**EXHIBIT 10.18**

 

**Execution Version**

 

**Thoroughbred Horsemen’s Agreement**

 

**between Colonial Downs, L.P.,**

**Stansley Racing Corp. and**

**The Virginia Horsemen’s Benevolent**

**and Protective Association, Inc.**

 

**as of January 1, 2005**

 

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TABLE OF CONTENTS

 
| ** ** | ** **                                                                           | **Page**                                                                                                                |
|------------|--------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                 |                                                                                                                    |
| 1.         | Effective Date and Term of Agreement                                                 | 2                                                                                                                       |
|       |                                                                                 |                                                                                                                    |
| 2.         | Exclusive Representation                                                             | 2                                                                                                                       |
|       |                                                                                 |                                                                                                                    |
| 3.         | Accounts                                                                             | 3                                                                                                                       |
|       |                                                                                 |                                                                                                                    |
|       | A.                                                                                   | Thoroughbred Partners’ Account                                                                                     | 3 |
|       | B.                                                                                   | Horsemen’s Account                                                                                                 | 4 |
|       | C.                                                                                   | Availability of Information on Accounts                                                                                 | 4 |
|       | D.                                                                                   | Distribution of Interest and Other Earnings on  Accounts                                                                | 4 |
|       |                                                                                 |                                                                                                                    |
| 4.         | Administration of Accounts                                                           | 5                                                                                                                       |
|       |                                                                                 |                                                                                                                    |
|       | A.                                                                                   | Amounts To Be Deposited                                                                                                 | 5 |
|       | B.                                                                                   | Transfers from the Thoroughbred Partners’ Account to  the Horsemen’s Account and Colonial Downs’ Account | 5 |
|       | C.                                                                                   | Signal Sales                                                                                                            | 5 |
|       | D.                                                                                   | Account Wagering                                                                                                        | 6 |
|       | E.                                                                                   | Virginia Derby                                                                                                          | 6 |
|       | F.                                                                                   | Virginia Turf Festival Stakes Races                                                                                     | 6 |
|       | G.                                                                                   | National Thoroughbred Racing Association (“NTRA”)  Dues                                                       | 7 |
|       | H.                                                                                   | Stakes Race Purses                                                                                                      | 8 |
|       | I.                                                                                   | Administrative Fee                                                                                                      | 8 |
|       | J.                                                                                   | Other Legalized Wagering                                                                                                | 8 |
|       |                                                                                 |                                                                                                                    |
| 5.         | Purse Mechanics                                                                      | 9                                                                                                                       |
|       |                                                                                 |                                                                                                                    |
|       | A.                                                                                   | Purse Schedules and Condition Books                                                                                     | 9 |
|       | B.                                                                                   | Funding of Purses                                                                                                       | 9 |
|       | C.                                                                                   | Overpayment of Purses                                                                                                   | 10 |
|       | D.                                                                                   | Underpayment of Purses                                                                                                  | 10 |
|       | E.                                                                                   | Purse Notices                                                                                                           | 11 |
|       | F.                                                                                   | Collection of Nomination, Starter and Similar Fees                                                                      | 11 |
|       |                                                                                 |                                                                                                                    |
| 6.         | Number of Days of, and Dates and Average Daily  Purses for, Live Thoroughbred Racing | 12                                                                                                                      |
|       |                                                                                 |                                                                                                                    |
| 7.         | Races and Awards for Virginia-Bred, Virginia-Owned  and Virginia-Sired Horses        | 13                                                                                                                      |
|       |                                                                                 |                                                                                                                    |
| 8.         | Satellite Wagering Facility Expansion                                                | 13                                                                                                                      |
|       |                                                                                 |                                                                                                                    |
|       | A.                                                                                   | Licensing and Opening of New SWFs in Henry County  and Scott County                                                     | 14 |
|       | B.                                                                                   | Distribution of Funds from the Henry County SWF and  the Scott County SWF                                               | 15 |

 

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|   | C.                                                    | Chesapeake SWF                                                                      | 16 |
|--------|-------------------------------------------------------|-------------------------------------------------------------------------------------|----|
|   | D.                                                    | SWF Referenda in Northern Virginia                                                  | 17 |
|   | E.                                                    | Additional SWFs in the Central-Southside Virginia  Region                           | 18 |
|   | F.                                                    | Funding of Virginia Turf Festival                                                   | 19 |
|   | G.                                                    | Incorporation of Terms in SWF Licenses                                              | 20 |
|   |                                                  |                                                                                |
| 9.     | Stalls and Track Facilities                           | 20                                                                                  |
|   |                                                  |                                                                                |
|   | A.                                                    | Availability of Stalls and Track Facilities Before,  During and After Race Meetings | 20 |
|   | B.                                                    | Vendors                                                                             | 21 |
|   | C.                                                    | Stall Applications                                                                  | 21 |
|   | D.                                                    | Racetrack Kitchen                                                                   | 23 |
|   | E.                                                    | VHBPA Accommodations                                                                | 23 |
|   |                                                  |                                                                                |
| 10.    | Racing Committee                                      | 23                                                                                  |
|   |                                                  |                                                                                |
| 11.    | Representations and Warranties                        | 24                                                                                  |
|   |                                                  |                                                                                |
|   | A.                                                    | VHBPA                                                                               | 24 |
|   | B.                                                    | Colonial Downs                                                                      | 25 |
|   |                                                  |                                                                                |
| 12.    | Racing Officials                                      | 26                                                                                  |
|   |                                                  |                                                                                |
| 13.    | Governmental Approval                                 | 26                                                                                  |
|   |                                                  |                                                                                |
| 14.    | Authorization for Out-of-State Simulcasting           | 26                                                                                  |
|   |                                                  |                                                                                |
| 15.    | Copies of Documents; Database                         | 27                                                                                  |
|   |                                                  |                                                                                |
| 16.    | Horsemen’s Backstretch Improvements and Programs | 27                                                                                  |
|   |                                                  |                                                                                |
| 17.    | Right to Terminate                                    | 28                                                                                  |
|   |                                                  |                                                                                |
| 18.    | Indemnification                                       | 29                                                                                  |
|   |                                                  |                                                                                |
| 19.    | Mediation; Arbitration                                | 29                                                                                  |
|   |                                                  |                                                                                |
|   | A.                                                    | Attempt to Resolve Disputes                                                         | 29 |
|   | B.                                                    | Administration                                                                      | 29 |
|   | C.                                                    | Notice to Arbitrate                                                                 | 30 |
|   | D.                                                    | Selection of Arbitrator(s)                                                          | 30 |
|   | E.                                                    | Pre-Hearing Conference                                                              | 30 |
|   | F.                                                    | Discovery                                                                           | 30 |
|   | G.                                                    | Additional Conference                                                               | 32 |
|   | H.                                                    | Arbitration Hearing                                                                 | 32 |
|   | I.                                                    | Arbitration Award                                                                   | 33 |
|   | J.                                                    | Default                                                                             | 33 |
|   | K.                                                    | Costs                                                                               | 33 |

 

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| 20.            | Contribution Adjustments                                                                       | 34                             |
|----------------|------------------------------------------------------------------------------------------------|--------------------------------|
|           |                                                                                           |                           |
|           | A.                                                                                             | Changes in Applicable Law      | 34 |
|           | B.                                                                                             | Changes in MVRC Management Fee | 35 |
|           | C.                                                                                             | Termination of Management Fee  | 36 |
|           | D.                                                                                             | Duration                       | 36 |
|           |                                                                                           |                           |
| 21.            | Consents, Approvals, Agreements or Assurances                                                  | 36                             |
|           |                                                                                           |                           |
| 22.            | Counterparts                                                                                   | 36                             |
|           |                                                                                           |                           |
| 23.            | Notices                                                                                        | 37                             |
|           |                                                                                           |                           |
| 24.            | Waivers                                                                                        | 38                             |
|           |                                                                                           |                           |
| 25.            | Applicable Law; Venue                                                                          | 38                             |
|           |                                                                                           |                           |
| 26.            | Headings                                                                                       | 38                             |
|           |                                                                                           |                           |
| 27.            | Severability                                                                                   | 38                             |
|           |                                                                                           |                           |
| 28.            | Entire Agreement; Modification                                                                 | 39                             |
|           |                                                                                           |                           |
| 29.            | Conditions Precedent to Effectiveness of this  Agreement                                       | 39                             |
|           |                                                                                           |                           |
| Exhibit A | Form of Trust Agreement                                                                   |                           |
|           |                                                                                           |                           |
| Exhibit B | Annual Transfers of Funds from Thoroughbred  Partners’ Account to Horsemen’s Account |                           |
|           |                                                                                           |                           |
| Exhibit C | Anticipated Development Schedule                                                               |                           |
|           |                                                                                           |                           |
| Exhibit D | Central Southside Virginia Region                                                              |                           |

 

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THOROUGHBRED HORSEMEN’S AGREEMENT

 

THISAGREEMENT is entered into as of this 1st day of January 2005 byand among COLONIAL DOWNS, L.P., a Virginia limited partnership, STANSLEY RACINGCORP., a Virginia corporation (collectively, “Colonial Downs”), and theVIRGINIA HORSEMEN’S BENEVOLENT AND PROTECTIVE ASSOCIATION, INC., a Virginianot-for-profit corporation (the “VHBPA”).

 

WHEREAS,Colonial Downs owns and operates in New Kent County, Virginia, the facilityknown as the Colonial Downs racetrack (the “Racetrack”) and six satellite wagering facilitieslocated in Brunswick, Chesapeake, Hampton, Richmond (Broad Street), Richmond (Hull Street), and Vinton,Virginia (the “SWFs”);

 

WHEREAS,the VHBPA is a trade organization composed of owners, trainers, owner-trainers,and owner-breeders of thoroughbred race horses (its “Members”);

 

WHEREAS,the VHBPA provides benevolence programs and other services for its Members andtheir employees and other participants in thoroughbred horse racing who are andwill be engaged in live racing at the Racetrack (such racing a “Race Meeting”);

 

WHEREAS,the Maryland-Virginia Racing Circuit, Inc. (“MVRC”), a subsidiary ofMaryland Jockey Club, manages the Racetrack and SWFs pursuant to an Amended andRestated Management and Consulting Agreement, effective January 15, 1999,as amended (the “Management and Consulting Agreement”);

 

WHEREAS,the parties hereto desire to continue and enhance a close and understandingrelationship among owners and trainers of thoroughbred race horses (the “Horsemen”),including VHBPA Members, the VHBPA, Colonial Downs, and the public;

 

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WHEREAS,the parties have entered into the Thoroughbred Horsemen’s Agreement, dated asof December 23, 2002, as amended by a First Amendment thereto, dated as ofJanuary 1, 2004 (as so amended, the “Existing Agreement”), portions ofwhich expired on midnight on December 31, 2004 and other portions whichcontinue to remain in effect; and

 

WHEREAS,the parties desire to expand the network of SWFs throughout the Commonwealth ofVirginia beyond the sixexisting SWFs and the currently statutorily authorized ten SWFs to support more days of live quality thoroughbredracing at the Racetrack, including the promotion and development of a VirginiaTurf Festival; and

 

WHEREAS,the parties agree that agoal of achieving $200,000,000 of total thoroughbred handle (which isapproximately 50 days of live thoroughbred racing at current purse levels)within three years from theeffective date of this Agreement is reasonable and desire to set forth certainactions intended to lead to the achievement of this goal to which they arecommitted.

