Document:

EXHIBIT 10.3
            Goldstone Prospect, Cochise County, Arizona, Section 28,
     T20S R23E, A Gold Prospect, dated December 15, 1997, prepared by Leroy
                    Halterman CPG, RPG, Consulting Geologist

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                               GOLDSTONE PROSPECT
                            COCHISE COUNTY, ARIZONA
                             SECTION 28, T20S R23E
                                A Gold Prospect
                               December 15, 1997

                      Prepared by Leroy Halterman CPG, RPG
                              Consulting Geologist
                           11930 Menaul NE, suite 219
                         Albuquerque, New Mexico 87112

<PAGE>
                                TABLE OF CONTENTS

Executive Summary                                                              1

Location, Access, Vegetation, and Topography                                   2

Land Status                                                                    2

Previous Exploration Activities                                                5

Regional Geology                                                               7

Local Geology and Stratigraphy                                                 7

Structure                                                                      8

Geology-Epithermal Model                                                       8

Geology-Other Models                                                          10

Miscellaneous and Associated Sample Discussion                                10

Conclusions                                                                   13

Recommendations                                                               14

Recommended Program Budgets                                                   16

Certificate of Qualification                                                  17

                                     FIGURES

Project Location Map                                                           3

Prospecting Permit Location                                                    4

Mineral Reserve Polygon Map                                                    6

Epithermal Model                                                               9

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<PAGE>
                            GOLDSTONE PROSPECT REPORT
                             COCHISE COUNTY, ARIZONA

                                 DECEMBER, 1997

EXECUTIVE SUMMARY

This  report was  prepared  at the  request  of for the owners of the  Goldstone
Arizona State Prospecting  Permits.  It is based on both numerous past visits to
the  property  the most recent  being recent one that took place in August 1997.
The  work  performed  on  this  property   included  field  mapping,   sampling,
geochemical and geophysical surveys and supervising drilling programs and report
preparation. The report not only included the author's observations and data but
also  pertinent  factual and  interpretative  data from past permitees and joint
venture operators. All of the aforementioned information and data was integrated
into this report.

The property  totals  approximately  160 acres more or less that includes all of
north half of the southwest  quarter and south half of the northwest  quarter of
section 28, T20S, R23E and consists of an Arizona State Prospecting  Permit. The
prospecting permits require an annual rental payment of $l per acre per year and
a $100 filing fee per permit per year.  There is an annual work  requirement  of
$10 per acre for the first  two  years  and a $20 per acre for the  final  three
years. When the prospecting  permits are convened to state leases,  they will be
subject to a net value production royalty

The  Goldstone  property  intermittently  has been the site of  precious  metals
exploration for over the past 15 years. The surface has been geologically mapped
and  sampled  and limited  drilling  has taken  place on  selected  areas of the
property. The subject of this report is an Arizona State Prospecting Permit that
occupies the north half of the southwest quarter and south half of the northwest
quarter  of  Section  28 T20S R23E that has  received  a large  portion  of this
drilling.  One near surface  mineral body has been located that  contains  drill
indicates  proven gold reserves of 100,632 ton containing  9,252 ounces and this
mineral  body still  remains  open in several  directions.  In  addition to this
mineral body, other significant surface mineralization occurs on the permit area
that may be  extensions  of the  mineral  body or  associated  pods  that  would
increase the permit's  drill proven  reserves  significantly  and to an economic
level.  It  should  also be noted  that  the  quarter  section  held  under  the
prospecting  permit and described in this report appears to be the center of the
mineralization for this area. The strongest alteration, mineralization, and gold
values are located on this permit.  In addition,  Phelps Dodge  Corporation  and
another company hold the surrounding  permits and have held them for a number of
years indicating a strong interest in the area.

In late 1995 seven holes were  drilled  away from the  mineral  body by Sunshine
Mining.  Most of  these  holes  did not  intercept  significant  mineralization.
However,  one hole that was drilled to test the  possibility  of  mineralization
along the range front fault did  intercept a thick low grade  interval  from 200
feet to 260 feet that was associated with fault clays (argillic alteration?) and
quartz. This hole was never offset.

The author believes that this prospecting  permit warrants  further  testing.  A
geochemical survey should be ran over the area where the mineralized range-front
fault  crosses the  property  to  determine  the best  location  for  additional
drilling. Also, the shallow gold reserve and a number of areas of ore

<PAGE>

grade surface mineralization,  remains untested in several directions and should
receive additional drilling to expand the size of the deposit and to find out if
the mineralization leads to a larger deposit laterally or at depth.

LOCATION, ACCESS, VEGETATION, AND TOPOGRAPH

The Goldstone prospect is located in the north half of the southwest quarter and
south half of the northwest  quarter  section 28 of T20S, R23E SE (Latitude 31 0
39' North, Longitude 110 0 00' West) Cochise County,  Arizona.  Elevation varies
between 4,600 and 5,000 feet The closest  major  habitation is the historic town
of  Tombstone  which  is  three  miles  northwest  of he  property  The  nearest
commercial air service Is Tucson,  Arizona,  approximately 60 miles northwest of
the prospect  (Figure I). It should be noted that Tombstone was a major producer
of silver,  gold, and lead from veins and replacement  deposits  Production from
these mines totaled over 30 million ounces of silver and 200,000 ounces of gold.
The  northern  portion of the  Goldstone  property  is most  easily  accessed by
traveling  south on highway 80 from Tombstone for three miles,  then  proceeding
east on a paved road for two miles towards McNeil,  and then turning south on an
unimproved dirt road  immediately  after one passes through a  cattle-guard.  Th
northern edge of the prospect lies  approximately two thousand feet south of the
paved road

The topography in the prospect area is moderately  hilly to flat, with primitive
roads  crossing most of the  low-lying  terrain.  Vegetation  consists of sparse
desert grasses, cactus yucca, creosote bushes, cat claw, and occasional mesquite
trees and  ocotia.  Mild arid  winters  make  year-around  operations  possible,
although  mid-summer  temperatures  are  somewhat  distressing  for both men and
machines.

LAND STATUS

The  property  totals  approximately  160 acres more or less and includes all of
north half of the southwest  quarter and south half of the northwest  quarter of
section 28,  T20S,  R23E and  consists of an Arizona  State  Prospecting  Permit
(Figure 2). Details of permit number 08-103044 are as follows:

         I        State of Arizona  Prospecting permit No. 08- 103044, N/2 SW/4,
                  and  S/2NW/4  Section 28,  Township  20 South,  Range 23 East,
                  Cochise County, Arizona. Expiration date: September 16, 2002.

The prospecting permits require an annual rental payment of $l per acre per year
and a $100 filing fee per year.  There is an annual work  requirement of $10 per
acre for the first two years and a $20 per acre for the final three years.  When
the  prospecting  permits are  converted  to state mining  leases,  they will be
subject to a net value production royalty.

                                        2
<PAGE>

                   [FIGURE 1 - GOLDSTONE PROJECT LOCATION MAP]

                                       3
<PAGE>

            [FIGURE 2 - MAP OF SECTION 28, T20S R23E, COCHISE COUNTY,
           AZ WITH LOCATION OF ARIZONA PROSPECTING PERMIT #08-103044]

                                        4
<PAGE>

The  surrounding  leases  are held by Phelps  Dodge  Corporation  and by another
company  JABA that is believed to be  involved  in a joint  venture  with Phelps
Dodge  Corporation.  Phelps Dodge has  performed  extensive  geophysics on their
leases  and have  continued  to hold  them and  re-acquire  them for a number of
years.  Speculation  is that these leases are not only being held for their gold
potential but also for a deep copper/molybdenum porphyry type of deposit.

PREVIOUS EXPLORATION ACTIVITIES

During  the  past  15  years  a  number  of  companies  have  performed  various
exploration activities on the area of this permit and on the areas that surround
this permit. The work performed included field mapping,  sampling,  geochemical,
and  geophysical  surveys,  drilling  programs and summary  reports.  These past
activities  and reports  have  served to provide the factual and  interpretative
data used to prepare this report and the author has received permission from the
former permitees to use this  information in this report.  From this information
it is apparent that the most  significant  discoveries  took place on the permit
area  described in this report,  north half of the  southwest  quarter and south
half of the northwest  quarter of section 28, T20S R23E.  As  previously  stated
this area has been the focus of most of the past drilling which has discovered a
partially drilled out gold mineral body and several other  prospective  targets.
The near  surface  mineral  body that has been  located  under the  permit  area
contains drill  indicates  proven gold reserves of 100,632 ton containing  9,252
ounces and this mineral body still remains open in several  directions (Table I,
Figure 3). The other  prospective  targets are the  mineralized  hole drilled by
Sunshine Mining along the range-front fault and surface  mineralization that has
yet to be drill tested.  Some of this  mineralization may be untested extensions
or  associate  pods of the gold  mineral  body that has already  been  partially
drilled-out.

