Document:

EXHIBIT 10.17

 

GROUND LEASE AGREEMENT

 

This
Ground Lease Agreement (the “Agreement”),
is made and entered into by and between Dakota\Blackhawk,
LLC, a Colorado limited liability company (hereinafter referred to
as “Lessor”) and Jacobs Entertainment, Inc.,
a Delaware corporation and/or assigns (hereinafter referred to as “Lessee”)
(sometimes Lessor and Lessee are referred to singularly as a “Party” and
collectively as the “Parties”).

 

P R E M I S E S:

 

WHEREAS, Lessor and Lessee are the Parties to that certain “Option Purchase
Agreement” dated September 12, 2005, 2005 (the “Option Agreement”), a copy
of which is attached hereto as Exhibit “A” and incorporated herein
by reference as if fully copied and set forth at length;

 

WHEREAS, attached to the Option Agreement, as an exhibit, is that certain “Real
Estate Sales Contract” (the “Real Estate Contract”) which is to be executed by
Lessor and Lessee pursuant to the terms of the Option Agreement, an unsigned
copy of which is attached hereto as Exhibit “B” and incorporated
herein by reference as if fully copied and set forth at length;

 

WHEREAS, Lessor is the owner of that certain tract of real property
(hereinafter referred to as the “Property”), as more particularly described on Exhibit “C”
attached hereto and incorporated herein by reference as if fully copied and set
forth at length; and

 

WHEREAS, pursuant to the Option Agreement, Lessor desires to lease to Lessee
and Lessee desires to lease from Lessor the Property upon the terms and
conditions herein provided.

 

A G R E E M E N T:

 

NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and
agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged and confirmed, the Parties
agree to the lease of the Property upon the following terms and conditions:

 

1.                                      PROPERTY. 
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the
Property.

 

2.                                      TERM.  The
term of this Agreement (“Term”) shall begin on the date hereof and end on the
date the Option Agreement terminates or, if the Option thereunder is exercised
and the Real Estate Contract is signed, on the termination or Closing of the
Real Estate Contract.

 

3.                                      RENT. 
Lessee agrees to pay to Lessor as rent due under this Agreement the sum
of $1.00, at Lessor’s address described in Section 13, below.

 

1

 

4.                                      USE OF PROPERTY. 
Lessee may use the Property for any and all lawful purposes including
all inspection, testing and examination purposes as described in the Option
Agreement and the Real Estate Contract. 
Lessee shall not use the Property in any manner that violates any
statute applicable thereto or for any illegal purpose.  Lessee shall have the right to erect fencing
of Lessee’s discretion (with locked gates) surrounding the perimeter of the
Property in order to limit access to the Property (subject to the rights of
Lessor set out in this Agreement). 
Lessor shall not erect any other improvement on the Property without the
written consent of Lessor which may be withheld in Lessor’s sole
discretion.  If Lessee does not obtain
title to the Property, Lessee shall remove the fence and any other permitted
improvements at Lessee’s expense at the end of the Term of the Lease.

 

5.                                      CONDITION OF PROPERTY. 
Lessee accepts the Property in its present condition and state of
repair.

 

6.                                      INSPECTIONS. 
Lessor may enter upon the Property at all reasonable times upon
forty-eight (48) hours prior written notice to Lessee to inspect the condition
of the Property.

 

7.                                      REPAIRS AND MAINTENANCE.  At
the end of the Term, Lessee shall bear all expenses of restoring the Property
to its prior condition subject to and in accordance with the terms of the
Option Agreement and the Real Estate Contract.

 

8.                                      ASSIGNMENT. 
Lessee may assign its rights under this Agreement at any time during the
Term without the prior written consent of Lessor, provided such assignment is
effected as part of an assignment of contract rights pursuant to the terms of
the Option Agreement and/or Real Estate Contract.

 

9.                                      DEFAULT AND REMEDIES.  Should Lessee default in the payment of rent as and when due and not
correct same within five (5) days after receipt of written notice from
Lessor to Lessee, Lessor may declare this Agreement, and all rights and
interest created by it, to be terminated.

 

10.                               WARRANTY OF TITLE.  Lessor hereby represents and warrants that it is the owner of the
Property and has the express actual authority to execute this Agreement.  Lessor covenants and agrees that as long as
Lessee pays the rent as provided in this Agreement and observes and keeps the
covenants, conditions, and terms of this Agreement, Lessee shall lawfully and
quietly hold, occupy, and enjoy the Property during the Term.

