Document:

Exhibit
10.13

 

FIRST
AMENDMENT

TO
STOCK PURCHASE AGREEMENT

 

This FIRST AMENDMENT
TO STOCK PURCHASE AGREEMENT (this “First
Amendment”) is dated as of July 26, 2006 and entered into by and
between MAGNA ENTERTAINMENT CORP., a Delaware corporation (“Seller”), and PA MEADOWS, LLC, a Delaware
limited liability company (“Purchaser”),
and is made with reference to that certain Stock Purchase Agreement, dated as
of November 8, 2005 (the “Purchase
Agreement”), by and between Seller
and Purchaser. Capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Amended Purchase Agreement (as defined
below).

 

RECITALS

 

WHEREAS, as a
result of further negotiations between Seller and Purchaser since the signing
of the Purchase Agreement, Seller and Purchaser have decided to amend the terms
of the Purchase Agreement by entering into this First Amendment in order
to,  (i) reduce the Purchase Price for
the Shares from $225,000,000 to $200,000,000, (ii) reduce the Holdback Amount
from $39,000,000 to $25,000,000,  (iii)
permit the payment of the Purchase Price in the form of two notes, a Tranche A
Note for $175,000,000 and a Tranche B Note for $25,000,000 and (iv) amend other
provisions of the Purchase Agreement as set forth in the Amended Purchase
Agreement;

 

NOW, THEREFORE, in
consideration of the premises and the agreements, provisions and covenants
herein contained, the parties hereto agree as follows:

 

Section 1.                                          AMENDMENT OF
PURCHASE AGREEMENT

 

As of the date hereof, the Purchase Agreement and the
exhibits thereto shall be and are hereby amended and modified to read in their
entirety as set forth in Annex A hereto (as set forth in such Annex A,
the “Amended Purchase Agreement”),
and as so amended are hereby ratified, approved and confirmed in each and every
respect. The parties hereto agree and acknowledge that the schedules to the
Purchase Agreement delivered on November 8, 2005 shall be the schedules to the
Amended Purchase Agreement, and Seller has delivered a certificate as of the date
hereof to Purchaser in accordance with Section 8.03(b) of the Amended Purchase
Agreement related to such schedules.

 

Section 2.                                          MISCELLANEOUS

 

2.1                               Fees
and Expenses.  Except as otherwise expressly provided in the Amended
Purchase Agreement, all costs and expenses, including, without limitation, fees
and disbursements of counsel, financial advisors and accountants, incurred in
connection with this First Amendment and the transactions contemplated hereby
shall be paid by the party incurring such costs and expenses.

 

 

2.2                               Notices.
All notices, requests, claims, demands and other communications hereunder shall
be made as set forth in Section 11.02 of the Amended Purchase Agreement.

 

2.3                               Public
Announcements. Unless otherwise required by applicable law or stock
exchange requirements, no party to this First Amendment shall make any public
announcements in respect of this First Amendment 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. Seller and Purchaser acknowledge that OCM
HoldCo LLC and Seller will be making filings with the Securities and Exchange
Commission and each of Seller and Purchaser agrees to cooperate in reviewing
and providing any comments on such submissions in a timely fashion.

 

2.4                               Headings.
The headings contained in this First Amendment are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this First Amendment.

 

2.5                               Severability.
If any term or other provision of this First Amendment is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this First Amendment 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 First Amendment 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.

 

2.6                               Assignment.
This First Amendment shall not be assigned by operation of law or otherwise,
except that prior to the Closing, Purchaser, without the consent of Seller, but
with at least 10 Business Days’ prior written notice, may transfer or cause to
be transferred all of the equity interests of Purchaser to a wholly owned
direct or indirect subsidiary of Cannery Casino Resorts, LLC, a Nevada limited
liability company.

 

2.7                               No
Third-Party Beneficiaries. This First Amendment is for the sole benefit
of the parties hereto and their permitted assigns and, except as otherwise
expressly provided in the Amended Purchase Agreement, 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 First Amendment.

 

2.8                               Amendment.
This First Amendment may not be amended or modified except by an instrument in
writing signed by Seller and Purchaser.

 

2.9                               Governing
Law; Jurisdiction; Service of Process. This First Amendment 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

 

2

 

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 First Amendment

 

2.10                        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 FIRST AMENDMENT OR THE
ACTIONS OF PURCHASER OR SELLER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE
AND ENFORCEMENT THEREOF.

 

2.11                        Counterparts. This
First Amendment 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.

 

2.12                        Specific Performance.
The parties hereto agree that irreparable damage would occur in the event any
provision of this First Amendment 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.

 

2.13                        Prevailing Party.
The prevailing party or parties in any arbitration, mediation, court action, or
other adjudicative proceeding arising out of or relating to this First
Amendment 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.

 

[The remainder of
page intentionally left blank.]

 

3

 

IN WITNESS WHEREOF,
the parties hereto have caused this First Amendment to be duly executed and
delivered by their respective officers thereunto duly authorized as of the date
first written above.

 

 

	
   

  	
  PA MEADOWS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William J. Paulos

  	
   

  
	
   

  	
   

  	
  Name:  William J. Paulos

  
	
   

  	
   

  	
  Title:  Authorized
  Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MAGNA ENTERTAINMENT CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ B. Tohana

  	
   

  
	
   

  	
   

  	
  Name:  Blake Tohana

  
	
   

  	
   

  	
  Title:  Authorized
  Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mary Lyn Seymor

  	
   

  
	
   

  	
   

  	
  Name:  Mary Lyn Seymor

  
	
   

  	
   

  	
  Title:  Authorized
  Signatory

  

 

 

Signature
Page to Amendment to

Stock Purchase Agreement

 

 

STOCK PURCHASE AGREEMENT

 

dated November 8,
2005

 

between

 

MAGNA ENTERTAINMENT CORP.

 

and PA MEADOWS, LLC

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01

  	
  Certain Defined Terms

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  PURCHASE AND SALE

  	
  10

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01

  	
  Purchase and Sale

  	
  10

  
	
   

  	
   

  	
   

  
	
  SECTION 2.02

  	
  Purchase Price

  	
  10

  
	
   

  	
   

  	
   

  
	
  SECTION 2.03

  	
  Closing

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  REPRESENTATIONS AND WARRANTIES OF SELLER

  	
  11

  
	
   

  	
   

  	
   

  
	
  SECTION 3.01

  	
  Incorporation and Authority of Seller

  	
  11

  
	
   

  	
   

  	
   

  
	
  SECTION 3.02

  	
  Organization, Authority and Qualification of the
  Companies

  	
  12

  
	
   

  	
   

  	
   

  
	
  SECTION 3.03

  	
  Capital Stock of the Companies; Ownership of the
  Shares

  	
  12

  
	
   

  	
   

  	
   

  
	
  SECTION 3.04

  	
  Subsidiaries

  	
  13

  
	
   

  	
   

  	
   

  
	
  SECTION 3.05

  	
  No Conflict

  	
  14

  
	
   

  	
   

  	
   

  
	
  SECTION 3.06

  	
  Consents and Approvals

  	
  15

  
	
   

  	
   

  	
   

  
	
  SECTION 3.07

  	
  Financial Information, Books and Records

  	
  15

  
	
   

  	
   

  	
   

  
	
  SECTION 3.08

  	
  No Undisclosed Liabilities

  	
  16

  
	
   

  	
   

  	
   

  
	
  SECTION 3.09

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

  	
  16

  
	
   

  	
   

  	
   

  
	
  SECTION 3.10

  	
  Litigation

  	
  17

  
	
   

  	
   

  	
   

  
	
  SECTION 3.11

  	
  Compliance with Applicable Laws

  	
  18

  
	
   

  	
   

  	
   

  
	
  SECTION 3.12

  	
  Environmental Matters

  	
  18

  
	
   

  	
   

  	
   

  
	
  SECTION 3.13

  	
  Title to Assets; Real Property

  	
  20

  
	
   

  	
   

  	
   

  
	
  SECTION 3.14

  	
  Intellectual Property Rights

  	
  22

  
	
   

  	
   

  	
   

  
	
  SECTION 3.15

  	
  Insurance

  	
  22

  
	
   

  	
   

  	
   

  
	
  SECTION 3.16

  	
  Employee Benefit Matters

  	
  23

  
	
   

  	
   

  	
   

  
	
  SECTION 3.17

  	
  Labor Matters

  	
  26

  
	
   

  	
   

  	
   

  
	
  SECTION 3.18

  	
  Taxes

  	
  27

  
	
   

  	
   

  	
   

  
	
  SECTION 3.19

  	
  Material Contracts

  	
  29

  
	
   

  	
   

  	
   

  
	
  SECTION 3.20

  	
  Racing License

  	
  31

  

 

i

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  SECTION 3.21

  	
  Suppliers

  	
  31

  
	
   

  	
   

  	
   

  
	
  SECTION 3.22

  	
  Books and Records

  	
  31

  
	
   

  	
   

  	
   

  
	
  SECTION 3.23

  	
  Brokers

  	
  32

  
	
   

  	
   

  	
   

  
	
  SECTION 3.24

  	
  Racing Days

  	
  32

  
	
   

  	
   

  	
   

  
	
  SECTION 3.25

  	
  Related Parties

  	
  32

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  REPRESENTATIONS AND WARRANTIES OF PURCHASER

  	
  32

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01

  	
  Incorporation and Authority of Purchaser

  	
  32

  
	
   

  	
   

  	
   

  
	
  SECTION 4.02

  	
  No Conflict

  	
  33

  
	
   

  	
   

  	
   

  
	
  SECTION 4.03

  	
  Consents and Approvals

  	
  33

  
	
   

  	
   

  	
   

  
	
  SECTION 4.04

  	
  Investment Purpose

  	
  34

  
	
   

  	
   

  	
   

  
	
  SECTION 4.05

  	
  Financing

  	
  34

  
	
   

  	
   

  	
   

  
	
  SECTION 4.06

  	
  Brokers

  	
  34

  
	
   

  	
   

  	
   

  
	
  SECTION 4.07

  	
  Specified Investors; Cannery Casino Resorts

  	
  34

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  ADDITIONAL AGREEMENTS

  	
  34

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01

  	
  Conduct of Business Prior to the Closing

  	
  34

  
	
   

  	
   

  	
   

  
	
  SECTION 5.02

  	
  Access to Information

  	
  35

  
	
   

  	
   

  	
   

  
	
  SECTION 5.03

  	
  Books and Records

  	
  36

  
	
   

  	
   

  	
   

  
	
  SECTION 5.04

  	
  Governmental Approvals and Consents; Application
  Fee; Closing Conditions

  	
  36

  
	
   

  	
   

  	
   

  
	
  SECTION 5.05

  	
  Confidentiality

  	
  41

  
	
   

  	
   

  	
   

  
	
  SECTION 5.06

  	
  Use of Magna Name

  	
  42

  
	
   

  	
   

  	
   

  
	
  SECTION 5.07

  	
  Investigation

  	
  43

  
	
   

  	
   

  	
   

  
	
  SECTION 5.08

  	
  Limited Non-Compete

  	
  43

  
	
   

  	
   

  	
   

  
	
  SECTION 5.09

  	
  Remediation

  	
  44

  
	
   

  	
   

  	
   

  
	
  SECTION 5.10

  	
  No Negotiation

  	
  45

  
	
   

  	
   

  	
   

  
	
  SECTION 5.11

  	
  Title

  	
  45

  
	
   

  	
   

  	
   

  
	
  SECTION 5.12

  	
  Further Action

  	
  46

  
	
   

  	
   

  	
   

  
	
  SECTION 5.13

  	
  Excluded Items

  	
  46

  
	
   

  	
   

  	
   

  
	
  SECTION 5.14

  	
  Estoppels

  	
  46

  

 

ii

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  SECTION 5.15

  	
  Cooperation in Preparation of Alternative
  Application

  	
  46

  
	
   

  	
   

  	
   

  
	
  SECTION 5.16

  	
  Financial Statements

  	
  46

  
	
   

  	
   

  	
   

  
	
  SECTION 5.17

  	
  Separation

  	
  48

  
	
   

  	
   

  	
   

  
	
  SECTION 5.18

  	
  Notification

  	
  48

  
	
   

  	
   

  	
   

  
	
  SECTION 5.19

  	
  Environmental Report

  	
  48

  
	
   

  	
   

  	
   

  
	
  SECTION 5.20

  	
  XpressBet Matters

  	
  48

  
	
   

  	
   

  	
   

  
	
  SECTION 5.21

  	
  [Reserved]

  	
  49

  
	
   

  	
   

  	
   

  
	
  SECTION 5.22

  	
  Phase I

  	
  49

  
	
   

  	
   

  	
   

  
	
  SECTION 5.23

  	
  Slot Machine Taxes

  	
  49

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  EMPLOYEE MATTERS

  	
  49

  
	
   

  	
   

  	
   

  
	
  SECTION 6.01

  	
  Arrangements; Payroll Obligations

  	
  49

  
	
   

  	
   

  	
   

  
	
  SECTION 6.02

  	
  Benefit Plans and Transferred Employee Related
  Obligations

  	
  50

  
	
   

  	
   

  	
   

  
	
  SECTION 6.03

  	
  Intentionally Omitted

  	
  50

  
	
   

  	
   

  	
   

  
	
  SECTION 6.04

  	
  Intentionally Omitted

  	
  51

  
	
   

  	
   

  	
   

  
	
  SECTION 6.05

  	
  Employee Benefits Indemnity

  	
  51

  
	
   

  	
   

  	
   

  
	
  SECTION 6.06

  	
  Third-Party Claims

  	
  51

  
	
   

  	
   

  	
   

  
	
  SECTION 6.07

  	
  Survival

  	
  51

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  TAX MATTERS

  	
  52

  
	
   

  	
   

  	
   

  
	
  SECTION 7.01

  	
  Indemnity

  	
  52

  
	
   

  	
   

  	
   

  
	
  SECTION 7.02

  	
  Returns and Payments

  	
  53

  
	
   

  	
   

  	
   

  
	
  SECTION 7.03

  	
  Refunds

  	
  53

  
	
   

  	
   

  	
   

  
	
  SECTION 7.04

  	
  Contests

  	
  54

  
	
   

  	
   

  	
   

  
	
  SECTION 7.05

  	
  Time of Payment

  	
  55

  
	
   

  	
   

  	
   

  
	
  SECTION 7.06

  	
  Cooperation and Exchange of Information

  	
  55

  
	
   

  	
   

  	
   

  
	
  SECTION 7.07

  	
  Conveyance Taxes

  	
  55

  
	
   

  	
   

  	
   

  
	
  SECTION 7.08

  	
  Miscellaneous

  	
  56

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  CONDITIONS TO CLOSING

  	
  56

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01

  	
  Conditions to Obligations of All Parties

  	
  56

  

 

iii

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  SECTION 8.02

  	
  Conditions to Obligations of Seller

  	
  57

  
	
   

  	
   

  	
   

  
	
  SECTION 8.03

  	
  Conditions to Obligations of Purchaser

  	
  58

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  INDEMNIFICATION

  	
  61

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01

  	
  Survival

  	
  61

  
	
   

  	
   

  	
   

  
	
  SECTION 9.02

  	
  Indemnification by Purchaser

  	
  61

  
	
   

  	
   

  	
   

  
	
  SECTION 9.03

  	
  Indemnification by Seller

  	
  63

  
	
   

  	
   

  	
   

  
	
  SECTION 9.04

  	
  Indemnification Procedures, Etc

  	
  69

  
	
   

  	
   

  	
   

  
	
  SECTION 9.05

  	
  Payments

  	
  72

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
  TERMINATION, AMENDMENT AND WAIVER

  	
  72

  
	
   

  	
   

  	
   

  
	
  SECTION 10.01

  	
  Termination

  	
  72

  
	
   

  	
   

  	
   

  
	
  SECTION 10.02

  	
  Effect of Termination

  	
  74

  
	
   

  	
   

  	
   

  
	
  SECTION 10.03

  	
  Waiver

  	
  74

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
  GENERAL PROVISIONS

  	
  74

  
	
   

  	
   

  	
   

  
	
  SECTION 11.01

  	
  Expenses; Pro-rations

  	
  74

  
	
   

  	
   

  	
   

  
	
  SECTION 11.02

  	
  Notices

  	
  75

  
	
   

  	
   

  	
   

  
	
  SECTION 11.03

  	
  Public Announcements

  	
  76

  
	
   

  	
   

  	
   

  
	
  SECTION 11.04

  	
  Headings

  	
  76

  
	
   

  	
   

  	
   

  
	
  SECTION 11.05

  	
  Severability

  	
  76

  
	
   

  	
   

  	
   

  
	
  SECTION 11.06

  	
  Entire Agreement

  	
  76

  
	
   

  	
   

  	
   

  
	
  SECTION 11.07

  	
  Assignment

  	
  77

  
	
   

  	
   

  	
   

  
	
  SECTION 11.08

  	
  No Third-Party Beneficiaries

  	
  77

  
	
   

  	
   

  	
   

  
	
  SECTION 11.09

  	
  Amendment

  	
  77

  
	
   

  	
   

  	
   

  
	
  SECTION 11.10

  	
  Governing Law; Jurisdiction; Service of Process

  	
  77

  
	
   

  	
   

  	
   

  
	
  SECTION 11.11

  	
  WAIVER OF JURY TRIAL

  	
  77

  
	
   

  	
   

  	
   

  
	
  SECTION 11.12

  	
  Counterparts

  	
  77

  
	
   

  	
   

  	
   

  
	
  SECTION 11.13

  	
  Specific Performance

  	
  77

  
	
   

  	
   

  	
   

  
	
  SECTION 11.14

  	
  Prevailing Party

  	
  77

  

 

iv

 

	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit 1.01A

  	
   

  	
  Form of Note 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

  
	
   

  	
   

  	
   

  
	
  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.

 

“Consummation Date”
shall have the meaning assigned to such term in the Note Agreement.

 

1

 

“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 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.

 

“ERISA Affiliate”
shall have the meaning assigned to such term in the Note Agreement.

 

“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.

 

2

 

“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., MID
Islandi SF, MECPenn, MLR, WTA, Remington Park, Inc. and GPRA Thoroughbred
Training Center, Inc., as amended, restated or modified from time to time.

 

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

 

“Holdback Documents”
means the Holdback Agreement, the Escrow Agreement, the Escrow Security (as
defined in the Holdback Agreement), any other documents entered into in
replacement or substitution thereof and any other documents or instruments
executed and delivered in connection therewith.

 

“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.

 

“Lease” means the
Lease Agreement, dated as of July 22, 2003, as modified by that certain Lease
Renewal, dated as of July 30, 2004, as further modified by that certain Lease
Renewal, dated as of March 3, 2005 by and between MEC Penn, as tenant, and D.
Fuchs Enterprises, LLC, as landlord.

 

3

 

“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
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, as amended, restated or
modified from time to time.

 

“MID Loan Documents”
means the Magna Loan Documents (as defined in the Note Agreement).

 

“Note Agreement”
means that certain Post-Closing and Note Issuance Agreement dated on or about
the Closing Date among Purchaser in its capacity as purchaser hereunder and
borrower thereunder, certain Affiliates of Purchaser, Seller in its capacity

 

4

 

as seller hereunder and agent thereunder, and the
holders of the Tranche A Note and Tranche B Note party thereto from time to
time, substantially in the form attached hereto as Exhibit 1.01A, as it
may be amended from time to time.

 

“Note Documents”
shall have the meaning assigned to such term in the Note Agreement.

 

“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.

 

“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 Note
Developments” shall have the meaning assigned to such term in the Note
Agreement.

 

5

 

“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.

 

“Repayment Date”
means the date on which (i) Purchaser shall have paid the Tranche A Note
in cash in full in accordance with its terms and (ii) the Holdback
Documents shall have been executed and delivered in accordance with
Section 3.2 of the Note Agreement in replacement of the Tranche B Note.

 

“Seller Note Certificate
Date” shall have the meaning assigned to such term in the Note Agreement.

 

“Seller Note
Developments” shall have the meaning assigned to such term in the Note
Agreement.

 

“Seller Notes”
means the Tranche A Note and the Tranche B Note.

 

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

 

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

 

“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)).

 

“Stock Transfer”
shall have the meaning assigned to such term in the Note Agreement.

 

“Stock Transfer
Trigger Date” shall mean the earlier of (i) the date on which any of the
events set forth in clauses (i)-(vi) of Section 3.10(a) of the Note Agreement
occurs

 

6

 

or (ii) the date any remedies under Section 8.2(c) of
the Note Agreement may be exercised by Seller.

 

“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.

 

“Tranche A Note”
means the Tranche A Junior Notes issued by Purchaser on the Closing Date
pursuant to the Note Agreement in an aggregate principal amount of
$175,000,000, as it may be amended or replaced from time to time in accordance
with the Note Agreement.

 

“Tranche B Note”
means the Tranche B Junior Notes issued by Purchaser on the Closing Date
pursuant to the Note Agreement in an aggregate principal amount of $25,000,000,
as it may be amended or replaced from time to time in accordance with the Note
Agreement.

 

“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

 

7

 

October 5, 2005, by and between WTA and MLR, on
the one hand, and XpressBet, Inc., on the other hand, substantially in the form
attached hereto as Exhibit 1.01F-1.

 

“XpressBet Lease
Amendment” means the First Amendment to the Lease Agreement, dated
July 15, 2005, by and between MECPenn and XpressBet, Inc., substantially
in the form attached hereto as Exhibit 1.01F-2.

 

“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, substantially in the form attached hereto
as Exhibit 1.01F-3.

 

(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)

  
	
  Applicable Local
  Authorities

  	
   

  	
  9.03(a)

  
	
  Alternative Scenario

  	
   

  	
  5.04(c)(i)

  
	
  Annual Applicable
  Amount

  	
   

  	
  9.03

  
	
  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)

  
	
  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)

  

 

8

 

	
  Term

  	
   

  	
  Section

  
	
   

  	
   

  	
   

  
	
  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)

  
	
  Indemnified Party

  	
   

  	
  9.04(a)

  
	
  Indemnifying Party

  	
   

  	
  9.04(a)

  
	
  Insured Exception

  	
   

  	
  5.11(c)

  
	
  lease

  	
   

  	
  3.19(a)

  
	
  Local Applicable Date

  	
   

  	
  9.03(a)

  
	
  Local Share Assessment
  Losses

  	
   

  	
  9.03(a)

  
	
  Local Tax Assessment
  Date

  	
   

  	
  9.03(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)

  
	
  Other Purchaser
  Materials

  	
   

  	
  5.04(e)

  
	
  Paddock Refurbishment

  	
   

  	
  3.13(e)

  
	
  Pension Survival Period

  	
   

  	
  9.03(a)(viii)

  
	
  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)

  
	
  Replacement Trigger

  	
   

  	
  5.04(d)

  
	
  RCRA

  	
   

  	
  3.12(c)

  
	
  Seller

  	
   

  	
  Preamble

  
	
  Seller Developments

  	
   

  	
  8.03(b)

  
	
  Shares

  	
   

  	
  Recitals

  
	
  Specified Notes

  	
   

  	
  5.01(c)

  
	
  Survey

  	
   

  	
  5.11(a)

  

 

9

 

	
  Term

  	
   

  	
  Section

  
	
   

  	
   

  	
   

  
	
  Tax Adjusted Local
  Share Assessment Losses

  	
   

  	
  9.03(a)

  
	
  Tax Benefit

  	
   

  	
  9.03(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

  
	
  True-Up

  	
   

  	
  9.03(a)

  
	
  WTA

  	
   

  	
  Recitals

  
	
  WTA Common Stock

  	
   

  	
  3.03

  

 

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 $200,000,000 (the “Purchase
Price”), of which (i) $175,000,000 shall be paid with the issuance of
the Tranche A Note to Seller or its permitted designee in accordance with the
Note Agreement on the Closing Date as provided in Section 2.03(c) and
(ii) $25,000,000 shall be paid with the issuance of the Tranche B Note to
Seller or its permitted designee in accordance with the Note Agreement on the
Closing Date as provided in Section 2.03(c) (in each case together with the
execution and delivery of each of the other Note Documents). 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 allocation shall be adjusted by the parties to
reflect any payments made under the Seller Notes in a manner consistent with
the initial allocation. The parties agree that the allocation determined under
this Section 2.02 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., New York 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). The Closing will occur at the offices of
O’Melveny & Myers LLP, 7 Times Square, New York, New York, or at such other
time or on such other date or at such other place as Seller and

 

10

 

Purchaser may
mutually agree upon in writing (the day on which the Closing takes place being
the “Closing Date”).

 

(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 or its permitted designee in accordance with
the Note Agreement (i) the executed Tranche A Note in an aggregate
principal amount equal to $175,000,000 and (ii) the executed Tranche B
Note in an aggregate principal amount equal to $25,000,000, in each case
together with the other Note Documents executed by each party thereto (other
than Seller).

 

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

 

11

 

principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).

 

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 or except as may arise from the
MID Loan Documents or the Note Documents, 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 (other than the Encumbrances contemplated by the MID Loan
Documents or the Note Documents).

 

(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

 

12

 

Company free and
clear of all Encumbrances (other than the Encumbrances contemplated by the MID
Loan Documents or the Note Documents), 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.

 

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 or except as may arise from the MID Loan
Documents or the Note Documents, 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
(other than the Encumbrances contemplated by the MID Loan Documents or the Note
Documents).

 

(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

 

13

 

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 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,

 

14

 

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 (other
than the Encumbrances contemplated by the MID Loan Documents or the Note
Documents) 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.

