Document:

EXHIBIT 10.8

 

 

 

Standardbred
Horsemen’s Agreement

 

between
Colonial Downs, L.P.,

Stansley
Racing Corp. and

The
Virginia Harness Horse Association

 

 

March 1,
2006

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Scope of Agreement

  	
  2

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Exclusive Representation

  	
  2

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Accounts

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Standardbred Partners’ Account

  	
  3

  
	
   

  	
  B.

  	
  Horsemen’s Account

  	
  4

  
	
   

  	
  C.

  	
  Availability of Information on Accounts

  	
  4

  
	
   

  	
  D.

  	
  Distribution of Interest and Other Earnings on
  Accounts; Disbursement to Colonial Downs

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Administration of Accounts

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Amounts To Be Deposited

  	
  5

  
	
   

  	
  B.

  	
  Transfers from the Standardbred Partners’ Account to
  the Horsemen’s Account and Colonial Downs’ Account

  	
  5

  
	
   

  	
  C.

  	
  Signal Sales

  	
  5

  
	
   

  	
  D.

  	
  Account Wagering

  	
  6

  
	
   

  	
  E.

  	
  Stakes Race Purses

  	
  7

  
	
   

  	
  F.

  	
  Administrative Fee

  	
  7

  
	
   

  	
  G.

  	
  Other Legalized Wagering

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Purse Mechanics

  	
  8

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Purse Schedules and Condition Sheets

  	
  8

  
	
   

  	
  B.

  	
  Overpayment of Purses

  	
  9

  
	
   

  	
  C.

  	
  Underpayment of Purses

  	
  9

  
	
   

  	
  D.

  	
  Purse Notices

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Live Standardbred Racing

  	
  9

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Number of Days, Dates and Average Daily Purses

  	
  9

  
	
   

  	
  B.

  	
  Promotion of the Colonial Downs Meet

  	
  11

  
	
   

  	
  C.

  	
  Sponsorships

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Races and Awards for Virginia-Bred, Virginia-Owned
  and Virginia-Sired Horses

  	
  12

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Satellite Wagering Facility Expansion

  	
  12

  
	
   

  	
   

  	
   

  
	
  10.

  	
  Stalls and Track Facilities

  	
  15

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Availability of Stalls and Track Facilities Before,
  During and After Race Meetings

  	
  15

  
	
   

  	
  B.

  	
  Vendors

  	
  16

  
	
   

  	
  C.

  	
  Stall Applications

  	
  16

  
	
   

  	
  D.

  	
  Racetrack Kitchen

  	
  17

  

 

 

	
  11.

  	
  Racing Committee

  	
  18

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Representations and Warranties

  	
  18

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  VHHA

  	
  18

  
	
   

  	
  B.

  	
  Colonial Downs

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  Racing Officials

  	
  20

  
	
   

  	
   

  	
   

  
	
  14.

  	
  Governmental Approval

  	
  20

  
	
   

  	
   

  	
   

  
	
  15.

  	
  Authorization for Out-of-State Simulcasting

  	
  20

  
	
   

  	
   

  	
   

  
	
  16.

  	
  Copies of Documents

  	
  21

  
	
   

  	
   

  	
   

  
	
  17.

  	
  Horsemen’s Backstretch Improvements and Programs

  	
  21

  
	
   

  	
   

  	
   

  
	
  18.

  	
  Right to Terminate

  	
  22

  
	
   

  	
   

  	
   

  
	
  19.

  	
  Indemnification

  	
  22

  
	
   

  	
   

  	
   

  
	
  20.

  	
  Mediation; Arbitration

  	
  22

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Attempt to Resolve Disputes

  	
  22

  
	
   

  	
  B.

  	
  Administration

  	
  23

  
	
   

  	
  C.

  	
  Notice to Arbitrate

  	
  23

  
	
   

  	
  D.

  	
  Selection of Arbitrator(s)

  	
  23

  
	
   

  	
  E.

  	
  Pre-Hearing Conference

  	
  24

  
	
   

  	
  F.

  	
  Discovery

  	
  24

  
	
   

  	
  G.

  	
  Additional Conference

  	
  25

  
	
   

  	
  H.

  	
  Arbitration Hearing

  	
  25

  
	
   

  	
  I.

  	
  Arbitration Award

  	
  26

  
	
   

  	
  J.

  	
  Default

  	
  26

  
	
   

  	
  K.

  	
  Costs

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
  Contribution Adjustments

  	
  27

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Changes in Applicable Law

  	
  27

  
	
   

  	
  B.

  	
  Duration

  	
  28

  

 

ii

 

	
  22.

  	
  Additional License

  	
  28

  
	
   

  	
   

  	
   

  
	
  23.

  	
  Consents, Approvals, Agreements or Assurances

  	
  28

  
	
   

  	
   

  	
   

  
	
  24.

  	
  Counterparts

  	
  29

  
	
   

  	
   

  	
   

  
	
  25.

  	
  Notices

  	
  29

  
	
   

  	
   

  	
   

  
	
  26.

  	
  Waivers

  	
  30

  
	
   

  	
   

  	
   

  
	
  27.

  	
  Applicable Law; Venue

  	
  30

  
	
   

  	
   

  	
   

  
	
  28.

  	
  Headings

  	
  30

  
	
   

  	
   

  	
   

  
	
  29.

  	
  Severability

  	
  31

  
	
   

  	
   

  	
   

  
	
  30.

  	
  Entire Agreement; Modification

  	
  31

  
	
   

  	
   

  	
   

  
	
  31.

  	
  Conditions Precedent to Effectiveness of this
  Agreement

  	
  31

  

 

 

	
  Exhibit A

  	
   

  	
  Form of Trust Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Annual Transfers of
  Funds from Standardbred Partners’ Account to Horsemen’s Account

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Central-Southside
  Virginia Region

  

 

 

iii

 

STANDARDBRED
HORSEMEN’S AGREEMENT

 

THIS AGREEMENT is entered
into this 1st day of March 2006, effective as of January 1,
2006, by and among COLONIAL DOWNS, L.P., a Virginia limited partnership,
STANSLEY RACING CORP., a Virginia corporation (collectively, “Colonial Downs”),
and the VIRGINIA HARNESS HORSE ASSOCIATION, a Virginia not-for-profit
corporation (the “VHHA”).

 

WHEREAS, Colonial Downs
owns and operates in New Kent County, Virginia, the facility known as the
Colonial Downs racetrack (the “Racetrack”) and nine (9) satellite wagering
facilities located in Brunswick, Chesapeake (on Military Highway, the “Existing
Chesapeake SWF”), Chesapeake (on Indian River Road, the “New Chesapeake SWF”),
Hampton, Henry County (the “Henry County SWF”) and Richmond (on Broad Street),
Richmond (on Hull Street, the “New Richmond SWF”), Scott County (scheduled to
open January 2006, the “Scott County SWF”), and Vinton, Virginia (the “Vinton
SWF,” and collectively with the foregoing, the “SWFs”);

 

WHEREAS, the VHHA is a
trade organization composed of owners, trainers, drivers, grooms, breeders,
owner-trainers, and owner-breeders, or any combination thereof, (its “Members”)
of standardbred racehorses;

 

WHEREAS, the VHHA
develops and provides programs and other services for its Members, their
employees and other participants in standardbred horse racing who are and will
be engaged in live racing at the Racetrack (such racing a “Race Meeting”);

 

WHEREAS, the
parties have entered into the Standardbred Horsemen’s Agreement, dated as of
April 2, 2003, (the “Existing Agreement”), portions of which expired on
midnight on December 31, 2005 and have been extended to the date hereof and are
superceded hereby and other portions which continue to remain in effect;

 

 

WHEREAS, the
parties hereto desire to continue and enhance a close and understanding
relationship among breeders, owners, trainers, drivers and grooms of
standardbred race horses (the “Horsemen”), including VHHA Members, the VHHA,
Colonial Downs, and the public; and

 

WHEREAS, the
parties desire to collaborate to increase the purse funds available to the
Horsemen for the Race Meetings and to improve the financial return to Colonial
Downs associated with conducting the Race Meetings and operating the SWFs;

 

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

 

1.             Effective
Date and Term of Agreement.  Upon the
satisfaction or waiver of all conditions set forth in Section 31 hereof, this
Agreement shall become effective as of 12:01 a.m. on January 1, 2006, and
shall remain in effect through midnight on December 31, 2008 (the “Term”),
unless otherwise terminated as provided herein, with the exception of
Subsection 5.B., Section 9, and Section 21, which shall continue in effect
as stated therein.

 

2.             Scope
of Agreement.  This Agreement shall
be applicable to (i) revenues generated from pari-mutuel wagering on live standardbred
races at the Racetrack and on all simulcast standardbred races, including
simulcast broadcasts of live standardbred races held at the Racetrack,
broadcast to the Racetrack and to all SWFs owned and operated by Colonial Downs
in Virginia, to (ii) revenues generated by simulcast broadcasts to locations
outside the Commonwealth of Virginia of live standardbred races held at the
Racetrack, and to (iii) the live standardbred race meetings conducted at the
Racetrack, during the Term of this Agreement.

 

3.             Exclusive
Representation.  During the Term of
this Agreement, the VHHA shall be the exclusive representative of its Members
with respect to the matters set forth herein. 
The VHHA hereby warrants and represents that it is the Horsemen’s
organization representing a

 

2

 

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

 

4.             Accounts.

 

A.            Standardbred
Partners’ Account.  Colonial Downs
and the VHHA currently maintain an account at Citizens and Farmers Bank in
Providence Forge, Virginia (the “Standardbred
Partners’ Account” or the “Account”). 
The parties agree that the financial institution(s) at which the
Standardbred Partners’ Account is maintained may be changed at any time by
agreement of the parties.  Colonial Downs
and the VHHA agree that all funds maintained in the Standardbred Partners’
Account are funds that are to be maintained in trust on behalf of and for the
benefit of the Horsemen, less those funds to be distributed to Colonial Downs,
as provided herein, and distributed according 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 parties hereto have executed the
trust agreement attached as Exhibit A and have had the Standardbred Partners’
Account designated a trust account by the financial institution at which the
Standardbred Partners’ Account is maintained. 
The parties shall take similar steps to have the Standardbred Partners’
Account designated as a trust account by any other financial institution(s) to
which the Account is moved.  In addition,
either party may elect upon written notice to the other party to have a
third-party trustee, acceptable to both parties, appointed as trustee of the
Account.  All interest and other earnings
whatsoever on the amounts paid or deposited into the Standardbred Partners’
Account shall accrue solely to the benefit of the Standardbred Partners’
Account.  All funds paid or deposited
into the Standardbred Partners’ Account (i) shall be invested in an
interest-bearing account that provides market rates of return, or government or
bank securities, and (ii) shall be

 

3

 

used for purses and for
such other purposes as the parties may agree and the Commission may approve.

 

B.            Horsemen’s
Account.  Monies payable to Horsemen
as purses under this Agreement shall be deposited from the Standardbred
Partners’ Account into a separate account (the “Horsemen’s Account”) as needed
to pay purses.  The amounts to be
transferred from the Standardbred Partners’ Account to the Horsemen’s Account
are set forth herein.  The transfer of
funds from the Standardbred Partners’ Account to the Horsemen’s Account shall
be made, and the appropriate portions of purse money
shall 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 such
money was earned has been declared official; provided, that in the event of any
dispute as to the result of a race due to a drug test or other regulatory
inquiry, the purse money shall not be made available until final resolution of
the dispute by the stewards, the Commission or the courts, as the case may
be.  No portion of such money payable as
purses to any earner thereof shall be deducted by Colonial Downs unless
requested in writing by the person to whom such monies are payable or his duly
authorized representative or as required by order of the stewards or a court.

 

C.            Availability
of Information on Accounts.  The
Standardbred Partners’ Account and the Horsemen’s Account and the investment or
deposit schedules of Colonial Downs with respect to such accounts shall be
subject to examination at any reasonable time by the President of the VHHA or
his or her designee.

 

D.            Distribution
of Interest and Other Earnings on Accounts; Disbursement to Colonial Downs.  All interest or earnings whatsoever on the
amounts paid or deposited into the Standardbred Partners’ Account and the
Horsemen’s Account shall accrue solely to the benefit of

 

4

 

Colonial Downs.  Additionally, to help defray the costs of the
Horsemen’s bookkeeper and of providing year-round office space to the VHHA,
Colonial Downs shall be entitled to disburse from funds in the Standardbred
Partner Account to itself $7,500 each calendar year, such funds to be disbursed
on the last business day of each month in the amount of $625 per month.  A final accounting of this disbursement shall
be made on January 31 of each year for the prior calendar year.

 

5.             Administration
of Accounts.

 

A.            Amounts
To Be Deposited.  Colonial Downs
shall deposit into the Standardbred Partners’ Account the amounts specified in
paragraph 13 of § 59.1-369 of the Code of Virginia and shall deposit into the
Horsemen’s Account the amounts specified for purses in Subsections D(1) and
G(1) of § 59.1-392 of the Code of Virginia.

 

B.            Transfers
from the Standardbred Partners’ Account to the Horsemen’s Account and Colonial
Downs’ Account.  With respect to all
deposits to the Standardbred Partners’ Account derived from handle at all
satellite wagering facilities, the parties agree that transfer of funds from
the Standardbred Partners’ Account to the Horsemen’s Account shall be made as
set forth in Exhibit B hereto, subject to the terms and conditions set forth in
Section 9 hereof, and shall continue for the term of Colonial Downs’
licenses for such facilities.  The VHHA
shall authorize the weekly payment from the Standardbred Partners’ Account to
Colonial Downs of an amount equal to the difference between (i) the amounts
deposited into the Standardbred Partners’ Account pursuant to Paragraph 13 of
§ 59.1-369 of the Code of Virginia and (ii) the amounts transferred to the
Horsemen’s Account as set forth in Exhibit B.

