	
  Capital Replacements and
  Repairs Resulting From Acts of Operator

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  11.4

  	
   

  	
  Discretionary Capital
  Replacements

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  11.5

  	
   

  	
  Emergency Capital
  Replacements

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  11.6

  	
   

  	
  Legally Compelled Capital
  Replacements

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  11.7

  	
   

  	
  Implementation of Capital
  Replacements

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  11.8

  	
   

  	
  Ownership of Capital
  Replacements

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  11.9

  	
   

  	
  Capital Replacements
  During Gaming License Application Period

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
   

  	
  BANK ACCOUNT; WORKING CAPITAL; FINANCIAL STATEMENTS; ACCOUNTING

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
   

  	
  Operator’s
  Responsibilities for Pre-Existing Matters

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  12.2

  	
   

  	
  Operating Accounts

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  12.3

  	
   

  	
  Minimum Balance of the
  Operating Accounts

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  12.4

  	
   

  	
  Withdrawals; Operator’s
  Duty to Fund

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  12.5

  	
   

  	
  Operating Fee

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  12.6

  	
   

  	
  Financial Statements

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  12.7

  	
   

  	
  Right to Audit Operator

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  12.8

  	
   

  	
  Guaranty

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  12.9

  	
   

  	
  Waivers

  	
  31

  



 


ii

















 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 13

  	
   

  	
  MORTGAGES; DEBT ENCUMBRANCES; SUBORDINATION

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
   

  	
  Non Encumbrance

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.2

  	
   

  	
  Cooperation in Financing

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.3

  	
   

  	
  Access to Premises

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.4

  	
   

  	
  Foreclosure

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.5

  	
   

  	
  Subordination

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.6

  	
   

  	
  Estoppel Certificates

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 14

  	
   

  	
  CERTAIN REPRESENTATIONS AND WARRANTIES

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  14.1

  	
   

  	
  Authorization

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  14.2

  	
   

  	
  No Conflicts

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 15

  	
   

  	
  DEFAULT; TERMINATION; WINDING UP

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  15.1

  	
   

  	
  Default by Operator

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  15.2

  	
   

  	
  Default by Owners

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  15.3

  	
   

  	
  Curing of Certain Events
  of Defaults

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  15.4

  	
   

  	
  Termination Events

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  15.5

  	
   

  	
  Rights and Remedies Upon
  Termination

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  15.6

  	
   

  	
  Winding Up; Working
  Capital Adjustment; Transition Services

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  15.7

  	
   

  	
  Limited Termination in
  Certain Events

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 16

  	
   

  	
  CONDEMNATION AND DESTRUCTION

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  16.1

  	
   

  	
  Condemnation

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  16.2

  	
   

  	
  Destruction

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 17

  	
   

  	
  NON-COMPETITION

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 18

  	
   

  	
  INSURANCE

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  18.1

  	
   

  	
  Operator’s Insurance
  Obligations

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  18.2

  	
   

  	
  Providers; Additional
  Endorsements

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  18.3

  	
   

  	
  Insurance Policy
  Inspection

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  18.4

  	
   

  	
  Waiver of Subrogation

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 19

  	
   

  	
  INDEMNIFICATION

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  19.1

  	
   

  	
  Indemnification By
  Operator

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  19.2

  	
   

  	
  Indemnification By Owners

  	
  44

  



 


iii

















 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  19.3

  	
   

  	
  Indemnification in General

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  19.4

  	
   

  	
  Indemnification Procedures

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  19.5

  	
   

  	
  Payment of Indemnified
  Losses

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  19.6

  	
   

  	
  Survival

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 20

  	
   

  	
  GENERAL

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  20.1

  	
   

  	
  No Warranties

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  20.2

  	
   

  	
  Further Assurances;
  Cooperation; Return of Monies

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
  20.3

  	
   

  	
  Confidentiality

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
  20.4

  	
   

  	
  Agency

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
  20.5

  	
   

  	
  Notices

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
  20.6

  	
   

  	
  Headings

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  20.7

  	
   

  	
  No Waiver

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  20.8

  	
   

  	
  Severability

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  20.9

  	
   

  	
  Entire Agreement

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  20.10

  	
   

  	
  Force Majeure

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  20.11

  	
   

  	
  No Subcontractors

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.12

  	
   

  	
  Transfers and Assignments

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.13

  	
   

  	
  No Third-Party
  Beneficiaries

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.14

  	
   

  	
  Amendment

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.15

  	
   

  	
  Governing Law;
  Jurisdiction; Service of Process

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.16

  	
   

  	
  Waiver of Jury Trial

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.17

  	
   

  	
  Specific Performance

  	
  52

  
	
   

  	
   

  	
   

  	
   

  
	
  20.18

  	
   

  	
  Attorneys Fees

  	
  52

  
	
   

  	
   

  	
   

  	
   

  
	
  20.19

  	
   

  	
  Counterparts

  	
  52

  
	
   

  	
   

  	
   

  	
   

  
	
  20.20

  	
   

  	
  Reasonableness

  	
  52

  
	
   

  	
   

  	
   

  	
   

  
	
  20.21

  	
   

  	
  Note Documents

  	
  52

  



 


iv

















 


CONFIDENTIAL


 


RACING SERVICES AGREEMENT


 


This
RACING SERVICES AGREEMENT (this “Services
Agreement”) is entered into as of July 26, 2006 (the “Effective Date”) by and among MEC
Pennsylvania Racing Services, Inc., a Delaware corporation (“Operator”), Mountain Laurel Racing, Inc.,
a Delaware corporation (“MLR”),
Washington Trotting Association, Inc., a Delaware corporation (“WTA”), MEC Pennsylvania Racing, Inc.,
a Pennsylvania corporation (“MECP”),
MEC Pennsylvania Food Service, Inc., a Pennsylvania corporation (“MPFS”) and MEC Racing Management (“MEM”, together with MLR, WTA, MECP and
MPFS each an “Owner” and
collectively, the “Owners”).
Each of the Operator and the Owners is referred to herein as a “Party” and collectively as the “Parties.”


 


W I T N E S S E T H :


 


WHEREAS, Operator possesses expertise in the business of operating pari-mutuel
racing facilities and off-track betting operations;


 


WHEREAS, Magna Entertainment Corp. (“Guarantor”),
a Delaware corporation and the parent corporation of Operator, entered into
that certain Stock Purchase Agreement, dated November 8, 2005, as amended
by that certain First Amendment to Stock Purchase Agreement, dated as of July 26,
2006 (as amended, the “Purchase Agreement”)
with PA Meadows, LLC (“Buyer”),
pursuant to which Guarantor sold to Buyer all of the issued and outstanding
shares of common stock of each of WTA, MLR and MECP;


 


WHEREAS, in connection with the consummation of the purchase and sale
transaction contemplated by the Purchase Agreement, Guarantor, Buyer and other
parties entered into the Post-Closing and Note Issuance Agreement dated as of
the Effective Date (the “Note Agreement”)
and the other Note Documents (as defined in the Note Agreement);


 


WHEREAS, MLR and WTA lease the Meadows Facility (as defined below) from MECP
and hold licenses authorizing them to engage in pari-mutuel racing and related
wagering (the “Racing Licenses”);


 


WHEREAS, the Meadows Facility currently contains (1) a simulcast area
with both an internal viewing area (i.e., a clubhouse area) and an external
viewing area (i.e., a grandstand) (collectively, the “Clubhouse”), (2) a racing
surface, (3) barns and backside areas, (4) a paddock, (5) a
horsemen’s lounge and (6) all other facilities necessary to conduct horse
racing operations ((1) through (6) collectively, together with all of
the properties relating to the OTBs, the “Racing
Premises”);


 


WHEREAS, Owners, directly or through MEM, also own land at One Anchor Drive,
Harmar Township, Pennsylvania, and lease or sublease the facilities set forth
on Exhibit A hereto at which off-track betting is conducted (each,
including such facilities as may be added and excluding such facilities as
may be removed in accordance with this Services Agreement, an “OTB”);


 


1

















 


WHEREAS, Owners have submitted an application to the Gaming Board to obtain a
Gaming License, and the Parties have agreed to cooperate (and cause their
respective Affiliates to cooperate) with one another to pursue the Gaming
License, as further set forth in the Purchase Agreement;


 


WHEREAS, Owners intend at the Meadows Facility (1) to construct one or more
new buildings for the conduct of slot machine gaming and related entertainment
activities (the “Casino”)
and (2) after they obtain a Gaming License, to rebuild certain of the
Racing Premises, including (i) the Clubhouse, (ii) the paddock, (iii) a
horsemen’s lounge and (iv) a cash room, office space and other ancillary
facilities comparable in size and function to that existing as of the Effective
Date (the “Renovated Racing Areas”);
and


 


WHEREAS, Owners wish to retain the services of Operator to manage and operate
the racing activities, and Operator wishes to provide such services, on the
terms and subject to the conditions set forth herein.


 


NOW, THEREFORE, in consideration of the covenants and conditions hereinafter set
forth to be kept and performed by Operator and Owners, the Parties agree as
follows:


 


ARTICLE 1


 


DEFINITIONS


 


“Accounting Procedures” has the meaning set forth in Section 15.6.5(a).


 


“Action” has the meaning set forth in the Purchase
Agreement.


 


“Affiliate(s)” of a
specified Person means any Person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by or is under common control
with, such specified Person, including such specified Person’s subsidiaries.
For purposes of this definition, “control” (including the terms “controlled by”
and “under common control with”) means the possession, directly or indirectly
or as a trustee or executor (in each case, acting in a fiduciary capacity), of
the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, as trustee or
executor (in each case, acting in a fiduciary capacity), by contract or credit
arrangement or otherwise. For purposes of clarity, Operator and its Affiliates
shall not be considered Affiliates of Owner and its Affiliates.


 


“Agreement” means any
oral or written contract, agreement, lease, sublease, instrument, guaranty,
commitment, arrangement or undertaking, and all modifications, amendments and
restatements thereof.


 


“Assumed Date” has the
meaning set forth in Section 11.6.2.


 


“Burdensome Legal Requirement”
means (i) with respect to an operating expense, an expense that directly
results from a new Law enacted after the Effective Date or an existing Law that
becomes applicable after the Effective Date that causes (or would be reasonably
expected to cause) Operator’s total operating expenses to increase 25% more
than a corresponding increase, if any, in Operator’s total revenues. For
purposes of determining satisfaction of the test outlined


 


2

















 


in the prior sentence, the
expected increase in “expenses” or “revenue” shall be compared to “expenses”
and “revenue” as determined on a trailing twelve month basis ending on the
month in which the calculation occurs; “expenses” shall mean recurring cash
operating expenses, exclusive of interest, taxes, depreciation, amortization
and Guarantor corporate overhead charges and allocations; and “revenues” shall
be calculated in a manner consistent with revenue as reported in the financial
statements of Owners prior to the Effective Date; and (ii) with respect to
an expense relating to a Legally Compelled Capital Replacement, in accordance
with the requirements set forth in Section 11.6.1.


 


“Business Plan” has
the meaning set forth in Section 7.1.1.


 


“Buyer” has the
meaning set forth in the Recitals.


 


“Capital Replacements”
means any improvements, modifications, refurbishing, remodeling, alterations,
additions, rebuilding or renovations that are capitalized or amortized, as
opposed to expensed, in accordance with GAAP.


 


“cash” means cash and
cash equivalents.


 


“Casino” has the
meaning set forth in the Recitals. For purposes of clarity “Casino” means
Temporary Casino until such time as the permanent Casino is built, and
thereafter “Casino” shall mean the permanent Casino; provided, however
that with respect to the use of the term Casino for purposes of the definition “Racing
Operations,” “Gaming Operations,” and Sections 3.1.22, 8.10, 10.2, 10.3, and
15.4.12 Casino shall mean only the permanent Casino and not the Temporary
Casino.


 


“Claim Notice” has the
meaning set forth in Section 19.4.2.


 


“Clubhouse” has the
meaning set forth in the Recitals.


 


“Common Spaces” has
the meaning set forth in Section 6.1.


 


“Effective Date” has
the meaning set forth in the Preamble.


 


“Employees” has the
meaning set forth in Section 8.1.


 


“Environmental Law(s)”
has the meaning set forth in the Purchase Agreement.


 


“Event of Default”
means either an Event of Default by Operator or an Event of Default by Owners,
or both.


 


“Event of Default by Operator”
has the meaning set forth in Section 15.1.


 


“Event of Default by Owners”
has the meaning set forth in Section 15.2.


 


“Export” means the
transmission of audio, visual and/or data signals with respect to harness races
conducted at the Meadows Facility as part of a race meet.


 


“Force Majeure” has
the meaning set forth in Section 20.10.


 


3

















 


“GAAP” means United
States generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession that are
applicable to the circumstances as of the date of determination, applied on a
consistent basis.


 


“Gaming Act” means the
Pennsylvania Race Horse Development and Gaming Act and any rules or
regulations enacted pursuant thereto, as such act and regulations are amended
from time to time.


 


“Gaming Board” means
the Pennsylvania Gaming Control Board established by the Gaming Act.


 


“Gaming Employee” has
the meaning set forth in Section 8.10.


 


“Gaming License” means
the license to conduct slot machine gaming at the Meadows Facility pursuant to
the Gaming Act.


 


“Gaming License Application Period”
means the period beginning on the Effective Date and ending on the earlier to
occur of (i) the completion of the Second Closing (as defined in the Note
Agreement); and (ii) a Stock Transfer Event.


 


“Gaming Operations”
means the issuance of the Gaming License and the business of slot machine
gaming pursuant to the Gaming Act, the food and beverage services at the
Meadows Facility (after the opening of the Casino), all entertainment
activities (other than the Racing Operations) and all operations related to or
included therein at the Meadows Facility. No Gaming Operations will be deemed
to be commenced until after the issuance of the Gaming License.


 


“Governmental Authority”
means any government, any governmental or government-appointed entity, department,
commission, board, agency, regulatory authority or instrumentality, and any
court, tribunal, or judicial body, whether federal, state, local or foreign, or
any arbitral body, including, without limitation, the PHRC and the Gaming
Board.


 


“Governmental Order”
has the meaning set forth in the Purchase Agreement.


 


“Guaranteed Obligations”
has the meaning set forth in Section 12.8.


 


“Guarantor” has the
meaning set forth in the Recitals.


 


“Holdback Agreement”
has the meaning set forth in the Purchase Agreement.


 


“Holdback Amount” has
the meaning set forth in the Purchase Agreement.


 


“Import” means the
receipt at the Meadows Facility or at any OTB of audio, visual and/or data
signals with respect to races conducted as part of another Person’s race
meet including, but not limited to, thoroughbred races, quarterhorse races and
harness races.


 


4

















 


“Indemnified Party”
has the meaning set forth in Section 19.3.3.


 


“Indemnifying Party”
has the meaning set forth in Section 19.3.3.


 


“Independent Accounting Firm”
has the meaning set forth in Section 15.6.5(c)(ii).


 


“Law(s)” means any and
all applicable statutes, laws, ordinances, regulations, rules, codes, orders,
decrees, other requirements and rules of law of any Governmental
Authority, country or any state, province, locality, region or area therein, or
any other jurisdiction as now or hereinafter in effect.


 


“Legally Compelled Capital
Replacements” has the meaning set forth in Section 11.6.1.


 


“Liabilities” means
any and all debts, liabilities and obligations of any kind, character or nature
whatsoever, whether accrued or fixed, known or unknown, asserted or unasserted,
absolute or contingent, matured or unmatured, secured or unsecured or
determined or determinable, including, without limitation, those arising under
any Law (including Environmental Law), Action or Governmental Order and those
arising under any Agreement.


 


“Licenses” means any
and all licenses, permits, franchises, approvals, certificates, registrations,
variances, authorizations and similar rights obtained or required to be
obtained from Governmental Authorities, including, without limitation, the
Racing Licenses.


 


“Losses” has the
meaning set forth in Section 19.1.


 


“Maintenance Capital Replacements”
has the meaning set forth in Section 11.1.


 


“Meadows Facility”
means the land described on Exhibit B hereto and all facilities,
buildings, improvements and other assets located on such land from time to
time.


 


“MECP” has the meaning
set forth in the Recitals.


 


“MEM” has the meaning
set forth in the Preamble.


 


“Minimum Balance” has
the meaning set forth in Section 12.3.


 


“MLR” has the meaning
set forth in the Preamble.


 


“MPFS” has the meaning
set forth in the Preamble.


 


“Net Working Capital”
means, for purposes of Section 15.6.5, total current assets minus
total liabilities of the Racing Operations calculated in accordance with GAAP;
provided, however, that the Parties agree that any potential or actual
withdrawal liability to any Multiemployer Plan (as defined in the Purchase
Agreement) shall not be part of Net Working Capital, including, without
limitation, if GAAP were to change the current classification of withdrawal
liability.


 


“Non-Union Employees”
has the meaning set forth in Section 8.1.


 


“Note Agreement” has
the meaning set forth in the Recitals.


 


5

















 


“Notice of Dispute”
has the meaning set forth in Section 15.6.5(c)(i).


 


“Operating Accounts”
has the meaning set forth in Section 12.2.


 


“Operating Standard” means
a manner of operation equivalent to


 


(i) with
respect to the treatment, handling and management of patrons and other
individuals at or around the Racing Premises or in connection with the Racing
Operations, in accordance with the standard of operations of the Gaming
Operations by Owners or their designees;


 


(ii) with
respect to amenities, functions (including, without limitation, cash handling,
security systems, License management, and administrative functions), employees
of the Racing Operations and all public access aspects of the Racing
Operations, in accordance with the operations as of the date hereof of the
racing facilities identified on Exhibit C hereto (the “Initial Standard”), with updates
consistent with industry practices, it being agreed that in the event the
average daily racing purses (based on the number of live racing days in any
given calendar year) at the Meadows Facility is equal to or greater than the
average daily racing purses (based on the number of live racing days in such
calendar year) at any other U.S. harness racing facility or facilities that has
or have an operational standard that, in the reasonable discretion of the
Owners, is higher than both facilities identified on Exhibit C,
then such other racing facility or facilities shall replace the Initial
Standard for operational purposes only, without increasing any Party’s
obligations under ARTICLE 11, which such obligations shall continue
to be measured by the Initial Standard; and


 


(iii) with
respect to the maintenance, upkeep and ordinary repair of the facilities,
building, fixtures, furniture and equipment:


 


(x) if they are visible by Casino customers in the ordinary course
of a visit to the Casino (including, but, not limited to, the tote board) but
are not a part of the Renovated Racing Areas, then in accordance with the
standard of maintenance, upkeep and ordinary repair applied to the Casino by
Owners or their designees;


 


(y) if they are not visible by Casino customers in the ordinary
course of a visit to the Casino or if they constitute part of the
Renovated Racing Areas, then in substantially the same condition as in
existence on the Effective Date, or, when and if renovated pursuant to ARTICLE 10,
in substantially the same condition as when delivered to Operator for operation;
and


 


(z) if they are located at or on the barns and “backside” area
(including, but not limited to, “backside” equipment), in accordance with past
practices but in no event less than a reasonable degree of maintenance and
upkeep;


 


provided, however, that
notwithstanding anything to the contrary set forth in this definition, prior to
the Repayment Date, the Operating Standard shall be a manner of operation
equivalent to the manner of operation consistent with past practices of Owners
prior to the Effective Date.


