Exhibit
10.16


 


EQUITY COMMITMENT
LETTER AGREEMENT


 


July 26, 2006


 


 


Magna
Entertainment Corp.


337
Magna Drive


Aurora,
Ontario


L4G
7K1, Canada


Attn:  General Counsel


 


Gentlemen:


 


Reference
is made to that certain Stock Purchase Agreement, dated as of November 8, 2005 (such
agreement, as amended by the First Amendment thereto dated as of the date
hereof, and as further amended, supplemented or otherwise modified from time to
time, the “Stock Purchase Agreement”), by and between Magna
Entertainment Corp., a Delaware corporation (“Magna”), in its capacity
as seller thereunder (“Seller”), and PA Meadows, LLC, a Delaware limited
liability company (“PA Meadows”), in its capacity as buyer thereunder, and
to that certain Post-Closing and Note Issuance Agreement, dated as of the date hereof
(such agreement, as amended, supplemented or otherwise modified from time to
time, the “Note Agreement”), by and among PA Meadows, in its capacity as
borrower thereunder, Magna, in its capacity as agent thereunder (together with
its successors, “Note Agent”), the holders party thereto from time to
time (the “Holders” and, together with Note Agent, Seller and Operator
(as such term is defined in the Note Agreement), the “Beneficiaries”)
and, solely for purposes of Section 10.15 of the Note Agreement, PA MezzCo,
LLC, a Delaware limited liability company, and Cannery Casino Resorts, LLC, a
Nevada limited liability company, in their capacity as parent entities
thereunder (PA MezzCo, LLC and Cannery Casino Resorts, LLC referred to collectively
herein as the “Parent Entities”).


 


The
Stock Purchase Agreement and Note Agreement contemplate a transaction whereby, upon
the terms and subject to the conditions set forth in the Note Documents and the
Transaction Documents, among other things, PA Meadows is acquiring from Magna all
of the issued and outstanding shares of common stock of (i) MEC Pennsylvania
Racing, Inc., a Pennsylvania corporation, (ii) Mountain Laurel Racing, Inc., a
Delaware corporation, and (iii) Washington Trotting Association, Inc., a
Delaware corporation, in exchange for issuing to Magna in its capacity as a
Holder (x) Tranche A Junior Notes in the principal amount of $175,000,000 (as
defined in the Note Agreement, the “Tranche A Notes”) and (y) Tranche B Junior
Notes in the principal amount of $25,000,000 (as defined in the Note Agreement,
the “Tranche B Notes” and, together with the Tranche A Notes, the “Notes”).
Capitalized terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Note Agreement.


 


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In consideration of the
premises and the mutual covenants, agreements, obligations and conditions
contained herein and the Note Documents and the Transaction Documents and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, OCM AcquisitionCo, LLC, a Nevada limited liability company
(the “Equity Obligor”), and Magna, acting as agent on behalf of all
Beneficiaries for all purposes hereunder, intending to be legally bound hereby,
agree as follows (this letter agreement, as amended, supplemented or otherwise
modified from time to time, the “Agreement”):


 


1.             Irrevocable Undertaking. In
order to induce Beneficiaries to enter into the Note Documents and the
Transaction Documents to which each is a party and in recognition of the commitment
of Equity Obligor to Beneficiaries to fund, either directly or indirectly and
together with the Parent Entities, not less than $25,000,000 to PA Meadows,
Equity Obligor irrevocably agrees to pay the following obligations when the
same shall become due and payable hereunder, whether at stated maturity, by
acceleration, demand or otherwise (including amounts that would become due and
payable but for the operation of the automatic stay under Section 362(a) of Title
11 of the United States Code entitled “Bankruptcy,” as now or hereafter in
effect, or any successor statute (the “Bankruptcy Code”)): any and all
unsatisfied indemnification obligations due and payable by PA Meadows or any of
its subsidiaries (collectively, the “PA Meadows Subsidiaries” (it being
understood that a Person is not a “PA Meadows Subsidiary” at any time it is not
a subsidiary of PA Meadows) and, together with PA Meadows, the “PA Meadows
Parties”) pursuant to the indemnification terms and conditions of the Note
Agreement, the Stock Purchase Agreement or the Racing Services Agreement and any
and all unsatisfied obligations due and payable by either Parent Entity as a
result of its breach of Section 10.15 of the Note Agreement (all such
obligations collectively, the “Equity Commitment Obligations”).


