Document:

Exhibit 10.4

 

STOCK PURCHASE AGREEMENT

dated November 8, 2005

between

MAGNA ENTERTAINMENT CORP.

and PA MEADOWS, LLC

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
  ARTICLE I

  DEFINITIONS

  	
   

  
	
  SECTION 1.01

  	
  Certain Defined Terms

  	
  1

  
	
   

  	
  ARTICLE II

  PURCHASE AND SALE

  	
   

  
	
  SECTION 2.01

  	
  Purchase and Sale

  	
  9

  
	
  SECTION 2.02

  	
  Purchase Price

  	
  9

  
	
  SECTION 2.03

  	
  Closing

  	
  9

  
	
   

  	
  ARTICLE III

  REPRESENTATIONS AND WARRANTIES OF SELLER

  	
   

  
	
  SECTION 3.01

  	
  Incorporation and
  Authority of Seller

  	
  10

  
	
  SECTION 3.02

  	
  Organization, Authority
  and Qualification of the Companies

  	
  11

  
	
  SECTION 3.03

  	
  Capital Stock of the
  Companies; Ownership of the Shares

  	
  11

  
	
  SECTION 3.04

  	
  Subsidiaries

  	
  12

  
	
  SECTION 3.05

  	
  No Conflict

  	
  13

  
	
  SECTION 3.06

  	
  Consents and Approvals

  	
  14

  
	
  SECTION 3.07

  	
  Financial Information,
  Books and Records

  	
  14

  
	
  SECTION 3.08

  	
  No Undisclosed
  Liabilities

  	
  15

  
	
  SECTION 3.09

  	
  Conduct in the Ordinary
  Course; Absence of Certain Changes, Events and Conditions

  	
  15

  
	
  SECTION 3.10

  	
  Litigation

  	
  16

  
	
  SECTION 3.11

  	
  Compliance with
  Applicable Laws

  	
  17

  
	
  SECTION 3.12

  	
  Environmental Matters

  	
  17

  
	
  SECTION 3.13

  	
  Title to Assets; Real
  Property

  	
  19

  
	
  SECTION 3.14

  	
  Intellectual Property
  Rights

  	
  21

  
	
  SECTION 3.15

  	
  Insurance

  	
  21

  
	
  SECTION 3.16

  	
  Employee Benefit
  Matters

  	
  22

  
	
  SECTION 3.17

  	
  Labor Matters

  	
  25

  
	
  SECTION 3.18

  	
  Taxes

  	
  26

  
	
  SECTION 3.19

  	
  Material Contracts

  	
  28

  
	
  SECTION 3.20

  	
  Racing License

  	
  30

  

 

i

 

	
  SECTION 3.21

  	
  Suppliers

  	
  30

  
	
  SECTION 3.22

  	
  Books and Records

  	
  30

  
	
  SECTION 3.23

  	
  Brokers

  	
  30

  
	
  SECTION 3.24

  	
  Racing Days

  	
  30

  
	
  SECTION 3.25

  	
  Related Parties

  	
  31

  
	
   

  	
  ARTICLE IV

  REPRESENTATIONS AND WARRANTIES OF PURCHASER

  	
   

  
	
  SECTION 4.01

  	
  Incorporation and
  Authority of Purchaser

  	
  31

  
	
  SECTION 4.02

  	
  No Conflict

  	
  32

  
	
  SECTION 4.03

  	
  Consents and Approvals

  	
  32

  
	
  SECTION 4.04

  	
  Investment Purpose

  	
  32

  
	
  SECTION 4.05

  	
  Financing

  	
  33

  
	
  SECTION 4.06

  	
  Brokers

  	
  33

  
	
  SECTION 4.07

  	
  Specified Investors;
  Cannery Casino Resorts

  	
  33

  
	
   

  	
  ARTICLE V

  ADDITIONAL AGREEMENTS

  	
   

  
	
  SECTION 5.01

  	
  Conduct of Business
  Prior to the Closing

  	
  33

  
	
  SECTION 5.02

  	
  Access to Information

  	
  34

  
	
  SECTION 5.03

  	
  Books and Records

  	
  34

  
	
  SECTION 5.04

  	
  Governmental Approvals
  and Consents; Application Fee; Closing Conditions

  	
  35

  
	
  SECTION 5.05

  	
  Confidentiality

  	
  39

  
	
  SECTION 5.06

  	
  Use of Magna Name

  	
  40

  
	
  SECTION 5.07

  	
  Investigation

  	
  40

  
	
  SECTION 5.08

  	
  Limited Non-Compete

  	
  41

  
	
  SECTION 5.09

  	
  Remediation

  	
  42

  
	
  SECTION 5.10

  	
  No Negotiation

  	
  42

  
	
  SECTION 5.11

  	
  Title

  	
  42

  
	
  SECTION 5.12

  	
  Further Action

  	
  43

  
	
  SECTION 5.13

  	
  Excluded Items

  	
  43

  
	
  SECTION 5.14

  	
  Estoppels

  	
  43

  

 

ii

 

	
  SECTION 5.15

  	
  Cooperation in
  Preparation of Alternative Application

  	
  43

  
	
  SECTION 5.16

  	
  Financial Statements

  	
  44

  
	
  SECTION 5.17

  	
  Separation

  	
  45

  
	
  SECTION 5.18

  	
  Notification

  	
  45

  
	
  SECTION 5.19

  	
  Environmental Report

  	
  45

  
	
  SECTION 5.20

  	
  XpressBet Matters

  	
  45

  
	
  SECTION 5.21

  	
  Office Lease

  	
  45

  
	
  SECTION 5.22

  	
  Phase I

  	
  45

  
	
  SECTION 5.23

  	
  Holdback Arrangements

  	
  46

  
	
   

  	
  ARTICLE VI

  EMPLOYEE MATTERS

  	
   

  
	
  SECTION 6.01

  	
  Arrangements; Payroll
  Obligations

  	
  46

  
	
  SECTION 6.02

  	
  Benefit Plans and
  Transferred Employee Related Obligations

  	
  47

  
	
  SECTION 6.03

  	
  Intentionally Omitted

  	
  48

  
	
  SECTION 6.04

  	
  Intentionally Omitted

  	
  48

  
	
  SECTION 6.05

  	
  Employee Benefits
  Indemnity

  	
  48

  
	
  SECTION 6.06

  	
  Third-Party Claims

  	
  49

  
	
  SECTION 6.07

  	
  Survival

  	
  49

  
	
   

  	
  ARTICLE VII

  TAX MATTERS

  	
   

  
	
  SECTION 7.01

  	
  Indemnity

  	
  49

  
	
  SECTION 7.02

  	
  Returns and Payments

  	
  50

  
	
  SECTION 7.03

  	
  Refunds

  	
  50

  
	
  SECTION 7.04

  	
  Contests

  	
  51

  
	
  SECTION 7.05

  	
  Time of Payment

  	
  52

  
	
  SECTION 7.06

  	
  Cooperation and
  Exchange of Information

  	
  52

  
	
  SECTION 7.07

  	
  Conveyance Taxes

  	
  53

  
	
  SECTION 7.08

  	
  Miscellaneous

  	
  53

  
	
   

  	
  ARTICLE VIII

  CONDITIONS TO CLOSING

  	
   

  
	
  SECTION 8.01

  	
  Conditions to
  Obligations of All Parties

  	
  54

  

 

iii

 

	
  SECTION 8.02

  	
  Conditions to
  Obligations of Seller

  	
  54

  
	
  SECTION 8.03

  	
  Conditions to
  Obligations of Purchaser

  	
  56

  
	
   

  	
  ARTICLE
  IX

  INDEMNIFICATION

  	
   

  
	
  SECTION 9.01

  	
  Survival

  	
  58

  
	
  SECTION 9.02

  	
  Indemnification by
  Purchaser

  	
  59

  
	
  SECTION 9.03

  	
  Indemnification by
  Seller

  	
  60

  
	
  SECTION 9.04

  	
  Indemnification
  Procedures, Etc

  	
  62

  
	
  SECTION 9.05

  	
  Payments

  	
  64

  
	
   

  	
  ARTICLE X

  TERMINATION, AMENDMENT AND WAIVER

  	
   

  
	
  SECTION 10.01

  	
  Termination

  	
  65

  
	
  SECTION 10.02

  	
  Effect of Termination

  	
  66

  
	
  SECTION 10.03

  	
  Waiver

  	
  66

  
	
   

  	
  ARTICLE XI

  GENERAL PROVISIONS

  	
   

  
	
  SECTION 11.01

  	
  Expenses; Pro-rations

  	
  67

  
	
  SECTION 11.02

  	
  Notices

  	
  68

  
	
  SECTION 11.03

  	
  Public Announcements

  	
  69

  
	
  SECTION 11.04

  	
  Headings

  	
  69

  
	
  SECTION 11.05

  	
  Severability

  	
  69

  
	
  SECTION 11.06

  	
  Entire Agreement

  	
  69

  
	
  SECTION 11.07

  	
  Assignment

  	
  69

  
	
  SECTION 11.08

  	
  No Third-Party
  Beneficiaries

  	
  70

  
	
  SECTION 11.09

  	
  Amendment

  	
  70

  
	
  SECTION 11.10

  	
  Governing Law;
  Jurisdiction; Service of Process

  	
  70

  
	
  SECTION 11.11

  	
  WAIVER OF JURY TRIAL

  	
  70

  
	
  SECTION 11.12

  	
  Counterparts

  	
  70

  
	
  SECTION 11.13

  	
  Specific Performance

  	
  70

  
	
  SECTION 11.14

  	
  Prevailing Party

  	
  70

  

 

iv

 

EXHIBITS

Exhibit 1.01A                       Form of Holdback
Agreement

Exhibit 1.01B                       Meadows Facility

Exhibit 1.01C                       MEC Items

Exhibit 1.01D                       Off-Track Betting
Facilities

Exhibit 1.01E                       Racing Services Agreement

Exhibit 1.01F                        XpressBet Amendments Term
Sheet

Exhibit 5.11                          Title Commitment

Exhibit 5.13                          Excluded Items

Exhibit 8.02(g)                     Form of Opinion of
Purchaser Parties’ Counsel

Exhibit 8.03(j)                      Form of Opinion of Seller
Parties’ Counsel

 

v

 

STOCK PURCHASE AGREEMENT, dated November 8, 2005
(this “Agreement”), between MAGNA ENTERTAINMENT CORP., a Delaware
corporation (“Seller”), and PA MEADOWS, LLC, a Delaware limited
liability company (“Purchaser”).

WHEREAS, Seller owns (a) all the issued and outstanding
shares of common stock of MEC Pennsylvania Racing, Inc., a Pennsylvania
corporation (“MECPenn”), (b) all the issued and outstanding shares
of common stock of Mountain Laurel Racing, Inc., a Delaware corporation (“MLR”),
and (c) all the issued and outstanding shares of common stock of
Washington Trotting Association, Inc., a Delaware corporation (“WTA”) (MECPenn,
MLR and WTA being collectively referred to herein as the “Companies,”
and each individually as a “Company,” and the issued and outstanding
shares of common stock of the Companies being referred to herein collectively
as the “Shares”); and

WHEREAS, Seller wishes to sell to Purchaser, and
Purchaser wishes to purchase from Seller, the Shares, upon the terms and
subject to the conditions set forth herein;

NOW, THEREFORE, in consideration of the premises and
of the mutual agreements and covenants hereinafter set forth, Seller and
Purchaser hereby agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01     Certain Defined Terms.  (a)  As
used in this Agreement, the following terms shall have the following meanings:

 “Action” means any claim, action, suit,
arbitration, inquiry, proceeding or investigation by or before any Governmental
Authority.

“Affiliate”
of a specified Person means a Person that, directly or indirectly, through one
or more intermediaries, Controls, is Controlled By or is Under Common Control With,
such specified Person, including such specified Person’s Subsidiaries.

“Business
Day” means any day that is not a Saturday, a Sunday or other day on which banks
are required or authorized by law to be closed in the City of Toronto or the
City of Los Angeles.

“Code”
or “Internal Revenue Code” means the Internal Revenue Code of 1986, as
amended.

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

“Company
Disclosure Schedule” means the Disclosure Schedule dated as of the date
hereof delivered to Purchaser by Seller.

“Control”
(including the terms “Controlled By” and “Under Common Control With”)
means the possession, directly or indirectly or as a trustee or executor (in
each 

 

1

 

case,
acting in a fiduciary capacity), of the power to direct or cause the direction
of the management or policies of a Person, whether through the ownership of
voting securities, as trustee or executor (in each case, acting in a fiduciary
capacity), by contract or credit arrangement or otherwise.

“Employee”
means those Persons employed by the Companies and Subsidiaries immediately
prior to the Closing, including those employees on any authorized leave of
absence, including, without limitation, vacation, disability (work-related or
otherwise) or sick leave, whether or not such employees return to active
employment with any Company or Subsidiary.

“Encumbrance”
means a pledge, lien, security interest, mortgage, charge, adverse claim of
ownership or use, option, right of way, right of first refusal or other
encumbrance of any kind.

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.

“Escrow
Agreement” shall have the meaning ascribed to such term in the Holdback
Agreement.

 “Exchange Act” means the Securities
Exchange Act of 1934, as amended, and any successor law and regulations issued
pursuant thereto.

“Excluded
Subsidiaries” means Allegheny Harness Racing Association, Inc., Allegheny
Thoroughbred Racing Association, Inc. and 20002 Delaware Inc.

 “GAAP” means United States generally
accepted accounting principles in effect from time to time applied consistently
throughout the period involved.

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

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

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

“Governmental
Order” means any order, writ, judgment, injunction, decree, stipulation,
determination or award entered by or with any Governmental Authority.

“Gulfstream
Loan Agreement” means the Amended and Restated Loan Agreement dated July 22,
2005 by and among Gulfstream Park Racing Association, Inc., 

 

2

 

MID
Islandi SF, MECPenn, MLR, WTA, Remington Park, Inc. and GPRA Thoroughbred
Training Center, Inc.

“Holdback
Agreement” means the Holdback Agreement by and between Seller and
Purchaser, substantially in the form attached hereto as Exhibit 1.01A , as it may
be amended from time to time.

“Holdback
Amount” shall have the meaning ascribed to such term in the Holdback
Agreement.

“Holdback Documents”
means the Holdback Agreement, the Escrow Agreement, and the Escrow Security (as
defined in the Holdback Agreement) or the Holdback Guarantee as
agreed to in accordance with Section 5.23.

 “HSR Act” means the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.

“Intellectual
Property Rights” means all (a) patent and patent applications, (b) trademarks,
service marks, logos, trade dress, trade names and corporate names and
registrations and applications for registration thereof, including without
limitation, the name  “The Meadows”, (c) copyrights,
whether registered or unregistered, and registrations and applications for
registration thereof and (d) trade secrets, formulas, inventions,
invention disclosures, computer software and other proprietary business and
intellectual property rights that have been in the last three years or are
employed in the conduct of the business of the Companies and the Subsidiaries
as it is now being conducted, but excluding the Magna Name.

“IRS”
means the Internal Revenue Service of the United States.

“knowledge
of Seller” or “Seller’s knowledge” means the actual knowledge of Drew
Shubeck, David Wiegmann, Michael Jeannot, Tom Hodgson, Brian Budden, Andrew
Staniusz and Scott Daruty or such other knowledge that such applicable person
should reasonably have acquired through the performance of his job in
accordance with his duties.

“Law”
or “Laws” means any statute, law, ordinance, regulation, rule, code,
order, other requirement or rule of law of any country or any state, province,
locality, region or area therein, or
any other jurisdiction.

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

 “Losses” of a Person means any and all
claims, actions or causes of action, assessments, losses, damages,
deficiencies, liabilities, costs, awards, judgments and 

 

3

 

expenses
(including reasonable legal and
expert fees and expenses, interest, penalties, and all reasonable amounts paid
in investigation, defense or settlement of any of the foregoing) suffered or
incurred by such Person.

“Material
Adverse Effect” means any circumstance, change in, or effect on any Company
or Subsidiary that is or would reasonably be expected to be materially adverse
to the business, assets, condition (financial or otherwise), or the results of
operations of the Companies and the Subsidiaries, taken as a whole, and taking
into account the prospects of obtaining and maintaining a Conditional Category
1 license and a Category 1 license under the Gaming Act and developing a casino
on the Real Property (it being understood that such taking into account of such
prospects shall in no event be interpreted as any Company or any Subsidiary
being required to be qualified or licensed to conduct any gaming operations in
any jurisdiction on or prior to the Closing Date); provided, however, that “Material
Adverse Effect” shall not include any circumstance, change in or effect on any
Company or any Subsidiary directly or indirectly arising out of or attributable
to (a) changes or effects in the financial or securities markets or the regulatory
conditions or the economy in general that generally affect the gaming industry
or the industries in which the Companies and their respective Subsidiaries
operate, (b) any actions taken or omitted to be taken by Seller or the
Companies or any Subsidiary pursuant to the terms of this Agreement, or any actions
taken by Purchaser or (c) any effects resulting solely from the
announcement of the transactions contemplated by this Agreement.

“Meadows
Facility” means the racetrack facility, buildings, improvements, land and
other assets located on the land described on Exhibit 1.01B hereto.

“MEC
Items” means those items as set forth on Exhibit 1.01C.

“MID
Bridge Loan Agreement” means the Bridge Loan Agreement dated July 22,
2005 by and among Seller, MECPenn, MLR, WTA and MID Islandi SF.

“OTB
Facilities” means the off track betting facilities identified on Exhibit 1.01D
hereto.

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

“Permits”
means all permits, licenses, franchises, approvals, authorizations,
registrations, certificates, variances and similar rights obtained, or required
to be obtained, from Governmental Authorities (other than Environmental
Permits).

“Person”
means an individual, corporation, partnership, joint venture, limited liability
company, person (including, without limitation, a “person” as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), trust,
association or another entity.

“Post-Closing Period”
means any Tax period beginning after the Closing Date.

 

4

 

“Pre-Closing Period”
means any Tax period ending on or before the Closing Date.

“Purchaser
Disclosure Schedule” means the Disclosure Schedule dated as of the date
hereof delivered to Seller by Purchaser.

“Purchaser
Material Adverse Effect” means any circumstance, change in, or effect on
Purchaser that is or would reasonably be expected to be materially adverse to
the business, assets, condition (financial or otherwise), or the results of
operations of Purchaser, taken as a whole and taking into account the prospects
of obtaining and maintaining a Conditional Category 1 license and a Category
1 license under the Gaming Act and developing a casino on the Real Property (it
being understood that such taking into account of such prospects shall in no
event be interpreted as Purchaser being required to be qualified or licensed to
conduct any gaming operations in any jurisdictions on or prior to the Closing
Date); provided, however, that “Purchaser Material Adverse Effect”
shall not include any circumstance, change in or effect on Purchaser directly
or indirectly arising out of or attributable to (a) changes or effects in
the financial or securities markets or the regulatory conditions or the economy
in general that generally affect the gaming industry or the industries in which
Purchaser operates, (b) any actions taken or omitted to be taken by
Purchaser pursuant to the terms of this Agreement or any actions taken by Seller
or (c) any effects resulting solely from the announcement of the transactions
contemplated by this Agreement.

“Purchaser’s
Accountants” means Piercy Bowler Taylor & Kern.

“Racing
Services Agreement” means the Racing Services Agreement by and between Affiliates of
Purchaser and Seller in the form attached hereto as Exhibit 1.01E, as it may be
amended from time to time.

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

“Reference
Balance Sheet Date” means December 31, 2004.

“Reference
Balance Sheet” means with respect to the Companies and their Subsidiaries
the audited combined balance sheet of the Companies and their Subsidiaries
dated as of December 31, 2004, a copy of which is set forth in Section
3.07 of the Company Disclosure Schedule, including the notes and schedules
thereto.

“Regulation
S-X” means Regulation S-X promulgated by the Securities and Exchange
Commission.

“Seller’s
Accountants” means Ernst
& Young, L.L.P.

“Specified Investor”
means each Person that owns as of the date hereof a 5% or greater partnership
interest in the Specified Funds (other than the principals of Purchaser’s
equity sponsor and other than any owners of Millennium Gaming, Inc. (including
without limitation Mr. William Paulos and Mr. William Wortman)).

 

5

 

“Specified Funds”
means the two funds that own, as of the date hereof, all of the indirect
non-voting interest in Purchaser.

“Subsidiary”
or “Subsidiaries” means any and all corporations, partnerships, joint
ventures and other entities Controlled By any Company, directly or indirectly
through one or more intermediaries other than the Excluded Subsidiaries.  As of the date hereof, Subsidiaries of Companies
are set forth on Section 3.04(a) of the Company Disclosure Schedule and shall,
for the sake of clarity, include MECRacing and exclude the Excluded
Subsidiaries.  All references to “Subsidiary”
or “Subsidiaries” herein including any reference to any Company’s Subsidiary or
“its Subsidiaries” or “their Subsidiaries” (referring to any Company’s
Subsidiaries) shall exclude the Excluded Subsidiaries.

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

“Tax
Return” means any return, declaration, report, claim for refund, form of
other information or return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendments thereof.

“Transaction Documents”
means this Agreement, the Racing Services Agreement, the XpressBet Amendments
and the Holdback Documents.

“XpressBet
Amendments” means the XpressBet Lease Amendment, XpressBet Wagering
Agreement Amendment and the XpressBet Banking Agreement Amendment.

“XpressBet Banking
Agreement Amendment” means the First Amendment to the letter agreement
regarding Pennsylvania account wageror bank accounts, dated as of October 5,
2005, by and between WTA and MLR, on the one hand, and XpressBet, Inc., on the
other hand, the terms of which Purchaser and Seller will negotiate in good
faith based on the term sheet attached hereto as Exhibit 1.01F.

“XpressBet Lease
Amendment” means the First Amendment to the Lease Agreement, dated July 15,
2005, by and between MECPenn and XpressBet, Inc., the terms of which Purchaser
and Seller will negotiate in good faith based on the term sheet attached hereto
as Exhibit 1.01F.

 

6

 

“XpressBet Wagering
Agreement Amendment” means the First Amendment to the Advanced Account
Wagering and Services Agreement, effective as of July 15, 2005 and dated
as of August 9, 2005, by and between WTA and MLR, on the one hand, and
XpressBet, Inc., on the other hand, the terms of which Purchaser and Seller
will negotiate in good faith based on the term sheet attached hereto as Exhibit
1.01F.

(b)           Each of the
following terms is defined in the section set forth opposite such terms below:

	
  Term

  	
   

  	
  Section

  
	
  2004 Audited Balance Sheet

  	
   

  	
  5.16(b)

  
	
  2005 Audited Financial Statements

  	
   

  	
  5.16(a)

  
	
  2006 Interim Financial Statements

  	
   

  	
  5.16(a)

  
	
  2005 Quarterly Financial Statements

  	
   

  	
  5.16(a)

  
	
  Action Notice

  	
   

  	
  8.03(m)

  
	
  Agreement

  	
   

  	
  Preamble

  
	
  Applicable Date

  	
   

  	
  9.02(a)

  
	
  Alternative Scenario

  	
   

  	
  5.04(c)(i)

  
	
  Assets

  	
   

  	
  3.13(a)

  
	
  Benefit Plans

  	
   

  	
  3.16(a)

  
	
  CERCLA

  	
   

  	
  3.12(c)

  
	
  Claim
  Notice

  	
   

  	
  9.04(a)

  
	
  Closing

  	
   

  	
  2.03(a)

  
	
  Closing
  Date

  	
   

  	
  2.03(a)

  
	
  Closing
  Extension

  	
   

  	
  2.03

  
	
  COBRA

  	
   

  	
  6.02(c)

  
	
  Commission
  Approval

  	
   

  	
  8.01(c)

  
	
  Company;
  Companies

  	
   

  	
  Recitals

  
	
  Company
  Employees

  	
   

  	
  6.01

  
	
  Company
  Financial Statements

  	
   

  	
  3.07(a)

  
	
  Company
  Interim Financial Statements

  	
   

  	
  3.07(a)

  
	
  Company
  Plans

  	
   

  	
  3.16(a)

  
	
  Confidentiality
  Agreement

  	
   

  	
  5.05(a)

  
	
  Contest

  	
   

  	
  7.04(b)

  
	
  Election

  	
   

  	
  7.08(a)

  
	
  Employee
  Agreements

  	
   

  	
  3.16(a)

  
	
  Environmental
  Actions

  	
   

  	
  3.12(c)

  
	
  Environmental
  Laws

  	
   

  	
  3.12(c)

  
	
  Environmental
  Permits

  	
   

  	
  3.12(c)

  
	
  Excluded
  Items

  	
   

  	
  5.13

  
	
  Existing
  Stock

  	
   

  	
  5.06(b)

  
	
  Former
  Subsidiaries

  	
   

  	
  3.04(d)

  
	
  Fundamental
  Representations

  	
   

  	
  9.01

  
	
  Gaming
  Application

  	
   

  	
  5.04(c)(i)

  
	
  Gaming
  Application Fee

  	
   

  	
  5.04(d)

  
	
  Hazardous
  Materials

  	
   

  	
  3.12(c)

  

 

7

 

	
  Holdback
  Guarantee

  	
   

  	
  5.23

  
	
  Indemnified
  Party

  	
   

  	
  9.04(a)

  
	
  Indemnifying
  Party

  	
   

  	
  9.04(a)

  
	
  Insured
  Exception

  	
   

  	
  5.11(c)

  
	
  lease

  	
   

  	
  3.19(a)

  
	
  Magna
  Name

  	
   

  	
  5.06(a)

  
	
  Material
  Contracts

  	
   

  	
  3.19(a)

  
	
  MEC
  Health Plan

  	
   

  	
  6.02(a)

  
	
  MECPenn

  	
   

  	
  Recitals

  
	
  MECPenn
  Common Stock

  	
   

  	
  3.03(a)

  
	
  MECRacing

  	
   

  	
  3.20

  
	
  MLR

  	
   

  	
  Recitals

  
	
  MLR
  Common Stock

  	
   

  	
  3.03

  
	
  Multiemployer
  Plans

  	
   

  	
  3.16(a)

  
	
  Non-Competition
  Covenant

  	
   

  	
  5.08(a)

  
	
  Non-Competition
  Period

  	
   

  	
  5.08(a)

  
	
  Paddock
  Refurbishment

  	
   

  	
  3.13(e)

  
	
  Permitted
  Exceptions

  	
   

  	
  3.13(a)

  
	
  Phase
  I

  	
   

  	
  5.22

  
	
  Proposed
  Development

  	
   

  	
  3.13(e)

  
	
  Purchaser’s
  Notice

  	
   

  	
  5.11(c)

  
	
  Purchase
  Price

  	
   

  	
  2.02

  
	
  Purchaser

  	
   

  	
  Preamble

  
	
  Purchaser
  Application Materials

  	
   

  	
  5.04(e)

  
	
  Purchaser
  Developments

  	
   

  	
  8.02(b)

  
	
  Qualified
  Plans

  	
   

  	
  3.16(h)

  
	
  Releases

  	
   

  	
  3.12(c)

  
	
  RCRA

  	
   

  	
  3.12(c)

  
	
  Satisfaction
  Date

  	
   

  	
  2.03

  
	
  Seller

  	
   

  	
  Preamble

  
	
  Seller
  Developments

  	
   

  	
  8.03(b)

  
	
  Shares

  	
   

  	
  Recitals

  
	
  Sponsor

  	
   

  	
  5.23

  
	
  Survey

  	
   

  	
  5.11(a)

  
	
  Terminating
  Purchaser’s Breach

  	
   

  	
  10.01(d)

  
	
  Terminating
  Seller’s Breach

  	
   

  	
  10.01(c)

  
	
  Title
  Commitment

  	
   

  	
  5.11(a)

  
	
  Title
  Company

  	
   

  	
  5.11(a)

  
	
  Title
  Objection

  	
   

  	
  5.11(b)

  
	
  Title
  Policy

  	
   

  	
  8.03(k)

  
	
  Transaction
  Scenario

  	
   

  	
  5.04(c)(i)

  
	
  Transferred
  Employees

  	
   

  	
  6.01

  
	
  WTA

  	
   

  	
  Recitals

  
	
  WTA
  Common Stock

  	
   

  	
  3.03

  

 

8

 

ARTICLE II

PURCHASE AND SALE

SECTION 2.01     Purchase and Sale.  Upon the terms and subject to the conditions
set forth in this Agreement, Seller agrees to sell to Purchaser, and Purchaser
agrees to purchase from Seller, on the Closing Date, the Shares.

SECTION 2.02     Purchase Price.  The aggregate purchase price for the Shares
(and the limited non-compete set forth in Section 5.08) shall be $225,000,000
(the “Purchase Price”), of which (i) $225,000,000 minus the
Holdback Amount shall be paid in cash to Seller on the Closing Date as provided
in Section 2.03(c) and (ii) the Holdback Amount shall be paid in
accordance with and at the times set forth in the Holdback Agreement or the
Holdback Guarantee, as the case may be. 
Within 30 days after Closing, Seller will provide Purchaser with an
allocation of the Purchase Price (less the $2,000,000 allocated pursuant to Section
5.08 hereof) among MECPenn, MLR, WTA and the
Subsidiaries for approval, such approval not to be unreasonably withheld.  The parties agree that such allocation shall
be binding and the parties shall not take a position that is inconsistent with
such allocation in any matter.