 

11.                               NOTICES.  All
notices, demands, requests, and other communications under this Agreement shall
be in writing or electronic format and shall be deemed properly served and
delivered when: (a) delivered by hand to the Party to whose attention it
is directed; or (b) posted, if sent by registered or certified mail,
return receipt requested, postage pre-paid addressed; or (c) actually
received by the addressee thereof, after being sent by overnight delivery (such
as Federal Express); or (d) sent to the addressee by confirmed telecopier,
facsimile, electronic transmission (email) or similar transmission, as follows
(or at such changed address as the Parties may from time to time specify in
writing):

 

2

 

	
  If to Lessor:

  
	
   

  
	
   

  	
  Dakota/Blackhawk, LLC

  
	
   

  	
  1700 Kylie Drive,
  Suite 240

  
	
   

  	
  Longmont, Colorado
  80501

  
	
   

  	
  Attn: Wendell Pickett
  and Roger Pomainville

  
	
   

  	
  303-772-8348

  
	
   

  	
  303-772-8565
  (facsimile)

  
	
   

  
	
  With A Required Copy
  To:

  
	
   

  
	
   

  	
  Christopher C. O’Dell

  
	
   

  	
  O’Dell & Fell,
  LLC

  
	
   

  	
  1600 Jackson Street

  
	
   

  	
  Suite 250

  
	
   

  	
  Golden, Colorado 80401

  
	
   

  	
  (303) 436-9200

  
	
   

  	
  (303) 436-9700
  (facsimile)

  
	
   

  
	
  If to Lessee:

  
	
   

  
	
   

  	
  Jacobs
  Entertainment, Inc.

  
	
   

  	
  240 Main Street

  
	
   

  	
  Black Hawk, Colorado 80224

  
	
   

  	
  Attention: Stephen R.
  Roark, President

  
	
   

  	
  (303) 582-1117

  
	
   

  	
  (303) 582-0239
  (facsimile)

  
	
   

  
	
  With A Required Copy
  To:

  
	
   

  
	
   

  	
  Jones &
  Keller, P.C.

  
	
   

  	
  1625 Broadway, 16th
  Floor

  
	
   

  	
  Denver, Colorado 80202

  
	
   

  	
  Attention:

  	
  Samuel E.
  Wing, Esq.

  
	
   

  	
   

  	
  R. Steven
  Jones, Esq.

  
	
   

  	
  (303) 573-1600

  
	
   

  	
  (303) 893-6506
  (facsimile)

  

 

12.                               EXPENSES. 
Lessee shall not be responsible for any expenses associated with the
ownership, operation and/or possession of the Property except for the
maintenance of casualty and liability insurance (in such amounts and coverage
scope as Lessee may elect, in its sole discretion), maintenance of commercial
general liability coverage (including contractual coverage and a waiver of
subrogation) with limits of no less that $3,000,000 and snow removal, litter
removal and weed cutting as required by the City of Blackhawk.  Lessor shall be responsible for all other
costs and expense associated with the ownership, operation and/or possession of
the Property including but not limited to property taxes, assessments,
insurance and utilities. Lessee hereby indemnifies, holds harmless and agrees
to defend Lessor of and from any and all claims, demands, liabilities, actions,
costs, expenses or causes of action, including,

 

3

 

but
not limited to, attorneys’ fees and costs, arising our of or related to the use
or possession of the Property by Lessee under this Lease except when caused
solely by Lessor or its agents’ or employees’: (a)  negligence; (b) willful
misconduct; or (c) breach of this Lease.

 

13.                               NO PARTNERSHIP.  The
relationship between Lessor and Lessee at all times shall remain solely that of
lessor and lessee and not be deemed a partnership or a joint venture.

 

14.                               EXHIBITS.  The
first page of all exhibits to this Agreement shall bear the initials of
each party hereto, and when so initialed, shall be conclusively deemed to be an
Exhibit hereto, whether or not physically attached to this Agreement.

 

15.                               ENTIRE AGREEMENT.  With
the exception of Section 33 of the Option Agreement, this Agreement
contains the entire understanding between the Parties hereto concerning the
lease of the Property.

 

16.                               ADVICE OF COUNSEL.  Each
of the Parties hereto represent that they have the advice and counsel of their
own attorneys and that no representation or statement made by any other party
has influenced them in executing or induced them to execute this Agreement.