 


In addition to the
foregoing, in order to induce Beneficiaries to enter into the Note Documents
and the Transaction Documents to which each is a party and in recognition of
Equity Obligor’s commitment to Beneficiaries to fund, either directly or
indirectly and together with the Parent Entities, not less than $25,000,000 to
PA Meadows, following the occurrence of a Bankruptcy Event, Equity Obligor
irrevocably guaranties, as primary obligor and not merely as surety, the due
and punctual payment in full of all Obligations (as such term is defined in the
Note Agreement) of the PA Meadows Parties when the same shall become due and
payable hereunder, whether at stated maturity, by acceleration, demand or
otherwise (including amounts that would become due and payable but for the
operation of the automatic stay under Section 362(a) of the Bankruptcy Code). For
purposes hereof, a “Bankruptcy Event” means any of the following: any PA
Meadows Party (i) commences a voluntary case under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or hereafter in
effect or file any petition thereunder, (ii) consents to the institution of any
proceeding or petition under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect; (iii) consents
to the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such law; (iv)
applies for or consents to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; (v) makes any assignment for the benefit of creditors; (vi) admits in
writing its inability to pay its debts as such debts become due; or (vii) adopts
any


 


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resolution or otherwise authorize any action to
approve any of the actions referred to in clauses (i) through (vi) above.


 


The Equity
Commitment Obligations and the obligations described in the preceding paragraph
are collectively referred to herein as the “Guarantied Obligations”.


 


Equity Obligor
further acknowledges and agrees that the Holders have agreed to accept the
Notes in exchange for the shares transferred pursuant to the Stock Purchase
Agreement on the assumption (agreed upon by all relevant parties, including Equity
Obligor) that the value of the Tranche A Notes, as of the date hereof, for all
purposes is $175,000,000 and that the value of the Tranche B Notes, as of the
date hereof, for all purposes is $25,000,000. Equity Obligor waives any and all
rights, directly or indirectly, to allege or otherwise claim in connection with
any determination under this Agreement that the value of the Notes is less than
as provided in the preceding sentence.


 


Any
interest or other charges or expenses on any portion of the Guarantied
Obligations that accrues or is incurred during the period of any proceeding,
voluntary or involuntary, involving the bankruptcy, insolvency, receivership,
reorganization or liquidation of any PA Meadows Party (or, if interest or other
charges or expenses on any portion of the Guarantied Obligations ceases to
accrue or to be allowed as a claim by operation of law by reason of the
commencement of said proceeding, such interest or other charges or expenses as
would have accrued or have been allowed as a claim on such portion of the
Guarantied Obligations if said proceeding had not been commenced) shall be
included in the Guarantied Obligations because it is the intention of Equity
Obligor and Beneficiaries that the Guarantied Obligations should be determined
without regard to any rule of law or order in bankruptcy, insolvency, receivership,
reorganization or liquidation that may relieve any PA Meadows Party of any
portion of such Guarantied Obligations.


 


In the
event that all or any portion of the Guarantied Obligations is paid by Equity
Obligor, any PA Meadows Party or any Affiliate of any PA Meadows Party, the obligations
of Equity Obligor hereunder shall continue and remain in full force and effect
or be reinstated, as the case may be, in the event that all or any part of such
payment(s) is rescinded or recovered directly or indirectly from any
Beneficiary as a preference, fraudulent transfer or for similar reasons, and
any such payments that are so rescinded or recovered shall constitute Guarantied
Obligations.


 


2.             Limitations on Guarantied
Obligations. Anything contained in this Agreement to the contrary
notwithstanding (but subject to the provisos to this sentence), the obligations
of Equity Obligor hereunder shall be limited at any time of determination to
the Maximum Guarantied Amount (as defined below); provided,
that the foregoing limitation shall not apply to the obligations under
Section 10 hereof; provided, further,
that any reduction of the Maximum Guarantied Amount shall be subject to
reinstatement as provided in the last paragraph of Section 1 hereof. As used in
herein, the “Maximum Guarantied Amount” at any time means $25,000,000, minus the aggregate sum of, without double-counting, (i) the
dollar amount of any payment in cash made by or on behalf of Equity Obligor, including
directly or by way of


 


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drawings under any letter of credit or demands under
any guaranty, to any Beneficiary in connection with this Agreement prior to
such time (except to the extent such amounts represent payments of expenses
described in Section 10 hereof), and (ii) the dollar amount of any payment
in cash made by any guarantor of the Equity Obligor to any Beneficiary in
connection with the Guarantied Obligations prior to such time (except to the
extent such amounts represent payments of expenses described in Section 10
hereof), and (iii) the dollar amount of any equity contributions to PA
Meadows on or after the date hereof made directly or indirectly by Equity
Obligor or any direct or indirect equityholder of PA Meadows prior to the
occurrence of a Bankruptcy Event or Specified Default Trigger Event that are
either (a) used in the Business and paid to third parties (excluding any
Affiliate of PA Meadows) prior to such time or (b) used by PA Meadows to fulfill
any obligation, including any Obligations (as such term is defined in the Note
Agreement), to the Beneficiaries under any Note Document or any Transaction
Document prior to such time, and (iv) the dollar amount of any payment in cash
made by PA Meadows or either Parent Entity to any Beneficiary pursuant to the
Note Documents or Transaction Documents prior to such time. In no event shall
the Beneficiaries in the aggregate be entitled to multiple recoveries exceeding
100% of a Guarantied Obligation that is due and payable. With respect to any
payment otherwise due and payable hereunder, Equity Obligor shall be entitled
to the benefit of any set-off, netting, offset, recoupment or similar rights
that it or any PA Meadows Party may have with respect to any Beneficiary.