 

NOW,THEREFORE, in consideration of the premises and the mutual covenants containedherein, the parties desiring to be legally bound agree as follows:

 

1.                                       EffectiveDate and Term of Agreement.  Upon thesatisfaction or waiver of all conditions set forth in Section 29 hereof, this Agreement shallbecome effective as of 12:01 a.m. on January 1, 2005, and shall remain in effect throughmidnight on December 31, 2007(the “Term”), unless otherwise terminated as provided herein, with theexception of Subsections 4.B. and F.,Section 8, and Section 20,which shall continue in effect as stated therein.

 

2.                                       ExclusiveRepresentation.  During the Term ofthis Agreement, the VHBPA shall be the exclusive representative of its Memberswith respect to the matters set forth herein. The VHBPA hereby warrants and represents that it is the Horsemen’sorganization representing a

 

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majority of the Horsemenracing at the Racetrack, and Colonial Downs hereby recognizes it as such.

 

3.                                       Accounts.

 

A.                                   ThoroughbredPartners’ Account.  Colonial Downsand the VHBPA currently maintain an account at the Middleburg, Virginia branchof BB&T Bank, N.A. (the “Thoroughbred Partners’ Account” or the “Account”).  The parties agree that the financialinstitution(s) at which the Thoroughbred Partners’ Account is maintained may bechanged at any time by agreement of the parties.  Colonial Downs and the VHBPA agree that allfunds maintained in the Thoroughbred Partners’ Account are funds that are to bemaintained in trust on behalf of and for the benefit of Horsemen, less thosefunds to be distributed to Colonial Downs, as provided herein, and distributedaccording to regulations promulgated by the Virginia Racing Commission (the “Commission”)from time to time or by agreement between the parties to this Agreement.  In furtherance of such purpose, the partieshereto have executed the trust agreement attached as Exhibit A and havehad the Thoroughbred Partners’ Account designated a trust account by thefinancial institution at which the Thoroughbred Partners’ Account ismaintained.  The parties shall takesimilar steps to have the Thoroughbred Partners’ Account designated as a trustaccount by any other financial institution(s) to which the Account ismoved.  In addition, either party mayelect upon written notice to the other party to have a third-party trustee, acceptableto both parties, appointed as trustee of the Account.  All interest and other earnings whatsoever onthe amounts paid or deposited into the Thoroughbred Partners’ Account shallaccrue solely to the benefit of the Thoroughbred Partners’ Account.  All funds paid or deposited into the ThoroughbredPartners’ Account (i) shall be invested in an interest-bearing accountthat

 

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provides market rates ofreturn, or government or bank securities, and (ii) shall be used forpurses and for such other purposes as the parties may agree and the Commissionmay approve.

 

B.                                     Horsemen’sAccount.  Monies payable to Horsemenas purses under this Agreement shall be deposited from the ThoroughbredPartners’ Account into a separate account (the “Horsemen’s Account”) as neededto pay purses.  The amounts to betransferred from the Thoroughbred Partners’ Account to the Horsemen’s Accountare set forth herein.  The transfer offunds from the Thoroughbred Partners’ Account to the Horsemen’s Account shallbe made, and the appropriate portions of purse****moneyshall be made available to the earners thereof, within seventy-two (72) hours(dark days and Sundays excluded) after the result of the race in which suchmoney was earned has been declared official; provided, that in the event of anydispute as to the result of a race due to a drug test or other regulatoryinquiry, the purse money shall not be made available until final resolution ofthe dispute by the stewards, the Commission or the courts, as the case may be.  No portion of such money payable as purses toany earner thereof (other than jockey and gate fees) shall be deducted byColonial Downs unless requested in writing by the person to whom such moniesare payable or his duly authorized representative or as required by order ofthe stewards or a court.

 

C.                                     Availabilityof Information on Accounts.  TheThoroughbred Partners’ Account and the Horsemen’s Account and the investment ordeposit schedules of Colonial Downs with respect to such accounts during anyRace Meeting shall be subject to examination at any reasonable time by thePresident of the VHBPA or his or her designee.

 

D.                                    Distributionof Interest and Other Earnings on Accounts. Interest and any other earnings on the Thoroughbred Partners’ Accountand Horsemen’s Account shall be distributed fifty percent (50%) thereof to eachof (a) Colonial Downs, to help defray the costs of

 

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maintaining suchaccounts, including, but not limited to, the Horsemen’s bookkeeper and anythird-party trustee fees; and (b) the VHBPA for the benefit of Horsemen inits sole and absolute discretion.

 

4.                                       Administrationof Accounts.

 

A.                                   AmountsTo Be Deposited.  Colonial Downsshall deposit into the Thoroughbred Partners’ Account the amounts specified inparagraph 13 of § 59.1-369 of the Code of Virginia and shall deposit intothe Horsemen’s Account the amounts specified for purses in Subsections D(1) andG(1) of § 59.1-392 of the Code of Virginia.

 

B.                                     Transfersfrom the Thoroughbred Partners’ Account to the Horsemen’s Account and ColonialDowns’ Account.  With respect to alldeposits to the Thoroughbred Partners’ Account derived from handle at allsatellite wagering facilities, the parties agree that transfer of funds fromthe Thoroughbred Partners’ Account to the Horsemen’s Account shall be made asset forth in Exhibit B hereto, subject to the terms and conditions setforth in Section 8 hereof, andshall continue for the term of Colonial Downs’ licenses for such facilities.The balance of all deposits to the Thoroughbred Partners’ Account derived fromhandle at all satellite wagering facilities after giving effect to theforegoing sentence shall be transferred to an account designated by ColonialDowns.

 

C.                                     SignalSales.  For 2005, 2006, and 2007 Colonial Downs shall deposit into an accountdesignated and exclusively controlled by the VHBPA fifty percent (50%) of allrevenues it receives from the sale of its live thoroughbred race signal toentities outside Virginia less twenty-one percent (21%) of such amount to coverColonial Downs’ direct operational costs associated with that sale.  Revenues from signal sales shall be based oninformation provided by

 

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Colonial Downs to theVHBPA using accounting practices generally accepted in the horse racingindustry.

 

D.                                    AccountWagering.  Neither Colonial Downs northe VHBPA shall enter into an agreement, without the prior written consent ofthe other, which consent shall not be unreasonably withheld, delayed orconditioned, regarding telephone account or other electronic media wageringsystems pursuant to which Colonial Downs or the VHBPA would receive any feefrom any advance deposit account wagering licensee or any other telephone orother electronic media account wagering entities for the right to accept wagersfrom account holders located in Virginia on thoroughbred races simulcast fromwithin or outside of Virginia.  Theforegoing sentence shall not apply to Colonial Downs’ existing and future agreementsfor the sale of its live thoroughbred racing signals to simulcast venues towhich the VHBPA’s consent is governed by Section 14 of this Agreement.

 

E.                                      VirginiaDerby and the Colonial Turf Cup. Colonial Downs and the VHBPA agree that the purse for the Virginia Derbyfor 2005 shall be $750,000, which shall consist of $600,000 contributed fromthe Thoroughbred Partners’ Account and $150,000 contributed by Colonial Downsor its affiliates.  The purse for theColonial Turf Cup for 2005 shall be $500,000, all of which shall be contributedfrom the Thoroughbred Partners’ Account. Any funds generated by sponsorship(s) or promotional fees paid toColonial Downs with respect to the Virginia Derby, from whatever sourcederived, shall be paid in their entirety to the Thoroughbred Partners’ Accountin addition to the amounts specified in Subsection A of this Section ,unless the parties agree otherwise

 

F.                                      VirginiaTurf Festival Stakes Races.  ColonialDowns desires to continue to develop a premier event for turf course racing inorder to distinguish itself as the Mid-Atlantic

 

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center for thoroughbredturf racing.  To achieve this goal,Colonial Downs desires to continue to structure a series of stakes races in conjunctionwith the Virginia Derby in order to develop more fully the Virginia TurfFestival.  The Virginia Turf Festivalshall consist of high quality races.  For2005, total stake purses for the Virginia Turf Festival shall be $1,700,000,which shall include the Virginia Derby ($750,000), the Colonial Turf Cup($500,000), the All Along Breeder’s Cup Stakes ($200,000), the Virginia Oaks($200,000), the Zeke Ferguson Memorial ($50,000), and such other races as the parties agree.  For 2006 and 2007, total stake purses for theVirginia Turf Festival shall increase by $750,000 to $2,450,000, which shallinclude the Virginia Derby ($1,000,000 with $150,000 contributed by ColonialDowns or its affiliates in 2006, and no contribution from Colonial Downs or itsaffiliates in 2007), the Colonial Turf Cup ($1,000,000), the All Along Breeder’sCup Stakes ($200,000), the Virginia Oaks ($200,000), and the Zeke FergusonMemorial ($50,000); provided thatforty-one and one-half percent (41.5%) of additional purse money provided bythe Richmond (Hull Street SWF), the SWFs in Chesapeake (for combined handle inexcess of $22,347,000), the new SWFs in the Central-Southside Region(including, but not limited to, the Vinton SWF, the Henry County SWF, and theScott County SWF), and any Northern Virginia SWFs equals or exceeds $750,000 incalendar year 2006 and $900,000 in calendar year 2007. For 2006 and2007, the first $750,000 and $900,000, respectively, of such additional pursemoney shall be used to fund the increase in purses for the Virginia Derby andthe Colonial Turf Cup.  For 2006 and2007, purse money contributions in excess of $750,000 and $900,000,respectively, as calculated and referred to above, shall be used to fundovernight purses.

 

G.                                     NationalThoroughbred Racing Association (“NTRA”) Dues.  The VHBPA may, in its discretion, designate aportion of the funds deposited into the Thoroughbred

 

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Partners’ Account to bepaid as the VHBPA’s dues payable to the NTRA. If so designated, those dues shall be paid from funds available in theThoroughbred Partners’ Account.

 

H.                                    StakesRace Purses.  The percentage of thepurse monies available under Subsections A through F of this Section, excludingpromotional fees and sponsorships, to be paid to Horsemen participating instakes races held at the Racetrack shall be limited to twenty percent (20%) ofthe total purses paid unless the VHBPA in its sole and absolute discretionconsents to a higher percentage.  Suchconsent shall be granted by the VHBPA as necessary to assist Colonial Downs inits attempts to maintain and improve the graded status of the Virginia Derbyand is hereby granted to develop the Virginia Turf Festival as set forth inSections 4.F. and 6 hereof.