<TABLE>
                                     TABLE I

                     GOLDSTONE PROSPECT GOLD RESERVE SUMMARY

<CAPTION>
HOLE #       Depth       True        Thick       True        Grade       Area        Vol.         Vol.          Tons         Ounce
                         DEPTH        NESS       THICK       OZ/TON                  ORE/YD       WASTE                      GOLD

<S>          <C>         <C>         <C>         <C>         <C>         <C>         <C>          <C>           <C>          <C>
28-4         0           0           10          10          .069        7220        2674         0             5776         398
             20          20          10          10          .041        7220        2674         2574          5776         236
28-3         50          50          20          20          .047        9701        7185         17964         15521        729
89-1         25          25          5           5           .098        14334       2654         13272         5733         561
89-2         45          45          5           5           .085        9013        1669         15021         3605         306
90-2         0           0           45          40.8        .182        9485        14332        0             30959        5634
90-3         25          22.7        10          9.1         .077        9566        3224         8025          6964         531
90-4         15          13.6        20          18.2        .031        6515        4391         3281          9485         294
90-5         15          13.6        10          9.1         .041        11377       3834         5726          8200         336
90-6         0           0           10          9.1         .024        11832       3988         0             8613         207
                                                                                                  Total         100632       9252
</TABLE>

                                       5
<PAGE>

             [FIGURE 3 - GOLDSTONER PROSPECT GOLD RESERVE SUMMARY]

                                        6
<PAGE>
REGIONAL GEOLOGY

The  Goldstone  prospect  lies along the axis and  slightly  west of the deepest
portion of the Sonoran  geosyncline in an area known as the Pedregosa  Basin. It
also lies  within a belt of  north-northwest  tending  mountain  ranges that are
separated by broad alluvial-filled valleys that extend from the Colorado Plateau
in central Arizona to Sonora, Mexico.  Regional tectonic compression in the area
began in the late  Cretaceous and lasted through the Tertiary  Laramide  orogeny
and  was  directed  northeast  southwest.  Release  after  the  compression  was
accomplished by north-northwest  trending folding and by faulting along abundant
northwest  trending  low  angle  thrust  which,  in  places,  steepen  to become
high-angle  reverse faults.  During the middle Tertiary,  extension produced the
present basin and range  topography the deformation  dominated by movement along
normal  faults in several  orientations.  Intrusions  and  extrusions of igneous
rocks accompanied this movement.

LOCAL GEOLOGY AND STRATIGRAPHY

The prospect area itself is underlain by a relatively thick blanket of Paleozoic
and Mesozoic  sediments with outcrops of predominately  Permian Colina Limestone
on the surface and small Tertiary rhyolitic intrusives,  that are the only other
outcropping  rocks.  They are  located  in and  along the west  section  line of
section 28 and 29,  T20S,  R23E and the south half of the  northwest  quarter of
section 28, T20S, R23E. These two identical  intrusives lie approximately  1,000
feet apart and are relatively  close to the surface;  subsurface  connection may
exist.  Also, both of these intrusives are in close proximity to both high-grade
vein and lower grade replacement mineralization.  A nearby rhyolite intrusive of
similar  composition to the ones located on the Goldstone  property has been age
dated at 63 million years.

Stratigraphically,  only two  Permian  formations,  the Earp  Formation  and the
Colina Limestone,  will be discussed in this report. Their lithologies make them
favorable  host for  mineralization  which makes them the only two targets large
enough to host significant economic gold deposit.

The Earp Formation is  Pennsylvanian  and Permian in age and does not outcrop on
the property.  It is composed of interbedded  siltstone,  sandstone,  light-gray
limestone,  and  dolomite  beds.  To the west the  limestone  content is sparse.
However,  to the east, of the Goldstone  prospect  area,  the limestone  content
increases up section.  Consequently,  moving up section, there is a transitional
contact  rather than a sharp contact  between the Colina  Limestone and the Earp
Formation.  In the nearby  Tombstone hills, a 584-foot section of Earp Formation
was measured.

The Permian Colina Limestone is composed of limestones,  silty  limestone,  thin
shale units,  siltstone,  and dolomite beds. The sediments are generally  medium
tannish  gray to gray,  and the  limestone is often  fossiliferous  and contains
light to dark gray chert nodules.  These  characteristics of being fossiliferous
and/or containing chert can be used for correlation. Some beds vary from weak to
moderately  feted along with having a medium dark gray color which may also help
with  correlation.  Deformation of the sediments has occurred though folding and
faulting The Colina Limestone  probably  approaches its maximum thickness of 650
feet on the  property.  In the nearby  Tombstone  hills,  a 633-foot  section of
Colina Formation was measured

                                        7
<PAGE>

STRUCTURE

Within the prospect area, the overall structure  consists of gently dipping beds
in various  orientations,  mainly to the north and east,  with variations in dip
caused by gentle  folding,  within the fault  blocks,  and by gentle to moderate
rotation  between fault blocks.  The faults are normal  faults  associated  with
middle Tertiary deformation

Locally,  numerous  structures have been identified on the prospect.  All of the
major  and  many  of  the  minor   structures   have  large  jasperoid  type  of
silicification  and  anomalous  gold.  Outcrops of these  generally  are linear,
exhibiting  selective  bed  replacement  which make bold  outcrops  Where  cross
structures intersect these large fractures,  silicified breccia may he found and
the size of the silicified area expands along the trend of the  cross-structures
The strongest structural trend is along the regional northwest-southeast fabric.
The  secondary  and weaker trend is northeast  southwest.  Dips on both of these
structural  trends are near vertical.  The only exception on the property is the
low angle of 5 to 10 degree movements noted in section 34 near the Zebra Rock.

GEOLOGY-EPITHERMAL MODEL

The   epithermal   model  has  been  used  to   explain   the   origin  of  many
low-temperature, disseminated precious-metal deposits and has been used numerous
times to successfully  guide  exploration for these types of deposits.  Although
the  Goldstone  prospect has  identified  targets that conform to this model and
should be tested,  this same model can be used to further  explore the potential
for deeper targets. The prospecting permit areas itself as well as the area that
surrounds this permits have the characteristics of this model.

The epithermal  model implies that a buried  intrusive or other heat source acts
as a thermal pump to circulate meteoric waters. These fluids leach trace amounts
of metals from the country rock along their circulating path. The metal enriched
solutions  then rise along the paths of least  resistance  and as the  solutions
cool they precipitate their dissolved metal content along with other elements. A
vertical zonation of metals, gangue and alteration forms within this system. The
precious metals and their associated  gangue are normally the last  economically
important  elements to precipitate.  The  precipitation is often associated with
boiling of these ascending  solutions.  In addition to gold and silver,  barium,
arsenic,   antimony  and  mercury  are  common  pathfinder  elements  that  also
precipitate  in  association  with  the  precious  metal  mineralization.  These
elements are used to assist in the  exploration for hidden  epithermal  deposits
(figure 4).

Wall rock  alteration  and its zoning are important  guides in  exploration  for
deposits within the epithermal system. In disseminated epithermal deposits, such
as those that may comprise the Goldstone  prospect,  silicification and argillic
alteration  of the  limestone  along and near  structures  as well as  fluorite,
arsenic and antimony compounds along with trace amounts of gold are common.

                                        8
<PAGE>

                  [FIGURE 4 - CARLIN MODEL OF PRECIOUS METALS,
                     DISSEMINATED REPLACEMENT TYPE DEPOSIT]

                                        9
<PAGE>

It  should  also be noted  that  many of the  described  characteristics  of the
Goldstone property are present in the Tombstone mineral deposits.  However,  the
carbonate  replacement  deposits  at  Tombstone  are  within  a  different  rock
formation.  Also,  because  of the  base  metal  content,  these  deposits  were
evidently  deposited  below or at the  bottom of the  epithermal  system,  as we
understand  it. At Goldstone,  only three miles away,  silver values are low but
gold values are high. This may indicate a district wide zonation that could have
important implications in an expanded exploration program.