 


3.             Payments under Agreement. If
a Bankruptcy Event has not occurred and if (a) PA Meadows and Magna mutually
agree in writing, or it is determined pursuant to a final, non-appealable
judgment by a court of competent jurisdiction or an arbitrator, that a
Guarantied Obligation is due and payable by a PA Meadows Party pursuant to the
indemnification terms and conditions of the Note Agreement, the Stock Purchase
Agreement or the Racing Services Agreement, or (b) a Parent Entity and Magna
mutually agree in writing, or it is determined pursuant to a final,
non-appealable judgment by a court of competent jurisdiction or an arbitrator,
that a Guarantied Obligation is due and payable by such Parent Entity as a
result of its breach of Section 10.15 of the Note Agreement, then within 10
Business Days of Equity Obligor’s receipt of written notice from Magna (x)
stating that an event described in clause (a) or (b) above has occurred, (y)
attaching a true and complete copy of the written agreement or judgment
relating to such event and (z) stating that no less than 10 Business Days have
elapsed since Magna made a written request to PA Meadows to satisfy the subject
Guarantied Obligation and that the subject Guarantied Obligation has not been
fully satisfied, Equity Obligor shall make payment to Magna (in addition to
payment to Magna of the expenses, if any, described in Section 10 hereof that
are due and payable to Magna) in the amount of such unsatisfied Guarantied
Obligation.


 


If a Bankruptcy
Event has occurred and if PA Meadows and Magna mutually agree in writing, or it
is determined pursuant to a final, non-appealable judgment by a court of
competent jurisdiction or an arbitrator, that an Obligation (as such term is
defined in the Note Agreement) is due and payable by a PA Meadows Party
pursuant to the Note Agreement, then within 15 Business Days of Equity Obligor’s
receipt of written notice from Magna (A) stating that such an event has
occurred, (B) attaching a true and complete copy of the written agreement or
judgment relating to such event and (C) stating that the subject Obligation has
not been fully


 


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satisfied, Equity Obligor shall make payment to Magna
(in addition to payment to Magna of the expenses, if any, described in Section
10 hereof that are due and payable to Magna) in the amount of such unsatisfied
Obligation.


 


Each payment to
Magna by or on account of any obligation of Equity Obligor under this Agreement
shall be made in United States dollars, in immediately available funds, to the
following account:


 


Bank:


Wells Fargo Bank


 


Bank
address:


1000 Lakes Drive, Suite
250


West Covina, California
91790


 


Bank
ID:


121000248


 


Bank
Account:


4758361067


 


or such other account as
may from time to time be designated as a replacement account in a written
notice delivered by Magna to Equity Obligor. Magna (and not Equity Obligor, any
PA Meadows Party, either Parent Entity or any guarantor of the Equity Obligor)
shall be solely responsible for transmitting such payment received to the
proper Beneficiary entitled thereto.


 


Notwithstanding
anything in this Agreement to the contrary, any payment made on behalf of
Equity Obligor by PA Meadows, any Affiliate of PA Meadows (other than a PA
Meadows Subsidiary), either Parent Entity or any guarantor of the Equity Obligor
to any Beneficiary in fulfillment of any payment obligation hereunder shall be
deemed made by Equity Obligor hereunder.


 


4.             Obligations Absolute; Continuing
Guaranty. The obligations of Equity Obligor hereunder are irrevocable,
absolute and independent and shall not be affected by any circumstance which
constitutes a legal or equitable discharge of a guarantor or surety, other than
payment in full of the Guarantied Obligations or the termination of this
Agreement pursuant to Section 5 hereof (subject, in the case of Sections 5(i) and
5(iii) hereof only, to the last paragraph of Section 1 hereof to the extent
provided in Section 5 hereof). In furtherance of the foregoing and without
limiting the generality thereof, Equity Obligor agrees that: (a) this Agreement
is a guaranty of payment of the Guarantied Obligations when due and payable and
not of collectibility; (b) the obligations of Equity Obligor hereunder are
independent of the obligations of any guarantor of obligations of the Equity
Obligor, any PA Meadows Party or either Parent Entity and a separate action or
actions may be brought and prosecuted against Equity Obligor whether or not any
action is brought against any of such other guarantors; provided,
that in no event shall the Beneficiaries in the aggregate be entitled to
multiple recoveries exceeding 100%


 


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of a Guarantied Obligation that is due and payable;
(c) the payment of a portion, but not all, of the Guarantied Obligations by
Equity Obligor, PA Meadows, either Parent Entity or any guarantor of the Equity
Obligor will be applied to reduce the Maximum Guarantied Amount to the extent provided
in Section 2 hereof, but shall in no way limit, affect, modify or abridge
Equity Obligor’s liability for any portion of the Guarantied Obligations which
is due and payable and has not been paid; and (d) Equity Obligor’s obligations
under this Agreement shall not be in any respect diminished, limited, impaired
or conditioned on the obligations or performance (or lack thereof) of any
member or manager under Equity Obligor’s limited liability company agreement
nor shall Equity Obligor’s obligations under this Agreement be affected by any
other event or circumstance whatsoever affecting Equity Obligor or any of its
members or managers or investments. This Agreement is a continuing guaranty and
shall be binding upon Equity Obligor and its successors and assigns, and Equity
Obligor irrevocably waives any right to revoke this Agreement as to future
transactions giving rise to any Guarantied Obligations.