 

I.                                         AdministrativeFee.** **Theadministrative fee paid to the VHBPA for services rendered to Horsemen as themajority Horsemen’s group shall be as provided in Subsection S of § 59.1-392of the Code of Virginia.  The partiesshall agree on advance payments of the administrative fee between livethoroughbred Race Meetings at the Racetrack in recognition of the VHBPA’syear-round service to Horsemen, obligations with respect to Horsemen’sinterests before the Commission, and the VHBPA’s efforts to assist ColonialDowns on legislative issues.

 

J.                                        OtherLegalized Wagering.  Except asotherwise specifically provided herein, in the event that wagers other than onthoroughbred horse racing, including, but not limited to, the sale of lotterytickets and/or participation in other wagering enterprises at the Racetrackand/or the SWFs (but excluding any use of the Racetrack or SWFs for charitablegaming that does not result in net revenue for Colonial Downs above fair marketrent for the facilities), are authorized by legislative action and a portion ofthe proceeds is provided by that legislation for thoroughbred racing, theparties shall be bound by the allocations in such

 

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legislation.  In the event the allocation of revenues isnot addressed by such legislative action, the parties shall negotiate in goodfaith a written agreement governing the allocation between them of the revenuesto be received for thoroughbred racing from that legislative action.

 

5.                                       PurseMechanics.

 

A.                                   PurseSchedules and Condition Books. Colonial Downs shall use its reasonable judgment to estimate attendance,pari-mutuel handle and breakage for thoroughbred racing. Using that informationand after consultation with a designated representative of the VHBPA, ColonialDowns shall establish a tentative average daily overnight purse schedule anda tentative stakes purse schedule for each Race Meeting in accordance withthe terms of this Agreement.  ColonialDowns shall exercise reasonable care to avoid significant underpayments oroverpayments of purses at all Race Meetings. Colonial Downs shall send to the VHBPA its first condition book andproposed purse schedules for each Race Meeting before they are sent to theprinter.

 

B.                                     Fundingof Purses.

 

(1)                                  ColonialDowns shall pre-fund to the Thoroughbred Partners’ Account the sum needed in 2005, and up to$1.7 million of the sums needed each year in 2006, and 2007, to pay the purse amounts for the days of livethoroughbred racing, as determined in Section 6 below, if there is atemporary shortfall in that Account.  Theamount of such pre-funding shall bear interest at the prime rate (as announcedfrom time to time in the Eastern edition of the Wall Street Journal)plus 0.25%.  Any funds provided pursuantto this Subsection, and interest accruing thereon prior to October 15 ofany year, shall be repaid to Colonial Downs from funds accruing to theThoroughbred Partners’ Account for the remainder of the calendar year in whichsuch funds are provided on a “first dollar in first dollar out” basis and, ifthere is

 

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any pre-funded sum thathas not yet been repaid by the end of that calendar year, from funds accruingto the Thoroughbred Partners’ Account commencing on January 1 of thefollowing calendar year on a “first dollar in first dollar out” basis.  Any interest on any funds provided pursuantto this Subsection by Colonial Downs that accrues on or after October 15thof any given year shall be borne by Colonial Downs.

 

(2)                                  TheVHBPA and Colonial Downs agree to use all reasonable efforts, includingrecommendations to the Virginia Racing Commission for race days and purses andthe use of portions of increased revenue resulting from the opening of SWFs in Richmond (Hull Street), Vinton, andother locations in 2005 andthereafter, to reduce and eliminate temporary shortfalls as described above.

 

C.                                     Overpaymentof Purses.  Colonial Downs and theVHBPA shall cooperate to the fullest extent possible to avoid overpayment ofpurses to Horsemen as of the end of any year during the Term of thisAgreement.  If Colonial Downs makes anoverpayment in excess of the amount computed under Section 4 hereof, theoverpayment shall be repaid to Colonial Downs from funds accruing to theThoroughbred Partners’ Account commencing on January 1 of the followingcalendar year on a “first dollar in first dollar out” basis.

 

D.                                    Underpaymentof Purses.  During any Race Meeting,Colonial Downs shall increase purses as reasonable and appropriate based upondeposits to the Horsemen’s Account pursuant to Subsections D(1) and G(1) of§ 59.1-392 of the Code of Virginia to minimize the possibility ofunderpayment of purses to Horsemen. Colonial Downs shall use its reasonable best efforts to help assure thatthere are no underpayments of purses at any Race Meeting based upon deposits tothe Horsemen’s Account pursuant to Subsections D(1) and G(1) of § 59.1-392of the Code of Virginia.

 

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E.                                      PurseNotices.  The pari-mutuel handle,pari-mutuel handle commission, and purse distribution figures, as well as thepercentage figures that represent the relationship between purses and the totalof pari-mutuel income and breakage shall be posted on the bulletin board in theRacing Secretary’s office each day of a Race Meeting.

 

F.                                      Collectionof Nomination, Starter and Similar Fees. Colonial Downs shall use its commercially reasonable efforts to collectpromptly all nomination, starter and similar fees that are, or prior to 2002were, incurred by participants.  If suchfees attributable to the 2002, 2003, 2004, 2005, 2006 and 2007 Race Meetings remain unpaid six months afterthe conclusion of the relevant Race Meeting, then Colonial Downs shall beentitled to assign the accounts receivable for such fees to the VHBPA forcollection and to be reimbursed from the Thoroughbred Partners’ Account for theaggregate amount of such fees; provided, however, that fees arising fromnominations or entries which the parties agree, acting reasonably and in goodfaith, were accepted by the Racing Secretary for promotional or marketingpurposes shall not be included in the amounts for which reimbursement is soughtand shall not be assigned to the VHBPA. Anything contained in this Subsection F to the contrarynotwithstanding, Colonial Downs shall not be entitled to reimbursement for anyfee for which Colonial Downs has not met the following requirements: (i) ColonialDowns shall have invoiced the debtor at least three times between the close ofthe Race Meeting during which the debt was incurred and the end of the calendaryear in which that Race Meeting was conducted, and (ii) Colonial Downsshall have furnished written notice to the VHBPA of the debtor’s name, address,and the amount owed by that debtor within ninety (90) days of the close of theRace Meeting at which the debt was incurred.

 

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6.                                       Numberof Days of, and Dates and Average Daily Purses for, Live Thoroughbred Racing.  Not less than thirty (30) days prior to thedeadline for submission to the Commission, Colonial Downs and the VHBPA shallmake reasonable efforts to agree upon the number of days of, and the dates andaverage daily purses for, live thoroughbred racing at the Racetrack for thefollowing calendar year, and shall then present such agreed upon schedule andaverage daily purses to the Commission for approval.  Such schedule shall take into accountthe average daily purses for the Virginia Turf Festival and the amount thatshall be applied to reduce the need for Colonial Downs’ funding pursuant to Subsection 5.B.hereof.   If the parties are unable toagree upon a particular number of days of, dates for and/or average dailypurses for live thoroughbred racing for any such calendar year, Colonial Downsshall submit to the Commission its requested number of days of, dates forand/or average daily purses for live thoroughbred racing for that calendaryear, and the VHBPA shall also convey to the Commission its requested number ofdays of, dates for and/or average daily purses for live thoroughbred racing forthat calendar year.  For 2005, Colonial Downs and the VHBPA submitted a request to the Commission for forty (40) days ofthoroughbred racing, with average daily purses of at least $200,000 perday, to be conducted from June 17to August 9, 2005 at theRacetrack.  Such request was approved bythe Commission.  For 2006, Colonial Downs and the VHBPA agree to submit a request to theCommission for at least forty-two (42) days of thoroughbred racing, withaverage daily purses of at least $200,000 per day, including the Virginia TurfFestival, provided that on or before November 15, 2005, purse projectionsfor the twelve months of calendar 2006 support such a request.  Similarly, if on or before November 15,2006, purse projections for the twelve months of calendar 2007 support it,Colonial Downs and the VHBPA shall request fifty (50) days of thoroughbredracing in 2007 with average daily purses of at least $200,000, including the

 

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VirginiaTurf Festival.  A Turf Festival PlanningCommittee made up of representatives from Colonial Downs, the VHBPA, the MVRC,and the Virginia Breeders Fund shall assist the parties in formulating thedetails of the 2006 and 2007 race dates request to be submitted to theCommission for its approval (such request to be consistent with the terms andprovisions of Section 4.F. and this Section) and shall consider whatimprovements, if any, may be necessary to the Racetrack’s facilities to supportand promote the Virginia Turf Festival.

 

7.                                       Racesand Awards for Virginia-Bred, Virginia-Owned and Virginia-Sired Horses.  Colonial Downs shall include in its conditionbook opportunities to race for Virginia-bred, Virginia-owned and Virginia-siredthoroughbred horses, including those that typically race for lower purses aswell as those that typically race for higher purses.  To the extent reasonably possible, in fillingraces, Colonial Downs shall give preference to Virginia-bred, Virginia-owned,  and Virginia-sired horses that are stabled atthe Racetrack or elsewhere in Virginia. Awards from the Virginia Breeders Fund for Virginia-bred, Virginia-ownedand Virginia-sired horses shall continue to be distributed according toguidelines approved by the Commission.

 

8.                                       SatelliteWagering Facility Expansion. Colonial Downs and the VHBPA agree that a greater dollar volume inannual handle is necessary to increase the number of days of qualitythoroughbred racing in Virginia, and that increased handle will most likelyoccur by opening additional SWFs beyond the six existing SWFs.  Theparties further agree that a goal of achieving $200,000,000 of totalthoroughbred handle (which is approximately 50 days of live thoroughbred racingat current purse levels) within threeyears from the effective date of this Agreement is reasonable and desire to setforth certain actions intended to lead to the achievement of this goal to whichthey are committed.  Accordingly, theparties agree:

 

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A.                                   Licensingand Opening of New SWFs in HenryCounty and Scott County. Colonial Downs shall pursue simultaneously the opening of new SWFs in Henry County and Scott County as setforth herein, either one of which may open before the other.

 

(1)                                  ColonialDowns shall open in 2005 a new SWF ineach of Henry County and Scott County, subject to Force Majeure Events(as defined herein).  Upon approval ofthis Agreement by the Commission, Colonial Downs shall seek to secure sites and address any concerns relatingto compliance with all municipal laws and regulations (including zoningcompliance).  Upon securing sites and satisfying all applicablemunicipal laws and regulations, Colonial Downs shall apply expeditiously to theCommission for owner’s and operator’s licenses for the two new SWFs.  Uponissuance of the licenses, Colonial Downs shall immediately commence build outor construction of the new SWFsand prosecute completion using all commercially reasonable means.  It is anticipated that the new SWFs will open no later than fourto six months after the Commission issues Colonial Downs licenses to own andoperate each new SWF, subjectto Force Majeure Events.  An anticipateddevelopment schedule is set forth in Exhibit C hereto.