SECTION 2.03     Closing.  (a)  Subject
to the terms and conditions of this Agreement, the sale and purchase of the
Shares contemplated hereby shall take place at a closing (the “Closing”)
to be held at 10:00 a.m., Los Angeles time, no later than two Business Days
after the last of the conditions to Closing set forth in Sections 8.01, 8.02
and 8.03 has been satisfied or waived (other than conditions which, by their
nature, are to be satisfied on the Closing Date) (“Satisfaction Date”); provided,
that so long as Purchaser needs additional time in order to obtain the bridge
financing for the Purchase Price less the Holdback Amount (the “Closing
Extension”) and so long as Purchaser is using its best efforts towards obtaining
such financing and Closing, the Closing shall be held no later than four weeks
after the last of such conditions to Closing has been satisfied or waived
(other than conditions which, by their nature, are to be satisfied on the
Closing Date).  In the event that the
Closing Extension occurs and at the end of the Closing Extension, the last of
the conditions to Closing set forth in Sections 8.01, 8.02 and 8.03 has
been satisfied (other than conditions which, by their nature, are to be
satisfied on the Closing Date), and Purchaser fails to consummate the
transaction contemplated hereby, then Seller shall have the right to terminate
this Agreement.  In the event that the
Closing Extension occurs and events take place after the Satisfaction Date that
cause one or more conditions to Closing to not be satisfied at the end of the
Closing Extension (other than conditions which, by their nature, are to be
satisfied on the Closing Date), then the party that has the right not to close
as a result of such condition or conditions not being so satisfied shall,
within two Business Days after the end of the Closing Extension, either waive
all such conditions and proceed to Closing or terminate this Agreement; provided,
however, that such right to not close due to such events or due to such
condition(s) not being satisfied and such right to terminate this Agreement shall
not be available to a party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, such events or
such condition(s) not being satisfied.  The
Closing will occur at the offices of O’Melveny & Myers LLP, 400 South Hope,
Los Angeles, California, or at such other time or on such other date or at such
other place as Seller and Purchaser may mutually agree upon in writing (the day
on which the Closing takes place being the “Closing Date”).

 

9

 

(b)           At the Closing, Seller shall deliver
or cause to be delivered to Purchaser stock certificates evidencing the Shares
duly endorsed in blank or accompanied by stock powers duly executed in blank,
in proper form for transfer and with all required stock transfer tax stamps
affixed.

(c)           At the Closing, against delivery of
the stock certificates evidencing the Shares, Purchaser shall deliver to Seller
(i) cash in an amount equal to the Purchase Price, minus the
Holdback Amount, by wire transfer in immediately available funds, to an account
or accounts designated at least two Business Days prior to the Closing Date by Seller
in a written notice to Purchaser and (ii) with respect to the Holdback
Amount, the deliveries contemplated by Section 8.02(h).

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller
represents and warrants to Purchaser as of the date hereof (other than such
representations and warranties as are made as of another date) as follows:

SECTION
3.01     Incorporation and Authority of Seller.  Seller
is a corporation duly incorporated, validly existing and in good standing under
the laws of Delaware.  Seller is duly
qualified as a foreign corporation to do business in each jurisdiction where
the character of its properties owned, operated or leased or the nature of its
activities as currently conducted makes such qualification necessary, except
for such failures to be so qualified that would not have a Material Adverse
Effect.  Seller has all necessary corporate
power and authority to enter into this Agreement and the other Transaction
Documents to which Seller is a party, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby or thereby.  The execution and delivery by Seller of this
Agreement and any other Transaction Document to which Seller is a party, the
performance by Seller of its obligations hereunder and thereunder and the consummation by
Seller of the transactions contemplated hereby and thereby have been duly
authorized by all requisite corporate action on the part of Seller.  This Agreement has been duly executed and
delivered by Seller, and (assuming due authorization, execution and delivery by
Purchaser) this Agreement constitutes a legal, valid and binding obligation of Seller
enforceable against it in accordance with its terms, subject to the effect of
any applicable bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting creditors’ rights generally and subject, as to enforceability,
to the effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).  When each Transaction Document to which
Seller is or will be a party has been duly executed and delivered by Seller
(assuming due authorization, execution and delivery by each other party
thereto), such Transaction Document will constitute a legal and binding
obligation of Seller enforceable against it in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors’ rights generally and subject,
as to enforceability, to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).

 

10

 

SECTION 3.02     Organization, Authority and
Qualification of the Companies.  Each
Company is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has all necessary
corporate power and authority to own, operate or lease the properties and
assets now owned, operated or leased by it and to carry on its business as it
has been and is currently conducted. 
Section 3.02 of the Company Disclosure Schedule sets forth each
jurisdiction in which each Company is licensed or qualified to do business, and
each Company is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the properties owned or leased by it or
the operation of its business as currently conducted makes such licensing or
qualification necessary, except as set forth on Section 3.02 of the Company
Disclosure Schedule and except for such failures which would not have a
Material Adverse Effect.  All corporate
actions taken by each Company in connection with this Agreement and the other
Transaction Documents will be duly authorized on or prior to the Closing, and
none of the Companies has taken any such action that conflicts with,
constitutes a default under or results in a violation of any provision of its
Certificate of Incorporation (or Articles of Incorporation) or By-laws.  True, complete and correct copies of the
Certificate of Incorporation and By-laws (or similar organizational documents)
of each Company, each as in effect on the date hereof, have been delivered by Seller
to Purchaser.

SECTION 3.03     Capital Stock of the Companies;
Ownership of the Shares.  (a)  The
authorized capital stock of MECPenn consists of 1,000 shares of common stock,
par value $1.00 per share (“MECPenn Common Stock”), the authorized
capital stock of MLR consists of 10,000 shares of common stock, no par value (“MLR
Common Stock”), and the authorized capital stock of WTA consists of 10,000
shares of common stock, no par value (“WTA Common Stock”).  As of the date hereof, 100 shares of MECPenn
Common Stock, 100 shares of MLR Common Stock and 100 shares of WTA Common Stock
are issued and outstanding, all of which have been validly authorized and are
validly issued, fully paid and nonassessable. 
None of the Shares was issued in violation of any preemptive
rights.  There are no options, warrants,
convertible securities or other rights, agreements, arrangements or commitments
of any character relating to the capital stock of any Company or obligating Seller
or any Company to issue or sell any shares of capital stock of, or any other
interest in, any Company.  Except as set
forth in Section 3.03 of the Company Disclosure Schedule, there are no
outstanding contractual obligations of any Company to repurchase, redeem or
otherwise acquire any shares of its common stock or to provide funds to, or
make any investment (in the form of a loan, capital contribution or otherwise)
in, any other Person.  Except as
disclosed in Section 3.03 of the Company Disclosure Schedule, the Shares
constitute all the issued and outstanding capital stock of the Companies and
are owned of record and beneficially solely by Seller free and clear of all
Encumbrances.

(b)           Upon consummation of the transactions contemplated by
this Agreement and registration of the Shares in the name of Purchaser in the
respective stock records of the Companies, Purchaser, assuming it shall have
purchased the Shares for value in good faith and without notice of any adverse
claim, will own all the issued and outstanding capital stock of each Company free
and clear of all Encumbrances, assuming the release of the Encumbrances disclosed in Section 3.03 of the Company
Disclosure Schedule, and the Shares will be fully paid and
nonassessable.  There are no voting
trusts, stockholder agreements, proxies or other agreements or understandings
in effect with respect to the voting or transfer of any of the Shares.

 

11

 

SECTION 3.04     Subsidiaries.  (a)  Section
3.04(a) of the Company Disclosure Schedule sets forth a true and complete list
of all Subsidiaries, listing for each Subsidiary its name, type of entity, the
jurisdiction and date of its incorporation or organization, its authorized
capital stock, partnership capital or equivalent, the number and type of its
issued and outstanding shares of capital stock, partnership interests or
similar ownership interests and the current ownership of such shares, partnership
interests or similar ownership interests. 
All such shares, partnership interests or similar ownership interests
have been validly authorized and are validly issued, fully paid and
nonassessable.  None of such shares,
partnership interests or similar ownership interests was issued in violation of
any preemptive rights.  There are no
options, warrants, convertible securities or other rights, agreements,
arrangements or commitments of any character relating to the shares,
partnership interests or similar ownership interests of any Subsidiary or
obligating any Company or Subsidiary to issue or sell any shares, partnership
interests or similar ownership interests of, or any other interest in, any Subsidiary.  Except as set forth in Section 3.04 of the
Company Disclosure Schedule, there are no outstanding contractual obligations
of any Subsidiary to repurchase, redeem or otherwise acquire any of its shares,
partnership interests or similar ownership interests or to provide funds to, or
make any investment (in the form of a loan, capital contribution or otherwise)
in, any other Person.  Except as
disclosed in Section 3.04(a) of the Company Disclosure Schedule, the shares,
partnership interests or similar ownership interests set forth in Section
3.04(a) of the Company Disclosure Schedule constitute all the issued and
outstanding shares, partnership interests or similar ownership interests of the
Subsidiaries and are owned of record and beneficially solely by the Company or
Companies indicated on Section 3.04(a) of the Company Disclosure Schedule, free
and clear of all Encumbrances.

(b)           Except as set forth on Section
3.04(b) of the Company Disclosure Schedule, other than the Subsidiaries, there
are no other corporations, partnerships, joint ventures, associations or other
entities in which any Company owns, of record or beneficially, any direct or
indirect equity or other interest or any right (contingent or otherwise) to
acquire the same.  Except as set forth on
Section 3.04(b) of the Company Disclosure Schedule, other than the
Subsidiaries, none of the Companies is a member of (nor is any part of the business
of Company and its Subsidiaries as currently conducted on the date of this
Agreement conducted through) any partnership. 
Except as set forth in Section 3.04(b) of the Company Disclosure
Schedule, none of the Companies is a participant in any joint venture or
similar arrangement.

(c)           Each Subsidiary that is a
corporation:  (i) is a corporation
duly organized and validly existing under the laws of its jurisdiction of
incorporation, (ii) has all necessary power and authority to own, operate
or lease the properties and assets owned, operated or leased by such Subsidiary
and to carry on its business as it has been and is currently conducted by such
Subsidiary, and (iii) is duly licensed or qualified to do business and is
in good standing in each jurisdiction in which the properties owned or leased
by it or the operation of its business makes such licensing or qualification
necessary or desirable, except as set forth in Section 3.04(c) of the Company
Disclosure Schedule and except for such failures which would not have a
Material Adverse Effect.  Each Subsidiary
that is not a corporation:  (i) is
duly organized and validly existing under the laws of its jurisdiction of
organization, (ii) has all necessary power and authority to own, operate
or lease the properties and assets owned, operated or leased by such Subsidiary
and to carry on its business as it has been and is currently conducted by such
Subsidiary and (iii) is duly licensed or qualified to do business and is
in good standing in each 

 

12

 

jurisdiction in which the
properties owned or leased by it or the operation of its business makes such
licensing or qualification necessary or desirable, except as set forth in
Section 3.04(c) of the Company Disclosure Schedule and except for such failures
which would not have a Material Adverse Effect. 
Section 3.04(c) of the Company Disclosure Schedule sets forth each
jurisdiction in which each Subsidiary is licensed or qualified to do business.  All corporate or entity actions taken by each
Subsidiary in connection with this Agreement and the other Transaction
Documents will be duly authorized on or prior to the Closing, and none of the
Subsidiaries has taken any such action that conflicts with, constitutes a
default under or results in a violation of any provision of its Certificate of
Incorporation (or Articles of Incorporation) or By-laws (or similar
organizational documents).  True,
complete and correct copies of the Certificate of Incorporation and By-laws (or
similar organizational documents) of each Subsidiary, each as in effect on the
date hereof, have been delivered by Seller to Purchaser.

(d)           Section 3.04(d) of the Company
Disclosure Schedule sets forth a true and complete list of any and all former
Subsidiaries of the Companies or the Subsidiaries (the “Former Subsidiaries”).  Neither of the Former Subsidiaries has
engaged in or conducted any business or transactions or entered into any
material contracts or agreements.  Each
of the Former Subsidiaries was dissolved in accordance with the laws of the
State of Delaware, and at the time of dissolution, all Liabilities of the
Former Subsidiaries were satisfied by Seller, and Seller has received
confirmation from the applicable Governmental Authorities that the entities
have been dissolved in accordance with applicable Law and that all Tax
Liabilities have been satisfied.

SECTION
3.05     No Conflict.  The
execution, delivery and performance by Seller of this Agreement and the other
Transaction Documents to which Seller is or will be a party do not and will not
(a) violate, conflict with or result in the breach of any provision of the
Certificate of Incorporation or By-laws (or similar organizational documents)
of Seller, the Companies or any Subsidiary, (b) assuming that all
consents, approvals, authorizations and other actions described in
Section 3.06 have been obtained and all filings and notifications listed
in Section 3.06 of the Company Disclosure Schedule have been made, conflict
with or violate, or give any Governmental Authority the right to challenge the
transactions contemplated by this Agreement or any other Transaction Document
to which Seller is a party, or to exercise any remedy or obtain any relief
under, any Law or Governmental Order, including without limitation any state
takeover or similar statute or regulation, applicable to Seller, the Companies
or any Subsidiary or (c) assuming that all consents, approvals, authorizations
and other actions described in Section 3.06 have been obtained and all
filings and notifications listed in Section 3.06 of the Company Disclosure
Schedule have been made, except as set forth in Section 3.05(c) of the
Company Disclosure Schedule, conflict with, result in any breach of, constitute
a default (or event which with the giving of notice or lapse of time, or both,
would become a default) under, require any consent or provision of notice under,
or give to others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in the creation of any
Encumbrance on any of the Shares or on any of the assets or properties of Seller,
the Companies or any Subsidiary pursuant to, any (i) Material Contract, (ii) any
Permit under which the consequences of a default or termination would have a
Material Adverse Effect or (iii) any Environmental Permit.

 

13

 

SECTION 3.06     Consents and Approvals.  The execution and delivery by Seller of this
Agreement and any other Transaction Document to which Seller is a party do not
or will not, and the performance by Seller of this Agreement and any other
Transaction Document to which Seller is a party will not, require any consent,
approval, authorization or other
action by, or filing with or notification to, any Governmental Authority,
except (a) the notification requirements of the HSR Act, (b) as
described in Section 3.06 of the Company Disclosure Schedule, and (c) as
may be necessary as a result of any facts or circumstances relating solely to
Purchaser.  Except for the consent of MID
Islandi SF in connection with the MID Bridge Loan Agreement, the Gulfstream
Loan Agreement and the documents related thereto, the execution and delivery by
Seller of this Agreement and any other Transaction Document contemplated hereby
to which Seller is a party do not or will not, and the performance by Seller of
this Agreement and any Transaction Document to which Seller is a party will
not, require the consent, approval or authorization
of the shareholders of Seller.

SECTION 3.07     Financial Information, Books and Records.  (a)  True, complete and correct copies of the
audited combined balance sheet
of the Companies and their Subsidiaries as of December 31, 2004 and the audited
combined financial statements for each of the two fiscal years ended as of
December 31, 2003 and 2002 and the related audited combined statements of
income and cash flows of the Companies and their Subsidiaries, together with all related notes and schedules thereto (the “Company Financial Statements”)
and (B) the combined statement of income of the Companies and their Subsidiaries for the 9 month period
ending September 30, 2005 (the “Company Interim Financial Statements”)
have been delivered by Seller to Purchaser. 
The Company Financial Statements and the Company Interim Financial
Statements (i) were prepared in accordance with the books of account and
other financial records of the Companies and the Subsidiaries, (ii) present
fairly the financial condition and results of operations of the Companies and
the Subsidiaries as of the dates thereof or for the periods covered thereby,
(iii) have been prepared in accordance with GAAP, applied on a basis
consistent with the past practices of Seller and the Companies and (iv) include
all adjustments (consisting only of normal recurring accruals) that are
necessary for a fair presentation of the financial condition of the Companies
and the Subsidiaries and the results of the operations of the Companies and the
Subsidiaries as of the dates thereof or for the periods covered thereby.  To the extent delivered prior to the Closing Date, the
financial statements delivered pursuant to Section 5.16, when delivered (i) will
be prepared in accordance with the books of account and other financial records
of the Companies and the Subsidiaries, (ii) will present fairly the
financial condition and results of operations of the Companies and the
Subsidiaries as of the dates thereof or for the periods covered thereby, (iii) will
have been prepared in accordance with GAAP, applied on a basis consistent with
the past practices of Seller and the Companies and (iv) will include all
adjustments (consisting only of normal recurring accruals) that are necessary for
a fair presentation of the financial condition of the Companies and the
Subsidiaries and the results of the operations of the Companies and the
Subsidiaries as of the dates thereof or for the periods covered thereby.

(b)           The books of account and other financial
records of the Companies and the Subsidiaries: 
(i) reflect all items of income and expense and all assets and
Liabilities required to be reflected therein in accordance with GAAP applied on
a basis consistent with the past practices of the Companies and the
Subsidiaries, respectively and (ii) are in all material respects complete
and correct, and do not contain or reflect any material inaccuracies or 

 

14

 

discrepancies.  The Companies and the Subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP.

(c)           All accounts receivable of the Companies
and the Subsidiaries, whether reflected on the Company Financial Statements or
otherwise, represent sales actually made in the ordinary course of business or
finance charges imposed in the ordinary course of business related to such
sales.  The allowance for possible losses
as reflected on the Company Financial Statements as of and for the period ended
on the Reference Balance Sheet Date was adequate as of such date and was
calculated consistent with past practice.

SECTION 3.08     No Undisclosed Liabilities.  To the knowledge of Seller, except as set
forth in Section 3.08 of the Company Disclosure Schedule, there are no
Liabilities of any Company or any Subsidiary, other than Liabilities (a) reflected
or reserved against on the Reference Balance Sheet and (b) incurred since
the date of the Reference Balance Sheet in the ordinary course of the business,
consistent with the past practice, of the Companies and the Subsidiaries.

SECTION 3.09     Conduct in the Ordinary Course; Absence
of Certain Changes, Events and Conditions. 
Since the Reference Balance Sheet Date, except as disclosed in Section
3.09 of the Company Disclosure Schedule, the business of the Companies and the
Subsidiaries has been conducted in the ordinary course and consistent with past
practice.  As amplification and not
limitation of the foregoing, except as disclosed in Section 3.09 of the Company
Disclosure Schedule, since the Reference Balance Sheet Date until the date
hereof, neither the Companies nor any Subsidiary has:

(a)           changed any Company’s or Subsidiary’s
authorized or issued shares of capital stock, partnership interests or similar
ownership interests; granted any option or right to purchase any such shares,
partnership interests or similar ownership interests; issued any security convertible into such shares,
partnership interests or similar ownership interests; granted any registration rights; or purchased, redeemed,
retired, or otherwise acquired any such shares, partnership interests or
similar ownership interests;

(b)           other than the sale or transfer of
the capital stock of the Excluded Subsidiaries prior to the Closing as described
in Section 8.03(p), declared, set aside or paid any dividend or made any
distribution with respect to any Company’s or Subsidiary’s shares of capital
stock, partnership interests or similar ownership interests (whether in cash or
in kind) except as set forth in Section 5.01(c) hereto;

(c)           amended the organizational documents
of any Company or Subsidiary;

(d)           paid or increased any material bonuses,
salaries, or other compensation to any stockholder, director, officer, or
(except in the ordinary course of business) employee or entered into any material
employment, severance, or similar Material Contract with any director, officer,
or employee;

 

15

 

(e)           adopted, or materially increased the
payments to or benefits under, any profit sharing, deferred compensation,
savings, insurance, pension, retirement, or other employee benefit plan for or
with any employees of any Company or Subsidiary;

(f)            suffered any damage to or
destruction or loss of any asset or property of any Company or Subsidiary not
covered by insurance and in excess of $100,000;

(g)           entered into, amended, extended, terminated,
or received notice of termination of, or acceleration of obligations under,
(i) any license, lease, distributorship, dealer, sales representative,
joint venture, partnership, credit, collective bargaining, indemnification or
similar agreement, or (ii) any contract, agreement or transaction
involving a total remaining commitment by or to any Company or Subsidiary of at
least $100,000;

(h)           sold, leased, or otherwise disposed
of any material asset or property of any Company or Subsidiary or mortgaged,
pledged, or suffered the imposition of any Encumbrance on any material asset or
property of any Company or Subsidiary, including the sale, lease, or other disposition of any material Intellectual Property Rights;

(i)            committed to make any capital
expenditures, in excess of $1,000,000 in the aggregate for the period from the
Reference Balance Sheet Date until September 30, 2005, or in excess of $500,000
in the aggregate for the period from October 1, 2005 until the Closing
Date, in each case except as set forth on the Reference Balance Sheet;

(j)            compromised, canceled, waived or
released any claims or rights with a value to any Company or Subsidiary in
excess of $100,000;

(k)           made any material change in the
accounting methods used by the Companies or the Subsidiaries at the time of
preparation of the Reference Balance Sheet;

(l)            made any material election with
respect to Taxes affecting any Company or Subsidiary or settlement or
compromise affecting any Company or Subsidiary of any material Tax liability or
refund;

(m)          suffered any Material Adverse Effect;
or

(n)           entered into any agreement to do any
of the foregoing.

SECTION 3.10     Litigation.  Except as set forth in Section 3.10 of the
Company Disclosure Schedule, there are no Actions pending or, to the knowledge
of Seller, threatened against or by either any Company or Subsidiary or
affecting any of their respective assets or properties (or by or against Seller
or any Affiliate thereof and relating to the Companies and the Subsidiaries),
which involve a claim or potential claim or group of related claims of
liability in excess of $25,000 or which seek or would seek to restrain or
enjoin any activities of any Company or Subsidiary or to impose any criminal or
civil penalties or sanctions on any Company or any Subsidiary.  Except as set forth in Section 3.10 of the
Company Disclosure Schedule, none of the Companies or Subsidiaries nor any of
their assets or properties is subject 

 

16

 

to any Governmental
Order, nor, to the knowledge of Seller, are there any such Governmental Orders
threatened to be imposed by any Governmental Authority.

SECTION
3.11     Compliance with Applicable Laws.  (a)  Except as set forth in Section 3.11(a) of the
Company Disclosure Schedule, since April 5, 2001, no Company or Subsidiary
has violated or failed to comply with any statute, law, regulation, rule, or
Governmental Order of any Governmental Authority applicable to its business or
operations as currently being conducted in any respect that would have a
material effect to the detriment of the business or operations of the Companies
and Subsidiaries.  The conduct of the
business of each Company and Subsidiary as currently being conducted is in
conformity with all federal, state and local governmental and regulatory
requirements applicable to its business and operations, except where such
nonconformities would not have a material effect to the detriment of the
business or operations of the Companies and Subsidiaries.  No Company or Subsidiary, or any officer or
agent thereof, has made any illegal or improper payment to, or provided any
illegal or improper benefit or inducement for, any government official,
supplier, customer or other person in an attempt to influence any person to
take or refrain from taking any action relating to any Company or Subsidiary,
except where such illegal or improper payment, benefit or inducement would not have
a material effect to the detriment of the business or operations of the
Companies and the Subsidiaries.

(b)           Each Company and Subsidiary has all material
Permits required to own and use its assets and to conduct its business as now
being conducted.  Each such Permit is set forth on Section
3.11(b) of the Company Disclosure Schedule and is valid and in full force and
effect.  Each Company and Subsidiary is
in compliance with all such Permits and no Company or Subsidiary is in default
under any such Permit or has received any notice of violation or noncompliance
or claim of default with respect thereto, except where such noncompliance,
default or the effect of receipt of such notice would not, individually or in
the aggregate, have a Material Adverse Effect.

SECTION 3.12     Environmental Matters.  (a)  Except
as disclosed in Section 3.12 of the Company Disclosure Schedule:  (i) to Seller’s knowledge, the Companies
and the Subsidiaries are, and have been since April 5, 2001, in material compliance
with all applicable Environmental Laws and have obtained and are, and have been
since April 5, 2001, in compliance with all required Environmental Permits,
which are set forth on Section 3.12 of the Company Disclosure Schedule, and are
valid and in full force and effect; (ii) there are no Environmental
Actions pending or threatened in writing against any of Seller, the Companies
or Subsidiaries with respect to the business or operations of the Companies or
Subsidiaries or the Real Property; (iii) to Seller’s knowledge, no
Hazardous Materials have been released into the environment by any of the
Companies or Subsidiaries on any of the Real Property except as authorized under
Environmental Law and no condition exists that would require investigation or
remediation under any Environmental Law; (iv) to Seller’s knowledge, there
are no underground storage tanks at any facilities owned or operated by any
Company or Subsidiary; (v) to Seller’s knowledge, all underground storage
tanks maintained at such facilities are in good working order, do not leak into
soil or groundwater, and are in compliance with Environmental Laws or for which
there is any pending or threatened action seeking to require remediation or
clean up; (vi) to Seller’s knowledge, none of such facilities contains any
asbestos or polychlorinated biphenyls; (vii) to Seller’s knowledge, none
of the Companies nor any Subsidiary has sent 

 

17

 

Hazardous Materials to a
disposal location owned or operated by a third party that requires remediation
or clean up or for which there is any pending or threatened Action seeking to
require remediation or clean up; and (viii) Seller has provided Purchaser
with copies of any and all written environmental assessment or audit reports
generated within the last three years and in the possession of Seller or their
respective attorneys, agents or consultants, that relate to the business of the
Companies and the Subsidiaries or the Real Property.  Except as disclosed in Section 3.12 of the
Company Disclosure Schedule, Seller, the Companies and the Subsidiaries have
not received since April 5, 2001 any written notice of any actual, alleged
or potential noncompliance with, liability under, or claimed violation of, any
Environmental Laws, including without limitation, from any government agency or
prosecutor, from any private citizen acting in the public interest or from any
prior owner or operator of the Real Property, and, to the knowledge of Seller,
there has not occurred and there does not exist any event or condition which
would cause noncompliance with, liability under, or violation of, any
Environmental Laws.  Except as disclosed
in Section 3.12 of the Company Disclosure Schedule, Seller, the Companies
and the Subsidiaries have not received any notice of violation or noncompliance
or claim of default with respect to any Environmental Permit.

(b)           Purchaser acknowledges that (i) the
representations and warranties contained in Section 3.05 (as it relates to
Environmental Permits) and this Section 3.12 are the only representations and
warranties being made with respect to compliance with or liability under
Environmental Laws or with respect to any environmental matter, including
natural resources, related in any way to the Companies, the Subsidiaries or the
Real Property or to this Agreement or its subject matter, and (ii) no
other representation contained in this Agreement shall apply to any such
matters and no other representation or warranty, express or implied, is being
made with respect thereto.

(c)           For purposes of this
Agreement:

“CERCLA”
means the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended.

“Environmental
Actions” means any and all Actions arising out of, or related to the
presence, Release or threatened Release of any Hazardous Materials, including
Actions alleging common law liability arising out of, or related to the
presence, Release or threatened Release of any Hazardous Materials.

“Environmental
Laws” means any civil and criminal Laws, rules, Permits or Governmental
Orders relating to or addressing pollution or protection of the environment,
public health or safety, including, without limitation, those relating to the presence,
use, production, processing, generation, handling, labeling transportation,
treatment, storage, disposal, distribution, testing, processing, Release,
threatened Release or discharge, investigation, control, exposure or cleanup of
Hazardous Materials, wastes, substances, storm water or waste water.

“Environmental
Permits” means any permit, approval, identification number, license or
other authorization obtained, or required
of any Company or Subsidiary to be obtained, under any Environmental Law.

 

18

 

“Hazardous
Materials” means (a) any petroleum, petroleum products, by-products or
breakdown products, radioactive materials, asbestos-containing materials, urea
formaldehyde foam, heavy metals or polychlorinated biphenyls, (b) any waste,
chemical, material or substance defined or regulated as toxic or hazardous under
any applicable Environmental Law or (c) anything that is a “hazardous
substance” pursuant to CERCLA or any similar applicable state law, anything
that is a “solid waste” or “hazardous waste” pursuant to RCRA or any similar
applicable state law or any “pesticide,” “pollutant,” “contaminant,” “toxic
chemical” or “noise.”

“RCRA”
means the Resource Conservation and Recovery Act, as amended.

“Release”
means any release, spill, emission, leaking, dumping, injection, pouring,
deposit, discharge, dispersal, leaching or migration of a Hazardous Material
into the environment (including ambient air, surface water, ground water, land
surface or subsurface strata) or within any building, structure or facility.

SECTION 3.13     Title to Assets; Real Property.  (a) Except as set forth in Section
3.13(a) of the Company Disclosure Schedule, and excluding the Real Property, each
Company and Subsidiary has good and marketable title to, or valid leasehold
interests in, all the tangible personal properties and personal assets used by
it or located on its premises that are material to the conduct of its business or
which are shown on the Company Financial Statements (collectively, the “Assets”),
except for such as are no longer useful in the conduct of its business or as
have been disposed of in the ordinary course of business.  All such assets and properties (including
leasehold interests) are free and clear of Encumbrances except for (i) Encumbrances
that would not unreasonably interfere with the use or operation of the Assets; (ii) liens
for taxes not yet due or being contested in good faith by appropriate
procedures and for which there are adequate reserves on the books; (iii) mechanics,
carriers, workmen’s, repairmen’s or other like liens arising or incurred in the
ordinary course of business for amounts that are not delinquent and which are
not, individually or in the aggregate, material to the business of the Companies
and the Subsidiaries, (iv) in the case of Assets other than Real Property,
liens arising under original purchase price conditional sales contracts and
equipment leases with third parties entered into in the ordinary course of business,
(v) any Encumbrances for the obligations of third party lessors or (vi) those
items set forth in Section 3.13(a) of the Company Disclosure Schedule (the “Permitted
Exceptions”).  The Real Property will
be free and clear of all monetary Encumbrances as of the Closing.  Seller has no knowledge of any matters that
would affect the marketability of title of the Real Property other than as set
forth on the applicable Title Policy.