 


5.             Termination. Except (in the
case of Sections 5(i) and 5(iii) hereof only) as set forth in the last
paragraph of Section 1 hereof to the extent provided in this Section 5, this
Agreement shall terminate upon the earlier of (i) such time as (a) the
Maximum Guarantied Amount shall be reduced to zero in accordance with the terms
hereof and (b) Equity Obligor shall have paid Magna all amounts described in
Section 10 hereof that have accrued and are unpaid, (ii) the Repayment Date (as
such term is defined in the Stock Purchase Agreement), and (iii) the date that
is 180 days after the earlier of (a) the date of a Stock Transfer and (b) the
date of a Specified Default Trigger Event; provided, that,
for purposes of clause (iii) only, if written notice of one or more bona fide
Guarantied Obligations has been given to Equity Obligor by Magna prior to the date
specified in clause (iii), without giving effect to this proviso, and such
Guarantied Obligations have not be finally resolved or satisfied, then such
date shall be extended until such date as such Guarantied Obligations (and not
including any other Guarantied Obligations) have been finally resolved or
satisfied. Upon and after such termination of this Agreement, this Agreement
shall forthwith become null and void and of no further force or effect and
there shall be no further obligation or liability on the part of any party
hereto, except (A) in the case of Section 5(i) hereof only, the provisions of
the last paragraph of Section 1 hereof shall continue to apply following such
termination and (B) in the case of Section 5(iii) hereof only, the provisions
of the last paragraph of Section 1 hereof shall continue to apply following
such termination until the one year anniversary of the date on which the last
payment of a Guarantied Obligation was made by Equity Obligor, any PA Meadows
Party or any Affiliate of any PA Meadows Party prior to such termination (it
being understood that if no such payment was made prior to such termination,
then this clause (B) shall not apply). In addition, upon and after such
termination of this Agreement and if requested by Equity Obligor, Magna, on
behalf of all Beneficiaries, shall deliver to Equity Obligor a termination
certificate in the form set forth on Exhibit A to this Agreement
executed by Magna, on behalf of all Beneficiaries.


 


6.             Actions by Beneficiaries. Any
Beneficiary may from time to time, without notice or demand and without
affecting the validity or enforceability of this Agreement or giving rise to
any impairment or discharge of Equity Obligor’s liability hereunder,
(a) renew, extend, accelerate or otherwise change the time, place, manner
or terms of payment of any


 


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Guarantied Obligations in accordance with the terms of
the Note Agreement, the Stock Purchase Agreement and the Racing Services
Agreement, (b) settle, compromise, release or discharge, or accept or
refuse any offer of performance with respect to, or substitutions for, any Guarantied
Obligations or any agreement relating thereto and/or subordinate the payment of
the same to the payment of any other obligations, (c) request and accept
other guaranties of any Guarantied Obligations and take and hold security for
the payment of this Agreement or any Guarantied Obligations, (d) release,
exchange, compromise, subordinate or modify, with or without consideration, any
security for payment of any Guarantied Obligations, any other guaranties of any
Guarantied Obligations, or any other obligation of any Person with respect to any
Guarantied Obligations, (e) enforce and apply any security now or
hereafter held by or for the benefit of any Beneficiary or any Guarantied Obligations
and direct the order or manner of sale thereof, or exercise any other right or
remedy that any Beneficiary may have against any such security, as any
Beneficiary in its discretion may determine, including foreclosure on any such
security pursuant to one or more judicial or nonjudicial sales, whether or not
every aspect of any such sale is commercially reasonable, and (f) exercise
any other rights available to any Beneficiary under the Note Documents or the
Transaction Documents, at law or in equity.