 

17.                               FURTHER ACTS.  Each
Party hereto agrees to perform any and all such further and additional acts and
execute and deliver any and all such further and additional instruments and
documents as may be reasonably necessary in order to carry out the provisions
and effectuate the intent of this Agreement.

 

18.                               MODIFICATION.  Any
modification of this Agreement shall be in writing and agreed to by all
Parties.

 

19.                               AUTHORITY.  Each
Party hereto represents and warrants that it has full authority to execute the
Agreement and bind to the Agreement its respective partners, trustees,
beneficiaries, remaindermen, directors, officers, employees, agents, advisors,
attorneys, successors, assigns and personal representatives.

 

20.                               SEVERABILITY.  If
any provision hereof is held to be illegal, invalid, or unenforceable under
present or future laws effective during the Term, such provisions shall be duly
severable; this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; and the
remaining provisions hereof shall remain in full force and effect and shall not
be affected by the severance of the illegal, invalid, or unenforceable
provision or provisions.

 

21.                               GOVERNING LAW AND VENUE.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of Colorado.  The terms of this
Agreement shall be specifically performable in Gilpin County, Colorado.

 

22.                               BREACH. 
Should any party breach any part of this Agreement, and litigation
ensue, the Parties agree that the prevailing party shall be entitled to its
reasonable attorneys’ fees and costs in prosecuting or defending its claims.

 

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23.                               BENEFIT. 
Except as otherwise provided herein, this Agreement shall be binding
upon and inure to the benefit of the Parties hereto and their successors,
assigns, legal representatives, heirs and legatees.

 

24.                               PARAGRAPH HEADINGS.  All
paragraph headings set forth in this Agreement are for purposes of
identification and are intended for convenience only, and shall not control or
affect the meaning, construction or effect of this Agreement or any provision
hereof.

 

25.                               COUNTERPART EXECUTION.  This
Agreement may be executed in multiple counterparts, each of which shall be
fully effective as an original, for which together shall constitute only one (1) instrument.

 

26.                               MEMORANDUM OF LEASE. 
Lessee shall have the right to file a “Memorandum of Lease” with the
Office of the Clerk and Recorder or other appropriate public record custodian
having jurisdictional authority over the Property in the State of Colorado as
to the existence of this Lease.

 

IN WITNESS WHEREOF, the Parties hereunto set their hands and
seals as of the date above first stated.

 

	
   

  	
  LESSOR:

  
	
   

  	
   

  
	
   

  	
  DAKOTA/BLACKHAWK, LLC,

  a Colorado limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Roger Pomanville

  	
   

  
	
   

  	
   

  	
  Roger Pomanville,
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Wendell Gene
  Pickett

  	
   

  
	
   

  	
   

  	
  Wendell Gene Pickett,
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LESSEE:

  
	
   

  	
   

  
	
   

  	
  JACOBS ENTERTAINMENT,
  INC.,

  a Delaware corporation

  
	
   

  	
  And/Or Assigns

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen R. Roark

  	
   

  
	
   

  	
  Printed Name: Stephen
  R. Roark

  
	
   

  	
  Title:  President/Chief
  Financial Officer

  
						

 

5

 

EXHIBIT “A”

 

OPTION PURCHASE AGREEMENT

 

This
Option Purchase Agreement (“Agreement”) is entered into this          
day of September 2005 to be effective on the Effective Date (defined in Section 19,
below) by and between Dakota\Blackhawk, LLC,
a Colorado limited liability company (hereafter collectively, the “Dakota Group”)
and Jacobs Entertainment, Inc.,
a Delaware corporation and/or assigns (hereafter “JEI”) (sometimes Dakota Group
and JEI are referred to singularly as a “Party” and collectively as the “Parties”).

 

RECITALS:

 

WHEREAS,
Dakota Group is the owner of approximately 2.2258 acres of undeveloped land
situated in Gilpin County, Colorado,
(containing 96,956 square feet), the legal description of which is attached
hereto as Exhibit “A” and incorporated herein by reference as if
set out word for word (the “Property”);

 

WHEREAS,
40,788 square feet of the Property is situated in the Gaming District of Gilpin
County, Colorado as established by The Colorado Limited Gaming Act, C.R.S. 12-47.1-105
and the ordinances adopted by the City of Black Hawk, Colorado;

 

WHEREAS,
JEI desires to purchase from Dakota Group an exclusive, non-revocable option to
acquire the Property (the “Option”);

 