(b)           Section 3.13(b) of the Company
Disclosure Schedule lists:  (i) the
street address of each parcel of Real Property; (ii) if such property is
owned by any Company or Subsidiary, the owner of such property; (iii) if
such property is leased or subleased by any Company or Subsidiary as lessee,
the landlord under the lease, the rental amount currently being paid, and the
expiration of the term of such lease or sublease; and (iv) the current use
of such property.  Seller has delivered
or made available to Purchaser true, complete and correct copies of any leases
affecting the Real Property.

(c)           As is the case with most harness
racing facilities of the age of the Meadows Facility, most of the Assets are
old and need periodic repair and replacement. 

 

19

 

Nevertheless, to Seller’s
knowledge, as of the date hereof and as of the Closing (subject to Seller
Developments in the latter case) (i) all of the material equipment,
inventory and other items of tangible property and assets included in the
Assets are at such times in a condition sufficient for the operation of the
business currently being conducted at the Real Property and (ii) each material
building or material improvement on any of the Real Property is at such times in
a condition sufficient for the operation of the business currently being
conducted at the Real Property.

(d)           To the knowledge of Seller, the real
property improvements at the Real Property, and the current use and operation
thereof, are in compliance with and authorized by applicable zoning and other
land use regulations and none of Seller, the Companies or the Subsidiaries has
received any written notice that any Governmental Authority or other Person considers
any of the Real Property, or the improvements thereat, to violate any such
regulations.  There is no Action pending
or, to the knowledge of Seller, threatened:  (i) to take all or any portion of the
Real Property or the improvements through eminent domain, (ii) to modify
the zoning or other governmental rules or restrictions applicable to the use or
development of the Real Property or improvements, or (iii) that would
reasonably be expected to have a material adverse effect on the ownership or
leasehold interest in the Real Property. 
There is no Action brought with respect to the Real Property, pending
against Seller, the Companies or the Subsidiaries, or as to which Seller has
knowledge, or, to the knowledge of Seller, threatened, that would have a
Material Adverse Effect on the value, use, development or occupancy of the Real
Property, other than Actions that are general in nature concerning the Gaming
Act or not based upon land, zoning, use or Laws related to the ownership and
development of real property interests.  The
Companies and the Subsidiaries are permitted by the appropriate Governmental
Authorities to occupy the Meadows Facility.

(e)           Immediately following the
consummation of the transactions contemplated by this Agreement, either a
Company or a Subsidiary, as the case may be, will continue to own, or lease,
under valid and subsisting leases, or otherwise retain its respective interest
in the Assets without incurring any material penalty or other adverse
consequence, including, without limitation, any material increase in rentals,
royalties, or licenses or other fees imposed as a result of, or arising from the
consummation of the transactions contemplated by this Agreement, and, except as
otherwise contemplated in the Racing Services Agreement, collectively, the
Companies and the Subsidiaries will have all of the assets and rights that are
necessary and sufficient for the conduct of the business of the Companies and
the Subsidiaries in substantially the same manner as currently conducted.  Except as otherwise contemplated in the
Racing Services Agreement, immediately following the Closing, either a Company
or a Subsidiary, as the case may be, shall own and possess all documents,
books, records, agreements, contracts, Permits, warranties, plans,
specifications, drawings, customer lists, supplier lists and financial data of
any sort used in the conduct of the business of the Companies and the
Subsidiaries as currently conducted.

(f)            Seller acknowledges that it
intended, and that Purchaser intends, to (i) develop a portion of the
owned Real Property located in North Strabane Township in the Commonwealth of
Pennsylvania with a casino and certain uses ancillary thereto (the “Proposed
Development”) and (ii) refurbish the paddock area currently located on
such property (the “Paddock Refurbishment”).  None of Seller, the Companies or any
Subsidiary has received any 

 

20

 

written notice from a
Governmental Authority indicating that either the Proposed Development or the
Paddock Refurbishment will be prohibited by any Governmental Authority, Law or
Environmental Law or challenged by any Governmental Authority.

(g)           The Real Property is connected to
adequate sanitary sewer, storm sewer, water, electricity, gas, telephone and
all other utilities and services necessary for the current use of the Real
Property in accordance with all applicable Laws of any Governmental Authority
having or claiming jurisdiction thereover and to the knowledge of Seller, there
has not occurred any event or condition which would result in termination of
such connections.  There is to the
knowledge of Seller, no present or threatened ban or moratorium on new
connections or additional flows to the sewage treatment plant serving the Real
Property.

SECTION
3.14     Intellectual Property Rights. 
The Companies and the Subsidiaries each have good, valid and marketable
title to, or the right to use, all Intellectual Property Rights.  To the knowledge of Seller, all current and
former employees of the Companies and the Subsidiaries have assigned to each,
respectively, all Intellectual Property Rights that such employees have created
while in the scope of their employment with each, respectively, including,
without limitation, copyrights in works made for hire and patents, except where
failure to assign such Intellectual Property Rights could not reasonably be
expected to materially impair the ability of the Companies or the Subsidiaries
to continue to obtain free of charge the benefits of such Intellectual Property
Rights.  Section 3.14 of the Company
Disclosure Schedule lists each registered Intellectual Property Right owned by
the Companies and the Subsidiaries.  The
Company Disclosure Schedule lists each material contract, license and agreement
with respect to Intellectual Property Rights pursuant to which any of the
Companies or the Subsidiaries has granted any Person the right to
reproduce, distribute, market or exploit Intellectual Property Rights.  There is no Action, pending, or to Seller’s
knowledge, threatened that challenges the validity of ownership or use of any
Intellectual Property Rights of the Companies and the Subsidiaries.  To Seller’s knowledge, no third party’s
operations or products infringe on the Intellectual Property Rights in any
material respect.  To Seller’s knowledge,
neither the Companies’ nor any Subsidiary’s operations and products infringe in
any material respect on the intellectual property rights of any other Person.  Seller, the Companies and the Subsidiaries
have not received since April 5, 2001 any written claim of infringement
with respect to any Intellectual Property Rights used by the Companies or the
Subsidiaries.

SECTION 3.15     Insurance.  Section 3.15 of the Company Disclosure
Schedule sets forth a complete list of all material insurance policies
(including policies providing property, casualty, liability and workers’
compensation coverage and bond and surety arrangements) with
respect to which any Company or Subsidiary is a party, a named insured or
otherwise the beneficiary of coverage (together with the policy owner, limit
and premium for each such policy).  Such
coverage or similar insurance coverage has been maintained with respect to the
Companies and the Subsidiaries at all times in the past three years.  With respect to each such insurance policy:  (a) such policy is in full force and
effect; (b) no Company or Subsidiary, nor Seller, nor, to the knowledge of
Seller, any other party to such policy is in material breach or default
thereunder and all premiums due are currently paid, and no event has occurred
which, with or without notice or the lapse of time, would constitute such a
material breach or default, or permit termination, modification or acceleration
under such policy; (c) no party to such policy has repudiated any material
provision thereof; and (d) none of Seller, any 

 

21

 

Company or any Subsidiary
has received any written notice that such policy has been or will be cancelled
or terminated or will not be renewed on substantially the same terms.

SECTION
3.16     Employee Benefit Matters.  (a) Section
3.16(a) of the Company Disclosure Schedule lists (i) each employee benefit
plan, program, arrangement and contract (including, without limitation, any “employee
benefit plan” as defined in Section 3(3) of ERISA) maintained, contributed to
or sponsored by any Company or any Subsidiary excluding Multiemployer Plans
(the “Benefit Plans”), (ii) all Benefit Plans as to which any
Company or Subsidiary is or was the “administrator” or “plan sponsor,” as those
terms are defined in Section 3 of ERISA, without regard to whether or not such
Plan is an ERISA plan, at any time within the past three years (the “Company
Plans”), (iii) all material employment, termination, severance or
other contracts or agreements (including, without limitation, collective
bargaining agreements and other labor union agreements), in respect of any
Employee, to which a Company or a Subsidiary is a party or, with respect to
which, a Company or a Subsidiary has any obligation (collectively, the “Employee
Agreements”) and (iv)  any multiemployer plans (as defined in Section
3 (37) of ERISA), pursuant to which Seller, a Company or a Subsidiary
contributes, or has an obligation to contribute, in respect of any Employee,
former employee, officer or director of the Companies or Subsidiaries (together
with any multiemployer plans to which Seller, a Company or a Subsidiary has
contributed, or had an obligation to contribute, since April 5, 2001, the “Multiemployer
Plans”).  Section 3.16(a) of the
Disclosure Schedule identifies which Benefit Plans are Company Plans and
Multiemployer Plans and, for each Multiemployer Plan, sets forth, to the extent
such information is in the possession of Seller, a Company or a Subsidiary, the
amount of potential withdrawal liability of the Companies as of its last
valuation date.

(b)           Seller has made available to
Purchaser a copy of (i) the most recent three annual reports (Form 5500)
filed with the IRS, including all schedules and attachments thereto for each
Benefit Plan, (ii) a copy of each Benefit Plan, (iii) if applicable,
each trust agreement relating to such Benefit Plan, (iv) the most recent
summary plan description for each Benefit Plan for which a summary plan
description is required and the most recent summaries and descriptions
furnished to participants regarding Company Plans for which a summary plan
description is not required, (v) the most recent determination letter, if
any, issued by the IRS with respect to any Benefit Plan qualified under Section
401(a) of the Internal Revenue Code, (vi) all Company personnel and
employment manuals and policies, (vii) all collective bargaining
agreements pursuant to which contributions are being made or obligations are
owed by a Company or Subsidiary, (viii) all registration statements filed
with respect to any Company Plan, (ix) all insurance policies purchased by
or to provide benefits under any Company Plan, (x) all contracts with
third party administrators, actuaries, investment managers, consultants, and
other independent contractors that relate to any Company Plan, (xi) all
reports submitted within the three years preceding the date of this Agreement
by third party administrators, actuaries, investment managers, consultants, or
other independent contractors with respect to any Company Plan, and all such
reports in the possession of Seller, a Company or a Subsidiary relating to a
Multiemployer Plan, (xii) all notices that were given by any Company or
any Subsidiary with respect to any Company Plan, or by any Company Plan, to the
IRS or the PBGC pursuant to statute, within the three years preceding the date
of this Agreement, including notices that are expressly mentioned elsewhere in
this Section 3.16, (xiii) all notices that were given by the IRS, the
PBGC, or the Department of Labor to a Company or a Subsidiary with respect to
any Company Plan if such notice could result in material liability to a
Company, a Subsidiary or to 

 

22

 

any Company Plan, within
the three years preceding the date of this Agreement, and (xiv) all other
material correspondence with any Governmental Authority relating to any Benefit
Plan.

(c)           No Benefit Plan is subject to Title
IV of ERISA.

(d)           Seller has made available to
Purchaser (i) copies of all material employment agreements with officers
of the Companies and the Subsidiaries; (ii) copies of all material
severance agreements, programs and policies of the Companies and the
Subsidiaries with or relating to the Employees; and (iii) copies of all
material plans, programs, agreements and other arrangements of the Companies
and the Subsidiaries with or relating to the Employees which contain change in
control provisions.

(e)           Except as provided in Section 3.16(e)
of the Company Disclosure Schedule or as otherwise required by Law, no Company
Plan provides retiree medical or retiree life insurance benefits to any person.

(f)            Set forth in Section 3.16(f) of the
Company Disclosure Schedule is a true and complete list of all individuals
employed by the Companies or any Subsidiary as of the date hereof that receive
annual salary and wages in excess of $100,000 annually, the position of and
base compensation payable to each such individual and bonus, deferred or
contingent compensation and other like benefits paid or payable in 2004 to each
such individual.

(g)           Seller, each Company and each Subsidiary
has complied in all material respects with the provisions of each Benefit Plan,
with ERISA, the Code and other applicable Laws, and has timely made all
contributions and other payments required by and due under the terms of each
Benefit Plan and each Multiemployer Plan. 
To the knowledge of Seller, all Companies and Subsidiaries have made
appropriate entries in their financial records and financial statements for all
obligations and liabilities of such Companies and Subsidiaries under such
Benefit Plans that have accrued but are not yet due.  To the knowledge of Seller, no Action is
pending or threatened with respect to any Multiemployer Plan or the assets of
any Multiemployer Plan (other than claims for benefits in the ordinary course).  No Action is pending or, to the knowledge of
Seller, threatened with respect to any Benefit Plan or the assets of any
Benefit Plan (other than claims for benefits in the ordinary course) and, to
the knowledge of Seller, no fact or event exists that could give rise to any
such Action.  There are no audits,
inquiries or proceedings pending or, to the knowledge of Seller, threatened by
any Governmental Authority against any Benefit Plan.

(h)           Each Benefit Plan that is intended to
be qualified under Section 401(a) of the Code (collectively, the “Qualified
Plans”) has timely received a favorable determination letter from the IRS
stating that the Qualified Plan is so qualified and each trust established in
connection with any Qualified Plan which is intended to be exempt from federal
income taxation under Section 501(a) of the Code has received a determination
letter from the IRS that it is exempt, and, to the knowledge of Seller, no fact
or event has occurred since the date of such determination letter or letters
from the IRS to adversely affect the qualified status of any such Qualified
Plan or the exempt status of any such trust.

 

23

 

(i)            Except as set forth
in Section 3.16(i) of the Disclosure Schedule:

(i)            To Seller’s knowledge, no transaction prohibited by
ERISA § 406 and no “prohibited transaction” under Code Section 4975
has occurred with respect to any Benefit Plan that would be expected to have a
Material Adverse Effect.

(ii)           To Seller’s Knowledge, all filings required by ERISA
and the Code as to each Company Plan have been timely filed and all notices and
disclosures to participants required by ERISA or the Code have been timely
provided.

(iii)          All contributions and payments made or accrued with
respect to all Benefit Plans are deductible under Code Section 162 or Section 404.  No amount or any asset of any Benefit Plan is
subject to tax as unrelated business taxable income.

(iv)          Each Company Plan that is not a Qualified Plan can be
terminated within thirty days, without payment of any additional contribution
or amount and without the vesting or acceleration of any benefits promised by
such Company Plan.

(v)           To the knowledge of Seller, no event has occurred or
circumstance exists that could result in a material increase in premium costs
of the Company Plans that are insured, or a material increase in benefit costs
of such Company Plans that are self-insured.

(vi)          No accumulated funding deficiency, whether or not
waived, exists with respect to any Benefit Plan, and no event has occurred or
circumstance exists that may result in an accumulated funding deficiency as of
the last day of the current plan year of any such Benefit Plan.

(vii)         No Company or Subsidiary has withdrawn or partially
withdrawn from any Multiemployer Plan with respect to which there is any
outstanding liability as of the date of the Agreement.  To the knowledge of Seller, no event has
occurred or circumstance exists, including but not limited to the transactions
contemplated by this Agreement, that presents a risk of the occurrence of any
withdrawal from, or the termination, reorganization, or insolvency of, any
Multiemployer Plan that could result in any liability of either Company, any
Subsidiary or Purchaser to a Multiemployer Plan.

(viii)        No Company or Subsidiary has received notice from any
Multiemployer Plan that it is in reorganization or is insolvent, that increased
contributions may be required to avoid a reduction in plan benefits or the
imposition of any excise Tax, or that such plan intends to terminate or has
terminated.

(ix)          To the knowledge of Seller, no Multiemployer Plan to
which either Company or any Subsidiary contributes, or has contributed since
April 5, 2001, immediately preceding the date hereof is a party to any
pending merger or asset or liability transfer or is subject to any proceeding
brought by the PBGC.

(x)           No payment that is owed or may become due to any
director, officer, Employee, or agent of either Company or Subsidiary will be
non-deductible to such 

 

24

 

Company or Subsidiary or subject to tax under Code Section 280G
or Section 4999; nor will either Company or Subsidiary be required to “gross
up” or otherwise compensate any such Person because of the imposition of any
excise tax on a payment to such person.

(xi)          The consummation of the transactions contemplated by
this Agreement will not result in the payment, vesting, or acceleration of any
benefit, except as may be required by a Qualified Plan pursuant to Section
411(d)(3) of the Code.

(xii)         No event has occurred that could result in any
material liability of either any Company or any Subsidiary as the result of it
being treated, together with one or more other Persons, as a single employer
under Code Section 414 or similar provisions of ERISA.

SECTION
3.17     Labor Matters.  Except as set
forth on Section 3.17 of the Company Disclosure Schedule:  (a) there are no material Actions or controversies
pending or, to the knowledge of Seller, threatened, between any Company or
Subsidiary and any of the Employees or former employees of the Companies or the
Subsidiaries, and, to the knowledge of Seller, there is no event or condition
which would reasonably be expected to give rise to any such Action or
controversy; (b) no Company or Subsidiary is a party to any collective
bargaining agreement or other labor union contract applicable to Persons
employed thereby, and to Seller’s knowledge, currently there are no
organization campaigns, petitions or other unionization activities seeking
recognition of a collective bargaining unit which could affect any Company or
Subsidiary; (c) during the past five years, there have been no unfair
labor practice complaints pending against any Company or Subsidiary before the National Labor Relations Board;
(d) during the past five years, there have been no strikes,
slowdowns, work stoppages, lockouts, or,
to Seller’s knowledge, threats
thereof, by or with respect to any employees of any Company or Subsidiary;
(e) neither the Companies nor any Subsidiaries have breached, in any
material respect, or otherwise failed to comply, in any material respect, with
the provisions of any collective bargaining or union contract and there are no
grievances outstanding against the Companies or Subsidiaries under any such
agreement or contract; (f) neither the Companies nor any Subsidiaries are
parties to, or otherwise bound by, any Governmental Order, consent decree with,
or citation by, any Governmental Authority relating to employees or
employment practices; (g) there is no charge or proceeding with respect to
a violation of any occupational safety or health standards that has been
asserted or is now pending or, to Seller’s knowledge, threatened with respect
to the Companies or Subsidiaries; and (h) there is no charge of discrimination
in employment or employment practices, for any reason, including, without
limitation, age, gender, race, religion or other legally protected category,
which has been asserted or is now pending or, to Seller’s knowledge, threatened
before the United States Equal Employment Opportunity Commission or any other
Governmental Authority.  The relations of
WTA and MLR with owners and trainers who have participated in racing at the
Meadows Facility within the past year are satisfactory, and, to the knowledge of
Seller, there is no event or condition that would reasonably be expected to materially
affect adversely such relations as a whole. 
Except as set forth in Section 3.17 of the Company Disclosure Schedule,
the persons employed in the XpressBet, Inc. business are employees of
XpressBet, Inc. and have no employment relationship with any of the Companies
or Subsidiaries nor are any such persons entitled to payment from any Company
or any Subsidiary for services performed.

 

25

 

SECTION 3.18     Taxes.  (a) 
Except as set forth in Section 3.18 of the Company Disclosure
Schedule:  (i) all Tax Returns in
respect of Taxes required to be filed with respect to the Companies and each
Subsidiary (including the consolidated federal income tax return of Seller and
any state Tax Return that includes the Companies or any Subsidiary on a consolidated or combined basis) have been
timely filed; (ii) all Taxes owing with respect to the assets, operations,
and activities of the Companies and each Subsidiary have been timely paid;
(iii) all such Tax Returns are true, complete and correct in all material
respects; (iv) no adjustment relating to such Tax Returns has been
proposed by any Tax authority (insofar as either relates to the activities or
income of the Companies or any Subsidiary or could result in Liability of the
Companies or any Subsidiary on the basis of joint and/or several liability)
and, to the knowledge of Seller, no basis exists for any such adjustment;
(v) there are no pending or, to the knowledge of Seller, threatened
Actions or proceedings for the assessment or collection of Taxes against the
Companies or any Subsidiary or (insofar as either relates to the activities or
income of the Companies or any Subsidiary or could result in Liabilities of the
Companies or any Subsidiary on the basis of joint and/or several liability) any
corporation that was included in
the filing of a Tax Return with Seller on a consolidated or combined basis;
(vi) no claim has been made by a Tax authority in a jurisdiction where Tax
Returns are not filed by or on behalf of the Companies or any Subsidiary that a
Company or a Subsidiary is or may be subject to taxation by that jurisdiction;
(vii) from and after January 1, 2001, the Companies and each
Subsidiary (other than any such Subsidiary which is not a partnership) have
been and continue to be a member of the affiliated group (within the meaning of
Section 1504(a)(1) of the Code) with which Seller files a consolidated Tax
Return, and has not been includible in any other consolidated Tax Return for
any taxable period for which the statute of limitations has not expired; (viii) all
Tax Returns filed with respect to Tax years of the Companies and each
Subsidiary through the Tax year ended 2001 have been examined and closed or are
Tax Returns with respect to which the applicable period for assessment under
applicable law, after giving effect to extensions or waivers, has expired; and
(ix) there are no Encumbrances for Taxes (other than Taxes not yet due and
payable) upon any of the assets of the Companies or any Subsidiary.

(b)           Except as disclosed with reasonable
specificity in Section 3.18 of the Company Disclosure Schedule, there are no
outstanding waivers or agreements extending
the statute of limitations for any period with respect to any Tax to
which the Companies or any Subsidiary may be subject.

(c)           (i) Section 3.18 of the Company
Disclosure Schedule lists all income, franchise
and similar Tax Returns (federal, state, local and foreign) filed with respect
to each of the Companies and the
Subsidiaries for taxable periods ended on or after January 1, 2001, indicates for which
jurisdictions Tax Returns have been filed on the basis of a unitary group, indicates the most
recent income, franchise or similar Tax Return for each relevant jurisdiction
for which an audit has been completed or the statute of limitations has lapsed
and indicates all Tax Returns
that currently are the subject of audit; (ii) Seller has delivered to Purchaser copies of all federal, state
and foreign income, franchise and similar Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by the Companies or any Subsidiary since January 1, 2001; (iii) Section 3.18 of the Company Disclosure
Schedule lists all closing agreements and Tax rulings received (and all such
agreements and rulings that, since January 1, 2001, have been requested)
from any Tax authority with respect to the Companies or any Subsidiary.  None of the Companies or Subsidiaries or their
respective Affiliates, has received a 

 

26

 

Tax opinion with respect
to any transaction relating to a Company or a Subsidiary other than a
transaction in the ordinary course of business.  Seller has delivered to Purchaser copies of
all pro forma federal income Tax Returns of the Subsidiaries, prepared in
connection with Seller’s or any other consolidated federal income Tax Return,
accompanied by a schedule reconciling the items in the pro forma Tax Return to
the items as included in the consolidated Tax Return for all taxable years
ending on or after January 1, 2001.

(d)           Except as disclosed with reasonable
specificity in Section 3.18 of the Company Disclosure Schedule, each of
the Companies and Subsidiaries have withheld and paid each Tax required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other party, and
complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto.

(e)           Except as disclosed with reasonable
specificity in Section 3.18 of the Company Disclosure Schedule, none of
the Companies or Subsidiaries is a party to any Tax allocation, Tax sharing or
Tax reimbursement agreement or arrangement with any Person.

(f)            Except as disclosed with reasonable
specificity in Section 3.18 of the Company Disclosure Schedule, no Company or
Subsidiary will have any taxable income or gain as a result of prior
intercompany transactions that have been deferred and that will be taxed as a
result of the changes in ownership contemplated by this Agreement.

(g)           Except as disclosed with reasonable
specificity in Section 3.18 of the Company Disclosure Schedule, Purchaser
is not required to withhold Tax on the purchase of the Shares by reason of
Section 1445 of the Code.  Seller is not a
“foreign person” (as that term is defined in Section 1445 of the Code).  Except as disclosed with reasonable
specificity in Section 3.18 of the Company Disclosure Schedule, none of
the Companies or Subsidiaries has entered into any compensatory agreements with
respect to the performance of services payment under which would result in a
nondeductible expense pursuant to Sections 162(m) or 280G of the Code or an
excise tax to the recipient of such payment pursuant to Sections 409A or 4999
of the Code; none of the Companies or Subsidiaries has agreed to make, and none
is required to make, any adjustment under Section 481(a) of the Code by reason
of a change in accounting method or otherwise; no Tax asset of a Company or
Subsidiary is currently subject to a limitation under Sections 382 or 383 of
the Code or similar provisions of state, local or foreign law; none of the
Companies or Subsidiaries has been the “distributing corporation” (within the
meaning of Section 355(c)(2) of the Code) with respect to a transaction
described in Section 355 of the Code within the 3-year period ending as of the
date of this Agreement; none of the Companies or Subsidiaries has made or is
bound by any election under Section 197 of the Code; none of the Companies or
Subsidiaries is a party to any understanding or arrangement described in
Section 6662(d)(2)(C)(ii) of the Code, a “reportable transaction” within
the meaning of Treasury Regulations Section 1.6011-4(b) or a “listed
transaction” within the meaning of Treasury Regulation
Section 1.6011-4(b)(2).

(h)           Except as disclosed with reasonable
specificity in Section 3.18 of the Company Disclosure Schedule, the amount
of the liability for the Companies and Subsidiaries for unpaid Taxes for all
periods ending on or before the date of the most recent Company 

 

27

 

Financial Statements does
not, in the aggregate, exceed the amount of the current liability accruals for
Taxes (excluding reserves for deferred Taxes) solely with respect to the
Companies and Subsidiaries as of such date, and the amount of their liability
for unpaid Taxes for all periods ending on or before the Closing Date shall
not, in the aggregate, exceed the amount of the current liability accruals for
Taxes (excluding reserves for deferred Taxes) as such accruals are reflected on
the Company Financial Statements, as adjusted for transactions through the
Closing Date that either (i) occur in the ordinary course of business or
(ii) are contemplated by this Agreement. 
Except as disclosed with reasonable specificity in Section 3.18 of the
Company Disclosure Schedule, no item of income or gain reported for financial
purposes in any Pre-Closing Period is required to be included in taxable income
for a Post-Closing Period.

SECTION 3.19     Material Contracts.  (a)  Section
3.19(a) of the Company Disclosure Schedule lists each of the following
contracts and agreements of the Companies and the Subsidiaries (such contracts
and agreements, together with all contracts, agreements, leases and subleases
concerning the occupancy, management or operation
of any Real Property (including without limitation, brokerage contracts)
listed or otherwise disclosed in Section 3.13(a) or 3.13(b) of the Company
Disclosure Schedule to which the Companies or any Subsidiary is a party and all
agreements relating to Intellectual Property Rights set forth in Section 3.14
of the Company Disclosure Schedule, being “Material Contracts”):

(i)            each contract and agreement for the
furnishing of services to or by the Companies, any Subsidiary or otherwise
related to the business of the Companies and the Subsidiaries as currently
conducted under the terms of which the Companies or any Subsidiary:  (A) is likely to receive, pay or
otherwise give consideration of more than $50,000 in the aggregate during the
calendar year ended December 31, 2005, (B) is likely to receive, pay
or otherwise give consideration of more than $100,000 in the aggregate over the
remaining term of such contract or (C) cannot be cancelled by the
Companies or such Subsidiary without penalty or further payment and without
more than 30 days’ notice;

(ii)           all broker, distributor, dealer,
manufacturer’s representative, franchise, agency, sales promotion, market
research, marketing consulting and advertising contracts and agreements to
which the Companies or any Subsidiary is a party;

(iii)          all management contracts and contracts
with independent contractors or consultants (or similar arrangements) to which
the Companies or any Subsidiary is a party and which are not cancelable without
penalty or further payment and without more than 30 days’ notice;

(iv)          all contracts and agreements relating
to indebtedness (including, without limitation, guarantees) of the Companies or
any Subsidiary;

(v)           all contracts and agreements with any
Government Authority to which any Company or Subsidiary is a party;

(vi)          all contracts or agreements to which
any Company or any Subsidiary is a party that provide for, or restrict, (A) the
future acquisition or disposition of Assets (other 

 

28

 

than in the ordinary
course of business and other than anti-assignment provisions) or (B) any
merger or business combination;

(vii)         all contracts and agreements that limit
or purport to limit the ability of the Companies or any Subsidiary to compete
in any line of business or with any Person or in any geographic area or during
any period of time;

(viii)        any contracts or agreements to which any
Company or any Subsidiary is a party that provide for any joint venture,
partnership or similar arrangement by any Company or any Subsidiary;

(ix)          all contracts and agreements between
or among the Companies or any Subsidiary on the one hand and Seller or any
Affiliate of Seller (other than the Companies or any Subsidiary) on the other
hand;

(x)           any collective bargaining contracts
or agreement or contracts or agreements with any labor organization, union or
association to which any Company or any Subsidiary is a party;

(xi)          any employment agreement involving
payments of base cash compensation annually by any Company or Subsidiary in
excess of $100,000;

(xii)         all contracts and agreements entered
into by any Company or any Subsidiary on or after April 5, 2001 that
provide for indemnification by any Company or any Subsidiary with respect to
Liabilities relating to the Real Property or current or former business or
operations of the Companies and the Subsidiaries or any of their predecessors
or with respect to Liabilities under any Environmental Laws or for the
investigation, remediation or clean-up of any Hazardous Materials; and

(xiii)        any other contract or agreement to which
any Company or any Subsidiary is a party under which the consequences of a
default or termination would have a Material Adverse Effect.

For purposes of this Section
3.19 and Sections 3.09, 3.13 and 3.14, the term “lease” shall include
any and all leases, subleases, occupancy agreements, sale/leaseback agreements
or similar arrangements.

(b)           Except as disclosed in Section
3.19(b) of the Company Disclosure Schedule, each Material Contract:  (i) is valid and binding on the Companies
or a Subsidiary and is in full force and effect and (ii) upon consummation
of the transactions contemplated by this Agreement, except to the extent that
any consents set forth in Section 3.05(c) of the Company Disclosure
Schedule are not obtained, shall continue in full force and effect without
penalty or other adverse consequence. 
Neither the Companies nor any Subsidiary is in breach of, or default
under, any Material Contract, and, to the knowledge of Seller, no event or
condition has occurred that, with or without notice or lapse of time or both,
would constitute a breach of or default under any Material Contract.