 

(2)                                  “Force Majeure Events”shall mean:  (a) acts of God(including flood, landslide, earthquake, hurricane, or tornado); (b) delaycaused by acts or neglect of the Commission or the Commonwealth in issuingrequired permits or other administrative approvals regarding Colonial Downs’proposed SWF; (c) acts of war or terrorism; (d) strikes or labordisputes affecting the proposed SWF; (e) any legal action initiated bythird parties that challenges any permit, approval, license, or similargovernmental action that is necessary for the renovation, construction, oroperation of an SWF or any such action initiated by Colonial Downs to overturna ruling denying any permit, approval, license, or similar necessarygovernmental

 

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action; (f) materiallyadverse weather conditions at the site not reasonably anticipated; (g) fireor other unavoidable casualties at the site; (h) Colonial Downs’ inabilityto obtain materials or the unavailability of specified materials where thereare no reasonable substitutes available or no alternative methods or meansavailable of obtaining such materials on a timely basis; (i) constructiondelays caused by subsurface or otherwise concealed physical conditions at thesite differing materially from those indicated in the plans and specifications,or from those originally encountered, which were not ascertainable by ColonialDowns prior to the grant of the licenses; and (j) delays caused solely by thefailure of any governmental agency, department, or organization to timely issuebuilding permits or other construction-related permits that could not besecured prior to the date of the licenses or to timely perform inspections thatcannot be completed prior to construction on matters necessary for the properexecution and completion of the work necessary to build or complete the SWF,provided that Colonial Downs has taken all actions reasonably available to it,including the filing and aggressive prosecution of legal action, to compel suchagencies, departments, or organizations to issue such permits and to timelyperform such inspections.

 

(3)                                  The deadlinesspecified in this Subsection A shall be suspended for each day that adelay specified in this Subsection A(2) occursand continues, provided that Colonial Downs exercises all reasonable diligenceduring such time to overcome the delay.

 

B.                                     Distributionof Funds from the Henry County SWF andthe Scott County SWF. Colonial Downs and the VHBPA agree to distribute funds from theThoroughbred Partners’ Account in such a fashion as set forth in Exhibit Bhereto with respect to the Henry County SWF and the Scott County SWF.  If Colonial Downs is unsuccessful in 2005 inopening the second Chesapeake SWF referred to below, other than as a result ofForce Majeure Events,

 

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then the Richmond (HullStreet) SWF, the Vinton SWF, the Henry County SWF, and the Scott County SWFshall be treated as “All Other SWFs” for purposes of the distribution of fundsfrom the Thoroughbred Partners’ Account as set forth in Exhibit B heretountil the second Chesapeake SWF opens. Once the second Chesapeake SWF opens, the effective contribution ratesfor the Richmond (Hull Street) SWF, the Vinton SWF, the Henry County SWF, the ScottCounty SWF, the existing Chesapeake SWF, and the second Chesapeake SWFshall be as set forth in Exhibit B hereto and shall continue for the termof Colonial Downs’ licenses for such facilities.

 

C.                                     ChesapeakeSWF.  Pursuant to Section 8 of theExisting Agreement, Colonial Downs is obligated to relocate the existingChesapeake SWF to a location closer to Virginia Beach, subject to Force MajeureEvents, on or before December 31, 2005. The VHBPA and Colonial Downs agree that Colonial Downs will satisfy thisobligation by opening an additional Chesapeake SWF before December 31,2005 (the “Second Chesapeake SWF”). Colonial Downs has applied to the Commission for owner’s and operator’slicenses for the Second Chesapeake SWF. Upon issuance of the licenses, Colonial Downs shall immediately commencebuild out or construction of the Second Chesapeake SWF and prosecute completionusing all commercially reasonable means. It is anticipated that the Second Chesapeake SWF will open no later thanfour to six months after the Commission issues Colonial Downs licenses to ownand operate the Second Chesapeake SWF. If Colonial Downs opens a Second Chesapeake SWF in 2005, Colonial Downsand the VHBPA agree to distribute funds from the Thoroughbred Partners’ Accountin such a fashion as set forth in Exhibit B hereto with respect to theexisting Chesapeake Facility and the Second Chesapeake SWF.  If Colonial Downs is unsuccessful in openingthe Second Chesapeake SWF in 2005 (other than as a result of Force Majeureevents), no handle generated at the existing Chesapeake SWF shall be includedin the calculation of the

 

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$22,375,000 threshold setforth on Exhibit B until such time as the Second Chesapeake SWF opens forbusiness.  The effective contributionrates for the existing Chesapeake Facility and the Second Chesapeake SWF setforth in Exhibit B hereto shall continue for the term of Colonial Downs’licenses for such facilities.

 

D.                                    SWFReferenda in Northern Virginia.  In2005 Colonial Downs and the VHBPA shall organize an industry task force toexplore strategies for a successful statutory referendum in Northern Virginiawith the goal of conducting at least one Northern Virginia statutory referendumby December 31, 2007. For purposes of this Agreement Northern Virginia isdefined as the counties of Loudoun, Prince William, Fairfax, Arlington, and Fauquier, the cities of Manassas,Manassas Park, Fairfax City, Falls Church, and Alexandria and the towns withpopulation of 5,000 or more located within the foregoing counties.

 

(1)                                  Upon winning areferendum in Northern Virginia, Colonial Downs shall use its commerciallyreasonable efforts to apply expeditiously for licenses to own and operate anSWF in the locality in which the referendum was won; provided, however, if morethan one referendum is won in adjacent localities or in localities in which twoSWFs would compete with each other, Colonial Downs shall be obligated to applyfor licenses in only one such locality. Upon the grant of the licenses, Colonial Downs shall use itscommercially reasonable efforts to open the licensed facility expeditiously.

 

(2)                                  Colonial Downs andthe VHBPA agree to distribute funds from the Thoroughbred Partners’ Account insuch a fashion as set forth in Exhibit B hereto for any SWF opened byColonial Downs in Northern Virginia, asdefined above, duringthe three-year periodcommencing on the effective date of this Agreement.

 

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E.                                      AdditionalSWFs in the Central-Southside Virginia Region.  Colonial Downs shall conduct two referendaduring the period from January 1, 2005 to December 31, 2006, and onereferendum during the period from January 1, 2007 to December 31,2007 in the Central-Southside Virginia region as set forth in Exhibit Dhereto (the “Central-Southside Virginia Region”); provided however, uponthoroughbred handle (live plus SWF) equaling or exceeding $200,000,000,Colonial Downs’ obligations to conduct additional referenda in the Central-SouthsideVirginia Region shall automatically terminate. Colonial Downs’ obligation to conduct the foregoing referenda in thetime periods specified shall be temporarily suspended, but not terminated, foreach year in which there are no statutorily authorized SWFs available forinitial licensing.

 

(1)                                  IfColonial Downs conducts and wins such a referendum it shall proceed in themanner described in Section 8.D (1) hereof with respect to suchreferendum.  Upon the opening of any SWFin Central-Southside Virginia Region, Colonial Downs and the VHBPA agree todistribute funds from the Thoroughbred Partners’ Account in such a fashion asset forth in Exhibit B hereto forany SWF in the Central-Southside Virginia Region for which a licenseapplication has been made within the eight-year period commencing on theeffective date of this Agreement or, if later, the date on which all conditionsset forth in Section 29 are satisfied or waived.

 

(2)                                  On or before December 1, 2006, and on orbefore each December 1 thereafter, the parties shall determine if ColonialDowns has conducted the minimum number of referenda required by thisagreement.  In the event Colonial Downsfails to conduct the three Central-Southside referenda in the time periodsspecified above, the contribution rate for thoroughbred handle to the paymentof purses set forth in Exhibit B hereto shall be suspended for

 

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all SWFs operating in theCentral-Southside Virginia Region and for the Richmond (Hull Street) SWF, theexisting Chesapeake SWF, and the Second Chesapeake SWF, and the pursecontribution rate shall be that specified in Exhibit B hereto for “AllOther SWFs” until such time as Colonial Downs conducts the number of referendaspecified in this Subsection E regardless of the time periods specifiedabove (e.g. conducting an additional referendum in 2007 after conducting onlyone in the period from January 1, 2005 to December 31, 2006).  Upon Colonial Downs conducting the specifiednumber of referenda, the purse contribution rates shall be reinstated to therates set forth in Exhibit B hereto for SWFs located in Central-SouthsideVirginia Region, the Richmond (Hull Street) SWF, the existing Chesapeake SWF,and the Second Chesapeake SWF. No adjustment (either higher or lower) to thepurse contribution rate shall be retroactive.

 

F.                                      Fundingof Virginia Turf Festival.  Theamount of purse funds devoted to the Virginia Turf Festival shall increase byan amount equal to between thirty-three percent (33%) and fifty percent (50%)of additional purse money provided by the Richmond (Hull Street) SWF, the SWFs in Chesapeake (for combined handlein excess of $22,375,000), new SWFs in the Central-Southside Virginia Region,including, but not limited to, the VintonSWF, the Henry County SWF, andthe Scott County SWF, and any Northern Virginia SWFs.  Such funding of the Virginia Turf Festivalshall continue for the term of Colonial Downs’ licenses for the foregoingfacilities.  For 2006 and 2007, theparties have agreed to the allocation of such additional purse funds to theVirginia Turf Festival and overnight purses as set forth in Section 4.F.  Such allocation shall be applicable only for2006 and 2007, unless the parties otherwise agree.  The allocation of days for the Virginia TurfFestival and purses per day shall be based on the goal of maintaining anaverage purse per day for the Virginia Turf Festival within the top

 

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five percent (5%) ofpurses per day at thoroughbred racetracks nationally.  Colonial Downs may supplement the purses forthe Virginia Turf Festival from its own funds, in its sole discretion, toachieve this purse per day result.  For2006 and 2007, the parties have agreed to seek a Virginia Turf Festival on theterms set forth in Sections 4.F. and 6. Thereafter, upon the Virginia Turf Festival growing to ten (10) daysunder the foregoing criteria, following discussions with the Turf FestivalPlanning Committee (established pursuant to Section 6 hereof), ColonialDowns may separate the Virginia Turf Festival from the summer thoroughbredmeet, in which event the Virginia Derby may cease to be included in theVirginia Turf Festival, in Colonial Downs’ discretion, and remain a part of thesummer meet.  Funding for the VirginiaTurf Festival shall remain at the levels set forth herein, however, in suchevent.

 

G.                                     Incorporationof Terms in SWF Licenses.  ColonialDowns and the VHBPA agree that in order for any and all owner’s and operator’slicenses for the additional SWFs referenced herein (including but not limitedto the new SWFs in Henry and ScottCounties, the Second Chesapeake SWF, and SWFs in Northern Virginia) tobe effective for purposes of this Agreement, such licenses shall contain orincorporate the provisions of this Agreement relating to adjustments tocontributions from the Thoroughbred Partners’ Account to the Horsemen’s Accountand Section 20 hereof.  The partiesagree to use their best efforts to have the SWF licenses issued by the Commissioncontain or incorporate such provisions.