 


6

















 


“Operator” has the
meaning set forth in the Preamble.


 


“Operator’s Accountants”
has the meaning set forth in Section 15.6.5(a).


 


“Operator’s Representative”
has the meaning set forth in ARTICLE 9.


 


“Operator’s Share” has
the meaning set forth in Section 11.6.1.


 


“Ordinary Course Termination”
has the meaning set forth in ARTICLE 5.


 


“OTB” has the meaning
set forth in the Recitals.


 


“Owner(s)” has the
meaning set forth in the Preamble.


 


“Owners’ Representative”
has the meaning set forth in ARTICLE 9.


 


“Party” or “Parties” has the
meaning set forth in the Preamble.


 


“Pennsylvania Act”
means the Pennsylvania Race Horse Industry Reform Act, as amended, and any
rules or regulations promulgated thereunder.


 


“Person(s)” means and
includes natural persons, corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures, associations, companies,
land trusts, business trusts, Indian tribes or other organizations, whether or
not legal entities, and governments and agencies and political subdivisions
thereof.


 


“PHRC” means the
Pennsylvania Harness Racing Commission established by the Pennsylvania Act.


 


“Pre-Existing Liabilities”
has the meaning set forth in Section 12.1.


 


“Program” has the
meaning set forth in Section 8.4.


 


“Racing Capital Replacements”
has the meaning set forth in Section 11.2.1(c).


 


“Racing General Manager”
has the meaning set forth in ARTICLE 9.


 


“Racing Licenses” has
the meaning set forth in the Recitals.


 


“Racing Operations”
means the conduct of the harness racing business and operation at the Meadows
Facility, and the conduct of all of the business and operations at the OTBs,
and in both cases, all related wagering activity, including without limitation,
the Export and Import of signals (audio, visual and data) of harness races,
thoroughbred races and quarterhorse races and related wagering and other
related activities; provided,  however that Racing Operations excludes
food and beverage services at the Meadows Facility after the opening of the
Casino.


 


“Racing Operations Agreements”
means all Agreements now or hereafter in existence relating to the Racing
Operations. Exhibit D hereto lists the Racing Operations Agreements
as of the


 


7

















 


Effective Date. For the
avoidance of doubt, this Services Agreement is not a Racing Operations
Agreement for purposes of this Services Agreement.


 


“Racing Premises” has
the meaning set forth in the Recitals.


 


“Real Property” means
the real property owned, leased or subleased by any Owner or its subsidiary,
together with all buildings, structures and facilities located thereon.


 


“Renovated Racing Areas”
has the meaning set forth in the Recitals.


 


“Repayment Date” has
the meaning set forth in the Purchase Agreement.


 


“Seller Notes” has the
meaning set forth in the Purchase Agreement.


 


“Services Agreement”
has the meaning set forth in the Preamble.


 


“Shared Capital Replacements”
has the meaning set forth in Section 11.2.2.


 


“Statutory Capital Replacements”
has the meaning set forth in Section 11.1.


 


“Stock Transfer” has
the meaning set forth in the Note Agreement.


 


“Stock Transfer Event”
means (i) the occurrence of a Stock Transfer or (ii) Agent’s exercise
of the remedies set forth in

Section 8.2(c) of the Note Agreement.


 


“Stock Transfer Trigger Date”
has the meaning set forth in the Purchase Agreement.


 


“Table of Organization”
has the meaning set forth in Section 7.1.


 


“Tax” or “Taxes” means any and
all U.S. federal, state, local or foreign taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect
thereto) imposed by any Governmental Authority or amount owing to any party
relating to Taxes arising under any Tax law or agreement (including any joint
venture or partnership agreement), including, without limitation: taxes or
other charges on or with respect to income, franchises, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers’ compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, or gains taxes; license, registration
and documentation fees; and customs duties, tariffs and similar charges,
whether disputed or not and including any obligations to indemnify or otherwise
assume or succeed to the Tax liability of any other Person.


 


“Temporary Casino”
means the temporary casino that Owners intend to construct on the Meadows
Facility. The “opening” of the Temporary Casino means the first date on which
the Temporary Casino is open to the general public for slot machine gaming.


 


“Term” has the meaning
set forth in ARTICLE 5.


 


8

















 


“Termination Date Net Working Capital”
has the meaning set forth in Section 15.6.5(a).


 


“Termination Date Net Working Capital
Statement” has the meaning set forth in Section 15.6.5(a).


 


“Transition Period”
has the meaning set forth in Section 15.6.6.


 


“Union Agreements”
means all existing and future collective bargaining Agreements and similar
Agreements relating to the Employees, as such Agreements may be entered
into, amended, and terminated from time to time.


 


“Union Employees” has
the meaning set forth in Section 8.1.


 


“Useful Life” has the
meaning set forth in Section 11.6.1.


 


“WTA” has the meaning
set forth in the Preamble.


 


ARTICLE 2


 


APPOINTMENT


 


Owners
appoint Operator as their exclusive agent during the Term for the management of
the Racing Operations and the Racing Premises. Operator accepts such
appointment on the terms and subject to the conditions set forth herein.


 


ARTICLE 3


 


RACING SERVICES


 


3.1                                 General. Operator shall, at its sole cost and
expense (other than as expressly set forth in this Services Agreement,
including without limitation, in ARTICLE 11), provide any and all
management services necessary for or conducive to the implementation,
servicing, operating, administration, management, supervision and direction of
the Racing Operations during the Term in accordance with the Operating Standard
and subject to the terms and conditions of this Services Agreement. Such
responsibilities and duties include, without limitation, the following, all of
which apply to the extent of the Operating Standard:


 


3.1.1                        Harness Racing Functions. Operator shall be responsible for all
racing department functions, including, without limitation, receiving stall
applications and making stall assignments, determining the qualifications and
acceptability of all horses, performing all race office and stable functions,
writing the condition and stakes books, writing the races, conducting the draws
for the races, developing and producing the daily racing programs and past
performance information, performing charting and clerk of course functions,
collecting and organizing the paddock and patrol judges, the starters,
assistant starters and gate crew, and, establishing and maintaining the liaisons
between management, on one hand, and each of the horsemen and drivers and the
organizations that represent them, on the other hand.


 


9

















 


3.1.2                        Harness Racing Dates. Operator agrees to conduct no fewer than
the minimum number of harness races necessary to maintain Owners’ Racing
Licenses and necessary to maintain or obtain, as applicable, Owners’ Gaming
License. Operator agrees to cooperate with Owners with respect to scheduling
the date and times of races and any changes to such race schedule and in
obtaining any approvals as may be required by the PHRC or the horsemen’s
association relating thereto.


 


3.1.3                        Harness Track Maintenance. Operator shall be responsible for all
functions relating to track maintenance, including, without limitation, all
activities related to assuring that the dirt courses, track surfaces, and all
inner and outer rails are well-maintained and safe for the horses and drivers
and are at necessary and proper levels of condition, and taking such action as may be
necessary to shut the racing surfaces down properly for periods of time when
they are not utilized for training or racing.


 


3.1.4                        Licenses. Operator shall promptly obtain, pay for (including, without
limitation, making deposits, bonds, undertakings and the like), maintain in
full force and good standing, fully comply with, and timely file all reports,
applications, filings and certifications as required by any Law, License or
Governmental Authority or that is otherwise necessary or desirable for conduct
of the Racing Operations and for Operator to perform its obligations under
this Services Agreement. Operator shall provide Owners with copies of all
reports, applications, filings, certifications and Licenses prior to submission
for Owners’ review and approval. Operator shall also assist, at no material
expense to Operator, Owners or such third persons as Owners may determine
to become licensed, and shall take such other reasonable actions, at no
material expense to Operator, as necessary, to conduct the Gaming Operations or
construct the Casino. Owners shall retain sole ownership over all Licenses
relating to the Racing Operations and the Gaming Operations (including, without
limitation, the liquor Licenses). Operator acknowledges and agrees that
Operator, in its capacity as the operator of the Racing Operations or
otherwise, shall have no right, title or interest in or to the liquor Licenses.


 


3.1.5                        Compliance with Laws. Operator shall cause all things to be done
(or not done) in and about the Racing Premises or otherwise with respect to the
Racing Operations to comply with and prevent violation of any and all Laws and
any and all contractual obligations of Operator or, to the extent it involves
the Racing Operations, of any of the Owners.


 


3.1.6                        Purses. Subject to the rights of the horsemen under the Gaming Act and other
Laws, Operator shall be responsible for the timely payment of all racing purse
payments required to be made by Law or under any Racing Operations Agreement,
and Owners shall be responsible for paying into the Pennsylvania Race Horse
Development Fund any purse supplement payments required to be paid under Section 1405
of the Gaming Act.


 


3.1.7                        Cash Handling. Operator shall (i) establish, maintain
and supervise procedures for handling cash for the Racing Operations in
accordance with Laws and applicable Licenses, including, without limitation,
procedures relating to cash management, credit card and automatic teller
machine systems, cash reserves (including, without limitation, reserves
required on premises to pay customer wins), removing cash from all premises,
securing cash on all premises (overnight and for longer periods), transporting
cash to and from all premises, depositing cash into the appropriate Operating
Accounts, and all other procedures relating to any


 


10

















 


other aspect of handling
cash, and (ii) provide reasonably detailed documentation of such cash
handling procedures and any changes thereto to the Owners for their prior
written approval, which shall not be unreasonably withheld.


 


3.1.8                        Security. Operator shall establish, maintain and supervise systems and
procedures for the security of patrons, cash and property of the Racing
Operations and shall cooperate and consult with Owners in doing the same with
respect to the Gaming Operations.


 


3.1.9                        Furniture, Fixtures and Equipment. Operator shall handle, protect and maintain
all furniture, fixtures and equipment, located at or around the Racing Premises
in a professional and responsible manner in accordance with the Operating
Standard, it being understood that all such furniture, fixtures and equipment
shall remain under the full ownership of the Owners, subject to Owners’ right
to finance and lease the same.


 


3.1.10                  General Maintenance; Cleaning; Utilities. Operator shall maintain the Racing Premises
and all operating supplies and equipment in good state of repair and condition
and cause to be made all repairs, replacements and corrections to the Racing
Premises as may be required in the normal and ordinary course of operation
of the Racing Operations, all of which must be made in the normal course of
business with due haste, without disruption of business and in a manner that
conforms to the Operating Standard. Operator shall (i) place all garbage
and other refuse relating to the Racing Operations in designated dumpsters; and
(ii) arrange, on as frequent a basis as necessary to preserve the sanitary
and first class operation of the Racing Operations, for the removal and transportation
of garbage and other refuse with a responsible waster hauler and comply with
all Laws relating to disposal and recycling of waste. Operator shall provide
for, or arrange for the provision of, the following services on the Racing
Premises (except to the extent it conflicts with the terms of an applicable
lease, in which case, Operator shall comply with such terms):  (x) water, heat, light and other utility
services, and (y) recurring services such as pest extermination,
decorating, landscaping, gardening, laundry, telephone and internet
connections, snow removal and all other customary and reasonable services.


 


3.1.11                  Notices.


 


(a)                                  Operator shall (i) promptly forward to
Owners any notice, correspondence, forms, reports and other communication received
from or delivered to any Governmental Authority relating to the Gaming License,
the Racing Operations, or Operator’s operation thereof; (ii) deliver to
Owners prompt notice of any default under or violation of any material Racing
Operations Agreement or any Agreement related to the Gaming Operations as to
which Operator develops knowledge; (iii) provide Owners with prompt notice
of any pending or, to Operator’s knowledge, threatened or contemplated action,
suit or proceeding (and provide copies of all related documents and
correspondence, if any) before or by any Governmental Authority which may have
jurisdiction over Owners or which may affect the Racing Operations or the
Gaming Operations; and (iv) promptly notify Owners of the occurrence of
any event or condition that, if not remedied, could reasonably be expected to
result in a material adverse change in the financial condition or prospects of
Owners, the Racing Operations or the Gaming Operations.


 


11

















 


(b)                                 Owners shall (i) promptly forward to
Operator any notice, correspondence, forms, reports and other communication
received from or delivered to any Governmental Authority relating to the Racing
Operations; (ii) deliver to Operator prompt notice of any default under or
violation of any Racing Operations Agreement as to which Owners develop
knowledge; (iii) provide Operator with prompt notice of any pending or, to
Owners’ knowledge, threatened or contemplated action, suit or proceeding (and
provide copies of all related documents and correspondence, if any) before or
by any Governmental Authority which may have jurisdiction over Operator or
which may affect the Racing Operations; and (iv) promptly notify
Operator of the occurrence of any event or condition that, if not remedied,
could reasonably be expected to result in a material adverse change in the
financial condition or prospects of Operator or the Racing Operations.


 


3.1.12                  Employees. Operator shall manage and pay all costs and expenses associated with
the personnel of the Racing Operations in accordance with the terms and
conditions of ARTICLE 8.


 


3.1.13                  Accounting Functions; Books and Records. Operator shall perform or provide all
accounting, finance, administrative and other professional services functions
for the Racing Operations. The books and records of the Racing Operations shall
be kept by Operator in accordance with GAAP, applied on a basis consistent with
the past practices of the Owners. Operator shall cause the maintenance of all
records as are required by PHRC (other than such reports and records as are
within the sole control of Owners). During the Term and for a period of five
years after the termination of Operator’s services under this Services
Agreement, Owners and Operator, their respective representatives and agents, as
well as the Owners’ independent accounting firms, shall each have the right and
privilege of inspecting, examining and copying all such books and records upon
reasonable notice to Operator except as prohibited by law or as would waive
attorney work product privilege. During the Term and for a period of five years
after the termination of Operator’s services under this Services Agreement,
Operator shall retain the books and records (including personnel files)
relating to the Racing Operations and Operator’s services under this Services
Agreement. At the end of such five year period, at Owners’ election, Operator
shall cause to be delivered to Owners all such books and records, except as
prohibited by law or as would waive attorney work product privilege. The books
of account of the Owners shall utilize accounting systems and procedures which,
at a minimum, include a system of internal accounting controls, permit
preparation of financial statements in accordance with GAAP and are susceptible
to audit.


 


3.1.14                  Legal Functions. Operator shall perform or provide all
legal functions of the Racing Operations, subject to Owners’ rights in Sections
4.1.3,  4.1.7 and 4.1.8, and shall promptly discharge all
judgments, fines and penalties issued or rendered against or in connection with
the Racing Operations by any Governmental Authority or other Person, subject to
any rights that Operator may have under Law to appeal or contest such
judgments, fines and penalties. With respect to the defense of third party
claims made against or relating to the Racing Operations which could not
reasonably be expected to have a material adverse effect on the Gaming
Operations or Casino, Operator shall defend such claims and allow Owners a
meaningfully opportunity to participate (at their election and at their
expense) in such defense.


 


12

















 


3.1.15                  Taxes and Assessments; Tax Returns. Operator shall pay prior to delinquency all
Taxes, assessments and charges of every kind whatsoever relating to the Racing
Operations through the Term, including, without limitation, Taxes, assessments
and charges arising from operation of the Racing Premises or relating to the
Racing Operations, including, without limitation, personal property, racing,
employee withholding, tips, and workers’ compensation, provided, however,
that with respect to real estate Taxes pertaining to the Meadows Facility, (i) for
the period ending on the date prior to the opening of the Temporary Casino,
Operator shall pay all such Taxes and (ii) for all periods on and after
the opening of the Temporary Casino, Operator shall pay one-half of the total
amount of all such Taxes, provided,
further, however, that with respect to such real
estate Taxes in no event shall Operator pay an amount greater than the total
amount paid or payable with respect to the Meadows Facility immediately prior
to the Closing Date (as defined in the Purchase Agreement) as such amount would
be increased from time to time in accordance with any pre-existing Laws which
are generally applicable to the properties located within the same taxing
jurisdiction as the Meadows Facility (but excluding any increases which result
from a reassessment based on the sale or development of the Meadows Facility).
Operator shall not seek any extension of time for the payment of any such
amounts without the prior written consent of Owners. Operator shall prepare for
the Owners all information and documents necessary to provide Owners with
sufficient information to prepare their Tax returns.


 


3.1.16                  Racing Operations Agreements.


 


(a)                                  Authority to Contract. Subject to this Section 3.1.16,
and except as set forth on Exhibit E hereto, Racing Operations
Agreements necessary for or conducive to the conduct of Racing Operations shall
be entered into by Operator in its own name and shall pertain solely to the
Racing Operations (although such Racing Operations Agreement may relate to
services provided to other facilities owned or managed by Affiliates of
Operator, subject to Section 3.1.16(b)). Operator may direct
in good faith Owners to enter into certain Racing Operations Agreements with
such terms and provisions thereof approved by both Operator and Owners, and
Owners shall not amend or otherwise modify such Agreements or any Agreements
listed on Exhibit E hereto, nor enter into other Racing Operations
Agreements for which Operator will be responsible under this Services Agreement
without Operator’s consent, which shall not be unreasonably withheld. Operator
shall timely make all payments required in connection with all Racing
Operations Agreements, and shall promptly reimburse Owners for expenses and
obligations related to those Agreements into which Operator has directed Owners
to enter and those Agreements set forth on Exhibit E. Unless
otherwise agreed to by Owners, Operator shall only enter into Racing Operations
Agreements (or direct Owners pursuant to the second sentence above to enter
into Agreements) if such Agreements (i) may be terminated without
penalty (other than minimal penalty) the earlier of after twelve months and the
effectiveness of the earliest possible Ordinary Course Termination; (ii) require
expenditures of less than $200,000 per year; (iii) contain no cancellation
or termination penalties greater than the amount required to be paid by
Operator (on behalf of itself or on behalf of Owners, as the case may be)
for the services or goods provided under such Agreement; and (iv) contain
no restrictions on assignability. Additionally, Operator shall perform background
checks on all parties (other than Affiliates of Operator or the Owners) to the
Racing Operations Agreements. Operator may, with Owners’ prior consent, enter
into, amend or waive any rights under any Racing Operations Agreements with any
of its Affiliates (except that simulcast Racing


 


13

















 


Operations Agreements shall
not require Owner’s consent so long as they are on terms and conditions
consistent with past practice).