 

29

 

(c)           Except as disclosed in Section
3.19(c) of the Company Disclosure Schedule, to the knowledge of Seller, no
other party to any Material Contract is in breach thereof or breach thereunder.

SECTION 3.20     Racing License.  Each of WTA and MLR has been granted
permission to conduct harness racing with pari-mutuel wagering pursuant to the
Pennsylvania Act.  MEC Racing Management
(“MECRacing”) has received permission from the Commission to own and
operate the OTB Facilities pursuant to the Pennsylvania Act, to conduct
interstate simulcasting pursuant to the Pennsylvania Act and to conduct
intrastate simulcasting pursuant to the Pennsylvania Act, all for and on behalf
of WTA and MLR and pursuant to the licenses held by WTA and MLR.  The location and description of each OTB
Facility is set forth on Section 3.20 of the Company Disclosure Schedule.  In 2003 and 2004, WTA and MLR have operated
race meetings at the Meadows Facility in fulfillment of their respective
allocations of racing days by the Commission and their obligations under their
agreement with the Meadows Standardbred Owners’ Association.  To Seller’s knowledge, since April 5,
2001, except as disclosed on Section 3.20 of the Company Disclosure Schedule,
no Company or Subsidiary has:

(a)           falsified answers or made
misrepresentations to the Commission in any document required to be filed under
the Pennsylvania Act;

(b)           issued or caused to be issued false
or misleading advertisements which would have a Material Adverse Effect;

(c)           knowingly permitted on the grounds or
within the enclosure of the Meadows Facility or the OTB Facilities, illegal
lotteries, pool selling, touting or bookmaking or any other kind of illegal
gambling which would have a Material Adverse Effect.

SECTION 3.21     Suppliers.  To the knowledge of Seller, no supplier of
any Company or Subsidiary intends to cease doing business with such Company or
Subsidiary or materially alter the amount of business it is presently doing
with such Company or Subsidiary.

SECTION 3.22     Books and Records.  The minute books and corporate records of
each Company and Subsidiary contain, in all material respects, accurate copies
of the minutes of all formal board of directors or shareholder or similar
meetings held since April 5, 2001 and of all written consents executed after
April 5, 2001 in lieu of the holding of any such meeting to the extent
that such meetings or written consents involve material actions.

SECTION 3.23     Brokers.  No broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or commission in connection
with the transactions contemplated by this Agreement or any other Transaction
Document based upon arrangements made by or on behalf of Seller.

SECTION 3.24     Racing Days.  Each of WTA and MLR meets the eligibility
requirements of Sections 1302 and 1303 of the Gaming Act.  In each of 2003 and 2004, WTA and MLR conducted
live racing at The Meadows for at least 100 days for each license held.  In 2005, WTA and MLR are scheduled to conduct
at least 100 days of live racing at The Meadows for each license held.  To Seller’s knowledge, there are no events or
circumstances that have occurred or that are planned by Seller or any Company
or any Subsidiary that would, prior to 

 

30

 

Closing, cause WTA or MLR
to cease meeting the eligibility requirements of Sections 1302 and 1303 of the
Gaming Act.

SECTION 3.25     Related
Parties.

(a)           Except as set forth on Section 3.25
of the Company Disclosure Schedule, and except as may arise from this Agreement
or any other Transaction Document entered into in connection with the
transactions contemplated hereby, since April 5, 2001, neither Seller nor
any Affiliate of Seller (other than the Companies and the Subsidiaries) (a) has
or has had any interest in any property (whether real, personal or mixed and
whether tangible or intangible) used in or pertaining to the business or
operations of the Companies and the Subsidiaries; (b) is, or has owned (of
record or as a beneficial owner), an equity interest or any financial or profit
interest or a Person that has had a material business dealing or a material
financial interest in any transaction with the Companies or Subsidiaries; or
(c) is a party to any contract with, or has any claim or right against,
the Companies or Subsidiaries that would survive after the Closing Date.

(b)           As of the date hereof, the
relationship between WTA and MLR, on the one hand, and XpressBet, Inc., on the
other hand, has been formalized to provide for (i) an agreement for the
provision of account wagering services by XpressBet, Inc. to WTA and MLR with
respect to WTA’s and MLR’s Pennsylvania account wagering customers and
(ii) a lease for the premises occupied by XpressBet, Inc. at the Meadows
Facility.  Such agreement and lease have
been approved by the Commission.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser
represents and warrants to Seller as of the date hereof (other than such
representations and warranties as are made as of another date) as follows:

SECTION
4.01     Incorporation and Authority of Purchaser. 
Purchaser is a limited liability company duly formed, validly existing
and in good standing under the laws of the state of Delaware and has all
necessary limited liability company power and authority to enter into this
Agreement and the other Transaction Documents to which Purchaser is a party, to
carry out its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. 
The execution and delivery by Purchaser of this Agreement and any other
Transaction Document to which Purchaser is a party, the performance by
Purchaser of its obligations hereunder and thereunder and the consummation by
Purchaser of the transactions contemplated hereby and thereby have been duly
authorized by all requisite action on the part of Purchaser.  This Agreement has been duly executed and
delivered by Purchaser, and (assuming due authorization, execution and
delivery by Seller) constitutes a legal, valid and binding obligation of
Purchaser enforceable against Purchaser in accordance with its terms, subject
to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors’ rights generally and subject,
as to enforceability, to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).  When each Transaction Document to
which Purchaser is a party has been duly executed and delivered by Purchaser
(assuming due authorization, execution and 

 

31

 

delivery
by each other party thereto), such Transaction Document will constitute a legal
and binding obligation of Purchaser enforceable against it in accordance with
its terms, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors’ rights generally
and subject, as to enforceability, to the effect of general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).

SECTION 4.02     No Conflict.  The execution, delivery and performance by
Purchaser of this Agreement and any other Transaction Document to which
Purchaser is or will be a party do not and will not (a) violate or
conflict with the certificate of formation or limited liability company
agreement (or other similar applicable documents) of Purchaser, (b) assuming
that all consents, approvals, authorizations and other actions described in
Section 4.03 have been obtained and all filings and notifications listed
in Section 4.03 of Purchaser Disclosure Schedule have been made, and
except as may result from any facts or circumstances relating solely to Seller,
conflict with or violate, or give any Governmental Authority the right to
challenge the transactions contemplated by this Agreement or any other
Transaction Document to which Seller is a party, or to exercise any remedy or
obtain any relief under, any Law or Governmental Order, including without
limitation any state takeover or similar statute or regulation, applicable to
Purchaser or (c) assuming that all consents, approvals, authorizations and
other actions described in Section 4.03 have been obtained and all filings
and notifications listed in Section 4.03 of Purchaser Disclosure Schedule
have been made, and except as may result from any facts or circumstances
relating solely to Seller, result in any breach of, conflict with, or
constitute a default (or event which with
the giving of notice or lapse of time, or both, would become a default) under, require any consent or
provision of notice under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Encumbrance
on any of the assets or properties of Purchaser pursuant to any material
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument relating to such assets or properties to which
Purchaser or any of its subsidiaries is a party or by which any of such assets
or properties is bound or affected.

SECTION 4.03     Consents and Approvals.  The
execution and delivery by Purchaser of this Agreement and any other Transaction
Document to which Purchaser is a party do not, and the performance by Purchaser
of this Agreement and any other Transaction Document to which Purchaser is a
party will not, require any material consent, approval, authorization or other
action by, or filing with or notification to, any Governmental Authority,
except (a) as set forth on Section 4.03 of Purchaser Disclosure Schedule, (b) the notification
requirements of the HSR Act, and (c) as may be necessary as a result of any
facts or circumstances relating solely to Seller.

SECTION 4.04     Investment Purpose.  Purchaser is acquiring the Shares solely for
the purpose of investment and not with a view to, or for offer or sale in
connection with, any distribution thereof. 
Purchaser acknowledges that the Shares are not registered under the
Securities Act, and that the Shares may not be transferred or sold except
pursuant to the registration provisions of the Securities Act or pursuant to an
applicable exemption therefrom and subject to state securities laws and
regulations, as applicable.

 

32

 

SECTION 4.05     Financing.  At or before two Business Days after the date
the last of the conditions to the obligations of Purchaser to consummate the
transaction contemplated hereby have been satisfied or waived (other than such
conditions which, by their nature, are to be satisfied on the Closing Date) or,
so long as Purchaser needs additional time in order to obtain the bridge
financing for the Purchase Price less the Holdback Amount and so long as
Purchaser is using its best efforts towards obtaining such financing and
Closing, at or before four weeks after such date, Purchaser will have all funds
necessary to consummate the transactions contemplated by this Agreement.

SECTION 4.06     Brokers.  No broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or commission in connection
with the transactions contemplated by this Agreement or any other Transaction
Document based upon arrangements made by or on behalf of Purchaser.

SECTION 4.07     Specified Investors; Cannery Casino Resorts.  There are no more than five Specified
Investors.  Each Specified Investor is a qualified
purchaser as defined under the Investment Company Act of 1940, as amended.  Cannery Casino Resorts, LLC, a Nevada limited
liability company, directly or indirectly owns all of the assets related to the
Cannery Casino and Hotel and holds the management rights to the Rampart Casino.

ARTICLE V

ADDITIONAL AGREEMENTS

SECTION 5.01     Conduct of Business Prior to the Closing.  (a)  Unless
Purchaser otherwise agrees in writing and except as otherwise set forth in
Section 5.01 of the Company Disclosure Schedule, between the date of this Agreement and the Closing Date, Seller shall cause each Company and Subsidiary to (i) conduct its business only in the ordinary
course and consistent with past practice, (ii) use commercially reasonable
efforts to preserve intact the
business organization, assets and prospects of each Company and Subsidiary,
subject to the conduct of its business in the ordinary course of business and
consistent with past practice, (iii) use commercially reasonable efforts to keep available
to Purchaser the services of the present officers and key employees of each Company
and Subsidiary and (iv) use commercially reasonable efforts to preserve
the current relationships of each Company and Subsidiary with its respective
customers, suppliers, distributors and other Persons with which each Company
and Subsidiary has significant business relationships.  Seller shall cause WTA and MLR to continue to
operate race meetings at the Meadows Facility in fulfillment of their
respective allocations of racing days by the Commission and their obligations
under their agreement with the Meadows Standardbred Owners’ Association.  Between the date hereof and the Closing Date,
Seller will cause the Companies and the Subsidiaries not to enter into any contract,
agreement or arrangement that would impose any restrictions or requirements on
the operation of a gaming operation on the Real Property.

(b)           Between the date hereof and the
Closing Date, Seller shall cause WTA and MLR to apply for allocations of racing
days pursuant to Section 207 of the Pennsylvania Act to conduct race meetings
with pari-mutuel wagering in 2006.  The
number of racing days sought shall be approximately 200 to 215 or such other
number of races as WTA, MLR and the 

 

33

 

Meadows Standardbred
Owners’ Association shall agree, provided, that in no event shall the number of
racing days be less than the number set forth in Section 1303 of the Gaming Act.  Between the date hereof and the Closing Date,
neither the Companies nor any Subsidiary will do any of the things enumerated
in the second sentence of Section 3.09 (including, without limitation, clauses
(a) through (n) thereof) to the extent any such thing is within the control of
Company and the Subsidiaries, without the prior written consent of Purchaser;
provided that the Companies and
the Subsidiaries shall have the right, without the consent of Purchaser, to
engage in the activities set forth in Section 5.01 of the Company Disclosure
Schedule.

(c)           Purchaser acknowledges that Seller
intends to distribute as a dividend or contribute as a capital contribution, or cause the distribution or contribution of, prior to
or at the Closing, (i) amounts owing pursuant to the intercompany accounts
between the Companies and the Subsidiaries, on the one hand, and their respective
Affiliates (including Seller
and its Affiliates but not including any Company or
any Subsidiary), on the other hand, and (ii) the Excluded
Subsidiaries, and that such
distribution or contribution will
not result in a breach of this Agreement. 
Purchaser acknowledges that Seller intends to convert 20002 Delaware
Inc. into a single member limited liability company and subsequently cause
MECPenn to distribute all interest in such limited liability company to Seller
as a dividend prior to Closing.

(d)           Seller agrees to cause intercompany
accounts between Seller or its Affiliates (other than the Companies and
Subsidiaries), on the one hand, and the Companies and Subsidiaries, on the
other hand, to be settled prior to Closing.

SECTION 5.02     Access to Information.  From the date hereof until the Closing, Seller
shall cause the officers, directors, employees, agents, representatives,
accountants and counsel of each Company and Subsidiary to:  (i) afford the officers, employees and
authorized agents, accountants, counsel, and representatives of Purchaser
reasonable access, upon reasonable notice and during normal business hours, to (A) the
assets (including the Real Property) for inspection and testing (it being
understood that the cost of such inspection and testing shall be borne by
Purchaser and any testing that is other than a Phase I testing shall be
conducted only after obtaining the approval of Seller, and Purchaser shall promptly
indemnify Seller Indemnified Parties for any Losses in accordance with Article
IX hereof arising from injury to person or physical damage to property incurred
by any Company or any Subsidiary as a result of the testing conducted pursuant
to this Section 5.02, other than as a result of the gross negligence or
willful misconduct of Company or any Subsidiary and in no event as a result of
the discovery of an environmental matter as a result of such testing) and (B) the
officers, directors, employees, accountants and other representatives of Seller
and each Company and Subsidiary who have relevant knowledge relating to any
Company or Subsidiary; provided, however, that such access shall
not unreasonably interfere with any of the business or operations of any
Company or Subsidiary or the duties of any such officer, director, employee,
accountant or other representative, and (ii) promptly furnish to the
officers, employees, and authorized agents, accountants, counsel and
representatives of Purchaser such financial and operating data and other
information regarding employees, assets, properties, goodwill and business of
each Company and Subsidiary as Purchaser may reasonably request.

SECTION 5.03     Books and Records.  (a) In order to facilitate the
resolution of any claims made against or incurred by Seller prior to the
Closing, or for any other reasonable 

 

34

 

purpose, for a period of five
years after the Closing, Purchaser shall (i) retain the books and records
(including personnel files) of the Companies and Subsidiaries relating to
periods prior to the Closing in a manner reasonably consistent with the prior
practices of the respective Companies and Subsidiaries and (ii) upon
reasonable notice, afford the officers, employees and authorized agents and
representatives of Seller reasonable access (including the right to make, at Seller’s
expense, photocopies), during normal business hours, to such books and records.

(b)           In order to facilitate the resolution
of any claims made by or against or incurred by Purchaser, the Companies or any
Subsidiary after the Closing, or for any other reasonable purpose, for a period
of five years following the Closing, Seller shall (i) retain the books and
records (including personnel files) of Seller which relate to the Companies and
the Subsidiaries and their operations for periods prior to the Closing and
(ii) upon reasonable notice, afford the officers, employees and authorized
agents and representatives of Purchaser, the Companies or any Subsidiary
reasonable access (including the right to make, at Purchaser’s expense, photocopies),
during normal business hours, to such books and records.

(c)           Neither Purchaser nor Seller shall be
obligated to provide the other party with access to any books or records
(including personnel files) pursuant to this Section 5.03 where such access
would violate any Law or Environmental Law.

SECTION
5.04     Governmental Approvals and Consents; Application Fee;
Closing Conditions.  (a) Each party hereto will use its commercially
reasonable efforts to obtain all authorizations, consents, orders and approvals
of all Governmental Authorities that may be or become necessary for its
execution and delivery of this Agreement and the performance of its obligations
pursuant to this Agreement and any agreement or document contemplated hereby and
will cooperate fully with the other party in promptly seeking to obtain all
such authorizations, consents, orders and approvals.  Each party hereto agrees to make an
appropriate filing of a Notification and Report Form pursuant to the HSR Act
with respect to the transactions contemplated hereby no later than
January 15, 2006 and to supply promptly any additional information
and documentary material that may be requested pursuant to the HSR Act.  The parties hereto will not willfully take
any action that will have the effect of delaying, impairing or impeding the
receipt of any required approvals.

(b)           Purchaser and Seller shall as soon as
practicable, but in no event later than 30 days after the date hereof, unless
sooner required by the Pennsylvania Act, the regulations of the Commission or
the Commission, together file with the Commission the applications, affidavits
(including without limitation the affidavits specified pursuant to Section 204
of the Pennsylvania Act ) and other information required pursuant to the Pennsylvania
Act and regulations of the Commission necessary to obtain approval from the
Commission for the purchase of the Companies by Purchaser and for Seller’s
management of the racing operations of the Meadows Facility under the Racing
Services Agreement.  In addition, both
Purchaser and Seller shall furnish to the Commission such other information,
financial statements and other documentation as the Commission requires
concerning Purchaser or Seller or any of their respective Affiliates and will
make available representatives of Purchaser or Seller to meet with the
Commission, or its staff, to expedite the ability of the Commission to complete
its work and make the determinations required by Article VIII of this Agreement
as expeditiously as practicable.

 

35

 

(c)           Gaming
Application.

(i)            Purchaser and Seller each will use
commercially reasonable efforts to promptly make available or file with the
Gaming Board such information as it or its staff may request under the Gaming
Act.  Purchaser and Seller will, not
later than December 20, 2005 (or two weeks before such other date as the
Gaming Board may select for submission of applications so long as filing on
such later date does not provide an advantage to other applicants or is
otherwise detrimental to the Companies’ application or to their right to timely
obtain a Conditional Category 1 license or Category 1 license for gaming from
the Gaming Board), file with the Gaming Board the application for Conditional
Category 1 license as required by the Gaming Act (the “Gaming
Application”).  The Gaming
Application will be drafted to reflect two different scenarios — one in which
Purchaser is the operator and owner of the Meadows Facility and the operator of
the gaming operations with an Affiliate of Seller serving as a manager of the
racing operations of the Meadows Facility (such scenario, the “Transaction
Scenario”) and one in which Seller or one or more of its Affiliates is the
operator and owner of the Meadows Facility (the “Alternative Scenario”).  In addition, both Purchaser and Seller shall
furnish to the Gaming Board such other information, financial statements and
other documentation as the Gaming Board requires concerning Purchaser or Seller
and will make available representatives of Purchaser or Seller to meet with the
Gaming Board, or its staff, to expedite the ability of the Gaming Board to
complete its work.  For the avoidance of
doubt, while Purchaser and Seller will both use reasonable efforts to
accomplish the matters set forth in this Section and to assemble such
application, Purchaser shall be responsible for all items with respect to the
Gaming Application other than the MEC Items.

(ii)           Each of Purchaser and Seller agrees
to use its best efforts to complete the Gaming Application for submission to
the Gaming Board on or before December 20, 2005, and agrees to have a
weekly scheduled telephone call or meeting at which the individuals with
responsibility for organizing each of the Purchaser’s and Seller’s efforts in
connection with the filing of the Gaming Application review and discuss the
progress being made to complete the Gaming Application.

(iii)          Either party shall notify the other
upon becoming aware that the Gaming Board may consider, identify or support an
Action that could jeopardize Seller’s ability to obtain a Conditional Category
1 license or Category 1 license in its own name if Seller continues to pursue a
Conditional Category 1 license or a Category 1 license with
Purchaser.  Prior to the termination of this
Agreement, Seller and Purchaser agree not to take any action that could
reasonably be expected to impede the consideration of the Gaming Application
for the Transaction Scenario (it being acknowledged that Seller’s exercise of
its rights under Section 5.15 or Seller’s or Purchaser’s exercise of
rights under Section 10.01 shall not be considered an action that constitutes a
breach of the obligations set forth in this sentence).  Prior to the termination of this Agreement, Seller
and Purchaser agree to use their best efforts, and continue to use their best
efforts, to permit Seller and Purchaser to jointly pursue the Gaming
Application for the Transaction Scenario (it being acknowledged that Seller’s
exercise of its rights under Section 5.15 or Seller’s or Purchaser’s
exercise of rights under Section 10.01 shall not be considered an 

 

36

 

action that constitutes a
breach of the obligations set forth in this sentence).  Seller agrees to make itself available to
participate in meetings, appearances and hearings to assist in the joint
efforts of Seller and Purchaser to pursue the Gaming Application for the
Transaction Scenario.

(d)           Simultaneously with the submission of
the Gaming Application, Purchaser shall at its cost take such steps as are
necessary, including but not limited to the posting of a letter of credit, the
posting of a bond or the payment of a fee, to satisfy any monetary or financial
requirements that the Gaming Board may require in conjunction with submission
and maintenance of the Gaming Application (the “Gaming Application Fee”).  Until the earlier of the (i) grant of a Conditional
Category 1 license for gaming at the Meadows Facility to Purchaser or (ii) two
weeks after the termination of this Agreement for any reason other than
consummation of the transactions contemplated by this Agreement, Purchaser
shall maintain the Gaming Application Fee. 
If the fee is paid by Purchaser in cash to the Gaming Board to satisfy
the requirements of the Gaming Board, and this Agreement is terminated, then
Seller shall, to the extent Purchaser does not receive a refund of such fee
from the Gaming Board, reimburse Purchaser for the Gaming Application Fee
within two weeks after such termination of this Agreement if (i) Seller
uses such fee in furtherance of its application with the Gaming Board after such
termination, and (ii) Purchaser executes documentation in form and
substance satisfactory to Seller confirming that Seller is entitled to, and has
full rights with respect to, the fee that Purchaser has paid to the Gaming
Board and that Purchaser releases all rights with respect thereto.  To the extent that Seller intends to continue
with its application with the Gaming Board after the termination of this Agreement,
Seller agrees to use best efforts to replace the Gaming Application Fee
theretofore maintained by Purchaser as expeditiously as possible after the
termination of the Agreement.

(e)           Upon the termination of this
Agreement for any reason other than consummation of the transactions
contemplated by this Agreement, Purchaser and Seller agree to take such actions
as are necessary as soon as possible to amend the Gaming Application to remove
the Transaction Scenario.  In addition,
Purchaser shall permit Seller to use and continue to have submitted with the
Gaming Application all architectural, design and construction plans and any
other materials prepared by Purchaser or its agents or consultants (the “Purchaser
Application Materials”); provided, however that Seller agrees to
reimburse Purchaser for the reasonable and direct costs incurred by Purchaser
with respect to the Purchaser Application Materials used by Seller in the event
that this Agreement is terminated for any reason other than consummation of the
transactions contemplated by this Agreement.

(f)            Upon the Closing, Purchaser and
Seller agree to take such actions as are necessary as soon as possible to amend
the Gaming Application to remove the Alternative Scenario, if required by the Gaming
Board.

(g)           Seller and Purchaser shall use
commercially reasonable efforts to give all notices to and obtain all consents
from all third parties and Governmental Authorities that are described in
Section 3.05(c) or Section 3.06 of the Company Disclosure Schedule and Section
4.03 of Purchaser Disclosure Schedule, including but not limited to the Commission
Approvals.  Seller and Purchaser agree to
consider comments and input from Governmental Authorities and to use
commercially reasonable efforts to consider means in which to address such
comments 

 

37

 

and input without
resulting in changing or adversely affecting the economics of the transactions
contemplated hereby or the ability of either party to close such transaction.

(h)           Without limiting the generality of
the parties’ undertakings pursuant to Section 5.04(a) though (g), each of the
parties hereto shall use all reasonable efforts to (i) respond to any
inquiries by any Governmental Authority regarding antitrust or other matters
with respect to the transactions contemplated by this Agreement or any
agreement or document contemplated hereby, (ii) avoid the imposition of
any order or the taking of any action that would restrain, alter or enjoin the
transactions contemplated by this Agreement and (iii) in the event any
Governmental Order adversely affecting the ability of the parties to consummate
the transactions contemplated by
this Agreement or any agreement or document contemplated hereby has been
issued, to have such Governmental Order vacated or lifted.

(i)            If any consent, approval or
authorization necessary to preserve any right or benefit under any lease,
license, contact, commitment or other agreement or arrangement to which the
Company or any Subsidiary is a party is not obtained prior to the Closing, Seller
shall, subsequent to the Closing, cooperate with Purchaser and the Companies in
attempting to obtain such consent, approval
or authorization as promptly thereafter as practicable. 
If such consent,
approval or authorization cannot be obtained, Seller shall use its commercially
reasonable efforts to provide such Company or such Subsidiary, as the case may
be, with the rights and benefits of the affected lease, license, contract,
commitment or other agreement or arrangement for the term thereof, and, if Seller
provides such rights and benefits, such Company or such Subsidiary, as the case
may be, shall assume all obligations and burdens thereunder.

(j)            From the date hereof until the
Closing, each party hereto shall, and Seller shall cause each Company and
Subsidiary to, use all commercially reasonable efforts to take such actions as
are necessary to expeditiously satisfy the closing conditions set forth in
Article VIII hereof.

(k)           Promptly upon the signing of this Agreement,
Purchaser shall use its best efforts, and shall continue to use its best
efforts, to obtain the evidence necessary to satisfy the condition set forth in
Section 8.03(o) as soon as practicable after the signing of this Agreement.

(l)            All analyses, appearances, meetings,
discussions, presentations, memoranda, briefs, filings, arguments, and
proposals made by or on behalf of either party before any Governmental
Authority, including the Gaming Board and the Commission, or the staff or
regulators of any Governmental Authority, in connection with the transactions
contemplated hereunder (but, for the avoidance of doubt, not including any
interactions between Seller, the Companies or the Subsidiaries with
Governmental Authorities in the ordinary course of the conduct of its business
operations, any disclosure which is not permitted by law or any disclosure
containing confidential information) shall be disclosed to the other party
hereunder in advance of any filing, submission or attendance, it being the intent
that the parties will consult and cooperate with one another, and consider in
good faith the views of one another, in connection with any such analyses,
appearances, meetings, discussions, presentations, memoranda, briefs, filings,
arguments, and proposals.  Each party
shall give notice to the other party with respect to any meeting, discussion,
appearance or contact with any Governmental Authority or the staff or
regulators of any Governmental Authority, with such notice being sufficient to
provide the other 

 

38

 

party with the
opportunity to attend and participate in such meeting, discussion, appearance
or contact.

(m)          Notwithstanding anything in this
Agreement to the contrary, the parties agree that at any time after the date
which is 14 days prior to the date, if any, identified by the Gaming Board
after which continued pursuit by Seller of a Conditional Category 1 license
with Purchaser pursuant to the Gaming Application would jeopardize Seller’s
ability to obtain a Conditional Category 1 license or a Category 1 license in
its own name, Seller shall not have any obligation during the period of such
jeopardy to comply with any of its obligations under Section 5.4,
Section 5.12 and any other provision of this Agreement that would require
Seller to directly or indirectly comply with any of its obligations under
Section 5.4 or 5.12.

SECTION 5.05     Confidentiality.  (a)  The
terms of the letter agreement dated September 21, 2005 (the “Confidentiality
Agreement”) between Seller and Millennium Management Group, LLC are hereby
incorporated herein by reference as if Purchaser were a party thereto and shall
continue in full force and effect until the Closing, at which time such
Confidentiality Agreement and the obligations of Purchaser under this Section
5.05 shall terminate; provided, however, that the
Confidentiality Agreement shall terminate only in respect of that portion of
the Information (as defined in the Confidentiality Agreement) exclusively
relating to the transactions contemplated by this Agreement.  If this Agreement is, for any reason,
terminated prior to the Closing, the Confidentiality Agreement shall continue
in full force and effect.

(b)           Seller agrees to, and shall cause its agents,
representatives, Affiliates, employees, officers and directors to, protect (and
not disclose or provide access to any Person) all confidential information
relating to trade secrets, price, customer and supplier lists and pricing and
marketing plans with respect to the business of the Companies and the
Subsidiaries and all other information that Seller regards as confidential
information as of the date hereof with respect to the business of the Companies
and the Subsidiaries as currently conducted, by using the same degree of care,
but no less than a reasonable degree of care, to prevent the unauthorized disclosure or use of such
confidential information, as Seller uses to protect its own confidential
information of a like nature; provided, however, that this sentence shall
not apply to any information that, at the time of disclosure, (i) is
disclosed by and between Seller and its agents, representatives, Affiliates,
employees, officers or directors on a need-to-know basis (provided that such
Persons are bound by a duty of confidentiality), (ii) is available
publicly and was not disclosed in breach of this Agreement by Seller or its
respective agents, representatives, Affiliates, employees, officers or
directors (provided that information provided to or filed with the Commission or
any other Governmental Authority shall not be deemed to be publicly available
by virtue of such filing), or (iii) is required to be disclosed in
compliance with Section 5.04 of this Agreement, federal and state laws or
regulations or the regulations governing any national securities exchange or
quotation system or is requested by a regulatory body that has authority over Seller
or Purchaser (provided that Seller provides prompt notice to Purchaser of the
disclosure requirement and uses its reasonable efforts to disclose only such confidential
information as is legally required to be disclosed and exercises reasonable
efforts to obtain assurance that such confidential information will be accorded
confidential treatment).

 

39

 

SECTION 5.06     Use of Magna Name.  (a)  Purchaser
hereby acknowledges that all right, title and interest in and to the trade
names of Seller, the names “Magna,” MEC,” “XpressBet,” and “Call-A-Bet” and all
similar or related names and all derivations or acronyms thereof and all
trademarks, service marks, trade names, collective marks, certification marks,
trade dress, designs or logos containing or incorporating the foregoing,
including registrations and applications for registration thereof (collectively,
the “Magna Name”), are owned exclusively by Seller and its Affiliates
(other than the Companies and their Subsidiaries), and that, except as provided
in Section 5.06(b), any and all right of the Companies and the Subsidiaries in
the Magna Name shall terminate as of the Closing Date and shall immediately
revert back to Seller and its Affiliates (other than the Companies and their
Subsidiaries).  On or before the Closing
Date, Seller shall take any and all actions necessary to transfer the domain
name of “meadowsracing.com” and any rights associated therewith to an entity
designated by Purchaser.  To the extent
that the transfer is not made prior to the Closing Date, Seller and such entity
designated by Purchaser shall enter into such arrangements as may be reasonably
acceptable to each to provide such designee with the right to use the domain
name.