 


7.             No Discharge. This Agreement
and the obligations of Equity Obligor hereunder shall be valid and enforceable
and shall not be subject to any limitation, impairment or discharge for any
reason (other than the limitations set forth in this Agreement, the payment in
full of the Guarantied Obligations and, subject (in the case of Sections 5(i) and
5(iii) hereof only) to the last paragraph of Section 1 hereof to the extent
provided in Section 5 hereof, the termination of this Agreement pursuant to
Section 5 hereof), including without limitation the occurrence of any of the
following, whether or not Equity Obligor shall have had notice or knowledge of
any of them: (a) any failure to assert or enforce or agreement not to
assert or enforce, or the stay or enjoining, by order of court, by operation of
law or otherwise, of the exercise or enforcement of, any claim or demand or any
right, power or remedy with respect to any Guarantied Obligations or any
agreement relating thereto, or with respect to any other guaranty of or
security for the payment of any Guarantied Obligations, (b) any waiver or
modification of, or any consent to departure from, any of the terms or
provisions of the Note Documents or the Transaction Documents, or any agreement
or instrument executed pursuant thereto, or of any other guaranty or security
for any Guarantied Obligations, (c) any Guarantied Obligations, or any
agreement relating thereto, at any time being found to be illegal, invalid or
unenforceable in any respect, (d) the application of payments received
from any source (other than payments to any Beneficiary by Equity Obligor, PA
Meadows, the Parent Entities or any guarantor of the Equity Obligor) to the
payment of indebtedness other than the Guarantied Obligations, even though a
Beneficiary might have elected to apply such payment to any part or all of the Guarantied
Obligations, (e) any failure to perfect or continue perfection of a
security interest in any collateral which secures any of the Guarantied Obligations,
and (f) any other act or thing or omission, or delay to do any other act
or thing, which may or might in any manner or to any extent vary the risk of
Equity Obligor as an obligor in respect of the Guarantied Obligations.


 


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8.             Waivers. Equity Obligor
waives, for the benefit of each Beneficiary: (a) any right to require any
Beneficiary, as a condition of payment by Equity Holder, to (i) proceed
against any PA Meadows Party or any other Person (except as referenced in
Section 3 hereof), (ii) proceed against or exhaust any security held from Equity
Obligor, any PA Meadows Party or any other Person, (iii) proceed against
or have resort to any balance of any deposit account or credit on the books of
any Beneficiary in favor of PA Meadows or any other Person, or (iv) pursue
any other remedy in the power of any Beneficiary; (b) any defense arising
by reason of the incapacity, lack of authority or any disability or other
defense of any PA Meadows Party, either Parent Entity or any guarantor of the
Equity Obligor, including, without limitation, any defense based on or arising
out of the lack of validity or the unenforceability of the Guarantied
Obligations or any agreement or instrument relating thereto or by reason of the
cessation of the liability of any PA Meadows Party, either Parent Entity or any
guarantor of the Equity Obligor as a result of a bankruptcy or insolvency
proceeding, other than the payment in full of the Guarantied Obligations and,
subject (in the case of Sections 5(i) and 5(iii) hereof only) to the last
paragraph of Section 1 hereof to the extent provided in Section 5 hereof, the
termination of this Agreement pursuant to Section 5 hereof; (c) any
defense based upon any statute or rule of law which provides that the
obligation of a surety must be neither larger in amount nor in other respects
more burdensome than that of the principal; (d) any defense based upon any
Beneficiary’s errors or omissions in the administration of the Guarantied Obligations,
except behavior that amounts to bad faith, willful misconduct or gross
negligence; (e) (i) any principles or provisions of law, statutory or
otherwise, that are or might be in conflict with the terms of this Agreement and
any legal or equitable discharge of Equity Obligor’s obligations hereunder,
(ii) the benefit of any statute of limitations affecting Equity Obligor’s
liability hereunder or the enforcement hereof, and (iii) promptness,
diligence and any requirement that any Beneficiary protect, secure, perfect or
insure any lien or any property subject thereto; (f) except as required by
this Agreement, notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including acceptance
of this Agreement, notices of any renewal, extension or modification of any Guarantied
Obligations or any agreement related thereto, notices of any extension of
credit to any PA Meadows Party and notices of any of the matters referred to in
Sections 6 and 7 hereof and any right to consent to any thereof; and (g) to
the fullest extent permitted by law, any defenses or benefits that may be
derived from or afforded by law which limit the liability of or exonerate
guarantors or sureties, or which may conflict with the terms of this Agreement.


 


9.             Equity Obligor’s Rights of
Subrogation, Etc.; Subordination of Other Obligations. Until all Guarantied
Obligations shall have been paid in full or, subject (in the case of Sections
5(i) and 5(iii) hereof only) to the last paragraph of Section 1 hereof to the
extent provided in Section 5 hereof, this Agreement shall have terminated
pursuant to Section 5 hereof, Equity Obligor shall withhold exercise of (a) any
claim, right or remedy, direct or indirect, that Equity Obligor now has or may
hereafter have against any PA Meadows Party or any its assets in connection
with this Agreement or the performance by Equity Obligor of its obligations
hereunder, in each case whether such claim, right or remedy arises in equity,
under contract, by statute, under common law or otherwise and including without
limitation (i) any right of subrogation, reimbursement or indemnification
that Equity Obligor now has or may hereafter


 


8

















 


have against any PA Meadows Party, (ii) any right
to enforce, or to participate in, any claim, right or remedy that any
Beneficiary now has or may hereafter have against any PA Meadows Party, and
(iii) any benefit of, and any right to participate in, any collateral or
security now or hereafter held by any Beneficiary. Equity Obligor further
agrees that, to the extent the agreement to withhold the exercise of its rights
of subrogation, reimbursement and indemnification as set forth herein is found
by a court of competent jurisdiction to be void or voidable for any reason, any
rights of subrogation, reimbursement or indemnification Equity Obligor may have
against any PA Meadows Party or against any collateral or security, shall be
junior and subordinate to any rights any Beneficiary may have against any PA
Meadows Party, and to all right, title and interest any Beneficiary may have in
any such collateral or security.