NOW,
THEREFORE, in consideration of the mutual covenants contained herein and other
good and valuable consideration (including the consideration paid pursuant to Section 25,
below) the receipt and sufficiency of same is hereby acknowledged and confirmed
by the Parties, it is mutually agreed by the Parties as follows:

 

AGREEMENT

 

1.                                      Grant of Exclusive Option.  For
the consideration expressed in Sections 3 and 25 below, Dakota
Group hereby grants to JEI the exclusive, non-revocable right and option (the “Option”)
to purchase the Property at the price of $13,000,000.00 (the “Purchase Price”)
under and pursuant to the terms set forth in that certain “Real Estate Sales
Contract” attached hereto as Exhibit “B” and incorporated herein by
reference as if set out word for word (the “Real Estate Sales Contract”).

 

2.                                      Initial Option Period.  The
Option shall commence on the Effective Date and continue until 11:59 p.m.
on the date which is one (1) calendar year from the Effective Date (the “Initial
Option Period”), unless same is extended pursuant to the provisions of Section 4,
below.

 

3.                                      Consideration.  The
Option is granted in partial consideration of: 
(a) the payment by JEI to Escrow Agent (defined in Section 5,
below) for the conditional benefit of Dakota Group of the sum of $250,000.00,
on or before the Effective Date (the “Initial Deposit”) and (b) the payment
to Dakota Group of the sum of $250,000.00, no later than the date which is one
hundred eighty

 

6

 

(180)
calendar days from the Effective Date (collectively, the amounts identified in Section 3(a) and
(b) above, the “Initial Option Fee”).  JEI shall also pay to Dakota Group of the sum
of $100.00 pursuant to Section 25, below (the “Independent
Agreement Consideration”).  The Initial
Deposit shall be deposited by the Escrow Agent in an interest bearing account
of JEI’s election and all interest accruing thereon shall belong to JEI.    All references in this Agreement to the “Total
Option Fee” shall include: (i) the Initial Option Fee; (ii) any
Extension Fee paid pursuant to Section 4, below; and (iii) all
interest amounts accruing on the Initial Option Fee and the Extension Fee.

 

4.                                      Extension Right.  Notwithstanding anything in this
Agreement to the contrary, JEI, at its sole election, shall have the right to
extend the Initial Option Period (the “Extension Right”), for an additional
time period of one (1) calendar year (the “Extension Period”) upon the
payment by JEI of the additional sum of $500,000.00 to Dakota Group (the “Extension
Fee”). The Extension Period shall be computed by excluding the expiration date
of the Initial Option Period and counting the last day of the Extension Period
(expiring at 11:59 p.m., local time). 
JEI shall have the option to exercise the Extension Right at any time
prior to the expiration of the Initial Option Period.

 

5.                                      Escrow Agent.  The
term “Escrow Agent” as used in this Agreement shall mean Gilpin Title, LLC of
Golden, Colorado.  The Escrow Agent shall
hold the Initial Deposit pursuant to the terms of this Agreement.

 

6.                                      Exercise of Option.

 

(a)                                  Exercise Notice.  JEI
may exercise the Option at any time during the Initial Option Period or the
Extension Period (if the Extension Right is exercised) by delivery of a written
or electronic notice to Dakota Group as to such election (the “Exercise Notice”).  Within ten (10) days of the delivery of
the Exercise Notice to Dakota Group, Dakota Group and JEI shall execute the
Real Estate Sales Contract and cause a fully executed original of same to be
delivered to Escrow Agent (and a fully executed copy of same shall be delivered
to each Party).  Delivery of the Exercise
Notice shall be effected in accordance with the notice provisions of Section 22,
below.  If JEI fails to execute the Real
Estate Sales Contract within the ten (10) days provided and if either the
Initial Option Period or the Extension Period (if the Extension Right is
exercised) has run, then the Option shall be deemed waived and JEI shall no
longer have the right to purchase the Property.

 

(b)                                 Exercise Condition.  JEI
may not exercise this Option if it is in default for failure to pay the Initial
Option Fee when due or for failure to pay the Extension Fee when due and same
has not been cured within ten (10) days after receipt of written notice
from Dakota Group that any such amount has not been received.

 

(c)                                  Release of Option Fees Upon Exercise of
Option.   Escrow Agent shall release to the Dakota
Group, on demand (without the necessity of the consent of JEI),the Initial
Option Fee upon the first to occur of:  (i) the
exercise of the Option pursuant to this Agreement or (ii) upon the
expiration of the 60th day from the Effective Date, in the event JEI
has not elected to terminate this Agreement pursuant to Sections 9 and 14,
below).