GEOLOGY-OTHER MODELS

There  appears  to  be  some  evidence  that  an   intrusive-limestone   contact
silicification  model  may  also be  present  in the  Zebra  prospect.  Personal
communication  about  recent work by Phelps  Dodge has been  directed  towards a
SKARN MODEL. Some evidence of this may be the silicification associated with the
contact between the limestone and intrusive in section 28. Anomalous gold values
up to .29  ounces of gold per ton have been  taken  from the  limited  amount of
outcrop in the area.  However, it is also possible that this contact between the
intrusive and the limestone served as a path for ascending  auriferous solutions
much like a fault or fracture resulting in replacement and mineralization.

MINERALIZATION AND ASSOCIATED SAMPLE DISCUSSION

The  mineralization  at the Goldstone  prospect can be divided into three groups
with a number of  variations,  characteristics,  and  associations.  These three
types of  mineralization  are:  I)  jasperoid  (silica)  veins  and  veins  with
associated  breccia,  2) jasperoid bed replacements at structural  intersections
and occasional  associated breccia, and 3) jasperoid bed replacements.  The last
two types of mineralization  share many of the same characteristics and probably
represent a hybrid of the other The following is a brief discussion of each.

         1.       The first type of  mineralization  is the  jasperoid  (silica)
                  veins and veins with  associated  breccia  that occur over the
                  mineral body in sections 28, just off the west section line of
                  28. A possible hybrid of this mineralization may occur off the
                  permit  area in section  34 in the fault  gouge and red silica
                  filling  in  section  34. It should  also he noted that in the
                  case of mineralization in 28 and 29, both of these occurrences
                  lie within 1,000 feet of the two mapped rhyolite intrusives on
                  the property.  Discrete veins,  vein swarms,  and occasionally
                  horsetailing,  surrounded  by relatively  fresh  limestone and
                  dolomite    characterize   this   type   of    mineralization.
                  Occasionally,  small-brecciated areas are found in these veins
                  when they are the widest and at structural intersections.

                  Examples  of  this  type  of  mineralization  are in the  past
                  samples  over the  mineral  body in section  28, +1 oz per ton
                  gold, sample #2124, 42 ppm, and sample #2124, 62 ppm. The last
                  sample,  #2124, was taken in Section 34 of fault gouge and red
                  silica. Reportedly, past sampling by Mahogany Resources, found
                  veins of similar characteristics in this area that assayed 2/3
                  oz ton gold. The  highest-grade  mineralization is confined to
                  the dark brown to black silica and breccia. The over one

                                       10

<PAGE>

                  ounce  material  occurs in dark brown to black silica  breccia
                  where the breccia  fragments are black and integrated into the
                  matrix

         2.       The  second   type  of   mineralization   is   jasperoid   bed
                  replacements  at  structural   intersections   and  occasional
                  associated  breccia.  White quartz flooding is common in these
                  bodies.  This  is  the  most  common   mineralization  on  the
                  property.  The  strongest  structural  trend  parallels the NW
                  basin and range,  range  front  faults  with the minor,  cross
                  trend,  being  northeast  The size of these bodies vary from a
                  few tens of square feet to  clusters  extending  over  several
                  thousand  square feet (west  center of section 28). The silica
                  bodies  are  generally  larger  and  trend  in  the  northwest
                  direction  and widen at the  intersection  of the lessor trend
                  Assays  from these  bodies  vary from  trace to  several  ppm.
                  However, the highest-grade material appears to be concentrated
                  in the areas of breccia  that has a dark brown to black color.
                  Samples  #2117  (10 ppm  gold)  and  #2112(2.1  ppm  gold) are
                  examples of this  correlation  with the color of the jasperoid
                  and gold content.

<TABLE>
                                     TABLE 2

                         SAMPLES SUMMARIZED BY ROCK TYPE

<CAPTION>
ROCK TYPE                                    Number of Samples           Average ppm Au           High ppm Au
<S>                                                  <C>                       <C>                   <C>
Dark Brown-black jasperoid breccia                   3                         4.2                   10.00
Red-brown jasperoid breccia                          6                         0.47                   1.3
Red-brown jasperoid and gray                         7                         0.73                   2.7
Gray to cream minor red jasperoid                    5                         0.19                   0.54
</TABLE>

         3.       The third the of mineralization, jasperoid bed replacement, is
                  best  exhibited  in  section  28  and  section  34  where  the
                  so-called  "Zebra Rock"  occurs.  However,  it should be noted
                  that with the  exception of  mineralization  of the vein type,
                  limited bed replacement occurs in all mineralized outcrops

                  In  section  28  the  mineralized  bed  occurs  as an  outcrop
                  approximately 200 feet long and 4 feet thick. This body trends
                  N 500 W,  dipping  5 to I50 N,  and  is  composed  of  modeled
                  red-gray,  brown and white  jasperoid.  Sample  #2114 taken at
                  this outcrop assayed .24 ppm gold. Also, surrounding this type
                  of minor mineralization in the mineral body located in section
                  28, much of the surrounding  mineralization is the replacement
                  type but  extends  for a strike  length  of only a few tens of
                  feet.

                  Section 34,  northeast  of the  southwest  quarter is the best
                  example of the bed replacement type of  mineralization  and is
                  one of the locations of the  so-called  Zebra Rock. It is also
                  an  area  of  associated   intense   fluorite   mineralization
                  silicification  and alteration of beds extending for up to 600
                  feet  and is only  limited  because  the dip of the  beds  has
                  either  allowed the host bed to he truncated by erosion or dip
                  underneath the valley to the north.

                                       11
<PAGE>

                  The Zebra Rock  varies  from two to four feet thick in outcrop
                  and is composed of alternate red  jasperoid) and white (quartz
                  and  fluorite)  bands.  These bands vary in thickness  but are
                  generally l/8 to 1/4 inch.  These  replacement beds conform to
                  bedding and can be traced a considerable distance.  Some areas
                  appear to exhibit an association with  cross-structures but in
                  these instances the result is the widening of the body at that
                  point  but not a focus of the body.  It  should  also be noted
                  that in this area low angle  movement  occurs which could have
                  provided  additional  avenues for fluid  migration.  The Zebra
                  Rock is rich in fluorite and a recent sample #2121 assayed 1.9
                  ppm gold with 6~8%  fluorite  and 265 ppm  arsenic.  Limestone
                  beds in the area are medium  bedded,  one to three feet thick,
                  some are fossiliferous and many are feted

                  Fluorite   occurs  as  vuggy   crystalline   fluorite  and  as
                  replacements  associated  with both silica  replacements or as
                  silica  replacement  nodules  surrounded by argillic material.
                  The  fluorite is mostly white to purple,  although  some green
                  and brown in color. It appears that the small diggings in this
                  area were made to explore the  fluorite  and not gold.  Sample
                  #2120, taken in one of these fluorite pits and assayed 1.4 ppm
                  gold,  27%  fluorite  and 50 ppm arsenic  Although  the 50 ppm
                  arsenic is relatively low for the property,  it would preclude
                  any commercial value to fluorite.

                  In  approximately  1981,  Energy Reserve Croup (ERG), a former
                  permitee , had a University  of New Mexico  graduate  student,
                  with help from his  professor,  examine and perform a detailed
                  microscopic  examination  of the Zebra Rock,  His  description
                  later  modified by John Payne, a registered  British  Columbia
                  Engineer, is as follows:

                  AN  EARLIER  STAGE  OF  MINERALIZATION  PRODUCED  DEPOSITS  OF
                  COLORLESS  TO  CREAM,  IN PART  BANDED  CHALCEDONIC  QUARTZ AS
                  FRACTURE  FILLINGS AND  REPLACEMENT.  ELSE WBERE, THE DEPOSITS
                  HAVE A  DISTINCTIVE  BANDED  "ZEBRA"  TEXTURE  WHICH GIVES THE
                  FORMER OWNERS THE NAME TO THE PROPERTY. THESE ZONES CONSIST OF
                  AN EARLY FORMED,  EXTREMELY  FINE GRAINED  CHALCEDONIC  QUARTZ
                  AGGREGATE,  WHICH  APPEARS  TO HAVE  CONTRACTED,  PRODUCING  A
                  SERIES OF CLOSELY  SPACED-SUB  PARALLEL  FRACTURES ALONG WHICH
                  LATER  SOLUTIONS  DEPOSITED  (INC  TO  MEDIUM  GRAINED  QUARTZ
                  AGGREGATES WITH EUHEDRAL  CRYSTAL  TERMINATIONS  INTO THE OPEN
                  SPACES OF THE CAVITIES.  THE EARLY-FORMED  CHALCEDONY CONTAINS
                  ABUNDANT  (UP TO 50%)  PROPHYROBLAST  OF SUBHEDRAL TO EUHEDRAL
                  FLUORITE AVERAGING 0.05-1.5 MM IN SIZE. THESE COMMONLY CONTAIN
                  ABUNDANT DUSTY HEMATITE, GIVING THE EARLY CHALCEDONIC LENSES A
                  PINK TO RED COLOR. LATER-FORMED QUARTZ COMMONLY CONTAINS DUSTY
                  OPAQUE  INCLUSIONS,  BUT THESE DO NOT SIGNIFICANTLY  COLOR THE
                  QUARTZ. THE AGE OF THE FLUORITE PROPHYROBLASTS I UNCERTAIN BUT
                  THEY DO APPEAR TO BE A REPLACEMENT OF CHALCEDONY. CAVITIES ARE
                  PARTLY  FILLED  BY  CLEAR  QUARTZ  WHICH  CONTAINS  NO  OPAQUE
                  INCLUSIONS AND WHICH SHOW COMPLEX TWINNING,  SUGGESTIVE OF LOW
                  TEMPERATURE  FORMATION.  OTHER  CAVITIES ARE PARTLY FLIED WITH
                  EXTREMELY FINE GAINED  AGGREGATES OF CALCITE,  THAT SHOW CREAM
                  TO  WHITE

                                       12
<PAGE>

                  FLUORESCENCE  UNDER  ULTRAVIOLET  LIGHT.  IN  A  FEW  SAMPLES,
                  VEINLETS OF WHITE QUARTZ CUT THE BANDED ZEBRA ROCK.

Coarser grained fracture-filling veins and replacement zones consist of variable
amounts  of  quartz,  fluorite,  calcite,  and  minor  barite.  Quartz is mainly
colorless to white, and forms clusters of euhedrally terminated crystals growing
into cavities.  Fluorite forms massive, medium to coarse-grained aggregates with
colors from  colorless and pale green to medium  green,  mauve,  and purple.  In
places veinlets of colorless to green fluorite cut purple fluorite.

Late solutions  deposited thin, very fine-grained  coatings of quartz in vugs in
massive fluorite.  Fluorite is reported by ERG to occur locally with fluorite in
massive fracture-fillings veins. The presence of barite and the results of fluid
inclusions  studies  by ERG led them to  conclude  that  intense  boiling of the
hydrothermal solutions took place at this level in the deposit.

Results  of some of the  sampling  by  rock  type  both in the in and out of the
permit area of the Goldstone prospect taken by ERG-Noranda  (1983), and Sunshine
(1995) are summarized in the following table.

<TABLE>
                                     TABLE 3
                   COMBINED SUMMARY OF SAMPLES BY ROCK TYPES

<CAPTION>
COMPANY          ROCK TYPE                  NUMBER OF SAMPLES          AVERAGE PPM AU           HIGH PPM AU
<S>              <C>                                <C>                     <C>                     <C>
ERG              Banded jasperoid                   8                       .80                     2.35
Sunshine         Banded jasperoid                   1                       1.90                    1.90
ERG              Chalcedony                         6                       .17                      .31
ERG              Altered limestone                  2                       .13                      .13
Sunshine         Altered Limestone                  1                       .02                      .02
Sunshine         Other Rock Types                   2                       1.01                    1.40
Noranda          Unknown                           10                       1.38                    4.80
</TABLE>

CONCLUSIONS

The Goldstone  prospect  represents a large  epithermal  gold system that shares
many common  characteristics  with other  systems  that host  disseminated  gold
deposits in the western United States.  First, they are initially a gold system.
Second, they contain high arsenic and/or antimony and other pathfinder elements.
Third, they are developed in carbonate rocks and carbonaceous sediments. Fourth,
they contain the  structural  setting for feeding large amounts of  mineralizing
fluids into the host. Fifth,  pervasive silica bodies and replacement bodies are
common.  Sixth,  they share a close proximity to other  metalogenic  occurrences
Unlike similar  geological  environment  in Nevada,  this area has received only
limited  attention by the drill bit. Past programs have been guided by targeting
and  offsetting  known  mineralization  and daunted by limited funds that placed
more  emphasis on the  economic  efficiency  of the  logistics  of the  drilling
program than the success of the program itself

The known  mineralized trend on the Goldstone  prospect  parallels the northwest
trending  range  front  faults  trend and  extends at least two miles  along the
strike. All known significant  mineralization occurs within one-half mile of the
range front. The most significant  mineralization occurs within one-quarter mile
of this  structure.  This gives a strong  indication that

                                       13
<PAGE>

the source of the gold mineralization  probably lies west at an unknown depth in
the valley  just off the range  front.  However,  the  epithermal  nature of the
mineralization also indicates that it would not lie at a great depth, unlike the
molybdenum/copper  rich  intrusive  postulated  to lie  underneath  the  city of
Tombstone.   This  same   northwest-southeast   structural  deformation  is  the
predominate  trend of the structures that provided the primary  pathways for the
known mineralization.

The  highest-grade  mineralization  occurs in dark brown and black jasperoid and
jasperoid   breccia.   It  is   interesting  to  note  that  some  of  the  best
mineralization in the Tombstone  district occurs associated with manganese which
may be the black noted in the  mineralization  and not  geothite  as  originally
suspected  This stage of manganese  rich  mineralization  was believed to be the
last  stage  of  mineralization.   However,   other   characterization   of  the
mineralization seems more tenuous. Red, iron oxide rich rock, tends to have more
mineralization  than the gray-cream colored jasperoid and silicified  limestone.
Little  correlation  was shown  between gold values in the red jasperoid and the
red jasperoid breccia

There is also evidence of selective bed  replacement  along favorable host beds.
The strongest evidence of this type of mineralization is in section 34 where the
bed that  accepted the "Zebra"  mineralization.  It is altered and can be traced
down dip for  hundreds  of feet  where it dips  underneath  the  valley and most
likely into the  mineralizing  structures and a potential ore body. In this same
area the beds appear to be more fossiliferous and weakly to moderately feted. It
is a  well-known  fact that both  recrystallitation  and/or  dolomitization  may
significantly  increase porosity and permeability.  The combination of potential
higher porosity and permeability from any of the aformentioned processes and the
reduction by organics, further enhanced by the structural preparation by a major
fault   intersections,   makes  this  an  excellent  target.   Beds  of  similar
characteristics  have  been  noted  in  section  28  in  both  outcrop  and  the
subsurface.  This is of particular interest because  mineralization  occurred in
dark-colored  (feted?)  limestone or  fossiliferous  limestones in several drill
holes and not in silicified rocks.

RECOMMENDATIONS

PHASE I

The phase I program will be limited to defining  drill  targets for the Phase II
program.  It is  anticipated  to cost  approximately  $20,000 US. The  following
discussion gives a brief description of the phase I program.

1.       Additional  mapping  to  confirm  earlier  sampling  in order to better
         target  drill  holes,  and to evaluate  untested  mineralized  areas of
         section  28. A number  of areas of  strong  mineralization  on Permit #
         08-103044 have not been tested and may  significantly  add to the total
         drill proven reserves.

2.       Perform close spaced  geochemical  soil sampling across th trace of the
         range-front   fault   that  was   found  to   carry   thick   low-grade
         mineralization  during the Sunshine Mining Drilling Program.  This type
         of sample would be would collect  samples from  approximately  1-2 feet
         below the  surface  and have them  tested for gold,  silver,  antimony,

                                       14
<PAGE>

         mercury and arsenic.  In addition to this  technique a new  geochemical
         technique called Enzyme Leach should be tested.  This new technique has
         recently been used with some success in tests and also in exploration.

         This  technique  is  called  Enzyme-Leach  and is  based  on an  enzyme
         reaction that preferentially leaches amorphous manganese oxides (MnO2).
         Those  oxides  are  commonly  found  as  coatings  on  mineral  grains,
         particularly  in the "B" horizon of zoned  soils.  Amorphous  MnO2 is a
         particularly  effective  trap for a wide variety of cations,  ions, and
         polar  molecules.  The association of halogens with many of the trapped
         trace elements suggests transport to the surface as volatile halides or
         oxyhalides,  normally formed under highly  oxidizing  conditions.  Such
         conditions  could  occur  in  association  with  electrochemical  cells
         resulting  from the  oxidation  of a metal  deposit.  Soil  samples are
         analyzed  for up to 59  trace  elements  after  leaching,  by  means of
         inductively coupled plasma/mass spectrometry.