 

9.                                       Stallsand Track Facilities.

 

A.                                   Availabilityof Stalls and Track Facilities Before, During and After Race Meetings.  Colonial Downs shall make available at leastone thousand (1,000) stalls to Horsemen during each Race Meeting.  Access to the racing strip, barns, trackkitchen facilities, dormitories, and related backside facilities at theRacetrack (collectively, the “Backside Facilities”) necessary

 

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for training purposesshall be made available by Colonial Downs without charge (i) prior to eachlive Race Meeting, to Horsemen who have horses training for that live RaceMeeting, and (ii) following each live Race Meeting, to Horsemen who haveraced at the Racetrack during that Race Meeting.  The Backside Facilities shall be madeavailable by Colonial Downs prior to and following each Race Meeting for anaggregate total of 20 days, the exact number of days before and number of daysafter each Race Meeting to be agreed upon each year by Colonial Downs and theVHBPA.  Notwithstanding the foregoing,such periods may be shortened if the Backside Facilities are then needed for alive standardbred race meeting, and Colonial Downs shall provide advance noticeto the Horsemen in any such event. During the aforesaid periods, Colonial Downs shall, at its own expense,make water and electricity available to each barn in use and keep the racingsurfaces properly harrowed and watered.

 

B.                                     Vendors.  Except as expressly provided elsewhere inthis Agreement, Colonial Downs shall not impose upon Horsemen any exclusivearrangement concerning farriers, feedmen, tack supplies, or any other suppliersor providers of services customarily used by owners and trainers; provided,however, that if Colonial Downs permits the use of bedding material other thanstraw, it may require the use of an exclusive supplier in order to facilitateremoval of such used material. Notwithstanding the foregoing, Colonial Downs reserves the right toimpose reasonable non-discriminatory requirements for security, safety andenvironmental reasons.  Colonial Downsshall use its reasonable best efforts to keep unlicensed persons in the abovecategories off its premises.

 

C.                                     StallApplications.  Not less than seventy-five(75) days prior to each Race Meeting, Colonial Downs shall publish anddistribute stall applications to horsemen. Colonial Downs shall use its commercially reasonable efforts to ensurethat: (i) the stall application

 

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contains notice of thecut-off date for the submission of stall applications; (ii) the stallapplication contains in bold face type any rules of entry preference forVirginia-bred, Virginia-sired, Virginia-owned, or Virginia-stabled horses; (iii) thestall application provides on the front cover that no dogs will be allowed inthe stable area, that no children will be allowed to stay in the backstretchdormitories, and that the other rules applicable to the backsideanticipated by Colonial Downs to be enforced at each Race Meeting will beposted at the Track and will be mailed upon request to trainers and others; and(iv) each completed application contains the name, permanent address,telephone number, and electronic mail (e-mail) address of the owner and trainerof each horse expected to be stabled on the grounds of the Racetrack duringthat Race Meeting.   Colonial Downsshall, in the exercise of its sole business judgment, determine the terms forand approve or disapprove applications for stalls, but to the extent reasonablypossible, preference shall be given to stall applications for Virginia-bredhorses, Virginia-owned horses, and Virginia-sired horses.  Colonial Downs may consider, among otherthings, the following criteria in allocating stalls to Horsemen for use duringRace Meetings:

 

(1)                                  Theoverall quality of the horses listed on the stall application;

 

(2)                                  Thequality of the racetrack(s) where the horses listed on the stall applicationshave previously raced;

 

(3)                                  Thenumber of starts a trainer listed on the application has made at past ColonialDowns Race Meetings, where applicable;

 

(4)                                  Thefinancial and professional integrity of the trainer listed on the stallapplication;

 

(5)                                  Thetotal number of stalls requested by a trainer in relation to the number ofavailable stalls; and

 

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(6)                                  Thebest interests of Colonial Downs and thoroughbred racing.

 

Each Horsemen accepting astall at the Racetrack shall be required to use his or her best efforts to runhis or her horses at the Racetrack during the Race Meeting consistent with thehorses’ physical condition and fitness, and race conditions.

 

D.                                    RacetrackKitchen.  Colonial Downs shallprovide a Racetrack kitchen for use by Horsemen and others, with the terms,conditions and provisions thereof to be mutually agreed upon on an annual basisby the VHBPA and Colonial Downs.  Jointapproval of Colonial Downs and the VHBPA shall be required concerning, but notlimited to, management of the facility, cleanliness of the facility,palatability and cost of food, adequacy of hours of operation, and adequacy ofpremises insurance coverage.

 

E.                                      VHBPA Accommodations.ColonialDowns shall provide a suitable location on the backstretch for construction of a permanent building by the VHBPA, to be used during theRace Meetings for a classroom facility, an office for the chaplaincy program, acounseling office, a chapel, recreation, and a secure office and storage facility for the VHBPA.  Colonial Downsshall furnish electrical service, telephone hook-up, and television race simulcasting for thebuilding.  The VHBPA shall save and holdharmless and shall indemnify Colonial Downs against any expenses, costs,claims, or demands, including attorney’s fees, arising out of the construction and use of the building,electrical service, telephone hook-up, andtelevision race simulcasting. Colonial Downs shall also provide theVHBPA a grandstand suite, free of charge except for food service, for use byits members and guests on each race day (except for the Virginia Derby) in2005, 2006, and 2007, unless the parties agree otherwise.

 

10.                                 RacingCommittee.  Colonial Downs and theVHBPA have organized and shall maintain a joint committee to be known as the “RacingCommittee.”  The VHBPA and Colonial

 

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Downs shall each continueto appoint not more than four (4) representatives to the RacingCommittee.  The Racing Committee (i) shallmeet at the request of either Colonial Downs or the VHBPA on at least five (5) daysnotice to the other party, and (ii) may consider such matters as thestable area, barns, tack rooms, dormitories, promotion, publicity, trackconditions (bad weather closing), racing-related programs, reserved seats andpasses for Horsemen, number of races, purse schedules, track kitchen, othermatters related to attendance, pari-mutuel handle or the quality of racing, andhealth benefit programs, death benefits, drug and alcohol abuse programs, andany other program that will aid and assist the racing industry in Virginia inhiring, retaining and caring for its personnel at the highest level.

 

11.                                 Representationsand Warranties.

 

A.                                   VHBPA.  In addition to the representations andwarranties contained elsewhere in this Agreement, the VHBPA warrants,represents to and covenants with Colonial Downs that during the Term of thisAgreement:

 

(1)                                  ThisAgreement has been approved by the Board of Directors of the VHBPA;

 

(2)                                  ThisAgreement is valid and enforceable against the VHBPA according to its terms;

 

(3)                                  Exceptas provided in Section 14below, the VHBPA and its officials shall not acquiesce or actively participatein any attempt to delay, interrupt, or bring about the temporary or permanentcessation or suspension of racing or other activities at the Racetrack,including simulcasting, or activities at the SWFs at any time during the Termof this Agreement;

 

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(4)                                  EachVHBPA official shall utilize commercially reasonable powers of persuasion andshall take all reasonable action within his or her power, including allcommercially reasonable legal means at his or her disposal, to ensure that allVHBPA Members, their employees, other related personnel, and other backsidepersonnel comply with the terms of this Agreement;

 

(5)                                  ThisAgreement shall be made available for review and copying by Members of theVHBPA and all other licensed owners, trainers, employees and backside personnelat the VHBPA office; and

 

(6)                                  TheVHBPA shall use its reasonable best efforts to ensure that the backside area ofthe Racetrack is maintained in a safe, clean, and orderly condition when inuse.

 

B.                                     ColonialDowns.  In addition to the representationsand warranties contained elsewhere in this Agreement, Colonial Downs warrants,represents to and covenants with the VHBPA that during the Term of thisAgreement:

 

(1)                                  ThisAgreement has been approved by its General Partner;

 

(2)                                  ThisAgreement is valid and enforceable against Colonial Downs according to itsterms;

 

(3)                                  ColonialDowns shall use its reasonable best efforts to ensure that the backside area ofthe Racetrack is maintained in a safe, clean and orderly condition when in use;and

 

(4)                                  ColonialDowns shall use its reasonable best efforts to assist the VHBPA in developinghealth and welfare programs for backstretch personnel; provided that, this Section imposesno obligation on either party to fund any such program.

 

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12.                                 Racing Officials.  Colonial Downs shall send to the President ofthe VHBPA a written list of the persons whom Colonial Downs has requested theCommission to approve as racing officials for each Race Meeting at the sametime it submits that list to the Commission in accordance with the Commission’sregulations.

 

13.                                 GovernmentalApproval.  Nothing contained in thisAgreement shall be construed as requiring either party to perform any term whensuch performance is contrary to law or requires prior governmental approval;provided, however, both parties shall use their best efforts to obtaingovernmental approval if such is required.

 

14.                                 Authorization forOut-of-State Simulcasting.  Duringthe Term of this Agreement, the VHBPA as the authorized representative of theHorsemen for interstate simulcasting purposes, hereby consents and authorizesColonial Downs to negotiate and contract with simulcast and receivingfacilities, including off-track wagering facilities outside the Commonwealth ofVirginia, for (i) the conduct of off-track wagering at the Racetrack andthe SWFs, and (ii) off-track wagering on live thoroughbred races emanatingfrom the Racetrack, pursuant to the Interstate Horse Racing Act of 1978, P.L. 95-515(the “Interstate Horse Racing Act”). This Agreement constitutes the contract required by Section 3004(a) ofthe Interstate Horse Racing Act. Colonial Downs shall consider the best interests of live racing whensimulcasting.  To the extent required bylaw, out-of-state simulcasting for all of Colonial Downs’ races at theRacetrack shall be subject to the consent of the VHBPA, which consent shall notbe unreasonably withheld, delayed or conditioned.  In the event consent is withheld, the VHBPAshall set forth its reasons for withholding its consent within a reasonabletime after notice from Colonial Downs in advance of the intended simulcast.

 

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15.                                 Copies ofDocuments; Database.  Colonial Downsshall send a copy of its stall application form, stakes purse program, andcondition book for each Race Meeting to the VHBPA on or before the first daythey are distributed to Horsemen.**** Additionally, Colonial Downs shall provide theVHBPA copies of all filings, if any, it makes with the U. S. Securities andExchange Commission promptly after such filings are made.  Colonial Downs shall share and coordinate allinformation and data on Horsemen racing at the track with the VHBPA.  The parties shall work jointly to develop andmaintain an effective database of Horsemen racing in Virginia.  Not later than thirty (30) days following theclose of each Race Meeting, Colonial Downs shall provide the VHBPA a list ofall owners and trainers who participated in that Race Meeting, includingaddresses, telephone numbers, and e-mail addresses to the extent collected byColonial Downs pursuant to Subsection 9.C. and otherwise.