 

C.            Signal
Sales.  Colonial Downs shall
calculate the revenues attributable to the sale of the live standardardbred
race signal to entities outside Virginia. 
In calculating such

 

5

 

amount, revenues from
signal sales shall be based on information provided to Colonial Downs and shall
be calculated using accounting practices generally accepted in the horse racing
industry.  Such calculation of revenues
from signal sales shall be provided to the VHHA for its approval, such approval
not to be unreasonably withheld, conditioned or delayed.  For the term hereof, Colonial Downs shall
deposit into an account designated and exclusively controlled by the VHHA (the “Signal
Sales Account”) an amount calculated as (a) total revenue from the sale of the
live standardbred race signal to entities outside of Virginia less (b) the
product of $2,100, multiplied by the number of standardbred race days in the
given year, multiplied by (c) 50%, with such calculated amount not to exceed
the product of (x) $457.73 multiplied by (y) the number of standardbred race
days in the given year. Colonial Downs shall retain solely for its own account
and benefit revenues from the sale of the live standardbred race signal to
entities outside of Virginia in excess of the product of $3,015.46 multiplied
by the number of standardbred race days in a given year, up to the amount equal
to the product of $18,015.46 multiplied by the number of race days in the given
year.  The balance of signal sale revenue
in excess of the product of $18,015.46 multiplied by the number of race days in
the given year shall be equally divided between Colonial Downs and the VHHA,
and the VHHA’s share shall be deposited into the Signal Sales Account.

 

D.            Account
Wagering.  Neither Colonial Downs nor
the VHHA shall enter into an agreement, without the prior written consent of
the other, which consent shall not be unreasonably withheld, delayed or
conditioned, regarding telephone account or other electronic media wagering
systems pursuant to which Colonial Downs or the VHHA would receive any fee from
any advance deposit account wagering licensee or any other telephone or other
electronic media account wagering entities for the right to accept wagers from
account holders located in

 

6

 

Virginia on standardbred
races simulcast from within or outside of Virginia.  The foregoing sentence shall not apply to
Colonial Downs’ existing and future agreements for the sale of its live
standardbred racing signals to simulcast venues to which the VHHA’s consent is
governed by Section 15 of this Agreement.

 

E.             Stakes
Race Purses.  The percentage of the
purse monies available under Subsections A through D of this Section, excluding
promotional fees and sponsorships, to be paid to Horsemen participating in
stakes races held at the Racetrack shall be limited to eight percent (8%) of
the total purses paid.  The parties agree
that the foregoing eight-percent (8%) limit may be increased by one dollar for
every one dollar that Colonial Downs secures for additional purse monies from
sponsors of live standardbred races at the Racetrack, up to a total of twelve
percent (12%) of total purses paid; provided, however, that not more than ten
percent (10%) of the amounts payable as purses under Subsections A through D of
this Section shall be used for purses for stakes races.  Notwithstanding the foregoing, a higher
percentage may be agreed upon by the parties in good faith negotiations.  For purposes of this subsection, the term “stakes
races” shall not include early or late closure races or Virginia Standardbred
Breeder’s Fund stakes.

 

F.             Administrative
Fee.  The
administrative fee paid to the VHHA for services rendered to Horsemen as the
majority Horsemen’s group shall be as provided in Subsection S of § 59.1-392 of
the Code of Virginia.  The parties shall
agree on advance payments of the administrative fee between live standardbred
Race Meetings at the Racetrack in recognition of the VHHA’s year-round service
to Horsemen, obligations with respect to Horsemen’s interests before the
Commission, and the VHHA’s efforts to assist Colonial Downs on legislative
issues.

 

7

 

G.            Other
Legalized Wagering.  Except as
otherwise specifically provided herein, in the event that wagers other than on
standardbred horse racing, including, but not limited to, the sale of lottery
tickets and/or participation in other wagering enterprises at the Racetrack
and/or the SWFs (but excluding any use of the Racetrack or SWFs for charitable
gaming that does not result in net revenue for Colonial Downs above fair market
rent for the facilities), are authorized by legislative action and a portion of
the proceeds is provided by that legislation for standardbred racing, the
parties shall be bound by the allocations in such legislation.  In the event the allocation of revenues is
not addressed by such legislative action, the parties shall negotiate in good
faith a written agreement governing the allocation between them of the revenues
to be received for standardbred racing from that legislative action.

 

6.             Purse
Mechanics.

 

A.            Purse
Schedules and Condition Sheets. 
Colonial Downs shall use its reasonable judgment to estimate attendance,
pari-mutuel handle and breakage for standardbred racing.  Using that information and after consultation
with a designated representative of the VHHA, Colonial Downs shall establish a
tentative average daily overnight purse schedule and a tentative stakes purse
schedule for each Race Meeting in accordance with the terms of this
Agreement.  Nomination, sustaining,
starting, and entry fees paid by standardbred Horsemen, and funds provided by
the Virginia Breeders Fund or by race sponsors shall not be considered to be
portions of the purses paid by Colonial Downs. 
Colonial Downs shall exercise reasonable care to avoid significant
underpayments or overpayments of purses at all Race Meetings.  Colonial Downs shall send to the VHHA its
first condition sheet and proposed purse schedules for each Race Meeting before
they are sent to the printer.

 

8

 

B.            Overpayment
of Purses.  Colonial Downs and the
VHHA shall cooperate to the fullest extent possible to avoid overpayment of
purses to Horsemen as of the end of any year during the Term of this
Agreement.  If Colonial Downs makes an
overpayment in excess of the amount computed under Section 5 hereof, the
overpayment shall be repaid to Colonial Downs from funds accruing to the
Standardbred Partners’ Account commencing on January 1 of the following
calendar year on a “first dollar in first dollar out” basis.

 

C.            Underpayment
of Purses.  During any Race Meeting,
Colonial Downs shall increase purses as reasonable and appropriate based upon
deposits 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 of
underpayment of purses to Horsemen. 
Colonial Downs shall use its reasonable best efforts to help assure that
there are no underpayments of purses at any Race Meeting based upon deposits to
the Horsemen’s Account pursuant to Subsections D(1) and G(1) of § 59.1-392
of the Code of Virginia.  In the event
that funds remain in (i) the Standardbred Partners’ Account that are subject to
transfer to the Horsemen’s Account pursuant to Exhibit B, or (ii) the Horsemen’s
Account after payment of purses, such funds shall be applied to the next Race
Meeting.

 

D.            Purse
Notices.  The pari-mutuel handle,
pari-mutuel handle commission, and purse distribution figures, as well as the
percentage figures that represent the relationship between purses and the total
of pari-mutuel income and breakage shall be posted on the bulletin board in the
Racing Secretary’s office each day of a Race Meeting.

 

7.             Live
Standardbred Racing.

 

A.            Number
of Days, Dates and Average Daily Purses. 
For 2006, Colonial Downs has been approved to conduct thirty-six (36)
days of live standardbred racing with

 

9

 

targeted average daily purses of at least $50,000 per
day.  Such 36 days of live standardbred
racing shall be conducted from September 4 to November 3, 2006, at
the Racetrack four days a week which generally will be Tuesday through Friday
(the “Colonial Downs Meet”), unless the parties otherwise agree and the
Commission approves, to the extent necessary, those other agreed upon
dates.  For 2007 and 2008, Colonial Downs
and the VHAA intend to apply for race dates with the meet commencing on Labor
Day and ending in November, assuming that this time frame is successful in
2006, with a 5:00 p.m. post time for racing (or such other time as the parties agree).  In determining whether the 2006 meet was “successful,”
the parties agree that they will focus upon (i) increases in signal sale
handle; (ii) increases in handle attributable to commencing the Race
Meeting on Labor Day, conducting racing in conjunction with the New Kent County
Fair and a possible steeplechase day during Breeder’s Cup; (iii) increases
in group sales; and (iv) coordination of racing with Rosecroft Raceway in
Maryland.  Not less than thirty (30) days
prior to the deadline for submission of a race day request to the Commission,
Colonial Downs and the VHHA shall make reasonable efforts to agree upon the
number of days of standardbred racing based upon an average daily purse amount
for the following calendar year pursuant to the foregoing formula, and shall
then present such agreed upon schedule and average daily purse amount to the
Commission for approval.  If the parties
are unable to agree upon an targeted average daily purse amount for live standardbred
racing for any such calendar year, Colonial Downs shall submit to the
Commission its requested number of days of, dates for, and targeted average
daily purse amount for live standardbred racing for that calendar year, and the
VHHA also shall convey to the Commission its requested number of days of, dates
for, and targeted average daily purse amount for live standardbred racing for
that calendar year.

 

10

 

B.            Promotion
of the Colonial Downs Meet; Programs for Standardbred Races .  Colonial Downs and the VHHA shall collaborate
to market and promote the Colonial Downs Meet. 
Colonial Downs shall devote $75,000 to market and promote the Colonial
Downs Meet at the track.   Colonial Downs
shall devote an additional $75,000 to marketing standardbred racing in the SWFs
and marketing the sale of the export simulcast signal from the Race Meetings to
simulcast facilities outside of Virginia. 
Such marketing efforts may include, but not be limited to, offering free
decoders to simulcast facilities that have not historically received Colonial
Downs’ Race Meetings’ signals, marketing Colonial Downs’ thoroughbred and
harness signals as a package, dispatching a Colonial Downs’ representative on
the road to out-of-state simulcast facilities to  promote a Colonial Downs harness racing day
at such facilities, and conducting special harness racing nights at the SWFs
with contests and harness related promotions. 
Additionally, Colonial Downs shall focus its marketing efforts for the
Race Meetings on increasing the number of group outings to the Racetrack
through its group sales personnel.

 

Additionally, Colonial
Downs hereby agrees to continue to:  (i)
place in the front portion of each standardbred horse race program distributed
at the Racetrack and its SWFs (the “Program”) an information section entitled “How
to Read a Harness Program”; (ii) include driver and trainer rankings in the
Program; (iii) provide comparative speed ratings of every standardbred track
listed in the Program; and (iv) carry a minimum of two (2) standardbred race
signals at all times at each SWF, provided at least two (2) such signals are
available.

 

C.            Sponsorships.  Colonial Downs agrees to use commercially
reasonable efforts to secure sponsorships for major stakes races.  The VHHA agrees to provide such assistance to
Colonial Downs’ efforts as Colonial Downs may reasonably request and to use its
best efforts to secure sponsorships for smaller stakes races.

 

11

 

D.            Jumbotron.  Colonial Downs agrees to use a portable Video
Display Screen approximately 19.68 feet high by 26.20 feet wide (“Jumbotron”)
as referenced in the agreement dated February 3, 2006 between Transit Image,
Inc. and Colonial Downs during the live standardbred meet in 2006.  The cost of the Jumbotron for 2006 is $1,000
per live standardbred race day.  Colonial
Downs agrees to use a Jumbotron during the 2007 and 2008 live standardbred
meets if the cost of the Jumbotron does not exceed $1,000 per live standardbred
race day.  If the cost of the Jumbotron
exceeds $1,000 per live standardbred race day in either 2007 or 2008, the VHHA
shall have the option to pay any cost in excess of $1,000 per live standardbred
race day and upon receipt of the VHHA’s written commitment to pay such excess costs,
Colonial Downs will use a Jumbotron during the live standardbred meet in that
year.

 

8.             Races
and Awards for Virginia-Bred, Virginia-Owned and Virginia-Sired Horses.  Colonial Downs shall include in its condition
sheets opportunities to race for Virginia-bred, Virginia-owned and
Virginia-sired standardbred horses, including those that typically race for
lower purses as well as those that typically race for higher purses.  To the extent reasonably possible, in filling
races, Colonial Downs shall give preference to Virginia-bred and Virginia-sired
horses that are stabled at the Racetrack or elsewhere in Virginia.  Awards from the Virginia Breeders Fund for
Virginia-bred, Virginia-owned and Virginia-sired horses shall continue to be
distributed according to guidelines approved by the Commission.

 

9.             Satellite
Wagering Facility Expansion.  The
parties agree that a goal of achieving $45,000,000 of total standardbred handle
within three (3) years from the effective date of this Agreement is reasonable
and desire to set forth certain actions intended to lead to the achievement of
this goal to which they are committed. 
Accordingly, the parties agree:

 

12

 

A.            Distribution
of Funds.  Colonial Downs and the
VHBPA agree to distribute funds from the Standardbred Partners’ Account in such
a fashion as set forth in Exhibit B hereto with respect to the Henry
County SWF, the Scott County SWF, the New Richmond SWF, the Vinton SWF, the
Existing Chesapeake SWF, and the New Chesapeake SWF, and such distributions
shall continue for the term of Colonial Downs’ licenses for such facilities.

 

B.            SWF
Referenda in Northern Virginia.  In
2006 Colonial Downs and the VHHA shall organize an industry task force to
explore strategies for a successful statutory referendum in Northern Virginia
with the goal of conducting at least one Northern Virginia statutory referendum
by December 31, 2007. For purposes of this Agreement Northern Virginia is
defined 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 with population of 5,000 or more located within
the foregoing counties.

 

(1)           Upon
winning a referendum in Northern Virginia, Colonial Downs shall use its
commercially reasonable efforts to apply expeditiously for licenses to own and
operate an SWF in the locality in which the referendum was won; provided,
however, if more than one referendum is won in adjacent localities or in
localities in which two SWFs would compete with each other, Colonial Downs
shall be obligated to apply for licenses in only one such locality.  Upon the grant of the licenses, Colonial
Downs shall use its commercially reasonable efforts to open the licensed
facility expeditiously.

 

(2)           Colonial
Downs and the VHHA agree to distribute funds from the Standardbred Partners’
Account in such a fashion as set forth in Exhibit B hereto for any SWF

 

13

 

opened by Colonial Downs
in Northern Virginia, as defined above, during the three-year period commencing
on the effective date of this Agreement.