 


(b)                                 Shared Agreements and
Certain Assignments.
Operator agrees to use all commercially reasonable efforts, and shall cause its
Affiliates to use their respective commercially reasonable efforts, to (i) separate
Agreements pursuant to which Operator and any Affiliate of Operator may both
be entitled to receive or obliged to deliver services or other benefits, or
that otherwise relate to the Racing Operations, so that all services and other
benefits relating to the Racing Operations are subject to independent
Agreements in the name of Operator (Operator and Owner acknowledge that if a
separation of an Agreement would result in materially higher costs to Operator
for such services or benefits, that a separation would not be commercially
reasonable); and (ii) assign and transfer to Operator, or (with Owners’
consent) to Owners, all Agreements that are (x) in the name of the any
Affiliate of Operator and (y) applicable solely to the Racing Operations.


 


(c)                                  Assignment and Security
Interest in Racing Operations Agreements. At any time after the Repayment Date, Operator shall use its
commercially reasonable efforts to cause to be included in all Racing
Operations Agreements which are in Operator’s name, or which have been assigned
to Operator, a provision substantially as follows:  “This agreement is entered into by MEC
Pennsylvania Racing Services, Inc. (“MECPRS”) for the benefit of Mountain
Laurel Racing, Inc., a Delaware corporation, Washington Trotting
Association, Inc., a Delaware corporation, and each of their affiliates,
successors and assigns (the “Assignees”). MECPRS hereby irrevocably assigns and
transfers this agreement to such Assignee or such Assignee’s designee who
delivers to [INSERT NAME] a notice of assignment and assumption, effective
automatically upon receipt of such notice.” 
Operator and Owners further agree that if Operator’s services under this
Services Agreement are terminated for any reason, Owners may, but are not
obligated to, deliver such notice of assignment and assumption to all
appropriate Persons party to such Racing Operations Agreements. Operator hereby
assigns and transfers to Owners or their designees all existing and future
Racing Operations Agreements that are in Operator’s name, such assignment to be
effective upon notice of assignment and assumption to Operator by Owners or
their designees, but in no event sooner than upon termination of Operator’s
services under this Services Agreement at any time after the Repayment Date.
Operator agrees to cooperate with Owners and, after the Repayment Date, their
designees in identifying all Racing Operations Agreements and (where
applicable) delivering such notices to the appropriate Persons.


 


(d)                                 Contractual Obligations. Operator shall, on behalf of Owners and
solely for the benefit of the Racing Operations, timely pay, keep, observe and
perform all payments, terms, covenants, conditions and obligations to be
made, kept, observed or performed by it or any of the Owners (as applicable)
under any Racing Operations Agreement that is (i) entered into by
Operator; (ii) listed on Exhibit E hereto; or (iii) entered
into by Owners at the direction of Operator, provided,
that Operator shall not be responsible for the payment of rent under the lease
between MECP and Owners with respect to the Meadows Facility.


 


3.1.17                  Common Expenses. Operator and Owners agree in good faith to
use reasonable efforts to consolidate expenses and contracts for services
useful to both the Racing Operations and Gaming Operations (including, without
limitation, security systems and


 


14

















 


procedures), and Operator
and Owners will apportion such consolidated expenses and obligations of
consolidated contracts in such proportion as they determine is a reasonable
allocation between Racing Operations and Gaming Operations.


 


3.1.18                  Transition Services. Operator shall provide or cause its
Affiliates to provide to Owners or their Affiliates transition services in the
event Owners elect to consolidate services useful to both the Racing Operations
and Gaming Operations.


 


3.1.19                  Marketing and Promotions. Operator shall, in accordance with the
applicable Business Plan, advertise and promote the Racing Operations. Owners
and Operator shall use reasonable efforts to coordinate marketing of the Racing
Operations and the Gaming Operations, including, without limitation, the
implementation of a player rewards system.


 


3.1.20                  OTBs. Operator shall have the right to close, suspend and open additional
off-track betting facilities subject to (i) first consulting with and
taking into consideration the opinions of the Owners’ Representative with
respect to such actions; (ii) obtaining all required approvals from
Governmental Authorities; and (iii) Owners’ prior written approval, which
shall not be unreasonably withheld, with respect to (A) any closures which
may have an adverse effect on Owners or the Gaming Operations and (B) entry
into any Agreements related to the opening of any OTB. All such newly opened
off-track betting facilities shall be deemed included on Exhibit A
hereto and be subject to all of the terms and conditions of this Services
Agreement.


 


3.1.21                  Notice of Events of Default by Operator under
this Services Agreement. If
Operator becomes aware of the occurrence of an Event of Default by Operator (or
an event which with the giving of notice or lapse of time or both would
constitute an Event of Default), Operator shall promptly furnish Owners with a
notice and statement setting forth details of such Event of Default or event
and the action which Operator has taken, is taking, or proposes to take to
correct the same. Operator’s failure to comply with the foregoing sentence
shall not be deemed to result in an Event of Default by Operator unless Owners
are materially prejudiced as a result thereof.


 


3.1.22                  Food and Beverage. After the opening of the Casino, Owners shall provide and pay for
all food and beverage services and access to parking and common areas to the
patrons and employees of the Racing Operations at the Meadows Facility in
accordance with the Operating Standard. All complimentary goods or services
dispensed by Operator shall be charged back to Operator by Owners and promptly
reimbursed. Revenues relating to all such services shall be for Owners’
account. Operator may not take or, to the extent within Operator’s duties
under this Services Agreement, omit to take any action that is reasonably
foreseeable to adversely affect any of Owners’ liquor Licenses without Owners’
prior written consent, which may be withheld in Owners’ sole discretion.
Operator shall comply with the terms of all applicable Laws respecting the
serving of alcoholic beverages, including, without limitation, the regulations
and decisions of the Pennsylvania Liquor Control Board.


 


3.1.23                  Operating Expenses. Operator shall be liable for, and shall assume
and pay, discharge and perform as and when due, all obligations and
Liabilities of the Racing Operations (including Operator’s management thereof)
arising out of or related to acts, omissions, events or occurrences that take
place during the Term.


 


15

















 


3.2                                 Additional
Covenants and Obligations of Operator. During the Term of this Services Agreement, Operator shall:


 


3.2.1                        not do anything (or fail under the Operating
Standard to do anything) that materially interferes with or jeopardizes the
issuance of or the continued possession of the Gaming License, the conduct of
the Gaming Operations, the Casino, any asset related thereto or the maintenance
of the Common Spaces;


 


3.2.2                        not conduct any operations at the Meadows
Facility other than Racing Operations, except with the prior written consent of
Owners; and


 


3.2.3                        not make any dishonest statement to any
Governmental Authority with respect to the Racing Operations or the Gaming
Operations or knowingly permit any illegal wagering activities to occur on or
about the Racing Premises.


 


3.3                                 Access to
Racing Premises.
Operator shall have full use of and access to the Racing Premises during the
Term for the purpose of conducting its duties hereunder.


 


3.4                                 Cooperation
in Stock Transfer. In
the event of a Stock Transfer, the Parties shall cooperate in the conduct and
completion of the Stock Transfer.


 


ARTICLE 4


 


RESERVATION OF OWNERS’ AUTHORITY AND RIGHTS


 


4.1                                 Reservation
of Rights. All authority
and rights not expressly granted to Operator in this Services Agreement are
hereby expressly reserved and retained by Owners. Without limitation of the
foregoing, Operator shall not take any of the following actions without express
prior written consent of Owners’ Representative, the authority to take all such
actions being retained and reserved by Owners:


 


4.1.1                        execute or otherwise enter into any Agreement
in the name of, on behalf of, or otherwise binding upon, Owners or their
Affiliates, subject to Section 3.1.16;


 


4.1.2                        negotiate with or enter into any Agreement
with any labor union, horsemen’s association, or other collective bargaining
unit (or representative thereof) relating to the Racing Operations or otherwise
enter into discussions (except in the ordinary course) with such entities (or
representatives thereof) with respect to any material matter affecting Owners
rights, obligations, business or properties, including, without limitation,
discussions of proposed improvements to the Racing Premises, Statutory Capital
Replacements and other Capital Replacements, provided,
however, that Operator shall have
the reasonable opportunity to participate with Owners in material negotiations
with all labor unions, collective bargaining units and any horsemen’s
association, to the extent any of such negotiations relate to the Racing
Operations, provided, further
that Owner shall not enter into any Agreement with any labor union, horsemen’s
association, or other collective bargaining unit (or representative thereof)
relating to the Racing Operations without the prior consent of Operator, not to
be unreasonably withheld and that upon any such consent, during the Term of
this Agreement and subject to Parties’ obligations pursuant to Section 8.6,
Operator shall timely pay, keep, observe and perform


 


16

















 


all payments, terms,
covenants, conditions and obligations to be made, kept, observed or performed
under such Agreement;


 


4.1.3                        commence any legal action or proceeding that (i) relates
to any Owners’ or their Affiliate’s rights or (ii) could reasonably be
expected to have a material adverse effect on the Racing Operations or the
Gaming Operations, including, without limitation, commencing any legal action
or proceeding with respect to any Agreement that Owners have a right under this
Services Agreement to approve or with respect to Owners’ or their Affiliates’
respective assets, properties or employees;


 


4.1.4                        execute any documentation as required by,
make any appearances in front of, or correspond with respect to matters with
Governmental Authorities with respect to the Racing Operations or the Racing
Licenses, in each case except to the extent (i) within the ordinary course
of business or (ii) reasonably requested by Operator, but in all cases
subject to the notice obligations set forth in Section 3.1.11(a);


 


4.1.5                        Subject to Section 3.1.16(a), terminate or cause to be terminated
Agreements (i) to which Owners or their Affiliates are party; or (ii) with
respect to which Owners have the right to approve under Section 3.1.16(a);


 


4.1.6                        recover possession of property belonging to
Owners or their Affiliates;


 


4.1.7                        settle, compromise, release or prejudice any
legal or regulatory action or proceeding by any Person relating to, or which
could reasonably be expected to have a material adverse effect on, the Gaming
Operations or the Casino;


 


4.1.8                        settle, compromise, release or prejudice any
legal or regulatory action or proceeding by any Person relating to the Racing
Operations or the Racing Premises, which could reasonably be expected to have a
material adverse effect on the Gaming Operations or Casino, provided, however,
that Owners shall not unreasonably withhold consent with respect to the
foregoing matters and Operator shall have the right to settle, compromise,
release or prejudice such claims to the extent that (i) such settlement,
compromise, release and prejudice includes no finding or admission of any
violation of Laws or rights of any Person; (ii) such settlement or
compromise has no prejudicial effect on any other claims that could reasonably
be made against Owners; and (iii) the sole relief provided is monetary
damages that are fully paid by Operator;


 


4.1.9                        make, execute or deliver on behalf of Owners
or their Affiliates any assignment for the benefit of creditors, or any
guaranty or bond;


 


4.1.10                  operate the Racing Operations or the Common
Spaces under any signage, mark or name other than as expressly approved by
Owners, provided, however, that Owners shall not
unreasonably withhold approval over any signage, mark or name that is
consistent with (i) the Operating Standard; and (ii) the existing or
planned branding, image or presentation of the Casino or Gaming Operations;


 


4.1.11                  enter into any sponsorship or similar
Agreement relating to the Racing Operations, the Racing Premises, the Gaming
Operations or the Casino;


 


17

















 


4.1.12                  take any action that may materially
adversely affect any of the assets or business of any Owner;


 


4.1.13                  take any action with respect to the Casino or
the Gaming Operations or other areas of the Meadows Facility other than those
utilized in the Racing Operations; or


 


4.1.14                  use any assets or resources of the Racing
Operations for any other existing or contemplated operations of Operator or its
Affiliates other than as consistent with past practice (provided that past
practice was reasonable), provided,
further, that, (i) Operator
shall not materially interfere with the Racing Operations or Gaming Operations;
and (ii) such uses of assets and resources shall be at no liability to
Owners or their Affiliates and shall not conflict with Operator’s other duties
and obligations under this Services Agreement.


 


4.2                                 Right of
Inspection and Information.
Owners at all times shall have the right to inspect or have inspected the
conduct and operations of Operator, the Racing Operations and all areas of the
Racing Premises. Upon request, Operator shall promptly furnish Owners with all
information reasonably requested by Owners relating to this Services Agreement.


 


4.3                                 Right to
Take Certain Actions.
Should Operator fail to perform any of its obligations under this Services
Agreement and Owners reasonably believe that such failure could pose an
imminent danger to the health, safety or welfare of any individual, or could
have an imminent material adverse effect upon the Racing Operations, the Racing
Premises, the Gaming Operations or the Casino, the Owners may exercise
their rights to perform or correct Operator’s duties under this Services
Agreement provided that, to the
extent practicable, Owners shall first notify Operator and allow Operator the
opportunity to perform or correct such duty within a reasonable period of
time. In the event that (i) such notice is not practicable or Operator
fails to perform or correct its duties and (ii) Owners perform or
correct such duties, then Owners shall be promptly reimbursed by Operator for
all costs and expenses reasonably incurred in connection therewith.


 


ARTICLE 5


 


TERM


 


The
term (the “Term”) of
Operator’s services under this Services Agreement shall commence on the
Effective Date and shall continue until terminated in accordance with this
Services Agreement. On or after the fourth anniversary of the Effective Date,
either Operator or Owners may terminate such services under this Services
Agreement by giving twelve months prior written notice to the other Party. A
termination of such services under this Services Agreement pursuant to the
foregoing sentence is referred to herein as an “Ordinary
Course Termination.”  The
following Articles and Sections of this Services Agreement shall survive the
termination of Operator’s services under this Services Agreement:  fourth, fifth and sixth sentences of Section 3.1.13;
Section 3.1.16(c); Section 12.1; Section 12.7;
Section 12.8; Section 12.9; Section 15.5; Section 15.6;
Article 17; Article 19; and Article 20. All
other obligations set forth herein shall terminate upon the termination of
Operator’s services under this Services Agreement.


 


18

















 


ARTICLE 6


 


COMMON SPACES


 


6.1                                 Duty to
Preserve Common Spaces.
Operator may use all spaces that are common to the operations of the
Racing Operations and the Casino (as further elaborated in the applicable
Business Plan, the “Common Spaces”)
for the purpose of fulfilling its duties and responsibilities under this
Services Agreement. In using the Common Spaces, Operator shall use due care and
take reasonable measures to preserve all Common Spaces to the same level as the
Casino. Operator shall not interfere with or obstruct the use of any
Common Spaces by Owners, authorized patrons of the Racing Operations or the
Casino, or other authorized Persons. Operator shall not and shall not permit
other Persons to erect, post, project or install any signage, bills, or other
marks on any Common Spaces without Owner’s prior written consent.


 


6.2                                 Costs and
Expenses Relating to Common Spaces. Operator shall pay for all costs and expenses related to the Common
Spaces until the opening of the Temporary Casino. Afterwards, Operator and
Owners agree in good faith to use reasonable efforts to consolidate costs and
expenses related to the operation and maintenance of the Common Spaces and
shall agree upon a fair allocation of such costs and expenses based upon the
relative use (if any) of the Common Spaces. In the event Operator and Owners
are unable to reach agreement in a timely manner with respect to a
consolidation of such costs and expenses, a neutral third party arbiter shall
be mutually selected by the Parties to resolve such dispute. The costs and fees
of the neutral arbiter shall be borne equally by Owners, on one hand, and
Operator, on the other hand, and the decision of such neutral arbiter shall be
final and binding upon the Parties.


 


6.3                                 Revenues Relating
to Common Spaces.
Subject to Section 3.1.22, Owners shall be entitled to collect and
keep all proceeds and revenues resulting from the operation of the Common
Spaces, less Operator’s share of expenses as set forth in Section 6.2.


 


ARTICLE 7


 


TABLE OF ORGANIZATION; BUSINESS PLAN; STATUS CONFERENCES


 


7.1                                 Submission
of Table of Organization and Business Plan.


 


7.1.1                        Operator shall conduct Racing Operations in
the manner provided in this ARTICLE 7. Racing Operations shall be
conducted under Operator’s direction and control in conformity with a table of
organization (“Table of Organization”)
and a business plan (“Business Plan”),
each formulated as provided in this ARTICLE 7.


 


7.1.2                        Operator will submit to Owners an annual
Table of Organization and an annual Business Plan. Such submission shall occur
not later than November 30 of the year prior to the year covered by such
Table of Organization or Business Plan.


 


7.2                                 Table of
Organization. The Table
of Organization shall set forth the identity and experience of key management
personnel with respect to Operator’s operations hereunder, the departmental
organization of Operator’s operations and the responsibilities and staffing
levels of each department. The Table of Organization for 2006 is attached
hereto as Exhibit F.


 


19

















 


7.3                                 Annual
Business Plan. No later
than ninety (90) days prior to the end of each year, Operator shall, in
consultation with Owners, present an initial written Business Plan detailing
mission, scope, analysis and objectives for the Racing Operations for the
upcoming year, and also setting forth estimates of income and expenses,
together with contemplated commitments, including salary and wage rates in all
job classifications, with respect to Racing Operations, and racing dates and
schedules and all other tasks necessary to conduct the Racing Operations in
accordance with the Operating Standard. The Business Plan for 2006 is attached
hereto as Exhibit G. Operator agrees to draft the Business Plan in
accordance with the following standards: 
(i) reasonableness of the provision for revenues and expenditures
and consistency with past practice at the Meadows Facility and (ii) reasonable
consistency with the proposed Table of Organization for the year. The Parties
agree that the Business Plan for each year during the Gaming License
Application Period shall reflect only the Capital Replacements that comply with
Section 11.9 hereof.