         The  Quaternary  gravel that covers most of the  prospect may limit the
         usefulness of conventional  soil  geochemistry but test grids will have
         to be surveyed,  sampled and analyzed to determine its usefulness.  The
         Enzyme-Leach  method may be a more useful  geochemical  tool.  However,
         more  information and results from test and  exploration  programs that
         are  currently  employing  this  technique  needs  to  be  analyzed  to
         determine if  Enzyme-Leach  is a  cost-effective  exploration  tool. It
         should be noted that  because of the limited size of the fault trace on
         this property. The cost of both techniques will not be excessive.

PHASE II PROGRAM

The phase II program will involve the offsetting the unoffset  mineralized drill
holes on the edges of  mineral  body,  offsetting  other  known  mineralization,
offsetting the  mineralization  found by Sunshine  Mining along the  range-front
fault and testing  geochemical  targets.  The holes that adjoin the mineral body
will be  drilled  to a depth of 150 feet  while all of the other  holes  will be
drilled to a depth of 300 to 400. The approximate  cost of this program would be
$80,000.

                                       15
<PAGE>

<TABLE>
                        COST ESTIMATES PHASE I PROGRAM

<CAPTION>
         Item                                                                           Estimated Cost

<S>                                                                                            <C>
Sample  200 soil and 50 Enzyme -Leach samples, average $30/Sample                              $ 7,500
Sampling supplies 250 samples @ $2.00/ sample                                                      500
Rock samples 50 samples @ $20/ sample                                                            1,000
Geologist, 20 days @ $400/day                                                                    8,000
Per diem 15 days @ $100/day                                                                      1,500
Vehicle Mileage 2,000 @ $.45 / Mile                                                                900
Miscelaneous and field supplies                                                                    600
                                                                                               -------
                                                              TOTAL PHASE I COST               $20,000
</TABLE>

<TABLE>
                         ESTIMATED COST PHASE II PROGRAM

<CAPTION>
         Item                                                                           Estimated Cost
<S>                                                                                            <C>
Drilling
         Mineral Body 10 holes 150 feet @ $14.00/ ft                                           $21,000
         Mineralized Outcrops 3 holes 300 ft. each /$14.00/ft.                                  12,600
         Offset Sunshine Hole, 3 holes 300 ft. each/$14.00/ft                                   12,600
         Test Geochemical Anomalies 2 holes 400 ft each./ $14.00/ft                             11,200
Assaying, 480 samples $12.00                                                                     5,760
Geologist 25 days @ $400/ day                                                                   10,000
Per diem 30 days @ $100/ day                                                                     3,000
Vehicle 4000 miles @$.45/mile                                                                    1,800
Miscelaneous                                                                                     2,000
                                                                                               -------
                                                                         TOTAL PHASE II COST   $79,960

                                                              TOTAL PHASE I & II COST          $99,960
</TABLE>

                                       16

<PAGE>

                          CERTIFICATE OF QUALIFICATIONS

I Leroy  Halterman  do hereby of 11930 Menaul NE,  Suite 219,  Albuquerque,  New
Mexico 87112, do hereby certify:

1.       I am a graduate of the  University  of Missouri at Rolla,  formerly the
         Missouri School of Mines and hold a Bachelor of Science in Geology.

2.       I have been employed as an  exploration  geologist on a full time basis
         since 1968.

3.       I am a member  of the  American  Institute  of  Professional  geologist
         (AIPG), Certified Professional Geologist #3444.

4.       I am a Registered Geologist in the State of Wyoming, #1226.

5.       The  information  contained in this report is based upon numerous field
         trips  to the  subject  property  and work  projects  to  evaluate  the
         property.   This  work  was  performed  for  the  previous  leasees  or
         assignees.

6.       I consent to and authorize the use of the attached repor and my name in
         the Company's  Prospectus,  Statement of Material Facts or other public
         documents,  providing the report is used in its entirety or any summary
         thereof is approved by the author.

/s/LEROY HALTERMAN
Leroy Halterman, CPG #3444, RPG #1226

Dated at Albuquerque, New Mexico, the 15th day of December, 1997

                                       17
<PAGE>

                                   EXHIBIT 27
                             Financial Data Schedule

<PAGE><PAGE>
                                                                    Exhibit 10.5

                      EXCHANGEABLE SHARE SUPPORT AGREEMENT
                      ------------------------------------

     THIS AGREEMENT is made as of the 14th day of February, 2000.

BETWEEN:

                         MAGNA ENTERTAINMENT CORP.
                         a corporation existing under the laws of the State of
                         Delaware ("MEC")

                         - and -

                         MEC HOLDINGS (CANADA) INC.
                         a corporation existing under the laws of the Province
                         of Ontario ("Exchangeco")

     WHEREAS by Articles of Amendment dated December 30, 1999 Exchangeco is
authorized to issue Exchangeable Shares shares in its capital, each such share
exchangeable for one share of Class A Subordinate Voting Stock of MEC ("Class A
Share") in accordance with the rights, privileges, restrictions and conditions
attaching to the Exchangeable Shares (the "Share Provisions");

     AND WHEREAS MEC is the holder of all of the issued and outstanding common
shares of Exchangeco;

     AND WHEREAS this Agreement evidences certain obligations of MEC to
Exchangeco to ensure that Exchangeco will at all times be able to satisfy its
obligations to the holders of Exchangeable Shares under the Share Provisions;

     NOW THEREFORE for good and valuable consideration, the receipt and adequacy
of which is hereby mutually acknowledged, the parties hereto covenant and agree
as follows:

                                   ARTICLE 1
                         DEFINITIONS AND INTERPRETATION

1.1  Definitions.

As used herein, the following terms shall have the following meanings:

"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control of, that Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as applied to any
Person, means the possession by another Person, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
first mentioned Person, whether through the ownership of voting securities, by
contract or otherwise.

"Share Provisions" has the meaning set forth in the first recital to this
Agreement.
<PAGE>

                                      -2-

Other capitalized terms which are not defined in this Agreement have the meaning
ascribed to such terms in the Share Provisions.

1.2  Interpretation Not Affected by Headings.

The division of this Agreement into Articles, sections and other portions and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation of this Agreement. Unless otherwise
indicated, all references to an "Article" or "section" followed by a number
and/or a letter refer to the specified Article or section of this Agreement. The
terms "this Agreement", "hereof", "herein" and "hereunder" and similar
expressions refer to this agreement and not to any particular Article, section
or other portion hereof and include any agreement or instrument supplementary or
ancillary hereto.

1.3  Number, Gender.

Words importing the singular number only shall include the plural and vice
versa. Words importing any gender shall include all genders.

1.4  Date for any Action.

If any date on which any action is required to be taken under this Agreement is
not a Business Day, such action shall be required to be taken on the next
succeeding Business Day.

                                   ARTICLE 2
                         COVENANTS OF MEC AND EXCHANGECO

2.1  Covenants Regarding Exchangeable Shares.

So long as any Exchangeable Shares not owned by MEC or a subsidiary of MEC are
outstanding, MEC will:

     (a) not declare or pay any dividend on the MEC Class A Shares unless (i)
     Exchangeco shall (w) simultaneously declare or pay, as the case may be, an
     equivalent dividend (as provided for in the Share Provisions) on the
     Exchangeable Shares (an "Equivalent Dividend"), and (x) have sufficient
     money or other assets or authorized but unissued securities available to
     enable the due declaration and the due and punctual payment, in accordance
     with applicable law, of any Equivalent Dividend, or (ii) in the case of a
     stock dividend by MEC, Exchangeco shall (y) subdivide the Exchangeable
     Shares in lieu of a stock dividend thereon (as provided for in the Share
     Provisions) (an "Equivalent Stock Subdivision"), and (z) have sufficient
     authorized but unissued securities available to enable the Equivalent Stock
     Subdivision;

     (b) advise Exchangeco sufficiently in advance of the declaration by MEC of
     any dividend on MEC Class A Shares and take all such other actions as are
     reasonably necessary, in co-operation with Exchangeco, to ensure that (i)
     the respective declaration date, record date and payment date for an
     Equivalent Dividend shall be the same as the declaration date, record date
     and payment date for the corresponding dividend on the MEC Class A Shares
     or, (ii) the record date and effective date for an Equivalent Stock
<PAGE>