 

C.            Additional
SWFs in the Central-Southside Virginia Region.  Colonial Downs shall conduct  two (2) referenda during the period from
January 1, 2005 to December 31, 2006, and one (1) referendum during the period
from January 1, 2007 to December 31, 2007 in the Central-Southside Virginia
region as set forth in Exhibit D hereto (the “Central-Southside Virginia Region”);
provided however, upon standardbred handle (as calculated as provided in
Subsection C (3)) equaling or exceeding $45,000,000, Colonial Downs’
obligations to conduct additional referenda in the Central-Southside Virginia
Region shall automatically terminate. 
Colonial Downs’ obligation to conduct the foregoing referenda in the
time periods specified shall be temporarily suspended, but not terminated, for
each year in which there are no statutorily authorized SWFs available for
initial licensing.

 

(1)           If
Colonial Downs conducts and wins such a referendum it shall proceed in the
manner described in Section 9.B (1) hereof with respect to such
referendum.  Upon the opening of any SWF
in Central-Southside Virginia Region, Colonial Downs and the VHHA agree to
distribute funds from the Standardbred Partners’ Account in such a fashion as
set forth in Exhibit B hereto for any SWF in the Central-Southside
Virginia Region for which a license application has been made within the
eight-year period commencing on the effective date of this Agreement or, if
later, the date on which all conditions set forth in Section 31 are satisfied
or waived.

 

(2)           On or
before December 1, 2006, and on or before each December 1 thereafter,
the parties shall determine if Colonial Downs has conducted the minimum number
of referenda required by this Agreement. 
In the event Colonial Downs fails to conduct the three (3)

 

14

 

Central-Southside referenda in the time periods
specified above, the contribution rate for standardbred handle to the payment
of purses set forth in Exhibit B hereto shall be suspended for all SWFs
operating in the Central-Southside Virginia Region and for the New Richmond
SWF, the Existing Chesapeake SWF, and the New Chesapeake SWF, and the purse
contribution rate shall be that rate specified in Exhibit B hereto for “All
Other SWFs” until such time as Colonial Downs conducts the number of referenda
specified in this Subsection C regardless of the time periods specified above
(e.g. conducting an additional referendum in 2007 after conducting only one in
the period from January 1, 2005 to December 31, 2006).  Upon Colonial Downs conducting the specified
number of referenda, the purse contribution rates shall be reinstated to the
rates set forth in Exhibit B hereto for SWFs located in Central-Southside
Virginia Region, the New Richmond SWF, the Existing Chesapeake SWF, and the New
Chesapeake SWF. No adjustment (either higher or lower) to the purse
contribution rate shall be retroactive.

 

(3)           For
purposes of determining whether total standardbred handle equates to
$45,000,000 for a particular calendar year, the following calculation shall be
made:  (i) total live standardbred
handle; plus (ii) total SWF standardbred handle from all SWFs operating for at
least 12 months; plus (iii) for each SWF open less than 12 months, the product
of (a) the last three (3) months’ standardbred handle and (b) four (4); and
plus total standardbred handle from account wagering.

 

10.           Stalls
and Track Facilities.

 

A.            Availability
of Stalls and Track Facilities Before, During and After Race Meetings.  Colonial Downs shall make available at least
one thousand (1,000) stalls to Horsemen during each Race Meeting.  Access to the racing strip, barns, track
kitchen facilities, dormitories, and related backside facilities at the
Racetrack (collectively, the “Backside Facilities”) necessary

 

15

 

for training purposes
shall be made available by Colonial Downs without charge (i) prior to each live
Race Meeting, to Horsemen who have horses training for that live Race Meeting,
and (ii) following each live Race Meeting, to Horsemen who have raced at the
Racetrack during that Race Meeting.  The
Backside Facilities shall be made available by Colonial Downs prior to and
following each Race Meeting for an aggregate total of 20 days, the exact number
of days before and number of days after each Race Meeting to be agreed upon
each year by Colonial Downs and the VHHA. 
Notwithstanding the foregoing, such periods (prior to or following) may
be shortened if the Backside Facilities are needed for a live thoroughbred race
meeting, and Colonial Downs shall provide advance notice to the Horsemen in any
such event.  During the aforesaid
periods, Colonial Downs, at its own expense, shall make water and electricity
available to each barn in use and keep the racing surfaces properly harrowed
and watered.

 

B.            Vendors.  Except as expressly provided elsewhere in
this Agreement, Colonial Downs shall not impose upon Horsemen any exclusive
arrangement concerning farriers, feedmen, tack supplies, or any other suppliers
or providers of services customarily used by owners and trainers; provided,
however, that if Colonial Downs permits the use of bedding material other than
straw, it may require the use of an exclusive supplier in order to facilitate
removal of such used material. 
Notwithstanding the foregoing, Colonial Downs reserves the right to
impose reasonable non-discriminatory requirements for security, safety and
environmental reasons.  Colonial Downs
shall use its reasonable best efforts to keep unlicensed persons in the above
categories off its premises.

 

C.            Stall
Applications.  Colonial Downs shall
publish and distribute stall applications to the Horsemen.  Each completed application will contain the
name, permanent address, telephone number, and electronic mail (e-mail) address
of the owner and trainer of each

 

16

 

horse expected to be
stabled on the grounds of the Racetrack during that Race Meeting.  Colonial Downs shall, in the exercise of its
sole business judgment, determine the terms for and approve or disapprove
applications for stalls, but to the extent reasonably possible, preference
shall be given to stall applications for Virginia-bred horses, Virginia-owned
horses, and Virginia-sired horses. 
Colonial Downs may consider, among other things, the following criteria
in allocating stalls to Horsemen for use during Race Meetings:

 

(1)           The
financial and professional integrity of the trainer listed on the stall
application;

 

(2)           The
total number of stalls requested by a trainer in relation to the number of
available stalls; and

 

(3)           The
best interests of Colonial Downs and standardbred racing. Each Horsemen accepting
a stall at the Racetrack shall be required to use his or her best efforts to
run his or her horses at the Racetrack during the Race Meeting consistent with
the horses’ physical condition and fitness, and race conditions.

 

D.            Racetrack
Kitchen.  Colonial Downs shall
provide a Racetrack kitchen for use by Horsemen and others, with the terms,
conditions and provisions thereof to be mutually agreed upon on an annual basis
by the VHHA and Colonial Downs.  Joint
approval of Colonial Downs and the VHHA shall be required concerning, but not
limited to, management of the facility, cleanliness of the facility,
palatability and cost of food, adequacy of hours of operation, and adequacy of
premises insurance coverage.

 

E.             Suite.  Colonial Downs shall also provide the VHHA a
grandstand suite, free of charge except for food service, for use by its
members and guests on each race day of the live standardbred meet in 2006, 2007
and 2008, unless the parties agree otherwise.

 

17

 

11.           Racing
Committee.  Colonial Downs and the
VHHA have organized and shall maintain a joint committee to be known as the “Standardbred
Racing Committee.”  The VHHA and Colonial
Downs shall each continue to appoint not more than four (4) representatives to
the Racing Committee.  The Racing
Committee (i) shall meet at the request of either Colonial Downs or the VHHA on
at least five (5) days notice to the other party, and (ii) may consider such
matters as the stable area, barns, tack rooms, dormitories, promotion,
publicity, track conditions (bad weather closing), racing-related programs,
reserved seats and passes for Horsemen, number of races, purse schedules, track
kitchen, other matters related to attendance, pari-mutuel handle or the quality
of racing, and health benefit programs, death benefits, drug and alcohol abuse
programs, and any other program that will aid and assist the racing industry in
Virginia in hiring, retaining and caring for its personnel at the highest
level.

 

12.           Representations
and Warranties.

 

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

 

(l)            This
Agreement has been approved by the Board of Directors of the VHHA as authorized
by the Bylaws of the VHHA;

 

(2)           This
Agreement is valid and enforceable against the VHHA according to its terms;

 

(3)           Each
VHHA officer, director and other official shall utilize all of his or her powers
of persuasion and shall take all reasonable action within their power,
including all legal means at their disposal, to ensure that all VHHA Members,
their employees, other related personnel, and other backstretch personnel
comply with the terms of this Agreement;

 

18

 

(4)           The
VHHA shall seek to alter its share of the amounts described in Section 5 above
only through good faith negotiations with Colonial Downs and shall not engage
in or support, directly or indirectly, any action to influence the Commission,
the Governor of Virginia or the General Assembly of Virginia to increase its
share of the amounts described in Section 5 above or contained in any
applicable provision of the Code of Virginia or the Commission’s regulations by
rule, regulation, order, executive order, statute, amendment of statute, or
otherwise;

 

(5)           The
VHHA shall use its best efforts to ensure that the backstretch area of the
Racetrack is maintained in a safe, clean, and orderly condition; and

 

(6)           This
Agreement shall be made available for review and copying by Members of the VHHA
and all other licensed owners, trainers, employees and backside personnel at
the VHHA office.

 

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

 

(1)           This
Agreement has been approved by its General Partner;

 

(2)           This
Agreement is valid and enforceable against Colonial Downs according to its
terms;

 

(3)           Colonial
Downs shall seek to alter the VHHA’s share of the amounts described in Section
5 above only through good faith negotiations with the VHHA and shall not engage
in or support, directly or indirectly, any action to influence the Commission,
the Governor of Virginia or the General Assembly of Virginia to decrease the
VHHA’s share of the amounts described in Section 5 above or contained in any
applicable provision of the Code of

 

19

 

Virginia or the
Commission’s regulations by rule, regulation, order, executive order, statute,
amendment of statute, or otherwise;

 

(4)           Colonial
Downs shall use its reasonable best efforts to ensure that the backside area of
the Racetrack is maintained in a safe, clean and orderly condition when in use;
and

 

(5)           Colonial
Downs shall use its reasonable best efforts to assist the VHHA in developing
health and welfare programs for backstretch personnel; provided that, this Section
imposes no obligation on either party to fund any such program.

 

13.           Racing
Officials.  Colonial Downs shall send
to the President of the VHHA a written list of the persons whom Colonial Downs
has requested the Commission to approve as racing officials for each Race
Meeting at the same time it submits that list to the Commission in accordance
with the Commission’s regulations.

 

14.           Governmental
Approval.  Nothing contained in this
Agreement shall be construed as requiring either party to perform any term when
such performance is contrary to law or requires prior governmental approval;
provided, however, both parties shall use their best efforts to obtain
governmental approval if such is required.

 

15.           Authorization
for Out-of-State Simulcasting.  During
the Term of this Agreement, the VHHA as the authorized representative of the
Horsemen for interstate simulcasting purposes, hereby consents and authorizes
Colonial Downs to negotiate and contract with simulcast and receiving
facilities, including off-track wagering facilities outside the Commonwealth of
Virginia, for (i) the conduct of off-track wagering at the Racetrack and the
SWFs, and (ii) off-track wagering on live standardbred races emanating from the
Racetrack, pursuant to the Interstate Horse Racing Act of 1978, P.L. 95-515
(the “Interstate Horse Racing Act”).  The

 

20

 

foregoing consent and
authorization shall constitute all consents required from the VHHA for
simulcast wagering under the Interstate Horse Racing Act, and all simulcast
wagering shall conform to that Act.

 

16.           Copies
of Documents.  Colonial Downs shall
send a copy of its stall application form, stakes purse program, and condition
sheet for each Race Meeting to the VHHA on or before the first day they are
distributed to Horsemen.

 

17.           Horsemen’s
Backstretch Improvements and Programs . 
Colonial Downs and the VHHA agree to expend for the benefit of Horsemen
certain funds during calendar years 2006 and 2007 for the improvement of
backstretch working and living conditions and for educational, recreational,
and counseling programs.  Pursuant to the
Thoroughbred Horsemen’s Agreement, dated as of January 1, 2005 (the “Thoroughbred
Agreement”), Colonial Downs has agreed to provide $50,000 to be used solely for
capital improvements and to be provided no later than June 1 of each year.  Similar to Colonial Downs’ agreement with the
Virginia Horsemen’s Benevolent and Protective Association, Inc. (the “VHBPA”)
as reflected in the Thoroughbred Agreement, the VHHA and Colonial Downs shall
use their best efforts to ensure that at least $175,000 is provided annually
from the legitimate breakage deposited into the Racing Benevolence Fund
pursuant to § 59.1-392(T)(2) of the Code of Virginia for the foregoing
improvements and programs.  Regarding the
latter Fund, the VHHA and Colonial Downs agree to use their best efforts to
obtain any necessary authorization to use part of the legitimate breakage for
such improvements and programs as agreed to by the VHBPA and otherwise
described in the Thoroughbred Agreement. 
All of the above funds shall be deposited into the Backstretch
Improvement Escrow Account, which shall be established at a financial
institution mutually acceptable to Colonial Downs, the VHBPA and the VHHA, and
shall be expended as mutually

 

21

 

agreed by Colonial Downs
and the VHHA and subject to Commission approval pursuant to Section 31
hereof.  At the conclusion of each Race
Meeting, Colonial Downs shall within sixty (60) days provide the VHHA with an
accounting of all expenditures made from the Backstretch Improvement Escrow
Account.

 

18.           Right
to Terminate.  Either party may
terminate this Agreement upon the other party’s failure to substantially perform
as required under this Agreement and such failure continues for thirty (30)
days following the date written notice of default detailing the perceived
failure to perform is sent to and received by the allegedly defaulting party in
accordance with Section 25 below.  Such
termination shall not constitute an election of remedy, nor shall it constitute
a waiver of a party’s other remedies at law or in equity.  Additionally, Colonial Downs may terminate
this Agreement upon written notice to the VHHA if the Racetrack and all the
SWFs are closed for ninety (90) continuous days.