 

7

 

7.                                      Application To Purchase
Price.   If the
Option is exercised pursuant to this Agreement, then fifty percent (50%) of the
Initial Option Fee and fifty percent (50%) of the Extension Fee (if paid),
shall be applied to the Purchase Price at the Closing of the Real Estate Sales
Contract (and otherwise administered pursuant to the terms of such instrument).

 

8.                                      Recording of Options.  JEI
shall have the right to file a “Memorandum of Option” with the Office of the
Clerk and Recorder or other appropriate public record custodian having
jurisdictional authority over the Property in the State of Colorado as to the
existence of this Option or any extension of same.  The form of Memorandum of Option which JEI is
authorized to file of record is attached hereto as Exhibit “C” and
incorporated herein by reference as if set out word for word.

 

9.                                      Inspection Period; Inspection
Rights.

 

(a)                                  Inspection
Rights.  During the term of this
Agreement, JEI shall have the right to conduct an inspection and examination of
the Property (the “Inspection Period”).  During the Inspection Period,
JEI, or JEI’s authorized agents or representatives, shall be entitled (and
permitted) to enter upon the Property for the purpose of inspecting, examining
and making tests upon and/or conducting an evaluation of the Property
(including, but not limited to, those inspections described in Section 10,
below).

 

(b)                                 Termination
Right.  If JEI, in JEI’s sole
discretion, is dissatisfied with the results of JEI’s inspection of the
Property (for any reason or no reason), JEI may, by written or electronic
notice delivered to Dakota Group or Escrow Agent prior to the expiration of the
60th day from the Effective Date (the “Refund Inspection Period”),  terminate this Agreement and upon such event,
the Initial Deposit, as well as all interest accrued thereon, shall be returned
to JEI (by Escrow Agent) on demand (without the necessity of the consent of
Dakota Group), and neither Dakota Group nor JEI shall have any further
obligations hereunder except as provided in Section 9(d). If JEI
does not terminate this Agreement by delivery of such notice prior to the
expiration of the Refund Inspection Period, JEI’s shall still have the right to
terminate this Agreement during the Inspection Period but shall not be entitled
to receive a refund of the Total Option Fee, except as set out in Section 9
(c), below.

 

(c)                                  Refund
Right Beyond Refund Inspection Period. 
Notwithstanding anything herein to the contrary, JEI shall be entitled
to receive a refund of the Total Option Fee under the following conditions:

 

(i)                                     the
refusal by Dakota Group to close under the Real Estate Sales Contract upon the
proper exercise of the Option by JEI; or

 

(ii)                                  the
failure or inability of Dakota Group to deliver fee simple title to the
Property, free and clear of all mortgages, liens, claims, encumbrances,
easements, encroachments and judgments as provided in the Deed to be delivered
at Closing and as otherwise required pursuant to the Real Estate Sales
Contract; or

 

8

 

(iii)                               pursuant
to Section 5.1(c) of the Real Estate Sales Contract.

 

(d)                                 Indemnity
Obligation.  In the event JEI fails
to consummate the closing of the purchase of the Property (other than for
Dakota Group’s breach of this Agreement), JEI agrees to indemnify and hold
Dakota Group harmless from all costs and expenses actually paid by Dakota Group
(supported by verified evidence of same) which arise from damages to the Real
Property in connection with JEI’s inspection of the Property.  JEI agrees to indemnify and hold Dakota Group
harmless from damages arising out of injuries sustained by third parties in
connection with JEI’s inspection of the Property. The obligations of JEI under
this Section 9 (d) shall survive the termination of this
Agreement for a period of three (3) months.

 

10.                               Environmental Inspection.  The inspection and examination of the
Property in relation to the environmental condition of the Property shall be
governed by the following:

 

(a)                                  Examination
Authority.  JEI shall have the right
to conduct a “Phase I”, “Phase II” and/or a “Phase III” environmental site
assessment (collectively or singularly as the context requires, the “Environmental
Survey”) of the Property.,   If an
Environmental Survey is conducted, then JEI shall cause a copy of the written
report setting forth the findings obtained in that Environmental Survey to be
delivered to Dakota Group.