 

16.                                 Horsemen’sBackstretch Improvements and Programs. Colonial Downs and the VHBPA agree to expend for the benefit of Horsemencertain funds during calendar years 2005,2006 and 2007 for theimprovement of backstretch working and living conditions and for educational,recreational, and counseling programs. Colonial Downs shall provide $75,000 in 2005 and $50,000 in 2006 and 2007 (subject to adjustment as providedin Subsection 20.B.hereof) to be used solely for capital improvements and to be provided no laterthan June 1st of each year.  In addition, the VHBPA and Colonial Downs shall use their best effortsto ensure that at least $175,000 is provided annually from the legitimatebreakage deposited into the Racing Benevolence Fund pursuant to § 59.1-392(T)(2) ofthe Code of Virginia for the foregoing improvements and programs.  Regarding the latter Fund, the VHBPA andColonial Downs agree to use their best efforts to obtain any necessaryauthorization to use part of the legitimate breakage for such improvements andprograms.  All of the above funds shallbe deposited into

 

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the BackstretchImprovement Escrow Account, which shall be established at a financialinstitution mutually acceptable to both Colonial Downs and the VHBPA, and shallbe expended as mutually agreed by Colonial Downs and the VHBPA and subject toCommission approval pursuant to Section 30 hereof.  To the extent funds are available, theimprovements and programs shall include the following: (1) training andeducational programs such as the Groom Elite Program, which is a formal programdeveloped in cooperation with Texas A & M University to train groomsin equine science concepts and practices; (2) chaplaincy and counseling,including health and drug abuse programs; (3) participation in thenational Kids To The Cup program to encourage young people to learn about thehorse industry by participation in backstretch activities; (4) after-workrecreational programs for backstretch personnel, such as picnics, eveningtelevision and videos, etc.; (5) expansion and improvement to dormitory facilities to better servethe health needs of backstretch personnel; (6) implementation of a plan toeliminate from all barns the water runoff problem that in the past has resultedin standing water, which plan shall include appropriate landscaping andpesticide spraying and installation of gutters; (7) structural modification to the Receiving Barn to improveventilation; and (8) construction of the office/classroom facility,identified in Section 9.E. above. At the conclusion of each Race Meeting, the VHBPA shall within sixty(60) days provide Colonial Downs with an accounting of all expenditures madefrom the Backstretch Improvement Escrow Account.

 

17.                                 Right to Terminate.  Either party may terminate this Agreementupon the other party’s failure to substantially perform as required under thisAgreement and such failure continues for thirty (30) days following the datewritten notice of default detailing the perceived failure to perform is sent toand received by the allegedly defaulting party in accordance with Section 23 below.  Such termination shall not constitute anelection of remedy, nor shall it

 

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constitute a waiver of aparty’s other remedies at law or in equity. Additionally, Colonial Downs may terminate this Agreement upon writtennotice to the VHBPA if the Racetrack and all the SWFs are closed for ninety(90) continuous days.

 

18.                                 Indemnification.  The VHBPA shall indemnify and save harmlessColonial Downs, its agents, representatives, employees, officers, directors andstockholders, their respective successors and assigns, and all persons actingby, through, under, or in concert with any of them, from and against any andall demands, liabilities, loss, costs, damages, or expenses of whatever natureor kind, including fees of attorneys and all other expenses, arising out of orin any way related to or occasioned by Colonial Downs’ performance under Subsection 4.I.hereof (Administrative Fee).

 

19.                           Mediation; Arbitration.

 

A.                                   Attemptto Resolve Disputes.  In the event ofany disputes or differences arising out of this Agreement, which the partieshave been unable to resolve after reasonable efforts to do so, either party mayrefer the dispute or difference to a mediator mutually acceptable to theparties.  In the event such mediation isunsuccessful, or the parties are unable to agree on a mediator, either partymay refer the dispute or difference for final settlement to arbitration inaccordance with the following procedures.

 

B.                                     Administration.  The arbitration shall be administered by theAmerican Arbitration Association (“AAA”), or its successor, pursuant to theexpedited procedures (irrespective of the amount in controversy) of the AAA’sthen-prevailing Commercial Arbitration Rules (the “Rules”), subject to thelimitations and modifications set forth herein. The laws of the Commonwealth of Virginia will govern all matters arisingunder the arbitration

 

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without giving effect tothe choice of law principles thereunder. The arbitration will be held in Virginia unless the parties otherwiseagree.

 

C.                                     Noticeto Arbitrate.  Notice of a demand forarbitration pursuant to this procedure (the “Notice to Arbitrate”) shall bemade in writing and delivered to all other affected parties as provided in Section 23 hereof.  The Notice to Arbitrate shall be accompaniedby a short and plain statement of the party’s claim(s), the grounds for sameand the relief sought.  Within ten (10) daysof receipt of the Notice to Arbitrate, the other party shall set forth inwriting and deliver to all other affected parties as provided in Section 23 hereof, an answer setting forth itsresponse to the claim for relief, as well as any affirmative defenses andcounterclaims.

 

D.                                    Selectionof Arbitrator(s).  The arbitrationshall be before one neutral arbitrator (the “Arbitrator”) to be selected inaccordance with the Rules (as modified herein).  In the event the parties cannot agree upon anArbitrator within ten (10) business days from receipt of the Notice toArbitrate, each party shall select one Arbitrator.  The Arbitrators so selected shall select athird arbitrator at the Pre-Hearing Conference (as defined herein), who shallbe the chairperson of the three member panel.

 

E.                                      Pre-HearingConference.  The Arbitrator(s),within ten (10) days of his, her or their appointment, shall conduct apre-hearing conference (the “Pre-Hearing Conference”).  The parties shall be prepared to discussdiscovery matters, schedule the Additional Conference and ArbitrationHearing (as defined herein), decide procedural matters and address all otherquestions that may be presented.

 

F.                                      Discovery.  The parties shall have the right to conductand enforce pre-hearing discovery in accordance with the Federal Rules ofCivil Procedure then in effect for the

 

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Eastern District ofVirginia (Richmond Division), including any Local Rules (collectively, the“Court Rules”), subject to the following:

 

(1)                                  Theparties shall make the voluntary disclosures described in the Court Rules (exceptthose applicable to expert witnesses) within fifteen (15) days after theappointment of the Arbitrator(s).  Theidentity and report of each expert witness, as well as all other disclosuresdescribed in the Court Rules, shall be disclosed to the other parties no laterthan thirty (30) days after the appointment of the Arbitrator(s).

 

(2)                                  Eachparty may serve a request for production of tangible and documentaryevidence.  Responses to a request forproduction shall be due fifteen (15) days after receipt.

 

(3)                                  Eachparty may serve no more than one set of interrogatories limited to no more thanthirty (30) questions, including subparts. Answers to interrogatories shall be due fifteen (15) days after receipt.

 

(4)                                  Eachparty may depose up to, but no more than, three (3) witnesses; provided,however, that each party is limited to no more than a total of eighteen (18)hours of deposition time in the aggregate.

 

(5)                                  Alldiscovery must be completed within forty-five (45) days after appointment ofthe Arbitrator(s) (the “Discovery Deadline”).

 

(6)                                  TheArbitrator(s), for good cause shown, upon motion and three (3) days’notice to all parties, may extend any of the discovery deadlines set forthherein for a period not to exceed fourteen (14) days.

 

(7)                                  TheArbitrator(s) shall have the right and authority to decide any and alldiscovery disputes.  The Arbitrator(s)shall be empowered to issue subpoenas and any and

 

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all process and orderspermitted under the Rules to compel cooperation in discovery and otherwiseenforce the discovery rights and obligations of the parties.

 

G.                                     AdditionalConference.  Within ten (10) daysafter the Discovery Deadline, the Arbitrator(s) shall hold an additionalconference (the “Additional Conference”) to set dates for the exchange ofwitness and exhibit lists, deposition testimony designations, testimonysummaries and arbitration briefs; determine the length of the ArbitrationHearing; and address any and all other questions that may be presented.

 

H.                                    ArbitrationHearing.  The arbitration hearing(the “Arbitration Hearing”) shall commence within twenty (20) days after thedate of the Additional Conference, unless otherwise agreed by the parties.  For good cause shown, the Arbitrator(s) maygrant no more than one (1) continuance per party of a duration not toexceed ten (10) days each; provided, however, no party shall be entitledto any other continuances.  Unlessotherwise agreed by the parties or ordered by the Arbitrator(s) for good causeshown, the Arbitration Hearing shall continue from day-to-day for such periodof time (not to exceed five (5) days) as may be set by theArbitrator(s).  Each party shall haveequal time for presentation and rebuttal, unless otherwise agreed by theparties.  The parties may presentevidence, at their option, in the form of testimony (live and/or bydeposition), documents and other tangible evidence, or testimony summaries, orany combination thereof.  The Arbitrator(s),upon timely request by a party or if otherwise required by law, shall requirewitnesses to testify under oath administered by any duly qualified person.  Any party, at its own cost and three (3) days’notice to all other parties, may arrange for a stenographic record of theproceedings.  Such record shall be madeavailable for inspection and copying by all other parties and theArbitrator(s).

 

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I.                                         ArbitrationAward.  Notwithstanding the foregoing,it is the parties’ intent that the arbitration shall be completed and resolvedwithin one hundred and twenty (120) days of the commencement of suchproceeding.  The Arbitrator(s) shallissue and deliver to each party a written and signed award (the “ArbitrationAward”) within thirty (30) days of the closing of the record.   The Arbitration Award shall contain thefactual and legal bases for such award. The Arbitration Award, in addition to the relief granted therein, mayaward attorneys’ fees and costs to the prevailing party as the Arbitrator(s)may determine in light of all of the circumstances.  The Arbitration Award shall be final andbinding upon the parties in accordance with its terms and Section 8.01-577et seq.  of the Code of Virginia.

 

J.                                        Default.  If a party fails to proceed with arbitrationor defaults in his obligation to arbitrate, such default shall not prevent theother party from proceeding with such arbitration and the party who fails toproceed with such arbitration shall be bound by the arbitration.

 

K.                                    Costs.  The costs of the arbitration incurred by theparties for hearing reporting fees, rental of a hearing room and all AAA fees,costs and services charges and of the arbitrator shall be paid by ColonialDowns, except that hearing postponement or cancellation fees or charges by theAAA or the arbitrator(s) shall be borne exclusively by the canceling orpostponing party.  Conversely, withrespect to all other matters, unless the arbitrator(s) otherwise so determinesand provides in the arbitration award, each party shall bear its own costs andexpenses incurred by that party in connection with the arbitration, includingwithout limitation each party’s own travel expenses, hearing witness expensesand attorney’s fees.

 

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20.                                 ContributionAdjustments.

 

A.                                   Changesin Applicable Law.  The parties havenegotiated the relevant transfers from the Thoroughbred Partners’ Account tothe Horsemen’s Account (the “Purse Amounts”) from expected handle at theRichmond (Hull Street) SWF, theVinton SWF, the existingChesapeake SWF, the Second Chesapeake SWF, and future SWFs located in Henry andScott Counties, and Northern Virginia based upon those statutes, regulations,administrative proceedings, common law and other accepted sources of rules andregulations applicable to the parties that are in effect as of the date hereof(collectively, “Applicable Law”).  UnderApplicable Law, certain allocations of rights and entitlements have been madeto Colonial Downs (such as uncashed tickets) and the VHBPA (such as a portionof breakage), and the parties do not intend to alter such existing rights andentitlements by this Agreement generally or by application of this Section 20, in particular, to futureevents.  Nonetheless, in the event thereis a change in Applicable Law or a ruling or action of the Commission thatalters contributions to the Thoroughbred Partners’ Account or transfers to theHorsemen’s Account, or otherwise inures to the benefit or detriment of theVHBPA or its successors in the form of purses, operating funds or awards, thenthe parties agree that the Purse Amounts shall be adjusted to restore theparties to the economic terms set forth in this Agreement.  By way of example and not limitation, ifApplicable Law is changed to provide that a percentage of breakage or uncashedtickets is applied to increase purses for thoroughbred racing, then the PurseAmounts shall be adjusted downward such that in any fiscal year the amountcontributed to purses pursuant to the terms hereof shall be reduced by anamount equal to the contribution to purses from breakage.   By way of further example, if the percentageof handle paid to the Commonwealth of Virginia as a pari-mutuel tax increases,there shall be no change in the Purse Amounts under this Agreement

 

34

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unless such increasedpari-mutuel tax is used to supplement purses or is used for the exclusiveactivities of the representative horsemen group or groups for Horsemen racingat Colonial Downs.