 

19.           Indemnification.  The VHHA shall indemnify and save harmless
Colonial Downs, its agents, representatives, employees, officers, directors and
stockholders, their respective successors and assigns, and all persons acting
by, through, under, or in concert with any of them, from and against any and
all demands, liabilities, loss, costs, damages, or expenses of whatever nature
or kind, including fees of attorneys and all other expenses, arising out of or
in any way related to or occasioned by Colonial Downs’ performance under
Subsection 5.F. hereof (Administrative Fee).

 

20.         Mediation;
Arbitration.

 

A.            Attempt
to Resolve Disputes.  In the event of
any disputes or differences arising out of this Agreement, which the parties
have been unable to resolve after reasonable efforts to do so, either party may
refer the dispute or difference to a mediator mutually

 

22

 

acceptable to the
parties.  The parties shall split equally
the cost of the mediator.  In the event
such mediation is unsuccessful, or the parties are unable to agree on a
mediator, either party may refer the dispute or difference for final settlement
to arbitration in accordance with the following procedures.

 

B.            Administration.  The arbitration shall be administered by the
American Arbitration Association (“AAA”), or its successor, pursuant to the
expedited procedures (irrespective of the amount in controversy) of the AAA’s
then-prevailing Commercial Arbitration Rules (the “Rules”), subject to the
limitations and modifications set forth herein. 
The laws of the Commonwealth of Virginia will govern all matters arising
from the arbitration without giving effect to the choice of law principles
thereunder.  The arbitration will be held
in Virginia unless the parties otherwise agree.

 

C.            Notice
to Arbitrate.  Notice of a demand for
arbitration pursuant to this procedure (the “Notice to Arbitrate”) shall be
made in writing and delivered to all other affected parties as provided in
Section 25 hereof.  The Notice to
Arbitrate shall be accompanied by a short and plain statement of the party’s
claim(s), the grounds for same and the relief sought.  Within ten (10) days of receipt of the Notice
to Arbitrate, the other party shall set forth in writing and deliver to all
other affected parties as provided in Section 25 hereof, an answer setting
forth its response to the claim for relief, as well as any affirmative defenses
and counterclaims.

 

D.            Selection
of Arbitrator(s).  The arbitration
shall be before one (1) neutral arbitrator (the “Arbitrator”) to be selected in
accordance with the Rules (as modified herein). 
In the event the parties cannot agree upon an Arbitrator within ten (10)
business days from receipt of the Notice to Arbitrate, each party shall select
one (1) Arbitrator.  The Arbitrators so
selected

 

23

 

shall select a third
arbitrator at the Pre-Hearing Conference (as defined herein), who shall be the
chairperson of the three member panel.

 

E.             Pre-Hearing
Conference.  The Arbitrator(s),
within ten (10) days of his, her or their appointment, shall conduct a
pre-hearing conference (the “Pre-Hearing Conference”).  The parties shall be prepared to discuss
discovery matters, schedule the Additional Conference and Arbitration Hearing
(as defined herein), decide procedural matters and address all other questions
that may be presented.

 

F.             Discovery.  The parties shall have the right to conduct
and enforce pre-hearing discovery in accordance with the Federal Rules of Civil
Procedure then in effect for the Eastern District of Virginia (Richmond
Division), including any Local Rules for the Eastern District of Virginia
(Richmond Division) (collectively, the “Court Rules”), subject to the
following:

 

(1)           The
parties shall make the voluntary disclosures described in the Court Rules
(except those applicable to expert witnesses) within fifteen (15) days after
the appointment of the Arbitrator(s). 
The identity and report of each expert witness, as well as all other
disclosures described in the Court Rules, shall be disclosed to the other
parties no later than thirty (30) days after the appointment of the
Arbitrator(s).

 

(2)           Each
party may serve a request for production of tangible and documentary
evidence.  Responses to a request for
production shall be due fifteen (15) days after receipt.

 

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

 

24

 

(4)           Each
party 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)           All
discovery must be completed within forty-five (45) days after appointment of
the Arbitrator(s) (the “Discovery Deadline”).

 

(6)           The
Arbitrator(s), for good cause shown, upon motion and three (3) days’ notice to
all parties, may extend any of the discovery deadlines set forth herein for a
period not to exceed fourteen (14) days. 
The Arbitrator(s) shall have the right and authority to decide any and
all discovery disputes.  The
Arbitrator(s) shall be empowered to issue subpoenas and any and all process and
orders permitted under the Rules to compel cooperation in discovery and
otherwise enforce the discovery rights and obligations of the parties.

 

G.            Additional
Conference.  Within ten (10) days
after the Discovery Deadline, the Arbitrator(s) shall hold an additional
conference (the “Additional Conference”) to set dates for the exchange of
witness and exhibit lists, deposition testimony designations, testimony
summaries and arbitration briefs; determine the length of the Arbitration
Hearing; and address any and all other questions that may be presented.

 

H.            Arbitration
Hearing.  The arbitration hearing
(the “Arbitration Hearing”) shall commence within twenty (20) days after the
date of the Additional Conference, unless otherwise agreed by the parties.  For good cause shown, the Arbitrator(s) may
grant no more than one (1) continuance per party of a duration not to exceed
ten (10) days each; provided, however, no party shall be entitled to any other
continuances.  Unless otherwise agreed by
the parties or ordered by the Arbitrator(s) for good cause shown, the
Arbitration Hearing shall continue from day-to-day for such period of time (not
to exceed five (5) days) as may be set by the

 

25

 

Arbitrator(s).  Each party shall have equal time for
presentation and rebuttal, unless otherwise agreed by the parties.  The parties may present evidence, at their
option, in the form of testimony (live and/or by deposition), documents and
other tangible evidence, or testimony summaries, or any combination
thereof.  The Arbitrator(s), upon timely
request by a party or if otherwise required by law, shall require witnesses 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 the
proceedings.  Such record shall be made
available for inspection and copying by all other parties and the
Arbitrator(s).

 

I.              Arbitration
Award.  Notwithstanding the
foregoing, it is the parties’ intent that the arbitration shall be completed
and resolved within one hundred and twenty (120) days of the commencement of
such proceeding.  The Arbitrator(s) shall
issue and deliver to each party a written and signed award (the “Arbitration
Award”) within thirty (30) days of the closing of the record.   The Arbitration Award shall contain the
factual and legal bases for such award. 
The Arbitration Award, in addition to the relief granted therein, may
award 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 and
binding upon the parties in accordance with its terms and Section 8.01-577 et
seq. of the Code of Virginia.

 

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

 

K.            Costs.  The costs of the arbitration incurred by the
parties for hearing reporting fees, rental of a hearing room and all AAA fees,
costs and services charges and of the

 

26

 

arbitrator shall be paid
by Colonial Downs, except that hearing postponement or cancellation fees or
charges by the AAA or the arbitrator(s) shall be borne exclusively by the
canceling or postponing party. 
Conversely, with respect to all other matters, unless the arbitrator(s)
otherwise so determines and provides in the arbitration award, each party shall
bear its own costs and expenses incurred by that party in connection with the
arbitration, including without limitation each party’s own travel expenses,
hearing witness expenses and attorneys’ fees.

 

21.           Contribution
Adjustments.

 

A.            Changes
in Applicable Law.  The parties have
negotiated the relevant transfers from the Standardbred Partners’ Account to
the Horsemen’s Account (the “Purse Amounts”) from expected handle at the New
Richmond SWF, the Existing Chesapeake SWF, the New Chesapeake SWF, the Vinton
SWF, the Henry County SWF, the Scott County SWF, and any future SWFs located in
the Central-Southside Virginia Region and Northern Virginia based upon those
statutes, regulations, administrative proceedings, common law and other
accepted sources of rules and regulations applicable to the parties that are in
effect as of the date hereof (collectively, “Applicable Law”).  Under Applicable Law, certain allocations of
rights and entitlements have been made to Colonial Downs (such as uncashed
tickets) and the VHHA (such as a portion of breakage), and the parties do not
intend to alter such existing rights and entitlements by this Agreement
generally or by application of this Section 21, in particular, to future
events.  Nonetheless, in the event there
is a change in Applicable Law or a ruling or action of the Commission that
alters contributions to the Standardbred Partners’ Account or transfers to the
Horsemen’s Account, or otherwise inures to the benefit or detriment of the VHHA
or its successors in the form of purses, operating funds or awards, then the
parties agree that the Purse Amounts shall be adjusted to restore the parties
to the economic terms set forth in this

 

27

 

Agreement.  By way of example and not limitation, if
Applicable Law is changed to provide that a percentage of breakage or uncashed
tickets is applied to increase purses for standardbred racing, then the Purse
Amounts shall be adjusted downward such that in any fiscal year the amount
contributed to purses pursuant to the terms hereof shall be reduced by an
amount equal to the contribution to purses from breakage.   By way of further example, if the percentage
of 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 unless such
increased pari-mutuel tax is used to supplement purses or is used for the
exclusive activities of the representative horsemen group or groups for
Horsemen racing at Colonial Downs.

 

B.            Duration.  The terms and provisions of this Section 21 shall remain in full force and effect for as long as the
licenses for the New Richmond SWF, the Existing Chesapeake SWF, the New
Chesapeake SWF, the Vinton SWF, the Henry County SWF, the Scott County SWF, or
any future SWFs located in the Central-Southside Virginia Region or Northern
Virginia remain in effect.

 

22.           Additional
License.  Colonial Downs hereby
reserves the right, and the VHHA hereby recognizes such right, of Colonial Down’s
to apply for licenses from the Commission enabling Colonial Downs to seek an
available racetrack devoted to standardbred racing, subject to consultation
with the VHHA.  Once Colonial Downs
obtains the necessary licenses, the VHHA hereby agrees to (i) race standardbred
horses at, and promote, such racetrack and (ii) to cease racing the New Kent
Racetrack.  Colonial Downs shall be under
no obligation to obtain, or attempt to obtain, such licenses.

 

23.           Consents,
Approvals, Agreements or Assurances. 
Wherever this Agreement requires the consent, approval, agreement, or
assurance of Colonial Downs and/or the VHHA,

 

28

 

(1) a request for such
consent, approval, agreement, or assurance from one party shall be responded to
by the other party in a timely and businesslike manner, and (ii) such consent,
approval, agreement, or assurance shall not be unreasonably withheld, delayed
or conditioned unless otherwise specifically provided in this Agreement.

 

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

 

25.           Notices.  All notices, requests, demands or other
communications as may be required by this Agreement shall be in writing, shall
be signed by an authorized representative of the party providing the
communication, shall be sent to each of the persons listed below, may be sent
by certified mail, return receipt requested, or by telephone facsimile, and
shall be deemed to have been given or made when received by personal delivery
or otherwise.  A courtesy hard copy of
any communication that is sent by telephone facsimile also shall be sent by
certified mail, return receipt requested. 
The current addresses of persons to whom communications are to be sent
are 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

  

 

29

 

	
  Copy to:

  	
   

  	
  James L. Weinberg, Esq.

  
	
   

  	
   

  	
  Hirschler Fleischer

  
	
   

  	
   

  	
  The Federal Reserve
  Bank Building

  
	
   

  	
   

  	
  P. O. Box 500
  (23218-0500)

  
	
   

  	
   

  	
  701 E. Byrd Street, 15th
  floor

  
	
   

  	
   

  	
  Richmond, VA  23219

  
	
   

  	
   

  	
   

  
	
  VHHA:

  	
   

  	
  R. C. Dunavant, Jr., D.V.M., President

  
	
   

  	
   

  	
  Virginia Harness Horse
  Association

  
	
   

  	
   

  	
  c/o Lunenburg Animal
  Hospital

  
	
   

  	
   

  	
  Highway 40

  
	
   

  	
   

  	
  Kenbridge, Virginia
  23944

  
	
   

  	
   

  	
   

  
	
  Copy to:

  	
   

  	
  Gerald C. Canaan, Esq.

  
	
   

  	
   

  	
  Hancock, Daniel,
  Johnson & Nagle, P.C.

  
	
   

  	
   

  	
  4112 Innslake Drive

  
	
   

  	
   

  	
  Glen Allen, VA 23060

  

 

26.           Waivers.  No waiver by a party to this Agreement of any
breach of this Agreement or any of its terms shall be effective unless, and
only to the extent, such waiver is in writing signed by the party providing or
making such waiver and delivered to the other party as provided in Section 25
above.  No waiver of any breach shall be
deemed to be a waiver of any other or any subsequent breach.

 

27.           Applicable
Law; Venue.  This Agreement is being
executed and delivered in the Commonwealth of Virginia and shall be construed
and enforced in accordance with the law of Virginia without regard to its
conflict of laws rules and provisions. 
In all court proceedings brought in connection with this Agreement, the
parties hereto irrevocably consent to exclusive personal jurisdiction by, and
venue in, the Circuit Court for the City of Richmond, Virginia, or the United
States District Court for the Eastern District of Virginia, Richmond Division.

 

28.           Headings.  Any headings preceding the text of the
several sections, subsections, paragraphs and subparagraphs hereof are inserted
solely for convenience of reference and shall not constitute a part of this
Agreement, nor shall they affect its meaning, construction, or effect.

 

30

 

29.           Severability.  If any provision of this Agreement is
declared invalid by any tribunal, or becomes invalid or inoperative by
operation of law, the remaining provisions of this Agreement shall not be
affected thereby and shall remain in full force and effect.

 

30.           Entire
Agreement; Modification.  This
Agreement contains the entire Agreement between the parties and supersedes all
prior agreements, including, but not limited to, the Existing Agreement, and
understandings, both written and oral, between the parties with respect to the
subject matter of this Agreement.  This
Agreement shall be binding upon and inure to the benefit of each party hereto,
its legal representatives and successors, including, but not limited to, any
successor group to the VHHA that is the recognized majority standardbred
horsemen’s group.  No modification,
variation or amendment of this Agreement or of any attachment or exhibit to
this Agreement shall be effective unless such modification, variation or
amendment is in writing and has been signed by the parties to this
Agreement.  This Agreement may be
assigned by Colonial Downs in its sole discretion, subject to applicable law.