 


7.4                                 Approval
Process. Owners shall
have the right to approve, which such approval shall not be unreasonably
withheld, any aspect of a Business Plan to the extent that such aspect (i) is
inconsistent with past practices (provided such past practice is consistent
with the Operating Standard); (ii) could reasonably be expected to have a
material adverse effect on or be materially inconsistent with the Gaming
Operations or the Casino; (iii) could reasonably be expected to require
anything more than minimal expenditures by Owners or their Affiliates (other
than expenditures expressly required under this Services Agreement); or (iv) specifically
relates to the advertisement, marketing or promotion of alcoholic beverages.
Owners shall provide Operator their written approval or disapproval (including
written comments setting forth in reasonable detail the reasons for Owners’
disapproval, if any) of such aspects of the Business Plan not later than thirty
(30) days after Owners’ receipt of such plan. If Owners disapprove or raise any
objections to any such portion of a proposed annual Business Plan or any
revisions thereto, Owners and Operator will meet and cooperate in good faith to
discuss and resolve the disputed or objectionable proposed items. If Owners and
Operator are not able to agree on any such disputed or objectionable item within
a period of thirty (30) days after the date Owners provide written notice of
their objections to Operator, then Owners’ decision with respect to the dispute
will govern the disputed or objectionable item. Such final operating plan will
be the approved Business Plan for the year in question. Pending Operator’s
receipt of Owners’ approval of a plan pursuant to this Section 7.4,
Operator shall be entitled to operate in accordance with the prior year’s plan.
All Business Plans shall comply with all Laws, including, without limitation,
the Gaming Act and the Pennsylvania Act. Operator shall operate the Racing
Operations in substantial conformance with the terms of the then current Table
of Organization and Business Plan, as amended from time to time in accordance
with this Services Agreement. Operator shall have the right in its discretion
to unilaterally amend the current Table of Organization or Business Plan; provided,
that Operator shall give the Owners notice of such amendment and provided,
further if the result of such amendment would result in a change in an
aspect of the Business Plan that would have required the consent of the Owner
pursuant to the first sentence of this Section 7.4 had it been part of
the original Business Plan, then such amendment may not become effective
without the approval of the Owner, which shall not be unreasonably withheld.
Should the Business Plan for any reason become inadequate to maintain (or
otherwise inconsistent with) the Operating Standard, Owners may request in
good faith that Operator make changes in and to the operation of the Racing
Operations as may be necessary or desirable for operation in accordance
with the Operating Standard and consistent with the standard set forth in


 


20

















 


the first sentence of this Section 7.4  Operator shall keep Owners informed about all
material aspects of the Racing Operations and any material variation from the
applicable Business Plan.


 


7.5                                 Status
Conferences. On a monthly basis,
or at such other time intervals as Owners and Operator mutually agree upon,
Operator shall meet with Owners to discuss the performance of the Racing
Operations over the prior month or other relevant period and Operator’s plans
and expectations for the ensuing month.


 


ARTICLE 8


 


EMPLOYEES AND PERSONNEL


 


8.1                                 Employer. The employees engaged in the Racing
Operations who are subject to collective bargaining agreements (the “Union Employees”) shall be employed by
Owners, and all other employees and personnel engaged in the Racing Operations
shall be employed by Operator (the “Non-Union
Employees,” together with the Union Employees, the “Employees”).


 


8.2                                 Duties. Operator shall be responsible for all
matters relating to the Employees. Without limitation of the foregoing, Operator
shall hire, perform background checks on, train, supervise, monitor,
relocate, discharge, perform all HR and payroll functions (including,
without limitation, payroll tax deductions, filings and similar matters) with
respect to, and determine and administer the compensation and benefits of, and
maintain personnel records regarding the Employees, in each case in accordance
with the terms and conditions of this Services Agreement and the applicable
Union Agreements. Operator shall not hire or employ as a general manager of, or
in any other managerial or supervisory position related to, the Racing
Operations anyone with respect to whom the Owners’ Representative reasonably
objects by reason of (i) documented and repeated inadequate performance,
or (ii) actions or omissions of such individual that a reasonable person
could conclude have jeopardized or will jeopardize any of Owners’ Licenses
(including, without limitation, liquor Licenses). Operator shall use reasonable
efforts to hire only competent and trustworthy Employees and effectively
communicate the Operating Standard to all Employees, and Operator shall use its
reasonable efforts to maintain the Racing Operations free and clear of any
dishonesty or any reprehensible acts or conduct that would in any way reflect
adversely upon Owners, the Racing Operations, the Gaming Operations or the
Casino.


 


8.3                                 Costs and
Expenses of Employees and Personnel. All costs and expenses related to the employment of the Employees
shall be borne entirely by Operator (and not in any way by Owners or their
Affiliates), including, without limitation, (i) salary, wages, overtime,
bonuses, health and welfare contributions (including, without limitation,
pursuant to Union Agreements), social security, severance and all other compensation
and benefits and (ii) claims, costs and expenses related to medical and
dental insurance, COBRA coverage, workers’ compensation insurance and claims,
work injuries or accidents and assessments, premiums and other Taxes.


 


8.4                                 Management;
Compliance with Laws Relating to Employees. Operator shall have primary operational
authority over the Employees (including, without limitation, with respect to
new hires and terminations), provided,
however, that Operator shall (i) comply
with all Laws relating to employment and hiring and shall provide and maintain
a lawful, reasonably


 


21

















 


safe, healthy and
harassment-free work environment for the Employees and (ii) shall adopt
appropriate training and compliance programs to ensure such compliance and in
order to facilitate a productive and efficient work environment. Without
limitation of the foregoing, Operator shall develop and implement an effective
alcohol awareness program (the “Program”)
that is acceptable to Owners and designed to train Employees and agents of the
Racing Operations to serve alcohol in a safe and responsible manner. All such
Employees and agents who are involved in the service of alcohol must, prior to
serving alcohol, attend the Program and execute a certificate evidencing his or
her attendance of the Program. Operator shall provide Owners with such
certificates of Program attendance of any and all such Employees and agents and
shall continue to provide Owners on a quarterly basis certificates of Program
attendance with respect to any new Employees or agents of the Racing Operations
who serve alcohol. The ongoing obligations of Operator to implement and
maintain the Program shall cease with respect to the Meadows Facility upon the
opening of the permanent Casino.


 


8.5                                 Employee
Policies and Reports. No
later than ten (10) days after the Effective Date and on an annual basis
thereafter, Operator shall submit to Owners a copy of Operator’s personnel
policies and procedures applicable to the Employees. All such policies and
procedures shall comply with Law. The Employees will be subject at all times to
such policies and procedures, and Operator shall administer such policies and
procedures and ensure the Employees’ compliance therewith. Operator shall provide
to Owners quarterly updates to the Table of Organization and supporting
quarterly reports summarizing with respect to each Employee any significant
change (in performance or work assignment, department, location, etc.) since
the previous report or, in the case of the initial report, since the Effective
Date. Operator shall deliver to Owners reasonably prompt notice of the
termination of employment of any Employee. Operator shall promptly provide all
information and documents reasonably requested by Owners relating to any of the
Employees. Owners and their representatives shall have the right to conduct
investigative procedures in respect of all personnel of the Racing Operations
prior to or at any time after the hiring thereof.


 


8.6                                 Hiring of
Casino Employees. Owners
agree that, with regard to the requirements of Article 25 of the Union
Agreement with HERE Local No. 57 that ends on November 4, 2005
(restaurant employees) and Article 26 in the Union Agreement with Sports
Arena Employees Local No. 137 that ends on March 31, 2006 (and any
similar provisions in any agreements replacing such Union Agreements or in any
other Union Agreements entered into on or after the date hereof), if gaming or
gambling devices are operated at the Meadows Facility, then Owners will, and
will cause their Affiliates to, honor the requirements of such provisions with
respect to potential employment in the Gaming Operations on or after the
Effective Date. Furthermore, Owners or any of their Affiliates will observe the
terms and conditions of the respective Union Agreements mentioned in this Section 8.6
to the extent applicable to any employees hired for the Gaming Operations.
Owners agree that they will, and will cause their Affiliates to, (i) comply
with any Laws requiring Owners or any such Affiliate to provide priority rights
or other preferences with respect to employment or potential employment in the
Gaming Operations to employees involved in Racing Operations (whether such
employees are employed by Owners or any of their Affiliates or by Operator or
any of its Affiliates) and (ii) provide, to the extent consistent with
applicable Union Agreements, such priority rights or other preferences with
respect to employment or potential employment in the Gaming Operations to
employees involved in Racing Operations who are employed by Operator or any of
its Affiliates to the same


 


22

















 


extent that it is required
to provide such priority rights or such other preferences to their own employees
even if Owners and their Affiliates are not required by any Laws to do so, so
long as such employees are qualified. Operator agrees to cooperate with Owners
in connection with the foregoing provisions of this Section 8.6.


 


8.7                                 Employee
Compensation; Benefits.
Operator shall provide to the Non-Union Employees compensation and benefits
consistent with past practice; provided,
however, that nothing herein
shall be construed to mean that Operator may not amend or terminate any
particular employee benefit, compensation or incentive plan, policy or
arrangement, as long as such Employees’ compensation and benefits as a whole
are, in the reasonable opinion of the Owners, commensurate with past practice.


 


8.8                                 Resolution
of Disagreements Over Employee Matters. In
the event that Operator and Owners disagree over any matter relating to the
Non-Union Employees, after engaging in good faith discussions to resolve such
matter, the reasonable decision of the Operator shall prevail. In the event
that Operator and Owners disagree over any matter relating to the Union
Employees, after engaging in good faith discussions to resolve such matter, the
reasonable decision of the Owners shall prevail. Notwithstanding the foregoing,
in the event that Operator and Owners disagree over any matter relating to any
of the Employees involved in serving alcoholic beverages, after engaging in
good faith discussions to resolve such matter, the reasonable decision of the
Owners shall prevail.


 


8.9                                 Local 137
Health Plan. Owners will
reasonably cooperate with Operator to provide the health insurance plan
consistent with Article 9 of the Union Agreement for Non-Primary Locations
with Sports Arena Employees Local No. 137 that ends on March 31, 2007
(and any similar provisions in any replacement agreements) through the purchase
of insurance that will be purchased in the name of Owners or any of Owners’
Affiliates but provided at the cost of Operator.


 


8.10                           Gaming
Employees. Notwithstanding
anything in this Services Agreement to the contrary, if any Employee involved
in Racing Operations (whether such Employee is employed by Owners or any of
their Affiliates or by Operator or any of its Affiliates) becomes an Employee
involved in Gaming Operations or any other operations not directly related to
the Racing Operations (including without limitation food and beverage services
after the opening of the Casino) (a “Gaming
Employee”), all obligations (including without limitation
indemnification obligations) with respect to such Employee for the period from
and after the date that such Employee becomes a Gaming Employee shall be
obligations of Owners and their Affiliates and no longer the obligations of
Operator and its Affiliates.


 


ARTICLE 9


 


REPRESENTATIVES


 


Operator,
on one hand, and the Owners, on the other hand, shall each appoint one
representative (respectively, the “Operator’s
Representative” and the “Owners’
Representative”) to act as a liaison and to facilitate
communication and cooperation with respect to material matters under this
Services Agreement. Operator may treat the Owners’ Representative as


 


23

















 


having full authority to
bind the Owners with respect to all material matters relating to this Services
Agreement, and the Owners may treat the Operator’s Representative as
having full authority to bind the Operator with respect to all material matters
relating to this Services Agreement, including, in each case, to providing and
receiving notices and coordinating questions regarding the Racing Operations. The
respective representatives of Owners and Operator are named on Exhibit H
hereto, and may be replaced from time to time with notice in accordance
with this Services Agreement. With respect to day-to-day operations, each Party
shall designate an on-site manager who shall have authority to make decisions
and bind its respective Party with respect to ordinary course matters. In
addition, Operator shall designate one individual (who may, but need not, be
the same individual described in the immediately preceding sentence) who shall
be responsible for the oversight and management of the operation of the Racing
Operations, including the Employees (the “Racing
General Manager”). The initial Racing General Manager is named
on Exhibit H hereto. Operator shall consult with and take into
consideration the opinions of the Owners’ Representative regarding any change
in the Racing General Manager.


 


ARTICLE 10


 


CONSTRUCTION


 


10.1                           Casino. All expenses related to the construction of
the Casino and the Renovated Racing Areas shall be the Owners’ responsibility.


 


10.2                           Renovated
Racing Areas. If the
Owners obtain the Gaming License and undertake to construct a Casino, then
Owners shall at their expense design, renovate and repair, or cause to be
designed, renovated and repaired, the Renovated Racing Areas. If the Owners
obtain the Gaming License and undertake to construct a Casino, then upon
completion of construction, they agree that the Clubhouse (i) will have
all finishings, furnishings and fixtures and other leasehold improvements
throughout of the same type and quality as used in the corresponding areas of
the Casino, minor variations in color, quality and materials excepted, and (ii) will
have a prominent separate entrance, which will be designed to be in close
proximity to a reasonable amount of parking and to at least one restaurant
within the Casino. Operator shall not be required to pay rent for any
portion of the Renovated Racing Areas, including without limitation, the “back
office” space or cash room, but Operator must bear all costs and expenses
relating to the use and operation of such spaces consistent with Operator’s
duties and obligations with respect to other areas of the Racing Premises. If
the Owners obtain the Gaming License and undertake to construct a Casino, then
upon completion of the construction, the Renovated Racing Areas will be fully
serviced by all necessary utilities, which shall be separately metered if
practicable. Owners shall be under no obligation to construct or operate a
Casino or to redesign or renovate the Renovated Racing Areas in the absence of
the construction of a Casino or the issuance of the Gaming License to the
Owners. The Parties agree and understand that the design of the Renovated
Racing Areas shall be subject to the approval of the PHRC.


 


10.3                           Consultation. Owners shall provide Operator with
reasonable consultation rights, and at Owners’ request, Operator agrees to
provide input and advice, in connection with the design and construction of the
Renovated Racing Areas and the integration of the Racing Premises into the
Casino design, but Owners’ decisions with respect to all decisions relating to


 


24

















 


construction shall be final.
Owners will consult with Operator in order to, and will conduct all
construction of the Renovated Racing Areas and the Casino in such a manner as
reasonably practicable and commercially reasonable to minimize the negative
impact (including direct out of pocket expenses of Operator) that such
construction will have on the Racing Operations.


 


ARTICLE 11


 


CAPITAL IMPROVEMENTS/ALTERATIONS AND REPAIRS


 


11.1                           Maintenance
Capital Replacements. Owners
shall pay for all Capital Replacements required to maintain the (i) structure,
foundation, mechanical systems and roof of the Renovated Racing Areas, (ii) to
the extent they are located in or on the public access areas, the finishings,
furnishing, fixtures, equipment and leasehold improvements of the Renovated
Racing Areas; and (iii) equipment relating to food and beverage services,
in each case in substantially the same condition as in existence on the
Effective Date, or, when and if renovated pursuant to ARTICLE 10,
in substantially the same condition as when delivered to Operator for
operation, taking into account ordinary wear and tear (“Maintenance Capital Replacements”).
Subject to Section 11.9, each year, as part of the Business
Plan required to be delivered in that year, Operator shall prepare a budget for
proposed necessary Maintenance Capital Replacements and Shared Capital
Replacements (as defined below) for the upcoming year, including, without
limitation, all design and other specifications, which must be approved by
Owners, such approval to not be unreasonably withheld. Without limiting the
foregoing, Owners and Operator agree that when Owners or any of their
Affiliates obtain a Gaming License, the capital expenditures required pursuant
to the Gaming Act (including both the initial $5 million capital expenditure
and all subsequent amounts required by Section 1404 of the Gaming Act, the
“Statutory Capital Replacements”)
shall be the sole responsibility of Owners over the statutory period, and
Operator shall reasonably cooperate with Owners in seeking application, where
appropriate, of amounts expended in connection with Maintenance Capital
Replacements under this Services Agreement and in connection with the
construction of the Renovated Racing Areas toward satisfying such Statutory
Capital Replacement requirements as further set forth in Section 4.1.2.


 


11.2                           Racing Capital Replacements
and Shared Capital Replacements.


 


11.2.1                  Operator shall pay for all


 


(a)                                  day-to-day Capital Replacements (other than
Maintenance Capital Replacements, Statutory Capital Replacements, Shared
Capital Replacements and Legally Compelled Capital Replacements) that are
required to operate or maintain the Racing Operations in accordance with the
Operating Standard (including, without limitation, trucks, tractors and track
equipment); and


 


(b)                                 Capital Replacements (other than Maintenance
Capital Replacements, Statutory Capital Replacements, Shared Capital
Replacements and Legally Compelled Capital Replacements) that are required to
operate or maintain the Racing Operations in accordance with the Operating
Standard that both (x) relate to the finishings, furnishings, fixtures,
equipment and leasehold improvements of the Renovated Racing Areas and (y) are
not


 


25






 













 


located in or on the public
access areas (including, without limitation, telephone systems, computer
hardware and software, carpet and office furniture).


 


(c)                                  Clause (a) and (b) above are
referred to herein as the “Racing Capital
Replacements.”


 


11.2.2                  Operator, on one hand, and Owners, on the
other hand, shall allocate the cost of all significant Capital Replacements
(other than Maintenance Capital Replacements, Statutory Capital Replacements,
Racing Capital Replacements and Legally Compelled Capital Replacements) that
are required to operate or maintain the Racing Operations in accordance with
the Operating Standard (including without limitation racing surfaces, barn
structures and “tote” boards) (each, a “Shared
Capital Replacements”) as follows:  (i) Operator shall pay an amount equal
to the total cost of such Shared Capital Replacement multiplied by the Operator’s
Share (as determined in accordance with Section 11.6), and (ii) Owners
shall pay an amount equal to the total cost of such Shared Capital Replacement
minus the amount that Operator is required to pay pursuant to the foregoing
clause (i). The procedures for cost sharing shall be the same as the
Legally Compelled Capital Replacements cost sharing procedures set forth in Section 11.6.2.


 


11.3                           Capital
Replacements and Repairs Resulting From Acts of Operator. Operator shall make no material alterations
of the Racing Premises without the written consent and approval of Owners, and
Owners shall make no material alterations of the Racing Premises without the
written consent and approval of Operator. In the event any damage or injury,
other than ordinary wear and tear, is sustained to any part of the Racing
Premises by reason of the acts of Operator or Employees, then such damage will
be repaired by Operator at its expense (except to the extent the cost of repair
is covered by insurance of Operator and/or Owner, provided, that Operator shall
pay for all deductible amounts) to a condition consistent with the Racing
Premises as they existed prior to the damage. Operator is not required to
repair any damage to the Racing Premises not caused by acts of Operator or
Employees, such as damage resulting from fire, earthquake, the elements or Acts
of God or breach or gross negligence by Owners.


 


11.4                           Discretionary
Capital Replacements. Operator
may make discretionary Capital Replacements (which for greater clarity
shall exclude Maintenance Capital Replacements, Statutory Capital Replacements,
Racing Capital Replacements, Shared Capital Replacements and Legally Compelled
Capital Replacements) with respect to any Racing Premises with the prior
written approval of Owners (or, in the case of leased properties, in accordance
with the applicable leases), provided
that Operator shall pay for all such discretionary Capital Replacements and all
such discretionary Capital Replacements shall comply with Law. All Capital
Replacements relating to pari-mutuel betting devices shall be deemed to be
discretionary under this Services Agreement, and Owners shall not be required
to pay any amounts relating to such devices.