                                      -3-

     Subdivision shall be the same as the record date and payment date for the
     corresponding stock dividend on the MEC Class A Shares;

     (c) ensure that the record date for any dividend declared on MEC Class A
     Shares is not less than 10 Business Days after the declaration date of such
     dividend;

     (d) take all such actions and do all such things as are reasonably
     necessary or desirable to enable and permit Exchangeco, in accordance with
     applicable law, to pay and otherwise perform its obligations with respect
     to the satisfaction of the Liquidation Amount, the Retraction Price or the
     Redemption Price in respect of each issued and outstanding Exchangeable
     Share upon the liquidation, dissolution or winding-up of Exchangeco, the
     delivery of a Retraction Request by a holder of Exchangeable Shares or a
     redemption of Exchangeable Shares by Exchangeco, as the case may be,
     including without limitation all such actions and all such things as are
     necessary or desirable to enable and permit Exchangeco to cause to be
     delivered MEC Class A Shares to the holders of Exchangeable Shares in
     accordance with the provisions of Article 5, 6 or 7, as the case may be, of
     the Share Provisions;

     (e) take all such actions and do all such things as are reasonably
     necessary or desirable to enable and permit MEC, in accordance with
     applicable law, to perform its obligations arising upon the exercise by it
     of the Liquidation Call Right, the Retraction Call Right or the Redemption
     Call Right, including without limitation all such actions and all such
     things as are necessary or desirable to enable and permit MEC to deliver
     MEC Class A Shares to the holders of Exchangeable Shares in accordance with
     the provisions of the Liquidation Call Right, the Retraction Call Right or
     the Redemption Call Right, as the case may be; and

     (f) if MEC becomes a "specified financial institution" (as such term is
     defined in the Income Tax Act (Canada)) or does not deal at arm's length
     with such a person, take all such actions and do all such things as are
     reasonably necessary or desirable to exercise the Retraction Call Right if
     requested to do so by a holder of Exchangeable Shares making a Retraction
     Request.

2.2  Segregation of Funds.

MEC will cause Exchangeco to deposit a sufficient amount of funds in a separate
account of Exchangeco and segregate a sufficient amount of such other assets and
property as is necessary to enable Exchangeco to pay dividends when due and to
pay or otherwise satisfy its respective obligations under Article 5, 6 or 7 of
the Share Provisions, as applicable.

2.3  Reservation of MEC Class A Shares.

MEC hereby represents, warrants and covenants in favour of Exchangeco that MEC
will, at all times while any Exchangeable Shares (other than Exchangeable Shares
held by MEC or its subsidiaries) are outstanding, keep available, free from pre-
emptive and other rights, out of its authorized and unissued capital stock such
number of MEC Class A Shares (or other shares or securities into which MEC Class
A Shares may be reclassified or changed as contemplated by
<PAGE>

                                      -4-

section 2.7 hereof) (a) as is equal to the sum of (i) the number of Exchangeable
Shares issued and outstanding from time to time and (ii) the number of
Exchangeable Shares issuable upon the exercise of all rights to acquire
Exchangeable Shares outstanding from time to time and (b) as are now and may
hereafter be required to enable and permit MEC to meet its obligations under the
Voting and Exchange Agreement and under any other security or commitment
pursuant to which MEC may now or hereafter be required to issue MEC Class A
Shares, to enable and permit MEC to meet its obligations under each of the
Liquidation Call Right, the Retraction Call Right and the Redemption Call Right
and to enable and permit Exchangeco to meet its obligations hereunder and under
the Share Provisions.

2.4  Notification of Certain Events.

In order to assist MEC to comply with its obligations hereunder and to permit
MEC to exercise the Liquidation Call Right, the Retraction Call Right and the
Redemption Call Right, Exchangeco will notify MEC of each of the following
events at the time set forth below:

     (a) in the event of any determination by the Board of Directors of
     Exchangeco to institute voluntary liquidation, dissolution or winding-up
     proceedings with respect to Exchangeco or to effect any other distribution
     of the assets of Exchangeco among its shareholders for the purpose of
     winding up its affairs, at least 60 days prior to the proposed effective
     date of such liquidation, dissolution, winding-up or other distribution;

     (b) promptly, upon the earlier of receipt by Exchangeco of notice of and
     Exchangeco otherwise becoming aware of any threatened or instituted claim,
     suit, petition or other proceedings with respect to the involuntary
     liquidation, dissolution or winding-up of Exchangeco or to effect any other
     distribution of the assets of Exchangeco among its shareholders for the
     purpose of winding up its affairs;

     (c) immediately, upon receipt by Exchangeco of a Retraction Request;

     (d) on the same date on which notice of redemption is given to holders of
     Exchangeable Shares, upon the determination of a Redemption Date in
     accordance with the Share Provisions; and

     (e) as soon as practicable upon the issuance by Exchangeco of any
     Exchangeable Shares or rights to acquire Exchangeable Shares.

2.5  Delivery of MEC Class A Shares to Exchangeco.

In furtherance of its obligations under sections 2.1(d) and (e) hereof, upon
notice from Exchangeco of any event that requires Exchangeco to cause to be
delivered MEC Class A Shares to any holder of Exchangeable Shares, MEC shall
forthwith issue and deliver or cause to be delivered to Exchangeco the requisite
number of MEC Class A Shares to be received by, and issued to or to the order
of, the former holder of the surrendered Exchangeable Shares, as Exchangeco
shall direct. All such MEC Class A Shares shall be duly authorized and validly
issued as fully paid and non-assessable and shall be free and clear of any
security interest, lien, claim or encumbrance. In consideration of the issuance
and delivery of each such MEC Class A
<PAGE>

                                      -5-

Share, Exchangeco shall issue to MEC, or as MEC shall direct, common shares of
Exchangeco having equivalent value.

2.6  Qualification of MEC Class A Shares.

If any MEC Class A Shares (or other shares or securities into which MEC Class A
Shares may be reclassified or changed as contemplated by section 2.7 hereof) to
be issued and delivered hereunder require registration or qualification with or
approval of or the filing of any document, including any prospectus or similar
document or the taking of any proceeding with or the obtaining of any order,
ruling or consent from any governmental or regulatory authority under any
Canadian or United States federal, provincial or state securities or other law
or regulation or pursuant to the rules and regulations of any securities or
other regulatory authority or the fulfilment of any other United States or
Canadian legal requirement before such shares (or such other shares or
securities) may be issued by MEC and delivered by MEC at the direction of
Exchangeco, if applicable, to the holder of surrendered Exchangeable Shares or
in order that such shares (or such other shares or securities) may be freely
traded thereafter (other than any restrictions of general application on
transfer by reason of a holder being a "control person" of MEC for purposes of
Canadian provincial securities law or an "affiliate" of MEC for purposes of
United States federal or state securities law), MEC will in good faith
expeditiously take all such actions and do all such things as are necessary or
desirable to cause such MEC Class A Shares (or such other shares or securities)
to be and remain duly registered, qualified or approved under United States
and/or Canadian law, as the case may be.  MEC will in good faith expeditiously
take all such actions and do all such things as are reasonably necessary or
desirable to cause all MEC Class A Shares (or such other shares or securities)
to be delivered hereunder to be listed, quoted or posted for trading on all
stock exchanges and quotation systems on which outstanding MEC Class A Shares
(or such other shares or securities) have been listed by MEC and remain listed
and are quoted or posted for trading at such time.

2.7  Economic Equivalence.

(a) MEC will not without prior approval of Exchangeco and the prior approval of
the holders of the Exchangeable Shares given in accordance with section 10.2 of
the Share Provisions:

     (i) issue or distribute MEC Class A Shares (or securities exchangeable for
     or convertible into or carrying rights to acquire MEC Class A Shares) to
     the holders of all or substantially all of the then outstanding MEC Class A
     Shares by way of stock dividend or other distribution, other than an issue
     of MEC Class A Shares (or securities exchangeable for or convertible into
     or carrying rights to acquire MEC Class A Shares) to holders of MEC Class A
     Shares who exercise an option to receive dividends in MEC Class A Shares
     (or securities exchangeable for or convertible into or carrying rights to
     acquire MEC Class A Shares) in lieu of receiving cash dividends; or

     (ii) issue or distribute rights, options or warrants to the holders of all
     or substantially all of the then outstanding MEC Class A Shares entitling
     them to subscribe for or to purchase MEC Class A Shares (or securities
     exchangeable for or convertible into or carrying rights to acquire MEC
     Class A Shares); or
<PAGE>

                                      -6-

     (iii) issue or distribute to the holders of all or substantially all of the
     then outstanding MEC Class A Shares: (A) shares or securities of MEC of any
     class other than MEC Class A Shares (other than shares convertible into or
     exchangeable for or carrying rights to acquire MEC Class A Shares), (B)
     rights, options or warrants other than those referred to in section
     2.7(a)(ii) above, (C) evidences of indebtedness of MEC or (D) assets of
     MEC,

unless the economic equivalent on a per share basis of such rights, options,
securities, shares, evidences of indebtedness or other assets is issued or
distributed simultaneously to holders of the Exchangeable Shares, in which case,
for greater certainty, no approval of the holders of Exchangeable Shares is
required; provided that, for greater certainty, the above restrictions shall not
apply to any securities issued or distributed by MEC  pursuant to the Share
Provisions, the provisions of this Agreement or the provisions of the Voting and
Exchange Agreement.