 

31.           Conditions
Precedent to Effectiveness of this Agreement.  The parties acknowledge that this Agreement
and the expenditures from the Racing Benevolence Fund detailed in Section 17
above are subject to the approval of the Commission.  If this Agreement in its entirety and such
expenditures are not approved by the Commission, this Agreement shall be null
and void.

 

Upon satisfaction or waiver
of the foregoing conditions, this Agreement shall be effective as of
January 1, 2005, regardless of the date of the satisfaction or waiver of
such conditions.

 

31

 

IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date first stated above.

 

	
  VIRGINIA HARNESS HORSE

  	
   

  	
  COLONIAL DOWNS, L.P.

  
	
  ASSOCIATION

  	
   

  	
  By:

  	
  Stansley Racing Corp.,
  its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ R. C. Dunavant, Jr.

  	
   

  	
   

  	
  By:

  	
  /s/ Ian M. Stewart

  
	
   

  	
  R. C. Dunavant, Jr.,
  D.V.M., President

  	
   

  	
   

  	
  Ian
  M. Stewart, President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  STANSLEY RACING CORP.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Ian M. Stewart

  
	
   

  	
   

  	
   

  	
  Ian M. Stewart,
  President

  
						

 

32EXHIBIT 10.9

 

 

MEMBERSHIP INTERESTS PURCHASE AGREEMENT

 

By and Between

 

GAMECO HOLDINGS, INC., as Seller,

 

AND

 

JACOBS ENTERTAINMENT, INC., as Buyer,

 

May 16, 2006

 

 

MEMBERSHIP INTERESTS PURCHASE AGREEMENT

 

THIS MEMBERSHIP INTERESTS PURCHASE AGREEMENT
(this “Agreement”), dated May 16, 2006 (“Agreement Date”), to be effective only
upon the closing of the Refinancing (as hereinafter defined), is entered into
by and between GAMECO HOLDINGS, INC.,
a Delaware corporation (“Seller”), and JACOBS
ENTERTAINMENT, INC., a
Delaware corporation (“Buyer”). 
Capitalized terms not defined in context are defined in Section 12.15.

 

RECITALS

 

A.            Seller is the sole
member of each the following Louisiana limited liability companies: (i) JALOU DIAMOND L.L.C. (“Diamond”); (ii) JALOU MAGIC L.L.C. (“Magic”); and (iii) JALOU OF ST. MARTIN L.L.C. (“Martin”) (Diamond, Magic and
Martin are collectively, the “Truck Stops” and sometimes individually, each a “Truck
Stop”);

 

B.            Diamond operates a
truck stop, convenience store, restaurant, fueling operation and video draw
poker gaming parlor located at 1144 Evangeline Thruway, Broussard, Louisiana
70518;

 

C.            Magic operates a truck
stop, convenience store, restaurant, fueling operation and video draw poker
gaming parlor located at  2334 Highway
109 South, Vinton, Louisiana 70668;

 

D.            Martin operates a
truck stop, convenience store, restaurant, fueling operation and video draw
poker gaming parlor located at 1050 Baker Hughes Drive, Broussard, Louisiana
70518;

 

E.             Seller desires to
sell to Buyer, and Buyer desires to purchase from Seller, upon the terms and
subject to the conditions of this Agreement, all of the membership interests of
each of the Truck Stops (collectively, the “Membership Interests”); and

 

F.             Buyer is anticipating
refinancing its 11 7/8%
Senior Secured Notes due 2009, in the aggregate principal amount, as of the
Agreement Date, of $148,000,000 (the “Refinancing”) and desires to use a
portion of the proceeds thereof to satisfy its obligations under this
Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements, terms, conditions, covenants, representations and warranties
hereinafter set forth, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

 

Article 1.

PURCHASE AND SALE OF MEMBERSHIP INTERESTS

 

1.1.          Purchase and Sale of Membership Interests.  At the Closing and effective as of the
Closing Date, (a) Seller will sell, transfer and assign, free and clear of all
Liens or Claims

 

1

 

whatsoever, all of the
Membership Interests to Buyer or its designee or nominee, and (b) Buyer will
purchase the Membership Interests from Seller and deliver to Seller the
Purchase Price (as defined in Section 1.2).

 

1.2.          Purchase
Price.

 

1.2.1.       The purchase price for the Membership Interests (the “Purchase
Price”) shall be Fourteen Million Three
Hundred Eighty Thousand and no/100 Dollars ($14,380,000.00), to be
allocated as follows:

 

1.2.1.1.                    Four
Million Nine Hundred Twenty Thousand and no/100 Dollars ($4,920,000.00) shall
allocated for the purchase of the Membership Interests of Diamond;

 

1.2.1.2.                    Four
Million Eight Hundred Twenty Thousand and no/100 Dollars ($4,820,000.00) shall
allocated for the purchase of the Membership Interests of Magic; and

 

1.2.1.3.                    Four
Million Six Hundred Forty Thousand and no/100 Dollars ($4,640,000.00) shall
allocated for the purchase of the Membership Interests of Martin.

 

1.2.2.       The Purchase Price shall be paid to the Seller via wire
transfer of immediately available funds on the Closing Date.

 

1.3.          Transfer
Taxes. 
Buyer and Seller shall share equally any and all transfer or similar
Taxes (but excluding all withholding taxes computed on the basis of net income)
– (“Transfer Taxes”) imposed upon either party hereto as a result of the
transactions contemplated hereby.  To the
extent any exemptions from such Transfer Taxes are available, Buyer and Seller
shall cooperate to prepare any certificates or other documents necessary to
claim such exemptions.

 

Article 2.

CLOSING AND DELIVERIES

 

2.1.          General.  The closing of the transactions contemplated
herein (the “Closing”) shall take place promptly following the receipt by the Buyer
of the proceeds of the Refinancing, at the offices of Hahn Loeser & Parks,
LLP, 3300 BP Tower, 200 Public Square, Cleveland, Ohio 44114-2301, or such
other time, date and place as the parties may agree.  The effective time of closing shall be 12:01
a.m. (the “Effective Time”) on the date of the Closing (the “Closing Date”).

 

2.2.          Seller’s
Closing Deliveries.  On the Closing Date,
Seller shall deliver, or caused to be delivered, to Buyer the following items:

 

2

 

2.2.1.       Membership Interests.  An instrument of
assignment, in form and substance reasonably acceptable to the Buyer and Buyer’s
legal counsel, conveying the Membership Interests to Buyer, together with the
certificates of membership interests issued by each of the Truck Stops to the
Seller;

 

2.2.2.       Receipt.  A receipt evidencing receipt by Seller of the
Purchase Price (the “Receipt”);

 

2.2.3.       Limited Liability Company Records.  All of the original limited liability company
records, including company record books, etc., for each of the Truck Stops;

 

2.2.4.       Officer’s Certificate.  A certificate of an
officer of Seller to the effect that the conditions set forth in Sections 8.1
and 8.2 have been satisfied;

 

2.2.5.       Good Standing Certificates.  A good
standing/full force and effect certificate, as applicable, dated not more than
thirty (30) days prior to the Closing Date, for the Seller and each of the
Truck Stops;

 

2.2.6.       Secretary’s Incumbency Certificate.  A certificate of the Secretary for the Seller
certifying (a) the current officers of the Seller and each of the Truck Stops,
(b) a current copy of the Seller’s Certificate of Incorporation and the
Articles of Organization for each of the Truck Stops, (c) a current copy of the
Seller’s By-laws and the Operating Agreement of each of the Truck Stops, and
(d) a copy of the Seller’s resolution authorizing the sale contemplated by this
Agreement; and

 

2.2.7.       Updates to Schedules.  An update to each
of the Schedules attached to this Agreement identifying any changes between the
Agreement Date and the Closing Date.

 

2.3.          Buyer’s
Closing Deliveries.  On the Closing Date,
Buyer shall deliver, or cause to be delivered, to Seller the following items:

 

2.3.1.       Wire Transfer.  The Purchase Price
paid via wire transfer in immediately available funds to an account specified
by Seller prior to the Closing;

 

2.3.2.       Officer’s Certificate.  A certificate of an
officer of Buyer to the effect that the conditions set forth in Sections 9.1
and 9.2 have been satisfied;

 

2.3.3.       Good Standing Certificate.  A good standing
certificate, dated not more than thirty (30) days prior to the Closing Date,
for the Buyer;

 

3

 

2.3.4.       Secretary’s Incumbency Certificate.  A certificate of the Secretary for the Buyer
certifying (a) the current officers of the Buyer, (b) a copy of the Buyer’s
Certificate of Incorporation and By-laws and (c) a copy of the Buyer’s
resolution authorizing the sale contemplated by this Agreement.

 

Article 3.

DUE DILIGENCE

 

3.1.          Due Diligence Period. Beginning on the
Agreement Date and continuing thereafter until the Closing Date (“Due Diligence
Period”), Buyer shall have the right to perform the following due diligence
pursuant to the terms and conditions hereof:

 

3.2.          General Testing and Inspections.  Buyer shall have the right, during the Due
Diligence Period, to conduct such engineering, environmental, general business
and feasibility studies, audits, test, reviews and/or surveys of any or all of
the Truck Stops and their respective assets, liabilities, operations (including
gaming operations and records), financial performance and affairs, as the Buyer
deems necessary, including soil tests, borings, drainage tests and similar
tests on any land or improvements owned or leased by any of the Truck Stops,
and audits and reviews of any of the financial and business records,
operations, documents and instruments of the Seller pertaining to any of the
Truck Stops or their operations.  Such
studies shall be conducted by the Buyer and its agents at the Buyer’s sole cost
and expense.  Subject to reasonable
advance notice, the Seller and each of the Truck Stops agrees to allow Buyer
and its agents access to all assets, records, documents and instruments of the
Truck Stops to conduct such studies and audits, provided such access shall not
unreasonably interfere with the activities of the Seller or any of the Truck
Stops.  Buyer shall, and does hereby,
save, defend, indemnify and hold the Seller and each Truck Stop harmless from
and against all claims, lawsuits, judgments, losses, liabilities or expenses of
any kind or nature which may be asserted against or incurred by the Seller or
any of the Truck Stops as the result of the Buyer’s or its agents’ actions and
activities conducted pursuant to this Section 3.2. The Buyer shall keep
the results of all due diligence activities confidential unless specifically
directed or required to disclose the same under any federal, state or local
law, rule or regulation or upon the order of any court or Governmental Body.  Notwithstanding any other provisions of this
Agreement or any documents contemplated hereby to the contrary, the obligation
of the Buyer to defend, indemnify and hold harmless the Seller and each of the
Truck Stops under this Section 3.2 shall survive the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby or the termination of this Agreement.

 

3.3.          Title
Insurance.  Prior to the
Closing, Buyer may cause to have delivered to Buyer a commitment from a title
insurance company reasonably acceptable to Buyer to issue as of the Closing
Date for any real property owned or leased by any of the Truck Stops, in the
customary form prescribed for use in the State of Louisiana, an Owner’s Policy
of Title Insurance (collectively, the “Title Policy”).  Seller shall deliver any information as
reasonably may be required by Buyer’s title insurance company under the
requirements section of the title insurance commitment or otherwise in
connection with the issuance of Buyer’s title insurance policy.  Seller shall provide an affidavit of title or
such other information as Buyer’s title insurance company may reasonably
require in order for the title insurance company to delete the standard

 

4

 

exceptions and to insure over
the “gap” (i.e., the period of time between the effective date of the title
insurance company’s last checkdown of title and the Closing Date) and to cause
the title insurance company to delete all standard exceptions from the final
title insurance policy.

 

3.4.          Financial Statements.  Prior to the Closing Date, Seller has
delivered, or caused to be delivered, to the Buyer an audited Statement of
Income and Balance Sheet for each Truck Stop for the full calendar year ending
on December 31, 2005 (collectively, the “Financial Statements”), in such detail
as may be reasonably requested by the Buyer.

 

Article 4.

SELLER’S REPRESENTATIONS AND WARRANTIES

 

Seller
represents and warrants to Buyer as follows:

 

4.1.          Organization
and Authorization.

 

4.1.1.       Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.

 

4.1.2.       Each of the Truck Stops is a limited liability company duly
organized, validly existing and in full force and effect under the laws of the
State of Louisiana.  None of the Truck
Stops has any subsidiaries.

 

4.2.          Validity
of Agreements. 
Seller has the power and authority to enter into this Agreement and all
other agreements and instruments executed and delivered or to be executed and
delivered under this Agreement (the “Transaction Documents”) to which Seller is
a party.  The execution, delivery and
performance by Seller of this Agreement, the Transaction Documents and the
other documents and certificates contemplated therein have been duly authorized
by all necessary corporate action on the part of Seller.  This Agreement is, and when executed and
delivered at the Closing, the Transaction Documents to which Seller is a party
and all other documents and certificates contemplated therein will be, the legal,
valid and binding obligations of Seller, enforceable against Seller in
accordance with their terms.

 

4.3.          Non-Contravention.  The execution and delivery by Seller of this
Agreement, the Transaction Documents to which Seller is a party and all other
documents and certificates contemplated therein and the consummation and
performance by Seller of the transactions contemplated by this Agreement and
the Transaction Documents will not (i) violate any provision of the Certificate
of Incorporation or the By-laws of Seller or Articles of Organization or
Operating Agreements of any of the Truck Stops, (ii) violate or result in any
default under, or the acceleration of (whether by the giving of notice or the
passage of time or both), any obligation under any contract, note, bond,
mortgage, indenture, or lease to which Seller or any of the Truck Stops is a
party or by which Seller or any Truck Stop is bound that would, in any such
event, be material, or (iii) violate any constitutional provision, statue,
rule, law, regulation, award, order, ordinance, judgment, decree, citation,
policy, standard, interpretation, writ or injunction of any Governmental Body
(collectively, “Law”).