 


11.5                           Emergency
Capital Replacements. If an
emergency condition is discovered at the Meadows Facility, including, without
limitation, required structural repairs, and that condition requires immediate
repairs or Capital Replacements to protect the Meadows Facility or the health
and safety of its patrons or employees, then Operator may take all steps
and make all expenditures reasonably necessary to repair and correct the
condition. The cost of any such repairs shall be shared in accordance with the
allocations set forth in this ARTICLE 11.


 


26

















 


Operator agrees that it
shall make such repairs and replacements only after Operator has made a
reasonable attempt (if circumstances permit) to inform Owners of the
existence of the emergency, the repairs and replacements Operator proposes to
make, and the estimated amount of expenditures to be incurred. If Operator is
unable to inform Owners in advance, Operator shall promptly notify Owners
after making the emergency repair.


 


11.6                           Legally
Compelled Capital Replacements.


 


11.6.1                  Cost Sharing of Legally Compelled Capital
Replacements. If Capital
Replacements to the Meadows Facility that are required to operate or maintain
the Racing Operations (other than Statutory Capital Replacements) become
required either by any new Laws that are enacted after the Effective Date or by
any existing Laws that become applicable to the Meadows Facility after the
Effective Date (“Legally Compelled Capital
Replacements”), then the Parties agree to share the total cost
of such Legally Compelled Capital Replacements as follows:  (i) Operator shall pay an amount equal
to the total cost of such Legally Compelled Capital Replacement multiplied by
the Operator’s Share (as defined below), and (ii) Owners shall pay an
amount equal to the total cost of such Legally Compelled Capital Replacement
minus the amount that Operator is required to pay pursuant to the foregoing
clause (i). “Operator’s Share”
means the fraction (x) that has as its numerator the number of actual
months from the month in which the expense of such Legally Compelled Capital
Replacement is incurred to the month in which Operator’s services under this
Services Agreement are terminated; and (y) that has as its denominator the
Useful Life (as defined below) of such Capital Replacement; provided, that in no event shall such
fraction be a number greater than 1. “Useful
Life” means the estimated life of an asset, determined in
accordance with GAAP, and measured in terms of months.


 


11.6.2                  Cost Sharing Procedures. The Parties agree to implement the
cost-sharing agreement set forth in Section 11.6.1 above as
follows:  If the Useful Life of a Legally
Compelled Capital Replacement would expire prior to the effectiveness of the
next possible Ordinary Course Termination, then Operator shall pay for the
entire cost of such Legally Compelled Capital Replacement. In all other cases,
Owners shall pay for the entire cost of such Legally Compelled Capital
Replacement, and Operator shall promptly pay to Owners an amount equal to the
total cost of such Legally Compelled Capital Replacement multiplied by the
Operator’s Share, based on the assumption that Operator’s services under this
Services Agreement shall expire on the date of effectiveness of the next
possible Ordinary Course Termination (the “Assumed
Date”). If Operator’s services are not terminated prior to or at
the Assumed Date, then Operator shall promptly pay to Owners the incremental
annual amount that Operator would have otherwise paid for each additional year
in the Term of this Services Agreement. If Operator’s services under this
Services Agreement are terminated prior to the Assumed Date or the end of any
additional year, then the amount equal to the difference between what Operator
actually paid to Owners based on the Assumed Date or the end of any additional
year and what Operator should have paid based on the actual date of termination
of Operator’s services under this Services Agreement shall be deemed a current
asset in the Termination Date Net Working Capital, it being understood that if
Operator’s services under this Services Agreement are terminated pursuant to Section 15.4.13
(in connection with a Stock Transfer Event), then Section 15.6.5
shall be inapplicable and there shall be no working capital adjustment.


 


27

















 


11.6.3                  Cost Sharing Procedures for Burdensome Legal
Requirements. If the cost
sharing procedures for a Legally Compelled Capital Replacement set forth above
in Section 11.6.2 would require Operator to make an expenditure
with respect to such Legally Compelled Capital Replacement in an amount greater
than $2,000,000 multiplied by the number of years between the current date and
the effectiveness of the next possible Ordinary Course Termination, and Owners
do not elect to pay the excess, then such Legally Compelled Capital Replacement
will be deemed to be a “Burdensome Legal Requirement” and Operator may elect
to not make such expenditure and terminate Operator’s services under this
Services Agreement in accordance with Section 15.4.11. If Owners
are required pursuant to any clause of this Section 11.6 to pay an
amount that would have a material adverse effect on Owners, then such Legally
Compelled Capital Replacement will be deemed to be a “Burdensome Legal
Requirement” and Owners may elect to not make such expenditure and
terminate Operator’s services under this Services Agreement in accordance with Section 15.4.11.
If such Legally Compelled Capital Replacements are undertaken, Operator shall
consult with and obtain Owners’ approval before implementing such Legally
Compelled Capital Replacements. In all cases, Owners shall have the right, but
not obligation, to contest the validity or application of any Laws which are
the subject of this Section 11.6.


 


11.7                           Implementation
of Capital Replacements.
The implementation or construction of all Capital Replacements, repairs,
additions and changes in this ARTICLE 11 shall be overseen by Operator,
unless otherwise determined by Owners, and shall not unreasonably interfere
with the Gaming Operations or the Racing Operations. Owners’ obligations with
respect to Maintenance Capital Replacements shall be suspended during the
pendency of any Event of Default by Operator.


 


11.8                           Ownership
of Capital Replacements. All
Capital Replacements made with respect to any property that is owned by Owners
or their Affiliates shall be owned by Owners or such Affiliates. Proceeds from
the sale of any Capital Replacements that are no longer needed in the Racing
Operations or other activities of Owners shall be for the sole account of
Owners or such Affiliates. After the termination of Operator’s services under
this Services Agreement, Operator may retain those Capital Replacements which
Operator solely owns and which are portable without damaging the Racing
Premises as long as Operator delivers the Racing Operations to Owners in a
condition that allows Owners or their designees to continue operating the
Racing Operations in accordance with the Operating Standard.


 


11.9                           Capital
Replacements During Gaming License Application Period. During the Gaming License Application
Period, the Parties shall use their respective commercially reasonable efforts
to minimize all Capital Replacements relating to the Meadows Facility or the
Racing Operations (including, without limitation, Maintenance Capital
Replacements and Shared Capital Replacements).


 


28

















 


ARTICLE 12


 


BANK ACCOUNT; WORKING CAPITAL; FINANCIAL STATEMENTS; 

ACCOUNTING


 


12.1                           Operator’s
Responsibilities for Pre-Existing Matters. In addition to the duties set forth in Section 3.1.23,
Operator has agreed that it shall be liable for, and shall assume and pay,
discharge and perform as and when due, all obligations and Liabilities of
the Racing Operations occurring, existing or arising prior to the Effective
Date other than those relating to Taxes and environmental matters, it being
agreed that pre-existing Taxes and environmental matters shall be governed,
respectively, by Article VII and Sections 9.03(a)(iv) and (v) of
the Purchase Agreement,  (the “Pre-Existing Liabilities”). The
Pre-Existing Liabilities shall include, without limitation, the following, in
each case occurring, existing or arising prior to the Effective Date:


 


(a)                                  any and all Liabilities set forth on the
Financial Statements delivered pursuant to Section 3.07 of the Purchase
Agreement;


 


(b)                                 any and all Liabilities arising under or with
respect to employment, working conditions, wages and/or compensation, benefits,
claims and all other matters related to employees, agents and other personnel
of the Racing Operations;


 


(c)                                  any fine, penalty, levy or assessment imposed
by any Governmental Authority with respect to the operation of the Racing
Operations;


 


(d)                                 any and all Actions by and all Liabilities
related to employees and independent contractors of the Racing Operations; and


 


(e)                                  any and all Liabilities of the Racing
Operations arising out of any Action.


 


12.2                           Operating
Accounts. Operator shall
select and establish, in the name of Operator, one or more bank accounts
(collectively, the “Operating Accounts”)
at one or more banking institutions with respect to which the Operator will be
the only Person authorized to draw upon such Operating Accounts in accordance
with the terms and conditions of this Services Agreement. All signers on the
Operating Accounts shall be bonded in an amount required by Law, indemnifying
Operator for any loss, theft, embezzlement or other fraudulent act on the part of
the signatory. Operator shall maintain the Operating Accounts in the name of
the Operator and shall at all times maintain and manage the Operating Accounts
in accordance with all Laws (including, without limitation, the Pennsylvania
Act and the Gaming Act). All proceeds, revenues and other sums received from
the operation of the Racing Operations, including amounts received for
operations prior to the Effective Date, shall be deposited, in accordance with
the Operating Standard, into the Operating Accounts (with respect to different
Operating Accounts, in proportions set out in the applicable Business Plan).
Operator may make payments pursuant to satisfying its duties under this
Services Agreement from the Operating Accounts. Operator shall in all cases
maintain proper supporting documentation for all such payments. Any payment
which would result in the Operating Account falling below the Minimum Balance
(as


 


29

















 


defined below) shall require
the prior approval of Owners, which shall not be unreasonably withheld.


 


12.3                           Minimum
Balance of the Operating Accounts. Operator shall at all times cause the aggregate available funds (the “Minimum Balance”) in the Operating
Accounts to be the greater of (i) $750,000; and (ii) such amount as may be
required by Law. The Minimum Balance shall be allocated among all Operating
Accounts in the amounts set forth in the applicable Business Plan. If at any
time the aggregate available funds in the Operating Accounts fall below the
Minimum Balance, Operator agrees to immediately deposit sufficient funds
necessary to cause the Operating Accounts to meet the Minimum Balance.


 


12.4                           Withdrawals;
Operator’s Duty to Fund.
In the event that the balance of the Operating Accounts exceeds the Minimum
Balance, then Operator may withdraw for its own account amounts in excess
of the Minimum Balance from the Operating Accounts. In no event (i) will
Owners or their Affiliates be required to deliver or cause to be delivered
funds to the Operating Accounts, or otherwise to the Racing Operations or (ii) will
any amounts that Operator deposits into the Operating Accounts be deemed to be
loans made to Owners or their Affiliates.


 


12.5                           Operating
Fee. Not later than the
first day of each calendar quarter, Operator shall pay to Owners or their
designated Affiliate an amount equal to $12,500 as an operating fee for the
upcoming quarter, provided, that
for any partial quarter period, such amount shall be pro-rated based on the
number of days.


 


12.6                           Financial
Statements.


 


12.6.1                  Periodic Reports.


 


(a)                                  Monthly. No later than twenty (20) days after the end of each month, Operator
shall deliver to Owners the unaudited financial statements for that month
prepared from the books of account maintained by Operator containing: (i) a
balance sheet of the Racing Operations as of the end of that month; (ii) the
related consolidated statements of income and cash flow of the Racing
Operations for the period beginning with January then ended; and (iii) and
any other schedules, statements and reports as may be reasonably requested
from time to time by Owners.


 


(b)                                 Quarterly. No later than thirty (30) days after the end of each quarter,
Operator shall deliver to Owners the unaudited financial statements for that
quarter prepared from the books of account maintained by Operator containing: (i) a
balance sheet of the Racing Operations as of the end of that quarter; (ii) the
related consolidated statements of income and cash flow of the Racing
Operations for the period beginning with the first quarter then ended; and (iii) and
any other schedules, statements and reports as may be reasonably requested
from time to time by Owners.


 


(c)                                  Annually. Within sixty (60) days after the end of each year, Operator shall
deliver to Owners an audited balance sheet of the Racing Operations as of the
year then ended and the related consolidated statements of income and cash flow
of the Racing Operations for the year then ended, together with the report
thereon of a certified public accounting firm retained by Operator and approved
in advance by Owners. Owners agree that


 


30

















 


Operator shall not be
required to audit such financial statements if Owners reasonably determine that
such audit is not reasonably necessary.


 


12.6.2                  Preparation of Periodic Reports. All financial statements required to be
prepared and delivered by Operator pursuant to Section 12.6.1 above
shall (i) be prepared in accordance with the books of account and other
financial records of the Racing Operations, (ii) present fairly the
financial condition and results of operations of the Racing Operations as of
the dates thereof or for the periods covered thereby, (iii) have been
prepared in accordance with GAAP applied on a basis consistent with the past
practices of the Owners prior to the Closing Date as defined in the Purchase
Agreement, and (iv) include all adjustments (consisting only of normal
recurring accruals) that are necessary for a fair presentation of the financial
condition of the Racing Operations and the results of the operations of the
Owners as of the dates thereof or for the periods covered thereby.


 


12.6.3                  Cost of Financial Statements. The cost of preparing all financial
statements (including an audit, if any, pursuant to Section 12.6.1)
required under this Services Agreement shall be borne by Operator.


 


12.7                           Right to
Audit Operator. Further
to Section 3.1.13, Owners shall at any time during the Term and for
five years after Operator ceases providing services under this Agreement, at
its cost, have the right to audit the books and records of Operator.


 


12.8                           Guaranty. In order to induce Owners to enter into
this Services Agreement with Operator, Guarantor, hereby unconditionally and
irrevocably guaranties to Owners and to their respective successors and assigns
the full and prompt payment when due, of (i) all obligations of Operator
now or hereafter existing under Sections 3.1.16, 3.1.18, 15.6, 20.2, 20.3, ARTICLE 12,
ARTICLE 17, ARTICLE 18 and ARTICLE 19 (collectively, the “Guaranteed Obligations”), and (ii) any
and all costs and expenses, including, without limitation, reasonable attorneys’
fees, investigative and other similar costs and expenses incurred by Owners and
the Persons described in Section 19.3.1 in successfully collecting
or enforcing the Guarantied Obligations. This guaranty given pursuant to this Section 19.3.1
is a continuing, absolute guaranty of payment and performance, and not of
collection, and shall remain in effect until the Guarantied Obligations have been
satisfied in full.


 


12.9                           Waivers. Guarantor hereby waives (i) presentment,
demand for payment and protest of nonpayment of the Guaranteed Obligations, and
notices of protest, dishonor and nonperformance, (ii) notice that credit
has been extended by Owners or the Persons described in Section 19.3.1 in
reliance on such Guarantor’s guarantee of the Guaranteed Obligations, and (iii) demand
for performance or observance (or demand for enforcement of any provision or
any pursuit or exhausting) of rights or remedies against the Operator or any
other obligor on, or guarantor of, the Guaranteed Obligations, and any
requirements of diligence or promptness on Owners’ part (or on the part of
the Persons described in Section 19.3.1) in connection therewith.
No delay or omission on Owners’ or such Person’s part in exercising any
right with respect to the Guaranteed Obligations shall operate as a waiver or
relinquishment of such right. To the extent it may lawfully do so, the
Guarantor hereby agrees to waive, and does hereby absolutely and irrevocably
waive and relinquish the benefit and advantage of, and does hereby covenant not
to assert, any appraisement, valuation, stay, extension, redemption or similar
Law, now or at any


 


31

















 


time hereafter in force,
which might delay, prevent or otherwise impede the performance or enforcement
of the Guaranteed Obligations.


 


ARTICLE 13


 


MORTGAGES; DEBT ENCUMBRANCES; SUBORDINATION


 


13.1                           Non
Encumbrance. Operator
shall not mortgage or encumber the Racing Premises, including, without
limitation, the real and personal property and the furniture, fixtures and
equipment thereon.


 


13.2                           Cooperation
in Financing. Operator
agrees to fully cooperate with Owners if Owners elect to seek or obtain financing
with respect to the Racing Operations or the Gaming Operations. Operator shall
take no actions which interfere with Owners’ rights to encumber or mortgage the
Racing Premises or the Casino, including, without limitation, the real and
personal property and furniture, fixtures and equipment thereon, and Operator
agrees to comply with all terms and conditions of any such financing
arrangements to the extent they apply to Operator. Owners agree to not
knowingly encumber or mortgage the personal property of Operator, except as set
forth in Section 3.1.16(c).


 


13.3                           Access to
Premises. Upon
reasonable advance notice from any mortgagee or debt encumbrance holder
designated by any Owner, Operator shall accord such entity and its agents the
right to enter upon any part of the Racing Premises at any reasonable time
for the purposes of examining, inspecting and copying the books and records of
any of the Owners.


 


13.4                           Foreclosure. Subject to Section 15.4.6, if
any mortgagee or debt encumbrance holder obtains ownership of any portion of
the Racing Operations due to any legal proceedings, foreclosure, or conveyance
in lieu of foreclosure and has cured any existing defaults of Owners, Operator
shall continue to perform under and honor the terms of this Services
Agreement with the mortgagee or debt encumbrance holder, provided that such foreclosing party is
not in default hereunder and elects to keep this Services Agreement in effect.
If the mortgagee or debt encumbrance holder continues with this Services
Agreement, Owners and Operator shall acknowledge the same in writing.


 


13.5                           Subordination. This Services Agreement shall be subject
and subordinate to any ground lease, mortgage, lien, deed of trust or any other
hypothecation for security now or hereafter placed upon the Racing Premises or
the entire site of which the Racing Premises are a part and to any and all
advances made on the security thereof and to any and all renewals,
modifications, consolidations, replacements and extensions thereof. Operator
agrees to execute any instruments, assurances and documents that any Owner may deem
reasonably necessary to effect the subordination described herein. As a
condition to executing any subordination agreement, Operator may require
the holder of the interest to which this Services Agreement is to be
subordinated to execute a commercially reasonable form of recognition
agreement whereby such holder agrees that, notwithstanding such subordination,
Operator’s rights shall not be disturbed if Operator is not in default, unless
this Services Agreement is otherwise terminated pursuant to its terms.


 


32

















 


13.6                           Estoppel
Certificates. Operator
shall provide, at the request of any Owner or the landlord under any OTB lease
agreement, to those mortgagees or debt encumbrance holders designated by such
Owner or landlord, a statement in writing and recordable form certifying
that this Services Agreement has not been modified and, to the best of Operator’s
knowledge, is in full force and effect or, if there have been modifications,
stating the modifications. The estoppel certificate prepared by Operator shall
also state that, to the best of Operator’s knowledge, no defaults by any Party
under this Services Agreement exist, or if so, specifying the applicable Event
of Default. Operator shall deliver any estoppel certificate requested hereunder
within ten (10) days of receipt of a written request for the same.


 


ARTICLE 14


 


CERTAIN REPRESENTATIONS AND WARRANTIES


 


14.1                           Authorization. Each Party represents and warrants that it
has full power and authority to enter into and execute this Services Agreement
and to be bound by and perform the terms hereof, and that the Persons
executing this Services Agreement on behalf of Owners and Operator,
respectively, are fully authorized to act on behalf of such respective Parties
and execute and deliver this Services Agreement.