(b)           Purchaser shall, promptly following
the Closing Date, cause each Company and Subsidiary to remove or obliterate the
Magna Name from all of its existing stocks of signs, letterheads,
advertisements and promotional materials and other documents and materials (“Existing
Stock”) or to cease using such Existing Stock.  Notwithstanding the foregoing, in the event
that removal or obliteration of the Magna Name from certain items of Existing
Stock or the cessation of the use thereof is impracticable, each Company and
Subsidiary may use such items of Existing Stock, so long as a mark or some
other designation identifying that each Company or Subsidiary is an Affiliate
of Purchaser (and not of Seller) is clearly indicated on such items of Existing
Stock, until such items of Existing Stock is depleted, or a period of three (3)
months from the Closing Date, whichever occurs first.  Except as expressly provided in this
Agreement, no other right to use the Magna Name is granted by Seller to
Purchaser, Companies and Subsidiaries, whether by implication or otherwise.

(c)           Purchaser shall, as soon as
practicable after the Closing Date, but in no event later than 10 Business Days
thereafter, cause MECPenn, MEC Pennsylvania Food Service, Inc. and MECRacing to
file amended articles of incorporation with the appropriate authorities
changing their corporate names to a corporate name that does not contain the
word “Magna” or any Magna Name.

SECTION
5.07     Investigation.  (a)  Purchaser acknowledges and agrees that (i) has
made its own inquiry and investigation into, and, based thereon, has formed an
independent judgment concerning, the Companies and Subsidiaries and (ii) it
has not, for purposes of entering into this Agreement, relied on any
representation or warranty or other statement or omission of Seller or any of
its directors, officers, employees, agents, stockholders, Affiliates,
consultants, counsel, accountants, investment bankers or representatives, other
than the representations and warranties contained in this Agreement (including
the Exhibits and the Company Disclosure Schedule).

(b)           In connection with Purchaser’s
investigation of the Companies and Subsidiaries, Purchaser has received from Seller
certain estimates, projections, forecasts, plans and budgets for the Companies
and Subsidiaries, including, without limitation, projected income 

 

40

 

statement and balance
sheet information.  Purchaser acknowledges that there are
uncertainties inherent in attempting to make such estimates, projections,
forecasts, plans and budgets, that
Purchaser is familiar with such uncertainties and that Purchaser is taking full
responsibility for making its
own evaluation of the adequacy and
accuracy of all estimates, projections, forecasts, plans and budgets so
furnished to it.  Accordingly, Seller
makes no representation or warranty with respect to any estimates, projections,
forecasts, plans or budgets referred to in this Section 5.07, except that
they have been prepared in the ordinary course of business consistent with past
practice.

SECTION
5.08     Limited Non-Compete.  (a)  As an inducement for Purchaser to enter into
this Agreement and in consideration of the receipt of $2,000,000 in cash (which
amount is included in the Purchase Price), Seller agrees that for a period
commencing on the Closing Date and ending on the later of (i) five years
from the Closing Date and (ii) twelve months after the termination of the
Racing Services Agreement for any reason (the “Non-Competition Period”),
except with Purchaser’s prior written consent, Seller shall not directly or
indirectly (including through MEC Pennsylvania Racing Services, Inc.) own or operate
a pari-mutuel wagering facility with expanded gaming within 100 miles of the
Meadows Facility (the “Non-Competition Covenant”).  Notwithstanding the foregoing, the
Non-Competition Covenant shall not apply to Thistledown (located in North Randall,
Ohio) or operation of the Meadows Facility pursuant to the Racing Services
Agreement.

(b)           Seller, for itself and its Affiliates, agrees that a
breach or violation of the Non-Competition Covenant shall entitle Purchaser, as
a matter of right, to an injunction issued by any court of competent
jurisdiction restraining any further or continued breach of violation of such
covenant.  Such right to an injunction
shall be cumulative, and in addition to, and not in lieu of, any other remedies
to which Purchaser may show itself justly entitled.  Further, during any period in which Seller or
any of its Affiliates are in breach of the Non-Competition Covenant, the time
period of such covenant shall be extended for an amount of time that Seller or
any of its Affiliates are in breach hereof, with the effect that the total
duration of the Non-Competition Covenant shall be the original period plus the
actual amount of time that Seller or any of its Affiliates are in breach.

(c)           Further, Seller, for itself and its Affiliates, agrees
that the Non-Competition Covenant is appropriate and reasonable when considered
in light of the nature and extent of the business conducted by Purchaser.  Seller, for itself and its Affiliates,
acknowledges and agrees that:  (i) Purchaser
would not enter into this Agreement unless Seller, for itself and its
Affiliates, agreed to the Non-Competition Covenant; and (ii) it has read
and understands the terms of this Agreement, including, without limitation, the
Non-Competition Covenant, and has been provided the opportunity to discuss this
Agreement and such covenant with Purchaser and counsel of its choice and has
carefully considered the nature and extent of the restrictions upon it and the
rights and remedies conferred upon Purchaser hereunder.  Seller, for itself and its Affiliates, hereby
acknowledges and agrees that Purchaser has a legitimate interest in protecting
its business and that the Non-Competition Covenant is reasonable in limitations
as to time, scope, geographical area and activity, and is fully required and is
no greater than necessary to protect the legitimate business interests of
Purchaser.  Seller, for itself and its
Affiliates, further agrees that the Non-Competition Covenant is not unduly
harsh or oppressive to Seller, or any of its Affiliates, in curtailing their
legitimate efforts to earn a livelihood and does not stifle the 

 

41

 

inherent skill and
experience of Seller, or any of its Affiliates, or confer a benefit upon
Purchaser disproportionate to the detriment to Seller, or any of its
Affiliates, or harm in any manner whatsoever the public interest or operate as
a bar to the sole means of support of Seller, or any of its Affiliates.

(d)           Seller, for itself and its Affiliates, agrees that if
the Non-Competition Covenant should be held by any Governmental Authority to be
void or unenforceable in any particular area or jurisdiction, then Purchaser
and Seller shall consider this Agreement to be modified so as to eliminate that
particular area or jurisdiction as to which the Non-Competition Covenant is
held to be void or otherwise enforceable, and as to all other areas and
jurisdictions and scope covered by this Agreement, the terms hereof shall
remain in full force and effect as originally written.  Further, if the Non-Competition Covenant
should be held by any Governmental Authority to be effective in any particular
area or jurisdiction or scope only if said covenant is modified to limit its duration
or scope, then Seller and Purchaser shall consider the Non-Competition Covenant
to be amended and modified with respect to that particular area or jurisdiction
so as to comply with the order of any Governmental Authority, and as to all
other political subdivisions of the United States, the Non-Competition Covenant
shall remain in full force and effect as originally written.

SECTION 5.09     Remediation.

Seller hereby agrees that it will complete items (1)
and (2) on Part D of NPDES Permit #PA0252905 issued on August 11, 2005 by
the Department of Environmental Protection of the Commonwealth of Pennsylvania
on or before the deadline for completion specified in such items, but only to
the extent such items are not completed in connection with the backside
improvements required by Section 1404 of the Gaming Act.  Seller further agrees that it will complete
any other matters arising under the NPDES Permit # PA0252905 during the two
years on and after the Closing Date.

SECTION
5.10     No Negotiation.  Until such
time, if any, as this Agreement is terminated pursuant to this Agreement, Seller
will not, and will cause the Companies and the Subsidiaries, and each of their employees,
financial advisors, attorneys, accountants and other representatives, not to
directly or indirectly solicit, initiate, or encourage any inquiries or
proposals from, discuss or negotiate with, or provide any non-public
information to, any Person (other than Purchaser) relating to any transaction
involving the sale of any of the Companies or the Subsidiaries or the Assets
(other than sales of Assets in the ordinary course of business) of the
Companies or the Subsidiaries or any of the capital stock of the Company or the
Subsidiaries, or any merger, consolidation, business combination, or similar
transaction involving the Companies or the Subsidiaries.

SECTION 5.11     Title.

(a)           Seller has provided Purchaser, for
each parcel of owned Real Property, with a title commitment issued by First
American Title Insurance Company (the “Title Company”), in the form
attached as Exhibit 5.11 hereto (the “Title Commitment”), together with
complete and legible copies of all recorded documents listed as exceptions.  Purchaser shall 

 

42

 

cause an ALTA survey of
the owned Real Property (the “Survey”) to be prepared at Purchaser’s
expense, and Seller shall cooperate with Purchaser in the preparation of the
Survey.

(b)           At the Closing, the Title Company
shall irrevocably commit to issue an ALTA extended coverage owner’s title
insurance policy in the form of the Title Commitment for each of Seller’s
interests in the owned Real Property containing the endorsements set forth on
Exhibit 5.11 hereto.  Seller covenants
and agrees that it will provide such information and execute such documents as
are reasonable and customary as required by the Title Company to issue the applicable
Title Policy in conformity with the Title Commitment.

(c)           If, after the date hereof, the Title
Company revises the Title Commitment to disclose any title exception or the
Survey depicts any matter (each, a “Title Objection”), in each case,
that is not a Permitted Exception, then Purchaser may provide written notice of
objection to Seller (“Purchaser’s Notice”) of such matters within 10
days after receiving written notice of such Title Objection and complete and
legible copies of any recorded documents relating thereto.  Seller shall make reasonable efforts to cure
each Title Objection included in Purchaser’s Notice or to cause the Title
Company to eliminate each Title Objection as an exception to the Title Commitment
or to remove it from the Survey.  Any
Title Objection that is cured or that the Title Company is willing to insure
over on terms acceptable to Seller and Purchaser is herein referred to as an “Insured
Exception.”  The Insured Exceptions
shall be deemed to be acceptable to Purchaser. 
If any Title Objection cannot be cured and the Title Company will not
insure over it on terms acceptable to Seller and Purchaser, then Purchaser
shall have a right to terminate this Agreement if such Title Objection would
have a Material Adverse Effect.

SECTION 5.12     Further Action.  Each of the parties hereto shall execute and
deliver such documents and other papers
and take such further actions
as may be reasonably required to carry out the provisions hereof and give effect to the transactions contemplated
by this Agreement.

SECTION 5.13     Excluded Items.  The parties agree that all assets exclusively
related to Seller’s account wagering operations (i.e., XpressBet, Inc.
(formerly known as Call-A-Bet)) and all Liabilities associated therewith (the “Excluded
Items”) have been or will be transferred to XpressBet, Inc. prior to
Closing.  Seller will transfer, sell or
otherwise dispose of the Excluded Items identified on Exhibit 5.13 prior to the
Closing Date so that none of the Companies or Subsidiaries shall have any
direct or indirect ownership in, or any Liability (other than Liability under
any agreement by and between any Company or Subsidiary and XpressBet, Inc.) for,
the Excluded Items as of the Closing Date.

SECTION 5.14     Estoppels.  Prior to the Closing, Seller shall use
commercially reasonable efforts to obtain estoppel certificates from third
parties under the leases of Real Property, in a form consistent with the form
of any estoppel certificates incorporated into such leases, or has been
delivered in the past under such leases.

SECTION 5.15     Cooperation in Preparation of
Alternative Application.  Any time on
or after December 1, 2005, upon the request of Seller, Purchaser shall
assist Seller in compiling an application for a Conditional Category 1 license and
Category 1 license to 

 

43

 

conduct slot machine
gaming pursuant to the Gaming Act on the basis that Seller will be submitting
such application as the operator and owner of the Meadows Facility, which
efforts shall include, without limitation, allowing Seller to use and submit
with its application all Purchaser Application Materials; provided,
however that Seller agrees to reimburse Purchaser for the reasonable and direct
costs incurred by Purchaser with respect to the Purchaser Application Materials
used by Seller in the event that this Agreement is terminated.

SECTION 5.16     Financial Statements.  (a) Seller agrees to prepare, and use its
commercially reasonable efforts, including expending additional funds for
expediting fees or similar fees to Seller’s Accountants, to cause Seller’s
Accountants to assist Seller in preparing the following materials in a timely
fashion after execution of this Agreement or, in the case of periods ending on
and after the date of this Agreement, in a timely fashion after passage of the
ending date for such period:  (i) an
audited combined balance sheet of the Companies and their Subsidiaries
(excluding the Excluded Subsidiaries) as of December 31, 2005 and the
related audited statements of income, equity and cash flows for the year then
ended in compliance with GAAP and meeting all requirements of Regulation S-X
(the “2005 Audited Financial Statements”); (ii) unaudited combined
balance sheets of the Companies and their Subsidiaries (excluding the Excluded
Subsidiaries) as of March 31, 2005, June 30, 2005 and September 30,
2005 and the related statements of income, equity and cash flows for the three
months, six months and nine months, respectively, then ended in compliance with
GAAP and meeting all requirements of Regulation S-X (taking into account Rule
10-01 thereunder) (the “2005 Quarterly Financial Statements”), together
with a SAS 100 review thereof by Seller’s Accountants in a form reasonably
satisfactory to Purchaser and Purchaser’s Accountants; and (iii) with
respect to each fiscal quarter in 2006 and any shorter period from the prior
quarter end to the Closing Date, an unaudited combined balance sheet of the
Companies and their Subsidiaries (excluding, the Excluded Subsidiaries) as of
the last day of each such fiscal quarter or such shorter period and the related
statements of income, equity and cash flows for the latest year-to-date period
ended as of such day in compliance with GAAP and meeting all requirements of
Regulation S-X (taking into account Rule 10-01 thereunder) (the “2006
Interim Financial Statements”), together with a SAS 100 review thereon by
Seller’s Accountants in a form reasonably satisfactory to Purchaser and
Purchaser’s Accountants.

(b)           Seller shall, and shall cause the
officers, directors, employees, agents, representatives, accountants and
counsel of Seller and each Company and Subsidiary to, cooperate with Purchaser
and its financing sources and their respective officers, employees and
authorized agents, accountants, counsel and representatives in connection with
the obtaining of financing of the Purchase Price (and any refinancings thereof)
(each, a “Financing”) and any Securities and Exchange Commission
registration process contemplated by a Financing or any filings otherwise
required to be made with the Securities and Exchange Commission by Purchaser or
its Affiliates.  Such cooperation shall
include, without limitation: (i) the provision of auditor’s consents with
respect to the inclusion of the audited combined balance sheet of the Companies
and their Subsidiaries (excluding the Excluded Subsidiaries) as of December 31,
2004 (the “2004 Audited Balance Sheet”) and the 2005 Audited Financial
Statements in marketing materials; (ii) the provision of accountant’s
comfort letters with respect to the 2004 Audited Balance Sheet, 2005 Audited
Financial Statements, 2005 Quarterly Financial Statements, the 2006 Interim
Financial Statements, financial data derived from books and records prior to
Closing and customary negative assurances with respect to matters relating to
the 

 

44

 

foregoing; (iii) the
provision of customary representations to accountants in connection with audits,
reviews and comfort letters; (iv) provision of the unaudited combined
balance sheets of the Companies and their Subsidiaries (excluding the Excluded
Subsidiaries) as of March 31, 2004, June 30, 2004 and
September 30, 2004 and the related statements of income, equity and cash
flows for the three, six and nine months, respectively, then ended; (v) responding
to due diligence requests from financing sources; and (vi) providing
customary legal opinions to financing sources.

SECTION
5.17     Separation.  Seller shall use commercially reasonable
efforts to separate the agreement listed on Section 5.17 of the Company
Disclosure Schedule, such that WTA and MLR are licensees of, and responsible
for, only those seat licenses allocated as of the date hereof to the Meadows
Facility and the OTB Facilities.  If such
separation has not occurred prior to the Closing Date, Seller shall indemnify
WTA and MLR for any Losses related to sites authorized to use software under
the agreement listed on Section 5.17 of the Company Disclosure Schedule other
than the Meadows Facility and the OTB Facilities.

SECTION 5.18     Notification.  Seller and Purchaser shall promptly, and in
any event prior to the Closing, notify the other party in writing of all
events, circumstances, facts and occurrences which such party becomes aware of
if such events, circumstances, facts and occurrences would reasonably be
expected to result in a Purchaser Material Adverse Effect or
a Material Adverse Effect.

SECTION 5.19     Environmental Report.  Seller shall exercise its best efforts (at no
material cost to Seller) to cause the consultant(s) which issued the
Phase I Environmental Site Assessment dated October 28, 2005 prepared
by AMEC Earth & Environmental and the Phase I obtained by Seller
pursuant to Section 5.22 to permit Purchaser and any lender providing
financing to Purchaser with respect to or secured by any of the Real Property,
to rely on such reports to the full extent that Seller may rely on such
reports.

SECTION 5.20     XpressBet Matters.  Seller shall use commercially reasonable
efforts to complete on or before the Closing Date the formalization of the
relationship between WTA and MLR, on the one hand, XpressBet, Inc., on the
other hand, to enter into (i) a formal agreement for the provision of
banking services by XpressBet, Inc. to WTA and MLR with respect to the accounts
of WTA’s and MLR’s Pennsylvania account wagering customers and
(ii) separate tote structures and service agreements for WTA and MLR, on
the one hand, and XpressBet, Inc., on the other hand.  Seller shall seek Commission approval for
each of such agreements.

SECTION 5.21     Office Lease.  Seller agrees to use its commercially reasonable
efforts (without the payment of any material consent or release fee or other
out of pocket expenses) to complete the assignment of the lease identified on Section 5.21
of the Company Disclosure Schedule to Seller or an Affiliate, and for the
release of the Companies and Subsidiaries from any Liabilities related thereto.

SECTION 5.22     Phase I.  Seller agrees to cause, at its expense, a
Phase I environmental assessment to be conducted by AMEC Earth and
Environmental, Inc. (or other reputable consultant agreed to by Purchaser) on
the real property located on Section 5.22 of the

 

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Company Disclosure
Schedule (the “Phase I”).  Seller
shall deliver the Phase I to Purchaser within sixty days after the date hereof.  Seller and Purchaser acknowledge that to the
extent a circumstance, event or occurrence is disclosed in the Phase I that, if
known by Seller as of the date hereof, would have resulted in Seller’s
representations in Section 3.12 being untrue, that such a circumstance, event
or occurrence constitutes a Seller Development as defined in Section 8.03(b).

SECTION 5.23     Holdback Arrangements.  Promptly after the date hereof, Purchaser
agrees to negotiate with Seller in good faith the terms of a guarantee (relating
to an amount equal to the face amount of the Five-Year L/C (as defined in the
Holdback Agreement)) and related documentation (including without limitation a
holdback agreement, an escrow agreement and related letter of credit)
(collectively, the “Holdback Guarantee”) 
relating to the Holdback Amount. 
Purchaser agrees to cause the larger of the Specified Funds or a fund of
comparable size, duration, financial liquidity, terms and otherwise reasonably
acceptable to Seller (the “Sponsor”) to issue the Holdback
Guarantee.  The terms of the Holdback
Guarantee shall be such that the security arrangement and economic and credit
terms with respect to the Holdback Amount is in all material respects the same
as the security arrangement and economic and credit terms under the Holdback
Agreement, Escrow Agreement and the related letters of credit; provided,
the parties acknowledge the inherent difference between drawing down a letter
of credit and collecting on a guaranty. 
The Holdback Guarantee shall, at a minimum, contain terms and provisions
upon which the obligations thereunder would extend beyond the date on which any
final release were to be paid to Seller, and to the extent that such Holdback
Guarantee were to expire pursuant to its terms or the Sponsor were to liquidate
or otherwise dissolve or other matters were to create a situation in which the
Holdback Guarantee was unavailable or materially became less secure to satisfy
the payment obligations of Purchaser as set forth in the Holdback Agreement,
then the Sponsor will agree to abide by the provisions set forth in Section
3.05 of the Holdback Agreement, make full payment of any remaining obligations
to pay the releases to the escrow agent or provide a letter of credit from an
L/C Issuer (as defined in the Holdback Agreement).  The parties agree that such guarantee shall
be reduced in a manner similar to the reduction of the stated amount of the
Five-Year L/C (as defined in the Holdback Agreement).  Seller and Purchaser agree to negotiate the
terms of the Holdback Guarantee within thirty days after the date hereof, and
to the extent that they are unable, in good faith, to reach agreement on the
terms of a Holdback Guarantee, the parties will submit their last proposals to
three arbitrators (one picked by Seller, one by Buyer, and one by each of
Seller’s and Buyer’s arbitrators) for binding baseball arbitration, to be completed
in an accelerated manner (but in no event later than April 30, 2006) in
accordance with the rules and regulations of the American Arbitration
Association.

ARTICLE VI

EMPLOYEE MATTERS

SECTION 6.01     Arrangements; Payroll Obligations.  (a) 
Immediately prior to Closing, all employees of the Company and its
Subsidiaries (other than those listed on Schedule 6.01(a) of the Company
Disclosure Schedules, which listed employees are hereinafter referred to as the
“Company Employees”) shall be transferred to MEC Pennsylvania Racing
Services, Inc. and shall be employees of MEC Pennsylvania Racing Services, Inc.
rather than 

 

46

 

any Company or any of its
Subsidiaries.  Such employees who are so
transferred shall be referred to as the “Transferred Employees”.  Seller agrees that Purchaser shall not assume
or be responsible for, and shall be indemnified against, any and all
Liabilities related to the Transferred Employees and the transfer of the
Transferred Employees to MEC Pennsylvania Racing Services, Inc., including
without limitation, any payroll, vacation, sick leave, severance, WARN Act,
COBRA costs or similar amounts.

(b)           Seller will be responsible under the
Racing Services Agreement for the payroll obligations with respect to the
Company Employees who are the responsibility of MEC Pennsylvania  Racing Services, Inc. under the Racing
Services Agreement (including, without limitation, the satisfaction of all
payroll withholding tax
obligations) for the Companies and Subsidiaries payable after the Closing
Date.  Subject to Section 6.03 and
anything to the contrary in the Racing Services Agreement, Seller agrees that
Purchaser shall not assume or be responsible for, and shall be indemnified
against, any and all Liabilities related to the Company Employees who are the
responsibility of MEC Pennsylvania Racing Services, Inc. under the Racing
Services Agreement, including without limitation, any payroll, vacation, sick
leave, severance, WARN Act, COBRA costs, workers compensation or similar
amounts.  Except with respect to any
vacation benefits, Multiemployer Plans and the MEC Health Plan, the Company
Employees do not participate in any Benefit Plans.

SECTION 6.02     Benefit Plans and Transferred Employee
Related Obligations.  (a)  Seller agrees to continue coverage of the
Transferred Employees under its or its Affiliates’ employee benefit plans in
accordance with their terms and its or its Affiliates’ personnel policies on
and after the Closing Date.  As of the
Closing Date, each Company Employee who was covered by the health plan listed
on Section 6.02 of the Company Disclosure Schedule (the “MEC Health Plan”)
shall cease to be covered by such health plan. 
Seller agrees, at its sole cost and expense, to create a separate employee
plan in the name of Purchaser to provide to such Company Employees
substantially similar benefits to those provided for under the MEC Health Plan,
except in instances where the benefit cannot be replicated because of the
different provider.  Seller shall remain
obligated for any and all benefits and benefit entitlements under the Benefit
Plans that were earned or accrued by any Company Employee or any Transferred
Employee or former employees of any Company or Subsidiary on and prior to the
Closing Date.  With respect to the
Benefit Plans that provide welfare benefits, Seller represents, warrants and
agrees that there will be no disruption in the coverage for the Transferred
Employees under such welfare plans as a result of their transfer to MEC
Pennsylvania Racing Services, Inc.  To
the extent that there is a termination in coverage under the MEC Health Plan
for the Company Employees covered thereby as of the Closing Date, Seller
represents, warrants and agrees that either it or the applicable insurance carrier,
as set forth in the MEC Health Plan, shall remain obligated to reimburse such Company
Employees for eligible health care benefit expenses and services incurred prior
to the Closing; provided that such Company Employees’ claims for
reimbursement for such expenses and services
are delivered to the appropriate party within applicable time limits, as set
forth in the MEC Health Plan.  An expense
or service is deemed to be incurred, with respect to the MEC Health Plan, when
the medical services are performed, and, with respect to plans that provide
welfare benefits other than medical or dental benefits, when the event giving
rise to such expense or service occurs.

 

47

 

(b)           Seller agrees that it shall remain
obligated for any expenses or Losses incurred in connection with any claim of
an Employee or a former employee of any Company or Subsidiary arising on or prior
to the Closing Date under the workers’ compensation laws of any state (a “Workers’
Compensation Claim”).

(c)           Seller agrees to remain obligated to
provide continuation health care coverage, in accordance with Section 4980B of
the Code and Sections 601 to 608 of ERISA (“COBRA”), to all Employees or
former employees of any Company or Subsidiary and their qualified beneficiaries
(i) who incur a qualifying event on or prior to the Closing Date and
(ii) to whom Seller, any Company, or any Subsidiary are, on the Closing
Date, (A) providing such continuation coverage or (B) under
an obligation to provide such continuation coverage at the election of the Employee or former employee or his or
her qualified beneficiary.

(d)           Seller agrees that it shall be
obligated to make contributions on behalf of Companies and Subsidiaries to any
Multiemployer Plan in respect of the Company Employees as set forth in the
Racing Services Agreement.

SECTION 6.03     Intentionally Omitted.

SECTION 6.04     Intentionally Omitted.

SECTION 6.05     Employee
Benefits Indemnity.

(a)           Seller agrees to indemnify Purchaser
against and hold Purchaser harmless from all Losses arising out of:

(i)            the breach of any representation,
warranty, covenant or agreement of Seller made in Section 3.16 or Section 3.17
hereof or this Article VI;

(ii)           any and all Liabilities related to,
arising out of or associated with the Transferred Employees (including their
transfer to MEC Pennsylvania Racing Services, Inc.);

(iii)          any and all Liabilities arising prior
to the Closing under or with respect to employment, working conditions, wages
and/or compensation, benefits, claims and all other matters related to
employees, agents and other personnel of the Companies and the Subsidiaries and
of Seller and its subsidiaries; and

(iv)          any and all Actions by, and all
Liabilities related to, employees or independent contractors of Companies and
the Subsidiaries and of Seller and its subsidiaries arising prior to the
Closing, including without limitation, any Actions or Liabilities arising out
of any employee benefit plan or arrangement, any Actions or Liabilities for
accrued vacation and sick time of the employees, Seller’s, the Companies’ or
any of their Affiliates’ failure to deposit or fund any amounts withheld from
employees pursuant to any retirement plan or arrangement or retiree medical
plan or arrangement, or any unfunded retirement plan or arrangement (whether or
not payment is currently due under Law) or any obligations to current or former
plan participants or 

 

48

 

beneficiaries under any
plan or arrangement intended to provide benefits to current or former employees
of Seller, the Companies or any of their Affiliates.

(b)           Purchaser agrees to indemnify Seller
against and hold Seller harmless from all Losses arising out of the breach of
any representation, warranty, covenant or agreement of Purchaser made in this
Article VI.

SECTION 6.06     Third-Party Claims.  Nothing in this Agreement is intended, or
shall be construed, to confer upon any person, other than the parties hereto
and their successors and permitted assigns, any rights or remedies by reason of
this Article VI.

SECTION 6.07     Survival.  The covenants and agreements of the parties
hereto contained in this Article VI shall survive the Closing and shall remain
in full force and effect indefinitely.

ARTICLE VII

TAX MATTERS

SECTION 7.01     Indemnity.  (a)  Seller
agrees to indemnify and hold harmless Purchaser, the Companies and each
Subsidiary against the following Taxes in excess of the amount, if any, paid on
account of Taxes pursuant to Section 15.6.5 of the Racing Services Agreement
to the extent taken into account in determining the payment pursuant to such
section, and, except as otherwise provided in Section 7.04, against any loss,
damage, liability or expense, including reasonable fees for attorneys and other
outside consultants, incurred in contesting or otherwise in connection with any
such Taxes:  (i) Taxes imposed on
the Companies or any Subsidiary with respect to taxable periods of such Person
ending on or before the Closing Date; (ii) with respect to taxable periods
beginning before the Closing Date and ending after the Closing Date, Taxes
imposed on the Companies or any Subsidiary which are allocable, pursuant to
Section 7.01(b), to the portion of such
period ending on the
Closing Date; (iii) Taxes imposed on any member of any affiliated group
with which any of the Companies and the Subsidiaries file or have filed a Tax
Return on a consolidated or combined basis that includes the Companies’ and the
Subsidiaries’ taxable periods ending on or before the Closing Date; and (iv) any
and all Taxes of any Person (other than the Companies and the Subsidiaries)
imposed on any of the Companies or the Subsidiaries as a transferee or
successor, by contract or pursuant to any Law. 
Purchaser shall be responsible for and agrees to pay all Taxes and
associated expenses not allocated to Seller pursuant to the first sentence
hereof; and Purchaser agrees to indemnify and hold harmless Seller against all
such Taxes and expenses.

(b)           In the case of Taxes that are payable
with respect to a taxable period that begins before the Closing Date and ends
after the Closing Date, the portion of any such Tax that is allocable to the
portion of the period ending on the Closing Date shall be:

(i)            in the case of Taxes that are either
(x) based upon or related to income or receipts, or (y) imposed in
connection with any sale or other transfer or assignment of property (real or
personal, tangible or intangible) (other than conveyances pursuant to this 

 

49

 

Agreement, as provided
under Section 7.07), deemed equal to the amount which would be payable if the
taxable year ended with the Closing Date; and

(ii)           in the case of Taxes imposed on a
periodic basis with respect to the assets of the Companies or any Subsidiary,
or otherwise measured by the level of any item, deemed to be the amount of such
Taxes for the entire period (or, in the case of such Taxes determined on an
arrears basis, the amount of such Taxes for the immediately preceding period),
multiplied by a fraction the numerator of which is the number of days in the
period ending on the Closing Date and the denominator of which is the number of
days in the entire period.