 


Any
indebtedness or contingent obligation of any PA Meadows Party now or hereafter
held by Equity Obligor is subordinated in right of payment to the Guarantied Obligations,
and any such indebtedness or other obligation of any PA Meadows Party to Equity
Obligor collected or received by Equity Obligor after a payment required to be
made to Magna under this Agreement shall not have been paid, and any amount
paid to Equity Obligor on account of any subrogation, reimbursement, or
indemnification referred to in the preceding paragraph when all Guarantied Obligations
have not been paid in full, shall be held in trust for Magna, on behalf of all
Beneficiaries, and shall forthwith be paid over to Magna when a Guarantied Obligation
under this Agreement becomes due and payable to be credited and applied against
the Guarantied Obligations.


 


10.           Expenses. Equity Obligor
agrees to pay on demand, and to save Magna harmless against liability for, any
and all reasonable and documented out-of-pocket costs and expenses (including
fees, costs and disbursements of outside counsel) incurred or expended by Magna,
on behalf of all Beneficiaries, in connection with the enforcement of, or
preservation of any rights under, this Agreement, in each case pursuant to a
non-frivolous action of Magna against Equity Obligor. Except as provided in
this Section 10, neither party hereto shall have any liability to the other
party hereto under this Agreement for consequential or punitive damages, it being
understood that this sentence shall not restrict the recovery of interest due
and payable by the terms of this Agreement.


 


11.           Financial Condition of PA Meadows
Parties. No Beneficiary shall have any obligation, and Equity Obligor
waives any duty on the part of any Beneficiary, to disclose or discuss with
Equity Obligor its assessment, or Equity Obligor’s assessment, of the financial
condition of any PA Meadows Party, any Affiliate of any PA Meadows Party or either
Parent Entity or any matter or fact relating to the business, operations or
condition of any PA Meadows Party, any Affiliate of any PA Meadows Party or either
Parent Entity. Equity Obligor has adequate means to obtain information from
each PA Meadows Party, each Affiliate of any PA Meadows Party and either Parent
Entity on a continuing basis concerning the financial condition of each PA
Meadows Party, each Affiliate of any PA Meadows Party and either Parent Entity and
its ability to perform its obligations guarantied under this Agreement, and Equity
Obligor assumes the responsibility for being and keeping informed of the
financial condition of each PA Meadows Party, each Affiliate of any PA Meadows
Party and either Parent Entity and of all


 


9

















 


circumstances bearing upon the risk of nonpayment of
the Guarantied Obligations. Equity Obligor confirms that it has received and
reviewed copies of the Note Documents and the Transaction Documents.


 


12.           Representations and Warranties.
In order to induce Beneficiaries to enter into the Note Documents and the
Transaction Documents to which each is a party, Equity Owner represents and
warrants to Beneficiaries, as of the date hereof:


 


(a)           Equity Obligor is a limited liability
company duly organized, validly existing and in good standing under the laws of
Nevada. Equity Obligor has all requisite power and authority to own and operate
its properties, to carry on its business as now conducted and as proposed to be
conducted, to enter into this Agreement, and to carry out the transactions
contemplated hereby.


 


(b)           The execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
on the part of Equity Obligor.


 


(c)           The execution, delivery and
performance by Equity Obligor of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (i) violate any provision
of any law or any governmental rule or regulation applicable to Equity Obligor
in any material respect, the organizational documents of Equity Obligor
(including without limitation the limited liability company agreement of Equity
Obligor) or, in any material respect, any order, judgment or decree of any
court or other Governmental Authority binding on Equity Obligor, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation of Equity Obligor,
(iii) result in or require the creation or imposition of any lien upon any of the
properties or assets of Equity Obligor, or (iv) require any approval of equity
holders or any approval or consent of any Person under any contractual
obligations of Equity Obligor.


 


(d)           The execution, delivery and
performance by Equity Obligor of this Agreement and the consummation of the
transactions contemplated by this Agreement do not and will not require any
license, permit, registration, authorization, approval, plan, directive,
consent, order or consent decree from, or notice to, any Governmental Authority,
other than as required by applicable gaming or harness racing law and the rules
and regulations promulgated thereunder (each of which has been or will be
obtained).


 


(e)           This Agreement has been duly executed
and delivered by Equity Obligor and is the legally valid and binding obligation
of Equity Obligor, enforceable against Equity Obligor in accordance with its
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors’ rights generally
or by equitable principles relating to enforceability.