 

5

 

4.4.          Capitalization.  The Membership Interests represent the only
authorized, issued and outstanding equity interests of each Truck Stop.  The Membership Interests are duly and validly
issued and outstanding and are fully paid and nonassessable.  The Membership Interests have not been issued
in violation of, and are not subject to, and there are no, outstanding options
or other conversion or exchange rights relating to the Membership
Interests.  There are no authorized or
outstanding options under which the Seller or any of the Truck Stops may be
obligated to issue or sell any equity interests of any Truck Stop.  Except as identified on Schedule 4.4,
there are no agreements, commitments, contacts or rights of first refusal
relating to the issuance, sale or transfer of any equity interest of or profit
participation in any of the Truck Stops. 
At the Closing, Buyer shall receive the Membership Interests free and
clear of all Liens and Claims whatsoever. 
As of the Closing, no Truck Stop shall be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
equity interests (including Membership Interests).  Seller has full legal and beneficial
ownership of the Membership Interests. 
The Membership Interests have not been registered under any securities laws
of any Governmental Body

 

4.5.          Title to Truck Stop Property.  As of the Agreement Date, except as
disclosed  on Schedule 4.5, each
Truck Stop has good and valid title to, or a valid and enforceable leasehold
interest in, all of its properties and assets, tangible or intangible, as
reflected in each Truck Stop’s Financial Statements, and the schedules attached
thereto, and the same are free and clear of all Liens and Claims except (a)
Liens to be released at or prior to Closing, (b) such Liens that are disclosed
by the Title Policy (including real property taxes that are a lien but not yet
due and owing) for each Truck Stop and the records of the Secretary of State of
Louisiana and (c) those Liens and Claims identified on Schedule 4.5.

 

4.6.          Tax
Matters.  Except as set
forth on Schedule 4.6, Seller and each Truck Stop, as applicable, has
timely filed or will timely file, in the manner provided by Law, all Tax
Returns for periods prior to and including the Closing Date which are required
to be filed with respect of the income or operations of Seller.  All such Tax Returns are complete and correct
in all material respects and have been prepared in material compliance with all
applicable laws and regulations. Seller has paid or will pay all Taxes owed for
the taxable periods covered by such Tax Returns (whether or not shown thereon)
in the manner provided by Law.  None of
the assets of any Truck Stop is subject to any Liens for any Taxes, and to the
Seller’s actual knowledge there is no basis upon which such a Lien could be
asserted.

 

4.7.          Environmental
Liability.  Except
as set forth on Schedule 4.7 and the documents referred to therein, to
the Seller’s actual knowledge, there has been no release, threatened release,
spill, leak, discharge or emission of any Hazardous Materials to the air,
surface water, groundwater or soil at any of the Truck Stops requiring
corrective action under any applicable Environmental Laws.  To the Seller’s actual knowledge, there has
been no material release, threatened release, spill, leak, discharge or
emission of any Hazardous Materials to the air, surface water, groundwater or
soil at any of the Truck Stops that is a violation of any applicable
Environmental Laws.  “Hazardous Materials”
means any hazardous or toxic substance or waste or any contaminant or pollutant
regulated or otherwise creating liability under any Environmental Laws,
including, without limitation, “hazardous substances” as defined by the
Comprehensive Environmental Response Compensation and Liability Act, as
amended, “toxic substance” as defined by the Toxic Substance Control Act, as
amended, “hazardous wastes” as

 

6

 

defined by the Resource
Conservation and Recovery Act, as amended, “hazardous materials” as defined by
the Hazardous Materials Transportation Act, as amended, thermal discharges,
radioactive substances, PCBs, natural gas, petroleum products or byproducts and
crude oil.  “Environmental Laws” means
all Laws relating to pollution, worker health and worker safety, or the
environment, and all other Laws relating to emissions, discharges, releases or
threatened releases of Hazardous Materials into the environment or otherwise
relating to the generation, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials. 
Each of the Truck Stops is and has been in material compliance with all
Environmental Laws, provided any noncompliance has not had and is not likely to
have a Material Adverse Effect on such respective Truck Stop or its operations.  Buyer acknowledges that each of the Truck
Stops contains a fueling operation for the sale and dispersal to the general
public of gas and diesel fuels.  Except
as set forth on Schedule 4.7 and the documents referred to therein, neither
the Seller nor any Truck Stop has received any written notice, report or other
information regarding any actual or alleged violation of Environmental Laws
relating to any Truck Stop.

 

4.8.          Seller Inter-company Loans.  Notwithstanding the contents of the Financial
Statements or any other language to contrary contained in this Agreement, any
loans, notes payable or other debt obligations between the Seller and any of
the Truck Stops or between the Truck Stops and any other subsidiaries of the
Seller (collectively, the “Seller Inter-company Loans”) shall be retired by the
Seller from the proceeds of the Purchase Price and shall not be a part of the
transfer of the Membership Interests at Closing.  In no event shall the Buyer, nor any of its
subsidiaries, including, but not limited to, the Truck Stops following the
Closing, have any liability for any of the Seller Inter-company Loans.

 

4.9.          Consents, etc.  Except as identified on Schedule 4.9
or the matters described in Section 6, any registration, declaration or filing with,
or consent, approval, license, permit or other authorization or order by, any
governmental or regulatory authority, domestic or foreign, that is required in
connection with the valid execution, delivery, acceptance and performance by
the Seller and each of the Truck Stops under this Agreement or the consummation
by the Seller and each of the Truck Stops of any of the transactions
contemplated hereby has been or will be completed, made or obtained on or
before the Closing Date.

 

4.10.        Litigation, etc.  Except as set forth on Schedule 4.10,
to the Seller’s actual knowledge there are no Claims against the Seller or any
of the Truck Stops or any of their assets, or pending or threatened by the
Seller or any of the Truck Stops against any third party, at law or in equity,
or before or by any Governmental Body. 
To the Seller’s actual knowledge, no Truck Stop is subject to any
judgment, order or decree of any court or other Governmental Body (excepting
various licensing necessary for its customary and on-going operations).

 

4.11.        Brokers’
Fees.  No
investment banker, broker, finder or other intermediary has been retained by or
is authorized to act on behalf of Seller who might be entitled to any fee or
commission from Buyer or the Company upon consummation of the transactions
contemplated by this Agreement.

 

4.12.        No Adverse Change.  From the Agreement Date to the Closing Date,
there shall be no adverse change in the operating results, assets, liabilities,
operations, prospects, employee

 

7

 

relations or customer or
supplier relations of any of the Truck Stops which has had or could reasonably
be expected to have a Material Adverse Effect.

 

4.13.        Conduct
Pending Closing. 
From the Agreement Date until the Closing Date, Seller shall: (i) use
commercially reasonable efforts to cause each of the Truck Stops to be operated
and to carry on its respective businesses in the ordinary course consistent
with its past practice; and (ii) not permit or cause the distribution of any
assets from any of the Truck Stops, including, but not limited to, cash and
other current assets, excepting only
those distributions and payments made in the ordinary course of each Truck Stop’s
business.

 

Article 5.

BUYER’S REPRESENTATIONS AND WARRANTIES

 

Buyer hereby
represents and warrants to Seller as follows:

 

5.1.          Organization
and Power. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.

 

5.2.          Authorization
and Validity of Agreements.  The execution, delivery
and performance by Buyer of this Agreement, the Transaction Documents and the
other documents and certificates contemplated therein has been duly authorized
by all necessary corporate action on the part of Buyer.  Buyer has the power and authority to enter
into this Agreement, the Transaction Documents and the other documents and
certificates contemplated to be executed herein and to consummate the
transactions contemplated thereby.  This
Agreement and the Transaction Documents and the other documents and
certificates contemplated herein constitute the legal, valid and binding
obligations of Buyer, enforceable against it in accordance with their
respective terms.

 

5.3.          Non-Contravention.  The execution and delivery by Buyer of this
Agreement, the Transaction Documents and the other documents and certificates
contemplated therein and the consummation and performance by Buyer of the
transactions contemplated herein will not (i) violate any provision of the Certificate
of Incorporation or By-laws of Buyer, (ii) violate, or be in conflict with any
provision of, or constitute a default under, or result in the termination of,
or accelerate the performance required by, or cause the acceleration of the
maturity of any liability or other obligation to which Buyer is a party, or
(iii) violate any Law.

 

5.4.          Brokers’
Fees.  No
investment banker, broker, finder or other intermediary has been retained by or
is authorized to act on behalf of Buyer who might be entitled to any fee or
commission from Seller upon consummation of the transactions contemplated by
this Agreement.

 

5.5.          Non-Registration. The Buyer understands
and agrees that the Membership Interests are not registered under the
Securities Act of 1933, as amended (the “Securities Act”), nor the securities
laws of any state, and, accordingly, the Membership Interests may not be
offered, sold, pledged, hypothecated or otherwise transferred or disposed of in
the absence of registration or the availability of an exemption from registration
under the Securities Act and any applicable state securities laws.

 

8

 

5.6.          Devices.  The Buyer acknowledges that all Devices
operated at any of the Truck Stops are owned and operated therein by a third-party,
licensed device owner, to-wit; Southern Trading Corporation, a Louisiana
corporation.  All such Devices are
operated pursuant to Device Placement Agreements between each of the Truck
Stops and Southern Trading Corporation, copies of which have been provided to
the Buyer.

 

5.7.          Licensure.  The Buyer acknowledges that the activities of
the video draw poker gaming parlors and the alcohol, tobacco and lottery sales,
as applicable, conducted at each of the Truck Stops are subject to licensing
and regulation by various federal, state and local Governmental Bodies.  The Buyer further acknowledges that
appropriate notifications to the Louisiana State gaming authorities of the
consummation of the transactions contemplated by this Agreement will be
required promptly following the Closing hereunder.

 

Article 6.

SURVIVAL

 

The
representations and warranties contained in Sections 4.1 through 4.8 and
Sections 5.1 through 5.7, inclusive, shall survive the execution and
delivery of this Agreement and consummation of the transactions provided for in
this Agreement without limitation as to time. 
The representations and warranties contained in Sections 4.9 through 4.14
shall survive the Closing hereunder and shall continue in effect for a period
of one (1) year from and after the Closing Date.

 

Article 7.

MUTUAL COVENANTS AND AGREEMENTS

 

7.1.          Expenses.  Except as otherwise specifically provided in
this Agreement and the Transaction Documents, each party shall bear its own
expenses in connection with and in performance of this Agreement and the
Transaction Documents.  Buyer shall be
solely responsible for all of its costs incurred in its due diligence
activities, including, but not limited to, the costs of any surveys,
environmental site assessment studies, title policies and title commitments and
any and all costs, expenses or fees relating to its financing of the
transactions contemplated in this Agreement.

 

7.2.          Cooperation.  Each party shall cause every Person that is a
shareholder, director, officer or employee of any party hereto or any of the
Truck Stops to use all commercially reasonable efforts to assist in the
satisfaction of such party’s obligations hereunder and in the consummation of
the transactions contemplated herein.

 

Article 8.

CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER TO CLOSE

 

The obligation
of Buyer to consummate the transactions contemplated by this Agreement is
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions precedent, any one or more of which may be waived by Buyer
in writing:

 

9

 

8.1.          Compliance
with Covenants. 
Seller shall have performed and complied in all material respects with
all covenants, obligations and agreements required by this Agreement to be
performed or complied with by it at or prior to the Closing Date.

 

8.2.          Representation
and Warranties. 
The representations and warranties of Seller contained in this Agreement
shall be true and correct in all material respects on the Closing Date as if
made on such date, except for any changes permitted by the terms of this
Agreement.

 

8.3.          Actions
of Seller at Closing.  At the Closing and unless otherwise waived by
Buyer, Seller shall have delivered to Buyer those deliveries set forth in Section
2.2.

 

8.4.          Financing.  Buyer
shall have obtained the financing necessary to consummate the transaction.

 

8.5.          No Material
Adverse Effect.  From
and after the Agreement Date, there shall not have been any event or change in
the Seller or any of the Truck Stops which has had a Material Adverse Effect.

 

8.6.          Financial
Statements.  Excepting only normal recurring changes related to the
usual operations of the Truck Stops, none of the Truck Stops shall have
suffered or incurred a material change in its Financial Statements between
December 31, 2005 and the Closing Date.

 

Article 9.

CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER TO CLOSE

 

The obligation
of Seller to consummate the transactions contemplated by this Agreement is
subject to the fulfillment, prior to or on the Closing Date, of each of the
following conditions precedent, any one or more of which may be waived by
Seller in writing:

 

9.1.          Compliance
with Covenants. 
Buyer shall have performed and complied in all material respects with
all covenants, obligations and agreements required by this Agreement to be
performed or complied with by it at or prior to the Closing Date.

 

9.2.          Representation
and Warranties. 
The representations and warranties of Buyer contained in this Agreement
shall be true and correct in all material respects on the Closing Date as if
made on such date, except for any changes expressly permitted by the terms of
this Agreement.

 

9.3.          Actions
of Buyer at Closing.  At the Closing and unless otherwise waived by
Seller, Buyer shall have delivered to Seller those deliveries set forth in Section
2.3.

 

Article 10.

TERMINATION OF AGREEMENT

 

10.1.        Termination
of Agreement. 
This Agreement may be terminated at any time prior to the Closing Date
only as follows:

 

10

 

10.1.1.     By Mutual Agreement.  If Seller and Buyer
both agree to terminate the Agreement.

 

10.1.2.     By Buyer.  Buyer may terminate this Agreement at anytime
prior to the Closing for any reason or no reason in the sole discretion of the
Buyer.