(c)           Any indemnity payable under this
Section 7.01 shall be net of any Tax benefit enjoyed by the applicable
indemnified party, determined in a manner consistent with the last two sentences
in Section 9.02(b) or Section 9.03(c) hereof.

SECTION 7.02     Returns and Payments.  (a)  From
the date of this Agreement through and after the Closing Date, Seller shall
prepare and file or otherwise furnish in proper form to the appropriate
Governmental Authority (or cause to be prepared and filed or so furnished) in a
timely manner all Tax Returns relating to the Companies and the Subsidiaries
that are due on or before or relate to any taxable period ending on or before
the Closing Date (and Purchaser shall do the same with respect to any taxable
period ending after the Closing Date). 
Tax Returns of the Companies and the Subsidiaries not yet filed for any
taxable period that begins before the Closing Date shall be prepared in a
manner consistent with past practices employed with respect to the Companies
and the Subsidiaries (except to the extent counsel for Seller or the Companies
renders a legal opinion that there is no reasonable basis in law therefor or
determines that a Tax Return cannot be so prepared and filed without being
subject to penalties).  With respect to
any Tax Return required to be filed by Purchaser or Seller with respect to the
Companies and the Subsidiaries and as to which an amount of Tax is allocable to
the other party under Section 7.01(b), the filing party shall provide the other
party and its authorized representatives with a copy of such completed Tax Return and a statement certifying the
amount of Tax shown on such Tax
Return that is allocable to such other party pursuant to Section 7.01(b), together
with appropriate supporting information
and schedules at least 20 Business Days prior to the due date (including any
extension thereof) for the filing of such Tax Return, and such other party and
its authorized representatives shall have the right to review and comment on
such Tax Return and statement prior the filing of such Tax Return.

(b)           Seller shall pay or cause to be paid
when due and payable all Taxes described in Sections 7.01(a)(i) and 7.01(a)(ii),
and Purchaser shall so pay or cause to be paid Taxes for any taxable period
ending after the Closing Date (subject to its right of indemnification from Seller
by the date set forth in Section 7.05 for Taxes attributable to the portion of any Tax period that includes the
Closing Date pursuant to Sections 7.01(a) and 7.01(b)).

SECTION 7.03     Refunds.  Any Tax refund (including any interest with
respect thereto), and any equivalent benefit through a reduction in tax
liability for a post-Closing Date period, relating to the Companies or any
Subsidiary for any taxable period prior to the Closing Date shall be the
property of Seller, and if received by Purchaser or the Companies or any
Subsidiary shall be paid over to Seller within five Business Days of the
earlier of receipt or 

 

50

 

entitlement thereto; provided,
however, that any Tax benefit obtained by Purchaser, the Companies or
any Subsidiary as a result of utilizing any net operating loss carryforward or
other carryforward (which may be subject to adjustments) which is allocable to
the Companies or any Subsidiary shall be retained by Purchaser, the Companies
or such Subsidiary.  Purchaser shall cause
the Companies and the Subsidiaries to elect, where permitted by law, to carry
forward any net operating loss, charitable contribution or other item arising
after the Closing Date that could, in the absence of such election, be carried
back to a taxable period of the Companies ending on or before the Closing Date
in which the Companies are included in a consolidated, combined or unitary Tax
return; provided that, if such election to carry forward an item is not
available, any cash refund received by Seller with respect to such carryback
shall be paid over to Purchaser within five Business Days of actual
receipt.  Purchaser shall, if Seller so
requests and at Seller’s expense, cause the relevant entity to file for and
obtain any refunds or equivalent amounts to which Seller is entitled under this
Section 7.03.  Purchaser shall permit Seller
to control (at Seller’s expense) the prosecution of any such refund claim, and
shall cause the relevant entity to authorize by appropriate power of attorney
such persons as Seller shall designate to represent such entity with respect to
such refund claim; provided, however, that Seller shall not take
any action in the prosecution of such refund claims that would be materially
detrimental to Purchaser, the Companies or the Subsidiaries (including for this
purpose the tax positions of such entities). 
In the event that any refund or credit of Taxes for which a payment has
been made to Seller pursuant to this Section 7.03 is subsequently reduced or disallowed, Seller shall indemnify and
hold harmless the payor for any Tax Liability, including interest and penalties
assessed against such payor by reason of the reduction or disallowance.

SECTION 7.04     Contests.  (a)  After
the Closing, Purchaser shall promptly notify Seller in writing upon the
commencement of any Tax audit or administrative or judicial proceeding that
could affect Seller, and shall also separately notify Seller, in writing, of a
proposed assessment or claim in an audit or administrative or judicial
proceeding of Purchaser or of any of the Companies and the Subsidiaries which,
if determined adversely to the taxpayer, would be grounds for indemnification
under this Article VII.  If Purchaser
fails to give Seller prompt notice of an asserted Tax liability as required by
this Section 7.04, then (a) if Seller is precluded by the failure to give
notice within 30 days of the commencement of such proceeding from contesting
the asserted Tax liability in both the administrative and judicial forums, then Purchaser shall have sole responsibility for such Tax liability or (b) if Seller is not
precluded from contesting but such failure to give notice within 30 days of the
commencement of such proceeding results in detriment to Seller, then any amount
that Seller is otherwise required to pay to Purchaser pursuant to Section 7.01
with respect to such liability shall be reduced by the amount of such
detriment.

(b)           Seller may elect to direct, through counsel of its own
choosing and at its own expense, any audit, claim for refund and administrative
or judicial proceeding involving any asserted liability with respect to which
indemnity may be sought under this Article VII (any such audit, claim
for refund or proceeding relating to an asserted tax liability are referred to
herein collectively as a “Contest”). 
If Seller elects to direct the Contest of an asserted Tax liability, it
shall within 30 days of receipt of the notice of asserted tax liability notify
Purchaser of its intent to do so, and Purchaser shall cooperate and shall cause
each Subsidiary and any successor to a Subsidiary or its successor to
cooperate, at Seller’s expense, in each phase of such Contest.  Purchaser also may participate in any such
audit or proceeding and, if Seller does not assume the 

 

51

 

defense
of any such audit or proceeding, Purchaser may defend the same in such manner
as it may deem appropriate, including, but not limited to, settling such audit
or proceeding after giving five Business Days’ prior written notice to Seller
setting forth the terms and conditions of settlement.  In the event that issues relating to a
potential adjustment for which Seller would be liable are required to be dealt
with in the same proceeding as separate issues relating to a potential adjustment
for which Purchaser would be liable, Purchaser shall have the right, at its
expense, to control the audit or proceeding with respect to the latter
issues.  If Seller chooses to direct the
Contest, Purchaser shall promptly empower and shall cause the appropriate
Subsidiary or its successor promptly to empower (by power of attorney and such
other documentation as may be appropriate) such representatives of Seller as it
may designate to represent Purchaser or the Subsidiary or its successor in the
Contest insofar as the Contest involves an asserted tax liability for which Seller
would be liable under this Article VII. 
If Seller assumes the defense of a Contest, Seller shall not enter into any compromise or agree to settle any
claim pursuant to any Tax audit or proceeding which would adversely affect
Purchaser for any taxable year without the written consent of Purchaser, which
consent shall not be unreasonably withheld.

SECTION 7.05     Time of Payment.  Payment by Seller of any amounts due under
this Article VII shall be made (i) at least three Business Days before the
due date of the applicable estimated or final Tax Return required to be filed
by Purchaser on which is required to be reported income for a period ending
after the Closing Date for which Seller is responsible under Sections 7.01(a)
and 7.01(b) and with respect to which Tax must be paid, and (ii) within
five Business Days following an agreement between Seller and Purchaser that an
indemnity amount is payable or a “determination” as defined in Section 1313(a)
of the Code.  If liability under this
Article VII is in respect of costs or expenses other than Taxes, payment by Seller
of any amounts due under this Article VII shall be made within five Business
Days after the date when Seller has been notified by Purchaser that Seller has a liability for a determinable amount under this Article VII and is
provided with calculations or
other materials supporting such
liability.

SECTION
7.06     Cooperation and Exchange of Information. 
Upon the terms set forth in Section 5.02 of this Agreement, Seller and
Purchaser will provide each other with such cooperation and information as either of them reasonably
may request of the other in
filing any Tax Return, amended Tax Return or claim for refund, determining a liability
for Taxes or a right to a refund of Taxes, participating in or conducting any
audit or other proceeding in respect of Taxes or making representations to or
furnishing information to parties subsequently desiring to purchase any of the
Companies or the Subsidiaries or any part of the business of the Companies and
the Subsidiaries from Purchaser.  Such
cooperation and information shall include providing copies of relevant Tax
Returns or portions thereof, together with accompanying schedules, related work
papers and documents relating to rulings or other determinations by Tax
authorities.  Each of Seller and
Purchaser shall retain all Tax Returns, schedules and work papers, records and
other documents in its possession relating to Tax matters of the Companies
and the Subsidiaries for each taxable period first ending after the Closing
Date and for all prior taxable periods until the later of (i) the
expiration of the statute of limitations of the taxable periods to which such
Tax Returns and other documents relate, without regard to extensions except to
the extent notified by the other party in writing of such extensions for the respective
Tax periods, or (ii) six years following the due date (without extension)
for such Tax Returns.  Any information
obtained under this Section 7.6 shall be kept confidential except as may be 

 

52

 

otherwise
necessary in connection with the filing of Tax Returns or claims for refund or
in conducting an audit or other proceeding.

SECTION
7.07     Conveyance Taxes.  Seller and
Purchaser shall each pay 50% of any real property transfer or gains, sales,
use, transfer, value added, stock transfer, and stamp taxes, any transfer,
recording, registration, and other fees, and any similar Taxes which become payable in connection with the
transactions contemplated by this
Agreement, and shall file such applications and documents as shall permit any such Tax to be
assessed and paid on or prior to the Closing Date in
accordance with any available pre-sale filing procedure.  Each party hereto shall execute and deliver
all instruments and certificates necessary to enable the other party or parties
to comply with the foregoing.

SECTION 7.08     Miscellaneous.  (a)  Seller
and Purchaser agree to treat all payments made by either of them to or for the
benefit of the other (including any payments to the Companies or any
Subsidiary) under this Article VII, under other indemnity provisions of this
Agreement and for any misrepresentations or breaches of warranties or covenants
as adjustments to the Purchase Price or as capital contributions for Tax
purposes and that such treatment shall govern for purposes hereof.

(b)           All amounts payable under any tax
sharing agreement or arrangement between Seller and the Companies or any
Subsidiary for any taxable period ending on or prior to the Closing Date shall
be calculated on a basis consistent with that used to date and shall be
considered as an intercompany account owing to or from an Affiliate as of the
Closing Date for purposes of Section 5.01(c). 
Any tax sharing agreement or arrangement between Seller and/or its
Affiliates, on the one hand, and the Companies or any Subsidiary, on the other
hand, shall be terminated immediately prior to the Closing and shall have no
further effect for any taxable year or period (whether past, present or future)
and no additional payments shall
be made thereunder in respect of a redetermination of tax liabilities or
otherwise.

(c)           Notwithstanding any provision in this Agreement to the contrary,
the obligations of Seller to indemnify and hold harmless Purchaser, the
Companies and the Subsidiaries pursuant to this Article VII, and the representations and warranties
contained in Section 3.18, shall terminate at the close of business on the 60th
day following the expiration of the applicable statute of limitations with
respect to the Tax liabilities in question (giving effect to any waiver,
mitigation or extension thereof).

(d)           For purposes of this Article VII, “Purchaser” and “Seller,” respectively, shall include each
member of the affiliated group of corporations of which it is or becomes a
member (other than the Companies and the Subsidiaries, except to the extent
expressly referenced).

 

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ARTICLE VIII

CONDITIONS TO CLOSING

SECTION 8.01     Conditions to Obligations of All Parties.  The obligations of each party hereto to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to the Closing, of each of the following
conditions:

(a)           HSR Act.  Any waiting period (and any extension
thereof) under the HSR Act applicable to the purchase of the Shares
contemplated hereby shall have expired or shall have been terminated;

(b)           No Order.  No Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any Governmental Order which is in effect and has the
effect of making the transactions contemplated by this Agreement illegal, otherwise
restraining or prohibiting consummation of such transactions or causing any of
the transactions contemplated hereunder to be rescinded following completion
thereof;

(c)           Commission Approvals.  Purchaser and Seller shall have received final
approval (excluding any appeal period, if applicable) from the Commission of
(i) the purchase of the Companies by Purchaser and (ii) Seller’s management
of the racing operations of the Meadows Facility under the Racing Services
Agreement (collectively, the “Commission Approval”), each in form and
substance satisfactory to Seller and Purchaser in their reasonable discretion; and

(d)           No Proceeding or Litigation.  No Action shall have been commenced or
threatened by or before any Governmental Authority against either Seller or
Purchaser, seeking to restrain or materially and adversely alter the
transactions contemplated hereby which is reasonably likely to render it
impossible or unlawful to consummate such transactions.

SECTION 8.02     Conditions to
Obligations of Seller.  The
obligations of Seller to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver, at or prior to the
Closing, of each of the following conditions:

(a)           Representations and Warranties;
Covenants.  (i) The
representations and warranties of Purchaser contained in this Agreement shall
be true and correct as of the date hereof, except as would not have a Purchaser
Material Adverse Effect, other than such representations and warranties as are
made as of another date, which shall be true and correct on and as of such
date, except as would not have a Purchaser Material Adverse Effect,
(ii) the covenants and agreements contained in this Agreement to be
complied with by Purchaser on or before the Closing shall have been complied
with in all material respects, and (iii) Seller shall have received a
certificate of Purchaser to such effect signed by a duly authorized officer
thereof;

(b)           Changes Since the Date of Signing.  (i) Seller shall have received a certificate
of Purchaser (1) indicating which, if any, representations and warranties
of Purchaser contained in this Agreement would not be true and correct if made
on the Closing Date, other than such representations and warranties as are made
as of another date, which would not be true and correct on and as of such date
and (2) describing the circumstances, if any, which would 

 

54

 

cause such
representations and warranties to not be so true and correct if made on the
Closing Date (or on such other date if made on another date) as a result of events,
occurrences or change of circumstances that has occurred since the date of this
Agreement (such circumstances, “Purchaser Developments”), and (ii) if
there are such Purchaser Developments that would result in a Purchaser Material
Adverse Effect, Seller shall have the right to not proceed with the Closing; provided,
that Purchaser Developments will not constitute a breach of representation or
warranty by Purchaser hereunder whether or not Seller proceeds with the Closing;

(c)           Resolutions.  Seller shall
have received a true and complete copy, certified by the Secretary or an
Assistant Secretary of Purchaser (or equivalent officer), of the resolutions,
if any, duly and validly adopted by the Board of Directors of Purchaser
evidencing its authorization of the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby;

(d)           Incumbency Certificate.  Seller shall have received a certificate of
the Secretary or an Assistant Secretary (or equivalent officer) of Purchaser
certifying the names and signatures of the officers of Purchaser authorized to
sign this Agreement and the other documents to be delivered hereunder;

(e)           XpressBet Amendments.  Each party to the XpressBet Amendments (other
than XpressBet, Inc.) shall have delivered to Seller an executed counterpart of
each of the XpressBet Amendments;

(f)            Racing Services Agreement.  MECRacing, MECPenn, WTA and MLR shall have
delivered to Seller an executed counterpart of the Racing Services Agreement;

(g)           Legal Opinion.  Seller shall have received from Purchaser’s
counsel  a legal opinion, addressed to Seller
and dated the Closing Date, substantially in the form of Exhibit 8.02(g); and

(h)           Holdback.  Purchaser shall have delivered to Seller (i) an
executed counterpart of the Holdback Agreement executed by Purchaser and the
Escrow Agreement executed by Purchaser and the escrow agent party thereto and
shall have satisfied each of the conditions set forth in Section 2.01 of
the Holdback Agreement and Section 1(a) of the Escrow Agreement and shall
have caused the issuance of two letters of credit for the benefit of Seller for
the full amount of the Holdback Amount, or (ii) an executed counterpart of the
Holdback Guarantee and the related documents agreed upon in accordance with
Section 5.23 hereof and shall have caused the actions to have been taken under
these documents contemplated at the Closing Date, including without limitation
the Holdback Guarantee executed by Sponsor, an executed counterpart of the related
holdback agreement executed by Purchaser and the related escrow agreement
executed by Purchaser and the escrow agent party thereto and shall have caused
the issuance of a letter of credit (in the form of the Two-Year L/C (as defined
in the Holdback Agreement)) for the benefit of Seller for the full amount of
the Holdback Amount (between such letter of credit and such guarantee), in each
case for clauses (i) and (ii) in scope, form and substance satisfactory to
Seller in its reasonable discretion and complying with the requirements of the
Holdback Agreement and the Escrow Agreement or the Holdback Guarantee, as the
case may be.

 

55

 

SECTION 8.03     Conditions to
Obligations of Purchaser.  The
obligations of Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver, at or prior to the
Closing, of each of the following conditions:

(a)           Representations and Warranties;
Covenants.  (i) The
representations and warranties of Seller contained in this Agreement shall be
true and correct as of the date hereof, except as would not have a Material
Adverse Effect, other than such representations and warranties as are made as
of another date, which shall be true and correct on and as of such date, except
as would not have a Material Adverse Effect, (ii) the covenants and
agreements contained in this Agreement to be complied with by Seller on or
before the Closing shall have been complied with in all material respects, and (iii) Purchaser
shall have received a certificate of Seller to such effect signed by a duly
authorized officer thereof;

(b)           Changes Since the Date of Signing.  (i) Purchaser shall have received a
certificate of Seller (1) indicating which, if any, representations and
warranties of Seller contained in this Agreement would not be true and correct
if made on the Closing Date other than such representations and warranties as
are made as of another date, which would not be true and correct on and as of
such date and (2) describing the circumstances, if any, which would cause
such representations and warranties to not be so true and correct if made on
the Closing Date (or on such other date if made on another date) as a result of
events, occurrences or change of circumstances that has occurred since the date
of this Agreement (such circumstances, the “Seller Developments”), and (ii) if
there are Seller Developments which would result in a Material Adverse Effect, Purchaser
shall have the right to not proceed with the Closing; provided, that
Seller Developments will not constitute a breach of representation or warranty
by Seller hereunder whether or not Purchaser proceeds with the Closing;

(c)           Resolutions.  Purchaser shall have received a true and
complete copy, certified by the Secretary or an Assistant Secretary (or
equivalent officer) of Seller, of the resolutions duly and validly adopted by the Board of Directors of
Seller evidencing its authorization of the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby;

(d)           Incumbency Certificate.  Purchaser shall have received a certificate
of the Secretary or an Assistant Secretary (or equivalent officer) of Seller
certifying the names and signatures of the officers of Seller authorized to
sign this Agreement and the other documents to be delivered hereunder;

(e)           Resignations of Directors.  The members of the Board of Directors of each
Company and Subsidiary shall have resigned;

(f)            Release from MID Guarantees.  Companies and their Subsidiaries shall have
been released from the guaranties, security agreements, environmental indemnity
agreements and other related agreements, executed in favor of MID Islandi SF in
connection with the Gulfstream Loan Agreement and the MID Bridge Loan Agreement;

(g)           XpressBet Amendments.  XpressBet, Inc. shall have delivered to
Purchaser an executed counterpart of each of the XpressBet Amendments;

 

56

 

(h)           Racing Services Agreement.  MEC Pennsylvania Racing Services, Inc. shall
have delivered to Purchaser an executed counterpart of the Racing Services
Agreement;

(i)            FIRPTA.  Seller shall have provided Purchaser with a
certificate pursuant to Treasury Regulations Sections 1.1445-2(b) that the Seller
is not a foreign person under the provisions of the Internal Revenue Code;

(j)            Legal Opinion.  Purchaser shall have received from one or
more of Seller’s counsel (including internal counsel) one or more legal opinions,
each addressed to Purchaser and dated the Closing Date, substantially in the
forms attached hereto as Exhibit 8.03(j);

(k)           Title Insurance.  For each parcel of owned Real Property, the
Title Company shall be irrevocably committed to issue an ALTA extended owner’s
coverage title insurance policy (each, a “Title Policy”) in the form of
the relevant Title Commitment insuring fee title in such Real Property, vested
in the applicable Company or Subsidiary, in such amount as shall be reasonably
requested by Purchaser, but not in excess of $53,000,000 for the Meadows
Facility Real Property, subject only to Permitted Exceptions and Insured
Exceptions and containing such affirmative coverages and endorsements described
in Section 5.11;

(l)            Employees.  The Transferred Employees shall no longer be
employees of the Companies or the Subsidiaries;

(m)          Gaming License.  No Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any Governmental Order which is in effect, no Action shall
have been commenced by or before any Governmental Authority (provided
that if any such Action has been commenced by or before any Governmental
Authority, Purchaser shall have 10 days from receipt of written notice from
Seller of such Action to provide a written notice to Seller (“Action Notice”)
that it considers such Action to be non-frivolous and that based on such Action
it will not close the transaction contemplated hereunder, and if Purchaser does
not provide an Action Notice with respect to such Action within such 10 day
period, the commencement or existence of such Action shall not be the basis of
a claim for a failure of a condition to the Purchaser’s obligations to
consummate the transactions contemplated hereunder) and no Law shall have been
enacted or adopted and remain in effect which would have or has had, as
applicable, the effect of (i) having a material and adverse effect on the
right of Purchaser to own and control the Companies and the Subsidiaries
following completion of the transactions contemplated hereunder or (ii) having
a material adverse effect on the ability of WTA or MLR to obtain a Conditional Category
1 license or Category 1 license under the Gaming Act, or to own or operate a temporary
or permanent facility at the Meadows Facility containing at least 3,000 slot
machines no later than December 31, 2006, in each case of clause (i) or
(ii) other than such Laws that would have such material and adverse effect
solely due to the bad acts or bad character issues of Purchaser or any of its
Affiliates;

(n)           MEC Items.  Seller shall have delivered (in one or more
deliveries) written confirmation or other objectively reasonable evidence from
the Gaming Board or its staff that the Gaming Application will not be subject
to being declared or deemed incomplete with respect to the MEC Items delivered
to the Gaming Board;

 

57

 

(o)           Specified Investors.  Purchaser shall have received evidence
reasonably satisfactory to it that none of the Specified Investors shall be required
to make disclosures or take actions beyond the disclosures or actions required
in either New Jersey or Nevada in connection with gaming applications in such
states, unless such disclosures or actions are disclosures or actions that such
Specified Investors are willing to make or take, as the case may be;

(p)           Excluded Subsidiaries.  Each of the Excluded Subsidiaries shall have
been sold or transferred to Seller or any Affiliate of Seller (other than any
Company or any Subsidiary).  Seller
agrees that neither the Companies nor the Subsidiaries shall retain any
Liabilities related to the Excluded Subsidiaries;

(q)           Financial Statements.  Purchaser shall have received the 2005
Audited Financial Statements, the 2005 Quarterly Financial Statements
(accompanied by the SAS 100 review thereon by Seller’s Accountants as required
by Section 5.16 hereof), and the 2006 Interim Financial Statements (accompanied
by the SAS 100 review thereon by Seller’s Accountants as required by Section
5.16 hereof); provided, that with respect to any period from the end of
the previous fiscal quarter to the Closing Date (it being understood that any
determination of Closing or Closing Date in this Agreement shall be determined
without giving effect to the closing condition relating to the foregoing
deliverables with respect to such interim periods and/or fiscal quarters set
forth in this Section 8.03(q)), and if any 2006 fiscal quarter has ended after
45 days prior to the Closing Date, the foregoing deliverables with respect to
such interim periods and/or fiscal quarters need not be provided on or prior to
the Closing Date, but shall be provided not later than 45 days after the end of
such period; and

(r)            Gaming Licenses.  The Gaming Board shall have approved the
issuance (which issuance shall become effective after consummation of the
transactions contemplated hereby) of a Conditional Category 1 license or a
Category 1 license to any Company or any Affiliate thereof.

ARTICLE
IX

INDEMNIFICATION

SECTION 9.01     Survival.  Subject to the limitations and other provisions of
this Agreement, the representations, warranties, covenants and agreements of
the parties contained herein shall survive the Closing and shall remain in full
force and effect until the date that is 15 months from the Closing Date; provided,
however, (w) that the covenants and agreements set forth in Sections
5.03, 5.04, 5.05, 5.06, 5.08, 5.09, 5.12, 5.15, 5.16 and 5.17 and in Article
VI, Article XI and this Article IX shall remain
in full force and effect for the applicable periods specified in the respective
Sections or Articles or, if no such period is specified, indefinitely; (x) that the
representations and warranties set forth in Section 3.18 (relating to Taxes) and
the agreements in Article VII shall remain in full force and effect as provided
in Section 7.08(c); (y) the representations and warranties set forth in Section
3.12 (relating to environmental matters) shall survive for a period of seven
years; and (z) the representations and warranties set forth in the 1st,
3rd, and 4th sentences of Section 3.01, Section 3.02,
Section 3.03, all of Section 3.04(a) excluding the 1st sentence and
the 1st and 2nd sentences of Section 4.01 (collectively,
the “Fundamental Representations”) shall survive indefinitely.

 

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SECTION
9.02     Indemnification by Purchaser.  (a)
 Purchaser agrees, subject to the other
terms and conditions of this Agreement, to indemnify Seller and its Affiliates
and the officers, directors, employees and agents of each of the foregoing (all
such Persons being included within the definition of “Seller” only for purposes
of this Section 9.02, Article VI and Article VII) against and hold
them harmless from all Losses arising out of (i) the breach of any
representation, warranty, covenant or agreement of Purchaser herein (other than Article VI and Article VII, it
being understood that the sole remedy for any such breach thereof shall be
pursuant to Article VI or Article VII respectively, as applicable),
and (ii) subject
to the terms of the Racing Services Agreement, the conduct of the business of
each Company and Subsidiary by Purchaser following the Closing Date.  Anything in Section 9.01
to the contrary notwithstanding, no claim may be asserted, nor, subject to the last sentence of this
Section 9.02(a), may any action be commenced, against Purchaser for breach
of any representation, warranty, covenant or agreement contained herein, unless
written notice of such claim or action is received by Purchaser describing in reasonable
detail the facts and circumstances with respect to the subject matter of such
claim or action on or prior to the date on which the representation, warranty,
covenant or agreement on which such claim or action is based ceases to survive
as set forth in Section 9.01 (the “Applicable Date”), irrespective
of whether the subject matter of such claim or action shall have occurred
before or after such date.  If a claim or
a potential claim arises, Purchaser and Seller shall promptly work in good
faith to determine the validity of such claim or potential claim within a
reasonable period of time and if such claim or potential claim is not resolved
to both parties’ satisfaction within such reasonable period of time, either
party may commence legal proceedings to resolve such claim or potential claim
(but in no event (other than as described in the next sentence) after the
Applicable Date).  If Seller becomes
aware of any such claim or potential claim within ninety days prior to the
Applicable Date and promptly gives such written notice thereof as aforesaid on
or prior to the Applicable Date, then upon the giving of such notice, Seller
and its Affiliates, or any of them, shall have the right to commence legal
proceedings for a period of up to ninety days subsequent to the date of such
written notice for the enforcement of their rights under Section 9.02 with
respect to the matters indicated in such notice.

(b)           Payments by Purchaser pursuant to
Section 9.02(a) shall be limited to the amount of any liability or damage
that remains after deducting therefrom any Tax benefit to Seller and any
insurance proceeds and any indemnity, contribution
or other similar payment recovered by Seller from any third party with
respect thereto (it being agreed that Seller will use its commercially
reasonable efforts to recover such proceeds and payments and that, promptly
after the realization of any insurance proceeds, indemnity, contribution or
other similar payment, Seller shall reimburse Purchaser for such reduction in
Losses for which Seller was indemnified prior to the realization of such
reduction of Losses).  A Tax benefit to Seller
for purposes of this Section 9.02 shall be reasonably determined by Seller’s
Accountants as the difference between (i) the amount of federal, state and
local Tax Liabilities of Seller and its Affiliates for the year with respect to
which the indemnity payment is made, and (ii) the amount of federal, state
and local Tax Liabilities of Seller and its Affiliates for the year with
respect to which the indemnity payment is made but without the effect of event
that gave rise to the indemnity payment. 
Seller shall provide Purchaser with calculations and/or other
information reasonably supporting the determination of the amount of the Tax
benefit.

 

59

 

(c)           No claim may be made against
Purchaser for indemnification pursuant to Section 9.02(a)(i) (other than
breaches and claims under Section 2.03(c) and the Fundamental Representations)
with respect to any individual item of liability or damage arising out of a
breach of a representation or warranty of Purchaser or of a covenant or
agreement to be performed by Purchaser prior to the Closing Date, unless the
aggregate of all such Losses of Seller with respect to Sections 9.02(a)(i)
(other than breaches and claims under Section 2.03(c) and the Fundamental
Representations) shall exceed $1,000,000, and Purchaser shall be required to
pay or be liable only for amounts in excess of such aggregate amount.  Seller shall not be indemnified pursuant to
Section 9.02(a)(i) with respect to any individual item of liability or damage
(other than breaches and claims under Section 2.03(c) and the Fundamental
Representations) if the aggregate of all liabilities and damages of Seller for
which Seller has received indemnification pursuant to Sections 9.02(a)(i) shall
have exceeded $22,500,000.