 

(b)                                 Remediation/Termination.  If, as a result of the Environmental Survey,
or by any other means, JEI or Dakota Group becomes aware of the existence of
Hazardous Substances (as hereinafter defined in Section 10(c),
below), or other environmental contamination, on or within the Property, then
JEI shall have the right to terminate this Agreement. If JEI terminates this
Agreement prior to the expiration of the Refund Inspection Period pursuant to
this Section 10, then the Total Option Fee shall be returned to JEI
on demand (without the necessity of the consent of Dakota Group) and the
Parties shall have no further obligations under this Agreement, except for
those obligations that expressly survive termination of this Agreement.

 

(c)                                  “Hazardous
Substances.” For purposes of this Agreement, the term “Hazardous       Substances”
shall mean and include all hazardous and toxic substances, waste or other
materials, any pollutants or contaminants as defined in Section 101 (14)
of the Comprehensive Environmental Response Compensation and Liability Act, as
amended, 42 U.S.C. Section 9301 (14) (including, without limitation,
asbestos and raw materials which include hazardous constituents), or other
similar substances, or materials which are included under or regulated by any
local, state, or federal law, rule, or regulation pertaining to environmental
regulation, contamination or clean-up, including, without limitation, “CERCLA”,
“RCRA”, or state superlien or environmental clean-up statutes, as may be
amended, (all such laws, rules and regulations being referred to
collectively as “Environmental Laws”).

 

9

 

11.                               Document Inspection.

 

(a)                                  Dakota
Group Obligation.  To facilitate JEI’s
inspection of the Property, Dakota Group shall provide to JEI, at Dakota Group’s
sole cost and expense, within three (3) days of the Effective Date, the
following:

 

(i)                                     True, correct
and complete copies of all leases relating to the Property, if any, and any
amendments thereto.  Additionally, Dakota
Group will provide JEI access to Dakota Group’s records regarding expense and
income items in order to enable JEI to complete an audit of such leases;

 

(ii)                                  A
true, correct and complete schedule (the “Operating Schedule”) reflecting,
with respect to the Property, for the twelve (12) month period preceding the
month of execution of this Agreement (including any interim reports): (i) all
operating expenses and capital expenditures of the Property; and (ii) the
aggregate rent collected from tenants of the Property during such period, if
any;

 

(iii)                               A
true, correct and complete inventory of all personal property located upon the
Property;

 

(iv)                              A
true, correct and complete copy of all service and other agreements, as well as
any amendments thereto, pertaining to the Property on which Dakota Group is
obligated (the “Third Party Agreements”), showing: (i) the names of the
parties to each agreement; (ii) the service rendered or to be rendered
under each agreement; (iii) the compensation payable by Dakota Group under
each agreement; and (iv) the term and expiration date of each agreement;

 

(v)                                 True,
correct and complete copies of all certificates of occupancy, licenses and
permits required by law and issued by all governmental authorities having
jurisdiction, if any, concerning the Property;

 

(vi)                              True,
correct and complete copies of all engineering, soils, historical preservation
and other professional reports in the possession, custody or control of Dakota
Group and which relate to the Property;

 

(vii)                           True,
correct and complete copies of all utility bills for the Property for the
previous twelve (12) months;

 

(viii)                        True,
correct and complete copies of instruments, evidencing any actual or threatened
litigation relating to or with respect to the Property;

 

(ix)                                True,
correct and complete copies of all ad valorem and personal property tax
statements as well as all related assessment notices (including valuation
assessment documents) covering the Property for the current tax year (if
available);

 

(x)                                   A
true, correct and complete report for the Property of any prepaid rent by
tenants;

 

10

 

(xi)                                True,
correct and complete copies of any Environmental Site Assessments or other
environmental reports with regard to the Property which are in Dakota Group’s
possession, custody or control;

 

(xii)                             True,
correct and complete copies of all warranties and guaranties relating to the
Property;

 

(xiii)                          True,
correct and complete copies of all leasing or other commission agreements with
third parties with respect to the Property, with a summary of unpaid
commissions, if any;

 

(xiv)                         True,
correct and complete topographic, construction, engineering and architectural
plans and specifications with respect to the Property;

 

(xv)                            True,
correct and complete copies of appraisals, surveys and plats of the Property;

 

(xvi)                         Access
to all maintenance and other records which pertain to the Property;

 

(xvii)                      True,
correct and complete copies of all bids and estimates received by Dakota Group
or its agents during the twelve (12) month period prior to the Effective Date
for work to be performed at or for the benefit of the Property, which exceeds
in each instance, the sum of $500.00;

 

(xviii)                   True,
correct and complete copies of all documents and instruments evidencing rights
of ingress and egress to land from the Property, whether recorded in the public
records of Gilpin County, Colorado or otherwise;

 

(xix)                           True,
correct and complete copies of all agreements with owners or tenants of any
property adjacent to the Property (and which pertain in any manner to the
Property); and

 

(xx)                              All
documents and instruments relating in any manner to any pending, threatened or
anticipated condemnation or eminent domain proceeding or actions which affect
or relate to the Property including, but not limited to, that condemnation
proceeding referenced in Section 15(b)(iii), below.