 

10.1.3.     By Seller.  Seller may terminate this Agreement by giving
written notice to Buyer if Buyer has materially breached any of its covenants contained in this
Agreement or if there is any inaccuracy in any of the representations or
warranties made by Buyer, if Seller has previously notified Buyer in writing of
such breach or inaccuracy and the breach or inaccuracy has continued without
cure for a period of fifteen (15) days after such notice.

 

10.2.        Effect
of Termination. 
In the event of a termination (prior to the consummation of the Closing)
by either party, this Agreement shall thereafter be null and void and of no
further force or effect and each party shall be solely responsible for any and
all costs or expenses it has incurred hereunder.

 

Article 11.

INDEMNIFICATION

 

11.1.        Seller’s
Agreement to Indemnify.

 

11.1.1.     Buyer Claims.  Subject to the
terms and conditions of this Article 11, Seller shall indemnify, defend
and hold harmless Buyer or any of its officers, directors, shareholders,
employees or agents (“Buyer Indemnitees”) from and against any and all Claims,
causes of actions, losses, damages, deficiencies, Taxes, liabilities,
obligations, reimbursements, costs and expenses of any kind or nature,
penalties, fines, expenses (including reasonable attorneys’ and experts’ fees
and expenses) and all amounts paid in investigation, defense or settlement of
any of the foregoing (collectively, “Losses”) suffered or incurred by any of
them arising from, relating to or otherwise in respect of (a) any inaccuracy in
any representations or warranties contained in Article 4 of this
Agreement, (b) any breach or non-fulfillment by Seller of any of its covenants
contained in this Agreement, the Transaction Documents or any agreement
delivered pursuant to this Agreement, or (c) any Losses arising from or related
to the Seller’s operation of the Truck Stops prior to the Closing Date
(collectively, “Buyer Claims”).

 

11.1.2.     Cap.  No Buyer Claims shall be asserted pursuant to
Section 11.1.1 until the aggregate Losses suffered or incurred by Buyer
are equal to or greater than $100,000 (the “Threshold Amount”), in which event
the Buyer Claims may be asserted only to the extent of the Losses in

 

11

 

excess of such amount, excluding individual
Losses that are less than the Threshold Amount. 
With respect to Buyer Claims asserted pursuant to Section 11.1.1,
no indemnification shall be made in excess of the Purchase Price (the “Cap”).

 

11.2.        Buyer’s
Agreement to Indemnify.

 

11.2.1.     Seller’s Claims.  Subject to the
terms and conditions of this Article 11, Buyer agrees to indemnify,
defend and hold harmless Seller and any of its officers, directors,
shareholders, employees or agents (“Seller Indemnitees”) from and against all
Losses suffered or incurred by any of them arising from, relating to or
otherwise in respect of (i) any inaccuracy in any representations or warranties
contained in Article 5 of this Agreement, (ii) any breach or
non-fulfillment by Buyer of any of its covenants contained in this Agreement,
the Transaction Documents or any agreement delivered pursuant to this Agreement
or (iii) any Losses arising from or related to the Buyer’s operation of the
Truck Stops on or after the Closing Date (collectively, “Seller Claims”).

 

11.2.2.     Cap.  No Seller Claims shall be asserted pursuant
to Section 11.2.1 until the aggregate Losses suffered or incurred by
Seller are equal to or greater than the Threshold Amount, in which event the
Seller Claims may be asserted to the full extent of the Losses suffered or
incurred by Seller, excluding individual Losses that are less than the
Threshold Amount.  Additionally, with
respect to Seller Claims asserted pursuant to Section 11.2.1, no
indemnification shall be made in excess of the Cap.

 

11.3.        Procedures
for Resolution and Payment of Third-Party Claims for Indemnification.

 

11.3.1.     Notice and Control.  Except as otherwise
provided herein, in the event any third party asserts a Claim with respect to
any matter as to which the indemnities in this Agreement relate, the party or
parties against whom the Claim is asserted (whether singular or plural, the “Indemnitee”)
shall give prompt written notice to the other party or parties (whether
singular or plural, the “Indemnitor”) in reasonable detail so that the
Indemnitor is or will be able to reasonably understand the basis of the Claim;
provided that the failure of the Indemnitee to provide such notice shall not
relieve the Indemnitor of its obligations hereunder except to the extent the
Indemnitor is materially prejudiced thereby. Thereafter, the Indemnitor shall
have the right at its election to take over the defense or settlement of the
third party Claim at its own expense by giving prompt notice to the Indemnitee.  If the Indemnitor does not give such notice
and does not proceed diligently so to defend the third party Claim within 30
days

 

12

 

after receipt of the notice of the third
party Claim, the Indemnitor shall be bound by any defense or settlement that
the Indemnitee may make as to those Claims and shall reimburse the Indemnitee
for its Losses related to the defense or settlement of the third party Claim.  Subject to Indemnitor retaining control of
the Claim or settlement thereof, the Indemnitee shall, at its option and
expense, have the right to participate in the defense of any such Claims
defended by the Indemnitor (except that Indemnitor shall not be responsible for
the fees and expenses of counsel to Indemnitee unless agreed to in writing).
The parties shall cooperate in defending against any asserted third party
Claims.

 

11.3.2.     Claim Resolution.  Anything in this Section
11.3 to the contrary notwithstanding, (a) if there is a reasonable
probability that a third party Claim may materially and adversely affect the
Indemnitee other than as a result of money damages or other money payments, the
Indemnitee shall have the right, at its own cost and expense, to defend,
compromise or settle such Claim; provided,
however, that if such Claim is settled without the Indemnitor’s
consent (which consent shall not be unreasonably withheld or delayed), the
Indemnitee shall be deemed to have waived all rights hereunder against the
Indemnitor for money damages arising out of such Claim, and (b) the Indemnitor
shall not, without the written consent of the Indemnitee, settle or compromise
any Claim or consent to the entry of any judgment (i) which does not include as
an unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnitee a release from all liability in respect to such Claim or (ii) if
such settlement, compromise or consent involves the imposition of equitable
remedies or the imposition of any obligations on such Indemnitee other than
financial obligations for which such Indemnitee will be fully indemnified
hereunder.

 

11.4.        Remedies
Exclusive; No Other Remedies.  The remedies contained in this Article 11
shall be the parties’ sole and exclusive remedies for any post-Closing Claims
made in connection with this Agreement. 
Each party hereto hereby waives and releases, and covenants not to seek
or assert, any other Claims or remedies in the event that the Closing occurs.

 

11.5.        Limitation
of Damages. 
In no event shall any party to this Agreement be liable to any other
party for consequential, punitive or other similar damages.

 

Article 12.

MISCELLANEOUS

 

12.1.        Reformation
and Severability. 
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future Laws effective during the term hereof, in
lieu of such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable

 

13

 

provision as may be possible
and be legal, valid and enforceable consistent with the intentions of the
parties hereto, and the legality, validity and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.  Likewise, each representation, warranty and
covenant contained herein shall have independent significance and, if any party
hereto has breached any representation, warranty or covenant contained herein
in any respect, the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which such party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty or covenant.

 

12.2.        Further
Assurances. 
All parties agree and obligate themselves, and their respective
officers, directors, shareholders, members, managers, employees and agents, to
promptly execute any additional documents and instruments and take any other
actions necessary and proper for the complete and expeditious implementation
and satisfaction of the provisions and intent of this Agreement.  In addition, the Seller agrees that during and
subsequent to the sale transaction, it shall have a continuing duty to supply
such reasonable information and documentation and to perform such acts as may
be required by any federal, state or local authority or the Liquor and Gaming
Laws of the State of Louisiana, including, but not limited to, making its books
and records available to the Buyer or its designee on an as-needed, reasonable
basis after the Closing; provided, however,
in no event whatsoever shall the Seller be required to pay or be responsible
for the payment of any monies in connection therewith.

 

12.3.        Liquor and Gaming Laws of the State of Louisiana.  Each of the parties agree that this Agreement
is and shall be subject to the Liquor and Gaming Laws of the State of Louisiana
and to the oversight of the Louisiana State Police and the Gaming Control Board
of the State of Louisiana.

 

12.4.        Notices.  Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to be properly
given when personally delivered (by hand or by courier), when sent by certified
or registered mail, postage prepaid and return receipt requested, when sent by
facsimile transmission, or when delivered by overnight or similar delivery
services, fees prepaid, to the party entitled to receive such notice at the
address (or facsimile number) set forth below or at such other address (or
facsimile number) as such party shall provide in a written notice to the others
in accordance with the terms of this Section 12.4.  Except as otherwise specifically provided in
this Agreement, notice shall be deemed to be received by the party to whom such
notice was sent, in the case of notice given by personal delivery, on the date
of delivery, in the case of notice given by certified mail (or by such
comparable method), three (3) business days after mailing, in the case of
notice by overnight delivery service, on the date of delivery to such overnight
delivery service, and, in the case of notice by facsimile transmission, on the
date of actual transmission.

 

	
  If to Seller, to

  	
   

  	
  Gameco Holdings, Inc.

  
	
   

  	
   

  	
  1231 Main Avenue

  
	
   

  	
   

  	
  Cleveland, Ohio 44113

  
	
   

  	
   

  	
  Facsimile:  (216) 861-6315

  
	
   

  	
   

  	
  Attention:  Michael A. Brachna

  

 

14

 

	
  With a copy to:

  	
   

  	
  Stanley R. Gorom III,
  Esq.

  
	
   

  	
   

  	
  Hahn Loeser &
  Parks, LLP

  
	
   

  	
   

  	
  3300 BP Tower

  
	
   

  	
   

  	
  200 Public Square

  
	
   

  	
   

  	
  Cleveland, OH  44114

  
	
   

  	
   

  	
  Facsimile: (216)
  274-2460

  
	
   

  	
   

  	
   

  
	
  If to Buyer, to:

  	
   

  	
  Jacobs Entertainment,
  Inc.

  
	
   

  	
   

  	
  240 Main Street

  
	
   

  	
   

  	
  Black Hawk, Colorado
  80422

  
	
   

  	
   

  	
  Facsimile:  (303) 582-0239

  
	
   

  	
   

  	
  Attention:  Stephen R. Roark

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Samuel E. Wing, Esq.

  
	
   

  	
   

  	
  Jones & Keller

  
	
   

  	
   

  	
  1625 Broadway, Suite
  1600

  
	
   

  	
   

  	
  Denver, Colorado 80202

  
	
   

  	
   

  	
  Facsimile: (303)
  573-0769

  
	
   

  	
   

  	
   

  
	
  And to:

  	
   

  	
   

  	
  Robert A. Weible, Esq.

  
	
   

  	
   

  	
  Baker & Hostetler,
  LLP

  
	
   

  	
   

  	
  3200 National City
  Center

  
	
   

  	
   

  	
  1900 East Ninth Street

  
	
   

  	
   

  	
  Cleveland, Ohio 44114

  
	
   

  	
   

  	
  Facsimile: (216)
  696-0740

  
				

 

12.5.        Headings
and Interpretations.  The headings of Articles and Sections
contained in this Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any provision of this
Agreement.

 

12.6.        Waiver.  The failure of any party to insist, in any
one or more instances, upon performance of any of the terms, covenants or
conditions of this Agreement shall not be construed as a waiver or a
relinquishment of any right or Claim granted or arising hereunder or of the
future performance of any such term, covenant or condition, and such failure
shall in no way effect the validity of this Agreement or the rights and
obligations of the parties hereto. Additionally, no waiver of any breach of
this Agreement shall be a waiver of any subsequent breach.  No waiver shall be effective unless made in
writing and signed by the party granting such waiver.

 

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

 

12.8.        Governing
Law.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of Louisiana, without regard to principles of conflict of laws, and the
parties expressly agree that venue, for all purposes hereunder, shall rest
exclusively with the state and federal courts of the State of Louisiana.

 

15

 

12.9.        Assignability
and Binding Effect.  This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors and
permitted assigns. This Agreement together with the Transaction Documents and
the rights and obligations hereunder may not be assigned by either party
without the express written consent of the other.

 

12.10.      Amendments.  This Agreement may not be modified, amended
or supplemented except by an agreement in writing signed by each of the parties
hereto.

 

12.11.      Third
Parties.  Nothing
herein expressed or implied is intended or shall be construed to confer upon or
give to any Person other than the parties hereto and their successors or
permitted assigns, any rights or remedies under or by reason of this Agreement.

 

12.12.      Entire
Agreement. 
This Agreement and the Transaction Documents together with the schedules
and exhibits hereto and thereto, shall constitute the entire agreement between
the parties hereto with respect to the transactions contemplated hereby and
shall supersede all prior negotiations, letters of intent, understandings and
agreements. A disclosure of any information in a schedule attached hereto, or
delivery pursuant to the terms hereof, shall be considered a disclosure of such
information in any other schedules in which the same information may otherwise
be required to be included in accordance with the terms of this Agreement.

 

12.13.      Other Interpretive Matters.  In
this Agreement, unless a clear contrary intention appears:  (a) the singular number includes the plural
number and vice versa; (b) reference to any Person includes such Person’s
successors and assigns but only if such successors and assigns are permitted by
this Agreement and reference to a Person in a particular capacity excludes such
Person in any other capacity; (c) reference to any gender includes each other
gender; (d) reference to any agreement (including this Agreement and the
schedules hereto), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in accordance
with the terms thereof and, if applicable, the terms hereof (and without giving
effect to any amendment or modification that would not be permitted in
accordance with the terms hereof); (e) reference to any applicable law means
such applicable law as amended, modified, codified or reenacted, in whole or in
part, and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any particular provision of any
applicable law shall be interpreted to include any revision of or successor to
that provision regardless of how numbered or classified; (f) reference to any
Article or Section means such Article or Section hereof; (g) “hereunder,” “hereof,”
“hereto” and words of similar import shall be deemed references to this
Agreement as a whole and not to any particular Section or other provision
hereof; and (h) “including” (and with correlative meaning “include”) means
including without limiting the generality of any description preceding such
term.