 

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

 

15

 

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 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 and except under the Note
Documents, 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 and except for entry into the Note Documents,
and the MID Forbearance Agreement, 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 and except for
entry into the Note Documents and the MID Forbearance Agreement, 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 as described in Section 5.01(c) or 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);

 

16

 

(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;

 

(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

 

17

 

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 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

 

18

 

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 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,

 

19

 

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.

 

“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,
(vi) those items set forth in Section 3.13(a) of the Company Disclosure
Schedule, or (vii) Encumbrances contemplated by the MID Loan Documents or
the Note Documents (the “Permitted Exceptions”). The Real Property will
be free and clear of all monetary Encumbrances as of the Closing, other than
Encumbrances contemplated by the MID Loan Documents or the Note Documents.
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.

 

20

 

(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.
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,

 

21

 

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 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

 

22

 

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 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

 

23

 

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 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.

 

24

 

(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.

 

(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

 

25

 

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 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,

 

26

 

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.

 

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,

 

27

 

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 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

 

28

 

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 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 other than the Note Documents and the MID Forbearance Agreement,
(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

 

29

 

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 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.

 

30

 

(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.

 

(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.

 

31

 

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 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 or any Note Documents
entered into in connection with the transactions contemplated hereby and except
under the MID Loan Documents, 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 

 

32

 

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 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, other than
Encumbrances contemplated by the MID Loan Documents or the Note Documents.

 

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,

 

33

 

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.

 

SECTION 4.05                    Financing.
Purchaser has received and has provided to Seller a commitment letter relating
to the financing of the Purchase Price. Purchaser has committed sources that
would provide it with sufficient funds to pay the Tranche A Notes on the
Consummation Date subject to the conditions contained in such commitment
letter.

 

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

 

34

 

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 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, (ii) the Excluded Subsidiaries, and (iii) one or more
notes in an aggregate amount no greater than $25,000,000 (the “Specified
Notes”), 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. In the event that Magna pays or declares
a dividend of the Specified Notes, Magna agrees that it shall, the next
Business Day and no later than one Business Day before Closing, contribute the
Specified Notes back to each of the Companies making the respective
distribution and causing each of the Companies’ net worth to be unaffected by
the distribution of the Specified Notes and the recontribution to the
Companies.

 

(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

 

35

 

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 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 and
unreasonably take any action that will have the effect of delaying, impairing
or impeding the receipt of any required approvals.

 

36

 

(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. Purchaser and Seller
agree to provide formal notice to the Commission of the change of ownership of
the Companies within 10 days after the Closing Date.

 

(c)                                  Gaming
Application.

 

(i)                                     Until
the earlier of (A) the Repayment Date and (B) the date of the Stock
Transfer, 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, until the earlier of (A) the Repayment Date
and (B) the date of the Stock Transfer, 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. Prior to the
Closing Date, Purchaser and Seller agree to discuss with the Gaming Board
whether there are any deficiencies in the MEC Items that have been provided to
the Gaming Board in respect of the Gaming Application filed by Purchaser and
Seller agrees to use its commercially reasonable efforts to remedy such
deficiencies. Seller agrees that, after the Closing Date and until the earlier
of (i) the

 

37

 

Repayment Date, and (ii) a Stock Transfer Trigger
Date, it shall use its commercially reasonable efforts to fulfill any
requirements related to the MEC Items and any other items requested from Seller
by the Gaming Board with respect to the Gaming Application filed by Purchaser.

 

(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 Closing Date. Prior to
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 under the Note Documents
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 earlier of Closing or termination of this
Agreement, Seller and Purchaser agree 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 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 thirty days after the earlier of (i) the date
on which this Agreement is terminated prior to Closing and (ii) the date
of the Stock Transfer (the earlier of clause (i) and (ii) being the
“Replacement Trigger”), Purchaser shall maintain the Gaming Application Fee. If
(i) the fee is paid by Purchaser in cash to the Gaming Board to satisfy the
requirements of the Gaming Board, (ii) a Replacement Trigger occurs,
(iii) Seller uses such fee in furtherance of its application with the Gaming
Board after such Replacement Trigger (or to the extent Seller actually receives
the benefit of such fee), and (iv) 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, then
Seller shall, to the extent Purchaser does not receive a refund of such fee
from the Gaming Board and to the extent Seller receives the benefit of such
fee, reimburse Purchaser for the Gaming

 

38

 

Application Fee
(but only to the extent Seller receives the benefit of such fee) promptly, and
in any event within 30 days of the occurrence of the circumstances set forth in
clauses (i) through (iv) above (or if Seller does not use such fee in
furtherance of its application with the Gaming Board but instead actually
receives the benefit of such fee, then within thirty days after receipt by Seller
of such benefit). To the extent that Purchaser has not received a refund of its
Gaming Application Fee, Seller agrees to use its commercially reasonable
efforts to receive the benefit from the fee should Seller or any Affiliate
pursue a gaming license and to reimburse Purchaser in accordance with the
preceding sentence to the extent of the benefit received. To the extent that
Seller intends to continue with its application with the Gaming Board after the
Replacement Trigger, Seller agrees to use commercially reasonable efforts to
replace within thirty days the Gaming Application Fee theretofore maintained by
Purchaser as expeditiously as possible after the Replacement Trigger, and to
use its commercially reasonable efforts in cooperating with Purchaser to cause
the withdrawal of such Gaming Application Fee. For the period of up to thirty
days after the Replacement Trigger during which Purchaser maintains a letter of
credit to maintain the Gaming Application Fee, Seller agrees to reimburse
Purchaser for the letter of credit fee incurred by Purchaser in maintaining
such letter of credit for such 30 day period after the Replacement Trigger (it
being understood that such reimbursement obligation shall only apply to the
extent the incurrence of such costs resulted in out of pocket expenditures by
Purchaser and equity holders of Purchaser (rather than out of pocket
expenditures by any of the Companies or any of their respective Subsidiaries)).

 

(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, upon the
termination of this Agreement for any reason other than consummation of the
transactions contemplated by this Agreement or, after the Closing, upon the
consummation of the Stock Transfer, 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 (it being understood that such reimbursement obligation shall
only apply to the extent the incurrence of such costs resulted in out of pocket
expenditures by Purchaser and equity holders of Purchaser (rather than out of
pocket expenditures by any of the Companies or any of their respective
Subsidiaries)). Purchaser shall also permit Seller to use any other plans and
materials developed or obtained by Purchaser in connection with the development
and construction of the casino or other gaming activities at the Meadows (the
“Other Purchaser Materials”); provided, however, that Seller agrees to
reimburse Purchaser for the reasonable and direct costs incurred by Purchaser
with respect to the Other Purchaser Materials used by Seller (it being
understood that such reimbursement obligation shall only apply to the extent
the incurrence of such costs resulted in out of pocket expenditures by
Purchaser and equity holders of Purchaser (rather than out of pocket
expenditures by any of the Companies or any of their respective Subsidiaries)).
In addition, Seller acknowledges that it has separate reimbursement obligations
to Purchaser pursuant to a letter dated May 24, 2006 for expenses for
other professional services.

 

39

 

(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. On and after the Closing Date and until the earlier of (i) the
Repayment Date and (ii) a Stock Transfer Trigger Date, Seller agrees to
use commercially reasonable efforts to support the application of Purchaser
under the Transaction Scenario and Seller and Purchaser agree to use
commercially reasonable efforts to obtain all necessary approvals from
Governmental Authorities for MEC Pennsylvania Racing Services, Inc. to
undertake its responsibilities under the Racing Services Agreement. After the
Closing Date, Seller agrees to provide Purchaser for filing with the Gaming
Board the information (if any) that Purchaser reasonably considers necessary,
or that the Gaming Board requests, in order to qualify Seller as a lender in
connection with the Tranche A and Tranche B Notes, and thereafter, to use its
commercially reasonable efforts to obtain the necessary approvals, if any, from
the Gaming Board to permit the Tranche A and Tranche B Notes to remain
outstanding in accordance with the terms of the Note Documents.

 

(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 Approval. 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 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 transactions.

 

(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, contract, 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. Seller
shall have no obligation under this Section 5.04(i) after a Stock Transfer
Trigger Date.

 

(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

 

40

 

such actions as
are necessary to expeditiously satisfy the closing conditions set forth in
Article VIII hereof. From the Closing Date until the earlier of (i) the
Consummation Date and (ii) a Stock Transfer Trigger Date,
(a) Purchaser shall, and Purchaser shall cause each Company and Subsidiary
to, use its respective commercially reasonable efforts to take such actions as
are necessary to cause the Consummation Date to occur, including, without
limitation, satisfying its lenders with respect to any condition imposed by the
Gaming Board in its approval for issuance of the Conditional Category 1 or
Category 1 License to WTA, and (b) Seller shall use its commercially
reasonable efforts to cooperate with Purchaser with respect thereto.

 

(k)                                  [Reserved]

 

(l)                                     Until
the earlier of (i) the Repayment Date and (ii) the date of the Stock
Transfer, 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. Until the
earlier of (i) the Repayment Date and (ii) the date of the Stock
Transfer, 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 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 5.04,
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 5.04 or 5.12; provided, however, if the Closing hereunder is
reasonably capable of occurring prior to the date identified by the Gaming
Board, then Seller shall continue to comply with its obligations under Section
5.04 and 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 5.04 or 5.12 until such time as Seller terminates the Agreement in
accordance with the provisions of Section 10.01(k) hereof.

 

SECTION 5.05                    Confidentiality.
(a) The terms of the letter agreement dated September 9, 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 Repayment Date, at which time

 

41

 

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 or if the Closing occurs but the
Repayment Date does not occur, the Confidentiality Agreement shall continue in
full force and effect.

 

(b)                                 Prior
to a Stock Transfer Trigger Date, 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); provided, further that,
so long as the Tranche A Note or Tranche B Note is outstanding, this Section
5.05(b) shall not apply to the exceptions to confidentiality set forth in
Section 10.14 of the Note Agreement.

 

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

 

42

 

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 Repayment Date, but in no event later
than 10 Business Days after such date, 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 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 (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

 

43

 

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
(i) to Thistledown (located in North Randall, Ohio) or operation of the
Meadows Facility pursuant to the Racing Services Agreement or (ii) after a
Stock Transfer Trigger Date.

 

(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 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

 

44

 

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 after the Repayment Date 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 it will complete any other matters arising under the NPDES Permit #
PA0252905 during the two years on and after the Repayment Date.

 

SECTION 5.10                    No
Negotiation. Until the earlier of (a) the Closing Date and
(b) 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 cause an ALTA survey of the
owned Real Property certified in favor of Purchaser, Seller and Title Company
(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 (i) 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 and (ii) such other
title insurance policy or policies as are required by the Note Documents.
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 and prior to the Closing, 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

 

45

 

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 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

 

46

 

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 ending prior to the Repayment Date and any shorter
period from the prior quarter end to the Repayment 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. On and after the Closing
and through the Repayment Date, Purchaser agrees to cooperate with Seller and
Seller’s Accountants in connection with the preparation of any unaudited
financial statements for any period ending on the Repayment Date, or any fiscal
quarter ending prior to the Repayment Date. To the extent that Purchaser
requires any audited financial statement for any period beginning and ending
within 2006 for which an audit has not already been prepared by Seller’s
Accountant on or prior to the Closing Date, then Seller and Purchaser shall
cooperate with Seller’s Accountants or such other accountants as are required,
if Seller’s Accountants are not able to prepare such financial statements, to
prepare audited financial statements for the requested period.

 

(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, its Affiliates or OCM HoldCo, LLC. 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 filings and 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 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

 

47

 

to due diligence
requests from financing sources; and (vi) providing customary legal
opinions to financing sources. Notwithstanding the foregoing, Seller shall not
be required to provide or prepare audited financial statements for any period
prior to January 1, 2006, other than the 2004 Audited Balance Sheet and
the 2005 Audited Financial Statements.

 

(c)                                  Purchaser
shall pay for all costs and expenses reasonably incurred by Seller after the
Closing as a result of Seller’s efforts under the last sentence of Section
5.16(a); provided that, in the event that the Repayment Date occurs, Seller
shall reimburse Purchaser for the first audit requested pursuant to the last
sentence of Section 5.16(a) for any period on or prior to the Repayment Date.
Seller shall reimburse Purchaser on the Repayment Date, and if such payment is
not made in cash, then Seller or Agent under the Note Agreement shall provide a
direction letter that permits Purchaser to retain a portion of the amount to be
paid on the Tranche A Note equal to the reimbursement owed by Seller. To the
extent that the reimbursement obligation is not known until after the Repayment
Date, Seller shall pay any reimbursable amount in cash or Purchaser may offset
the amount against any amount owed to Seller or its Affiliates under any
Transaction Document.

 

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.

 

48

 

SECTION 5.21                    [Reserved]

 

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 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                    Slot
Machine Taxes. Seller and Purchaser shall use commercially reasonable
efforts to support the interpretation by all relevant Governmental Authorities
that the local share assessment payable by each slot machine licensee under
Section 1403(b) of the Gaming Act shall not in any circumstance exceed four
percent (4%) of the gross terminal revenue from slot machines in operation at
such licensee’s facility, including amounts payable by such licensee in respect
of such local share assessment to the State Gaming Fund established by Section
1403(a) of the Gaming Act and amounts to be paid to any other Governmental
Authorities under Section 1403(c).

 

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 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

 

49

 

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.

 

(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
to the extent set forth in the Racing Services Agreement.

 

SECTION 6.03                    Intentionally
Omitted.

 

50

 

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 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.

 

51

 

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 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.

 

Purchaser shall provide Seller for its review and
comment any Tax Returns filed by or with respect to any of the Companies or any
of the Subsidiaries during the period beginning on the day after the Closing
Date and ending on the earlier of the Repayment Date and the date of the Stock
Transfer.

 

52

 

(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 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

 

53

 

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 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

 

54

 

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 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.

 

55

 

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).

 

(e)                                  In
the event that Purchaser transfers the Shares back to Seller in satisfaction of
the Notes pursuant to Section 3.10 of the Note Agreement, then Seller and
Purchaser shall treat the acquisition of the Shares by Purchaser from Seller as
being rescinded for all tax purposes and neither Seller nor Purchaser nor any
other Person shall take any position inconsistent therewith unless otherwise
required by a “determination” (as defined in Section 1313(a)(1) of the Code) or
by applicable state or local income or franchise tax law.

 

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;

 

56

 

(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 preliminary approval
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 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 and whether
or not the Repayment Date occurs;

 

(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

 

57

 

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)                                 Note
Documents. Each party to the Note Documents (other than Seller) shall have
executed and delivered each of the Note Documents and each of the conditions in
Sections 4.1 and 4.2 of the Note Agreement shall have been satisfied (or waived
in writing by Seller).

 

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

 

58

 

Seller hereunder
whether or not Purchaser proceeds with the Closing and whether or not the
Repayment Date occurs;

 

(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)                                    [Reserved]

 

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

 

(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

 

59

 

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 March 31, 2007, 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 and Purchaser shall not have received notification from the
Gaming Board or its staff that the Gaming Application filed with the Gaming
Board by Purchaser for a Conditional Category 1 license will be subject to
being declared or deemed incomplete with respect to the MEC Items and such
matters have not been rectified to the satisfaction of the Gaming Board.

 

(o)                                 [Reserved]

 

(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)                                    Note
Document Conditions. Each party to the Note Documents (other than the Loan
Parties, Parent Entites and OCM AcquisitionCo (each as defined in the Note
Agreement)) shall have executed and delivered each of the Note Documents and
each of the

 

60

 

conditions in
Sections 4.1 and 4.3 of the Note Agreement shall have been satisfied (or waived
in writing by Purchaser).

 

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 earlier of the Stock Transfer
Trigger Date and the Seller Note Certificate 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, 5.17 and 5.23 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 from the Closing Date; 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. Whether or not Purchaser or
Seller proceeds to the Repayment Date after the delivery of the Seller Note
Certificate (as defined in the Note Agreement), (i) the Seller Note
Developments and the Purchaser Note Developments, as applicable, will not
constitute a breach of representation or warranty by Seller or Purchaser,
respectively, hereunder and (ii) any breach of any representation or warranty
by Seller made under the Seller Note Certificate will not constitute a breach
of representation or warranty of Seller to the extent (a) not within the
knowledge of Seller (or not within what reasonably should have been within the
knowledge of Seller) with respect to facts and circumstances relating to any
period after the Closing Date; or (b) resulting from (1) any actions taken or
omitted to be taken by Seller, Purchaser or any of their respective Affiliates
in compliance with the terms of the Note Documents or the Transaction Documents
or (2) any actions taken or omitted to be taken by or on behalf of any of the
Companies (not within the sole or shared control of the Operator under the
Racing Services Agreement) after the Closing Date (other than activities taken
or omitted to be taken by Operator under the Racing Services Agreement) or by
or on behalf of Purchaser or any of its Affiliates (other than the Companies).

 

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), (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 and (iii) any employee benefit
plan (as defined in Section 3(3) of

 

61

 

ERISA) maintained,
sponsored or contributed to by Purchaser or any current or former ERISA
Affiliate of Purchaser (other than the Companies and their Subsidiaries),
including without limitation any multiemployer plan (as defined in Section
3(37) of ERISA). 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.

 

(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

 

62

 

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 $20,000,000 (including any amounts paid or payable by Purchaser
or any of its Affiliates under the Note Documents to the extent such amounts
are liabilities and damages that would have been payable under Section
9.02(a)(i) (other than breaches and claims under Section 2.03(c) and the
Fundamental Representations) but excluding any principal or interest payment
under the Seller Notes and any other amounts paid or payable by Purchaser or
any of its Affiliates under the Note Documents with respect to any other
liabilities and damages).

 

(d)                                 Except
as set forth in this Agreement (including the Exhibits and the Purchaser
Disclosure Schedule), the other Transaction Documents and the Note Documents,
Purchaser is not making any representation, warranty, covenant or agreement
with respect to the matters contained herein. Anything herein to the contrary
notwithstanding and except as set forth in this Agreement and the Note
Documents, 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;

 

63

 

(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.

 

(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”);

 

(vii)                           any
liability, obligation or responsibility under the Lease Agreement, including
without limitation, (A) base rent payable under the Lease or otherwise to the
landlord thereunder for any period on or prior to the Closing Date; and (B) any
penalties, damages or claims assessed by the landlord under the Lease in
connection with any default under the Lease or damage to the premises leased
under the Lease; and

 

(viii)                        any
withdrawal liability that becomes due and payable to any Multiemployer Plans
listed in Schedule 3.16(a) during the period commencing on the Closing Date and
ending on the fifth anniversary of the Closing (the “Pension Survival Period”)
by the Companies or any of their Subsidiaries; provided, however, that if
Operator (as defined in the Racing Services Agreement) terminates the Racing
Services Agreement pursuant to Sections 15.4.3, 15.4.6, 15.4.7 (to the extent
that the revocation, suspension, withdrawal or failure of renewal of any
license referenced in Section 15.4.7 is caused by act or omisssion of any Owner
(as defined in the Racing Services Agreement) or any of its Affiliates),
15.4.10, or 15.4.12 of the Racing Services Agreement , then the Pension
Survival Period shall terminate on the date of termination of Operator’s
services under the Racing Services Agreement and this indemnity shall not apply
to any withdrawal liability that becomes due and payable to any Multiemployer
Plans on and after the date of such termination or as a result of the
termination of, or as a result of any actions or omissions of Owners (as
defined in the Racing Services Agreement) or any of their Affiliates that gave
rise to the termination of, the Operator’s services under the Racing Services
Agreement pursuant to the aforementioned sections of the Racing Services
Agreement.

 

Seller and Purchaser agree that the following amounts
will annually be determined and, to the extent claimed by Purchaser and
acknowledged by Seller, shall be Agreed Upon Losses (as defined in the Holdback
Agreement), and, to the extent claimed by Purchaser (and to the extent such
claim has not become an Agreed Upon Loss or a Non-Loss (as defined in the
Holdback Agreement)), shall be Disputed Losses (as defined in the Holdback
Agreement) on each January 31 occurring within five years of the Repayment Date
and on the fifth anniversary of the Repayment Date (each a “Local Tax
Assessment Date”) in an amount equal to the lesser of (i) the Maximum
Amount then in effect, and (ii) the Annual Applicable Amount. The “Annual
Applicable Amount” for any such date means 50% of the Tax Adjusted ocal Share
Assessment Losses (i) with respect to the first January 31 occurring
after the Repayment Date, for the period (if any) from the Repayment Date to
the December 31 immediately preceding such January 31, (ii) with
respect to any subsequent January 31 occurring

 

64

 

prior to the fifth
anniversary of the Repayment Date, for the twelve-month period ending on the
immediately preceding December 31 (or, if shorter, for the period
commencing on the Repayment Date and ending on the immediately preceding
December 31), and (iii) with respect to the fifth anniversary of the
Repayment Date, for the period from the January 1 occurring the day after
the most recent December 31 described in clause (ii) above to such fifth
anniversary, as applicable. If North Strabane Township were to change its
fiscal year, then the references to December 31 in the preceding sentence
would be to the end of the new fiscal year, and the references to
January 31 would be to the month end next succeeding the new fiscal year
end.

 

The “Local Share Assessment Losses” for any period
means the positive amount, if any, calculated as follows:  (i) the local share assessment for such
period paid by Purchaser or WTA to the Applicable Local Authorities pursuant to
Section 1403(C)(3) of the Gaming Act, minus (ii) two percent (2%) of the
aggregated daily gross terminal revenue from slot machines in operation at
WTA’s gaming facility for such period as calculated by the Department of
Revenue of the Commonwealth of Pennsylvania minus (iii) the incremental
portion, if any, of such local share assessment for such period paid by
Purchaser or WTA to the Applicable Local Authorities pursuant to Section
1403(C)(3) of the Gaming Act which results from a change in law or regulation,
or interpretation thereof or from any other change thereto, in each case that
occurs after the end of the first legislative session of the Pennsylvania state
legislature following the Closing Date (the “Local Applicable Date”) minus
(iv) any Refund received in such period from any Applicable Local
Authority; provided, however, that if there is any change to Section 1403(C)(3)
of the Gaming Act or interpretation thereof prior to the Local Applicable Date,
then for purposes of calculating the Local Share Assessment Losses, the amount
in clause (i) above shall be the lesser of (a) the amount described in
clause (i) above and (b) the minimum annual dollar amount (which amount is
currently $10,000,000) required under such Section 1403(C)(3) after giving
effect to any such change (prorated if such period is less than a year), or, if
there is no minimum annual amount after giving effect to such change, then
$10,000,000 (prorated if such period is less than a year).

 

The “Tax Adjusted Local Share Assessment Losses” for
any period means the Local Share Assessment Losses for such period net of any
Tax Benefits the Companies actually recognize in the taxable year in which or
with which such period ends (“Current Tax Year”) that are directly attributable
to any Local Share Assessment Losses. For this purpose, the Companies shall be
deemed to recognize a Tax benefit (“Tax Benefit”) with respect to a taxable
year if, and to the extent that, the Companies’ cumulative liability for Taxes
through the end of such taxable year, calculated by excluding any Tax items
attributable to the Local Share Assessment Losses from all taxable years,
exceeds the Companies’ cumulative liability for Taxes through the end of such
taxable year, calculated by taking into account any Tax items attributable to
the Local Share Assessment Losses for all taxable years (to the extent
permitted by relevant Tax law and treating such Tax items as the last items
claimed for any taxable year). If the relevant income Tax return for the
Current Tax Year has not yet been filed when making the cumulative liability
for Taxes calculations described above, Taxes for the Current Tax Year shall be
reasonably estimated in those calculations. If an estimate is made pursuant to
the previous sentence, once the relevant income Tax return is filed, the
previously estimated calculation shall be finalized, and an appropriate upward
or downward adjustment to the Agreed Upon Losses shall be made at the next
Local Tax Assessment Date (the “True-Up”) (or if the income Tax return is filed
after the final Local Tax Assessment Date and the estimate is finalized after
such date, Purchaser will pay

 

65

 

to Seller or
Seller will pay to Purchaser, as appropriate, in cash an amount equal to the
True Up; provided that in the event Seller owes any True Up amount in cash
pursuant to the foregoing provision, Seller shall be required to pay Purchaser
such amount in cash only to the extent that it has previously received cash
from Releases (as defined in the Holdback Agreement) that it would not have
received but for the under estimation of taxes that resulted in such True Up
amount). The last determination of Tax Benefits shall be for the taxable year
following the last taxable year in which local share assessments attributable
to the five year period following the Repayment Date are deducted, and no
further adjustments for Tax Benefits shall be made in subsequent taxable years.
In no event shall the cumulative Tax Benefit adjustments exceed the cumulative
Local Share Assessment Losses for the five years following the Repayment Date
to which the Tax Benefits are attributable. The parties agree to act in good
faith when making the Tax Benefit calculations, to make such calculations
treating the Companies as a single taxpayer, and to not take into account any
payments made by the Companies to, or received by the Companies from, any
Affiliate of Purchaser (other than the Companies) unless such payments are de
minimis. For purposes of this paragraph, the term “Companies” shall also
include MEC Pennsylvania Food Services, Inc., MEC Racing Management, and any
other subsidiaries of any of the Companies.