 

(b)                                 Return of Materials.  JEI agrees that if for any reason the Closing
is not consummated, JEI will promptly return to Dakota Group all materials
furnished to JEI pursuant to this Section 11.

 

(c)                                  Third
Party Agreements.  Commencing upon the Effective Date, Dakota
Group will not enter into any Third Party Agreements (or modify same) without
the prior written consent of JEI.

 

11

 

12.                               Survey.

 

(a)                                  Dakota Group Obligations. 
Dakota Group, at Dakota Group’s sole cost and expense, shall provide to
JEI within five (5) days after the Effective Date, a current survey dated
within the sixty (60) day time period prior to the Effective Date (hereinafter
referred to as the “Survey”), of the Property prepared by a licensed surveyor
or professional engineer, which Survey:  (i) shall
be in form and content sufficient to delete the standard survey exception from
the Owner Policy; (ii) shall be accompanied by a metes and bounds
description of the Property which description shall tie the Property to the
adjacent property boundaries setting forth the acreage and square feet within
the Property; (iii) shall locate, and identify by volume and page reference,
if applicable, all existing improvements, fences, waterways, lakes, ponds,
encumbrances, encroachments, conflicts, protrusions, uses, highways, streets,
roads, easements, alleys and rights-of-way, upon or adjacent to the Property,
which are visible on the ground or listed in the Commitment; (iv) shall
show the location of the “100-year frequency flood plain” on the Property, if
applicable, or, if inapplicable, shall certify that such flood plain does not
affect the Property; (v) shall set forth the number of gross acres and
square feet contained in the Property; (vi) shall identify and establish
the square footage and location of the portion of the Property situated within
the Gaming District of Gilpin County, Colorado as established by the Colorado
Limited Gaming Act, C.R.S. 12-47.1-105 and the ordinances adopted by the City
of Black Hawk, Colorado; and (vii) shall meet or exceed in all aspects the
“Minimum Standard Detail Requirements for Land Title Surveys” jointly
established and adopted by the American Land Title Association, the American
Congress on Surveying and Mapping and the National Society of Professional
Surveyors in 1999, as amended from time to time.

 

(b)                                 Certification.  The
Survey shall further contain a certificate by the surveyor or engineer,
addressed to Dakota Group, JEI, the Title Company and any lender of JEI
(designated by JEI) in the form and substance set out on Exhibit “D”
attached hereto and incorporated herein, as if set out word for word.

 

13.                               Title. 
Within fifteen (15) days after the Effective Date,  Dakota Group, at its sole cost and expense,
shall cause to be delivered to JEI a Commitment for Title Insurance, Colorado
standard form (hereinafter referred to as the “Commitment”), together with
true, correct, complete and legible copies of all instruments and documents
referred to therein as exceptions to title covering the Property, in the amount
of the Purchase Price, in favor of JEI, pursuant to which the Title Company
agrees, subject to the provisions thereof, to issue at the Closing of the Real
Estate Sales Contract an Owner Policy of Title Insurance (hereinafter referred
to as the “Owner Policy”).

 

14.                               Termination.

 

(a)                                  Refund Inspection Period.  At
any time prior to the expiration of the Refund Inspection Period, JEI shall be
entitled, for any reason, to terminate this Agreement by giving a written or
electronic notice of same to either Dakota Group or the Escrow Agent (the “Refund
Inspection Period Termination Notice”). 
Upon delivery of the Refund Inspection Period Termination Notice to
either Dakota Group or Escrow Agent: (i) this Agreement shall become
automatically null and void and of no effect without the necessity of further
action or consent of either Party; and (ii) the Escrow

 

12

 

Agent shall be deemed authorized and
instructed by the Parties to return the Initial Deposit (and all interest
accrued thereon) to JEI, free and clear of all liens, claims, encumbrances and
charges, minus a reasonable escrow fee to be agreed upon by JEI and the Escrow
Agent.