 

B.                                     Changesin MVRC Management Fee.  The partieshave also negotiated the relevant transfers from the Thoroughbred Partners’Account to the Horsemen’s Account from expected handle at the Richmond (Hull Street) SWF, the Vinton SWF, the existing ChesapeakeSWF, the Second Chesapeake SWF, and future SWFs located in Henry and Scott Counties, andNorthern Virginia based upon an amendment to the Management and ConsultingAgreement reducing MVRC’s management fee to 1.5% of handle wagered at Richmond (Hull Street), Vinton, and SWFslocated in Henry and Scott Counties.  Ifthat management fee is further reduced pursuant to Section 4.1.4 of theManagement and Consulting Agreement, then one-half of the amount of thatreduction attributable to handle at Richmond (Hull Street), Vinton, and SWFs located in the Henry and Scott Counties(collectively, the “New Handle) shall be contributed by Colonial Downs to theThoroughbred Partners’ Account (such that the effective rate of contributionattributable to the New Handle is increased by .375%) and such amount shall beadded to the annual transfer of funds from the Thoroughbred Partners’ Accountto the Horsemen’s Account regarding Richmond (Hull Street), Vinton, and all SWFs located in Henry and Scott Counties, as setforth in Exhibit B hereto.  Suchpayments shall commence upon the effective date of the management fee reductionand shall terminate upon the termination of such reduction in the managementfee pursuant to Section 4.1.4 of the Management and ConsultingAgreement.  Similarly, if the managementfee in the Management and Consulting Agreement currently applicable to handleat SWFs, other than those identified above, is reduced at any time, thenColonial Downs shall annually provide $100,000 for capital improvements to the

 

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Racetrack’s backstretchpursuant to Section 16hereof effective in the first full calendar year after the reduction in themanagement fee goes into effect.  Such obligationshall be reduced to $50,000 per year if the management fee reduction isterminated pursuant to Section 4.1.4 of the Management and ConsultingAgreement.

 

C.                                     Terminationof Management Fee.  If theabove-referenced management fees are reduced to zero or otherwise eliminatedcompletely then the annual transfer of funds from the Thoroughbred Partners’Account to the Horsemen’s Account for all SWFs, wherever located withinVirginia, shall be subject to good faith negotiations between the parties, ortheir successors or assigns, as to the appropriate sharing between them of thebenefits of that reduction or elimination.

 

D.                                    Duration.  The terms and provisions of this Section 20 shall remain in full force andeffect for as long as the licenses for the Richmond (Hull Street) SWF, the VintonSWF, the existing Chesapeake SWF, the Second Chesapeake SWF, or the SWFslocated in Henry and Scott Countiesremain in effect.

 

21.                                 Consents,Approvals, Agreements or Assurances. Wherever this Agreement requires the consent, approval, agreement, orassurance of Colonial Downs and/or the VHBPA, (i) a request for suchconsent, approval, agreement, or assurance from one party shall be responded toby the other party in a timely and businesslike manner, and (ii) suchconsent, approval, agreement, or assurance shall not be unreasonably withheld,delayed or conditioned unless otherwise specifically provided in thisAgreement.

 

22.                                 Counterparts.  This Agreement may be executed in any numberof counterparts, each of which shall be deemed an original, but all of whichshall constitute one and the same instrument.

 

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23.                                 Notices.  All notices, requests, demands or othercommunications as may be required by this Agreement shall be in writing, shallbe signed by an authorized representative of the party providing thecommunication, shall be sent to each of the persons listed below, may be sentby certified mail, return receipt requested, or by telephone facsimile, andshall be deemed to have been given or made when received by personal deliveryor otherwise.  A courtesy hard copy ofany communication that is sent by telephone facsimile also shall be sent bycertified mail, return receipt requested. The current addresses of persons to whom communications are to be sentare as follows:

 
| **Colonial  Downs:** | Mr. Jeffrey  P. Jacobs                  |
|----------------------|----------------------------------------------|
|                 | Colonial Downs,  L.P.                        |
|                 | 10515 Colonial  Downs Parkway                |
|                 | New Kent, VA  23124                          |
|                 |                                         |
|                 | Mr. Ian M.  Stewart, President          |
|                 | Colonial Downs,  L.P.                        |
|                 | 10515 Colonial  Downs Parkway                |
|                 | New Kent, VA  23124                          |
|                 |                                         |
| Copy to:             | James L.  Weinberg, Esq.                |
|                 | Hirschler  Fleischer                         |
|                 | The Federal  Reserve Bank Building           |
|                 | P.O. Box  500                           |
|                 | 701 E. Byrd  Street, 15th floor              |
|                 | Richmond, VA  23219                          |
|                 |                                         |
|                 | Mr. John E.  Mooney, President          |
|                 | Maryland-Virginia  Racing Circuit, Inc. |
|                 | 10515 Colonial  Downs Parkway                |
|                 | New Kent, VA  23124                          |
|                 |                                         |
|                 | H. Lane Kneedler, Esq.                  |
|                 | Reed Smith LLP                               |
|                 | 901 East Byrd  Street, Suite 1700       |
|                 | Richmond, VA  23219-4069                     |

 

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| **VHBPA:** | Ms. Althea  D. Richards, President  |
|------------|------------------------------------------|
|       | Virginia  Horsemen’s Benevolent and |
|       | Protective  Association, Inc.       |
|       | P.O. Box  273                       |
|       | Millwood, VA  22646                      |
|       |                                     |
| Copy to:   | Frank Petramalo, Jr., Esq.     |
|       | VHBPA                                    |
|       | 38-C Garrett Street                      |
| * *   | *Warrenton, VA 20186*                    |

# * *

24.                                 Waivers.  No waiver by a party to this Agreement of anybreach of this Agreement or any of its terms shall be effective unless, andonly to the extent, such waiver is in writing signed by the party providing ormaking such waiver and delivered to the other party as provided in Section 23 above.  No waiver of any breach shall be deemed to bea waiver of any other or any subsequent breach.

 

25.                                 Applicable Law;Venue.  This Agreement is beingexecuted and delivered in the Commonwealth of Virginia and shall be construedand enforced in accordance with the law of Virginia without regard to itsconflict of laws rules and provisions. In all court proceedings brought in connection with this Agreement, theparties hereto irrevocably consent to exclusive personal jurisdiction by, andvenue in, the Circuit Court for the City of Richmond, Virginia, or the UnitedStates District Court for the Eastern District of Virginia, Richmond Division.

 

26.                                 Headings.  Any headings preceding the text of theseveral sections, subsections, paragraphs and subparagraphs hereof are insertedsolely for convenience of reference and shall not constitute a part of thisAgreement, nor shall they affect its meaning, construction, or effect.

 

27.                                 Severability.  If any provision of this Agreement isdeclared invalid by any tribunal, or becomes invalid or inoperative byoperation of law, the remaining provisions of this Agreement shall not beaffected thereby and shall remain in full force and effect.

 

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28.                                 EntireAgreement; Modification.  ThisAgreement contains the entire Agreement between the parties and supersedes allprior agreements (including theExisting Agreement) and understandings, both written and oral, betweenthe parties with respect to the subject matter of this Agreement; provided,however, this Agreement shall not alter the allocation of funds to the Horsemen’sAccount from the New Richmond SWF and SWFs in Central-Southside Virginia Regionpursuant to the Existing Agreement.  This Agreement shall be binding upon andinure to the benefit of each party hereto, its legal representatives andsuccessors, including, but not limited to, any successor group to the VHBPAthat is the recognized majority thoroughbred horsemen’s group.  No modification, variation or amendment ofthis Agreement or of any attachment or exhibit to this Agreement shall beeffective unless such modification, variation or amendment is in writing andhas been signed by the parties to this Agreement.  This Agreement may be assigned by ColonialDowns in its sole discretion, subject to applicable law.

 

29.                                 ConditionsPrecedent to Effectiveness of this Agreement.  The parties acknowledge that this Agreementand the expenditures from the Racing Benevolence Fund detailed in Section 16 above are subject to the approvalof the Commission.  If this Agreement inits entirety and such expenditures are not approved by the Commission, thisAgreement shall be null and void.

 

Uponsatisfaction or waiver of the foregoing conditions, this Agreement shall beeffective as of January 1, 2005,regardless of the date of the satisfaction or waiver of such conditions.

 

39

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INWITNESS WHEREOF, the parties have executed this Agreement as of the date firststated above.

 

 
| VIRGINIA  HORSEMEN’S  | COLONIAL DOWNS,  L.P.          |                                        |
|----------------------------|--------------------------------|---------------------------------------------|
| BENEVOLENT AND  PROTECTIVE |                           |                                        |
| ASSOCIATION,  INC.         | By:                            | Stansley Racing  Corp., its General Partner |
|                       |                           |                                        |
|                       |                           |                                        |
| By:                        | /s/ Althea D.  Richards        |                                        |   | By: | /s/ Ian M.  Stewart |   |
|                       | Althea D.  Richards, President |                                        |   | Ian M. Stewart,  President |
|                       |                           |                                        |
|                       |                           |                                        |
|                       | STANSLEY RACING  CORP.         |
|                       |                           |                                        |
|                       |                           |                                        |
|                       | By:                            | /s/ Ian M.  Stewart                         |   |
|                       |                           | Ian M. Stewart,  President                  |   |
|                            |                                |                                             |  |  |  |  |  |  |  |

 

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**EXHIBIT A**

 

**FORM OF**

**TRUST AGREEMENT**

 

**THISTRUST AGREEMENT** is entered into this           day of                   ,200      , by and between **COLONIALDOWNS, L.P.**, a Virginia limited partnership (the “Trustee”), and the**VIRGINIA HORSEMEN’S BENEVOLENT AND PROTECTIVEASSOCIATION, INC.**, a not-for-profit corporation (the “VHBPA”), onbehalf of the thoroughbred horsemen engaging in thoroughbred racing at ColonialDowns’ racetrack (the “Track”) (collectively, the “Beneficiaries”).