 


14.2                           No
Conflicts. Each Party
represents and warrants that neither the consummation of the actions
contemplated by this Services Agreement to be performed by either Party, nor
the fulfillment of the terms and conditions of this Services Agreement,
conflicts with or results in a breach of any of the terms and conditions of, or
constitute a default under, any Law, agreement, indenture, instrument, or
undertaking to which such Party is a party or by which it is bound.


 


ARTICLE 15


 


DEFAULT; TERMINATION; WINDING UP


 


15.1                           Default by
Operator. Each of the
following events will be deemed an “Event
of Default by Operator”:


 


15.1.1                  Bankruptcy Events. (i) Operator applies for or consents
to the appointment of a receiver, trustee, or liquidator; (ii) Operator
files a voluntary petition for bankruptcy, or makes a general assignment for
the benefit of creditors; (iii) Operator makes a written admission of an inability
to pay debts when they become due or the dissolution or winding up of business;
or (iv) an order, judgment or decree is entered by any court of competent
jurisdiction (or on the application of a creditor) adjudicating Operator
bankrupt or insolvent or approving a petition of reorganization of Operator or
appointing a receiver, trustee or liquidator of Operator or all or a
substantial part of the assets of Operator, and the order, judgment or
decree continues unstayed and in effect for a period of sixty (60) days;


 


15.1.2                  Acute or Chronic Breach. (i) Operator fails to keep, observe or
perform any material covenant, agreement, term or provision of this
Services Agreement which is to be kept, observed or performed by Operator or
Guarantor fails to keep, observe or perform any material covenant,
agreement, term or provision of the Purchase Agreement which is to be kept,


 


33

















 


observed or performed by
Guarantor; (ii) Operator, more than twice monthly for three consecutive
months, after receiving notice from Owners, fails to keep, observe or perform any
covenant, agreement, term or provision of this Services Agreement which is to
be kept, observed or performed by Operator; or (iii) Operator breaches any
of its representations or warranties made in this Services Agreement or
Guarantor breaches any of its representations or warranties made in the
Purchase Agreement, in all cases of this clause (iii) which such breach
has a material adverse effect on Owner, the Racing Operations or the Gaming
Operations;


 


15.1.3                  Regulatory Default. The PHRC, the Gaming Board or any
Governmental Authority determines that Operator is unsuitable to continue the
operation of the Racing Operations, or Operator fails to obtain or maintain any
material License required for Operator’s performance under this Services
Agreement;


 


15.1.4                  Operating Accounts; Operating Fee Payments. Operator fails to comply with its
obligations under Section 12.3, and such failure is not cured
within five (5) banking days after receiving written notice, provided, that Operator is not also in
material breach of its other duties under this Services Agreement, in which
case, such cure period shall be reduced to two (2) banking days; and


 


15.1.5                  XpressBet, Inc. XpressBet, Inc. fails to keep, observe
or perform any material covenant, agreement, term or provision of any of
the agreements between XpressBet, Inc. and the Owners which is to be kept,
observed or performed by XpressBet.


 


15.2                           Default by
Owners. Each of the following
events will be deemed an “Event of
Default by Owners”:


 


15.2.1                  Bankruptcy. (i) Any Owner or Buyer applies for or consents to the
appointment of a receiver, trustee, or liquidator; (ii) any Owner or Buyer
files a voluntary petition for bankruptcy, or makes a general assignment for
the benefit of creditors; (iii) any Owner or Buyer makes a written
admission of an inability to pay debts when they become due or the dissolution
or winding up of business; or (iv) an order, judgment or decree is entered
by any court of competent jurisdiction (or on the application of a creditor)
adjudicating any Owner or Buyer bankrupt or insolvent or approving a petition
of reorganization of any Owner or Buyer or appointing a receiver, trustee or
liquidator of any Owner or Buyer or all or a substantial part of the
assets of any Owner or Buyer, and the order, judgment or decree continues
unstayed and in effect for a period of sixty (60) days;


 


15.2.2                  Acute or Chronic Breach. (i) Any Owner fails to keep, observe
or perform any material covenant, agreement, term or provision of this
Services Agreement which is to be kept, observed or performed by such Owner
which is not caused by Operator or Buyer or, in the case of the Holdback
Guarantee, the guarantor thereunder, fails to keep, observe or perform any
material covenant, agreement, term or provision of the Holdback Agreement or
Holdback Guarantee, as the case may be which is to be kept, observed or
performed by Buyer; (ii) any Owner more than twice monthly for three
consecutive months, after receiving notice from Operator, fails to keep,
observe or perform any covenant, agreement, term or provision of this
Services Agreement which is to be kept, observed or performed by such Owner; (iii) any
Owner breaches its representations or warranties made in this Services
Agreement which such breach


 


34

















 


has a material adverse
effect on Operator; or (iv) any Specified Default Trigger Event (as
defined in the Note Agreement) shall have occurred under the Note Agreement;
and


 


15.2.3                  Regulatory Default. The PHRC, the Gaming Board or any
comparable Governmental Authority determines that Owners are unsuitable to
continue the operation of the Racing Operations.


 


15.3                           Curing of
Certain Events of Defaults.
If an Event of Default is capable of being cured, then upon receipt of any
notice of an Event of Default, the defaulting Party shall expeditiously
undertake to cure such Event of Default by the earlier of thirty (30) days or
as soon as reasonably practical (or such earlier period as may be
expressly provided in this Services Agreement), after receipt of such notice.
Notwithstanding anything else in this Services Agreement, in no event will
Operator (i) have more time to cure an Event of Default by Operator that
causes any Owner to be in default under any material Agreement with any third
party than such Owner has under such Agreement to cure such default or (ii) have
more than five (5) banking days to cure any monetary defaults under Section 12.3.


 


15.4                           Termination
Events. Subject to the
last sentence of this Section 15.4, Operator’s services under this
Services Agreement may be terminated as follows:


 


15.4.1                  Mutual Agreement. The Parties may terminate Operator’s
services under this Services Agreement by mutual written consent or in
accordance with ARTICLE 5;


 


15.4.2                  Event of Default by Operator. Owners may terminate Operator’s
services under this Services Agreement upon an Event of Default by Operator,
effective, with respect to Events of Default by Operator that are incapable of
cure, upon receipt of notice, and effective, with respect to Events of Default
by Operator that are capable of cure but have not been cured in accordance with
Section 15.3, upon the expiration of the cure period set forth in Section 15.3;


 


15.4.3                  Event of Default by Owners. Operator may terminate Operator’s
services under this Services Agreement upon an Event of Default by any Owner,
effective, with respect to Events of Default by Owners that are incapable of
cure, upon receipt of notice, and effective, with respect to Events of Default
by Owners that are capable of cure but have not been cured in accordance with Section 15.3,
upon the expiration of the cure period set forth in Section 15.3;


 


15.4.4                  Condemnation or Destruction. Operator’s services under this Services
Agreement may be terminated in accordance with the terms and conditions
set forth in ARTICLE 16 regarding the condemnation or destruction
of the Meadows Facility;


 


15.4.5                  Prohibited Transfers by Operator. Owners may terminate Operator’s
services under this Services Agreement upon any attempted transfer or
assignment of this Services Agreement prohibited under Section 20.12.1,
to which Owners do not consent in writing;


 


15.4.6                  Sale of Racing Operations or Casino. Either Party shall have the right to
terminate Operator’s services under this Services Agreement by written notice
to the other Parties upon (i) the Meadows Facility or substantially all of
the assets of the Meadows Facility or substantially all of the assets of the
Racing Premises being sold or transferred to a Person other


 


35

















 


than Owners’ Affiliates; (ii) with
respect to any of the Owners, the sale of all or substantially all of its
assets or business or merger into or consolidation with or into another entity
or any other transaction or series of transactions, in all cases, the
result of which would be that Bill Wortman, Bill Paulos, and/or Oaktree Capital
Management, LLC do not, directly or indirectly, own at least fifty-percent of
the voting power of the surviving entity or the transferee, as the case may be,
immediately after the closing of the transaction; (iii) a transfer
authorized under Section 20.12.1; or (iv) a change in control
of Guarantor, provided, however, that Section 15.4.13,
and not this Section 15.4.6, shall apply upon a Stock Transfer
Event;


 


15.4.7                  Revocation or Non-Renewal of Licenses. Owners may terminate Operator’s
services under this Services Agreement immediately upon notice to Operator in
the event that (i) any of the Racing Licenses; (ii) any License
required for Operator to perform its obligations under this Services
Agreement; or (iii) if issued, the Gaming License is revoked, suspended,
withdrawn, or not renewed.


 


15.4.8                  Jeopardy of Gaming License. Owners may terminate Operator’s
services under this Services Agreement upon delivery of written notice to
Operator if Operator engages in actions which Owners reasonably believe may jeopardize
the issuance of or continued possession of the Gaming License and Operator
fails to cure within the shorter of ten (10) days or such period necessary
to prevent the occurrence of irreparable harm to Owner’s ability to obtain or
retain the Gaming License;


 


15.4.9                  Force Majeure. Any Party may terminate Operator’s
services under this Services Agreement upon written notice to the other Parties
upon an event of Force Majeure being in effect for more than ten (10) consecutive
days, as set forth in Section 20.10;


 


15.4.10            Cessation of Racing Operations. Owners may elect at any time (after
the Repayment Date but not before the Repayment Date) in their complete,
unfettered discretion that the Meadows Facility shall cease Racing Operations,
in which case, each of Owners and Operator shall have the option to terminate Operator’s
services under this Services Agreement upon written notice to Operator or
Owners, as the case may be, provided
further that Owners shall reimburse Operator for any expenses reasonably
incurred prior to receipt of the notice provided for above for any race meet
scheduled in accordance with the Business Plan that is canceled pursuant to the
provisions of this Section 15.4.10;


 


15.4.11            Burdensome Legal Requirement. Owners or Operator may elect to
terminate Operator’s services under this Services Agreement immediately upon
notice to Operator or Owners, as applicable, in the event of a Burdensome Legal
Requirement, such notice being effective upon the date on which the Law or the
new application of the Law underlying such Burdensome Legal Requirement is
effective;


 


15.4.12            Failure to Begin Casino Construction. Operator may elect to terminate
Operator’s services under this Services Agreement upon written notice to Owners
delivered anytime on or after the fourth anniversary of the Effective Date if
the Owners have not begun or caused to begin construction of the Casino before
receiving such notice; or


 


36

















 


15.4.13            Stock Transfer. Operator’s services under this Services
Agreement shall automatically terminate upon a Stock Transfer Event.


 


Notwithstanding the
foregoing provisions of this Section 15.4 (other than Section 15.4.13)
and notwithstanding any other provision of this Services Agreement (other than Section 15.4.13),
Operator’s services under this Services Agreement may not be terminated by
Owners or Operator without the prior written consent of the Operator or Owners,
as applicable, at any time prior to the Repayment Date, provided  however,
that nothing herein shall in any way be deemed to waive or otherwise limit the
other rights or remedies of any Party or their Affiliates under this Services
Agreement.


 


15.5                           Rights and
Remedies Upon Termination.
Following any termination of this Services Agreement the Parties shall retain
all other rights and remedies which may be provided at law or in equity.


 


15.6                           Winding
Up; Working Capital Adjustment; Transition Services. Promptly upon termination of Operator’s
services under this Services Agreement (except any termination pursuant to Section 15.4.13
(in connection with a Stock Transfer Event):


 


15.6.1                  Delivery of Books and Records. Operator shall deliver to Owners, or their
designees, copies of all books and records maintained by Operator for the
Racing Operations.


 


15.6.2                  Operating Accounts. Operator shall make no withdrawals from the
Operating Accounts without Owners’ prior written consent except as authorized
under Section 12.4.


 


15.6.3                  Release and Assignment. Subject to Section 11.8,
Operator shall release, assign, and transfer to Owners or their designees any
and all interests it may have in the real, tangible and personal property
and any Agreements (which Owners or their designees in their sole discretion
shall select as set forth in Section 3.1.16(c)) or encumbrances
with respect thereto, the Racing Operations or the Casino, and Owners agree to
accept such transfer and assume such Agreements or cause their designees to
accept such transfer and assume such Agreements. Operator shall assign or
transfer to Owners or their designees all Licenses (to the fullest extent
permitted by law) or other documents held or owned by Operator in connection
with the Racing Operations, and shall take all reasonably necessary actions to
accomplish such assignments or transfers.


 


15.6.4                  Surrender. Operator shall remove itself from the Racing Premises no later than
five (5) days after the date of termination of Operator’s services under
this Services Agreement, except with Owners’ prior written approval and except
to the extent that Operator is providing transition services pursuant to Section 15.6.6.
Subject to Operator’s obligations to provide the Racing Operations to Owners or
their designees in a manner that allows them to operate the Racing Operations
in accordance with the Operating Standard, as set forth in Section 15.6.6,
the Racing Premises shall be left in as good condition as on the Effective
Date, or in the event of renovation, in as good condition as on the date of
completion of such renovations, except for ordinary wear and tear or Force
Majeure destruction.


 


37

















 


15.6.5                  Working Capital Adjustment. In all cases other than a termination
pursuant to Section 15.4.13:


 


(a)                                  Within sixty (60) days following the date of
termination of Operator’s services under this Services Agreement Operator shall
prepare and deliver to Owners a statement (the “Termination Date Net Working Capital Statement”) setting
forth the Net Working Capital of the Racing Operations as of such date (the “Termination Date Net Working Capital”),
which shall be in accordance with GAAP applied in a manner consistent with
preparation of the Financial Statements set forth in Section 12.6
and which shall include any amounts owing to Operator in respect of shared
capital expenditures as set forth in Section 11.6.2 (the “Accounting Procedures”). The
Termination Date Net Working Capital Statement shall be prepared based on the
books and records of the Racing Operations as of the termination date and shall
be verified by, reviewed by, and shall be accompanied by the statement thereon
of, Ernst & Young, L.L.P., accountants of Operator (“Operator’s Accountants”), stating that
the Termination Date Net Working Capital has been determined in accordance with
the Accounting Procedures. During the preparation of the Termination Date Net
Working Capital Statement by Operator and the period of any dispute provided
for in Section 15.6.5(c), Owners shall provide Operator and
Operator’s Accountants reasonable access to the books, records, facilities and
employees of any of the Owners during normal business hours with reasonable
notice, and Owners shall cooperate with Operator’s Accountants, in each case to
the extent reasonably required by Operator and Operator’s Accountants in order
to prepare the Termination Date Net Working Capital Statement.


 


(b)                                 Subject to the limitations set forth in Section 15.6.5(c),
if Operator has not received a Notice of Dispute from Owners in accordance with
Section 15.6.5(c) within thirty (30) days after the date of
receipt by Owners of the Termination Date Net Working Capital Statement:


 


(i)                                     Subject to Section 15.6.5(c), if
the amount of the Termination Date Net Working Capital shown on the Termination
Date Net Working Capital Statement is less than $0.00, then Owners shall
deliver written notice to Operator specifying the amount of such deficiency,
and, subject to Section 19.5 with regards to nonpayment, Operator
shall, within five business days of its receipt of such notice, pay such amount
to Owners by wire transfer in immediately available funds; and


 


(ii)                                  Subject to Section 15.6.5(c), if
the amount of the Termination Date Net Working Capital shown on the Termination
Date Net Working Capital Statement is greater than $0.00, Owners shall pay to
Operator, within five business days of a notice to such effect from Operator,
an amount equal to such excess.


 


All payments to be made
under this subsection (b) shall be made by wire transfer of
immediately available funds to an account designated by the receiving party.


 


(c)                                  (i)                                     If not disputed by Owners in accordance with this
Section 15.6.5(c), the Termination Date Net Working Capital
Statement delivered by Operator to Owners shall be final, binding and
conclusive on the Parties. Owners may dispute any amounts reflected on the
Termination Date Net Working Capital Statement to the extent that the net
effect of such


 


38

















 


disputed amounts in the
aggregate would be to change the Termination Date Net Working Capital by more
than $30,000; provided, however, that Owners shall notify Operator
and Operator’s Accountants in writing of each disputed item, specifying the
amount thereof in dispute and setting forth, in reasonable detail, the basis
for such dispute, within 30 days of Owners’ receipt of the Termination Date Net
Working Capital Statement (the “Notice of
Dispute”). In the event of such a dispute, during the thirty
(30) days immediately following receipt by Operator of the Notice of Dispute,
each of Operator, Operator’s Accountants, Owners and Owners’ accountants shall
negotiate in good faith to resolve any differences that they may have with
respect to each matter specified in the Notice of Dispute.


 


(ii)                                  If, at the end of such thirty (30) day period
or such longer period as may be mutually agreed, Owners and Operator are
unable to reach a resolution of all matters in the Notice of Dispute, leaving
in dispute amounts the net effect of which in the aggregate with the amounts
agreed upon by Owners and Operator would change the Termination Date Net
Working Capital by at least $30,000, Owners may submit the items remaining
in dispute that Owners shall be entitled to dispute by the terms of this Section 15.6.5(c) for
resolution to such independent accounting firm as may be mutually
acceptable to Operator and Owners (the “Independent
Accounting Firm”), which shall, within thirty (30) business days
of such submission, determine and report to Operator and Owners upon such
remaining disputed items, and such report shall have the legal effect of an
arbitral award and shall be final, binding and conclusive on Operator and
Owners. The fees and disbursements of the Independent Accounting Firm shall be
allocated between Operator and Owners in the same proportion that the aggregate
amount of such remaining disputed items so submitted to the Independent
Accounting Firm that is unsuccessfully disputed by each such Party (as finally
determined by the Independent Accounting Firm) bears to the total amount of
such remaining disputed items so submitted. Operator and Owners shall pay their
own costs incurred in connection with the Notice of Dispute.


 


(iii)                               No adjustment to any amount payable by
Operator or Owners pursuant to Section 15.6.5(b) shall be made
with respect to amounts disputed by Owners pursuant to this Section 15.6.5(c),
unless the net effect of the amounts successfully disputed by Owners in the
aggregate is to change the Termination Date Net Working Capital by at least
$30,000.


 


(iv)                              Any amount that is payable under Section 15.6.5(b),
including, without limitation, any portion thereof that is subject to dispute
under this Section 15.6.5(c) shall be paid by Operator or
Owners, as the case may be, by wire transfer of immediately available
funds, to an account designated by the receiving party, within five business
days following the resolution of the matters set forth in the Notice of Dispute
or, at the option of the paying Party, upon the resolution of any particular
dispute, and in an amount in accordance with such resolution.