 

In the event that Purchaser or any of its Affiliates
receives a Refund during or after the sixth year following the Repayment Date,
and Seller has borne a portion of the cost of the local share assessment for
the year to which the Refund is attributable because there were Local Share
Assessment Losses for such year (other than any such Refund that was deducted
pursuant to clause (iv) of the Local Share Assessment Losses calculation for
any period within such five years), Purchaser agrees to give written notice
thereof to Seller within five (5) Business Days of receipt of each Refund and
an amount equal to the following will be due from Purchaser to Seller:  (a) 50% of the lesser of (i) such
Refund amount and (ii) the Local Share Assessment Losses for the year to
which the Refund is attributable, minus (b) any Tax liability to Purchaser
related to the portion of the Refund creditable or payable to Seller pursuant
to clause (a) (the “Seller Credit”). If receipt of such Refund occurs following
the fifth anniversary of the Repayment Date, Purchaser agrees to pay the Seller
Credit to Seller in cash within fifteen days of receipt of the Refund.

 

Notwithstanding anything to the contrary contained in
this Agreement or any of the other Transaction Documents or any of the Note
Documents, Seller’s indemnification obligations under this paragraph with
respect to the Annual Applicable Amount shall only reduce the Holdback Amount
and under no circumstances is Seller or any of its Affiliates required to pay
Purchaser or any of its Affiliates any cash or any other consideration (other
than a reduction in the Maximum Amount to the extent described above).

 

“Applicable Local Authorities” means North Strabane
Township and other local authorities in Pennsylvania that are entitled to the
local share assessment paid by Purchaser or WTA pursuant to Section 1403(C)(3)
of the Gaming Act. The term shall also include the Department of Revenue and
the Treasury Department of the Commonwealth of Pennsylvania and the
Pennsylvania Department of Economic and Community Development in their
capacities or on behalf of the local authorities described in the preceding
sentence.

 

66

 

“Refund” means any rebates, reimbursements, credits,
refunds or other relief from any Applicable Local Authority credited to or paid
to Purchaser or any of its Affiliates or any grant or funding paid to Purchaser
or any of its Affiliates from any Applicable Local Authority, in each instance,
directly related to a local share assessment previously paid by Purchaser or
WTA with respect to the five years following the Repayment Date pursuant to
Section 1403(C)(3) of the Gaming Act. To the extent the “Refund” for any period
exceeds the excess, if any, of clause (i) of the definition of Local Share
Assessment Losses for such period over the sum of clauses (ii) and (iii) of the
definition of Local Share Assessment Losses for such period, then such excess
shall be deemed to be a Refund received in the next period.

 

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 $20,000,000 (including any amounts
paid or payable by Seller or any of its Affiliates under the Note Documents and
the Holdback Documents to the extent such amounts are liabilities and damages
that would have been payable

 

67

 

under Section
9.03(a)(i) (other than breaches and claims under Section 3.12 (as to
environmental matters) and the Fundamental Representations) but excluding any
amounts paid or payable by Seller or any of its Affiliates under the Note
Documents and the Holdback Documents with respect to any other liabilities and
damages).

 

(c)                                  Payments
by Seller pursuant to this Section 9.03 and Sections 6.05 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), the other Transaction Documents and the Note Documents, Seller
is not making any representation, warranty, covenant or agreement with respect
to the matters contained herein. Anything herein to the contrary
notwithstanding and except as set forth in this Agreement and the Note
Documents, 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.

 

(g)                                 Notwithstanding
anything herein or in the Racing Services Agreement to the contrary,
(i) prior to the Repayment Date, subject to the next sentence, all of the

 

68

 

indemnification
obligations of Seller and its Affiliates under this Agreement (including
without limitation under Articles VI, VII and IX hereof) and the Racing
Services Agreement (including without limitation any guaranty obligations of
Seller thereunder) shall be deferred, and Purchaser and its Affiliates shall
not be able to set off their obligations to Seller and its Affiliates against
such indemnification obligations, until the Repayment Date (and, subject to the
next sentence, no such obligations of Seller or any of its Affiliates shall be
payable prior to the Repayment Date) and (ii) on the Repayment Date, to
the extent there are Losses agreed to or proven to be payable on or prior to
the Repayment Date (pursuant to a final, nonappealable adjudication) under this
Agreement or the Racing Services Agreement, as the case may be, the obligations
with respect to any such agreed to or proven Losses shall be satisfied by a
reduction of the Tranche B Note (and thereafter, the Tranche A Note) on the
Repayment Date in an amount equal to the aggregate amount of such agreed to or
proven Losses. Notwithstanding anything herein or in the Racing Services
Agreement to the contrary, upon the earlier of the date of the Stock Transfer
and the completion of all of Seller’s rights and remedies under the Note
Agreement, neither Seller nor any of its Affiliates shall have any
indemnification obligations under this Agreement (including without limitation
under Articles VI, VII and IX hereof) or the Racing Services Agreement
(including without limitation any guaranty obligations of Seller thereunder)
other than for Losses, in each case, which have resulted in out-of-pocket
expenditures by Purchaser’s equity holders as a result of Seller’s breach of
representation, warranty or covenant under this Agreement or under the Racing
Services Agreement. Nothing in this Agreement or in any of the Transaction
Documents shall limit any rights or claims Seller or any of its Affiliates may
have under the Note Documents. Notwithstanding this Section 9.03(g), the
procedures set forth in Section 9.04 shall continue to apply to any claims that
arise prior to the Repayment Date.

 

(h)                                 Notwithstanding
anything herein or in the Racing Services Agreement to the contrary, (i)  prior to the earlier of the Repayment Date
and the Stock Transfer Trigger Date, all of the indemnification obligations of
Purchaser and its Affiliates under this Agreement (including without limitation
under Articles VI, VII and IX hereof) and the Racing Services Agreement shall
be deferred, and Seller and its Affiliates shall not be able to set off their
obligations to Purchaser and its Affiliates against such indemnification
obligations, until the earlier of the Repayment Date and the Stock Transfer
Trigger Date (and no such obligation of Purchaser or any of its Affiliates
shall be payable prior to the earlier of the Repayment Date and the Stock
Transfer Trigger Date) and (ii) on the earlier of the Repayment Date or the
Stock Transfer Trigger Date, to the extent that there are Losses agreed to or
proven to be payable on or prior to the Repayment Date or Stock Transfer
Trigger Date, as applicable, under this Agreement or the Racing Services
Agreement, as the case may be, the obligations shall be paid in cash. Nothing
in this Agreement or in any of the Transaction Documents shall limit any rights
or claims Purchaser or any of its Affiliates may have under the Note Documents.

 

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 from

 

69

 

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, other than the claims, remedies and other rights of Seller, Purchaser
and

 

70

 

their respective
Affiliates under the Note Documents, the sole and exclusive remedy of Seller or
Purchaser (as defined in 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 and subject to the claims, remedies
and other rights of Seller, Purchaser and their respective Affiliates under the
Note Documents. 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. or any of their respective Affiliates
may have under the Racing Services Agreement, the Note Documents, the Holdback
Documents, the Equity Commitment Agreement or any agreements related thereto
(including any agreements guarantying the obligations under or otherwise
lending credit support to the Holdback Documents or Equity Commitment
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 (other
than such agreements and covenants of the Companies or the Subsidiaries set
forth herein to the extent such agreements and covenants are to be performed
after the Closing). 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
(other than breaches of such agreements and covenants to be performed after the
Closing Date) or in respect of any other payments required to be made by Seller
or its Affiliates (other than the Companies or the Subsidiaries) 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, MEC Pennsylvania Racing Services, Inc. or any of their
respective Affiliates may have under the Racing Services Agreement, the Note
Documents, the Holdback Documents, the Equity Commitment Agreement

 

71

 

or any agreements
related thereto (including any agreements guarantying the obligations under or
otherwise lending credit support to the Holdback Documents or Equity Commitment
Agreement).

 

SECTION 9.05                    Payments.
Subject to Section 9.03(g), 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 or in
Section 9.03(g)) within such 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 or any indemnification
resulting in the reduction of amounts owing under the Seller Notes) 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 July 31, 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;

 

72

 

(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;

 

(g)                                 [reserved];

 

(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
July 31, 2006;

 

(j)                                     [reserved];

 

(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 July 31,
2006.

 

Time shall be of the essence in this Agreement.

 

73

 

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 second, third and fourth 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).

 

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 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 satisfied at the Closing by
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

 

74

 

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 satisfied at the Closing by 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
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 on the date delivered by hand or by
internationally recognized courier service such as Federal Express or by other
messenger (or if delivery is refused, upon presentment), or upon receipt by
facsimile transmission (without confirmation), or upon delivery by registered
or certified mail (postage prepaid, return receipt requested) to the parties
hereto 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.

 

75

 

(b)                                 if
to Purchaser:

 

PA Meadows, LLC

211 North Rampart Blvd.

Las Vegas, Nevada 89115

Facsimile: 702-507-5992

Attn:  William
Paulos

William Wortman

 

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, NV 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, the Note Documents and the Transaction Documents
constitute the entire agreement of the parties hereto with respect

 

76

 

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 Seller, but with
at least 10 Business Days’ prior written notice to Seller, may transfer or
cause to be transferred all of the equity interests of Purchaser 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

 

77

 

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.

 

78

 

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:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MAGNA ENTERTAINMENT CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title: 

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title: 

  

 

S-1Exhibit 10.14

 

CONFIDENTIAL

 

RACING
SERVICES AGREEMENT

 

among

 

MEC RACING
MANAGEMENT

 

MOUNTAIN
LAUREL RACING, INC.

 

WASHINGTON
TROTTING ASSOCIATION, INC.

 

MEC PENNSYLVANIA
RACING, INC.

 

MEC
PENNSYLVANIA FOOD SERVICE, INC.

 

and

 

MEC
PENNSYLVANIA RACING SERVICES, INC.

 

 

Dated July 26,
2006

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
   

  	
  DEFINITIONS

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
   

  	
  APPOINTMENT

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
   

  	
  RACING SERVICES

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  General

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  3.2

  	
   

  	
  Additional Covenants and
  Obligations of Operator

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  3.3

  	
   

  	
  Access to Racing Premises

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  3.4

  	
   

  	
  Cooperation in Stock
  Transfer

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
   

  	
  RESERVATION OF OWNERS’ AUTHORITY AND RIGHTS

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  Reservation of Rights

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  4.2

  	
   

  	
  Right of Inspection and
  Information

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  4.3

  	
   

  	
  Right to Take Certain Actions

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
   

  	
  TERM

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
   

  	
  COMMON SPACES

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Duty to Preserve Common
  Spaces

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  6.2

  	
   

  	
  Costs and Expenses
  Relating to Common Spaces

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  6.3

  	
   

  	
  Revenues Relating to
  Common Spaces

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
   

  	
  TABLE OF ORGANIZATION; BUSINESS PLAN; STATUS CONFERENCES

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  Submission of Table of
  Organization and Business Plan

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  7.2

  	
   

  	
  Table of Organization

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  7.3

  	
   

  	
  Annual Business Plan

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  7.4

  	
   

  	
  Approval Process

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  7.5

  	
   

  	
  Status Conferences

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
   

  	
  EMPLOYEES AND PERSONNEL

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  Employer

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  8.2

  	
   

  	
  Duties

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  8.3

  	
   

  	
  Costs and Expenses of
  Employees and Personnel

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  8.4

  	
   

  	
  Management; Compliance
  with Laws Relating to Employees

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  8.5

  	
   

  	
  Employee Policies and
  Reports

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  8.6

  	
   

  	
  Hiring of Casino Employees

  	
  22

  

 

i

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  8.7

  	
   

  	
  Employee Compensation;
  Benefits

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  8.8

  	
   

  	
  Resolution of
  Disagreements Over Employee Matters

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  8.9

  	
   

  	
  Local 137 Health Plan

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  8.10

  	
   

  	
  Gaming Employees

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
   

  	
  REPRESENTATIVES

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
   

  	
  CONSTRUCTION

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  Casino

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  10.2

  	
   

  	
  Renovated Racing Areas

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  10.3

  	
   

  	
  Consultation

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
   

  	
  CAPITAL IMPROVEMENTS/ALTERATIONS AND REPAIRS

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  11.1

  	
   

  	
  Maintenance Capital
  Replacements

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  11.2

  	
   

  	
  Racing Capital
  Replacements and Shared Capital Replacements

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  11.3

  	
   

  	
  Capital Replacements and
  Repairs Resulting From Acts of Operator

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  11.4

  	
   

  	
  Discretionary Capital
  Replacements

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  11.5

  	
   

  	
  Emergency Capital
  Replacements

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  11.6

  	
   

  	
  Legally Compelled Capital
  Replacements

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  11.7

  	
   

  	
  Implementation of Capital
  Replacements

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  11.8

  	
   

  	
  Ownership of Capital
  Replacements

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  11.9

  	
   

  	
  Capital Replacements
  During Gaming License Application Period

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
   

  	
  BANK ACCOUNT; WORKING CAPITAL; FINANCIAL STATEMENTS; ACCOUNTING

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
   

  	
  Operator’s
  Responsibilities for Pre-Existing Matters

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  12.2

  	
   

  	
  Operating Accounts

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  12.3

  	
   

  	
  Minimum Balance of the
  Operating Accounts

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  12.4

  	
   

  	
  Withdrawals; Operator’s
  Duty to Fund

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  12.5

  	
   

  	
  Operating Fee

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  12.6

  	
   

  	
  Financial Statements

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  12.7

  	
   

  	
  Right to Audit Operator

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  12.8

  	
   

  	
  Guaranty

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  12.9

  	
   

  	
  Waivers

  	
  31

  

 

ii

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 13

  	
   

  	
  MORTGAGES; DEBT ENCUMBRANCES; SUBORDINATION

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
   

  	
  Non Encumbrance

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.2

  	
   

  	
  Cooperation in Financing

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.3

  	
   

  	
  Access to Premises

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.4

  	
   

  	
  Foreclosure

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.5

  	
   

  	
  Subordination

  	
  32

  
	
   

  	
   

  	
   

  	
   

  
	
  13.6

  	
   

  	
  Estoppel Certificates

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 14

  	
   

  	
  CERTAIN REPRESENTATIONS AND WARRANTIES

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  14.1

  	
   

  	
  Authorization

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  14.2

  	
   

  	
  No Conflicts

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 15

  	
   

  	
  DEFAULT; TERMINATION; WINDING UP

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  15.1

  	
   

  	
  Default by Operator

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  15.2

  	
   

  	
  Default by Owners

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  15.3

  	
   

  	
  Curing of Certain Events
  of Defaults

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  15.4

  	
   

  	
  Termination Events

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  15.5

  	
   

  	
  Rights and Remedies Upon
  Termination

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  15.6

  	
   

  	
  Winding Up; Working
  Capital Adjustment; Transition Services

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  15.7

  	
   

  	
  Limited Termination in
  Certain Events

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 16

  	
   

  	
  CONDEMNATION AND DESTRUCTION

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  16.1

  	
   

  	
  Condemnation

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  16.2

  	
   

  	
  Destruction

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 17

  	
   

  	
  NON-COMPETITION

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 18

  	
   

  	
  INSURANCE

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  18.1

  	
   

  	
  Operator’s Insurance
  Obligations

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  18.2

  	
   

  	
  Providers; Additional
  Endorsements

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  18.3

  	
   

  	
  Insurance Policy
  Inspection

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  18.4

  	
   

  	
  Waiver of Subrogation

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 19

  	
   

  	
  INDEMNIFICATION

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  19.1

  	
   

  	
  Indemnification By
  Operator

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  19.2

  	
   

  	
  Indemnification By Owners

  	
  44

  

 

iii

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  19.3

  	
   

  	
  Indemnification in General

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  19.4

  	
   

  	
  Indemnification Procedures

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  19.5

  	
   

  	
  Payment of Indemnified
  Losses

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  19.6

  	
   

  	
  Survival

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 20

  	
   

  	
  GENERAL

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  20.1

  	
   

  	
  No Warranties

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  20.2

  	
   

  	
  Further Assurances;
  Cooperation; Return of Monies

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
  20.3

  	
   

  	
  Confidentiality

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
  20.4

  	
   

  	
  Agency

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
  20.5

  	
   

  	
  Notices

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
  20.6

  	
   

  	
  Headings

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  20.7

  	
   

  	
  No Waiver

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  20.8

  	
   

  	
  Severability

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  20.9

  	
   

  	
  Entire Agreement

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  20.10

  	
   

  	
  Force Majeure

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  20.11

  	
   

  	
  No Subcontractors

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.12

  	
   

  	
  Transfers and Assignments

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.13

  	
   

  	
  No Third-Party
  Beneficiaries

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.14

  	
   

  	
  Amendment

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.15

  	
   

  	
  Governing Law;
  Jurisdiction; Service of Process

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.16

  	
   

  	
  Waiver of Jury Trial

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  20.17

  	
   

  	
  Specific Performance

  	
  52

  
	
   

  	
   

  	
   

  	
   

  
	
  20.18

  	
   

  	
  Attorneys Fees

  	
  52

  
	
   

  	
   

  	
   

  	
   

  
	
  20.19

  	
   

  	
  Counterparts

  	
  52

  
	
   

  	
   

  	
   

  	
   

  
	
  20.20

  	
   

  	
  Reasonableness

  	
  52

  
	
   

  	
   

  	
   

  	
   

  
	
  20.21

  	
   

  	
  Note Documents

  	
  52

  

 

iv

 

CONFIDENTIAL

 

RACING SERVICES AGREEMENT

 

This
RACING SERVICES AGREEMENT (this “Services
Agreement”) is entered into as of July 26, 2006 (the “Effective Date”) by and among MEC
Pennsylvania Racing Services, Inc., a Delaware corporation (“Operator”), Mountain Laurel Racing, Inc.,
a Delaware corporation (“MLR”),
Washington Trotting Association, Inc., a Delaware corporation (“WTA”), MEC Pennsylvania Racing, Inc.,
a Pennsylvania corporation (“MECP”),
MEC Pennsylvania Food Service, Inc., a Pennsylvania corporation (“MPFS”) and MEC Racing Management (“MEM”, together with MLR, WTA, MECP and
MPFS each an “Owner” and
collectively, the “Owners”).
Each of the Operator and the Owners is referred to herein as a “Party” and collectively as the “Parties.”

 

W I T N E S S E T H :

 

WHEREAS, Operator possesses expertise in the business of operating pari-mutuel
racing facilities and off-track betting operations;

 

WHEREAS, Magna Entertainment Corp. (“Guarantor”),
a Delaware corporation and the parent corporation of Operator, entered into
that certain Stock Purchase Agreement, dated November 8, 2005, as amended
by that certain First Amendment to Stock Purchase Agreement, dated as of July 26,
2006 (as amended, the “Purchase Agreement”)
with PA Meadows, LLC (“Buyer”),
pursuant to which Guarantor sold to Buyer all of the issued and outstanding
shares of common stock of each of WTA, MLR and MECP;

 

WHEREAS, in connection with the consummation of the purchase and sale
transaction contemplated by the Purchase Agreement, Guarantor, Buyer and other
parties entered into the Post-Closing and Note Issuance Agreement dated as of
the Effective Date (the “Note Agreement”)
and the other Note Documents (as defined in the Note Agreement);

 

WHEREAS, MLR and WTA lease the Meadows Facility (as defined below) from MECP
and hold licenses authorizing them to engage in pari-mutuel racing and related
wagering (the “Racing Licenses”);

 

WHEREAS, the Meadows Facility currently contains (1) a simulcast area
with both an internal viewing area (i.e., a clubhouse area) and an external
viewing area (i.e., a grandstand) (collectively, the “Clubhouse”), (2) a racing
surface, (3) barns and backside areas, (4) a paddock, (5) a
horsemen’s lounge and (6) all other facilities necessary to conduct horse
racing operations ((1) through (6) collectively, together with all of
the properties relating to the OTBs, the “Racing
Premises”);

 

WHEREAS, Owners, directly or through MEM, also own land at One Anchor Drive,
Harmar Township, Pennsylvania, and lease or sublease the facilities set forth
on Exhibit A hereto at which off-track betting is conducted (each,
including such facilities as may be added and excluding such facilities as
may be removed in accordance with this Services Agreement, an “OTB”);

 

1

 

WHEREAS, Owners have submitted an application to the Gaming Board to obtain a
Gaming License, and the Parties have agreed to cooperate (and cause their
respective Affiliates to cooperate) with one another to pursue the Gaming
License, as further set forth in the Purchase Agreement;

 

WHEREAS, Owners intend at the Meadows Facility (1) to construct one or more
new buildings for the conduct of slot machine gaming and related entertainment
activities (the “Casino”)
and (2) after they obtain a Gaming License, to rebuild certain of the
Racing Premises, including (i) the Clubhouse, (ii) the paddock, (iii) a
horsemen’s lounge and (iv) a cash room, office space and other ancillary
facilities comparable in size and function to that existing as of the Effective
Date (the “Renovated Racing Areas”);
and

 

WHEREAS, Owners wish to retain the services of Operator to manage and operate
the racing activities, and Operator wishes to provide such services, on the
terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the covenants and conditions hereinafter set
forth to be kept and performed by Operator and Owners, the Parties agree as
follows:

 

ARTICLE 1

 

DEFINITIONS

 

“Accounting Procedures” has the meaning set forth in Section 15.6.5(a).

 

“Action” has the meaning set forth in the Purchase
Agreement.

 

“Affiliate(s)” of a
specified Person means any 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.
For purposes of this definition, “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 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. For purposes of clarity, Operator and its Affiliates
shall not be considered Affiliates of Owner and its Affiliates.

 

“Agreement” means any
oral or written contract, agreement, lease, sublease, instrument, guaranty,
commitment, arrangement or undertaking, and all modifications, amendments and
restatements thereof.

 

“Assumed Date” has the
meaning set forth in Section 11.6.2.

 

“Burdensome Legal Requirement”
means (i) with respect to an operating expense, an expense that directly
results from a new Law enacted after the Effective Date or an existing Law that
becomes applicable after the Effective Date that causes (or would be reasonably
expected to cause) Operator’s total operating expenses to increase 25% more
than a corresponding increase, if any, in Operator’s total revenues. For
purposes of determining satisfaction of the test outlined

 

2

 

in the prior sentence, the
expected increase in “expenses” or “revenue” shall be compared to “expenses”
and “revenue” as determined on a trailing twelve month basis ending on the
month in which the calculation occurs; “expenses” shall mean recurring cash
operating expenses, exclusive of interest, taxes, depreciation, amortization
and Guarantor corporate overhead charges and allocations; and “revenues” shall
be calculated in a manner consistent with revenue as reported in the financial
statements of Owners prior to the Effective Date; and (ii) with respect to
an expense relating to a Legally Compelled Capital Replacement, in accordance
with the requirements set forth in Section 11.6.1.

 

“Business Plan” has
the meaning set forth in Section 7.1.1.

 

“Buyer” has the
meaning set forth in the Recitals.

 

“Capital Replacements”
means any improvements, modifications, refurbishing, remodeling, alterations,
additions, rebuilding or renovations that are capitalized or amortized, as
opposed to expensed, in accordance with GAAP.

 

“cash” means cash and
cash equivalents.

 

“Casino” has the
meaning set forth in the Recitals. For purposes of clarity “Casino” means
Temporary Casino until such time as the permanent Casino is built, and
thereafter “Casino” shall mean the permanent Casino; provided, however
that with respect to the use of the term Casino for purposes of the definition “Racing
Operations,” “Gaming Operations,” and Sections 3.1.22, 8.10, 10.2, 10.3, and
15.4.12 Casino shall mean only the permanent Casino and not the Temporary
Casino.

 

“Claim Notice” has the
meaning set forth in Section 19.4.2.

 

“Clubhouse” has the
meaning set forth in the Recitals.

 

“Common Spaces” has
the meaning set forth in Section 6.1.

 

“Effective Date” has
the meaning set forth in the Preamble.

 

“Employees” has the
meaning set forth in Section 8.1.

 

“Environmental Law(s)”
has the meaning set forth in the Purchase Agreement.

 

“Event of Default”
means either an Event of Default by Operator or an Event of Default by Owners,
or both.

 

“Event of Default by Operator”
has the meaning set forth in Section 15.1.

 

“Event of Default by Owners”
has the meaning set forth in Section 15.2.

 

“Export” means the
transmission of audio, visual and/or data signals with respect to harness races
conducted at the Meadows Facility as part of a race meet.

 

“Force Majeure” has
the meaning set forth in Section 20.10.

 

3

 

“GAAP” means United
States generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession that are
applicable to the circumstances as of the date of determination, applied on a
consistent basis.

 

“Gaming Act” means the
Pennsylvania Race Horse Development and Gaming Act and any rules or
regulations enacted pursuant thereto, as such act and regulations are amended
from time to time.

 

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

 

“Gaming Employee” has
the meaning set forth in Section 8.10.

 

“Gaming License” means
the license to conduct slot machine gaming at the Meadows Facility pursuant to
the Gaming Act.

 

“Gaming License Application Period”
means the period beginning on the Effective Date and ending on the earlier to
occur of (i) the completion of the Second Closing (as defined in the Note
Agreement); and (ii) a Stock Transfer Event.

 

“Gaming Operations”
means the issuance of the Gaming License and the business of slot machine
gaming pursuant to the Gaming Act, the food and beverage services at the
Meadows Facility (after the opening of the Casino), all entertainment
activities (other than the Racing Operations) and all operations related to or
included therein at the Meadows Facility. No Gaming Operations will be deemed
to be commenced until after the issuance of the Gaming License.

 

“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 PHRC and the Gaming
Board.

 

“Governmental Order”
has the meaning set forth in the Purchase Agreement.

 

“Guaranteed Obligations”
has the meaning set forth in Section 12.8.

 

“Guarantor” has the
meaning set forth in the Recitals.

 

“Holdback Agreement”
has the meaning set forth in the Purchase Agreement.

 

“Holdback Amount” has
the meaning set forth in the Purchase Agreement.