 

W I T N E S S E T H:

 

**WHEREAS**,pursuant to prior agreements that have expired and an Agreement, dated as of November       ,2002 (the “Horsemen’s Agreement”), relating to live thoroughbred racing atColonial Downs, among other matters, the Trustee has and will make depositsinto an account currently maintained at BB&T Bank, N.A., Middleburg branch(the “Thoroughbred Partners’ Account”) a portion of which will be used to fundpurses and related payments to the Beneficiaries participating in racing at theTrack during the 2003 thoroughbred racing season and other years governed bythe Horsemen’s Agreement;

 

**NOW,THEREFORE**, in consideration of the mutual promises andcovenants set forth herein and other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, the parties agree asfollows:

 

1.                                       TheAccount.  The Trustee shall maintainthe Thoroughbred Partners’ Account at a financial institution mutuallyacceptable to the parties and that is insured by an agency of the United Statesgovernment.

 

2.                                       Deposits.  The Trustee shall deposit all funds requiredby the Horsemen’s Agreement into the Thoroughbred Partners’ Account.  The funds so deposited into the ThoroughbredPartners’ Account, exclusive of interest earned thereon and amounts payable toColonial Downs therefrom, are hereinafter referred to as the “Trust AccountFunds.”  Except as provided in Section 5.B.of the Horsemen’s Agreement, no other funds shall be deposited into theThoroughbred Partners’ Account, and the Trustee shall not commingle any otherfunds with the Trust Account Funds.

 

3.                                       Withdrawals.  The VHBPA, on behalf of the Beneficiaries,grants the Trustee the authority to withdraw funds from the ThoroughbredPartners’ Account to make payments required to be made pursuant to the termsand provisions of the Horsemen’s Agreement, including, without limitation, toprovide for the payment of purses and related awards to the Beneficiaries.

 

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4.                                       Titleto Funds in the Account.  The Trusteeshall hold only legal title to the Trust Account Funds and shall not have anyequitable or beneficial interest in such Funds. Accordingly, the Trust Account Funds are excluded from the Trustee’sestate for purposes of 11 U.S.C. § 541(d), as amended.

 

5.                                       Interest.  The Trustee understands and accepts thatinterest, if any, earned on the Funds will be reported under its employeridentification number, that such reporting is done as a matter of conveniencefor the administration of the Thoroughbred Partners’ Account and that thereceipt of such interest does not affect the beneficial and equitable titlethat the parties have to such interest and is not in derogation of the rightsand entitlements of the parties as set forth herein and in the Horsemen’sAgreement.

 

6.                                       Trustee’sDuties.  The duties of the Trusteeunder this Agreement shall be limited to the safekeeping and disbursement ofthe Trust Account Funds and documents under the terms and conditions of thisAgreement.  The Trustee shall be entitledto rely on and may assume the genuineness and authenticity of any signaturespurported to be made by the parties hereto, their lawful representatives, andsuccessors or assigns.  Upon election ofeither party hereto, an independent third party may be appointed trustee of theThoroughbred Partners’ Account and the Trustee hereunder may be relieved of itsduties as trustee but shall be bound by the other provisions of this Agreement.

 

7.                                       Limitationon Liability.  The Trustee shall notbe liable for any claims, damages, liabilities, losses, costs, or expensesarising from the Trustee’s acts or omissions with respect to the Trust AccountFunds or its performance hereunder, unless such actions or omissions resultfrom the Trustee’s negligence or willful misconduct.

 

8.                                       Reimbursementof Expenses.  The Trustee shall bereimbursed in the form of one-half of the interest accruing on the TrustAccount Funds for all costs and expenses reasonably incurred by it inconnection with the administration of the Account, including payment of anytrustee fees to a third-party trustee.

 

9.                                       Termination.  This Agreement shall terminate on the date onwhich all payments under the Horsemen’s Agreement have been made and theHorsemen’s Agreement is no longer in effect.

 

10.                                 Notices.  All notices, approvals, and othercommunications authorized or required to be given between the parties heretoshall be validly given or made if in writing and sent in accordance with theterms and conditions of the Horsemen’s Agreement.

 

11.                                 GoverningLaw.  This Agreement shall begoverned, construed, and enforced in accordance with the laws of theCommonwealth of Virginia, without regard to any conflicts of law, rules orprovisions thereof.

 

12.                                 Miscellaneous.  Any action, suit, or proceeding in respect ofor arising out of this Agreement may be prosecuted as to any party hereto inRichmond, Virginia.  Each party heretoconsents to the exercise of jurisdiction over its person by any court situatedin Richmond,

 

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Virginia and havingjurisdiction over the subject matter of any such action, suit, orproceeding.  The invalidity orunenforceability of any provision of this Agreement in any particular respectshall not affect the validity and enforceability of any other provision of thisAgreement or of the same provision in any other respect.  This Agreement and the Horsemen’s Agreementset forth the entire understanding of the parties to this Agreement withrespect to the operation of the trust for the Thoroughbred Partners’ Accountand may not be amended except by a written instrument executed by all partieshereto.  Other than the Horsemen’sAgreement, any previous agreements or understandings among the parties heretoregarding the subject matter hereof are merged into and superseded by thisAgreement.  All of the covenants,stipulations, terms, and conditions of this Agreement shall extend to and bebinding upon the respective successors and assigns of the parties hereto, butthis Agreement shall not be assigned by the Trustee without the prior writtenconsent of the Beneficiaries.

 

ThisAgreement or any amendment hereto may be executed in two or more counterparts,each of which shall constitute an original, and all of which together shallconstitute one and the same Agreement.

 
| VIRGINIA  HORSEMEN’S  | COLONIAL DOWNS,  L.P.          |                                        |
|----------------------------|--------------------------------|---------------------------------------------|
| BENEVOLENT AND  PROTECTIVE |                           |                                        |
| ASSOCIATION,  INC.         | By:                            | Stansley Racing  Corp., its General Partner |
|                       |                           |                                        |
|                       |                           |                                        |
| By:                        |                           |                                        |   | By: |   |   |
|                       | Althea D.  Richards, President |                                        |   | Ian M. Stewart,  President |
|                            |                                |                                             |  |  |  |  |  |

 

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**EXHIBIT B**

 

**Annual Transfers of Funds fromThoroughbred**

**Partners’ Account to Horsemen’sAccount**

 
| All SWFs located  in the Central-Southside Virginia Region (including, but not limited to, the town of Vinton and Scott and  Henry Counties) |   | 4.5% of all  thoroughbred handle in a calendar year at each such facility for ten years  from the opening date of each such facility.  After ten years from opening date, for each calendar year:  5% of the first $75,000,000 of thoroughbred handle at each such facility;  plus 6% of thoroughbred handle in excess of $75,000,000 up to $150,000,000 at  each such facility; and plus 7% of thoroughbred handle in excess of  $150,000,000 at each such facility.                                                                                                                            |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| The Richmond (Hull St.) SWF                                                                                                                  |   | 4% of the first  $15,000,000 of thoroughbred handle in a calendar year at such facility;  plus 5% of thoroughbred handle in excess of $15,000,000 up to $20,000,000 in  a calendar year at such facility;  plus 6% of thoroughbred handle in excess of $20,000,000 up to $25,000,000 in  a calendar year at such facility; and  plus 7% of thoroughbred handle in excess of $25,000,000 in a calendar year at  such facility.                                                                                                                                                                    |
|                                                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| The existing  Chesapeake SWF and the Second Chesapeake SWF                                                                                   |   | 4.5% of all  thoroughbred handle in a calendar year in excess of the aggregate sum of  $22,375,000 of the combined thoroughbred handle from the two facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Northern  Virginia SWF                                                                                                                       |   | 0% of all  thoroughbred handle wagered at each such facility for the first 12 months of  operation and thereafter as provided for “All Other SWFs” described below.                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                         |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| All Other SWFs  (including the aggregate thoroughbred handle of the two Chesapeake SWFs up to  $22,375,000)                                  |   | 5% of the first  $75,000,000 of aggregate thoroughbred handle from such facilities; plus  6% of aggregate thoroughbred handle in excess of $75,000,000 up to  $150,000,000 from such facilities; plus 7% of thoroughbred handle in  excess of $150,000,000 from such facilities less the amounts the VHBPA  is authorized to deduct from the Thoroughbred Partners’ Account pursuant to  the Agreement (including but not limited to NTRA dues, an administrative fee,  and repayment of advances (including interest) made by Colonial Downs to the  Thoroughbred Partners’ Account). |

 

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**EXHIBIT C**

 

**Anticipated Development Schedule**

 
| **Action Item** | ** **                                                                                 | **Time Period** |
|-----------------|--------------------------------------------------------------------------------------------|-----------------|
|            |                                                                                       |            |
| 1.              | Identify and  bring under contract potential SWF site.                                     |            | 4 to 6 weeks  from approval of Agreement. |
|            |                                                                                       |            |   |
| 2.              | Meeting with  local government officials and neighbors; confirmation of zoning compliance. |            | 3 to 6 weeks  from having site under contract. |
|            |                                                                                       |            |   |
| 3.              | Application to  the Virginia Racing Commission.                                            |            | 1 to 2 weeks  from satisfaction of Item 2. |
|            |                                                                                       |            |   |
| 4.              | Action by the  Virginia Racing Commission on application after filing.                     |            | 6 to 12 weeks. |
|            |                                                                                       |            |   |
| 5.              | Application for  permits to commence construction or renovation after grant of licenses.   |            | Within 1 week  after grant of licenses. |
|            |                                                                                       |            |   |
| 6.              | Construction or  renovation period.                                                        |            | 3 to 6 months. |
|            |                                                                                       |            |   |
| 7.              | Total time from  identifying a site to opening.                                            |            | 7 to 13 months. |

 

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**EXHIBIT D**

 

**Central-Southside Virginia Region**

 

Counties

 

1.                           Albemarle

2.                           Allegheny

3.                           Amherst

4.                           Augusta

5.                           Bath

6.                           BedfordCounty

7.                           Bland

8.                           Botetourt

9.                           Buchanan

10.                     Campbell

11.                     Carroll

12.                     Craig

13.                     Dickenson

14.                     Floyd

15.                     FranklinCounty

16.                     Giles

17.                     Grayson

18.                     Greene

19.                     Halifax

20.                     Henry

21.                     Highland

22.                     Lee

23.                     Montgomery

24.                     Nelson

25.                     Patrick

26.                     Pittsylvania

27.                     Pulaski

28.                     RoanokeCounty

29.                     Rockbridge

30.                     Russell

31.                     Scott

32.                     Smyth

33.                     Tazewell

34.                     Washington

35.                     Wise

36.                     Wythe

 

Cities

 

1.                           BedfordCity

2.                           Bristol

3.                           BuenaVista

4.                           Charlottesville

5.                           Covington

6.                           Danville

7.                           FranklinCity

8.                           Galax

9.                           Lexington

10.                     Lynchburg

11.                     Martinsville

12.                     Norton

13.                     Radford

14.                     RoanokeCity

15.                     Salem

16.                     SouthBoston

17.                     Staunton

18.                     Waynesboro

 

Towns (Population Greater Than 5,000)

 

1.                          Vinton

2.                          Abingdon

3.                          Blacksburg

4.                          Big Stone Gap

5.                          Farmville

6.                          Marion

7.                          Pulaski

8.                          South Boston

9.                          Wytheville

 

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