 

12.14.      Certain
Assistance in Income Tax Preparation and Audits and Other Matters.

 

12.14.1.   Tax Preparation.

 

12.14.1.1.                Buyer
and Seller shall furnish, at no cost to the other, such data as the other party
may reasonably require to prepare

 

16

 

Tax
Returns.  If additional data is required
by Seller or Buyer for preparation of Tax Returns or tax examinations, such
additional information (including reproduction of Tax Returns, tax assessments,
and records) shall be furnished, at no cost and within a reasonable time after
requested in writing.

 

12.14.1.2.                Buyer
and Seller shall retain, until the applicable statutes of limitations
(including any extensions) have expired, copies of all Tax Returns, supporting
work schedules, and other records or information which may be relevant to such
Tax Returns for all tax periods or portions thereof ending prior to the Closing
Date.  Copies of all such Tax Returns shall
be promptly provided to any party upon request of the same.

 

12.14.2.                   Tax Audits; Other Reviews.  Buyer and Seller shall provide reasonable
assistance to each other with any tax audits or other administrative or
judicial proceedings involving any of the Truck Stops at no cost to the other.
Neither party shall, without the prior written consent of the other, unless
required by law, initiate any contact or voluntarily enter into any agreement
with, or volunteer any information to, the taxing authorities with regard to
Tax Returns or declarations of the other party.

 

12.15.      Additional
Definitions. 
The following definitions shall apply:

 

12.15.1.                   Claim means any actual, threatened or
potential claim (whether oral or written), demand, litigation, action, suit,
investigation, proceeding, hearing, complaint, assessment or judgment,
administrative or judicial, at law or in equity.

 

12.15.2.                   Devices shall mean “Video Draw Poker
Devices” as defined in the Video Draw Poker Devices Control Law, Louisiana
Revised Statutes, Title 27:301 et seq.

 

12.15.3.                   EBITDA shall mean for any one (1)
calendar month period the sum of: (i) net income, plus (ii) interest expenses,
plus (iii) the aggregate amount of federal, state and local taxes on or
measured by income (whether or not payable during that period), and plus (iv)
depreciation and amortization, all as shall be computed by the Buyer’s
accountants which computation shall be made strictly in accordance with GAAP,
consistently applied.

 

12.15.4.                   Entity means a corporation, association,
partnership, limited liability company, limited liability partnership, trust or
any other entity or organization.

 

17

 

12.15.5.                   Gaming Assets shall mean any assets located
within the continental United States, in any form, that relate to  the operation or ownership of casinos,
race-tracks, truck stops or other operations whose primary purpose is lawfully
providing games of chance (including pari-mutuel waging) for play by the
general public; provided, however,
Gaming Assets shall not include a Passive Gaming Investment.

 

12.15.6.                   Governmental Body means any federal, state,
county, parish, local or foreign governmental authority, quasi-governmental
authority or any regulatory, administrative or other agency, department,
commission, tribunal, board, bureau, instrumentality, any political or other
subdivision, or any body thereof, or any federal, state, county, local or
foreign court or arbitrator.

 

12.15.7.                   Lien means any mortgage, pledge,
security interest, encumbrance, covenant, condition, restriction, easement,
claim, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof), any sale of receivables with recourse, or any filing or agreement to
file a financing statement as debtor under the Uniform Commercial Code or any
similar statute.

 

12.15.8.                   Liquor and Gaming Laws of the
State of Louisiana
shall mean the laws promulgated in the Louisiana Revised Statutes Title 27:301
et seq., and Title 26:1 et seq. and the Louisiana Administrative Code
provisions interpreting the same.

 

12.15.9.                   Material Adverse Effect means any matter or matters
which would, alone or in the aggregate, have a material adverse effect on  (i) the financial condition, operating
results, assets, liabilities, operations, condition (financial or otherwise),
business or prospects of any of the Truck Stops or the Seller, (ii) any
material violation by the Seller or any of the Truck Stops of the Liquor and
Gaming Laws of the State of Louisiana, (iii) the revocation or suspension, for
any period of time, of any liquor or gaming license issued by the State of
Louisiana to any of the Truck Stops.

 

12.15.10.                 Passive Gaming Investment shall mean any passive investment
in the voting equity of an Entity, even if such Entity may own Gaming
Assets.  Notwithstanding the foregoing,
an investment shall not be considered passive if either Richard E. Jacobs or
Jeffrey P. Jacobs, whether jointly or individually: (i) has the power, whether
by voting rights, contract or otherwise, to elect or appoint a majority of a
given Entity’s Board of Directors; or (ii) otherwise participates (excluding
the act of voting their equity interests) in the management of an Entity.

 

18

 

12.15.11.                 Person means an individual,
corporation, Governmental Body, association, partnership, limited liability
company, limited liability partnership, trust, or any other entity or
organization.

 

12.15.12.                 Tax means the domestic federal,
state, and local income, payroll, withholding, excise, social security, sales,
use, ad valorum, real and personal property, occupancy, business, capital
stock, franchise, transfer, employment and unemployment, and any other tax,
fee, duty, assessment or governmental charge of any kind whatsoever (including,
without limitation, all interest, penalties and estimated taxes).

 

12.15.13.                 Tax Return means returns, reports, claims
for refund, information returns or other documents (including, without
limitation, any related or supporting schedules, statements or information)
filed or required to be filed.

 

12.15.14.                 Truck Stop means a truck stop located
within the State of Louisiana at which Devices are or may be legally operated.

 

12.16.      Incorporation.   Any and all Schedules or other documents
referred to herein or attached hereto are incorporated herein as if fully
rewritten in this Agreement.

 

Article 13.GAMING RIGHTS OPTION

 

13.1.        Grant of Option.   As additional consideration for the Buyer’s
purchase of the Membership Interests hereunder, to be effective at the Closing
hereunder and contingent upon the same, Seller, Jeffrey P. Jacobs and Richard
E. Jacobs (collectively, the “Optionors”) do hereby grant to Buyer the right,
but not the obligation, to acquire any and all interests any of the Optionors
may own, whether now owned or hereafter acquired and whether held jointly or
severally, in any Truck Stops or in any Entity that owns any Truck Stops (the “Option”)
during the Option Term (as hereinafter defined).  The parties acknowledge that this Agreement
is intended to and does grant multiple Options, one for each Truck Stop covered
by the Option during the Option Term and that the exercise of the Option with
respect to any one Truck Stop shall not preclude the exercise of the Option at
a later time with respect to any other Truck Stops that are or may become
subject to the Option.  Notwithstanding
the foregoing, no Passive Gaming Investment held by any Optionor at any time
shall be subject to the Option or the covenants described in Section 13.4
below.

 

13.2.        Option Term.  The
Option shall commence as of the Closing Date and shall expire immediately upon
the tenth (10th) yearly anniversary of the same (“Option Term”).  The Option shall be exercised by delivering
written notice (“Option Notice”) of the Buyer’s intent to exercise the Option
pursuant to the Notice provisions of Section 12.4 above, and identifying the
specific Truck Stop(s) to be purchased.

 

13.3.        Purchase Price and Closing.  The
purchase price for any Truck Stops purchased pursuant to the exercise of the
Option (“Option Purchase Price”) shall be equal to a

 

19

 

multiple of one (1) plus the
multiple of EBITDA used to determine the purchase price when originally purchased
by the Owners; provided, however, in no event
shall the Option Purchase Price exceed seven (7) times each such Truck Stop’s
trailing twelve (12) month EBITDA for the twelve (12) full calendar months
immediately preceding such Truck Stop’s respective closing under the Option.  A higher Option Purchase Price may be charged
by the Owner to the Buyer only if it is supported by a fairness opinion issued
by an independent third-party mutually acceptable to both the Buyer and the
Owners.  (For example, if an Owner
originally paid a multiple of five (5) times a given Truck Stop’s EBITDA, then
the Option Purchase Price shall be equal to six (6) times that Truck Stop’s
trailing (12) month EBITDA as of the time of the sale under the Option.) The closing
of any purchase under the Option shall take place at the Buyer’s principal
place of business and shall occur not later then ninety (90) days following the
applicable Optionor’s receipt of the Option Notice.  The Option Purchase Price shall be paid in
cash, or immediately available funds, at such closing.  The parties shall execute a separate purchase
agreement in form and substance substantially similar to this Agreement for the
purchase of any Truck Stops following the exercise of the Option, with such
additions or modifications as shall be necessary to convey the particular Truck
Stops that are the subject of the Option.

 

13.4.        Additional Covenants.

 

13.4.1.     In addition to the foregoing and not in lieu thereof, as
additional consideration for the Buyer’s purchase of the Membership Interests
hereunder, each of the Optionors covenants and agrees that commencing on and
after the Closing Date and continuing throughout the Option Term, each Optionor
will hold any ownership interests in any Gaming Assets either through the Buyer
or a wholly-owned subsidiary of the Buyer; excluding,
only, any Gaming Assets owned by an Optionor on the Closing Date,

 

13.4.2.     Notwithstanding the foregoing Section 13.4.1 and as an
exception thereto, any Optionor may purchase ownership interests in or the
assets of Truck Stops, whether or not such ownership interests or assets are
held in the Buyer or a wholly-owned subsidiary thereof, provided, however, each Optionor, as
applicable, agrees that such ownership interests or assets after acquisition of
the same shall be Truck Stops for all purposes hereunder and shall be subject
to the rights of the Buyer under the Option. 
Each Optionor, as applicable, agrees to execute such additional
documents as may be necessary to comply with the terms and conditions of this
Section 13.4.2.

 

13.5.        Right of Sale.  Nothing contained in this Article 13,
including but not limited to the grant of the Option, is intended to, nor shall
it be construed as, restricting any Optionor’s right to sell any Gaming Assets,
including Truck Stops, to a third party prior to the Buyer’s exercise of the
Option with respect to those particular Truck Stops.

 

13.6.        Acknowledgment of Consideration.  Jeffrey
P. Jacobs and Richard E. Jacobs, individually, acknowledge and agree that the
payment of the Purchase Price under this

 

20

 

Agreement by Buyer to Seller
has separate direct and indirect economic benefit to each of them and is
sufficient consideration for their covenants and agreements under this Article 13.

 

13.7.        Termination of Option.  The Owners, Seller and Buyer agree that
effective as of the Closing Date, the Option, together with all other
agreements, representations and warranties, described in Article 2: GAMING
RIGHTS OPTION, as set forth in that certain Membership Interests Purchase
Agreement, dated March 22, 2005, by and between the Buyer, Seller and Owners
herein, are herewith terminated, rescinded and shall be of no further force or
effect.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the Agreement Date.

 

 

	
   

  	
   

  	
  BUYER:

  
	
   

  	
   

  	
  JACOBS ENTERTAINMENT, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Stephen R. Roark

  
	
   

  	
   

  	
  Stephen R. Roark, Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SELLER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GAMECO HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Stan W. Guidroz

  
	
   

  	
   

  	
  Stan W. Guidroz, Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THE FOLLOWING APPEAR SOLELY FOR THE

  PURPOSES OF AGREEING TO THE TERMS AND

  CONDITONS OF ARTICLE 13

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Richard E. Jacobs

  
	
   

  	
   

  	
  Richard E. Jacobs

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Jeffrey P. Jacobs

  
	
   

  	
   

  	
  Jeffrey P. Jacobs

  

 

21

 

LIST OF SCHEDULES

 

Schedule 4.4          Capitalization

 

Schedule 4.5          Liens,
Claims and Title Exceptions

 

Schedule 4.6          Tax
Matters

 

Schedule 4.7          Environmental
Matters

 

Schedule 4.9          Consents

 

Schedule 4.10        Litigation

 

22

 

Schedule
4.4

 

Capitalization

 

None.

 

23

 

Schedule
4.5

 

[Liens,
Claims and Title Exceptions]

 

1.             DIAMOND:

 

a.             Those exceptions to
title disclosed in the Owner’s Title Policy, issued by Lawyers Title Insurance
Corporation, Policy No. [    ], dated [       ], together with the endorsement, dated
as of the Closing.

 

b.             That certain Device
Placement Agreement, dated                                             ,
by and between Jalou Diamond, L.L.C. and Southern Trading Corporation.

 

c.             That certain Lease
Agreement by and between RFP, Inc. and Jalou Diamond, L.L.C., as Lessee.

 

2.             MAGIC:

 

a.             Those exceptions to
title disclosed in the Owner’s Title Policy, issued by Lawyers Title Insurance
Corporation, Policy No. [    ], dated [       ], together with the endorsement, dated
as of the Closing.

 

b.             That certain Device
Placement Agreement, dated                                          ,
by and between Jalou Magic, L.L.C. and Southern Trading Corporation.

 

3.             MARTIN:

 

a.             Those exceptions to
title disclosed in the Owner’s Title Policy, issued by Lawyers Title Insurance
Corporation, Policy No. [    ], dated
[       ], together with the endorsement,
dated as of the Closing.

 

b.             That certain Device
Placement Agreement, dated                                      ,
by and between Jalou of St. Martin, L.L.C. and Southern Trading Corporation.

 

24

 

Schedule
4.6

 

Tax
Matters

 

[None]

 

25

 

Schedule
4.7

 

Environmental
Matters

 

 

None.

 

26

 

Schedule
4.9

Consents

 

1.             The transfers
contemplated by this Agreement will require notification by the Buyer to the
Louisiana State Police within ten (10) days of their completion.

 

27

 

Schedule
4.10

 

Litigation

 

None.

 

28

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