 

“Import” means the
receipt at the Meadows Facility or at any OTB of audio, visual and/or data
signals with respect to races conducted as part of another Person’s race
meet including, but not limited to, thoroughbred races, quarterhorse races and
harness races.

 

4

 

“Indemnified Party”
has the meaning set forth in Section 19.3.3.

 

“Indemnifying Party”
has the meaning set forth in Section 19.3.3.

 

“Independent Accounting Firm”
has the meaning set forth in Section 15.6.5(c)(ii).

 

“Law(s)” means any and
all applicable statutes, laws, ordinances, regulations, rules, codes, orders,
decrees, other requirements and rules of law of any Governmental
Authority, country or any state, province, locality, region or area therein, or
any other jurisdiction as now or hereinafter in effect.

 

“Legally Compelled Capital
Replacements” has the meaning set forth in Section 11.6.1.

 

“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 (including Environmental Law), Action or Governmental Order and those
arising under any Agreement.

 

“Licenses” means any
and all licenses, permits, franchises, approvals, certificates, registrations,
variances, authorizations and similar rights obtained or required to be
obtained from Governmental Authorities, including, without limitation, the
Racing Licenses.

 

“Losses” has the
meaning set forth in Section 19.1.

 

“Maintenance Capital Replacements”
has the meaning set forth in Section 11.1.

 

“Meadows Facility”
means the land described on Exhibit B hereto and all facilities,
buildings, improvements and other assets located on such land from time to
time.

 

“MECP” has the meaning
set forth in the Recitals.

 

“MEM” has the meaning
set forth in the Preamble.

 

“Minimum Balance” has
the meaning set forth in Section 12.3.

 

“MLR” has the meaning
set forth in the Preamble.

 

“MPFS” has the meaning
set forth in the Preamble.

 

“Net Working Capital”
means, for purposes of Section 15.6.5, total current assets minus
total liabilities of the Racing Operations calculated in accordance with GAAP;
provided, however, that the Parties agree that any potential or actual
withdrawal liability to any Multiemployer Plan (as defined in the Purchase
Agreement) shall not be part of Net Working Capital, including, without
limitation, if GAAP were to change the current classification of withdrawal
liability.

 

“Non-Union Employees”
has the meaning set forth in Section 8.1.

 

“Note Agreement” has
the meaning set forth in the Recitals.

 

5

 

“Notice of Dispute”
has the meaning set forth in Section 15.6.5(c)(i).

 

“Operating Accounts”
has the meaning set forth in Section 12.2.

 

“Operating Standard” means
a manner of operation equivalent to

 

(i) with
respect to the treatment, handling and management of patrons and other
individuals at or around the Racing Premises or in connection with the Racing
Operations, in accordance with the standard of operations of the Gaming
Operations by Owners or their designees;

 

(ii) with
respect to amenities, functions (including, without limitation, cash handling,
security systems, License management, and administrative functions), employees
of the Racing Operations and all public access aspects of the Racing
Operations, in accordance with the operations as of the date hereof of the
racing facilities identified on Exhibit C hereto (the “Initial Standard”), with updates
consistent with industry practices, it being agreed that in the event the
average daily racing purses (based on the number of live racing days in any
given calendar year) at the Meadows Facility is equal to or greater than the
average daily racing purses (based on the number of live racing days in such
calendar year) at any other U.S. harness racing facility or facilities that has
or have an operational standard that, in the reasonable discretion of the
Owners, is higher than both facilities identified on Exhibit C,
then such other racing facility or facilities shall replace the Initial
Standard for operational purposes only, without increasing any Party’s
obligations under ARTICLE 11, which such obligations shall continue
to be measured by the Initial Standard; and

 

(iii) with
respect to the maintenance, upkeep and ordinary repair of the facilities,
building, fixtures, furniture and equipment:

 

(x) if they are visible by Casino customers in the ordinary course
of a visit to the Casino (including, but, not limited to, the tote board) but
are not a part of the Renovated Racing Areas, then in accordance with the
standard of maintenance, upkeep and ordinary repair applied to the Casino by
Owners or their designees;

 

(y) if they are not visible by Casino customers in the ordinary
course of a visit to the Casino or if they constitute part of the
Renovated Racing Areas, then in substantially the same condition as in
existence on the Effective Date, or, when and if renovated pursuant to ARTICLE 10,
in substantially the same condition as when delivered to Operator for operation;
and

 

(z) if they are located at or on the barns and “backside” area
(including, but not limited to, “backside” equipment), in accordance with past
practices but in no event less than a reasonable degree of maintenance and
upkeep;

 

provided, however, that
notwithstanding anything to the contrary set forth in this definition, prior to
the Repayment Date, the Operating Standard shall be a manner of operation
equivalent to the manner of operation consistent with past practices of Owners
prior to the Effective Date.

 

6

 

“Operator” has the
meaning set forth in the Preamble.

 

“Operator’s Accountants”
has the meaning set forth in Section 15.6.5(a).

 

“Operator’s Representative”
has the meaning set forth in ARTICLE 9.

 

“Operator’s Share” has
the meaning set forth in Section 11.6.1.

 

“Ordinary Course Termination”
has the meaning set forth in ARTICLE 5.

 

“OTB” has the meaning
set forth in the Recitals.

 

“Owner(s)” has the
meaning set forth in the Preamble.

 

“Owners’ Representative”
has the meaning set forth in ARTICLE 9.

 

“Party” or “Parties” has the
meaning set forth in the Preamble.

 

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

 

“Person(s)” means and
includes natural persons, corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures, associations, companies,
land trusts, business trusts, Indian tribes or other organizations, whether or
not legal entities, and governments and agencies and political subdivisions
thereof.

 

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

 

“Pre-Existing Liabilities”
has the meaning set forth in Section 12.1.

 

“Program” has the
meaning set forth in Section 8.4.

 

“Racing Capital Replacements”
has the meaning set forth in Section 11.2.1(c).

 

“Racing General Manager”
has the meaning set forth in ARTICLE 9.

 

“Racing Licenses” has
the meaning set forth in the Recitals.

 

“Racing Operations”
means the conduct of the harness racing business and operation at the Meadows
Facility, and the conduct of all of the business and operations at the OTBs,
and in both cases, all related wagering activity, including without limitation,
the Export and Import of signals (audio, visual and data) of harness races,
thoroughbred races and quarterhorse races and related wagering and other
related activities; provided,  however that Racing Operations excludes
food and beverage services at the Meadows Facility after the opening of the
Casino.

 

“Racing Operations Agreements”
means all Agreements now or hereafter in existence relating to the Racing
Operations. Exhibit D hereto lists the Racing Operations Agreements
as of the

 

7

 

Effective Date. For the
avoidance of doubt, this Services Agreement is not a Racing Operations
Agreement for purposes of this Services Agreement.

 

“Racing Premises” has
the meaning set forth in the Recitals.

 

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

 

“Renovated Racing Areas”
has the meaning set forth in the Recitals.

 

“Repayment Date” has
the meaning set forth in the Purchase Agreement.

 

“Seller Notes” has the
meaning set forth in the Purchase Agreement.

 

“Services Agreement”
has the meaning set forth in the Preamble.

 

“Shared Capital Replacements”
has the meaning set forth in Section 11.2.2.

 

“Statutory Capital Replacements”
has the meaning set forth in Section 11.1.

 

“Stock Transfer” has
the meaning set forth in the Note Agreement.

 

“Stock Transfer Event”
means (i) the occurrence of a Stock Transfer or (ii) Agent’s exercise
of the remedies set forth in

Section 8.2(c) of the Note Agreement.

 

“Stock Transfer Trigger Date”
has the meaning set forth in the Purchase Agreement.

 

“Table of Organization”
has the meaning set forth in Section 7.1.

 

“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 Governmental 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.

 

“Temporary Casino”
means the temporary casino that Owners intend to construct on the Meadows
Facility. The “opening” of the Temporary Casino means the first date on which
the Temporary Casino is open to the general public for slot machine gaming.

 

“Term” has the meaning
set forth in ARTICLE 5.

 

8

 

“Termination Date Net Working Capital”
has the meaning set forth in Section 15.6.5(a).

 

“Termination Date Net Working Capital
Statement” has the meaning set forth in Section 15.6.5(a).

 

“Transition Period”
has the meaning set forth in Section 15.6.6.

 

“Union Agreements”
means all existing and future collective bargaining Agreements and similar
Agreements relating to the Employees, as such Agreements may be entered
into, amended, and terminated from time to time.

 

“Union Employees” has
the meaning set forth in Section 8.1.

 

“Useful Life” has the
meaning set forth in Section 11.6.1.

 

“WTA” has the meaning
set forth in the Preamble.

 

ARTICLE 2

 

APPOINTMENT

 

Owners
appoint Operator as their exclusive agent during the Term for the management of
the Racing Operations and the Racing Premises. Operator accepts such
appointment on the terms and subject to the conditions set forth herein.

 

ARTICLE 3

 

RACING SERVICES

 

3.1                                 General. Operator shall, at its sole cost and
expense (other than as expressly set forth in this Services Agreement,
including without limitation, in ARTICLE 11), provide any and all
management services necessary for or conducive to the implementation,
servicing, operating, administration, management, supervision and direction of
the Racing Operations during the Term in accordance with the Operating Standard
and subject to the terms and conditions of this Services Agreement. Such
responsibilities and duties include, without limitation, the following, all of
which apply to the extent of the Operating Standard:

 

3.1.1                        Harness Racing Functions. Operator shall be responsible for all
racing department functions, including, without limitation, receiving stall
applications and making stall assignments, determining the qualifications and
acceptability of all horses, performing all race office and stable functions,
writing the condition and stakes books, writing the races, conducting the draws
for the races, developing and producing the daily racing programs and past
performance information, performing charting and clerk of course functions,
collecting and organizing the paddock and patrol judges, the starters,
assistant starters and gate crew, and, establishing and maintaining the liaisons
between management, on one hand, and each of the horsemen and drivers and the
organizations that represent them, on the other hand.

 

9

 

3.1.2                        Harness Racing Dates. Operator agrees to conduct no fewer than
the minimum number of harness races necessary to maintain Owners’ Racing
Licenses and necessary to maintain or obtain, as applicable, Owners’ Gaming
License. Operator agrees to cooperate with Owners with respect to scheduling
the date and times of races and any changes to such race schedule and in
obtaining any approvals as may be required by the PHRC or the horsemen’s
association relating thereto.

 

3.1.3                        Harness Track Maintenance. Operator shall be responsible for all
functions relating to track maintenance, including, without limitation, all
activities related to assuring that the dirt courses, track surfaces, and all
inner and outer rails are well-maintained and safe for the horses and drivers
and are at necessary and proper levels of condition, and taking such action as may be
necessary to shut the racing surfaces down properly for periods of time when
they are not utilized for training or racing.

 

3.1.4                        Licenses. Operator shall promptly obtain, pay for (including, without
limitation, making deposits, bonds, undertakings and the like), maintain in
full force and good standing, fully comply with, and timely file all reports,
applications, filings and certifications as required by any Law, License or
Governmental Authority or that is otherwise necessary or desirable for conduct
of the Racing Operations and for Operator to perform its obligations under
this Services Agreement. Operator shall provide Owners with copies of all
reports, applications, filings, certifications and Licenses prior to submission
for Owners’ review and approval. Operator shall also assist, at no material
expense to Operator, Owners or such third persons as Owners may determine
to become licensed, and shall take such other reasonable actions, at no
material expense to Operator, as necessary, to conduct the Gaming Operations or
construct the Casino. Owners shall retain sole ownership over all Licenses
relating to the Racing Operations and the Gaming Operations (including, without
limitation, the liquor Licenses). Operator acknowledges and agrees that
Operator, in its capacity as the operator of the Racing Operations or
otherwise, shall have no right, title or interest in or to the liquor Licenses.

 

3.1.5                        Compliance with Laws. Operator shall cause all things to be done
(or not done) in and about the Racing Premises or otherwise with respect to the
Racing Operations to comply with and prevent violation of any and all Laws and
any and all contractual obligations of Operator or, to the extent it involves
the Racing Operations, of any of the Owners.

 

3.1.6                        Purses. Subject to the rights of the horsemen under the Gaming Act and other
Laws, Operator shall be responsible for the timely payment of all racing purse
payments required to be made by Law or under any Racing Operations Agreement,
and Owners shall be responsible for paying into the Pennsylvania Race Horse
Development Fund any purse supplement payments required to be paid under Section 1405
of the Gaming Act.

 

3.1.7                        Cash Handling. Operator shall (i) establish, maintain
and supervise procedures for handling cash for the Racing Operations in
accordance with Laws and applicable Licenses, including, without limitation,
procedures relating to cash management, credit card and automatic teller
machine systems, cash reserves (including, without limitation, reserves
required on premises to pay customer wins), removing cash from all premises,
securing cash on all premises (overnight and for longer periods), transporting
cash to and from all premises, depositing cash into the appropriate Operating
Accounts, and all other procedures relating to any

 

10

 

other aspect of handling
cash, and (ii) provide reasonably detailed documentation of such cash
handling procedures and any changes thereto to the Owners for their prior
written approval, which shall not be unreasonably withheld.

 

3.1.8                        Security. Operator shall establish, maintain and supervise systems and
procedures for the security of patrons, cash and property of the Racing
Operations and shall cooperate and consult with Owners in doing the same with
respect to the Gaming Operations.

 

3.1.9                        Furniture, Fixtures and Equipment. Operator shall handle, protect and maintain
all furniture, fixtures and equipment, located at or around the Racing Premises
in a professional and responsible manner in accordance with the Operating
Standard, it being understood that all such furniture, fixtures and equipment
shall remain under the full ownership of the Owners, subject to Owners’ right
to finance and lease the same.

 

3.1.10                  General Maintenance; Cleaning; Utilities. Operator shall maintain the Racing Premises
and all operating supplies and equipment in good state of repair and condition
and cause to be made all repairs, replacements and corrections to the Racing
Premises as may be required in the normal and ordinary course of operation
of the Racing Operations, all of which must be made in the normal course of
business with due haste, without disruption of business and in a manner that
conforms to the Operating Standard. Operator shall (i) place all garbage
and other refuse relating to the Racing Operations in designated dumpsters; and
(ii) arrange, on as frequent a basis as necessary to preserve the sanitary
and first class operation of the Racing Operations, for the removal and transportation
of garbage and other refuse with a responsible waster hauler and comply with
all Laws relating to disposal and recycling of waste. Operator shall provide
for, or arrange for the provision of, the following services on the Racing
Premises (except to the extent it conflicts with the terms of an applicable
lease, in which case, Operator shall comply with such terms):  (x) water, heat, light and other utility
services, and (y) recurring services such as pest extermination,
decorating, landscaping, gardening, laundry, telephone and internet
connections, snow removal and all other customary and reasonable services.

 

3.1.11                  Notices.

 

(a)                                  Operator shall (i) promptly forward to
Owners any notice, correspondence, forms, reports and other communication received
from or delivered to any Governmental Authority relating to the Gaming License,
the Racing Operations, or Operator’s operation thereof; (ii) deliver to
Owners prompt notice of any default under or violation of any material Racing
Operations Agreement or any Agreement related to the Gaming Operations as to
which Operator develops knowledge; (iii) provide Owners with prompt notice
of any pending or, to Operator’s knowledge, threatened or contemplated action,
suit or proceeding (and provide copies of all related documents and
correspondence, if any) before or by any Governmental Authority which may have
jurisdiction over Owners or which may affect the Racing Operations or the
Gaming Operations; and (iv) promptly notify Owners of the occurrence of
any event or condition that, if not remedied, could reasonably be expected to
result in a material adverse change in the financial condition or prospects of
Owners, the Racing Operations or the Gaming Operations.

 

11

 

(b)                                 Owners shall (i) promptly forward to
Operator any notice, correspondence, forms, reports and other communication
received from or delivered to any Governmental Authority relating to the Racing
Operations; (ii) deliver to Operator prompt notice of any default under or
violation of any Racing Operations Agreement as to which Owners develop
knowledge; (iii) provide Operator with prompt notice of any pending or, to
Owners’ knowledge, threatened or contemplated action, suit or proceeding (and
provide copies of all related documents and correspondence, if any) before or
by any Governmental Authority which may have jurisdiction over Operator or
which may affect the Racing Operations; and (iv) promptly notify
Operator of the occurrence of any event or condition that, if not remedied,
could reasonably be expected to result in a material adverse change in the
financial condition or prospects of Operator or the Racing Operations.

 

3.1.12                  Employees. Operator shall manage and pay all costs and expenses associated with
the personnel of the Racing Operations in accordance with the terms and
conditions of ARTICLE 8.

 

3.1.13                  Accounting Functions; Books and Records. Operator shall perform or provide all
accounting, finance, administrative and other professional services functions
for the Racing Operations. The books and records of the Racing Operations shall
be kept by Operator in accordance with GAAP, applied on a basis consistent with
the past practices of the Owners. Operator shall cause the maintenance of all
records as are required by PHRC (other than such reports and records as are
within the sole control of Owners). During the Term and for a period of five
years after the termination of Operator’s services under this Services
Agreement, Owners and Operator, their respective representatives and agents, as
well as the Owners’ independent accounting firms, shall each have the right and
privilege of inspecting, examining and copying all such books and records upon
reasonable notice to Operator except as prohibited by law or as would waive
attorney work product privilege. During the Term and for a period of five years
after the termination of Operator’s services under this Services Agreement,
Operator shall retain the books and records (including personnel files)
relating to the Racing Operations and Operator’s services under this Services
Agreement. At the end of such five year period, at Owners’ election, Operator
shall cause to be delivered to Owners all such books and records, except as
prohibited by law or as would waive attorney work product privilege. The books
of account of the Owners shall utilize accounting systems and procedures which,
at a minimum, include a system of internal accounting controls, permit
preparation of financial statements in accordance with GAAP and are susceptible
to audit.

 

3.1.14                  Legal Functions. Operator shall perform or provide all
legal functions of the Racing Operations, subject to Owners’ rights in Sections
4.1.3,  4.1.7 and 4.1.8, and shall promptly discharge all
judgments, fines and penalties issued or rendered against or in connection with
the Racing Operations by any Governmental Authority or other Person, subject to
any rights that Operator may have under Law to appeal or contest such
judgments, fines and penalties. With respect to the defense of third party
claims made against or relating to the Racing Operations which could not
reasonably be expected to have a material adverse effect on the Gaming
Operations or Casino, Operator shall defend such claims and allow Owners a
meaningfully opportunity to participate (at their election and at their
expense) in such defense.

 

12

 

3.1.15                  Taxes and Assessments; Tax Returns. Operator shall pay prior to delinquency all
Taxes, assessments and charges of every kind whatsoever relating to the Racing
Operations through the Term, including, without limitation, Taxes, assessments
and charges arising from operation of the Racing Premises or relating to the
Racing Operations, including, without limitation, personal property, racing,
employee withholding, tips, and workers’ compensation, provided, however,
that with respect to real estate Taxes pertaining to the Meadows Facility, (i) for
the period ending on the date prior to the opening of the Temporary Casino,
Operator shall pay all such Taxes and (ii) for all periods on and after
the opening of the Temporary Casino, Operator shall pay one-half of the total
amount of all such Taxes, provided,
further, however, that with respect to such real
estate Taxes in no event shall Operator pay an amount greater than the total
amount paid or payable with respect to the Meadows Facility immediately prior
to the Closing Date (as defined in the Purchase Agreement) as such amount would
be increased from time to time in accordance with any pre-existing Laws which
are generally applicable to the properties located within the same taxing
jurisdiction as the Meadows Facility (but excluding any increases which result
from a reassessment based on the sale or development of the Meadows Facility).
Operator shall not seek any extension of time for the payment of any such
amounts without the prior written consent of Owners. Operator shall prepare for
the Owners all information and documents necessary to provide Owners with
sufficient information to prepare their Tax returns.

 

3.1.16                  Racing Operations Agreements.

 

(a)                                  Authority to Contract. Subject to this Section 3.1.16,
and except as set forth on Exhibit E hereto, Racing Operations
Agreements necessary for or conducive to the conduct of Racing Operations shall
be entered into by Operator in its own name and shall pertain solely to the
Racing Operations (although such Racing Operations Agreement may relate to
services provided to other facilities owned or managed by Affiliates of
Operator, subject to Section 3.1.16(b)). Operator may direct
in good faith Owners to enter into certain Racing Operations Agreements with
such terms and provisions thereof approved by both Operator and Owners, and
Owners shall not amend or otherwise modify such Agreements or any Agreements
listed on Exhibit E hereto, nor enter into other Racing Operations
Agreements for which Operator will be responsible under this Services Agreement
without Operator’s consent, which shall not be unreasonably withheld. Operator
shall timely make all payments required in connection with all Racing
Operations Agreements, and shall promptly reimburse Owners for expenses and
obligations related to those Agreements into which Operator has directed Owners
to enter and those Agreements set forth on Exhibit E. Unless
otherwise agreed to by Owners, Operator shall only enter into Racing Operations
Agreements (or direct Owners pursuant to the second sentence above to enter
into Agreements) if such Agreements (i) may be terminated without
penalty (other than minimal penalty) the earlier of after twelve months and the
effectiveness of the earliest possible Ordinary Course Termination; (ii) require
expenditures of less than $200,000 per year; (iii) contain no cancellation
or termination penalties greater than the amount required to be paid by
Operator (on behalf of itself or on behalf of Owners, as the case may be)
for the services or goods provided under such Agreement; and (iv) contain
no restrictions on assignability. Additionally, Operator shall perform background
checks on all parties (other than Affiliates of Operator or the Owners) to the
Racing Operations Agreements. Operator may, with Owners’ prior consent, enter
into, amend or waive any rights under any Racing Operations Agreements with any
of its Affiliates (except that simulcast Racing

 

13

 

Operations Agreements shall
not require Owner’s consent so long as they are on terms and conditions
consistent with past practice).

 

(b)                                 Shared Agreements and
Certain Assignments.
Operator agrees to use all commercially reasonable efforts, and shall cause its
Affiliates to use their respective commercially reasonable efforts, to (i) separate
Agreements pursuant to which Operator and any Affiliate of Operator may both
be entitled to receive or obliged to deliver services or other benefits, or
that otherwise relate to the Racing Operations, so that all services and other
benefits relating to the Racing Operations are subject to independent
Agreements in the name of Operator (Operator and Owner acknowledge that if a
separation of an Agreement would result in materially higher costs to Operator
for such services or benefits, that a separation would not be commercially
reasonable); and (ii) assign and transfer to Operator, or (with Owners’
consent) to Owners, all Agreements that are (x) in the name of the any
Affiliate of Operator and (y) applicable solely to the Racing Operations.

 

(c)                                  Assignment and Security
Interest in Racing Operations Agreements. At any time after the Repayment Date, Operator shall use its
commercially reasonable efforts to cause to be included in all Racing
Operations Agreements which are in Operator’s name, or which have been assigned
to Operator, a provision substantially as follows:  “This agreement is entered into by MEC
Pennsylvania Racing Services, Inc. (“MECPRS”) for the benefit of Mountain
Laurel Racing, Inc., a Delaware corporation, Washington Trotting
Association, Inc., a Delaware corporation, and each of their affiliates,
successors and assigns (the “Assignees”). MECPRS hereby irrevocably assigns and
transfers this agreement to such Assignee or such Assignee’s designee who
delivers to [INSERT NAME] a notice of assignment and assumption, effective
automatically upon receipt of such notice.” 
Operator and Owners further agree that if Operator’s services under this
Services Agreement are terminated for any reason, Owners may, but are not
obligated to, deliver such notice of assignment and assumption to all
appropriate Persons party to such Racing Operations Agreements. Operator hereby
assigns and transfers to Owners or their designees all existing and future
Racing Operations Agreements that are in Operator’s name, such assignment to be
effective upon notice of assignment and assumption to Operator by Owners or
their designees, but in no event sooner than upon termination of Operator’s
services under this Services Agreement at any time after the Repayment Date.
Operator agrees to cooperate with Owners and, after the Repayment Date, their
designees in identifying all Racing Operations Agreements and (where
applicable) delivering such notices to the appropriate Persons.

 

(d)                                 Contractual Obligations. Operator shall, on behalf of Owners and
solely for the benefit of the Racing Operations, timely pay, keep, observe and
perform all payments, terms, covenants, conditions and obligations to be
made, kept, observed or performed by it or any of the Owners (as applicable)
under any Racing Operations Agreement that is (i) entered into by
Operator; (ii) listed on Exhibit E hereto; or (iii) entered
into by Owners at the direction of Operator, provided,
that Operator shall not be responsible for the payment of rent under the lease
between MECP and Owners with respect to the Meadows Facility.

 

3.1.17                  Common Expenses. Operator and Owners agree in good faith to
use reasonable efforts to consolidate expenses and contracts for services
useful to both the Racing Operations and Gaming Operations (including, without
limitation, security systems and

 

14

 

procedures), and Operator
and Owners will apportion such consolidated expenses and obligations of
consolidated contracts in such proportion as they determine is a reasonable
allocation between Racing Operations and Gaming Operations.

 

3.1.18                  Transition Services. Operator shall provide or cause its
Affiliates to provide to Owners or their Affiliates transition services in the
event Owners elect to consolidate services useful to both the Racing Operations
and Gaming Operations.

 

3.1.19                  Marketing and Promotions. Operator shall, in accordance with the
applicable Business Plan, advertise and promote the Racing Operations. Owners
and Operator shall use reasonable efforts to coordinate marketing of the Racing
Operations and the Gaming Operations, including, without limitation, the
implementation of a player rewards system.