 


10

















 


13.           Covenants of Equity Obligor. Equity
Obligor covenants and agrees that, so long as it has any payment obligations under
this Agreement, Equity Obligor will, unless Magna shall otherwise consent in
writing, perform or observe, all of the following terms, covenants and
agreements:


 


(a)           Equity Obligor will promptly take all
actions as may be reasonably necessary to ensure that the payment obligations of
Equity Obligor under this Agreement will at all times constitute unsecured unsubordinated
general obligations of Equity Obligor ranking at least pari passu in priority
of payment with all other present and future unsecured unsubordinated general
obligations of Equity Obligor.


 


(b)           Equity Obligor will not enter into
any transaction of merger or consolidation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution).


 


(c)           Equity Obligor will give to Magna prompt
notice of the occurrence of Equity Obligor Default or of a condition or event
that, after notice or lapse of time or both, would constitute a Equity Obligor Default.
As used herein, “Equity Obligor Default” means any of the following
events:


 


(i)            a default by Equity Obligor in performance
of or compliance with any material term contained in this Agreement (other than
those set forth in clause (ii) below), if such default has not been
remedied or waived within 20 Business Days after the occurrence of such
default; or


 


(ii)           a default by Equity Obligor in
performance of or compliance with Section 3 or Section 13(b) hereof; or


 


(iii)          any representation or warranty made by Equity
Obligor herein shall be false in any material respect on the date as of which
made; or


 


(iv)          (1) a court having jurisdiction
in the premises shall enter a decree or order for relief in respect of Equity
Obligor in an involuntary case under any applicable bankruptcy, insolvency or
similar law now or hereafter in effect, which decree or order is not stayed, or
any other similar relief shall be granted under any applicable federal or state
law; or (2) an involuntary case shall be commenced against Equity Obligor under
any applicable bankruptcy, insolvency or similar law now or hereafter in
effect, or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over Equity Obligor, or over all or a
substantial part of its property, shall have been entered, or there shall have
occurred the involuntary appointment of an interim receiver, trustee or other
custodian of Equity Obligor for all or a substantial part of its property, and
any such event described in this clause (2) shall continue for 60 days unless
dismissed, bonded or discharged; or


 


11

















 


(v)           (1)  Equity Obligor shall have
an order for relief entered with respect to it or commence a voluntary case
under any applicable bankruptcy, insolvency or similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under
any such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property, or Equity Obligor shall make any assignment for the benefit of
creditors; or (2)  Equity Obligor shall be unable, or shall fail
generally, or shall admit in writing its inability, to pay its debts as such
debts become due and payable; or (3) the governing body of Equity Obligor (or
any committee thereof) shall adopt any resolution or otherwise authorize any
action to approve any of the actions referred to in clause (1)  or (2) above.


 


14.           Amendments and Waivers. This
Agreement may not be amended or modified, the time for the performance of any
of the obligations or other acts of the parties hereto may not be changed and
compliance with any of the agreements or conditions contained herein may not be
waived, except in each case by an instrument in writing signed by Magna and Equity
Obligor. Any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.


 


15.           Capacity. It is not necessary
for any Beneficiary to inquire into the capacity or powers of Equity Obligor or
the officers, directors or any agents acting or purporting to act on behalf of
any of them.


 


16.           Severability. If any term or
other provision of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other conditions and
provisions of this 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 the Beneficiaries. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, Magna and Equity Obligor shall negotiate in good faith to
modify this Agreement so as to effect the original intent of each as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the greatest
extent possible.


 


17.           Governing Law; Jurisdiction;
Service of Process. This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of New York (including without
limitation section 5-1401 of the General Obligations law of the State of New
York), without regard to conflicts of laws principles. Magna, on behalf of all
Beneficiaries, and Equity Obligor 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
waive any objection with respect thereto, for the purpose of any action, suit
or proceeding arising out of or relating to this Agreement. The parties hereto
agree that service of all process in any such proceeding in any such court may
be made by registered or certified mail, return receipt requested, to any party
hereto at its address set forth below, such service being acknowledged by


 


12

















 


the parties hereto to be sufficient for personal
jurisdiction in any action in any such court and to be otherwise effective and
binding service in every respect.


 


(i)                                     if
to Magna:


 


Magna Entertainment Corp.


337 Magna Drive


Aurora, Ontario


L4G 7K1, Canada

Facsimile:  905-726-7177


Attn: 
General Counsel


 


with a copy to:


 


Magna Entertainment Corp.


285 West Huntington Drive


Arcadia, California 91007


Facsimile: 
626-821-1559


Attn:  Chief
US Counsel


 


(ii)                                  if
to Equity Obligor:


 


OCM AcquisitionCo, LLC


c/o Oaktree
Capital Management


333 S. Grand
Avenue, 28th Floor


Los Angeles,
California 90071-1560


Facsimile:
213-830-6394


Attn: 
Stephen Kaplan


 


with a copy to:


 


Munger, Tolles
& Olson, LLP


355 S. Grand
Avenue


Los Angeles, CA
90071-1560


Facsimile:  213-687-3702


Attn:  Sandra Seville-Jones, Esq.