(b) MEC will not without the prior approval of Exchangeco and the prior approval
of the holders of the Exchangeable Shares given in accordance with section 10.2
of the Share Provisions:

     (i)   subdivide, redivide or change the then outstanding MEC Class A Shares
     into a greater number of MEC Class A Shares; or

     (ii)  reduce, combine, consolidate or change the then outstanding MEC Class
     A Shares into a lesser number of MEC Class A Shares; or

     (iii) reclassify or otherwise change MEC Class A Shares or effect an
     amalgamation, merger, reorganization or other transaction affecting MEC
     Class A Shares,

unless the same or an economically equivalent change shall simultaneously be
made to, or in the rights of the holders of, the Exchangeable Shares, in which
case, for greater certainty, no approval of the holders of Exchangeable Shares
is required.

(c) MEC will ensure that the record date for any event referred to in section
2.7(a) or 2.7(b) above, or (if no record date is applicable for such event) the
effective date for any such event, is not less than ten Business Days after the
date on which such event is declared or announced by MEC (with contemporaneous
notification thereof by MEC to Exchangeco).

(d) The Board of Directors of Exchangeco shall determine, in good faith and in
its sole discretion, economic equivalence for the purposes of any event referred
to in section 2.7(a) or 2.7(b) above and each such determination shall be
conclusive and binding on MEC. In making each such determination, the following
factors shall, without excluding other factors determined by the Board of
Directors of Exchangeco to be relevant, be considered by the Board of Directors
of Exchangeco:

     (i)  in the case of any stock dividend or other distribution payable in MEC
     Class A Shares, the number of such shares issued in proportion to the
     number of MEC Class A Shares previously outstanding;

     (ii) in the case of the issuance or distribution of any rights, options or
     warrants to subscribe for or purchase MEC Class A Shares (or securities
     exchangeable for or
<PAGE>

                                      -7-

     convertible into or carrying rights to acquire MEC Class A Shares), the
     relationship between the exercise price of each such right, option or
     warrant and the current market value (as determined by the Board of
     Directors of Exchangeco in the manner above contemplated) of an MEC Class A
     Share;

     (iii) in the case of the issuance or distribution of any other form of
     property (including without limitation any shares or securities of MEC of
     any class other than MEC Class A Shares, any rights, options or warrants
     other than those referred to in section 2.7(d)(ii) above, any evidences of
     indebtedness of MEC or any assets of MEC), the relationship between the
     fair market value (as determined by the Board of Directors of Exchangeco in
     the manner above contemplated) of such property to be issued or distributed
     with respect to each outstanding MEC Class A Share and the current market
     value (as determined by the Board of Directors of Exchangeco in the manner
     above contemplated) of an MEC Class A Share;

     (iv)  in the case of any subdivision, redivision or change of the then
     outstanding MEC Class A Shares into a greater number of MEC Class A Shares
     or the reduction, combination, consolidation or change of the then
     outstanding MEC Class A Shares into a lesser number of MEC Class A Shares
     or any amalgamation, merger, reorganization or other transaction affecting
     MEC Class A Shares, the effect thereof upon the then outstanding MEC Class
     A Shares; and

     (iv)  in all such cases, the general taxation consequences of the relevant
     event to holders of Exchangeable Shares to the extent that such
     consequences may differ from the taxation consequences to holders of MEC
     Class A Shares as a result of differences between taxation laws of Canada
     and the United States (except for any differing consequences arising as a
     result of differing marginal taxation rates and without regard to the
     individual circumstances of holders of Exchangeable Shares).

For purposes of the foregoing determinations, the current market value of any
security listed and traded or quoted on a securities exchange shall be the
average of the closing bid and ask prices of such security during a period of
not less than 20 consecutive trading days ending not more than three trading
days before the date of determination on the principal securities exchange on
which such securities are listed and traded or quoted; provided, however, that
if in the opinion of the Board of Directors of Exchangeco the public
distribution or trading activity of such securities during such period does not
create a market which reflects the fair market value of such securities, then
the current market value thereof shall be determined by the Board of Directors
of Exchangeco, in good faith and in its sole discretion, and provided further
that any such determination by the Board of Directors of Exchangeco shall be
conclusive and binding on MEC.

(e) Exchangeco agrees that, to the extent required, upon due notice from MEC,
Exchangeco will use its best efforts to take or cause to be taken such steps as
may be necessary for the purposes of ensuring that appropriate dividends are
paid or other distributions are made by Exchangeco, or subdivisions, redivisions
or changes are made to the Exchangeable Shares, in order to implement the
required economic equivalence with respect to the MEC Class A Shares and
Exchangeable Shares as provided for in this section 2.7.
<PAGE>

                                      -8-

2.8  Tender Offers.

In the event that a tender offer, share exchange offer, issuer bid, take-over
bid or similar transaction with respect to MEC Class A Shares (an "Offer") is
proposed by MEC or is proposed to MEC or its shareholders and is recommended by
the Board of Directors of MEC, or is otherwise effected or to be effected with
the consent or approval of the Board of Directors of MEC, and the Exchangeable
Shares are not redeemed by Exchangeco or purchased by MEC pursuant to the
Redemption Call Right, MEC will use its reasonable efforts expeditiously and in
good faith to take all such actions and do all such things as are necessary or
desirable to enable and permit holders of Exchangeable Shares to participate in
such Offer to the same extent and on an economically equivalent basis as the
holders of MEC Class A Shares, without discrimination. Without limiting the
generality of the foregoing, MEC will use its reasonable efforts expeditiously
and in good faith to ensure that holders of Exchangeable Shares may participate
in all such Offers without being required to retract Exchangeable Shares as
against Exchangeco (or, if so required, to ensure that any such retraction shall
be effective only upon, and shall be conditional upon, the closing of the Offer
and only to the extent necessary to tender or deposit to the Offer). Nothing
herein shall affect the rights of Exchangeco to redeem (or MEC to purchase
pursuant to the Redemption Call Right) Exchangeable Shares, as applicable, in
the event of an MEC Control Transaction.

2.9  Ownership of Outstanding Shares.

Without the prior approval of Exchangeco and the prior approval of the holders
of the Exchangeable Shares given in accordance with section 10.2 of the Share
Provisions, MEC covenants and agrees in favour of Exchangeco that, as long as
any outstanding Exchangeable Shares are owned by any person or entity other than
MEC or any of its subsidiaries, MEC will be and remain the direct or indirect
beneficial owner of all issued and outstanding voting shares in the capital of
Exchangeco.

2.10  MEC and Subsidiaries Not to Vote Exchangeable Shares.

MEC covenants and agrees that it will appoint and cause to be appointed
proxyholders with respect to all Exchangeable Shares held by it and its
subsidiaries for the sole purpose of attending each meeting of holders of
Exchangeable Shares in order to be counted as part of the quorum for each such
meeting. MEC further covenants and agrees that it will not, and will cause its
subsidiaries not to, exercise any voting rights which may be exercisable by
holders of Exchangeable Shares from time to time pursuant to the Share
Provisions or pursuant to the provisions of the OBCA (or any successor or other
corporate statute by which Exchangeco may in the future be governed) with
respect to any Exchangeable Shares held by it or by its subsidiaries in respect
of any matter considered at any meeting of holders of Exchangeable Shares.