 

3.1.20                  OTBs. Operator shall have the right to close, suspend and open additional
off-track betting facilities subject to (i) first consulting with and
taking into consideration the opinions of the Owners’ Representative with
respect to such actions; (ii) obtaining all required approvals from
Governmental Authorities; and (iii) Owners’ prior written approval, which
shall not be unreasonably withheld, with respect to (A) any closures which
may have an adverse effect on Owners or the Gaming Operations and (B) entry
into any Agreements related to the opening of any OTB. All such newly opened
off-track betting facilities shall be deemed included on Exhibit A
hereto and be subject to all of the terms and conditions of this Services
Agreement.

 

3.1.21                  Notice of Events of Default by Operator under
this Services Agreement. If
Operator becomes aware of the occurrence of an Event of Default by Operator (or
an event which with the giving of notice or lapse of time or both would
constitute an Event of Default), Operator shall promptly furnish Owners with a
notice and statement setting forth details of such Event of Default or event
and the action which Operator has taken, is taking, or proposes to take to
correct the same. Operator’s failure to comply with the foregoing sentence
shall not be deemed to result in an Event of Default by Operator unless Owners
are materially prejudiced as a result thereof.

 

3.1.22                  Food and Beverage. After the opening of the Casino, Owners shall provide and pay for
all food and beverage services and access to parking and common areas to the
patrons and employees of the Racing Operations at the Meadows Facility in
accordance with the Operating Standard. All complimentary goods or services
dispensed by Operator shall be charged back to Operator by Owners and promptly
reimbursed. Revenues relating to all such services shall be for Owners’
account. Operator may not take or, to the extent within Operator’s duties
under this Services Agreement, omit to take any action that is reasonably
foreseeable to adversely affect any of Owners’ liquor Licenses without Owners’
prior written consent, which may be withheld in Owners’ sole discretion.
Operator shall comply with the terms of all applicable Laws respecting the
serving of alcoholic beverages, including, without limitation, the regulations
and decisions of the Pennsylvania Liquor Control Board.

 

3.1.23                  Operating Expenses. Operator shall be liable for, and shall assume
and pay, discharge and perform as and when due, all obligations and
Liabilities of the Racing Operations (including Operator’s management thereof)
arising out of or related to acts, omissions, events or occurrences that take
place during the Term.

 

15

 

3.2                                 Additional
Covenants and Obligations of Operator. During the Term of this Services Agreement, Operator shall:

 

3.2.1                        not do anything (or fail under the Operating
Standard to do anything) that materially interferes with or jeopardizes the
issuance of or the continued possession of the Gaming License, the conduct of
the Gaming Operations, the Casino, any asset related thereto or the maintenance
of the Common Spaces;

 

3.2.2                        not conduct any operations at the Meadows
Facility other than Racing Operations, except with the prior written consent of
Owners; and

 

3.2.3                        not make any dishonest statement to any
Governmental Authority with respect to the Racing Operations or the Gaming
Operations or knowingly permit any illegal wagering activities to occur on or
about the Racing Premises.

 

3.3                                 Access to
Racing Premises.
Operator shall have full use of and access to the Racing Premises during the
Term for the purpose of conducting its duties hereunder.

 

3.4                                 Cooperation
in Stock Transfer. In
the event of a Stock Transfer, the Parties shall cooperate in the conduct and
completion of the Stock Transfer.

 

ARTICLE 4

 

RESERVATION OF OWNERS’ AUTHORITY AND RIGHTS

 

4.1                                 Reservation
of Rights. All authority
and rights not expressly granted to Operator in this Services Agreement are
hereby expressly reserved and retained by Owners. Without limitation of the
foregoing, Operator shall not take any of the following actions without express
prior written consent of Owners’ Representative, the authority to take all such
actions being retained and reserved by Owners:

 

4.1.1                        execute or otherwise enter into any Agreement
in the name of, on behalf of, or otherwise binding upon, Owners or their
Affiliates, subject to Section 3.1.16;

 

4.1.2                        negotiate with or enter into any Agreement
with any labor union, horsemen’s association, or other collective bargaining
unit (or representative thereof) relating to the Racing Operations or otherwise
enter into discussions (except in the ordinary course) with such entities (or
representatives thereof) with respect to any material matter affecting Owners
rights, obligations, business or properties, including, without limitation,
discussions of proposed improvements to the Racing Premises, Statutory Capital
Replacements and other Capital Replacements, provided,
however, that Operator shall have
the reasonable opportunity to participate with Owners in material negotiations
with all labor unions, collective bargaining units and any horsemen’s
association, to the extent any of such negotiations relate to the Racing
Operations, provided, further
that Owner shall not enter into any Agreement with any labor union, horsemen’s
association, or other collective bargaining unit (or representative thereof)
relating to the Racing Operations without the prior consent of Operator, not to
be unreasonably withheld and that upon any such consent, during the Term of
this Agreement and subject to Parties’ obligations pursuant to Section 8.6,
Operator shall timely pay, keep, observe and perform

 

16

 

all payments, terms,
covenants, conditions and obligations to be made, kept, observed or performed
under such Agreement;

 

4.1.3                        commence any legal action or proceeding that (i) relates
to any Owners’ or their Affiliate’s rights or (ii) could reasonably be
expected to have a material adverse effect on the Racing Operations or the
Gaming Operations, including, without limitation, commencing any legal action
or proceeding with respect to any Agreement that Owners have a right under this
Services Agreement to approve or with respect to Owners’ or their Affiliates’
respective assets, properties or employees;

 

4.1.4                        execute any documentation as required by,
make any appearances in front of, or correspond with respect to matters with
Governmental Authorities with respect to the Racing Operations or the Racing
Licenses, in each case except to the extent (i) within the ordinary course
of business or (ii) reasonably requested by Operator, but in all cases
subject to the notice obligations set forth in Section 3.1.11(a);

 

4.1.5                        Subject to Section 3.1.16(a), terminate or cause to be terminated
Agreements (i) to which Owners or their Affiliates are party; or (ii) with
respect to which Owners have the right to approve under Section 3.1.16(a);

 

4.1.6                        recover possession of property belonging to
Owners or their Affiliates;

 

4.1.7                        settle, compromise, release or prejudice any
legal or regulatory action or proceeding by any Person relating to, or which
could reasonably be expected to have a material adverse effect on, the Gaming
Operations or the Casino;

 

4.1.8                        settle, compromise, release or prejudice any
legal or regulatory action or proceeding by any Person relating to the Racing
Operations or the Racing Premises, which could reasonably be expected to have a
material adverse effect on the Gaming Operations or Casino, provided, however,
that Owners shall not unreasonably withhold consent with respect to the
foregoing matters and Operator shall have the right to settle, compromise,
release or prejudice such claims to the extent that (i) such settlement,
compromise, release and prejudice includes no finding or admission of any
violation of Laws or rights of any Person; (ii) such settlement or
compromise has no prejudicial effect on any other claims that could reasonably
be made against Owners; and (iii) the sole relief provided is monetary
damages that are fully paid by Operator;

 

4.1.9                        make, execute or deliver on behalf of Owners
or their Affiliates any assignment for the benefit of creditors, or any
guaranty or bond;

 

4.1.10                  operate the Racing Operations or the Common
Spaces under any signage, mark or name other than as expressly approved by
Owners, provided, however, that Owners shall not
unreasonably withhold approval over any signage, mark or name that is
consistent with (i) the Operating Standard; and (ii) the existing or
planned branding, image or presentation of the Casino or Gaming Operations;

 

4.1.11                  enter into any sponsorship or similar
Agreement relating to the Racing Operations, the Racing Premises, the Gaming
Operations or the Casino;

 

17

 

4.1.12                  take any action that may materially
adversely affect any of the assets or business of any Owner;

 

4.1.13                  take any action with respect to the Casino or
the Gaming Operations or other areas of the Meadows Facility other than those
utilized in the Racing Operations; or

 

4.1.14                  use any assets or resources of the Racing
Operations for any other existing or contemplated operations of Operator or its
Affiliates other than as consistent with past practice (provided that past
practice was reasonable), provided,
further, that, (i) Operator
shall not materially interfere with the Racing Operations or Gaming Operations;
and (ii) such uses of assets and resources shall be at no liability to
Owners or their Affiliates and shall not conflict with Operator’s other duties
and obligations under this Services Agreement.

 

4.2                                 Right of
Inspection and Information.
Owners at all times shall have the right to inspect or have inspected the
conduct and operations of Operator, the Racing Operations and all areas of the
Racing Premises. Upon request, Operator shall promptly furnish Owners with all
information reasonably requested by Owners relating to this Services Agreement.

 

4.3                                 Right to
Take Certain Actions.
Should Operator fail to perform any of its obligations under this Services
Agreement and Owners reasonably believe that such failure could pose an
imminent danger to the health, safety or welfare of any individual, or could
have an imminent material adverse effect upon the Racing Operations, the Racing
Premises, the Gaming Operations or the Casino, the Owners may exercise
their rights to perform or correct Operator’s duties under this Services
Agreement provided that, to the
extent practicable, Owners shall first notify Operator and allow Operator the
opportunity to perform or correct such duty within a reasonable period of
time. In the event that (i) such notice is not practicable or Operator
fails to perform or correct its duties and (ii) Owners perform or
correct such duties, then Owners shall be promptly reimbursed by Operator for
all costs and expenses reasonably incurred in connection therewith.

 

ARTICLE 5

 

TERM

 

The
term (the “Term”) of
Operator’s services under this Services Agreement shall commence on the
Effective Date and shall continue until terminated in accordance with this
Services Agreement. On or after the fourth anniversary of the Effective Date,
either Operator or Owners may terminate such services under this Services
Agreement by giving twelve months prior written notice to the other Party. A
termination of such services under this Services Agreement pursuant to the
foregoing sentence is referred to herein as an “Ordinary
Course Termination.”  The
following Articles and Sections of this Services Agreement shall survive the
termination of Operator’s services under this Services Agreement:  fourth, fifth and sixth sentences of Section 3.1.13;
Section 3.1.16(c); Section 12.1; Section 12.7;
Section 12.8; Section 12.9; Section 15.5; Section 15.6;
Article 17; Article 19; and Article 20. All
other obligations set forth herein shall terminate upon the termination of
Operator’s services under this Services Agreement.

 

18

 

ARTICLE 6

 

COMMON SPACES

 

6.1                                 Duty to
Preserve Common Spaces.
Operator may use all spaces that are common to the operations of the
Racing Operations and the Casino (as further elaborated in the applicable
Business Plan, the “Common Spaces”)
for the purpose of fulfilling its duties and responsibilities under this
Services Agreement. In using the Common Spaces, Operator shall use due care and
take reasonable measures to preserve all Common Spaces to the same level as the
Casino. Operator shall not interfere with or obstruct the use of any
Common Spaces by Owners, authorized patrons of the Racing Operations or the
Casino, or other authorized Persons. Operator shall not and shall not permit
other Persons to erect, post, project or install any signage, bills, or other
marks on any Common Spaces without Owner’s prior written consent.

 

6.2                                 Costs and
Expenses Relating to Common Spaces. Operator shall pay for all costs and expenses related to the Common
Spaces until the opening of the Temporary Casino. Afterwards, Operator and
Owners agree in good faith to use reasonable efforts to consolidate costs and
expenses related to the operation and maintenance of the Common Spaces and
shall agree upon a fair allocation of such costs and expenses based upon the
relative use (if any) of the Common Spaces. In the event Operator and Owners
are unable to reach agreement in a timely manner with respect to a
consolidation of such costs and expenses, a neutral third party arbiter shall
be mutually selected by the Parties to resolve such dispute. The costs and fees
of the neutral arbiter shall be borne equally by Owners, on one hand, and
Operator, on the other hand, and the decision of such neutral arbiter shall be
final and binding upon the Parties.

 

6.3                                 Revenues Relating
to Common Spaces.
Subject to Section 3.1.22, Owners shall be entitled to collect and
keep all proceeds and revenues resulting from the operation of the Common
Spaces, less Operator’s share of expenses as set forth in Section 6.2.

 

ARTICLE 7

 

TABLE OF ORGANIZATION; BUSINESS PLAN; STATUS CONFERENCES

 

7.1                                 Submission
of Table of Organization and Business Plan.

 

7.1.1                        Operator shall conduct Racing Operations in
the manner provided in this ARTICLE 7. Racing Operations shall be
conducted under Operator’s direction and control in conformity with a table of
organization (“Table of Organization”)
and a business plan (“Business Plan”),
each formulated as provided in this ARTICLE 7.

 

7.1.2                        Operator will submit to Owners an annual
Table of Organization and an annual Business Plan. Such submission shall occur
not later than November 30 of the year prior to the year covered by such
Table of Organization or Business Plan.

 

7.2                                 Table of
Organization. The Table
of Organization shall set forth the identity and experience of key management
personnel with respect to Operator’s operations hereunder, the departmental
organization of Operator’s operations and the responsibilities and staffing
levels of each department. The Table of Organization for 2006 is attached
hereto as Exhibit F.

 

19

 

7.3                                 Annual
Business Plan. No later
than ninety (90) days prior to the end of each year, Operator shall, in
consultation with Owners, present an initial written Business Plan detailing
mission, scope, analysis and objectives for the Racing Operations for the
upcoming year, and also setting forth estimates of income and expenses,
together with contemplated commitments, including salary and wage rates in all
job classifications, with respect to Racing Operations, and racing dates and
schedules and all other tasks necessary to conduct the Racing Operations in
accordance with the Operating Standard. The Business Plan for 2006 is attached
hereto as Exhibit G. Operator agrees to draft the Business Plan in
accordance with the following standards: 
(i) reasonableness of the provision for revenues and expenditures
and consistency with past practice at the Meadows Facility and (ii) reasonable
consistency with the proposed Table of Organization for the year. The Parties
agree that the Business Plan for each year during the Gaming License
Application Period shall reflect only the Capital Replacements that comply with
Section 11.9 hereof.

 

7.4                                 Approval
Process. Owners shall
have the right to approve, which such approval shall not be unreasonably
withheld, any aspect of a Business Plan to the extent that such aspect (i) is
inconsistent with past practices (provided such past practice is consistent
with the Operating Standard); (ii) could reasonably be expected to have a
material adverse effect on or be materially inconsistent with the Gaming
Operations or the Casino; (iii) could reasonably be expected to require
anything more than minimal expenditures by Owners or their Affiliates (other
than expenditures expressly required under this Services Agreement); or (iv) specifically
relates to the advertisement, marketing or promotion of alcoholic beverages.
Owners shall provide Operator their written approval or disapproval (including
written comments setting forth in reasonable detail the reasons for Owners’
disapproval, if any) of such aspects of the Business Plan not later than thirty
(30) days after Owners’ receipt of such plan. If Owners disapprove or raise any
objections to any such portion of a proposed annual Business Plan or any
revisions thereto, Owners and Operator will meet and cooperate in good faith to
discuss and resolve the disputed or objectionable proposed items. If Owners and
Operator are not able to agree on any such disputed or objectionable item within
a period of thirty (30) days after the date Owners provide written notice of
their objections to Operator, then Owners’ decision with respect to the dispute
will govern the disputed or objectionable item. Such final operating plan will
be the approved Business Plan for the year in question. Pending Operator’s
receipt of Owners’ approval of a plan pursuant to this Section 7.4,
Operator shall be entitled to operate in accordance with the prior year’s plan.
All Business Plans shall comply with all Laws, including, without limitation,
the Gaming Act and the Pennsylvania Act. Operator shall operate the Racing
Operations in substantial conformance with the terms of the then current Table
of Organization and Business Plan, as amended from time to time in accordance
with this Services Agreement. Operator shall have the right in its discretion
to unilaterally amend the current Table of Organization or Business Plan; provided,
that Operator shall give the Owners notice of such amendment and provided,
further if the result of such amendment would result in a change in an
aspect of the Business Plan that would have required the consent of the Owner
pursuant to the first sentence of this Section 7.4 had it been part of
the original Business Plan, then such amendment may not become effective
without the approval of the Owner, which shall not be unreasonably withheld.
Should the Business Plan for any reason become inadequate to maintain (or
otherwise inconsistent with) the Operating Standard, Owners may request in
good faith that Operator make changes in and to the operation of the Racing
Operations as may be necessary or desirable for operation in accordance
with the Operating Standard and consistent with the standard set forth in

 

20

 

the first sentence of this Section 7.4  Operator shall keep Owners informed about all
material aspects of the Racing Operations and any material variation from the
applicable Business Plan.

 

7.5                                 Status
Conferences. On a monthly basis,
or at such other time intervals as Owners and Operator mutually agree upon,
Operator shall meet with Owners to discuss the performance of the Racing
Operations over the prior month or other relevant period and Operator’s plans
and expectations for the ensuing month.

 

ARTICLE 8

 

EMPLOYEES AND PERSONNEL

 

8.1                                 Employer. The employees engaged in the Racing
Operations who are subject to collective bargaining agreements (the “Union Employees”) shall be employed by
Owners, and all other employees and personnel engaged in the Racing Operations
shall be employed by Operator (the “Non-Union
Employees,” together with the Union Employees, the “Employees”).

 

8.2                                 Duties. Operator shall be responsible for all
matters relating to the Employees. Without limitation of the foregoing, Operator
shall hire, perform background checks on, train, supervise, monitor,
relocate, discharge, perform all HR and payroll functions (including,
without limitation, payroll tax deductions, filings and similar matters) with
respect to, and determine and administer the compensation and benefits of, and
maintain personnel records regarding the Employees, in each case in accordance
with the terms and conditions of this Services Agreement and the applicable
Union Agreements. Operator shall not hire or employ as a general manager of, or
in any other managerial or supervisory position related to, the Racing
Operations anyone with respect to whom the Owners’ Representative reasonably
objects by reason of (i) documented and repeated inadequate performance,
or (ii) actions or omissions of such individual that a reasonable person
could conclude have jeopardized or will jeopardize any of Owners’ Licenses
(including, without limitation, liquor Licenses). Operator shall use reasonable
efforts to hire only competent and trustworthy Employees and effectively
communicate the Operating Standard to all Employees, and Operator shall use its
reasonable efforts to maintain the Racing Operations free and clear of any
dishonesty or any reprehensible acts or conduct that would in any way reflect
adversely upon Owners, the Racing Operations, the Gaming Operations or the
Casino.

 

8.3                                 Costs and
Expenses of Employees and Personnel. All costs and expenses related to the employment of the Employees
shall be borne entirely by Operator (and not in any way by Owners or their
Affiliates), including, without limitation, (i) salary, wages, overtime,
bonuses, health and welfare contributions (including, without limitation,
pursuant to Union Agreements), social security, severance and all other compensation
and benefits and (ii) claims, costs and expenses related to medical and
dental insurance, COBRA coverage, workers’ compensation insurance and claims,
work injuries or accidents and assessments, premiums and other Taxes.

 

8.4                                 Management;
Compliance with Laws Relating to Employees. Operator shall have primary operational
authority over the Employees (including, without limitation, with respect to
new hires and terminations), provided,
however, that Operator shall (i) comply
with all Laws relating to employment and hiring and shall provide and maintain
a lawful, reasonably

 

21

 

safe, healthy and
harassment-free work environment for the Employees and (ii) shall adopt
appropriate training and compliance programs to ensure such compliance and in
order to facilitate a productive and efficient work environment. Without
limitation of the foregoing, Operator shall develop and implement an effective
alcohol awareness program (the “Program”)
that is acceptable to Owners and designed to train Employees and agents of the
Racing Operations to serve alcohol in a safe and responsible manner. All such
Employees and agents who are involved in the service of alcohol must, prior to
serving alcohol, attend the Program and execute a certificate evidencing his or
her attendance of the Program. Operator shall provide Owners with such
certificates of Program attendance of any and all such Employees and agents and
shall continue to provide Owners on a quarterly basis certificates of Program
attendance with respect to any new Employees or agents of the Racing Operations
who serve alcohol. The ongoing obligations of Operator to implement and
maintain the Program shall cease with respect to the Meadows Facility upon the
opening of the permanent Casino.

 

8.5                                 Employee
Policies and Reports. No
later than ten (10) days after the Effective Date and on an annual basis
thereafter, Operator shall submit to Owners a copy of Operator’s personnel
policies and procedures applicable to the Employees. All such policies and
procedures shall comply with Law. The Employees will be subject at all times to
such policies and procedures, and Operator shall administer such policies and
procedures and ensure the Employees’ compliance therewith. Operator shall provide
to Owners quarterly updates to the Table of Organization and supporting
quarterly reports summarizing with respect to each Employee any significant
change (in performance or work assignment, department, location, etc.) since
the previous report or, in the case of the initial report, since the Effective
Date. Operator shall deliver to Owners reasonably prompt notice of the
termination of employment of any Employee. Operator shall promptly provide all
information and documents reasonably requested by Owners relating to any of the
Employees. Owners and their representatives shall have the right to conduct
investigative procedures in respect of all personnel of the Racing Operations
prior to or at any time after the hiring thereof.

 

8.6                                 Hiring of
Casino Employees. Owners
agree that, with regard to the requirements of Article 25 of the Union
Agreement with HERE Local No. 57 that ends on November 4, 2005
(restaurant employees) and Article 26 in the Union Agreement with Sports
Arena Employees Local No. 137 that ends on March 31, 2006 (and any
similar provisions in any agreements replacing such Union Agreements or in any
other Union Agreements entered into on or after the date hereof), if gaming or
gambling devices are operated at the Meadows Facility, then Owners will, and
will cause their Affiliates to, honor the requirements of such provisions with
respect to potential employment in the Gaming Operations on or after the
Effective Date. Furthermore, Owners or any of their Affiliates will observe the
terms and conditions of the respective Union Agreements mentioned in this Section 8.6
to the extent applicable to any employees hired for the Gaming Operations.
Owners agree that they will, and will cause their Affiliates to, (i) comply
with any Laws requiring Owners or any such Affiliate to provide priority rights
or other preferences with respect to employment or potential employment in the
Gaming Operations to employees involved in Racing Operations (whether such
employees are employed by Owners or any of their Affiliates or by Operator or
any of its Affiliates) and (ii) provide, to the extent consistent with
applicable Union Agreements, such priority rights or other preferences with
respect to employment or potential employment in the Gaming Operations to
employees involved in Racing Operations who are employed by Operator or any of
its Affiliates to the same

 

22

 

extent that it is required
to provide such priority rights or such other preferences to their own employees
even if Owners and their Affiliates are not required by any Laws to do so, so
long as such employees are qualified. Operator agrees to cooperate with Owners
in connection with the foregoing provisions of this Section 8.6.

 

8.7                                 Employee
Compensation; Benefits.
Operator shall provide to the Non-Union Employees compensation and benefits
consistent with past practice; provided,
however, that nothing herein
shall be construed to mean that Operator may not amend or terminate any
particular employee benefit, compensation or incentive plan, policy or
arrangement, as long as such Employees’ compensation and benefits as a whole
are, in the reasonable opinion of the Owners, commensurate with past practice.

 

8.8                                 Resolution
of Disagreements Over Employee Matters. In
the event that Operator and Owners disagree over any matter relating to the
Non-Union Employees, after engaging in good faith discussions to resolve such
matter, the reasonable decision of the Operator shall prevail. In the event
that Operator and Owners disagree over any matter relating to the Union
Employees, after engaging in good faith discussions to resolve such matter, the
reasonable decision of the Owners shall prevail. Notwithstanding the foregoing,
in the event that Operator and Owners disagree over any matter relating to any
of the Employees involved in serving alcoholic beverages, after engaging in
good faith discussions to resolve such matter, the reasonable decision of the
Owners shall prevail.

 

8.9                                 Local 137
Health Plan. Owners will
reasonably cooperate with Operator to provide the health insurance plan
consistent with Article 9 of the Union Agreement for Non-Primary Locations
with Sports Arena Employees Local No. 137 that ends on March 31, 2007
(and any similar provisions in any replacement agreements) through the purchase
of insurance that will be purchased in the name of Owners or any of Owners’
Affiliates but provided at the cost of Operator.

 

8.10                           Gaming
Employees. Notwithstanding
anything in this Services Agreement to the contrary, if any Employee involved
in Racing Operations (whether such Employee is employed by Owners or any of
their Affiliates or by Operator or any of its Affiliates) becomes an Employee
involved in Gaming Operations or any other operations not directly related to
the Racing Operations (including without limitation food and beverage services
after the opening of the Casino) (a “Gaming
Employee”), all obligations (including without limitation
indemnification obligations) with respect to such Employee for the period from
and after the date that such Employee becomes a Gaming Employee shall be
obligations of Owners and their Affiliates and no longer the obligations of
Operator and its Affiliates.

 

ARTICLE 9

 

REPRESENTATIVES

 

Operator,
on one hand, and the Owners, on the other hand, shall each appoint one
representative (respectively, the “Operator’s
Representative” and the “Owners’
Representative”) to act as a liaison and to facilitate
communication and cooperation with respect to material matters under this
Services Agreement. Operator may treat the Owners’ Representative as

 

23

 

having full authority to
bind the Owners with respect to all material matters relating to this Services
Agreement, and the Owners may treat the Operator’s Representative as
having full authority to bind the Operator with respect to all material matters
relating to this Services Agreement, including, in each case, to providing and
receiving notices and coordinating questions regarding the Racing Operations. The
respective representatives of Owners and Operator are named on Exhibit H
hereto, and may be replaced from time to time with notice in accordance
with this Services Agreement. With respect to day-to-day operations, each Party
shall designate an on-site manager who shall have authority to make decisions
and bind its respective Party with respect to ordinary course matters. In
addition, Operator shall designate one individual (who may, but need not, be
the same individual described in the immediately preceding sentence) who shall
be responsible for the oversight and management of the operation of the Racing
Operations, including the Employees (the “Racing
General Manager”). The initial Racing General Manager is named
on Exhibit H hereto. Operator shall consult with and take into
consideration the opinions of the Owners’ Representative regarding any change
in the Racing General Manager.