 


Nothing herein shall
affect the right to serve process in any other manner permitted by law.


 


18.           Waiver Of Jury Trial. EACH
OF MAGNA, ON BEHALF OF ALL BENEFICIARIES, AND EQUITY HOLDER HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF EQUITY OBLIGOR AND ANY


 


13

















 


BENEFICIARY IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE AND ENFORCEMENT HEREOF.


 


19.           Notices. All notices,
requests, claims, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given on the date delivered by
hand or by internationally recognized courier service such as Federal Express,
or by other messenger (or, if delivery is refused, upon presentment), or upon
receipt by facsimile transmission (with confirmation), or upon delivery by
registered or certified mail (return receipt requested), postage prepaid, to
the parties hereto at the addresses set forth in Section 17 hereof (or at such
other address as any party hereto may specify in a notice given in accordance
with this Section 19).


 


20.           Remedies Cumulative. The
rights, powers and remedies given to each Beneficiary by this Agreement are
cumulative and shall be in addition to and independent of all rights, powers
and remedies given to any Beneficiary by virtue of any statute or rule of law
or in the Note Documents or the Transaction Document or any agreement between
Equity Obligor and any Beneficiary; provided, that in no event shall
the Beneficiaries in the aggregate be entitled to multiple recoveries exceeding
100% of a Guarantied Obligation that is due and payable. Any forbearance or
failure to exercise, and any delay by any Beneficiary in exercising, any right,
power or remedy hereunder shall not impair any such right, power or remedy or
be construed to be a waiver thereof, nor shall it preclude the further exercise
of any such right, power or remedy.


 


21.           Counterparts. This Agreement
may be executed in one or more counterparts, and by the different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original for all purposes; but all such counterparts
together shall constitute but one and the same instrument.


 


22.           Opening of Escrow. If, in
connection with this Agreement, Equity Obligor and Magna determine to execute
an escrow agreement and open escrow, each shall provide the escrow agent of
such escrow with all information and documentation reasonably requested by such
escrow agent in connection with the opening of such escrow prior to the date such
escrow is required to be opened.


 


23.           Agent. Magna shall act as
agent on behalf of all Beneficiaries for all purposes hereunder, including
without limitation for purposes of executing this Agreement on behalf of all
Beneficiaries; provided, that, in the event that
MID becomes the Note Agent under the Note Agreement pursuant to Section 9.7
thereof, MID shall become the agent on behalf of all Beneficiaries for all
purposes hereunder upon (and only upon) the execution of an acknowledgement
hereto by Equity Obligor, MID and Magna reasonably satisfactory to each of
Equity Obligor and MID pursuant to which each of MID and Magna agrees and
acknowledges that MID, effective as of the date of such acknowledgement,
assumes such agency role and that Magna, effective as of the date of such
acknowledgement, resigns from such agency role, it being understood that Equity
Obligor shall be entitled to treat Magna as the agent on behalf of all
Beneficiaries for all purposes hereunder unless and until such acknowledgement
is executed by Equity Obligor, MID and Magna. Magna represents and warrants to
Equity Obligor (or, in the


 


14

















 


event MID assumes such agency role pursuant to the
acknowledgement described in the preceding sentence, MID shall represent and
warrant to Equity Obligor in such acknowledgement) that, so long as it
acts as agent hereunder, it has all necessary power and authority to act,
including without limitation having all approvals or consents necessary to act,
as agent on behalf of all Beneficiaries for all purposes hereunder.


 


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of page intentionally left blank]


 


15

















 


If the foregoing accurately reflects our understanding, please indicate
your acceptance of the terms and conditions set forth in this Agreement by
signing in the area indicated below and returning a countersigned original to
us, whereupon this Agreement shall constitute a binding agreement among the parties
hereto.


 


	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
  OCM ACQUISITIONCO, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Stephen Kaplan

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Stephen
  A. Kaplan

  
	
   

  	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Ronald Beck

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Ronald
  N. Beck

  
	
   

  	
   

  	
  Title:

  	
  Manager

  
	
   

  	
   

  	
   

  	
   

  
	
  Agreed
  to and accepted as of

  	
   

  	
   

  
	
  the
  date first above written by

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  MAGNA ENTERTAINMENT CORP.,
  AS AGENT

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
    /s/ B. Tohana

  	
   

  	
   

  	
   

  
	
   

  	
  Name:  Blake Tohana

  	
   

  	
   

  
	
   

  	
  Title:    Authorized Signatory

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
    /s/ Mary Lyn Seymor

  	
   

  	
   

  	
   

  
	
   

  	
  Name:  Mary Lyn Seymor

  	
   

  	
   

  
	
   

  	
  Title:    Authorized Signatory