2.11  Rule 10b-18 Purchases.

For greater certainty, nothing contained in this Agreement, including without
limitation the obligations of MEC contained in section 2.8 hereof, shall limit
the ability of MEC or Exchangeco
<PAGE>

                                      -9-

to make a "Rule l0b-18 Purchase" of MEC Class A Shares pursuant to Rule 10b-18
of the U.S. Securities Exchange Act of 1934, as amended, or any successor
provisions thereof.

2.12  Stock Exchange Listing.

MEC covenants and agrees in favour of Exchangeco that, as long as any
outstanding Exchangeable Shares are owned by any person or entity other than MEC
or any of its subsidiaries, MEC will use its reasonable best efforts to maintain
a listing for such Exchangeable Shares on a Canadian stock exchange.

                                   ARTICLE 3
                                 MEC SUCCESSORS

3.1  Certain Requirements in Respect of Combination, etc.

MEC shall not consummate any transaction (whether by way of reconstruction,
reorganization, consolidation, merger, transfer, sale, lease or otherwise)
whereby all or substantially all of its undertaking, property and assets would
become the property of any other person or, in the case of a merger, of the
continuing corporation resulting therefrom unless, but may do so if:

     (a) such other person or continuing corporation (the "MEC Successor") by
     operation of law, becomes, without more, bound by the terms and provisions
     of this Agreement or, if not so bound, executes, prior to or
     contemporaneously with the consummation of such transaction, an Agreement
     supplemental hereto and such other instruments (if any) as are reasonably
     necessary or advisable to evidence the assumption by the MEC Successor of
     liability for all moneys payable and property deliverable hereunder and the
     covenant of such MEC Successor to pay and deliver or cause to be delivered
     the same and its Agreement to observe and perform all the covenants and
     obligations of MEC under this Agreement; and

     (b) such transaction shall be upon such terms and conditions as
     substantially to preserve and not to impair in any material respect any of
     the rights, duties, powers and authorities of the other parties hereunder
     or the holders of Exchangeable Shares.

3.2  Vesting of Powers in Successor.

Whenever the conditions of section 3.1 have been duly observed and performed,
the parties, if required by section 3.1, shall execute and deliver a
supplemental agreement hereto and thereupon MEC Successor shall possess and from
time to time may exercise each and every right and power of MEC under this
Agreement in the name of MEC or otherwise and any act or proceeding by any
provision of this Agreement required to be done or performed by the Board of
Directors of MEC or any officers of MEC may be done and performed with like
force and effect by the directors or officers of such MEC Successor.

3.3  Wholly-Owned Subsidiaries.

Nothing herein shall be construed as preventing the amalgamation or merger of
any wholly-owned direct or indirect subsidiary of MEC with or into MEC or the
winding-up,
<PAGE>

                                     -10-

liquidation or dissolution of any wholly-owned subsidiary of MEC provided that
all of the assets of such subsidiary are transferred to MEC or another
wholly-owned direct or indirect subsidiary of MEC and any such transactions are
expressly permitted by this Article 3.

                                    ARTICLE 4
                                     GENERAL

4.1  Term.

This Agreement shall come into force and be effective as of the date hereof and
shall terminate and be of no further force and effect at such time as no
Exchangeable Shares (or securities or rights convertible into or exchangeable
for or carrying rights to acquire Exchangeable Shares) are held by any person or
entity other than MEC and any of its subsidiaries.

4.2  Changes in Capital of MEC and Exchangeco.

At all times after the occurrence of any event contemplated pursuant to sections
2.7 and 2.8 hereof or otherwise, as a result of which either MEC Class A Shares
or the Exchangeable Shares or both are in any way changed, this Agreement shall
forthwith be amended and modified as necessary in order that it shall apply with
full force and effect, mutatis mutandis, to all new securities into which MEC
Class A Shares or the Exchangeable Shares or both are so changed and the parties
hereto shall execute and deliver an Agreement in writing giving effect to and
evidencing such necessary amendments and modifications.

4.3  Severability.

If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule or law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.

4.4  Amendments, Modifications.

This Agreement may not be amended or modified except by an Agreement in writing
executed by Exchangeco, MEC and MEC and approved by the holders of the
Exchangeable Shares in accordance with section 10.2 of the Share Provisions.

4.5  Ministerial Amendments.

Notwithstanding the provisions of section 4.4, the parties to this Agreement may
in writing at any time and from time to time, without the approval of the
holders of the Exchangeable Shares, amend or modify this Agreement for the
purposes of:
<PAGE>

                                     -11-

     (a) adding to the covenants of any or all parties provided that the Board
     of Directors of each of Exchangeco and MEC shall be of the good faith
     opinion that such additions will not be prejudicial to the rights or
     interests of the holders of the Exchangeable Shares;

     (b) making such amendments or modifications not inconsistent with this
     Agreement as may be necessary or desirable with respect to matters or
     questions which, in the good faith opinion of the Board of Directors of
     each of Exchangeco and MEC, it may be expedient to make, provided that each
     such Board of Directors shall be of the good faith opinion that such
     amendments or modifications will not be prejudicial to the rights or
     interests of the holders of the Exchangeable Shares; or

     (c) making such changes or corrections which, on the advice of counsel to
     Exchangeco and MEC, are required for the purpose of curing or correcting
     any ambiguity or defect or inconsistent provision or clerical omission or
     mistake or manifest error, provided that the Boards of Directors of each of
     Exchangeco and MEC shall be of the good faith opinion that such changes or
     corrections will not be prejudicial to the rights or interests of the
     holders of the Exchangeable Shares.

4.6  Meeting to Consider Amendments.

Exchangeco, at the request of MEC, shall call a meeting or meetings of the
holders of the Exchangeable Shares for the purpose of considering any proposed
amendment or modification requiring approval pursuant to section 4.4 hereof. Any
such meeting or meetings shall be called and held in accordance with the bylaws
of Exchangeco, the Share Provisions and all applicable laws.

4.7  Amendments Only in Writing.

No amendment to or modification or waiver of any of the provisions of this
Agreement otherwise permitted hereunder shall be effective unless made in
writing and signed by all of the parties hereto.

4.8  Enurement.

This Agreement shall be binding upon and enure to the benefit of the parties
hereto and their respective successors and assigns. All holders of Exchangeable
Shares, whether acquired prior or subsequent to the date hereof, shall be
intended third-party beneficiaries of this Agreement.

4.9  Notices to Parties

All notices and other communications between the parties to this Agreement shall
be in writing and shall be deemed to have been given if delivered personally or
by confirmed telecopy to the parties at the following addresses (or at such
other address for any such party as shall be specified in like notice):

     (a) if to Exchangeco:
<PAGE>

                                     -12-

          337 Magna Drive
          Aurora, Ontario
          L4G 7K1

     Attention:  President
     Telecopier No.:  (905) 726-2603

     (b)  if to MEC:

          285 West Huntington Drive
          Arcadia, California
          90017

     Attention:  President
     Telecopier No.:  (626) 574-6306

Any notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of confirmed receipt thereof
unless such day is not a Business Day in which case it shall be deemed to have
been given and received upon the immediately following Business Day.

4.10  Counterparts.

This Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which taken together shall constitute one and the same
instrument.

4.11  Jurisdiction.

This Agreement shall be governed by and construed in accordance with the laws of
the Province of Ontario and the laws of Canada applicable therein.

4.12  Attornment.

MEC agrees that any action or proceeding arising out of or relating to this
Agreement may be instituted in the courts of Ontario, waives any objection which
it may have now or hereafter to the venue of any such action or proceeding,
irrevocably submits to the jurisdiction of the said courts in any such action or
proceeding, agrees to be bound by any judgment of the said courts and not to
seek, and hereby waives, any review of the merits of any such judgment by the
courts of any other jurisdiction and hereby appoints Exchangeco at its
registered office in the Province of Ontario as attorney for service of process.
<PAGE>

                                     -13-

     IN WITNESS OF WHICH, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.

                                    MAGNA ENTERTAINMENT CORP.

                                    By: /s/ J. Brian Colburn
                                       ----------------------------------------
                                        J. Brian Colburn
                                        Executive Vice-President and Secretary

                                    By:  /s/ Vincent J. Galifi
                                       ----------------------------------------
                                         Vincent J. Galifi
                                         Executive Vice-President, Finance

                                    MEC HOLDINGS (CANADA) INC.

                                    By: /s/ J. Brian Colburn
                                       ----------------------------------------
                                        J. Brian Colburn
                                        Executive Vice-President and Secretary

                                    By:  /s/ Vincent J. Galifi
                                       ----------------------------------------
                                         Vincent J. Galifi
                                         Executive Vice-President, Finance

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