 

ARTICLE 10

 

CONSTRUCTION

 

10.1                           Casino. All expenses related to the construction of
the Casino and the Renovated Racing Areas shall be the Owners’ responsibility.

 

10.2                           Renovated
Racing Areas. If the
Owners obtain the Gaming License and undertake to construct a Casino, then
Owners shall at their expense design, renovate and repair, or cause to be
designed, renovated and repaired, the Renovated Racing Areas. If the Owners
obtain the Gaming License and undertake to construct a Casino, then upon
completion of construction, they agree that the Clubhouse (i) will have
all finishings, furnishings and fixtures and other leasehold improvements
throughout of the same type and quality as used in the corresponding areas of
the Casino, minor variations in color, quality and materials excepted, and (ii) will
have a prominent separate entrance, which will be designed to be in close
proximity to a reasonable amount of parking and to at least one restaurant
within the Casino. Operator shall not be required to pay rent for any
portion of the Renovated Racing Areas, including without limitation, the “back
office” space or cash room, but Operator must bear all costs and expenses
relating to the use and operation of such spaces consistent with Operator’s
duties and obligations with respect to other areas of the Racing Premises. If
the Owners obtain the Gaming License and undertake to construct a Casino, then
upon completion of the construction, the Renovated Racing Areas will be fully
serviced by all necessary utilities, which shall be separately metered if
practicable. Owners shall be under no obligation to construct or operate a
Casino or to redesign or renovate the Renovated Racing Areas in the absence of
the construction of a Casino or the issuance of the Gaming License to the
Owners. The Parties agree and understand that the design of the Renovated
Racing Areas shall be subject to the approval of the PHRC.

 

10.3                           Consultation. Owners shall provide Operator with
reasonable consultation rights, and at Owners’ request, Operator agrees to
provide input and advice, in connection with the design and construction of the
Renovated Racing Areas and the integration of the Racing Premises into the
Casino design, but Owners’ decisions with respect to all decisions relating to

 

24

 

construction shall be final.
Owners will consult with Operator in order to, and will conduct all
construction of the Renovated Racing Areas and the Casino in such a manner as
reasonably practicable and commercially reasonable to minimize the negative
impact (including direct out of pocket expenses of Operator) that such
construction will have on the Racing Operations.

 

ARTICLE 11

 

CAPITAL IMPROVEMENTS/ALTERATIONS AND REPAIRS

 

11.1                           Maintenance
Capital Replacements. Owners
shall pay for all Capital Replacements required to maintain the (i) structure,
foundation, mechanical systems and roof of the Renovated Racing Areas, (ii) to
the extent they are located in or on the public access areas, the finishings,
furnishing, fixtures, equipment and leasehold improvements of the Renovated
Racing Areas; and (iii) equipment relating to food and beverage services,
in each case in substantially the same condition as in existence on the
Effective Date, or, when and if renovated pursuant to ARTICLE 10,
in substantially the same condition as when delivered to Operator for
operation, taking into account ordinary wear and tear (“Maintenance Capital Replacements”).
Subject to Section 11.9, each year, as part of the Business
Plan required to be delivered in that year, Operator shall prepare a budget for
proposed necessary Maintenance Capital Replacements and Shared Capital
Replacements (as defined below) for the upcoming year, including, without
limitation, all design and other specifications, which must be approved by
Owners, such approval to not be unreasonably withheld. Without limiting the
foregoing, Owners and Operator agree that when Owners or any of their
Affiliates obtain a Gaming License, the capital expenditures required pursuant
to the Gaming Act (including both the initial $5 million capital expenditure
and all subsequent amounts required by Section 1404 of the Gaming Act, the
“Statutory Capital Replacements”)
shall be the sole responsibility of Owners over the statutory period, and
Operator shall reasonably cooperate with Owners in seeking application, where
appropriate, of amounts expended in connection with Maintenance Capital
Replacements under this Services Agreement and in connection with the
construction of the Renovated Racing Areas toward satisfying such Statutory
Capital Replacement requirements as further set forth in Section 4.1.2.

 

11.2                           Racing Capital Replacements
and Shared Capital Replacements.

 

11.2.1                  Operator shall pay for all

 

(a)                                  day-to-day Capital Replacements (other than
Maintenance Capital Replacements, Statutory Capital Replacements, Shared
Capital Replacements and Legally Compelled Capital Replacements) that are
required to operate or maintain the Racing Operations in accordance with the
Operating Standard (including, without limitation, trucks, tractors and track
equipment); and

 

(b)                                 Capital Replacements (other than Maintenance
Capital Replacements, Statutory Capital Replacements, Shared Capital
Replacements and Legally Compelled Capital Replacements) that are required to
operate or maintain the Racing Operations in accordance with the Operating
Standard that both (x) relate to the finishings, furnishings, fixtures,
equipment and leasehold improvements of the Renovated Racing Areas and (y) are
not

 

25

 

 

located in or on the public
access areas (including, without limitation, telephone systems, computer
hardware and software, carpet and office furniture).

 

(c)                                  Clause (a) and (b) above are
referred to herein as the “Racing Capital
Replacements.”

 

11.2.2                  Operator, on one hand, and Owners, on the
other hand, shall allocate the cost of all significant Capital Replacements
(other than Maintenance Capital Replacements, Statutory Capital Replacements,
Racing Capital Replacements and Legally Compelled Capital Replacements) that
are required to operate or maintain the Racing Operations in accordance with
the Operating Standard (including without limitation racing surfaces, barn
structures and “tote” boards) (each, a “Shared
Capital Replacements”) as follows:  (i) Operator shall pay an amount equal
to the total cost of such Shared Capital Replacement multiplied by the Operator’s
Share (as determined in accordance with Section 11.6), and (ii) Owners
shall pay an amount equal to the total cost of such Shared Capital Replacement
minus the amount that Operator is required to pay pursuant to the foregoing
clause (i). The procedures for cost sharing shall be the same as the
Legally Compelled Capital Replacements cost sharing procedures set forth in Section 11.6.2.

 

11.3                           Capital
Replacements and Repairs Resulting From Acts of Operator. Operator shall make no material alterations
of the Racing Premises without the written consent and approval of Owners, and
Owners shall make no material alterations of the Racing Premises without the
written consent and approval of Operator. In the event any damage or injury,
other than ordinary wear and tear, is sustained to any part of the Racing
Premises by reason of the acts of Operator or Employees, then such damage will
be repaired by Operator at its expense (except to the extent the cost of repair
is covered by insurance of Operator and/or Owner, provided, that Operator shall
pay for all deductible amounts) to a condition consistent with the Racing
Premises as they existed prior to the damage. Operator is not required to
repair any damage to the Racing Premises not caused by acts of Operator or
Employees, such as damage resulting from fire, earthquake, the elements or Acts
of God or breach or gross negligence by Owners.

 

11.4                           Discretionary
Capital Replacements. Operator
may make discretionary Capital Replacements (which for greater clarity
shall exclude Maintenance Capital Replacements, Statutory Capital Replacements,
Racing Capital Replacements, Shared Capital Replacements and Legally Compelled
Capital Replacements) with respect to any Racing Premises with the prior
written approval of Owners (or, in the case of leased properties, in accordance
with the applicable leases), provided
that Operator shall pay for all such discretionary Capital Replacements and all
such discretionary Capital Replacements shall comply with Law. All Capital
Replacements relating to pari-mutuel betting devices shall be deemed to be
discretionary under this Services Agreement, and Owners shall not be required
to pay any amounts relating to such devices.

 

11.5                           Emergency
Capital Replacements. If an
emergency condition is discovered at the Meadows Facility, including, without
limitation, required structural repairs, and that condition requires immediate
repairs or Capital Replacements to protect the Meadows Facility or the health
and safety of its patrons or employees, then Operator may take all steps
and make all expenditures reasonably necessary to repair and correct the
condition. The cost of any such repairs shall be shared in accordance with the
allocations set forth in this ARTICLE 11.

 

26

 

Operator agrees that it
shall make such repairs and replacements only after Operator has made a
reasonable attempt (if circumstances permit) to inform Owners of the
existence of the emergency, the repairs and replacements Operator proposes to
make, and the estimated amount of expenditures to be incurred. If Operator is
unable to inform Owners in advance, Operator shall promptly notify Owners
after making the emergency repair.

 

11.6                           Legally
Compelled Capital Replacements.

 

11.6.1                  Cost Sharing of Legally Compelled Capital
Replacements. If Capital
Replacements to the Meadows Facility that are required to operate or maintain
the Racing Operations (other than Statutory Capital Replacements) become
required either by any new Laws that are enacted after the Effective Date or by
any existing Laws that become applicable to the Meadows Facility after the
Effective Date (“Legally Compelled Capital
Replacements”), then the Parties agree to share the total cost
of such Legally Compelled Capital Replacements as follows:  (i) Operator shall pay an amount equal
to the total cost of such Legally Compelled Capital Replacement multiplied by
the Operator’s Share (as defined below), and (ii) Owners shall pay an
amount equal to the total cost of such Legally Compelled Capital Replacement
minus the amount that Operator is required to pay pursuant to the foregoing
clause (i). “Operator’s Share”
means the fraction (x) that has as its numerator the number of actual
months from the month in which the expense of such Legally Compelled Capital
Replacement is incurred to the month in which Operator’s services under this
Services Agreement are terminated; and (y) that has as its denominator the
Useful Life (as defined below) of such Capital Replacement; provided, that in no event shall such
fraction be a number greater than 1. “Useful
Life” means the estimated life of an asset, determined in
accordance with GAAP, and measured in terms of months.

 

11.6.2                  Cost Sharing Procedures. The Parties agree to implement the
cost-sharing agreement set forth in Section 11.6.1 above as
follows:  If the Useful Life of a Legally
Compelled Capital Replacement would expire prior to the effectiveness of the
next possible Ordinary Course Termination, then Operator shall pay for the
entire cost of such Legally Compelled Capital Replacement. In all other cases,
Owners shall pay for the entire cost of such Legally Compelled Capital
Replacement, and Operator shall promptly pay to Owners an amount equal to the
total cost of such Legally Compelled Capital Replacement multiplied by the
Operator’s Share, based on the assumption that Operator’s services under this
Services Agreement shall expire on the date of effectiveness of the next
possible Ordinary Course Termination (the “Assumed
Date”). If Operator’s services are not terminated prior to or at
the Assumed Date, then Operator shall promptly pay to Owners the incremental
annual amount that Operator would have otherwise paid for each additional year
in the Term of this Services Agreement. If Operator’s services under this
Services Agreement are terminated prior to the Assumed Date or the end of any
additional year, then the amount equal to the difference between what Operator
actually paid to Owners based on the Assumed Date or the end of any additional
year and what Operator should have paid based on the actual date of termination
of Operator’s services under this Services Agreement shall be deemed a current
asset in the Termination Date Net Working Capital, it being understood that if
Operator’s services under this Services Agreement are terminated pursuant to Section 15.4.13
(in connection with a Stock Transfer Event), then Section 15.6.5
shall be inapplicable and there shall be no working capital adjustment.

 

27

 

11.6.3                  Cost Sharing Procedures for Burdensome Legal
Requirements. If the cost
sharing procedures for a Legally Compelled Capital Replacement set forth above
in Section 11.6.2 would require Operator to make an expenditure
with respect to such Legally Compelled Capital Replacement in an amount greater
than $2,000,000 multiplied by the number of years between the current date and
the effectiveness of the next possible Ordinary Course Termination, and Owners
do not elect to pay the excess, then such Legally Compelled Capital Replacement
will be deemed to be a “Burdensome Legal Requirement” and Operator may elect
to not make such expenditure and terminate Operator’s services under this
Services Agreement in accordance with Section 15.4.11. If Owners
are required pursuant to any clause of this Section 11.6 to pay an
amount that would have a material adverse effect on Owners, then such Legally
Compelled Capital Replacement will be deemed to be a “Burdensome Legal
Requirement” and Owners may elect to not make such expenditure and
terminate Operator’s services under this Services Agreement in accordance with Section 15.4.11.
If such Legally Compelled Capital Replacements are undertaken, Operator shall
consult with and obtain Owners’ approval before implementing such Legally
Compelled Capital Replacements. In all cases, Owners shall have the right, but
not obligation, to contest the validity or application of any Laws which are
the subject of this Section 11.6.

 

11.7                           Implementation
of Capital Replacements.
The implementation or construction of all Capital Replacements, repairs,
additions and changes in this ARTICLE 11 shall be overseen by Operator,
unless otherwise determined by Owners, and shall not unreasonably interfere
with the Gaming Operations or the Racing Operations. Owners’ obligations with
respect to Maintenance Capital Replacements shall be suspended during the
pendency of any Event of Default by Operator.

 

11.8                           Ownership
of Capital Replacements. All
Capital Replacements made with respect to any property that is owned by Owners
or their Affiliates shall be owned by Owners or such Affiliates. Proceeds from
the sale of any Capital Replacements that are no longer needed in the Racing
Operations or other activities of Owners shall be for the sole account of
Owners or such Affiliates. After the termination of Operator’s services under
this Services Agreement, Operator may retain those Capital Replacements which
Operator solely owns and which are portable without damaging the Racing
Premises as long as Operator delivers the Racing Operations to Owners in a
condition that allows Owners or their designees to continue operating the
Racing Operations in accordance with the Operating Standard.

 

11.9                           Capital
Replacements During Gaming License Application Period. During the Gaming License Application
Period, the Parties shall use their respective commercially reasonable efforts
to minimize all Capital Replacements relating to the Meadows Facility or the
Racing Operations (including, without limitation, Maintenance Capital
Replacements and Shared Capital Replacements).

 

28

 

ARTICLE 12

 

BANK ACCOUNT; WORKING CAPITAL; FINANCIAL STATEMENTS; 

ACCOUNTING

 

12.1                           Operator’s
Responsibilities for Pre-Existing Matters. In addition to the duties set forth in Section 3.1.23,
Operator has agreed that it shall be liable for, and shall assume and pay,
discharge and perform as and when due, all obligations and Liabilities of
the Racing Operations occurring, existing or arising prior to the Effective
Date other than those relating to Taxes and environmental matters, it being
agreed that pre-existing Taxes and environmental matters shall be governed,
respectively, by Article VII and Sections 9.03(a)(iv) and (v) of
the Purchase Agreement,  (the “Pre-Existing Liabilities”). The
Pre-Existing Liabilities shall include, without limitation, the following, in
each case occurring, existing or arising prior to the Effective Date:

 

(a)                                  any and all Liabilities set forth on the
Financial Statements delivered pursuant to Section 3.07 of the Purchase
Agreement;

 

(b)                                 any and all Liabilities arising 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 Racing Operations;

 

(c)                                  any fine, penalty, levy or assessment imposed
by any Governmental Authority with respect to the operation of the Racing
Operations;

 

(d)                                 any and all Actions by and all Liabilities
related to employees and independent contractors of the Racing Operations; and

 

(e)                                  any and all Liabilities of the Racing
Operations arising out of any Action.

 

12.2                           Operating
Accounts. Operator shall
select and establish, in the name of Operator, one or more bank accounts
(collectively, the “Operating Accounts”)
at one or more banking institutions with respect to which the Operator will be
the only Person authorized to draw upon such Operating Accounts in accordance
with the terms and conditions of this Services Agreement. All signers on the
Operating Accounts shall be bonded in an amount required by Law, indemnifying
Operator for any loss, theft, embezzlement or other fraudulent act on the part of
the signatory. Operator shall maintain the Operating Accounts in the name of
the Operator and shall at all times maintain and manage the Operating Accounts
in accordance with all Laws (including, without limitation, the Pennsylvania
Act and the Gaming Act). All proceeds, revenues and other sums received from
the operation of the Racing Operations, including amounts received for
operations prior to the Effective Date, shall be deposited, in accordance with
the Operating Standard, into the Operating Accounts (with respect to different
Operating Accounts, in proportions set out in the applicable Business Plan).
Operator may make payments pursuant to satisfying its duties under this
Services Agreement from the Operating Accounts. Operator shall in all cases
maintain proper supporting documentation for all such payments. Any payment
which would result in the Operating Account falling below the Minimum Balance
(as

 

29

 

defined below) shall require
the prior approval of Owners, which shall not be unreasonably withheld.

 

12.3                           Minimum
Balance of the Operating Accounts. Operator shall at all times cause the aggregate available funds (the “Minimum Balance”) in the Operating
Accounts to be the greater of (i) $750,000; and (ii) such amount as may be
required by Law. The Minimum Balance shall be allocated among all Operating
Accounts in the amounts set forth in the applicable Business Plan. If at any
time the aggregate available funds in the Operating Accounts fall below the
Minimum Balance, Operator agrees to immediately deposit sufficient funds
necessary to cause the Operating Accounts to meet the Minimum Balance.

 

12.4                           Withdrawals;
Operator’s Duty to Fund.
In the event that the balance of the Operating Accounts exceeds the Minimum
Balance, then Operator may withdraw for its own account amounts in excess
of the Minimum Balance from the Operating Accounts. In no event (i) will
Owners or their Affiliates be required to deliver or cause to be delivered
funds to the Operating Accounts, or otherwise to the Racing Operations or (ii) will
any amounts that Operator deposits into the Operating Accounts be deemed to be
loans made to Owners or their Affiliates.

 

12.5                           Operating
Fee. Not later than the
first day of each calendar quarter, Operator shall pay to Owners or their
designated Affiliate an amount equal to $12,500 as an operating fee for the
upcoming quarter, provided, that
for any partial quarter period, such amount shall be pro-rated based on the
number of days.

 

12.6                           Financial
Statements.

 

12.6.1                  Periodic Reports.

 

(a)                                  Monthly. No later than twenty (20) days after the end of each month, Operator
shall deliver to Owners the unaudited financial statements for that month
prepared from the books of account maintained by Operator containing: (i) a
balance sheet of the Racing Operations as of the end of that month; (ii) the
related consolidated statements of income and cash flow of the Racing
Operations for the period beginning with January then ended; and (iii) and
any other schedules, statements and reports as may be reasonably requested
from time to time by Owners.

 

(b)                                 Quarterly. No later than thirty (30) days after the end of each quarter,
Operator shall deliver to Owners the unaudited financial statements for that
quarter prepared from the books of account maintained by Operator containing: (i) a
balance sheet of the Racing Operations as of the end of that quarter; (ii) the
related consolidated statements of income and cash flow of the Racing
Operations for the period beginning with the first quarter then ended; and (iii) and
any other schedules, statements and reports as may be reasonably requested
from time to time by Owners.

 

(c)                                  Annually. Within sixty (60) days after the end of each year, Operator shall
deliver to Owners an audited balance sheet of the Racing Operations as of the
year then ended and the related consolidated statements of income and cash flow
of the Racing Operations for the year then ended, together with the report
thereon of a certified public accounting firm retained by Operator and approved
in advance by Owners. Owners agree that

 

30

 

Operator shall not be
required to audit such financial statements if Owners reasonably determine that
such audit is not reasonably necessary.

 

12.6.2                  Preparation of Periodic Reports. All financial statements required to be
prepared and delivered by Operator pursuant to Section 12.6.1 above
shall (i) be prepared in accordance with the books of account and other
financial records of the Racing Operations, (ii) present fairly the
financial condition and results of operations of the Racing Operations 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 the Owners prior to the Closing Date as defined in the Purchase
Agreement, and (iv) include all adjustments (consisting only of normal
recurring accruals) that are necessary for a fair presentation of the financial
condition of the Racing Operations and the results of the operations of the
Owners as of the dates thereof or for the periods covered thereby.

 

12.6.3                  Cost of Financial Statements. The cost of preparing all financial
statements (including an audit, if any, pursuant to Section 12.6.1)
required under this Services Agreement shall be borne by Operator.

 

12.7                           Right to
Audit Operator. Further
to Section 3.1.13, Owners shall at any time during the Term and for
five years after Operator ceases providing services under this Agreement, at
its cost, have the right to audit the books and records of Operator.

 

12.8                           Guaranty. In order to induce Owners to enter into
this Services Agreement with Operator, Guarantor, hereby unconditionally and
irrevocably guaranties to Owners and to their respective successors and assigns
the full and prompt payment when due, of (i) all obligations of Operator
now or hereafter existing under Sections 3.1.16, 3.1.18, 15.6, 20.2, 20.3, ARTICLE 12,
ARTICLE 17, ARTICLE 18 and ARTICLE 19 (collectively, the “Guaranteed Obligations”), and (ii) any
and all costs and expenses, including, without limitation, reasonable attorneys’
fees, investigative and other similar costs and expenses incurred by Owners and
the Persons described in Section 19.3.1 in successfully collecting
or enforcing the Guarantied Obligations. This guaranty given pursuant to this Section 19.3.1
is a continuing, absolute guaranty of payment and performance, and not of
collection, and shall remain in effect until the Guarantied Obligations have been
satisfied in full.

 

12.9                           Waivers. Guarantor hereby waives (i) presentment,
demand for payment and protest of nonpayment of the Guaranteed Obligations, and
notices of protest, dishonor and nonperformance, (ii) notice that credit
has been extended by Owners or the Persons described in Section 19.3.1 in
reliance on such Guarantor’s guarantee of the Guaranteed Obligations, and (iii) demand
for performance or observance (or demand for enforcement of any provision or
any pursuit or exhausting) of rights or remedies against the Operator or any
other obligor on, or guarantor of, the Guaranteed Obligations, and any
requirements of diligence or promptness on Owners’ part (or on the part of
the Persons described in Section 19.3.1) in connection therewith.
No delay or omission on Owners’ or such Person’s part in exercising any
right with respect to the Guaranteed Obligations shall operate as a waiver or
relinquishment of such right. To the extent it may lawfully do so, the
Guarantor hereby agrees to waive, and does hereby absolutely and irrevocably
waive and relinquish the benefit and advantage of, and does hereby covenant not
to assert, any appraisement, valuation, stay, extension, redemption or similar
Law, now or at any

 

31

 

time hereafter in force,
which might delay, prevent or otherwise impede the performance or enforcement
of the Guaranteed Obligations.

 

ARTICLE 13

 

MORTGAGES; DEBT ENCUMBRANCES; SUBORDINATION

 

13.1                           Non
Encumbrance. Operator
shall not mortgage or encumber the Racing Premises, including, without
limitation, the real and personal property and the furniture, fixtures and
equipment thereon.

 

13.2                           Cooperation
in Financing. Operator
agrees to fully cooperate with Owners if Owners elect to seek or obtain financing
with respect to the Racing Operations or the Gaming Operations. Operator shall
take no actions which interfere with Owners’ rights to encumber or mortgage the
Racing Premises or the Casino, including, without limitation, the real and
personal property and furniture, fixtures and equipment thereon, and Operator
agrees to comply with all terms and conditions of any such financing
arrangements to the extent they apply to Operator. Owners agree to not
knowingly encumber or mortgage the personal property of Operator, except as set
forth in Section 3.1.16(c).

 

13.3                           Access to
Premises. Upon
reasonable advance notice from any mortgagee or debt encumbrance holder
designated by any Owner, Operator shall accord such entity and its agents the
right to enter upon any part of the Racing Premises at any reasonable time
for the purposes of examining, inspecting and copying the books and records of
any of the Owners.

 

13.4                           Foreclosure. Subject to Section 15.4.6, if
any mortgagee or debt encumbrance holder obtains ownership of any portion of
the Racing Operations due to any legal proceedings, foreclosure, or conveyance
in lieu of foreclosure and has cured any existing defaults of Owners, Operator
shall continue to perform under and honor the terms of this Services
Agreement with the mortgagee or debt encumbrance holder, provided that such foreclosing party is
not in default hereunder and elects to keep this Services Agreement in effect.
If the mortgagee or debt encumbrance holder continues with this Services
Agreement, Owners and Operator shall acknowledge the same in writing.

 

13.5                           Subordination. This Services Agreement shall be subject
and subordinate to any ground lease, mortgage, lien, deed of trust or any other
hypothecation for security now or hereafter placed upon the Racing Premises or
the entire site of which the Racing Premises are a part and to any and all
advances made on the security thereof and to any and all renewals,
modifications, consolidations, replacements and extensions thereof. Operator
agrees to execute any instruments, assurances and documents that any Owner may deem
reasonably necessary to effect the subordination described herein. As a
condition to executing any subordination agreement, Operator may require
the holder of the interest to which this Services Agreement is to be
subordinated to execute a commercially reasonable form of recognition
agreement whereby such holder agrees that, notwithstanding such subordination,
Operator’s rights shall not be disturbed if Operator is not in default, unless
this Services Agreement is otherwise terminated pursuant to its terms.

 

32

 

13.6                           Estoppel
Certificates. Operator
shall provide, at the request of any Owner or the landlord under any OTB lease
agreement, to those mortgagees or debt encumbrance holders designated by such
Owner or landlord, a statement in writing and recordable form certifying
that this Services Agreement has not been modified and, to the best of Operator’s
knowledge, is in full force and effect or, if there have been modifications,
stating the modifications. The estoppel certificate prepared by Operator shall
also state that, to the best of Operator’s knowledge, no defaults by any Party
under this Services Agreement exist, or if so, specifying the applicable Event
of Default. Operator shall deliver any estoppel certificate requested hereunder
within ten (10) days of receipt of a written request for the same.