 


(d)                                 In acting under this Services Agreement,
Operator’s Accountants, Owners’ accountants and the Independent Accounting Firm
shall be entitled to the privileges and immunities of arbitrators.


 


39

















 


(e)                                  Any payment required to be made by Operator
or Owners pursuant to Section 15.6.5(b) shall bear interest
from the date of termination of Operator’s services under this Services
Agreement through the date of payment on the basis of the average of the daily
rate of interest publicly announced by Citibank N.A. in New York, New York from
time to time as its base rate from the Closing Date to the date of such
payment.


 


(f)                                    If this Services Agreement is terminated
effective at the end of the fifth year anniversary of the Effective Date, then
the Final Release (as defined in the Holdback Agreement) shall not be paid
until the completion of and payment of amounts due under the working capital
adjustment set forth in Section 15.6.5 of this Services Agreement
or until satisfied in accordance with Section 19.5.


 


15.6.6                  Transition Services. At Owners’ election, if Operator’s services
under this Services Agreement are terminated for any reason (other than in
connection with a Stock Transfer Event), Operator shall provide, and shall
cause its Affiliates to provide, all transition services reasonably necessary
for Owners or their designees to manage and operate the Racing Operations on a “turn-key”
basis after such termination date in accordance with the Operating Standard
(except to the extent that Owners have declined to assume, in accordance with Section 15.6.3,
any Racing Operations Agreement), which for the avoidance of doubt, may include
financial statements. Such transition services shall be delivered free of
charge to Owners or their designees, except if this Services Agreement is
terminated as a result of an Event of Default by Owners pursuant to Section 15.4.3,
in which case, such services shall be provided at a reasonable fee. All such
services shall be performed expeditiously, in a professional manner, and in
accordance with the Operating Standard. For purposes of clarity, references in
this Services Agreement to “termination of Operator’s services under this
Services Agreement” shall not be deemed to mean Operator’s services with
respect to providing transition services. However, all such transition services
shall be deemed to constitute part of the “Racing Operations.”  The period of time during which Operator
shall provide transition services in accordance with this Section 15.6.6
shall be deemed the “Transition Period.”   In the event Operator’s services under this
Services Agreement are terminated in connection with a sale of the Racing
Operations or Casino (other than in connection with a Stock Transfer Event),
Operator shall offer to provide buyer with the transition services reasonably
necessary for it to manage and operate the Racing Operations for a reasonable
fee and a reasonable period of time.


 


15.7                           Limited
Termination in Certain Events. Upon the occurrence of a Stock Transfer Trigger Date, Operator (i) shall
not be obligated to comply with Section 7.1.1, Section 7.1.2,
Section 7.3, Section 7.4 or Section 7.5 and
(ii) may, without Owners’ prior consent, take any of the actions described
in Section 4.1, provided,
however, that in case of clause (ii) of
this Section 15.7, Operator shall not take any action or fail to
take any action that imposes or is reasonably likely to impose any obligation
or Liability upon, or otherwise adversely affects or prejudices the rights of,
any Person who is an Affiliate of the Owners (other than any other Owner). Upon
the occurrence of a Specified Default Trigger Event (as defined in the Note
Agreement), Operator shall not be obligated to comply with Section 12.3
or Section 15.6.2.


 


40

















 


ARTICLE 16


 


CONDEMNATION AND DESTRUCTION


 


16.1                           Condemnation. If the whole of the Meadows Facility, or a
portion thereof which inhibits the ability to conduct the Racing Operations at
the Meadows Facility, is taken or condemned in any eminent domain,
condemnation, compulsory acquisition or like proceeding by any competent
authority for any public or quasi-public use or purpose, then either Operator
or the Owners may terminate this Services Agreement as of the date on
which Owners are required to surrender possession of the Meadows Facility or
portion thereof as a consequence of the taking or condemnation. Operator shall
continue to supervise and direct the management and operation of the Racing
Operations until Owner is required to surrender possession of the Meadows
Facility as a consequence of the taking or condemnation. Upon surrender of
possession, if either Operator or the Owners elect to terminate this Services
Agreement, Operator’s services under this Services Agreement shall immediately
terminate, and Operator will be entitled to participate in the condemnation
proceeding as a defendant and have its share of the award determined by the
court overseeing the condemnation proceeding.


 


16.2                           Destruction. If all or a portion of the Meadows Facility
is destroyed in whole or in significant part by fire or other material
casualty, and such destruction materially impairs the ability to conduct the
Racing Operations at the Meadows Facility, then Operator or Owners may elect
to terminate Operator’s services under this Services Agreement by giving notice
to the other within thirty (30) days after the date of the material casualty; provided that if the proceeds from the
insurance policies maintained under this Services Agreement are sufficient to
rebuild (or if Owners otherwise elect to rebuild) the Meadows Facility in
substantially the same form as existed before the casualty, then Operator may not
elect to terminate its services under this Services Agreement if Owners
reasonably promptly undertake to rebuild and complete such rebuilding as soon
as practicable. If the Racing Operations continues to operate throughout the
reconstruction, repair or modification, then this Services Agreement shall
remain in full force and effect; however,
should the Racing Operations at the Meadows Facility cease to operate during
the period of construction, repair or modification, then the provisions of this
Services Agreement will abate (to the extent of such destruction) during the
period of repair, other than the right of Operator to participate in the construction,
repair and modification of the facility.


 


ARTICLE 17


 


NON-COMPETITION


 


Operator
hereby confirms that it is bound by the non-competition obligations set forth
in Section 5.08 of the Purchase Agreement.


 


ARTICLE 18


 


INSURANCE


 


18.1                           Operator’s
Insurance Obligations. No
later than the Effective Date, Operator shall obtain and pay for all policies
of insurance specified below, provided,
however, that in no


 


41

















 


event shall the scope, type
or limits of, or the exclusions and deductibles under, Operator’s insurance
policies be less than that necessary to conform to reasonable industry
standards for a similar harness racetrack with expanded gaming, taking into
consideration inflation and any events or trends of liability which affect the
risks attendant to owning and operating a harness racetrack with expanded
gaming.


 


18.1.1                  Property Insurance. Operator shall provide, pay for and maintain
property insurance covering the Racing Premises throughout the Term on buildings
and structures, with endorsements for business interruption and extra expense,
boiler and machinery, equipment breakdown and utility services interruption,
and, where applicable, business personal property.


 


18.1.2                  Commercial General Liability, Excess
Liability and Business Automobile. Operator
shall provide, pay for and maintain commercial general liability, excess
liability and business automobile insurances throughout the Term with respect
to the Racing Premises and Racing Operations. Such policies shall afford Owners
and Operator protection of at least $1,000,000 per occurrence and aggregate
$2,000,000 per location with respect to commercial general liability and horse
legal liability; $50,000,000 per occurrence and aggregate $100,000,000 with respect
to excess liability, provided,
that Operator will use reasonable efforts to obtain such excess liability
coverage on an aggregate $50,000,000 per location basis (for purposes of this
sentence, “per location” shall mean the Racing Premises taken as a whole); and
$1,000,000 per accident with respect to business automobile.


 


18.1.3                  Commercial Crime. Operator shall provide, pay for and
maintain crime coverage with respect to the Employees, including, without
limitation, employee theft coverage, premises coverage and transit coverage.
Such policy shall afford Owners and Operator protection of at least $1,000,000
per occurrence and shall insure Operator and the applicable Owners (or their
Affiliates), each as their interests shall appear in connection with any loss
insured thereunder.


 


18.1.4                  Workers’ Compensation and Employers’
Liability. Operator shall,
on its own behalf and on behalf of Owners, provide, pay for and maintain all
requisite workers’ compensation and employers’ liability insurance with respect
to all Employees. The insurance coverage required (including, without
limitation, the carrier, policy limits, deductibles and exclusions of each)
must be in form, substance and amounts satisfactory to Owners in all respects
and, if not, Operator shall obtain insurance from another provider selected by
Owners in their sole and absolute discretion. Such insurance shall also include
an endorsement where applicable, for alternate employer which designates that
the loss experience shall be attributable to the Operator and not to the
Owner(s).


 


18.1.5                  Employment Practices Liability; Fiduciary
Liability. Operator shall
provide, pay for and maintain policies of insurance affording protection of at
least $5,000,000 policy limit with respect to Employment Practices Liability
for the Racing Operations; and at least $3,000,000 policy limit with respect to
Fiduciary Liability for the Racing Operations.


 


18.1.6                  Additional Policies Consistent with Past
Practice. Operator shall
provide, pay for and maintain such additional policies of insurance as are
consistent with past practice and as disclosed pursuant to Section 3.15 of
the Purchase Agreement.


 


42

















 


18.1.7                  Other Insurance. Operator shall obtain, pay for and maintain
all other insurance in respect of the Racing Operations that is required by
Law, reasonably required by the Owners or set forth in the applicable Business
Plan.


 


18.1.8                  Additional Duties. Operator shall add Owners as additional
insureds on all policies of insurance relating to the Racing Operations
(regardless of whether Operator is required under this Services Agreement to
obtain such policies). Operator shall obtain, to the extent commercially
reasonable, all policies of insurance required in this Section 18.1
from Guarantor’s corporate insurance plan. All limits of coverage specified
herein shall be made fully available for the Racing Operations and Racing
Premises, as applicable. No later than ten (10) days after the effective
date of any such policy of insurance, Operator shall cause to be issued to
Owners (or the appropriate Owner) proper certificates of insurance evidencing
Operator’s compliance with its obligations in this Section 18.1.
Operator shall deliver to Owners all notices of expiration or cancellation
under all policies of insurance obtained by Operator relating to the Racing
Operations. No material change in the insurance evidenced by any particular
certificate shall be made by Operator without the prior written consent of
Owners. Operator shall be responsible for the payment of all deductibles under
the policies of insurances required in this ARTICLE 18.


 


18.2                           Providers;
Additional Endorsements.
All insurance provided for under this ARTICLE 18 shall be issued by
insurance companies of good reputation and sound financial responsibility with
an AM Best rating of at least A:X and licensed by the State of Pennsylvania.
All insurance policies required under this Services Agreement shall be endorsed
specifically to the effect that the policies shall not be cancelled or
materially changed without less than thirty (30) days prior written notice to
Owners and Operator. To the extent obtainable without significantly increasing
the premium cost, all policies of comprehensive public liability insurance and
comprehensive crime insurance shall contain an endorsement to the effect that
the insurance shall be primary to any other similar insurance carried by Owners
or Operator.


 


18.3                           Insurance
Policy Inspection. Owners
shall have the right as required by Law to inspect all policies of insurance
maintained by Operator pursuant to this Services Agreement or otherwise
relating to the Racing Operations. Operator shall provide, promptly upon Owners’
request, detailed summaries (including, without limitation, coverage limits,
deductibles, endorsements and exclusions) of all policies of insurance
maintained by Operator pursuant to this Services Agreement or otherwise
relating to the Racing Operations.


 


18.4                           Waiver of
Subrogation. Owners and
Operator hereby agree that insurance policies carried by them (if any) pursuant
to this ARTICLE 18 shall contain a clause permitting the insured to
waive its right of subrogation against any other insured. Each of Owners and
Operator hereby waives such rights of subrogation against the other or others
and agrees to execute such documents and other evidence as may be
reasonably requested by the other Parties from time to time to effectuate such
waiver.


 


43

















 


ARTICLE 19


 


INDEMNIFICATION


 


19.1                           Indemnification
By Operator. Subject to Section 9.03(g) of
the Purchase Agreement, Operator shall indemnify, defend and hold Owners free
and harmless from all expenses, fees, losses, liabilities, damages, costs and
other amounts (including, without limitation, reasonable attorneys’ fees,
investigative and other similar costs and expenses) (collectively, “Losses”) arising out of or related to
the following:


 


19.1.1                  all obligations and Liabilities of the Racing
Operations arising out of or related to acts, omissions, events or occurrences
that take place during the Term;


 


19.1.2                  the Pre-Existing Liabilities;


 


19.1.3                  the business or operations of XpressBet, or
any predecessor or successor thereof (including the Owners prior to the Closing
Date (as defined in the Purchase Agreement)), after the Effective Date;


 


19.1.4                  Operator’s gross negligence or willful
misconduct during the Transition Period; or


 


19.1.5                  Operator’s breach of any representation or
warranty or failure to perform any obligation, covenant or agreement made
in this Services Agreement.


 


19.2                           Indemnification
By Owners. Subject to Section 9.03(h) of
the Purchase Agreement, Owners shall jointly indemnify and hold harmless
Operator from any and all Losses arising out of or related to the following:


 


19.2.1                  the Gaming Operations;


 


19.2.2                  Owner’s breach of any representation or
warranty or failure to perform any obligation, covenant or agreement made
in this Services Agreement; or


 


19.2.3                  Owner’s encumbrance or mortgage of any
personal property of Operator other than as set forth in Section 3.1.16(c).


 


19.3                           Indemnification
in General.


 


19.3.1                  Indemnified Parties. The indemnities contained in this Services
Agreement shall run to the benefit of Operator and Owners, respectively, their
respective Affiliates, and the members, directors, officers, partners,
employees, agents and representatives of Operator and Owners and of their
respective Affiliates.


 


19.3.2                  Willful Misconduct or Gross Negligence. No Party shall have any liability under Section 19.1
or 19.2, as applicable, for any uninsured Losses to the extent that such
Losses are the direct result of the other Party’s willful misconduct or gross
negligence.


 


44

















 


19.3.3                  Certain Off-Sets For Recovered Monies. Payments for Losses by any Party from whom
indemnification is sought or received (an “Indemnifying
Party”) to any Party seeking or obtaining indemnification (an “Indemnified Party”) pursuant to Sections
19.1 and 19.2, as applicable, shall be limited to the amount of any
Loss that remains after deducting therefrom (i) any Tax benefit to the
Indemnified Party, (ii) any insurance proceeds and any indemnity,
contribution or other similar payment recovered by such Indemnified Party from
any third party with respect thereto (it being agreed that the Indemnified
Party will use its commercially reasonable efforts, and cause its Affiliates to
use their commercially reasonable efforts, to recover such proceeds and
payments and that, promptly after the realization of any insurance proceeds,
indemnity, contribution or other similar payment, the Indemnified Party shall
reimburse the Indemnifying Party for such reduction in Losses for which the
Indemnified Party was indemnified prior to the realization of reduction of such
Losses minus the cost incurred by such Indemnified Party in recovering such
proceeds, indemnity, contribution or other similar payment), and (iii) any
amounts received by an Indemnified Party pursuant to Section 15.6.5
with respect to the subject matter in dispute to the extent taken into account
in determining the payment pursuant to such section. A Tax benefit for purposes
of this Section will be reasonably determined by the Indemnified Party’s
accountants as the difference between (i) the amount of federal, state and
local Tax Liabilities of the Indemnified Party and its Affiliates for the year
with respect to which the indemnity payment is made, and (ii) the amount
of federal, state and local Tax Liabilities of the Indemnified Party and its
Affiliates for the year with respect to which the indemnity payment is made but
without the effect of the event that gave rise to the indemnity payment. The
Indemnified Party shall provide the Indemnifying Party with calculations and/or
other information reasonably supporting the determination of the Tax benefit.


 


19.3.4                  No Consequential or Punitive Damages. Neither Owners nor Operator nor any of
their respective Affiliates shall have any liability to the other or any other
Indemnified Party under this Services Agreement for consequential or punitive
damages, except that this Section 19.3.4 shall not limit an
Indemnified Party’s right to recover fees or expenses of counsel or
reimbursement or indemnity for claims by third parties to the extent otherwise
provided for in this Services Agreement and paid or payable by a Party.


 


19.3.5                  No Duplicate Obligations. Operator and its Affiliates shall have no
liability under any provision of this Services Agreement for any liabilities
and damages to the extent that such liabilities and damages have been satisfied
by Guarantor under the Purchase Agreement.


 


19.4                           Indemnification
Procedures.


 


19.4.1                  Claims between Parties. No claim may be asserted, nor may any
action be commenced against an Indemnifying Party for breach of any
representation, warranty, covenant or agreement contained in this Services
Agreement, unless written notice of such claim or action is received by such
Indemnifying Party describing in reasonable detail the facts and circumstances
with respect to the subject matter of such claim or action.


 


19.4.2                  Third Party Claims. An Indemnified Party under this Services
Agreement shall give the Indemnifying Party under this Services Agreement
prompt written notice (a


 


45

















 


“Claim Notice”) of any claim,
assertion, event or proceeding by or in respect of a third party of which it
has knowledge concerning any Loss as to which it may request
indemnification under Section 19.1 or 19.2, as applicable, provided, however,
that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any liability
hereunder unless (and then solely to the extent) the Indemnifying Party thereby
is materially prejudiced by the delay. The Indemnifying Party shall have the
right to assume, through counsel of its own choosing, the defense or settlement
of any such claim or proceeding at its own expense. If the Indemnifying Party
elects to assume the defense of any such claim or proceeding, the Indemnified Party
may participate in such defense, but in such case the expenses of the
Indemnified Party shall be paid by it; provided,
however, that if there exists or
is reasonably likely to exist a conflict of interest (including, without
limitation, if there may be one or more legal or equitable defenses
available to the Indemnified Party which are different from or in addition to
those of the Indemnifying Party and representation by the same counsel would be
inappropriate due to the actual or potential differences between the parties)
that would make it inappropriate in the reasonable judgment of the Indemnified
Party for the same counsel to represent both the Indemnified Party and the
Indemnifying Party, then the Indemnified Party shall be entitled to retain its
own counsel, in each jurisdiction for which the Indemnified Party determines
counsel is required, at the expense of the Indemnifying Party. With reasonable
notice, the Indemnified Party shall provide the Indemnifying Party with
reasonable access to its records and personnel relating to any such claim,
assertion, event or proceeding during normal business hours and shall otherwise
cooperate with the Indemnifying Party in the defense or settlement thereof, and
the Indemnifying Party shall reimburse the Indemnified Party for all its
reasonable out-of-pocket expenses in connection therewith. If the Indemnifying
Party elects to direct the defense of any such claim or proceeding, the
Indemnified Party shall not pay, or permit to be paid, any part of any
claim or demand arising from such asserted liability unless the Indemnifying
Party consents in writing to such payment or unless the Indemnifying Party,
subject to the fourth to the last sentence of this Section 19.4.2,
withdraws from the defense of such asserted Loss or unless a final judgment
from which no appeal may be taken by or on behalf of the Indemnifying
Party is entered against the Indemnified Party for such Loss. If the
Indemnifying Party shall fail to defend, or if after commencing or undertaking
any such defense, fails to prosecute or withdraws from such defense, the
Indemnified Party shall have the right to undertake the defense or settlement
thereof, at the expense of the Indemnifying Party. If the Indemnified Party
assumes the defense of any such claim or proceeding pursuant to this Section 19.4.2
and proposes to settle such claim or proceeding prior to a final judgment
thereon or to forego any appeal with respect thereto, then the Indemnified
Party shall give the Indemnifying Party prompt written notice thereof and the
Indemnifying Party shall have the right to participate in the settlement or
assume or reassume the defense of such claim or proceeding. Neither the
Indemnified Party nor the Indemnifying Party shall settle any claim or
proceeding without the written approval of the Indemnifying Party (in the case
of a settlement by the Indemnified Party) or of the Indemnified Party (in the
case of a settlement by the Indemnifying Party), which approval shall not be
unreasonably withheld. Each Party agrees that, in the event an Indemnifying
Party elects to direct the defense of any claim or proceeding, it will refrain
from making any public announcements in respect of such claim or otherwise
communicating with the news media. The Parties hereby consent to the non-exclusive
jurisdiction of any court in which an Action by a third party is brought
against any Indemnified Party for purposes of any claim that an Indemnified
Party may have under this Services Agreement with respect to such Action


 


46

















 


or the matters alleged
therein and agree that process may be served on any Party with respect to
such a claim at the address specified in this Services Agreement.