(d)           Except as set forth in this
Agreement, Purchaser is not making any representation, warranty, covenant or
agreement with respect to the matters contained herein.  Anything herein to the contrary
notwithstanding, no breach of any representation, warranty, covenant or
agreement contained herein shall give rise to any right on the part of Seller,
after the consummation of the purchase and sale of the Shares contemplated by
this Agreement, to rescind this Agreement or any of the transactions
contemplated hereby.

SECTION
9.03     Indemnification by Seller.  (a)
 Seller agrees, subject to the other
terms and conditions of this Agreement, to indemnify Purchaser and its
Affiliates and the officers, directors, employees and agents of each of the
foregoing (all such Persons being included in the definition of “Purchaser” only
for purposes of this Section 9.03, Article VI and Article VII)
against and hold it harmless from all Losses arising out of the following:

(i)            the breach of any representation, warranty,
covenant or agreement of Seller herein (other than Article VI and Article VII
and Sections 3.16, 3.17 and 3.18, it being understood that the sole remedy
for any such breach thereof shall be pursuant to Article VI or Article VII
respectively, as applicable);

(ii)           any and all
Liabilities related to, arising out of or associated with the Excluded Items or
the business or operations of XpressBet, Inc., or any predecessor or successor
(including the Companies and the Subsidiaries but only to the extent that the
business or operations of the Companies and the Subsidiaries related to the
account wagering business now conducted by XpressBet, Inc.), prior to, on and
after the Closing Date, including, without limitation, any Liabilities related
to, arising out of or associated with the formalizing of the relationship
between XpressBet, Inc., Seller, any Company and its Subsidiaries;

(iii)          any and all Liabilities related to,
arising out of or associated with the Excluded Subsidiaries or the Former
Subsidiaries;

(iv)          any Liability, obligation or
responsibility under or related to Environmental Laws, whether such Liability
or obligation or responsibility is known or unknown, contingent or accrued,
arising from acts, omissions, conduct or circumstances occurring between
April 5, 2001 and the Closing Date;

 

60

 

(v)           any Liability, obligation or
responsibility under or required by Environmental Law, whether such Liability,
obligation or responsibility is known or unknown, contingent or accrued,
arising from acts, omissions, conduct or circumstances occurring prior to April 5,
2001 and the occurrence or existence of which is a violation of Environmental
Law existing as of the Closing Date; and

(vi)          those matters set forth in the
following Sections of the Company Disclosure Schedules:  Schedule 3.05(c) (item (b) only), Schedule
3.10(a) (except for items (g) and (h) under the headings “Litigation Not
Covered by Insurance”) and Schedule 3.11(a) (under the heading “OSHA Citation”).

Anything in Section 9.01
to the contrary notwithstanding, no claim may be asserted nor, subject to the second
to the last sentence of this Section 9.03(a), may any action be commenced
against Seller for breach of any representation, warranty, covenant or
agreement contained herein, unless written notice of such claim or action is
received by Seller describing in reasonable detail the facts and circumstances
with respect to the subject matter of such claim or action on or prior to the Applicable
Date, irrespective of whether the subject matter of such claim or action shall
have occurred before or after such date.  If a claim or a potential claim arises,
Purchaser and Seller shall promptly work in good faith to determine the
validity of such claim or potential claim within a reasonable period of time
and if such claim or potential claim is not resolved to both parties’
satisfaction within such reasonable period of time, either party may commence
legal proceedings to resolve such claim or potential claim (but in no event
(other than as described in the next sentence) after the Applicable Date).  If Purchaser becomes aware of any such claim
or potential claim within ninety days prior to the Applicable Date and promptly
gives such written notice thereof as aforesaid on or prior to the Applicable
Date, then upon the giving of such notice, Purchaser and its
Affiliates, or any of them, shall have the right to commence legal proceedings
for a period of up to ninety days subsequent to the date of such written notice
for the enforcement of their rights under Section 9.03 with respect to the
matters indicated in such notice.  To the extent
that Seller’s undertakings set forth in this Section 9.03 may be unenforceable,
Seller shall contribute the maximum amount that it is permitted to contribute
under applicable law to the payment and satisfaction of all Losses
incurred by Purchaser, the Companies and the Subsidiaries.

(b)           No claim may be made against Seller
for indemnification pursuant to Section 9.03(a)(i) (other than breaches and
claims under the Fundamental Representations and Section 3.12 (as to
environmental matters)) with respect to any individual item of liability or
damage arising out of a breach of a representation or warranty of Seller or of
a covenant or agreement to be performed by Seller prior to the Closing Date,
unless the aggregate of all such Losses of Purchaser with respect to Section
9.03(a)(i) (other than breaches and claims under the Fundamental Representations
and Section 3.12 (as to environmental matters)) shall exceed $1,000,000,
and Seller shall be required to pay or be liable only for amounts in excess of
such aggregate amount.  Purchaser shall
not be indemnified pursuant to Section 9.03(a)(i) with respect to any
individual item of liability or damage (other than breaches and claims under the
Fundamental Representations and Section 3.12 (as to environmental matters))
if the aggregate of all liabilities and damages of Purchaser for which Purchaser
has received indemnification pursuant to Section 9.03 (a)(i) shall have
exceeded $22,500,000.

 

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(c)           Payments by Seller pursuant to this
Sections 9.03, 6.06 and 7.01 shall be limited to the amount of any liability or
damage that remains after deducting therefrom (i) any Tax benefit to
Purchaser, (ii) any insurance proceeds and any indemnity, contribution or
other similar payment recovered by Purchaser from any third party with respect
thereto (it being agreed that Purchaser will use its commercially reasonable
efforts and will cause Companies and Subsidiaries to use their respective
commercially reasonable efforts, to recover such proceeds and payments and that,
promptly after the realization of any insurance proceeds, indemnity,
contribution or other similar payment, Purchaser shall reimburse Seller for
such reduction in Losses for which Purchaser was indemnified prior to the
realization of reduction of such Losses), and (iii) any amount paid
pursuant to Section 15.6.5 of the Racing Services Agreement with respect
to the subject matter in dispute to the extent taken into account in
determining the payment pursuant to such section.  A Tax benefit to Purchaser for purposes of
this Section 9.03 will be reasonably determined by Purchaser’s Accountants as
the difference between (i) the amount of federal, state and local Tax
Liabilities of Purchaser and its Affiliates (including the Companies and the
Subsidiaries) for the year with respect to which the indemnity payment is made,
and (ii) the amount of federal, state and local Tax Liabilities of
Purchaser and its Affiliates (including the Companies and the Subsidiaries) for
the year with respect to which the indemnity payment is made but without the
effect of event that gave rise to the indemnity payment.  Purchaser shall provide Seller with
calculations and/or other information reasonably supporting the determination
of the Tax benefit.

(d)           Except as set forth in this Agreement
(including the Exhibits and the Company Disclosure Schedule), Seller is not
making any representation, warranty, covenant or agreement with respect to the
matters contained herein.  Anything
herein to the contrary notwithstanding, no breach of any representation,
warranty, covenant or agreement contained herein shall give rise to any right
on the part of Purchaser, after the consummation of the purchase and sale of
the Shares contemplated hereby, to rescind this Agreement or any of the
transactions contemplated hereby.

(e)           Seller and its Affiliates shall have
no liability under any provision of this Agreement for any liabilities and
damages to the extent that such liabilities and damages relate to actions taken
by Purchaser or its Affiliates, including, without limitation, each Company and
Subsidiary, after the Closing Date.

(f)            Seller and its Affiliates shall have
no liability under any provision of this Agreement for any liabilities and
damages to the extent that such liabilities and damages are obligations of MEC
Pennsylvania Racing Services, Inc. under the Racing Services Agreement to the
extent satisfied thereunder.

SECTION
9.04     Indemnification Procedures, Etc.  (a)
 Each of Purchaser and Seller (for
purposes of this Section 9.04(a), an “Indemnified Party”) agrees to give
the indemnifying party under Section 6.05, 7.01, 9.02 or 9.03, as
applicable (for purposes of this Section 9.04(a), an “Indemnifying
Party”) prompt written notice (a “Claim Notice”) of any claim,
assertion, event or proceeding by or in respect of a third party of which it
has knowledge concerning any liability or damage as to which it may request
indemnification under Section 6.05, 7.01, 9.02 or 9.03, as applicable,
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party 

 

62

 

from any liability
hereunder unless (and then solely to the extent) the Indemnifying Party thereby
is materially prejudiced by the delay.  The Indemnifying Party shall have the right to
assume, through counsel of its own choosing, the defense or settlement of any
such claim or proceeding at its own expense. 
If the Indemnifying Party elects to assume the defense of any such claim
or proceeding, the Indemnified Party may participate in such defense, but in
such case the expenses of the Indemnified Party shall be paid by it; provided,
however, that if there exists or is reasonably likely to exist a
conflict of interest (including, without limitation, if there may be one or more
legal or equitable defenses available to the Indemnified Party which are
different from or in addition to those of the Indemnifying Party and
representation by the same counsel would be inappropriate due to the actual or
potential differences between the parties) that would make it inappropriate in
the reasonable judgment of the Indemnified Party for the same counsel to
represent both the Indemnified Party and the Indemnifying Party, then the
Indemnified Party shall be entitled to retain its own counsel, in each
jurisdiction for which the Indemnified Party determines counsel is required, at
the expense of the Indemnifying Party. 
With reasonable notice, the Indemnified Party shall provide the
Indemnifying Party with reasonable access to its records and personnel relating
to any such claim, assertion, event or proceeding during normal business hours
and shall otherwise cooperate with the Indemnifying Party in the defense or
settlement thereof, and the Indemnifying Party shall reimburse the Indemnified
Party for all its reasonable out-of-pocket expenses in connection
therewith.  If the Indemnifying Party
elects to assume the defense of any such claim or proceeding, the Indemnified
Party shall not pay, or permit to be paid, any part of any claim or demand
arising from such asserted liability unless the Indemnifying Party consents in
writing to such payment or unless the Indemnifying Party, subject to the penultimate
sentence of this Section 9.04(a), withdraws from the defense of such
asserted liability or unless a final judgment from which no appeal may be taken
by or on behalf of the Indemnifying Party is entered against the Indemnified
Party for such liability.  If the
Indemnifying Party shall fail to defend, or if after commencing or undertaking
any such defense, fails to prosecute or withdraws from such defense, the
Indemnified Party shall have the right to undertake the defense or settlement
thereof, at the expense of the Indemnifying Party.  If the Indemnified Party assumes the defense
of any such claim or proceeding pursuant to this Section 9.04(a) and
proposes to settle such claim or proceeding prior to a final judgment thereon
or to forego any appeal with respect thereto, then the Indemnified Party shall
give the Indemnifying Party prompt written notice thereof and the Indemnifying
Party shall have the right to participate in the settlement or assume or
reassume the defense of such claim or proceeding.  Neither the Indemnified Party nor the
Indemnifying Party shall settle any claim or proceeding without the written
approval of the Indemnifying Party (in the case of a settlement by the
Indemnified Party) or of the Indemnified Party (in the case of a settlement by
the Indemnifying Party), which approval
shall not be unreasonably withheld.

(b)           Neither Seller nor Purchaser shall
have any liability to Purchaser or Seller (as defined in Section 9.03(a)
and Section 9.02(a), respectively), as the case may be, under Article VI,
Article VII or this Article IX for consequential or punitive damages,
except that this Section 9.04(b) shall not limit an Indemnified Party’s
right to recover fees or expenses of counsel or reimbursement or indemnity for
claims by third parties to the extent otherwise provided for in Article VI,
Article VII or this Article IX and paid or payable by an Indemnified Party.

(c)           Each of Seller and Purchaser hereby acknowledges and
agrees that, from and after the Closing, the sole and exclusive remedy of
Seller or Purchaser (as defined in 

 

63

 

Section 9.02(a) and Section 9.03(a),
respectively), as the case may be, against Purchaser or Seller, as the case may
be, with respect to any and all claims relating to the subject matter of this
Agreement shall be pursuant to the indemnification provisions set forth in this
Article IX and in Article VI and Article VII, except for any claims
arising out of fraud and where a party is entitled to seek injunctive relief
because there is no adequate remedy at law. 
In furtherance of the foregoing, each of Purchaser and Seller hereby waives, on
behalf of itself and any other Purchaser or Seller (as defined in Section
9.02(a) and 9.03(a), respectively), as the case may be, to the fullest extent
permitted under applicable law, any and all rights, claims and causes of action
such Purchaser and Seller (or, after the Closing, any Company or Subsidiary),
as the case may be, may have against Seller or Purchaser, as the case may be, (other
than pursuant to this Article IX, Article VI, or Article VII, as applicable)
relating to the subject matter of this Agreement arising under or based upon
any law, rule, regulation, order, judgment or decree applicable to it or by
which any of the properties of it or any of its subsidiaries is bound or
affected, subject to the exception set forth in the immediately preceding
sentence.  Nothing in the forgoing
provisions of this Section 9.04(c) shall limit any rights or claims any party
hereto, any Company, any Subsidiary or MEC Pennsylvania Racing Services, Inc. may
have under the Racing Services Agreement.

(d)           Each of Purchaser and Seller agrees
that, in the event an Indemnifying Party elects to assume the defense of any
claim or proceeding, it will refrain from making any public announcements in
respect of such claim or otherwise communicating with the news media.

(e)           Purchaser and Seller hereby consent
to the non-exclusive jurisdiction of any court in which an Action by a third
party is brought against any Indemnified Party for purposes of any claim that
an Indemnified Party may have under this Agreement with respect to such Action
or the matters alleged therein and agree that process may be served on
Purchaser and Seller with respect to such a claim at the address specified in
this Agreement.  From and after the
Closing, neither the Companies nor the Subsidiaries shall have any Liability to
Seller or its Affiliates for any breaches of the representations, warranties,
agreements or covenants of Seller, the Companies or the Subsidiaries set forth
herein.  From and after the Closing,
neither Seller nor its Affiliates shall seek indemnification or contribution
from any Company or Subsidiary (including any of its employees or agents) for
any such breaches or in respect of any other payments required to be made by
Seller or its Affiliates pursuant to this Agreement.  Nothing in the foregoing provisions of this
Section 9.04(e) shall limit any rights or claims any party hereto, any
Company, any Subsidiary or MEC Pennsylvania Racing Services, Inc. may have
under the Racing Services Agreement.

SECTION 9.05     Payments.  Once a Loss is agreed to by the Indemnifying
Party or finally adjudicated to be payable pursuant to Section 6.05,
Section 7.01 or this Article IX, the Indemnifying Party shall satisfy its
obligations within fifteen (15) Business Days of such final, nonappealable
adjudication by wire transfer of immediately available funds; provided,
that during the term of any of the Holdback Documents, if the Indemnifying
Party is Seller and the Losses are covered under the Holdback Documents, then
such obligations shall be satisfied in accordance with the provisions of the
Holdback Documents.  The parties hereto
agree that should an Indemnifying Party not make full payment of any such
obligations (other than such obligations described in the proviso set forth in
the immediately preceding sentence) within such 

 

64

 

fifteen (15)
Business Day period, any amount payable shall accrue interest, compounded
annually, calculated from the date of agreement of the Indemnifying Party or
final, nonappealable adjudication through the date such payment has been made,
on the basis of the average of the daily rate of interest publicly announced by
Citibank N.A. in New York, New York from time to time as its base rate from the
date of such agreement or such adjudication to the date of such payment.  The parties hereto agree that any
indemnification made pursuant to this Agreement (including without limitation
any indemnification covered by the Holdback Documents) shall be treated as an
adjustment to the Purchase Price.

ARTICLE X

TERMINATION, AMENDMENT AND WAIVER

SECTION 10.01  Termination.  This Agreement may be terminated at any time
prior to the Closing:

(a)           by the mutual written consent of Seller
and Purchaser;

(b)           by Seller if the condition set forth
in Section 8.03(n) of this Agreement has not been satisfied or waived by
Purchaser by June 30, 2006;

(c)           by Purchaser, upon a material breach
of any representation, warranty, covenant or agreement of Seller set forth in
this Agreement such that the conditions set forth in Section 8.03 would
not be satisfied or if any representation or warranty of Seller shall have
become untrue such that Purchaser would have the right not to proceed with the
Closing pursuant to Section 8.03(b) (a “Terminating Seller’s Breach”); provided,
however, that if such Terminating Seller’s Breach is curable by Seller
through the exercise of its reasonable efforts within 30 days from the date Seller
becomes aware thereof and is cured, Purchaser may not terminate this Agreement
pursuant to this Section 10.01(c) solely by reason of such Terminating Seller’s
Breach;

(d)           by Seller, upon a material breach of
any representation, warranty, covenant or agreement of Purchaser set forth in
this Agreement such that the conditions set forth in Section 8.02 would
not be satisfied or if any representation or warranty of Purchaser shall have
become untrue such that Seller would have the right not to proceed with the
Closing pursuant to Section 8.02(b) (a “Terminating Purchaser’s Breach”);
provided, however, that if such Terminating Purchaser Breach is
curable by Purchaser through the exercise of its reasonable efforts within 30
days from the date Purchaser becomes aware thereof and is cured, Seller may not
terminate this Agreement pursuant to this Section 10.01(d) solely by
reason of such Terminating Purchaser’s Breach;

(e)           by Purchaser or Seller in the event
that any Governmental Authority shall have issued an order, decree or ruling or
taken any other action restraining or enjoining the transactions contemplated
by this Agreement, and such order, decree, ruling or other action shall have
become final and nonappealable;

(f)            by Seller, upon receiving an Action
Notice from the Purchaser;

 

65

 

(g)           by Seller if the condition set forth
in Section 8.03(o) of this Agreement has not been satisfied or waived by Purchaser
by March 31, 2006;

(h)           by Seller upon failure to submit the
Gaming Application to the Gaming Board by December 20, 2005 in accordance
with Section 5.04(c) or the failure by Purchaser to satisfy and continue to
satisfy the Gaming Application Fee requirement in accordance with
Section 5.04(d); provided, however that if the failure to submit such
Gaming Application is the result of the failure of Seller to make reasonable
efforts in accordance with Section 5.04(c), Seller may not terminate pursuant
to this Section 10.01(h);

(i)            by Seller or Purchaser if the
condition set forth in Section 8.01(c) of this Agreement has not been satisfied
or waived by both Purchaser and Seller by April 30, 2006;

(j)            by Seller if the condition set
forth in Section 8.03(r) of this Agreement has not been satisfied or waived by
Purchaser by July 31, 2006;

(k)           by Seller, at any time after the date
which is 5 Business Days prior to the date, if any, identified by the Gaming
Board after which continued pursuit by Seller of a Conditional Category 1
license with Purchaser pursuant to the Gaming Application would jeopardize
Seller’s ability to obtain a Conditional Category 1 license or a Category 1
license in its own name;

(l)            by Seller or Purchaser if it
reasonably determines that Closing has become impossible due to events or
circumstances that have occurred since the date of this Agreement; provided
however that the right to terminate this Agreement under this Section 10.01(l)
shall not be available to a party whose failure to fulfill any obligation under
this Agreement shall have been the cause of, or shall have resulted in, the
Closing becoming impossible; or

(m)          by Seller or Purchaser if the Closing
shall not have occurred prior to September 15, 2006.

Time shall be of the essence
in this Agreement.

SECTION
10.02  Effect of Termination.  In the event
of termination of this Agreement in accordance with this Agreement, this
Agreement shall forthwith become void and there shall be no liability on the
part of any party hereto (a) except as set forth in Sections 5.04(e),
5.05 and 5.15 and the last three sentences of Section 5.04(d) and Article XI
hereof and (b) nothing herein shall relieve any party hereto from
liability for any willful breach of any provision hereof (including, without
limitation, Section 5.10).  Failure to
provide the Purchase Price less the Holdback Amount for any reason upon
satisfaction of the conditions to Purchaser’s obligations set forth herein
shall constitute willful breach.  The
foregoing sentence shall not be construed to limit the provisions of Section
9.04(b).

SECTION 10.03  Waiver. 
At any time prior to the Closing, each of the parties hereto may (a) extend
the time for the performance of any of the obligations or other acts of the
other party hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto or
(c) waive compliance with any of the agreements or conditions contained
herein.  Any such extension or waiver
shall be valid 

 

66

 

only if set forth in an
instrument in writing signed by the party to be bound by such extension or
waiver, as applicable.  Any waiver of any
term or condition shall not be construed as a waiver of any subsequent breach
or a subsequent waiver of the same term or condition, or a waiver of any other
term or condition, of this Agreement. 
The failure of any party to assert any of its rights hereunder shall not
constitute a waiver of any of such rights.

ARTICLE XI

 

GENERAL PROVISIONS

SECTION 11.01  Expenses; Pro-rations.

(a)           Except as otherwise expressly
provided herein, all costs and expenses, including, without limitation, fees
and disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such costs and expenses, whether or not the Closing
shall have occurred.  Seller shall pay (i) the cost of the Title
Commitments; (ii) the portion of the premium attributable to the standard
coverage portion of the Title Policies (excluding the costs of any endorsements
requested by Purchaser, except as are necessary to cure any Title Objection or
obtained in connection with an Insured Exception); (iii) Seller’s share of
the pro-rations described in this Section 11.01; and (iv) one-half of the
HSR filing fee.  Purchaser shall pay (i) the portion of the premium
attributable to any endorsements to the Title Policies (except as set forth in
the preceding sentence) and the portion of the premium attributable to the “extended
coverage” portion of the Title Policies; (ii) Purchaser’s share of the
pro-rations described in this Section 11.01; and (iii) one-half of the HSR
filing fee.

(b)           All non-delinquent real estate Taxes
and assessments on the Real Property will be prorated as of the Closing based
on the actual current Tax bill.  If the
Closing takes place before the real estate Taxes are fixed for the Tax year in
which the Closing occurs, the apportionment of real estate Taxes will be made
on the basis of the real estate Taxes for the immediately preceding Tax year
applied to the latest assessed valuation. 
All delinquent Taxes and all delinquent assessments, if any, on the Real
Property will be paid at the Closing from funds accruing to Seller.  All supplemental Taxes billed after the
Closing for periods prior to the Closing will be paid promptly by Seller.  Any Tax refunds received by Purchaser which
are allocable to the period prior to the Closing (less Purchaser’s reasonable
out-of-pocket costs in connection with any such refund proceedings) will be
paid by Purchaser to Seller.

(c)           With respect to rent and other
amounts payable by Seller in connection with any leases, all such rent and
other amounts will be prorated as of the Closing.  Any delinquent rent or other payments payable
by Seller in connection with the leases will be paid at the Closing from funds
accruing to Seller.

(d)           With respect to rent and other
amounts payable to Seller in connection with any leases, all rents which are
actually received by Seller as of the Closing will be prorated.  Delinquent rents and rents not paid by Closing
will not be prorated and Seller can continue to collect such rents, provided
that Purchaser shall not have the obligation to pursue any Action or other proceedings
in connection therewith.  Rents allocable
to the period prior to the Closing will 

 

67

 

be the property of Seller
and rents allocable to the period after the Closing will be the property of
Purchaser.

(e)           All
pro-rations will be made as of the date of the Closing based on a 365-day year
or the number of days in the month during which the Closing occurs, as
applicable.

SECTION 11.02  Notices.  All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt but in no
event less than three days after delivery in accordance herewith) by delivery
in Person, by courier service, by cable, by telecopy or by registered or
certified mail (postage prepaid, return receipt requested) to the respective parties
at the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 11.02):

(a)           if to Seller:

Magna Entertainment Corp.

337
Magna Drive

Aurora, Ontario

L4G 7K1, Canada

Facsimile:  905-726-7177

Attn:  CEO/General Counsel

 

with a copy to:

O’Melveny & Myers LLP

400 South Hope Street

15th Floor

Los Angeles, CA 90071

Facsimile:  213-430-6407

Attn:  Joseph K. Kim, Esq.

(b)           if to Purchaser:

PA Meadows, LLC

c/o
Oaktree Capital Management, LLC

333 S.
Grand Avenue, 28th Floor

Los Angeles, California 90071-1560

Facsímile: 213-830-6394

Attn:
 John B. Frank, Esq.

Skardon
F. Baker

 

68

 

with a copy to:

Munger, Tolles & Olson, LLP

355 S. Grand Avenue, 35th Floor

Los Angeles, CA 90071-1560

Facsimile: 
213-687-3702

Attn:  Sandra
Seville-Jones, Esq.

 

and a copy to:

 

Santoro, Driggs, Walch,
Kearney, Johnson & Thompson

400 South Fourth Street

Suite 300

Las Vegas, N.V. 89101

Facsimile:  702-791-1912

Attn:  Michael Kearney

SECTION
11.03  Public Announcements.  Unless otherwise required by applicable law
or stock exchange requirements, no party to this Agreement shall make any
public announcements in respect of this Agreement or the transactions
contemplated hereby or otherwise communicate with any news media without prior consent
of the other party, and the parties will cooperate as to the timing and
contents of any such announcement.

SECTION 11.04  Headings.  The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

SECTION 11.05  Severability.  If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party.  Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to the greatest
extent possible.

SECTION 11.06  Entire Agreement.  This Agreement and the Transaction Documents constitute
the entire agreement of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and undertakings, both written and
oral, other than the Confidentiality Agreement, between Seller and Purchaser (or
Millennium Management Group, LLC) with respect to the subject matter hereof and
except as otherwise expressly provided herein.

SECTION 11.07  Assignment.  This Agreement shall not be assigned by
operation of law or otherwise, except that prior to the Closing, Purchaser,
without the consent of, but with at least 10 Business Days’ prior written notice
to, Seller, may transfer or cause to be 

 

69

 

transferred all of the
equity interests of Purchaser or assign this Agreement and all of the related rights
and obligations to a wholly owned direct or indirect subsidiary of Cannery Casino
Resorts, LLC, a Nevada limited liability company.

SECTION 11.08  No Third-Party Beneficiaries.  Except as provided in Article IX, this
Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other Person or entity any legal or equitable right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.

SECTION 11.09  Amendment.  This Agreement may not be amended or modified
except by an instrument in writing signed by Seller and Purchaser.

SECTION 11.10  Governing Law; Jurisdiction; Service of
Process.  (a)  This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.  Seller and Purchaser hereby agree and consent
to the exclusive jurisdiction of, and service of process and venue in, the
United States District Court for the Southern District of New York and the
courts of the State of New York located in the County of New York, State of New
York and waives any objection with respect thereto, for the purpose of any
action, suit or proceeding arising out of or relating to this Agreement.

SECTION 11.11  WAIVER OF JURY TRIAL.  EACH OF PURCHASER AND SELLER HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PURCHASER OR SELLER IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.

SECTION 11.12  Counterparts.  This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which taken together shall constitute
one and the same agreement.

SECTION 11.13  Specific Performance.  The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.

SECTION
11.14  Prevailing Party.  The
prevailing party or parties in any arbitration, mediation, court action, or
other adjudicative proceeding arising out of or relating to this Agreement
shall be reimbursed by the party or parties who do not prevail for their
reasonable attorneys, accountants and experts fees and for the costs of such
proceeding.

 

70

 

IN WITNESS WHEREOF, Seller and Purchaser have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.

	
   

  	
  PA MEADOWS, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Christopher S. Brothers

  
	
   

  	
   

  	
  Name: Christopher S. Brothers

  
	
   

  	
   

  	
  Title: Authorized Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MAGNA ENTERTAINMENT CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Thomas Hodgson

  
	
   

  	
   

  	
  Name: W. Thomas Hodgson

  
	
   

  	
   

  	
  Title: Pres. & CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Blake Tomana

  
	
   

  	
   

  	
  Name: Blake Tomana

  
	
   

  	
   

  	
  Title:EVP & CFO

  

 

 

S-1Exhibit
10.1

EMPLOYMENT
AGREEMENT

THIS
EMPLOYMENT AGREEMENT (this “Agreement”) dated as of June 5, 2006 (the
“Effective Date”), is by and between Isolagen, Inc., a Delaware corporation
(together with its subsidiaries, the "Company” or “Isolagen"), and
Nicholas L. Teti, an individual residing in Santa Barbara, California (the
"Executive”).

W I T N E S S E T H:

WHEREAS,
the Company desires to employ the Executive as the Company’s Chairman of the
Board and Chief Executive Officer; and

WHEREAS,
the Executive desires to serve as the Chairman of the Board and Chief Executive
Officer; and

NOW
THEREFORE, in consideration of the mutual benefits to be derived from this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Executive
hereby agree as follows:

1.                                       Term
of Employment; Office and Duties.

(a)           Commencing on the date hereof (the “Employment Date”), and
for an initial term ending June 30, 2009, the Company shall employ the
Executive as a senior executive of the Company with the title of Chairman of
the Board and Chief Executive Officer. 
As Chairman of the Board and Chief Executive Officer Executive shall
perform all duties and responsibilities which are consistent with the positions
and such additional duties and responsibilities consistent with such positions
as may from time to time be assigned to the Executive by the Board of
Directors.  Executive agrees to perform
such duties and discharge such responsibilities in accordance with the terms of
this Agreement.  This Agreement shall be
automatically renewed for an additional one (1) year term unless the Company
notifies the Executive  one year  prior to the expiration of the Agreement of
the Company’s  intention not to renew the
Agreement. The Executive will work out of an office to be established by the
Company in Santa Barbara, California; provided that it is part of the essence
of this Agreement from the perspective of the Company that the Executive will
physically be on the premises of the Company’s facility in Exton, Pennsylvania
when and as appropriate and reasonable.