 

ARTICLE 14

 

CERTAIN REPRESENTATIONS AND WARRANTIES

 

14.1                           Authorization. Each Party represents and warrants that it
has full power and authority to enter into and execute this Services Agreement
and to be bound by and perform the terms hereof, and that the Persons
executing this Services Agreement on behalf of Owners and Operator,
respectively, are fully authorized to act on behalf of such respective Parties
and execute and deliver this Services Agreement.

 

14.2                           No
Conflicts. Each Party
represents and warrants that neither the consummation of the actions
contemplated by this Services Agreement to be performed by either Party, nor
the fulfillment of the terms and conditions of this Services Agreement,
conflicts with or results in a breach of any of the terms and conditions of, or
constitute a default under, any Law, agreement, indenture, instrument, or
undertaking to which such Party is a party or by which it is bound.

 

ARTICLE 15

 

DEFAULT; TERMINATION; WINDING UP

 

15.1                           Default by
Operator. Each of the
following events will be deemed an “Event
of Default by Operator”:

 

15.1.1                  Bankruptcy Events. (i) Operator applies for or consents
to the appointment of a receiver, trustee, or liquidator; (ii) Operator
files a voluntary petition for bankruptcy, or makes a general assignment for
the benefit of creditors; (iii) Operator makes a written admission of an inability
to pay debts when they become due or the dissolution or winding up of business;
or (iv) an order, judgment or decree is entered by any court of competent
jurisdiction (or on the application of a creditor) adjudicating Operator
bankrupt or insolvent or approving a petition of reorganization of Operator or
appointing a receiver, trustee or liquidator of Operator or all or a
substantial part of the assets of Operator, and the order, judgment or
decree continues unstayed and in effect for a period of sixty (60) days;

 

15.1.2                  Acute or Chronic Breach. (i) Operator fails to keep, observe or
perform any material covenant, agreement, term or provision of this
Services Agreement which is to be kept, observed or performed by Operator or
Guarantor fails to keep, observe or perform any material covenant,
agreement, term or provision of the Purchase Agreement which is to be kept,

 

33

 

observed or performed by
Guarantor; (ii) Operator, more than twice monthly for three consecutive
months, after receiving notice from Owners, fails to keep, observe or perform any
covenant, agreement, term or provision of this Services Agreement which is to
be kept, observed or performed by Operator; or (iii) Operator breaches any
of its representations or warranties made in this Services Agreement or
Guarantor breaches any of its representations or warranties made in the
Purchase Agreement, in all cases of this clause (iii) which such breach
has a material adverse effect on Owner, the Racing Operations or the Gaming
Operations;

 

15.1.3                  Regulatory Default. The PHRC, the Gaming Board or any
Governmental Authority determines that Operator is unsuitable to continue the
operation of the Racing Operations, or Operator fails to obtain or maintain any
material License required for Operator’s performance under this Services
Agreement;

 

15.1.4                  Operating Accounts; Operating Fee Payments. Operator fails to comply with its
obligations under Section 12.3, and such failure is not cured
within five (5) banking days after receiving written notice, provided, that Operator is not also in
material breach of its other duties under this Services Agreement, in which
case, such cure period shall be reduced to two (2) banking days; and

 

15.1.5                  XpressBet, Inc. XpressBet, Inc. fails to keep, observe
or perform any material covenant, agreement, term or provision of any of
the agreements between XpressBet, Inc. and the Owners which is to be kept,
observed or performed by XpressBet.

 

15.2                           Default by
Owners. Each of the following
events will be deemed an “Event of
Default by Owners”:

 

15.2.1                  Bankruptcy. (i) Any Owner or Buyer applies for or consents to the
appointment of a receiver, trustee, or liquidator; (ii) any Owner or Buyer
files a voluntary petition for bankruptcy, or makes a general assignment for
the benefit of creditors; (iii) any Owner or Buyer makes a written
admission of an inability to pay debts when they become due or the dissolution
or winding up of business; or (iv) an order, judgment or decree is entered
by any court of competent jurisdiction (or on the application of a creditor)
adjudicating any Owner or Buyer bankrupt or insolvent or approving a petition
of reorganization of any Owner or Buyer or appointing a receiver, trustee or
liquidator of any Owner or Buyer or all or a substantial part of the
assets of any Owner or Buyer, and the order, judgment or decree continues
unstayed and in effect for a period of sixty (60) days;

 

15.2.2                  Acute or Chronic Breach. (i) Any Owner fails to keep, observe
or perform any material covenant, agreement, term or provision of this
Services Agreement which is to be kept, observed or performed by such Owner
which is not caused by Operator or Buyer or, in the case of the Holdback
Guarantee, the guarantor thereunder, fails to keep, observe or perform any
material covenant, agreement, term or provision of the Holdback Agreement or
Holdback Guarantee, as the case may be which is to be kept, observed or
performed by Buyer; (ii) any Owner more than twice monthly for three
consecutive months, after receiving notice from Operator, fails to keep,
observe or perform any covenant, agreement, term or provision of this
Services Agreement which is to be kept, observed or performed by such Owner; (iii) any
Owner breaches its representations or warranties made in this Services
Agreement which such breach

 

34

 

has a material adverse
effect on Operator; or (iv) any Specified Default Trigger Event (as
defined in the Note Agreement) shall have occurred under the Note Agreement;
and

 

15.2.3                  Regulatory Default. The PHRC, the Gaming Board or any
comparable Governmental Authority determines that Owners are unsuitable to
continue the operation of the Racing Operations.

 

15.3                           Curing of
Certain Events of Defaults.
If an Event of Default is capable of being cured, then upon receipt of any
notice of an Event of Default, the defaulting Party shall expeditiously
undertake to cure such Event of Default by the earlier of thirty (30) days or
as soon as reasonably practical (or such earlier period as may be
expressly provided in this Services Agreement), after receipt of such notice.
Notwithstanding anything else in this Services Agreement, in no event will
Operator (i) have more time to cure an Event of Default by Operator that
causes any Owner to be in default under any material Agreement with any third
party than such Owner has under such Agreement to cure such default or (ii) have
more than five (5) banking days to cure any monetary defaults under Section 12.3.

 

15.4                           Termination
Events. Subject to the
last sentence of this Section 15.4, Operator’s services under this
Services Agreement may be terminated as follows:

 

15.4.1                  Mutual Agreement. The Parties may terminate Operator’s
services under this Services Agreement by mutual written consent or in
accordance with ARTICLE 5;

 

15.4.2                  Event of Default by Operator. Owners may terminate Operator’s
services under this Services Agreement upon an Event of Default by Operator,
effective, with respect to Events of Default by Operator that are incapable of
cure, upon receipt of notice, and effective, with respect to Events of Default
by Operator that are capable of cure but have not been cured in accordance with
Section 15.3, upon the expiration of the cure period set forth in Section 15.3;

 

15.4.3                  Event of Default by Owners. Operator may terminate Operator’s
services under this Services Agreement upon an Event of Default by any Owner,
effective, with respect to Events of Default by Owners that are incapable of
cure, upon receipt of notice, and effective, with respect to Events of Default
by Owners that are capable of cure but have not been cured in accordance with Section 15.3,
upon the expiration of the cure period set forth in Section 15.3;

 

15.4.4                  Condemnation or Destruction. Operator’s services under this Services
Agreement may be terminated in accordance with the terms and conditions
set forth in ARTICLE 16 regarding the condemnation or destruction
of the Meadows Facility;

 

15.4.5                  Prohibited Transfers by Operator. Owners may terminate Operator’s
services under this Services Agreement upon any attempted transfer or
assignment of this Services Agreement prohibited under Section 20.12.1,
to which Owners do not consent in writing;

 

15.4.6                  Sale of Racing Operations or Casino. Either Party shall have the right to
terminate Operator’s services under this Services Agreement by written notice
to the other Parties upon (i) the Meadows Facility or substantially all of
the assets of the Meadows Facility or substantially all of the assets of the
Racing Premises being sold or transferred to a Person other

 

35

 

than Owners’ Affiliates; (ii) with
respect to any of the Owners, the sale of all or substantially all of its
assets or business or merger into or consolidation with or into another entity
or any other transaction or series of transactions, in all cases, the
result of which would be that Bill Wortman, Bill Paulos, and/or Oaktree Capital
Management, LLC do not, directly or indirectly, own at least fifty-percent of
the voting power of the surviving entity or the transferee, as the case may be,
immediately after the closing of the transaction; (iii) a transfer
authorized under Section 20.12.1; or (iv) a change in control
of Guarantor, provided, however, that Section 15.4.13,
and not this Section 15.4.6, shall apply upon a Stock Transfer
Event;

 

15.4.7                  Revocation or Non-Renewal of Licenses. Owners may terminate Operator’s
services under this Services Agreement immediately upon notice to Operator in
the event that (i) any of the Racing Licenses; (ii) any License
required for Operator to perform its obligations under this Services
Agreement; or (iii) if issued, the Gaming License is revoked, suspended,
withdrawn, or not renewed.

 

15.4.8                  Jeopardy of Gaming License. Owners may terminate Operator’s
services under this Services Agreement upon delivery of written notice to
Operator if Operator engages in actions which Owners reasonably believe may jeopardize
the issuance of or continued possession of the Gaming License and Operator
fails to cure within the shorter of ten (10) days or such period necessary
to prevent the occurrence of irreparable harm to Owner’s ability to obtain or
retain the Gaming License;

 

15.4.9                  Force Majeure. Any Party may terminate Operator’s
services under this Services Agreement upon written notice to the other Parties
upon an event of Force Majeure being in effect for more than ten (10) consecutive
days, as set forth in Section 20.10;

 

15.4.10            Cessation of Racing Operations. Owners may elect at any time (after
the Repayment Date but not before the Repayment Date) in their complete,
unfettered discretion that the Meadows Facility shall cease Racing Operations,
in which case, each of Owners and Operator shall have the option to terminate Operator’s
services under this Services Agreement upon written notice to Operator or
Owners, as the case may be, provided
further that Owners shall reimburse Operator for any expenses reasonably
incurred prior to receipt of the notice provided for above for any race meet
scheduled in accordance with the Business Plan that is canceled pursuant to the
provisions of this Section 15.4.10;

 

15.4.11            Burdensome Legal Requirement. Owners or Operator may elect to
terminate Operator’s services under this Services Agreement immediately upon
notice to Operator or Owners, as applicable, in the event of a Burdensome Legal
Requirement, such notice being effective upon the date on which the Law or the
new application of the Law underlying such Burdensome Legal Requirement is
effective;

 

15.4.12            Failure to Begin Casino Construction. Operator may elect to terminate
Operator’s services under this Services Agreement upon written notice to Owners
delivered anytime on or after the fourth anniversary of the Effective Date if
the Owners have not begun or caused to begin construction of the Casino before
receiving such notice; or

 

36

 

15.4.13            Stock Transfer. Operator’s services under this Services
Agreement shall automatically terminate upon a Stock Transfer Event.

 

Notwithstanding the
foregoing provisions of this Section 15.4 (other than Section 15.4.13)
and notwithstanding any other provision of this Services Agreement (other than Section 15.4.13),
Operator’s services under this Services Agreement may not be terminated by
Owners or Operator without the prior written consent of the Operator or Owners,
as applicable, at any time prior to the Repayment Date, provided  however,
that nothing herein shall in any way be deemed to waive or otherwise limit the
other rights or remedies of any Party or their Affiliates under this Services
Agreement.

 

15.5                           Rights and
Remedies Upon Termination.
Following any termination of this Services Agreement the Parties shall retain
all other rights and remedies which may be provided at law or in equity.

 

15.6                           Winding
Up; Working Capital Adjustment; Transition Services. Promptly upon termination of Operator’s
services under this Services Agreement (except any termination pursuant to Section 15.4.13
(in connection with a Stock Transfer Event):

 

15.6.1                  Delivery of Books and Records. Operator shall deliver to Owners, or their
designees, copies of all books and records maintained by Operator for the
Racing Operations.

 

15.6.2                  Operating Accounts. Operator shall make no withdrawals from the
Operating Accounts without Owners’ prior written consent except as authorized
under Section 12.4.

 

15.6.3                  Release and Assignment. Subject to Section 11.8,
Operator shall release, assign, and transfer to Owners or their designees any
and all interests it may have in the real, tangible and personal property
and any Agreements (which Owners or their designees in their sole discretion
shall select as set forth in Section 3.1.16(c)) or encumbrances
with respect thereto, the Racing Operations or the Casino, and Owners agree to
accept such transfer and assume such Agreements or cause their designees to
accept such transfer and assume such Agreements. Operator shall assign or
transfer to Owners or their designees all Licenses (to the fullest extent
permitted by law) or other documents held or owned by Operator in connection
with the Racing Operations, and shall take all reasonably necessary actions to
accomplish such assignments or transfers.

 

15.6.4                  Surrender. Operator shall remove itself from the Racing Premises no later than
five (5) days after the date of termination of Operator’s services under
this Services Agreement, except with Owners’ prior written approval and except
to the extent that Operator is providing transition services pursuant to Section 15.6.6.
Subject to Operator’s obligations to provide the Racing Operations to Owners or
their designees in a manner that allows them to operate the Racing Operations
in accordance with the Operating Standard, as set forth in Section 15.6.6,
the Racing Premises shall be left in as good condition as on the Effective
Date, or in the event of renovation, in as good condition as on the date of
completion of such renovations, except for ordinary wear and tear or Force
Majeure destruction.

 

37

 

15.6.5                  Working Capital Adjustment. In all cases other than a termination
pursuant to Section 15.4.13:

 

(a)                                  Within sixty (60) days following the date of
termination of Operator’s services under this Services Agreement Operator shall
prepare and deliver to Owners a statement (the “Termination Date Net Working Capital Statement”) setting
forth the Net Working Capital of the Racing Operations as of such date (the “Termination Date Net Working Capital”),
which shall be in accordance with GAAP applied in a manner consistent with
preparation of the Financial Statements set forth in Section 12.6
and which shall include any amounts owing to Operator in respect of shared
capital expenditures as set forth in Section 11.6.2 (the “Accounting Procedures”). The
Termination Date Net Working Capital Statement shall be prepared based on the
books and records of the Racing Operations as of the termination date and shall
be verified by, reviewed by, and shall be accompanied by the statement thereon
of, Ernst & Young, L.L.P., accountants of Operator (“Operator’s Accountants”), stating that
the Termination Date Net Working Capital has been determined in accordance with
the Accounting Procedures. During the preparation of the Termination Date Net
Working Capital Statement by Operator and the period of any dispute provided
for in Section 15.6.5(c), Owners shall provide Operator and
Operator’s Accountants reasonable access to the books, records, facilities and
employees of any of the Owners during normal business hours with reasonable
notice, and Owners shall cooperate with Operator’s Accountants, in each case to
the extent reasonably required by Operator and Operator’s Accountants in order
to prepare the Termination Date Net Working Capital Statement.

 

(b)                                 Subject to the limitations set forth in Section 15.6.5(c),
if Operator has not received a Notice of Dispute from Owners in accordance with
Section 15.6.5(c) within thirty (30) days after the date of
receipt by Owners of the Termination Date Net Working Capital Statement:

 

(i)                                     Subject to Section 15.6.5(c), if
the amount of the Termination Date Net Working Capital shown on the Termination
Date Net Working Capital Statement is less than $0.00, then Owners shall
deliver written notice to Operator specifying the amount of such deficiency,
and, subject to Section 19.5 with regards to nonpayment, Operator
shall, within five business days of its receipt of such notice, pay such amount
to Owners by wire transfer in immediately available funds; and

 

(ii)                                  Subject to Section 15.6.5(c), if
the amount of the Termination Date Net Working Capital shown on the Termination
Date Net Working Capital Statement is greater than $0.00, Owners shall pay to
Operator, within five business days of a notice to such effect from Operator,
an amount equal to such excess.

 

All payments to be made
under this subsection (b) shall be made by wire transfer of
immediately available funds to an account designated by the receiving party.

 

(c)                                  (i)                                     If not disputed by Owners in accordance with this
Section 15.6.5(c), the Termination Date Net Working Capital
Statement delivered by Operator to Owners shall be final, binding and
conclusive on the Parties. Owners may dispute any amounts reflected on the
Termination Date Net Working Capital Statement to the extent that the net
effect of such

 

38

 

disputed amounts in the
aggregate would be to change the Termination Date Net Working Capital by more
than $30,000; provided, however, that Owners shall notify Operator
and Operator’s Accountants in writing of each disputed item, specifying the
amount thereof in dispute and setting forth, in reasonable detail, the basis
for such dispute, within 30 days of Owners’ receipt of the Termination Date Net
Working Capital Statement (the “Notice of
Dispute”). In the event of such a dispute, during the thirty
(30) days immediately following receipt by Operator of the Notice of Dispute,
each of Operator, Operator’s Accountants, Owners and Owners’ accountants shall
negotiate in good faith to resolve any differences that they may have with
respect to each matter specified in the Notice of Dispute.

 

(ii)                                  If, at the end of such thirty (30) day period
or such longer period as may be mutually agreed, Owners and Operator are
unable to reach a resolution of all matters in the Notice of Dispute, leaving
in dispute amounts the net effect of which in the aggregate with the amounts
agreed upon by Owners and Operator would change the Termination Date Net
Working Capital by at least $30,000, Owners may submit the items remaining
in dispute that Owners shall be entitled to dispute by the terms of this Section 15.6.5(c) for
resolution to such independent accounting firm as may be mutually
acceptable to Operator and Owners (the “Independent
Accounting Firm”), which shall, within thirty (30) business days
of such submission, determine and report to Operator and Owners upon such
remaining disputed items, and such report shall have the legal effect of an
arbitral award and shall be final, binding and conclusive on Operator and
Owners. The fees and disbursements of the Independent Accounting Firm shall be
allocated between Operator and Owners in the same proportion that the aggregate
amount of such remaining disputed items so submitted to the Independent
Accounting Firm that is unsuccessfully disputed by each such Party (as finally
determined by the Independent Accounting Firm) bears to the total amount of
such remaining disputed items so submitted. Operator and Owners shall pay their
own costs incurred in connection with the Notice of Dispute.

 

(iii)                               No adjustment to any amount payable by
Operator or Owners pursuant to Section 15.6.5(b) shall be made
with respect to amounts disputed by Owners pursuant to this Section 15.6.5(c),
unless the net effect of the amounts successfully disputed by Owners in the
aggregate is to change the Termination Date Net Working Capital by at least
$30,000.

 

(iv)                              Any amount that is payable under Section 15.6.5(b),
including, without limitation, any portion thereof that is subject to dispute
under this Section 15.6.5(c) shall be paid by Operator or
Owners, as the case may be, by wire transfer of immediately available
funds, to an account designated by the receiving party, within five business
days following the resolution of the matters set forth in the Notice of Dispute
or, at the option of the paying Party, upon the resolution of any particular
dispute, and in an amount in accordance with such resolution.

 

(d)                                 In acting under this Services Agreement,
Operator’s Accountants, Owners’ accountants and the Independent Accounting Firm
shall be entitled to the privileges and immunities of arbitrators.

 

39

 

(e)                                  Any payment required to be made by Operator
or Owners pursuant to Section 15.6.5(b) shall bear interest
from the date of termination of Operator’s services under this Services
Agreement through the date of payment 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 Closing Date to the date of such
payment.

 

(f)                                    If this Services Agreement is terminated
effective at the end of the fifth year anniversary of the Effective Date, then
the Final Release (as defined in the Holdback Agreement) shall not be paid
until the completion of and payment of amounts due under the working capital
adjustment set forth in Section 15.6.5 of this Services Agreement
or until satisfied in accordance with Section 19.5.

 

15.6.6                  Transition Services. At Owners’ election, if Operator’s services
under this Services Agreement are terminated for any reason (other than in
connection with a Stock Transfer Event), Operator shall provide, and shall
cause its Affiliates to provide, all transition services reasonably necessary
for Owners or their designees to manage and operate the Racing Operations on a “turn-key”
basis after such termination date in accordance with the Operating Standard
(except to the extent that Owners have declined to assume, in accordance with Section 15.6.3,
any Racing Operations Agreement), which for the avoidance of doubt, may include
financial statements. Such transition services shall be delivered free of
charge to Owners or their designees, except if this Services Agreement is
terminated as a result of an Event of Default by Owners pursuant to Section 15.4.3,
in which case, such services shall be provided at a reasonable fee. All such
services shall be performed expeditiously, in a professional manner, and in
accordance with the Operating Standard. For purposes of clarity, references in
this Services Agreement to “termination of Operator’s services under this
Services Agreement” shall not be deemed to mean Operator’s services with
respect to providing transition services. However, all such transition services
shall be deemed to constitute part of the “Racing Operations.”  The period of time during which Operator
shall provide transition services in accordance with this Section 15.6.6
shall be deemed the “Transition Period.”   In the event Operator’s services under this
Services Agreement are terminated in connection with a sale of the Racing
Operations or Casino (other than in connection with a Stock Transfer Event),
Operator shall offer to provide buyer with the transition services reasonably
necessary for it to manage and operate the Racing Operations for a reasonable
fee and a reasonable period of time.

 

15.7                           Limited
Termination in Certain Events. Upon the occurrence of a Stock Transfer Trigger Date, Operator (i) shall
not be obligated to comply with Section 7.1.1, Section 7.1.2,
Section 7.3, Section 7.4 or Section 7.5 and
(ii) may, without Owners’ prior consent, take any of the actions described
in Section 4.1, provided,
however, that in case of clause (ii) of
this Section 15.7, Operator shall not take any action or fail to
take any action that imposes or is reasonably likely to impose any obligation
or Liability upon, or otherwise adversely affects or prejudices the rights of,
any Person who is an Affiliate of the Owners (other than any other Owner). Upon
the occurrence of a Specified Default Trigger Event (as defined in the Note
Agreement), Operator shall not be obligated to comply with Section 12.3
or Section 15.6.2.

 

40

 

ARTICLE 16

 

CONDEMNATION AND DESTRUCTION

 

16.1                           Condemnation. If the whole of the Meadows Facility, or a
portion thereof which inhibits the ability to conduct the Racing Operations at
the Meadows Facility, is taken or condemned in any eminent domain,
condemnation, compulsory acquisition or like proceeding by any competent
authority for any public or quasi-public use or purpose, then either Operator
or the Owners may terminate this Services Agreement as of the date on
which Owners are required to surrender possession of the Meadows Facility or
portion thereof as a consequence of the taking or condemnation. Operator shall
continue to supervise and direct the management and operation of the Racing
Operations until Owner is required to surrender possession of the Meadows
Facility as a consequence of the taking or condemnation. Upon surrender of
possession, if either Operator or the Owners elect to terminate this Services
Agreement, Operator’s services under this Services Agreement shall immediately
terminate, and Operator will be entitled to participate in the condemnation
proceeding as a defendant and have its share of the award determined by the
court overseeing the condemnation proceeding.

 

16.2                           Destruction. If all or a portion of the Meadows Facility
is destroyed in whole or in significant part by fire or other material
casualty, and such destruction materially impairs the ability to conduct the
Racing Operations at the Meadows Facility, then Operator or Owners may elect
to terminate Operator’s services under this Services Agreement by giving notice
to the other within thirty (30) days after the date of the material casualty; provided that if the proceeds from the
insurance policies maintained under this Services Agreement are sufficient to
rebuild (or if Owners otherwise elect to rebuild) the Meadows Facility in
substantially the same form as existed before the casualty, then Operator may not
elect to terminate its services under this Services Agreement if Owners
reasonably promptly undertake to rebuild and complete such rebuilding as soon
as practicable. If the Racing Operations continues to operate throughout the
reconstruction, repair or modification, then this Services Agreement shall
remain in full force and effect; however,
should the Racing Operations at the Meadows Facility cease to operate during
the period of construction, repair or modification, then the provisions of this
Services Agreement will abate (to the extent of such destruction) during the
period of repair, other than the right of Operator to participate in the construction,
repair and modification of the facility.

 

ARTICLE 17

 

NON-COMPETITION

 

Operator
hereby confirms that it is bound by the non-competition obligations set forth
in Section 5.08 of the Purchase Agreement.

 

ARTICLE 18

 

INSURANCE

 

18.1                           Operator’s
Insurance Obligations. No
later than the Effective Date, Operator shall obtain and pay for all policies
of insurance specified below, provided,
however, that in no

 

41

 

event shall the scope, type
or limits of, or the exclusions and deductibles under, Operator’s insurance
policies be less than that necessary to conform to reasonable industry
standards for a similar harness racetrack with expanded gaming, taking into
consideration inflation and any events or trends of liability which affect the
risks attendant to owning and operating a harness racetrack with expanded
gaming.

 

18.1.1                  Property Insurance. Operator shall provide, pay for and maintain
property insurance covering the Racing Premises throughout the Term on buildings
and structures, with endorsements for business interruption and extra expense,
boiler and machinery, equipment breakdown and utility services interruption,
and, where applicable, business personal property.

 

18.1.2                  Commercial General Liability, Excess
Liability and Business Automobile. Operator
shall provide, pay for and maintain commercial general liability, excess
liability and business automobile insurances throughout the Term with respect
to the Racing Premises and Racing Operations. Such policies shall afford Owners
and Operator protection of at least $1,000,000 per occurrence and aggregate
$2,000,000 per location with respect to commercial general liability and horse
legal liability; $50,000,000 per occurrence and aggregate $100,000,000 with respect
to excess liability, provided,
that Operator will use reasonable efforts to obtain such excess liability
coverage on an aggregate $50,000,000 per location basis (for purposes of this
sentence, “per location” shall mean the Racing Premises taken as a whole); and
$1,000,000 per accident with respect to business automobile.