 


19.5                           Payment of
Indemnified Losses. Subject
to Section 9.03(g) and Section 9.03(h) of the
Purchase Agreement, once a Loss is agreed to by the Indemnifying Party or
finally adjudicated to be payable pursuant to this ARTICLE 19 or an
amount is determined to be owing under Section 15.6.5 (if
applicable), the Indemnifying Party shall satisfy its obligations within
fifteen (15) business days of such final, nonappealable adjudication by wire
transfer of immediately available funds with respect to any Loss or within the
time periods specified pursuant to Section 15.6.5 with respect to
amounts owing under such section; provided,
that during the term of any of the Holdback Documents (as defined in the
Purchase Agreement), if the Indemnifying Party is Operator and the Losses are
covered under the Holdback Documents, then such obligations shall be satisfied
in accordance with the provisions of the Holdback Documents. Subject to Section 9.03(g) and
Section 9.03(h) of the Purchase Agreement, the Parties hereto
agree that should an Indemnifying Party not make full payment of any such
obligations (other than such obligations described in the provisos set forth in
the immediately preceding sentence) within such fifteen (15) business day
period or within such period as specified in Section 15.6.5, as the
case may be, any amount payable shall accrue interest, compounded
annually, calculated from the date of agreement of the Indemnifying Party or
final, nonappealable adjudication through the date such payment has been made,
on the basis of the average of the daily rate of interest publicly announced by
Citibank N.A. in New York, New York from time to time as its base rate from the
date of such agreement or such adjudication to the date of such payment. The
Parties hereto agree that any indemnification made pursuant to this Services
Agreement covered by the Holdback Documents shall be treated as an adjustment
to the Purchase Price (as defined in the Purchase Agreement).


 


19.6                           Survival. The indemnity provisions of this ARTICLE 19
shall survive any cancellation, termination or expiration of this Services
Agreement; provided that nothing
herein shall be deemed to extend or waive any applicable statute of limitation.


 


ARTICLE 20


 


GENERAL


 


20.1                           No
Warranties. Except as
set forth in ARTICLE 14, no Party makes any representation or
warranty (implied or express) whatsoever to any other Party in this Services
Agreement. Operator bears all risk with respect to the profitability of the
Racing Operations and understands that the harness racing and off-track betting
industries are each subject to change, fluctuation and regulation and that
Owners cannot control the market for these industries. Similarly, but without
limiting Operator’s duties and obligations under this Services Agreement,
Owners take all risks regarding the profitability of Gaming Operations and
understand that the gaming business is subject to fluctuation and regulation
and that Operator cannot control the market for these industries. Operator
understands that Owners cannot guarantee that they will receive the Gaming
License or that, if they do and are able to construct the Casino, the Racing
Operations will realize benefits from the operation of the Casino.


 


47

















 


20.2                           Further
Assurances; Cooperation; Return of Monies. The Parties shall cooperate, do and cause to be done all such acts,
matters and things, and shall execute and deliver all such documents and
instruments as shall be required to enable the Parties to perform their
respective obligations under, and to give effect to the transactions contemplated
by, this Services Agreement. Without limiting the generality of the foregoing,
Operator, on behalf of itself, its Affiliates and its and their owners,
partners, principals, officers, successors and assigns, agrees, at the request
of Owners or any of their Affiliates, to complete, execute, and furnish to
Owners any materials, questionnaires, forms, exhibits and appendices as may be
required for Owners or any of their Affiliates’ compliance with the
requirements of the Gaming License or to be filed with any liquor licensing
authority or similar regulatory authority. If any Party receives from a third
party any monies which it has knowledge belongs to another Party, such
receiving Party shall pay such monies to the owning Party as promptly as practicable.
In the event that the Pennsylvania Liquor Control Board determines that this
Services Agreement is impermissible, the Parties agree to cooperate with one
another to promptly amend this Services Agreement to the least extent necessary
to receive approval from the Pennsylvania Liquor Control Board.


 


20.3                           Confidentiality. Operator shall, and shall cause its agents,
representatives, Affiliates, employees, officers, directors and all other
Persons over whom Operator has been given authority under this Services
Agreement (including, for example, the Employees) to, protect (and not disclose
or provide access to any Person) any or all confidential information relating
to the Racing Operations, the Gaming Operations or the Owners or their
Affiliates (including, without limitation, finances, trade secrets, price,
customer and supplier lists and pricing and marketing plans and all other
information that Owners regard or is reasonably expected to be regarded as
confidential information) by using the same degree of care, but no less than a
reasonable degree of care, to prevent the unauthorized disclosure or use of
such confidential information, as Operator uses to protect its own confidential
information of a like nature; provided,
however, that this sentence shall
not apply to any information (i) that, at the time of disclosure, Operator
disclosed to its agents, representatives, Affiliates, employees, officers and
directors and other authorized Persons strictly on a need-to-know basis
(provided that such Persons are bound by a duty of confidentiality similar to
that set forth herein); (ii) that, at the time of disclosure, is publicly
available and was not disclosed in breach of this Services Agreement or other
duty of confidentiality by Operator or its agents, representatives, Affiliates,
employees, officers or directors or other authorized Persons; or (iii) to
the extent that it is required to be disclosed by Law, provided, that Operator shall deliver
prompt notice to Owners of such requirement (and provide copies of notices
thereof) and permit Owners a meaningful opportunity to contest or obtain
confidential treatment prior to the disclosure of such information; provided  further,
that so long as any Seller Note is outstanding, this Section 20.3
shall not apply to the exceptions to confidentiality set forth in Section 10.14
of the Note Agreement; provided, further, that the obligation of
confidentiality set forth in this Section 20.3 shall terminate upon
a Stock Transfer Trigger Date except to the extent relating to any confidential
information of any Person who is an Affiliate of the Owners (other than any
other Owner).


 


20.4                           Agency. Nothing contained in this Services
Agreement shall be construed to create a relationship of employee/employer,
joint venturers or partners between Operator, on one hand, and Owners, on the
other hand.


 


48

















 


20.5                           Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
by delivery in person, by nationally recognized overnight courier service, or
by facsimile with receipt confirmation to the respective Parties at the
following addresses (or at such other address for a Party as shall be specified
in a notice given in accordance with this Section 20.5:


 


	
  If to
  Operator:

  Magna Entertainment
  Corp.
337
  Magna Drive
Aurora, Ontario
L4G
  7K1, Canada

  Facsimile: 905-726-7177

  Attn:   CEO/General Counsel

  	
   

  	
  If to
  Owners:

  PA Meadows, LLC

  c/o Oaktree Capital Management, LLC

  333 S. Grand Avenue, 28th Floor

  Los Angeles, California 90071-1560

  Facsimile: 213-830-6394

  Attn:                    John B. Frank, Esq.

  Steve Kaplan

  

  and to:

  

  Millennium Gaming, Inc,

  221 N. Rampart Blvd.

  Las Vegas, NV, 89145

  Facsimile: 702-507-5992

  Attn:   William J. Paulos

  
	
   

  	
   

  	
   

  
	
  With
  copy to:



  O’Melveny & Myers
  LLP

  400 South Hope Street

  15th Floor

  Los Angeles, CA 90071

  Facsimile: 213-430-6407

  Attn:  Joseph K. Kim, Esq.

  	
   

  	
  With
  copy to:



  Munger, Tolles &
  Olson LLP

  355 South Grand Ave. #3500

  Los Angeles, CA 90071

  Facsimile: 213-683-3702

  Attn:  Sandra Seville-Jones, Esq.

   

  and to:

   

   

  Santoro, Driggs, Walch,
  Kearney, Johnson

  & Thompson

  400 South Fourth Street

  Suite 300

  Las Vegas, N.V. 89101

  Attn:  Michael Kearney

  Facsimile: 702-791-1912

  



 


49

















 


20.6                           Headings. The headings contained in this Services
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Services Agreement.


 


20.7                           No Waiver. The rights and remedies of the Parties are
cumulative and not alternative. Neither the failure nor any delay by any Party
in exercising any right, power or privilege under this Services Agreement will
operate as a waiver of such right, power or privilege and no single or partial
exercise of any such right, power or privilege will preclude any other or
further exercise of such right, power or privilege or the exercise of any other
right, power or privilege. To the maximum extent permitted by Law, (a) no
claim or right arising out of this Services Agreement can be discharged by one
Party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other Party; (b) no waiver that may be
given by a Party will be applicable except in the specific instance for which
it is given; and (c) no notice to or demand on one Party will be deemed to
be a waiver of any obligation of such Party or of the right of the Party giving
such notice or demand to take further action without notice or demand as
provided in this Services Agreement.


 


20.8                           Severability. If any term or other provision of this
Services Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Services
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any Party. If this Services Agreement or the
scope of Operator’s responsibilities or duties hereunder violates any Laws,
Owners may amend or modify this Services Agreement to the least extent
necessary in order to comply with such Laws.


 


20.9                           Entire
Agreement. This Services
Agreement constitutes the entire agreement of the Parties with respect to the
subject matter hereof and supersedes all prior agreements and undertakings,
both written and oral, other than the Transaction Documents (as defined in the
Purchase Agreement).


 


20.10                     Force
Majeure. If, as the result
of an event of Force Majeure (as defined below), any Owner or Operator fails to
perform in a timely manner any obligation to be performed under this
Services Agreement by such Party, then such failure shall be excused and shall
not be deemed a breach of this Services Agreement by such Party, but only for
so long as and to the extent that such Force Majeure event has caused the
non-performance. In the event that the Force Majeure results in ceasing or
suspending Racing Operations for more than three days, Operator agrees to
notify and cooperate with Owners to use reasonable efforts to remediate the
Force Majeure event. “Force Majeure”
for purposes of this Section means: any (i) strike(s), lockout(s) or
labor dispute(s) not caused by any Party’s breach, willful misconduct or gross
negligence; and (ii) Acts of God, governmental restrictions or
regulations, acts of terrorism, enemy or hostile governmental action, civil
commotion, fire, flood, riots, earthquakes or other casualty, or other
conditions similar to those enumerated in this item (ii). Notwithstanding the
preceding sentence, Force Majeure will not apply to matters caused by the Party
seeking to claim a Force Majeure event has occurred under items (i) through
(ii) above, or that could be prevented by actions within the reasonable
control of the Party obligated to perform an action under this Services
Agreement.


 


50

















 


20.11                     No
Subcontractors. Operator
may not retain any third party or otherwise enter into any subcontracting
arrangement to perform Operator’s duties under this Services Agreement
without the prior written consent of Owners.


 


20.12                     Transfers
and Assignments.


 


20.12.1            By Operator. The Parties expressly agree and acknowledge that Owners have retained
Operator to manage the Racing Operations based on factors personal to Operator
and Guarantor, and that Owners are relying on the business skills, knowledge,
judgment and experience of Operator and Guarantor. Accordingly, (i) Operator
may not transfer or assign its interest in or its rights or obligations
under this Services Agreement; and (ii) Guarantor may not transfer or
assign a direct or indirect (through Operator’s shareholders or otherwise)
controlling or majority voting interest in Operator or all or substantially all
of the assets of Operator (for purposes of clarity, this prohibition shall not
apply to a change in control of the voting interests of the Guarantor itself),
without the prior written consent of Owners, which Owners may withhold in
their sole and absolute discretion.


 


20.12.2            By Owners. Owner may not assign or transfer its rights or obligations under
this Service Agreement without the consent of Operator; provided, however,
that after the Repayment Date, Owners may transfer their interest in this
Services Agreement to any Affiliates without restriction, provided, that Owners shall deliver to
Operator reasonably prior notice of any such transfer.


 


20.13                     No
Third-Party Beneficiaries.
This Services Agreement is for the sole benefit of the Parties and their
permitted assigns and nothing herein, except as expressly provided otherwise in
this Services Agreement, is intended to or shall confer upon any other Person
any legal or equitable right, benefit or remedy of any nature whatsoever under
or by reason of this Services Agreement.


 


20.14                     Amendment. This Services Agreement may not be
amended or modified except by an instrument in writing signed by the Parties.


 


20.15                     Governing
Law; Jurisdiction; Service of Process. This
Services Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York. The Parties hereby agree and consent to the
exclusive jurisdiction of, and service of process and venue in, the United
States District Court for the Southern District of New York and the courts of
the State of New York located in the County of New York, State of New York and
waives any objection with respect thereto, for the purpose of any action, suit
or proceeding arising out of or relating to this Services Agreement.


 


20.16                     Waiver of
Jury Trial. EACH OF
OWNERS AND OPERATOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS SERVICES AGREEMENT OR THE ACTIONS
OF OWNERS OR OPERATOR IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT THEREOF.


 


51

















 


20.17                     Specific
Performance. The Parties
agree that irreparable damage would occur in the event any provision of this
Services Agreement was not performed in accordance with the terms hereof and
that the Parties shall be entitled to specific performance of the terms hereof,
in addition to any other remedy at law or equity.


 


20.18                     Attorneys
Fees. If any Party
commences any legal action to interpret or enforce the provisions of this
Services Agreement, then the prevailing Party in the action shall be entitled
to a reasonable award of attorneys’ fees, investigative and other similar costs
and expenses associated therewith. Owners and Operator are each responsible for
their respective attorneys’ fees in connection with the preparation and
execution of this Services Agreement.


 


20.19                     Counterparts. This Services Agreement and any amendments,
waivers or supplements may be executed in any number of counterparts and
by the Parties in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all of which counterparts together
shall constitute but one and the same instrument.


 


20.20                     Reasonableness. With respect to any provision of this Services
Agreement that requires the approval or consent of Owners, the Parties agree
that it shall not be deemed unreasonable for Owners to object or withhold
approval or consent if the basis thereof is that the item at issue could
reasonably have a material adverse effect on the Gaming Operations, the Casino
or the assets, business of properties of any Owner or their Affiliates.


 


20.21                     Note
Documents.
Notwithstanding anything to the contrary in this Services Agreement or any
other Transaction Documents (as defined in the Note Agreement), prior to the
Repayment Date, nothing in this Services Agreement will restrict or impair any
rights of Agent or any Holder (each as defined in the Note Agreement) under any
of the Note Documents or limit any Owner’s or any other Loan Party’s (as
defined in the Note Agreement) obligations under the Note Documents and in the
case of any conflict between the Services Agreement and the Note Documents with
respect to any of the foregoing, the Note Documents shall prevail.


 


 


[Signature Page Follows]


 


52

















 


IN
WITNESS WHEREOF, the Parties have executed this Services Agreement as of the
Effective Date.


 


	
  WASHINGTON
  TROTTING

  	
  MOUNTAIN
  LAUREL RACING, INC.

  
	
  ASSOCIATION, INC.

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
    /s/
  William J. Paulos

  	
   

  
	
  By:

  	
    /s/
  William J. Paulos

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
    William J. Paulos

  	
   

  
	
  Name:

  	
    William J. Paulos

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
    President

  	
   

  
	
  Title:

  	
    President

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  MEC
  PENNSYLVANIA FOOD

  	
  MEC
  RACING MANAGEMENT

  
	
  SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
    /s/
  William J. Paulos

  	
   

  
	
  By:

  	
    /s/
  William J. Paulos

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
    William
  J. Paulos

  	
   

  
	
  Name:

  	
    William
  J. Paulos

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
    President of
  Washington

    Trotting Association, Inc.,

    its Partner

  	
   

  
	
  Title:

  	
    President

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MEC
  PENNSYLVANIA RACING

  	
   

  
	
  SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
    /s/
  B. Tohana

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
    Blake Tohana

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
    Authorized
  Signatory

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  With Respect to Sections
  3.1.16, 3.1.18,

  	
   

  	
  MEC
  PENNSYLVANIA RACING, INC.

  	
   

  
	
  15.6, 20.2, 20.3, ARTICLE 12,
  ARTICLE 17,

  	
   

  	
   

  	
   

  
	
  ARTICLE 18 and ARTICLE 19:

  	
   

  	
  By:

  	
    /s/
  William J. Paulos

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MAGNA
  ENTERTAINMENT CORP.

  	
   

  	
  Name:

  	
    William J. Paulos

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
    /s/
  B. Tohana

  	
   

  	
  Title:

  	
    President

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
    Blake
  Tohana

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
    Authorized
  Signatory

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
    /s/
  Mary Lyn Seymor

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
    Mary Lyn Seymor

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
    Authorized
  Signatory

  	
   

  	
   

  	
   

  
														



 


Signature Page to Racing
Services Agreement


 

















 


List of
Exhibits


 


	
  Exhibit A

  	
  OTBs

  
	
   

  	
   

  
	
  Exhibit B

  	
  Meadows Facility

  
	
   

  	
   

  
	
  Exhibit C

  	
  Comparable Facilities

  

  Hawthorne Racecourse, Stickney/Cicero, Illinois

  

  Saratoga Gaming & Raceway in Saratoga Springs, New York (harness
  race track)

  
	
   

  	
   

  
	
  Exhibit D

  	
  Racing Operations
  Agreements

  
	
   

  	
   

  
	
  Exhibit E

  	
  Certain Racing Operations
  Agreements in Owners’ name

  
	
   

  	
   

  
	
  Exhibit F

  	
  Table of Organization

  
	
   

  	
   

  
	
  Exhibit G

  	
  Business Plan

  
	
   

  	
   

  
	
  Exhibit H

  	
  Representatives; Racing
  General Manager