(b)           The Executive shall devote substantially all of his
working time to the business and affairs of the Company other than during
vacations of four weeks per year and periods of illness or incapacity;
provided, however, that nothing in this Agreement shall preclude the Executive
from devoting time required:  (i) for
serving as a director or officer of any organization or entity not in a
competing business with the Company, and any other businesses in which the
Company becomes involved; (ii) delivering lectures, writing articles or books,
or fulfilling speaking engagements;  or
(iii) engaging in charitable and community activities provided that such
activities do not interfere with the performance of his duties hereunder.

(c)           The Board of Directors shall nominate Executive for
election to the Board of Directors, as soon as reasonably practicable after the
execution of this Agreement, and thereafter as his Board term matures during
the Term of this Agreement.

2.             Compensation
and Benefits.

For all services
rendered by the Executive in any capacity during the period of Executive's
employment by the Company, including without limitation, services as an
executive officer or member of Board of Directors, or any committee of the
Board of Directors or any subsidiary, affiliate or division thereof, from and
after the Effective Date, the Executive shall be compensated as follows:

(a)           Base Salary.  The
Company shall pay the Executive a fixed salary ("Base Salary") at a
rate of Seven Hundred Thousand Dollars ($700,000) per year.  The Board of Directors may periodically
review the Executive's Base Salary and may determine to increase (but not
decrease) the Executive’s salary, in accordance with

 

such policies as the Company may hereafter
adopt from time to time, if it deems appropriate.  Base Salary will be payable in accordance
with the customary payroll practices of the Company.

(b)           Signing Bonus.  The
Company shall pay the Executive Two Hundred Fifty Thousand Dollars ($250,000)
within five (5) business days of Executive’s commencement of employment under
this Employment Agreement.

(c)           Bonus.  Executive is entitled to
receive an annual bonus (the “Annual Bonus”), payable each year subsequent to
the issuance of final audited financial statements, but in no case later than
120 days after the end of the Company's most recently completed fiscal
year.   The final determination on the
amount of the Annual Bonus will be made by the Compensation Committee of the
Board of Directors, based primarily on mutually agreed upon criteria,
established with respect to the ensuing fiscal year, within thirty (30) days
following the adoption by the Board of Directors of a budget relating to the
ensuing year.  Criteria for the Annual
Bonus for 2006 (prorated) and 2007 (full year) shall be agreed upon prior to or
within sixty (60) days after the execution of this Agreement.  The Compensation Committee may also consider
other more subjective factors in making its determination.  The targeted amount of the Annual Bonus shall
be 70% of the Executive’s base salary. The actual Annual Bonus for any given
period may be higher or lower than 70%. 
For any fiscal year in which Executive is employed for less than the
full year,   Executive shall receive a
bonus which is prorated based on the number of full months in the year which
are worked.

(d)           Fringe Benefits, Option and Stock Grants and
Miscellaneous Employment Matters.

(i)            The Executive shall be entitled to
participate in such disability, health and life insurance and other fringe
benefit plans or programs offered to all employees of the Company, as well as
to the key executive employees of Company, including a Section 401(k) and
retirement plan of the Company as may be established from time to time by the
Board of Directors, subject to the rules and regulations applicable
thereto.  At the Executive’s option, in
lieu of providing group medical benefits, the Company will reimburse the
Executive for health insurance premium payments made pursuant to COBRA by the
Executive under his existing group medical coverage.    Upon termination of Executive's group
coverage under COBRA, he shall have the option of enrolling in the Company's
group plan or converting his prior coverage to an individual policy, at which
time the Company would reimburse his for an amount equal to its monthly cost of
covering Executive under its plan, and Executive would pay any additional
amounts necessary to provide individual coverage.    In addition, the Executive shall be
entitled to the following benefits:

(ii)           Contemporaneous with the execution of this
Employment Agreement, Executive received a grant (the “Stock Option Grant) of
stock options (the “Stock Options”) to purchase 2,000,000 shares at an exercise
price equal to the closing transaction price of the Company’s Common Stock on
the last trading day preceding execution of this Employment Agreement.  The Stock Options shall have a term of ten
(10) years, shall become exercisable when vested, and shall vest pro rata in
twelve equal quarterly installments (1/12th each at the end of each fiscal quarter), with
the first installment vesting on June 30, 2006. 
Notwithstanding the foregoing, the Stock Options shall terminate ninety
(90) days following a termination of the Executive for “Cause” or upon the
voluntary termination of service by the Executive that is not for “Good
Reason.”

(iii)          Contemporaneous with the execution of this
Employment Agreement, the Executive received a grant (the “Performance Stock
Option Grant) of stock options to purchase 500,000 shares at an exercise price
equal to the closing transaction price of the Company’s Common Stock on the
last trading day preceding execution of this Employment Agreement.  The Performance Stock Option Grant shall have
a term of ten (10) years, shall become exercisable when vested, shall terminate
ninety (90) days following a termination of the Executive for “Cause” or upon
the voluntary termination of service by the Executive that is not for “Good
Reason.”  The Performance Stock Option
Grant shall vest, and no longer be subject to forfeiture, upon the occurrence
of any of the following events: (i) upon the closing of the sale of
substantially all of the assets of the Company or the reorganization, consolidation
or the merger of the Company; provided that the event results in the payment or
distribution of consideration valued in good faith by the Board of Directors at
$25 per share or more; or (ii) upon the closing of a tender offer or exchange
offer to purchase 50% or more of the issued and outstanding shares of Common
Stock of the Company at a price per share valued in good faith by the Board of
Directors at $25 or more; or (iii) immediately following a “Stock Acquisition
Date,” as that term is defined the Rights Plan adopted by the

 

 2
 

Company on May 11, 2006 (provided that said
rights are not subsequently redeemed by the Company or that the rights plan is
not subsequently amended to preclude exercise of the rights issued thereunder,
prior to the Distribution Date, as that term is defined in the rights plan), or
(iv) at such other time as the Board of Directors, in its sole discretion,
deems appropriate; provided in each case that Executive is the Company’s Chief
Executive Officer at the time of said event.

(iv)          Notwithstanding the
provisions of paragraph (ii) hereinabove, the vesting of the Stock Option Grant
shall accelerate and vest immediately upon a “Change In Control” of the
Company.  For purposes of this Agreement,
“Change In Control" means the
occurrence of any of the following events:  (i) an acquisition (other than directly from the Company) of any
voting securities of the Company by any person or group of affiliated or
related persons (as such term is defined in Sections 13(d) and 14(d)(2) of the
Securities  Exchange
Act of 1934), immediately after which such person or group has beneficial
ownership (within the meaning of the Exchange Act) of more than  fifty percent (50%) of the combined
voting power of the Company’s then outstanding voting securities; provided that
this  subsection shall
not apply to an acquisition of voting securities by any employee benefit plan
or trust maintained by or for the benefit of the Company or its employees; (ii)
a merger, consolidation or reorganization involving the Company; (iii) a
complete liquidation or dissolution of the Company; (iv) the sale or other
disposition of all or substantially all of the Company's assets; (v) during any
period of two (2) consecutive years (not including any period prior to the
execution of this Agreement), individuals who at the beginning of such period
constitute the Board, and any new director (other than a director(s) designated
by a person who has entered into an agreement with the Company to effect a
transaction described in the preceding clauses of this provision) whose
election by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3rds) of the directors then
still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority thereof.

(e)           Withholding and Employment Tax. 
Payment of all compensation hereunder shall be subject to customary
withholding tax and other employment taxes as may be required with respect to
compensation paid by an employer/corporation to an employee.

(f)            Disability.  The Company shall provide the
Executive with a policy of disability insurance benefits of at least sixty percent
(60%) of his gross Base Salary per month.  
To the extent permitted by the Company’s existing disability policy, the
Executive’s disability policy will be a portable policy.  The Executive agrees to pay for any
additional premium payments resulting from providing a portable policy (in
comparison to a group policy) and further agrees to have the additional premium
payments deducted from his pay.   In the
event of the Executive's Disability (as hereinafter defined), the Executive and
his family shall continue to be covered by all of the Company's life, medical,
health and dental plans, at the Company's expense, for the lesser of the term
of such Disability (as hereinafter defined) or eighteen (18) months, in
accordance with the terms of such plans.

(g)           Death.  The Company shall provide the
Executive with a policy of term life insurance benefits in the amount of at
least Two Million Dollars ($2,000,000). To the extent permitted by the
Company’s existing life insurance policy, the Executive’s life insurance policy
will be a portable policy.  The Executive
agrees to pay for any additional premium payments resulting from providing a
portable policy (in comparison to a group policy) and further agrees to have
the additional premium payments deducted from his pay.    In the event of the Executive's death, the
Executive's family shall continue to be covered by all of the Company's
medical, health and dental plans, at the Company's expense, for eighteen (18)
months following the Executive's death in accordance with the terms of such
plans.

(h)           Vacation.  Executive shall receive four
(4) weeks of vacation annually, administered in accordance with the Company's
existing vacation policy. 

3.             Business
Expenses.

The Company shall
pay or reimburse all reasonable travel and entertainment expenses incurred by
the Executive in connection with the performance of his duties under this
Agreement, travel to the Company’s various offices and facilities in the United
States and abroad, reimbursement for attending out-of-town meetings of the
Board of Directors, and such other travel as may be required or appropriate in
Executive’s discretion, consistent with

 

 3
 

duly
approved Company budgets, to fulfill the responsibilities of his office, all in
accordance with such policies and procedures as the Company may from time to
time establish for senior officers and as required to preserve any deductions
for federal income taxation purposes to which the Company may be entitled and
subject to the Company's normal requirements with respect to reporting and
documentation of such expenses.  The
Company shall pay to Executive a non-accountable allowance of five thousand
dollars ($5,000) per month for all expenses incurred by the Executive for
Executive’s automobile (including lease payments, insurance, maintenance, and
gasoline) and private club membership(s) and/or dues.  The Company shall also pay or reimburse
Executive for all membership fees and dues in appropriate professional
associations and organizations utilized by Executive in the course of his
service for the Company including all costs of an office to be established by
the Company in Santa Barbara, all expenses incurred by the Executive for
Executive’s cellular telephone and portable text messaging including monthly
service charges, equipment maintenance and all other ancillary charges
including, but not limited to, text messaging, paging, and wireless
communications. 

4.             Termination of
Employment.

Notwithstanding
any other provision of this Agreement, Executive's employment with the Company
may be terminated upon written notice to the other party as follows:

(a)           By the Company, in the event of the
Executive's death or Disability (as hereinafter defined) or for Cause (as
hereinafter defined).  For purposes of
this Agreement, "Cause" shall mean either: (i) the indictment of, or
the bringing of formal charges against 
Executive on charges involving criminal fraud or embezzlement; (ii) the
conviction of Executive of a crime involving an act or acts of dishonesty,
fraud or moral turpitude by the Executive, which act or acts constitute a
felony; (iii) Executive knowingly having caused the Company  to violate the Company’s Bylaws which results
in material adverse consequences to the Company which is not cured or
substantially cured to the reasonable satisfaction of the Board of Directors of
the Company in a reasonable time, which time shall be at least 30 days from
receipt of written notice from the Company of such material violation; (iv)
Executive having committed acts or omissions constituting gross negligence or
willful misconduct with respect to the Company including with respect to any
valid contract to which the Company is a party and/or the Company’s Grants of
Authority; (v) Executive having committed acts or omissions constituting a
material breach of Executive's duty of loyalty or fiduciary duty to the Company
or any material act of dishonesty or fraud with respect to the Company which
are not cured or substantially cured to the reasonable satisfaction of the
Board of Directors of the Company in a reasonable time, which time shall be at
least 30 days from receipt of written notice from the Company of such material
breach; or (vi) Executive having committed acts or omissions constituting a
material breach of this Agreement, or a material violation of the Executive’s
representations or warranties set forth in Section 11, which are not cured or
substantially cured to the reasonable satisfaction of the Board of Directors of
the Company in a reasonable time, which time shall be at least 30 days from
receipt of written notice from the Company setting forth with specificity the
particulars of any such material breach as well as the corrective actions
required.  A determination that Cause
exists as defined in clauses (iii), (iv), (v), or (vi) (as to this Agreement)
of the preceding sentence shall be made by at least a majority of the members
of the Board of Directors (excluding the Executive).  For purposes of this Agreement,
"Disability" shall mean the inability of Executive, in the reasonable
judgment of a physician jointly appointed by the Executive and Board of
Directors, to perform, even with 
reasonable accommodation, his duties of employment for the Company or
any of its subsidiaries because of any physical or mental disability or
incapacity, where such disability shall exist for an aggregate period of more
than 120 days in any 365-day period or for any period of 90 consecutive
days.  The Company shall by written
notice to the Executive specify the event relied upon for termination pursuant
to this Section 4(a), and Executive's employment hereunder shall be deemed
terminated as of the date of such notice. 
In the event of any termination under this Subsection 4(a), the Company
shall pay all amounts then due to the Executive under Section 2(a) of this
Agreement for any portion of the payroll period worked but for which payment
had not yet been made up to the date of termination, and, if such termination
was for Cause, the Company shall have no further obligations to Executive under
this Agreement, and any and all options granted hereunder shall terminate
according to their terms.  In the event
of a termination due to Executive's Disability or death, the Company shall
comply with its obligations under Sections 2(e) and 2(f).

(b)           By the Company, in the absence of Cause, for
any reason and in its sole and absolute discretion, provided that in such event
the Company shall, as liquidated damages or severance pay, or both, continue to
pay to Executive the Base Salary (at a monthly rate equal to the rate in effect
immediately prior to such termination) for the remaining term under this
Agreement (the "Termination Payments"), when, as and if such payments
would have

 

 4
 

been made in the absence of Executive’s
termination.  The Termination Payments
shall be made regardless of Executive’s subsequent re-employment as long as any
new employment is not in violation of Sections 5 or 6 of this Agreement.

(c)           By the Executive for "Good Reason,"
(as the Executive shall reasonably determine in good faith) which shall be deemed
to exist: (i) if the Company's Board of Directors or that of any successor
entity of the Company fails to appoint or reappoint the Executive  or removes the Executive from the title
and/or office of Chief Executive Officer of the Company or from any successor
entity operating the Company without his consent; (ii) if the Company’s Board
of Directors or that of any successor entity of the Company fails initially to
nominate or at the end of his term as director during the Term of this
Agreement to renominate the Executive to serve on the Board of Directors; (iii)
if Executive is assigned any duties materially inconsistent with the duties or
responsibilities of the Chief Executive Officer of the Company as contemplated
by this Agreement or any other action by the Company that results in a material
diminution in such position, authority, duties, or responsibilities, excluding
an isolated, insubstantial, and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by Executive (but not excluding changes resulting from a sale of the Company,
whether by merger, tender offer or otherwise) provided that Executive shall act
within 30 days of becoming aware of any such diminution in the scope of his duties,
responsibilities, authority or position; 
(iv) if the Company shall breach or shall have continued to fail to
comply with any material provision of this Agreement after a 30-day period to
cure (if such failure is curable) following written notice to the Company of
such non-compliance; (v) upon a change in control of the Company or within
twelve (12) months of any such change in control (for these purposes the term
change in “control” shall have the meaning set forth in Rule 405 of the
Securities Act of 1933), or within twelve (12) months of a sale of
substantially all of the assets of the Company or the merger, consolidation or
reorganization of the Company.   In the
event of any termination for “Good Reason” under this Section 4(c), the Company
shall, as liquidated damages or severance pay, or both, pay the Termination
Payments, as defined in (b) of this Section 4, to Executive, when, as and if
such payments would have been made in the absence of Executive’s termination.  

(d)           During any period in which Executive is
obligated not to compete with the Company pursuant to Section 5 hereof (unless
Executive was terminated for Cause as defined herein), Executive and his family
shall continue to be covered by the Company's life, medical, health and death plans.  Such coverage shall be at the Company's
expense to the same extent as if Executive were still employed by the
Company.  In the event of a termination
pursuant to Sections 4(b) or 4(c), the Company shall provide to Executive the
pro-rata share of his annual bonus during the remaining term, to the extent one
is awarded by the Compensation Committee the consideration of which shall be
taken in good faith, giving a full month’s credit for any partial month worked
in that bonus year.   Additionally, in
the event of a termination pursuant to Sections 4(b) or 4(c), the Company shall
provide to Executive, at the Company's expense, outplacement services of a
nature customarily provided to a senior executive.  Notwithstanding the foregoing, the
obligations of the Company pursuant to this Section 4(d) shall remain in effect
no longer than the term of the Termination Payments.

(e)           In the event that any amounts payable and/or
any benefits provided to the Executive under the terms of this Agreement and/or
under any other plan, agreement or arrangement by which he is to receive
payments or benefits in the nature of compensation would constitute
"excess parachute payments" as that term is defined for purposes of
Section 280G of the Internal Revenue Code of 1986, as amended
("Code") and Treasury Regulations promulgated pursuant thereto, then
the amounts payable under the terms of this Agreement and/or under any other
plan, agreement or arrangement shall be reduced so that no payments are deemed
"excess parachute payments." 
Any decisions regarding this requirement or implementation of reductions
shall be made by tax counsel selected by the Company. 

(f)            If any payment to Executive under the terms
of this Agreement is determined to constitute a payment of nonqualified deferred
compensation for purposes of Section 409A of the Code, such payment shall be
delayed until the date that is six months after the date of Executive's
separation from service with the Company, so as to comply with the special rule
for certain "specified employees" set forth in Code Section
409A(a)(2)(B)(i) unless it is determined that immediate distribution is
permissible (and does not trigger any additional tax liability pursuant to Code
Section 409A(a)(l)) pursuant to Code Section 409A(a)(2)(A)(v) by reason of
being payable in connection with a change in the ownership or effective control
of the Company or in the ownership of a substantial position of the assets of
the Company.

 

 5
 

5.             Non-Competition.

During the period
of Executive's employment hereunder and during the period, if any, during which
payments are required to be made to the Executive by the Company pursuant to
Sections 4(b) or 4(c), the Executive shall not, within any state or foreign
jurisdiction in which the Company or any subsidiary of the Company is then
providing services or products or marketing its services or products (or
engaged in active discussions to provide such services), or within a fifty (50)
mile radius of any such state or foreign jurisdiction, directly or indirectly
own any interest in, manage, control, participate in, consult with, render
services for, or in any manner engage in any business engaged in by the Company
(unless the Board of Directors shall have authorized such activity and the
Company shall have consented thereto in writing).  The term “business engaged in by the Company”
shall mean the development and commercialization of autologous fibroblast
system technology for application in, among other therapies, dermatology,
surgical and post-traumatic scarring, skin ulcers, cosmetic surgery,
periodontal disease,  reconstructive
dentistry, vocal chord injuries, urinary incontinence, and digestive and
gastroenterological disorders and other applications relating to the market for
autologous fibroblast or UMC cells and the five derivative cell lines:
osteoblast, chondroblast, fibroblast, adipocyte, and neuroectoderm.  Investments in less than five percent of the
outstanding securities of any class of a corporation subject to the reporting
requirements of Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended, shall not be prohibited by this Section 5.  At the option of Executive, Executive's
obligations under this Section 5 arising after the termination of Executive
shall be suspended during any period in which the Company fails to pay to his
Termination Payments required to be paid to his pursuant to this
Agreement.  The provisions of this
Section 5 are subject to the provisions of Section 14 of this Agreement.

6.             Inventions and
Confidential Information.

The parties hereto
recognize that a major need of the Company is to preserve its specialized
knowledge, trade secrets, and confidential information.  The strength and good will of the Company is
derived from the specialized knowledge, trade secrets, and confidential
information generated from experience with the activities undertaken by the
Company and its subsidiaries.  The
disclosure of this information and knowledge to competitors would be beneficial
to them and detrimental to the Company, as would the disclosure of information
about the marketing practices, pricing practices, costs, profit margins, design
specifications, analytical techniques, and similar items of the Company and its
subsidiaries.  The Executive acknowledges
that the proprietary information, observations and data obtained by him while
employed by the Company concerning the business or affairs of the Company are
the property of the Company.  By reason
of his being a senior executive of the Company, the Executive has or will have
access to, and has obtained or will obtain, specialized knowledge, trade
secrets and confidential information about the Company's operations and the
operations of its subsidiaries, which operations extend throughout the United
States.  For purposes of this Section 6,
“Company” shall mean the Company and each of its controlled subsidiaries.  Therefore, subject to the provisions of
Section 14 hereof, the Executive hereby agrees as follows, recognizing that the
Company is relying on these agreements in entering into this Agreement:

(i)            The Executive will not use, disclose to
others, or publish or otherwise make available to any other party any
inventions or any confidential business information about the affairs of the
Company, including but not limited to confidential information concerning the
Company's products. "Confidential Information" shall include
commercial or trade secrets about Company’s products, methods, engineering
designs and standards, analytical techniques, technical information, customer
information, employee information, or financial and business records, any of
which contains proprietary information created or acquired by the Company and
which information is held in confidence by Company. Confidential Information
does not include information which: (i) becomes generally available to the
public, unless said Confidential Information was disclosed in violation of a
confidentiality agreement; or (ii) becomes available to Executive on a
non-confidential basis from a source other than the Company or its agents,
provided that such source is not bound by a confidentiality agreement with the
Company.

(ii)           During the period of Executive's employment
with the Company and for twelve (12) months thereafter, (a) the Executive will
not directly or indirectly through another entity induce  any employee of the Company to leave the
Company's employ (unless the Board of Directors shall have authorized such
employment and the Company shall have consented thereto in writing) or in any way
interfere with the relationship between the Company and any employee thereof or
(b) tortiously interfere with the Company’s business relationship with  any customer, supplier, licensee, licensor or
other business relation of the Company.

 

 6
 

7.             Indemnification.

The Company will
indemnify (and advance the costs of defense of) and hold harmless the Executive
(and his legal representatives) to the fullest extent permitted by the laws of
the state in which the Company is incorporated, as in effect at the time of the
subject act or omission, or by the Certificate of Incorporation and Bylaws of
the Company, as in effect at such time or on the date of this Agreement,
whichever affords greater protection to the Executive, and the Executive shall
be entitled to the protection of any insurance policies the Company may elect
to maintain generally for the benefit of its executive officers, against all
judgments, damages, liabilities, costs, charges and expenses whatsoever
incurred or sustained by his or his legal representative in connection with any
action, suit or proceeding to which he (or his legal representatives or other
successors) may be made a party by reason of his being or having been an
officer of the Company or any of its subsidiaries except that the Company shall
have no obligation to indemnify Executive for liabilities resulting from
conduct of the Executive with respect to which a court of competent
jurisdiction has made a final determination that Executive committed gross
negligence or willful misconduct to the extent such a determination was made by
the court in determining liability.

8.             Litigation
Expenses.

In the event of
any litigation or other proceeding between the Company and the Executive with
respect to the subject matter of this Agreement and the enforcement of the
rights hereunder, the losing party shall reimburse the prevailing party for all
of his/its reasonable costs and expenses relating to such litigation or other
proceeding, including, without limitation, his/its reasonable attorneys' fees
and expenses.  

9.             Consolidation;
Merger; Sale of Assets; Change of Control.

Nothing in this
Agreement shall preclude the Company from combining, consolidating or merging
with or into, transferring all or substantially all of its assets to, or
entering into a partnership or joint venture with, another corporation or other
entity, or effecting any other kind of corporate combination provided that the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger, transfer of assets or
formation of such partnership or joint venture, this Agreement shall inure to
the benefit of, be assumed by, and be binding upon such resulting or surviving
transferee corporation or such partnership or joint venture, and the term
"Company," as used in this Agreement, shall mean such corporation,
partnership or joint venture or other entity, and this Agreement shall continue
in full force and effect and shall entitle the Executive and his heirs,
beneficiaries and representatives to exactly the same compensation, benefits,
perquisites, payments and other rights as would have been their entitlement had
such combination, consolidation, merger, transfer of assets or formation of
such partnership or joint venture not occurred.

10.           Survival
of Obligations.

Sections 4, 5, 6,
7, 8, 9, 10, 11, 12 and 14 shall survive the termination for any reason of this
Agreement (whether such termination is by the Company, by the Executive, upon
the expiration of this Agreement or otherwise).

11.           Executive's
Representations.

The Executive
hereby represents and warrants to the Company that as of the Effective Date:
(i) the execution, delivery and performance of this Agreement by the Executive
do not and shall not conflict with, breach, violate or cause a default under
any contract, agreement, instrument, order, judgment or decree to which the
Executive is a party or by which he is bound, (ii) the Executive is not a party
to or bound by any employment agreement, non-compete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall
be the valid and binding obligation of the Executive, enforceable in accordance
with its terms.  The Executive hereby
acknowledges and represents that he has consulted with legal counsel regarding
his rights and obligations under this Agreement and that he fully understands
the terms and conditions contained herein. 
The Company’s sole recourse for a violation of any of the
representations or warranties in this Section 11 shall be to terminate this
Agreement for “Cause” pursuant to Section 4(a)

 

 7
 

of
this Agreement.  The provisions of this
Section shall not limit or otherwise affect the Company's obligations under
Section 7 of this Agreement.

12.           Company's
Representations.

The Company hereby
represents and warrants to the Executive that (i) the execution, delivery and
performance of this Agreement by the Company do not and shall not conflict
with, breach, violate or cause a default under any contract, agreement,
instrument, order, judgment or decree to which the Company is a party or by
which it is bound; (ii) upon the execution and delivery of this Agreement by
the Executive, this Agreement shall be the valid and binding obligation of the
Company, enforceable in accordance with its terms; and (iii) the Company’s
representations made by the Board of Directors and members of senior management
prior to the execution of this Agreement regarding the science, business or
fiscal propriety of the Company are accurate in all material respects.

13.           Enforcement.

Because the
Executive's services are unique and because the Executive has access to
confidential information concerning the Company, the parties hereto agree that
money damages would not be an adequate remedy for any breach of this
Agreement.  Therefore, in the event of a
material breach of this Agreement, the Company may, in addition to other rights
and remedies existing in its favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other relief in
order to enforce, or prevent any violations of, the provisions hereof (without
posting a bond or other security).

14.           Severability.

In case any one or
more of the provisions or part of a provision contained in this Agreement shall
for any reason be held to be invalid, illegal or unenforceable in any respect
in any jurisdiction, such invalidity, illegality or unenforceability shall be
deemed not to affect any other jurisdiction or any other provision or part of a
provision of this Agreement, nor shall such invalidity, illegality or
unenforceability affect the validity, legality or enforceability of this
Agreement or any provision or provisions hereof in any other jurisdiction; and
this Agreement shall be reformed and construed in such jurisdiction as if such
provision or part of a provision held to be invalid or illegal or unenforceable
had never been contained herein and such provision or part reformed so that it
would be valid, legal and enforceable in such jurisdiction to the maximum
extent possible.  In furtherance and not
in limitation of the foregoing, the Company and the Executive each intend that
the covenants contained in Sections 5 and 6 shall be deemed to be a series of
separate covenants, one for each and every state of the United States and any
foreign country set forth therein.  If,
in any judicial proceeding, a court shall refuse to enforce any of such
separate covenants, then such unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purpose of such proceedings to
the extent necessary to permit the remaining separate covenants to be enforced
in such proceedings.  If, in any judicial
proceeding, a court shall refuse to enforce any one or more of such separate
covenants because the total time, scope or area thereof is deemed to be
excessive or unreasonable, then it is the intent of the parties hereto that
such covenants, which would otherwise be unenforceable due to such excessive or
unreasonable period of time, scope or area, be enforced for such lesser period
of time, scope or area as shall be deemed reasonable and not excessive by such
court.

15.           Entire
Agreement; Amendment.

Except as
otherwise set forth in this Agreement, this Agreement contains the entire
agreement between the Company and the Executive with respect to the subject
matter hereof and thereof.  This
Agreement may not be amended, waived, changed, modified or discharged except by
an instrument in writing executed by or on behalf of the party against whom
enforcement of any amendment, waiver, change, modification or discharge is
sought.  No course of conduct or dealing
shall be construed to modify, amend or otherwise affect any of the provisions
hereof.

 8
 

16.           Notices.

All notices,
requests, demands and other communications hereunder shall be in writing and
shall be deemed to have been duly given if physically delivered, delivered by
express mail or other expedited service or upon receipt if mailed, postage
prepaid, via registered mail, return receipt requested, addressed as follows:

	
  

  	
  (a)

  	
  To the Company:

  	
  (b)

  	
  To the Executive:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Isolagen

  	
   

  	
  Nicholas L. Teti

  
	
   

  	
   

  	
  405 Eagleview
  Blvd.

  	
   

  	
  2809 Holly Road

  
	
   

  	
   

  	
  Exton, PA  19341

  	
   

  	
  Santa Barbara, California  93105

  

 

and/or to such
other persons and addresses as any party shall have specified in writing to the
other.

17.           Assignability.

This Agreement
shall not be assignable by either party and shall be binding upon, and shall
inure to the benefit of, the heirs, executors, administrators, legal
representatives, successors and assigns of the parties.  In the event that all or substantially all of
the business of the Company is sold or transferred, then this Agreement shall
be binding on the transferee of the business of the Company whether or not this
Agreement is expressly assigned to the transferee.

18.           Governing
Law.

This Agreement
shall be governed by and construed under the laws of the state of California.

19.           Waiver
and Further Agreement.

Any waiver of any
breach of any terms or conditions of this Agreement shall not operate as a
waiver of any other breach of such terms or conditions or any other term or
condition, nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof.  Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such further action
as the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.

20.           Headings
of No Effect.

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

 

 9
 

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

 

	
  

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  ISOLAGEN, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Ralph V. De
  Martino, 

  
	
   

  	
   

  	
  Chairman of the Compensation
  Committee

  
	
   

  	
   

  	
  and Lead
  Independent Director,

  
	
   

  	
   

  	
  at the direction
  of the Board of Directors

  

 

 

	
  

  	
  EXECUTIVE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Nicholas L. Teti

  

 

 10

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