 

18.1.3                  Commercial Crime. Operator shall provide, pay for and
maintain crime coverage with respect to the Employees, including, without
limitation, employee theft coverage, premises coverage and transit coverage.
Such policy shall afford Owners and Operator protection of at least $1,000,000
per occurrence and shall insure Operator and the applicable Owners (or their
Affiliates), each as their interests shall appear in connection with any loss
insured thereunder.

 

18.1.4                  Workers’ Compensation and Employers’
Liability. Operator shall,
on its own behalf and on behalf of Owners, provide, pay for and maintain all
requisite workers’ compensation and employers’ liability insurance with respect
to all Employees. The insurance coverage required (including, without
limitation, the carrier, policy limits, deductibles and exclusions of each)
must be in form, substance and amounts satisfactory to Owners in all respects
and, if not, Operator shall obtain insurance from another provider selected by
Owners in their sole and absolute discretion. Such insurance shall also include
an endorsement where applicable, for alternate employer which designates that
the loss experience shall be attributable to the Operator and not to the
Owner(s).

 

18.1.5                  Employment Practices Liability; Fiduciary
Liability. Operator shall
provide, pay for and maintain policies of insurance affording protection of at
least $5,000,000 policy limit with respect to Employment Practices Liability
for the Racing Operations; and at least $3,000,000 policy limit with respect to
Fiduciary Liability for the Racing Operations.

 

18.1.6                  Additional Policies Consistent with Past
Practice. Operator shall
provide, pay for and maintain such additional policies of insurance as are
consistent with past practice and as disclosed pursuant to Section 3.15 of
the Purchase Agreement.

 

42

 

18.1.7                  Other Insurance. Operator shall obtain, pay for and maintain
all other insurance in respect of the Racing Operations that is required by
Law, reasonably required by the Owners or set forth in the applicable Business
Plan.

 

18.1.8                  Additional Duties. Operator shall add Owners as additional
insureds on all policies of insurance relating to the Racing Operations
(regardless of whether Operator is required under this Services Agreement to
obtain such policies). Operator shall obtain, to the extent commercially
reasonable, all policies of insurance required in this Section 18.1
from Guarantor’s corporate insurance plan. All limits of coverage specified
herein shall be made fully available for the Racing Operations and Racing
Premises, as applicable. No later than ten (10) days after the effective
date of any such policy of insurance, Operator shall cause to be issued to
Owners (or the appropriate Owner) proper certificates of insurance evidencing
Operator’s compliance with its obligations in this Section 18.1.
Operator shall deliver to Owners all notices of expiration or cancellation
under all policies of insurance obtained by Operator relating to the Racing
Operations. No material change in the insurance evidenced by any particular
certificate shall be made by Operator without the prior written consent of
Owners. Operator shall be responsible for the payment of all deductibles under
the policies of insurances required in this ARTICLE 18.

 

18.2                           Providers;
Additional Endorsements.
All insurance provided for under this ARTICLE 18 shall be issued by
insurance companies of good reputation and sound financial responsibility with
an AM Best rating of at least A:X and licensed by the State of Pennsylvania.
All insurance policies required under this Services Agreement shall be endorsed
specifically to the effect that the policies shall not be cancelled or
materially changed without less than thirty (30) days prior written notice to
Owners and Operator. To the extent obtainable without significantly increasing
the premium cost, all policies of comprehensive public liability insurance and
comprehensive crime insurance shall contain an endorsement to the effect that
the insurance shall be primary to any other similar insurance carried by Owners
or Operator.

 

18.3                           Insurance
Policy Inspection. Owners
shall have the right as required by Law to inspect all policies of insurance
maintained by Operator pursuant to this Services Agreement or otherwise
relating to the Racing Operations. Operator shall provide, promptly upon Owners’
request, detailed summaries (including, without limitation, coverage limits,
deductibles, endorsements and exclusions) of all policies of insurance
maintained by Operator pursuant to this Services Agreement or otherwise
relating to the Racing Operations.

 

18.4                           Waiver of
Subrogation. Owners and
Operator hereby agree that insurance policies carried by them (if any) pursuant
to this ARTICLE 18 shall contain a clause permitting the insured to
waive its right of subrogation against any other insured. Each of Owners and
Operator hereby waives such rights of subrogation against the other or others
and agrees to execute such documents and other evidence as may be
reasonably requested by the other Parties from time to time to effectuate such
waiver.

 

43

 

ARTICLE 19

 

INDEMNIFICATION

 

19.1                           Indemnification
By Operator. Subject to Section 9.03(g) of
the Purchase Agreement, Operator shall indemnify, defend and hold Owners free
and harmless from all expenses, fees, losses, liabilities, damages, costs and
other amounts (including, without limitation, reasonable attorneys’ fees,
investigative and other similar costs and expenses) (collectively, “Losses”) arising out of or related to
the following:

 

19.1.1                  all obligations and Liabilities of the Racing
Operations arising out of or related to acts, omissions, events or occurrences
that take place during the Term;

 

19.1.2                  the Pre-Existing Liabilities;

 

19.1.3                  the business or operations of XpressBet, or
any predecessor or successor thereof (including the Owners prior to the Closing
Date (as defined in the Purchase Agreement)), after the Effective Date;

 

19.1.4                  Operator’s gross negligence or willful
misconduct during the Transition Period; or

 

19.1.5                  Operator’s breach of any representation or
warranty or failure to perform any obligation, covenant or agreement made
in this Services Agreement.

 

19.2                           Indemnification
By Owners. Subject to Section 9.03(h) of
the Purchase Agreement, Owners shall jointly indemnify and hold harmless
Operator from any and all Losses arising out of or related to the following:

 

19.2.1                  the Gaming Operations;

 

19.2.2                  Owner’s breach of any representation or
warranty or failure to perform any obligation, covenant or agreement made
in this Services Agreement; or

 

19.2.3                  Owner’s encumbrance or mortgage of any
personal property of Operator other than as set forth in Section 3.1.16(c).

 

19.3                           Indemnification
in General.

 

19.3.1                  Indemnified Parties. The indemnities contained in this Services
Agreement shall run to the benefit of Operator and Owners, respectively, their
respective Affiliates, and the members, directors, officers, partners,
employees, agents and representatives of Operator and Owners and of their
respective Affiliates.

 

19.3.2                  Willful Misconduct or Gross Negligence. No Party shall have any liability under Section 19.1
or 19.2, as applicable, for any uninsured Losses to the extent that such
Losses are the direct result of the other Party’s willful misconduct or gross
negligence.

 

44

 

19.3.3                  Certain Off-Sets For Recovered Monies. Payments for Losses by any Party from whom
indemnification is sought or received (an “Indemnifying
Party”) to any Party seeking or obtaining indemnification (an “Indemnified Party”) pursuant to Sections
19.1 and 19.2, as applicable, shall be limited to the amount of any
Loss that remains after deducting therefrom (i) any Tax benefit to the
Indemnified Party, (ii) any insurance proceeds and any indemnity,
contribution or other similar payment recovered by such Indemnified Party from
any third party with respect thereto (it being agreed that the Indemnified
Party will use its commercially reasonable efforts, and cause its Affiliates to
use their 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, the Indemnified Party shall
reimburse the Indemnifying Party for such reduction in Losses for which the
Indemnified Party was indemnified prior to the realization of reduction of such
Losses minus the cost incurred by such Indemnified Party in recovering such
proceeds, indemnity, contribution or other similar payment), and (iii) any
amounts received by an Indemnified Party pursuant to Section 15.6.5
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 for purposes
of this Section will be reasonably determined by the Indemnified Party’s
accountants as the difference between (i) the amount of federal, state and
local Tax Liabilities of the Indemnified Party 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 the Indemnified Party and its
Affiliates for the year with respect to which the indemnity payment is made but
without the effect of the event that gave rise to the indemnity payment. The
Indemnified Party shall provide the Indemnifying Party with calculations and/or
other information reasonably supporting the determination of the Tax benefit.

 

19.3.4                  No Consequential or Punitive Damages. Neither Owners nor Operator nor any of
their respective Affiliates shall have any liability to the other or any other
Indemnified Party under this Services Agreement for consequential or punitive
damages, except that this Section 19.3.4 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 this Services Agreement and paid or payable by a Party.

 

19.3.5                  No Duplicate Obligations. Operator and its Affiliates shall have no
liability under any provision of this Services Agreement for any liabilities
and damages to the extent that such liabilities and damages have been satisfied
by Guarantor under the Purchase Agreement.

 

19.4                           Indemnification
Procedures.

 

19.4.1                  Claims between Parties. No claim may be asserted, nor may any
action be commenced against an Indemnifying Party for breach of any
representation, warranty, covenant or agreement contained in this Services
Agreement, unless written notice of such claim or action is received by such
Indemnifying Party describing in reasonable detail the facts and circumstances
with respect to the subject matter of such claim or action.

 

19.4.2                  Third Party Claims. An Indemnified Party under this Services
Agreement shall give the Indemnifying Party under this Services Agreement
prompt written notice (a

 

45

 

“Claim Notice”) of any claim,
assertion, event or proceeding by or in respect of a third party of which it
has knowledge concerning any Loss as to which it may request
indemnification under Section 19.1 or 19.2, as applicable, provided, however,
that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party 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 direct 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 fourth to the last sentence of this Section 19.4.2,
withdraws from the defense of such asserted Loss 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 Loss. 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 19.4.2
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. Each Party agrees that, in the event an Indemnifying
Party elects to direct 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. The Parties 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 Services Agreement with respect to such Action

 

46

 

or the matters alleged
therein and agree that process may be served on any Party with respect to
such a claim at the address specified in this Services Agreement.

 

19.5                           Payment of
Indemnified Losses. Subject
to Section 9.03(g) and Section 9.03(h) of the
Purchase Agreement, once a Loss is agreed to by the Indemnifying Party or
finally adjudicated to be payable pursuant to this ARTICLE 19 or an
amount is determined to be owing under Section 15.6.5 (if
applicable), the Indemnifying Party shall satisfy its obligations within
fifteen (15) business days of such final, nonappealable adjudication by wire
transfer of immediately available funds with respect to any Loss or within the
time periods specified pursuant to Section 15.6.5 with respect to
amounts owing under such section; provided,
that during the term of any of the Holdback Documents (as defined in the
Purchase Agreement), if the Indemnifying Party is Operator and the Losses are
covered under the Holdback Documents, then such obligations shall be satisfied
in accordance with the provisions of the Holdback Documents. Subject to Section 9.03(g) and
Section 9.03(h) of the Purchase Agreement, the Parties hereto
agree that should an Indemnifying Party not make full payment of any such
obligations (other than such obligations described in the provisos set forth in
the immediately preceding sentence) within such fifteen (15) business day
period or within such period as specified in Section 15.6.5, as the
case may be, 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 Services
Agreement covered by the Holdback Documents shall be treated as an adjustment
to the Purchase Price (as defined in the Purchase Agreement).

 

19.6                           Survival. The indemnity provisions of this ARTICLE 19
shall survive any cancellation, termination or expiration of this Services
Agreement; provided that nothing
herein shall be deemed to extend or waive any applicable statute of limitation.

 

ARTICLE 20

 

GENERAL

 

20.1                           No
Warranties. Except as
set forth in ARTICLE 14, no Party makes any representation or
warranty (implied or express) whatsoever to any other Party in this Services
Agreement. Operator bears all risk with respect to the profitability of the
Racing Operations and understands that the harness racing and off-track betting
industries are each subject to change, fluctuation and regulation and that
Owners cannot control the market for these industries. Similarly, but without
limiting Operator’s duties and obligations under this Services Agreement,
Owners take all risks regarding the profitability of Gaming Operations and
understand that the gaming business is subject to fluctuation and regulation
and that Operator cannot control the market for these industries. Operator
understands that Owners cannot guarantee that they will receive the Gaming
License or that, if they do and are able to construct the Casino, the Racing
Operations will realize benefits from the operation of the Casino.

 

47

 

20.2                           Further
Assurances; Cooperation; Return of Monies. The Parties shall cooperate, do and cause to be done all such acts,
matters and things, and shall execute and deliver all such documents and
instruments as shall be required to enable the Parties to perform their
respective obligations under, and to give effect to the transactions contemplated
by, this Services Agreement. Without limiting the generality of the foregoing,
Operator, on behalf of itself, its Affiliates and its and their owners,
partners, principals, officers, successors and assigns, agrees, at the request
of Owners or any of their Affiliates, to complete, execute, and furnish to
Owners any materials, questionnaires, forms, exhibits and appendices as may be
required for Owners or any of their Affiliates’ compliance with the
requirements of the Gaming License or to be filed with any liquor licensing
authority or similar regulatory authority. If any Party receives from a third
party any monies which it has knowledge belongs to another Party, such
receiving Party shall pay such monies to the owning Party as promptly as practicable.
In the event that the Pennsylvania Liquor Control Board determines that this
Services Agreement is impermissible, the Parties agree to cooperate with one
another to promptly amend this Services Agreement to the least extent necessary
to receive approval from the Pennsylvania Liquor Control Board.

 

20.3                           Confidentiality. Operator shall, and shall cause its agents,
representatives, Affiliates, employees, officers, directors and all other
Persons over whom Operator has been given authority under this Services
Agreement (including, for example, the Employees) to, protect (and not disclose
or provide access to any Person) any or all confidential information relating
to the Racing Operations, the Gaming Operations or the Owners or their
Affiliates (including, without limitation, finances, trade secrets, price,
customer and supplier lists and pricing and marketing plans and all other
information that Owners regard or is reasonably expected to be regarded as
confidential information) 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 Operator uses to protect its own confidential
information of a like nature; provided,
however, that this sentence shall
not apply to any information (i) that, at the time of disclosure, Operator
disclosed to its agents, representatives, Affiliates, employees, officers and
directors and other authorized Persons strictly on a need-to-know basis
(provided that such Persons are bound by a duty of confidentiality similar to
that set forth herein); (ii) that, at the time of disclosure, is publicly
available and was not disclosed in breach of this Services Agreement or other
duty of confidentiality by Operator or its agents, representatives, Affiliates,
employees, officers or directors or other authorized Persons; or (iii) to
the extent that it is required to be disclosed by Law, provided, that Operator shall deliver
prompt notice to Owners of such requirement (and provide copies of notices
thereof) and permit Owners a meaningful opportunity to contest or obtain
confidential treatment prior to the disclosure of such information; provided  further,
that so long as any Seller Note is outstanding, this Section 20.3
shall not apply to the exceptions to confidentiality set forth in Section 10.14
of the Note Agreement; provided, further, that the obligation of
confidentiality set forth in this Section 20.3 shall terminate upon
a Stock Transfer Trigger Date except to the extent relating to any confidential
information of any Person who is an Affiliate of the Owners (other than any
other Owner).

 

20.4                           Agency. Nothing contained in this Services
Agreement shall be construed to create a relationship of employee/employer,
joint venturers or partners between Operator, on one hand, and Owners, on the
other hand.

 

48

 

20.5                           Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
by delivery in person, by nationally recognized overnight courier service, or
by facsimile with receipt confirmation 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 20.5:

 

	
  If to
  Operator:

  Magna Entertainment
  Corp.
337
  Magna Drive
Aurora, Ontario
L4G
  7K1, Canada

  Facsimile: 905-726-7177

  Attn:   CEO/General Counsel

  	
   

  	
  If to
  Owners:

  PA Meadows, LLC

  c/o Oaktree Capital Management, LLC

  333 S. Grand Avenue, 28th Floor

  Los Angeles, California 90071-1560

  Facsimile: 213-830-6394

  Attn:                    John B. Frank, Esq.

  Steve Kaplan

  

  and to:

  

  Millennium Gaming, Inc,

  221 N. Rampart Blvd.

  Las Vegas, NV, 89145

  Facsimile: 702-507-5992

  Attn:   William J. Paulos

  
	
   

  	
   

  	
   

  
	
  With
  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.

  	
   

  	
  With
  copy to:

  Munger, Tolles &
  Olson LLP

  355 South Grand Ave. #3500

  Los Angeles, CA 90071

  Facsimile: 213-683-3702

  Attn:  Sandra Seville-Jones, Esq.

   

  and to:

   

   

  Santoro, Driggs, Walch,
  Kearney, Johnson

  & Thompson

  400 South Fourth Street

  Suite 300

  Las Vegas, N.V. 89101

  Attn:  Michael Kearney

  Facsimile: 702-791-1912

  

 

49

 

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

 

20.7                           No Waiver. The rights and remedies of the Parties are
cumulative and not alternative. Neither the failure nor any delay by any Party
in exercising any right, power or privilege under this Services Agreement will
operate as a waiver of such right, power or privilege and no single or partial
exercise of any such right, power or privilege will preclude any other or
further exercise of such right, power or privilege or the exercise of any other
right, power or privilege. To the maximum extent permitted by Law, (a) no
claim or right arising out of this Services Agreement can be discharged by one
Party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other Party; (b) no waiver that may be
given by a Party will be applicable except in the specific instance for which
it is given; and (c) no notice to or demand on one Party will be deemed to
be a waiver of any obligation of such Party or of the right of the Party giving
such notice or demand to take further action without notice or demand as
provided in this Services Agreement.

 

20.8                           Severability. If any term or other provision of this
Services Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Services
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. If this Services Agreement or the
scope of Operator’s responsibilities or duties hereunder violates any Laws,
Owners may amend or modify this Services Agreement to the least extent
necessary in order to comply with such Laws.

 

20.9                           Entire
Agreement. This Services
Agreement constitutes the entire agreement of the Parties with respect to the
subject matter hereof and supersedes all prior agreements and undertakings,
both written and oral, other than the Transaction Documents (as defined in the
Purchase Agreement).

 

20.10                     Force
Majeure. If, as the result
of an event of Force Majeure (as defined below), any Owner or Operator fails to
perform in a timely manner any obligation to be performed under this
Services Agreement by such Party, then such failure shall be excused and shall
not be deemed a breach of this Services Agreement by such Party, but only for
so long as and to the extent that such Force Majeure event has caused the
non-performance. In the event that the Force Majeure results in ceasing or
suspending Racing Operations for more than three days, Operator agrees to
notify and cooperate with Owners to use reasonable efforts to remediate the
Force Majeure event. “Force Majeure”
for purposes of this Section means: any (i) strike(s), lockout(s) or
labor dispute(s) not caused by any Party’s breach, willful misconduct or gross
negligence; and (ii) Acts of God, governmental restrictions or
regulations, acts of terrorism, enemy or hostile governmental action, civil
commotion, fire, flood, riots, earthquakes or other casualty, or other
conditions similar to those enumerated in this item (ii). Notwithstanding the
preceding sentence, Force Majeure will not apply to matters caused by the Party
seeking to claim a Force Majeure event has occurred under items (i) through
(ii) above, or that could be prevented by actions within the reasonable
control of the Party obligated to perform an action under this Services
Agreement.

 

50

 

20.11                     No
Subcontractors. Operator
may not retain any third party or otherwise enter into any subcontracting
arrangement to perform Operator’s duties under this Services Agreement
without the prior written consent of Owners.

 

20.12                     Transfers
and Assignments.

 

20.12.1            By Operator. The Parties expressly agree and acknowledge that Owners have retained
Operator to manage the Racing Operations based on factors personal to Operator
and Guarantor, and that Owners are relying on the business skills, knowledge,
judgment and experience of Operator and Guarantor. Accordingly, (i) Operator
may not transfer or assign its interest in or its rights or obligations
under this Services Agreement; and (ii) Guarantor may not transfer or
assign a direct or indirect (through Operator’s shareholders or otherwise)
controlling or majority voting interest in Operator or all or substantially all
of the assets of Operator (for purposes of clarity, this prohibition shall not
apply to a change in control of the voting interests of the Guarantor itself),
without the prior written consent of Owners, which Owners may withhold in
their sole and absolute discretion.

 

20.12.2            By Owners. Owner may not assign or transfer its rights or obligations under
this Service Agreement without the consent of Operator; provided, however,
that after the Repayment Date, Owners may transfer their interest in this
Services Agreement to any Affiliates without restriction, provided, that Owners shall deliver to
Operator reasonably prior notice of any such transfer.

 

20.13                     No
Third-Party Beneficiaries.
This Services Agreement is for the sole benefit of the Parties and their
permitted assigns and nothing herein, except as expressly provided otherwise in
this Services Agreement, is intended to or shall confer upon any other Person
any legal or equitable right, benefit or remedy of any nature whatsoever under
or by reason of this Services Agreement.

 

20.14                     Amendment. This Services Agreement may not be
amended or modified except by an instrument in writing signed by the Parties.

 

20.15                     Governing
Law; Jurisdiction; Service of Process. This
Services Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York. The Parties 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 Services Agreement.

 

20.16                     Waiver of
Jury Trial. EACH OF
OWNERS AND OPERATOR 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 SERVICES AGREEMENT OR THE ACTIONS
OF OWNERS OR OPERATOR IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT THEREOF.

 

51

 

20.17                     Specific
Performance. The Parties
agree that irreparable damage would occur in the event any provision of this
Services 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.

 

20.18                     Attorneys
Fees. If any Party
commences any legal action to interpret or enforce the provisions of this
Services Agreement, then the prevailing Party in the action shall be entitled
to a reasonable award of attorneys’ fees, investigative and other similar costs
and expenses associated therewith. Owners and Operator are each responsible for
their respective attorneys’ fees in connection with the preparation and
execution of this Services Agreement.

 

20.19                     Counterparts. This Services Agreement and any amendments,
waivers or supplements may be executed in any number of counterparts and
by the Parties in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all of which counterparts together
shall constitute but one and the same instrument.

 

20.20                     Reasonableness. With respect to any provision of this Services
Agreement that requires the approval or consent of Owners, the Parties agree
that it shall not be deemed unreasonable for Owners to object or withhold
approval or consent if the basis thereof is that the item at issue could
reasonably have a material adverse effect on the Gaming Operations, the Casino
or the assets, business of properties of any Owner or their Affiliates.

 

20.21                     Note
Documents.
Notwithstanding anything to the contrary in this Services Agreement or any
other Transaction Documents (as defined in the Note Agreement), prior to the
Repayment Date, nothing in this Services Agreement will restrict or impair any
rights of Agent or any Holder (each as defined in the Note Agreement) under any
of the Note Documents or limit any Owner’s or any other Loan Party’s (as
defined in the Note Agreement) obligations under the Note Documents and in the
case of any conflict between the Services Agreement and the Note Documents with
respect to any of the foregoing, the Note Documents shall prevail.

 

 

[Signature Page Follows]

 

52

 

IN
WITNESS WHEREOF, the Parties have executed this Services Agreement as of the
Effective Date.

 

	
  WASHINGTON
  TROTTING

  	
  MOUNTAIN
  LAUREL RACING, INC.

  
	
  ASSOCIATION, INC.

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
    /s/
  William J. Paulos

  	
   

  
	
  By:

  	
    /s/
  William J. Paulos

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
    William J. Paulos

  	
   

  
	
  Name:

  	
    William J. Paulos

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
    President

  	
   

  
	
  Title:

  	
    President

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  MEC
  PENNSYLVANIA FOOD

  	
  MEC
  RACING MANAGEMENT

  
	
  SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
    /s/
  William J. Paulos

  	
   

  
	
  By:

  	
    /s/
  William J. Paulos

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
    William
  J. Paulos

  	
   

  
	
  Name:

  	
    William
  J. Paulos

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
    President of
  Washington

    Trotting Association, Inc.,

    its Partner

  	
   

  
	
  Title:

  	
    President

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MEC
  PENNSYLVANIA RACING

  	
   

  
	
  SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
    /s/
  B. Tohana

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
    Blake Tohana

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
    Authorized
  Signatory

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  With Respect to Sections
  3.1.16, 3.1.18,

  	
   

  	
  MEC
  PENNSYLVANIA RACING, INC.

  	
   

  
	
  15.6, 20.2, 20.3, ARTICLE 12,
  ARTICLE 17,

  	
   

  	
   

  	
   

  
	
  ARTICLE 18 and ARTICLE 19:

  	
   

  	
  By:

  	
    /s/
  William J. Paulos

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MAGNA
  ENTERTAINMENT CORP.

  	
   

  	
  Name:

  	
    William J. Paulos

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
    /s/
  B. Tohana

  	
   

  	
  Title:

  	
    President

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
    Blake
  Tohana

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
    Authorized
  Signatory

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
    /s/
  Mary Lyn Seymor

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
    Mary Lyn Seymor

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
    Authorized
  Signatory

  	
   

  	
   

  	
   

  
														

 

Signature Page to Racing
Services Agreement

 

 

List of
Exhibits

 

	
  Exhibit A

  	
  OTBs

  
	
   

  	
   

  
	
  Exhibit B

  	
  Meadows Facility

  
	
   

  	
   

  
	
  Exhibit C

  	
  Comparable Facilities

  

  Hawthorne Racecourse, Stickney/Cicero, Illinois

  

  Saratoga Gaming & Raceway in Saratoga Springs, New York (harness
  race track)

  
	
   

  	
   

  
	
  Exhibit D

  	
  Racing Operations
  Agreements

  
	
   

  	
   

  
	
  Exhibit E

  	
  Certain Racing Operations
  Agreements in Owners’ name

  
	
   

  	
   

  
	
  Exhibit F

  	
  Table of Organization

  
	
   

  	
   

  
	
  Exhibit G

  	
  Business Plan

  
	
   

  	
   

  
	
  Exhibit H

  	
  Representatives; Racing
  General Manager

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00107-of-00352.parquet"}]]