 

(b)                                 Post-Refund Inspection Period Termination.  At
any time after the expiration of the Refund Inspection Period and prior to the
Closing of the Real Estate Sales Contract, JEI shall have the right, for any
reason, to terminate this Agreement by giving a written or electronic notice to
either Dakota Group or Escrow Agent (the “Post-Refund Inspection Period Termination
Notice”). Upon delivery of the Post-Refund Inspection Period Termination Notice
to either Dakota Group or Escrow Agent, this Agreement shall become
automatically null and void and of no effect without the necessity of further
action or consent of either Party. Provided, however, upon the issuance of a
Post-Refund Inspection Period Termination Notice, the Initial Option Fee and
any Extension Fee, if paid, shall be deemed non-refundable to JEI.

 

(c)                                  Refund Exception. 
Notwithstanding the immediately preceding Section 14(b), the
Total Option Fee shall be refundable to JEI after the expiration of the
Inspection Period pursuant to the provisions of Section 9(c),
above.

 

(d)                                 Expiration of Option.  Upon
the expiration of the Initial Option Period (or the Extension Period, if the
Extension Right is exercised), without the Refund Inspection Period Termination
Notice or the Post-Refund Inspection Period Termination Notice or the Exercise
Notice having been given by JEI under this Agreement, then:  (i) this Agreement shall automatically
terminate without the necessity of further action or consent of either Party;
and (ii) the Escrow Agent shall record the quitclaim deed in accordance
with Section 18, below.

 

15.                               Dakota Group Representations,
Warranties and Covenants.

 

(a)                                  Dakota Group Covenants.  In addition to any other agreements or covenants
set out in this Agreement, Dakota Group further agrees to the following:

 

(i)                                     Access.  During the term of this
Agreement (including but not limited to the Inspection Period), Dakota Group
agrees to provide JEI with reasonable access to the Property from time to time
in the discretion of JEI, in order for JEI to inspect the Property.

 

(ii)                                  Cooperation.  Dakota Group agrees to undertake all
reasonable efforts to cooperate with JEI in connection with any matter
involving JEI’s inspection of the Property.

 

(iii)                               No Further Encumbrance; Standstill Obligation. 
Dakota Group agrees that, commencing on the Effective Date, it will
not:  (i)  cause or allow the
Property to be encumbered by any claim, lien (other than liens of record
existing as of the Effective Date or any refinancing or extension thereof in an
amount not to exceed the current amount) or contaminated by any Hazardous
Substances; or (ii) negotiate to enter

 

13

 

into or enter into a back-up contract for the sale of all or part of
the Property; or (iii) negotiate to enter into or enter into an agreement
for an option to purchase all or part of the Property, unless and until this
Agreement expires or is otherwise terminated.

 

(b)                                 Dakota Group Representations and Warranties.
Dakota Group represents and warrants to JEI as of the Effective Date (and
restates and reaffirms each and every item below as of the Closing Date of the
Real Estate Sales Contract) the following:

 

(i)                                     Subject
to the provisions of the Deed to be delivered at Closing, Dakota Group has
good, indefeasible, and fee simple title to the Property, free and clear of all
mortgages, liens, claims, encumbrances, leases, tenancies, security interest,
covenants, conditions restrictions, rights-of-way, easements, judgments or
other matters affecting title other than those shown on the Commitment and
otherwise permitted herein.

 

(ii)                                  This
Agreement has been duly authorized and executed by Dakota Group and is a valid
and binding obligation of, and is enforceable, in accordance with its terms,
against Dakota Group.  The documents
delivered to JEI at Closing will be duly authorized and executed by Dakota
Group and will be a valid and binding obligation of, and will be enforceable in
accordance with their terms, against Dakota Group.

 

(iii)                               There
is no pending or threatened condemnation or similar proceeding affecting the
Property or any portion thereof, or pending public improvements, liens, or
special assessments, in, about or outside the Property which will in any manner
affect the Property or affect access to the Property or affect JEI’s use of the
Property (as a gaming facility, hotel or otherwise). Provided, however, Dakota
Group shall receive all compensation relating to the pending condemnation of
street (the “Bobtail Street Condemnation Area”) and sidewalk (the “Sidewalk
Easement Condemnation Area”) described and depicted on Exhibit “E”
attached hereto and incorporated herein as if set out word for word.  Seller further represents and warrants that
the Bobtail Street Condemnation Area is comprised of five hundred seven square
feet (507 sq. ft.), does not constitute part of the Property and is not situated
within the Gaming District of Gilpin County, Colorado.  Seller further represents and warrants that
the Sidewalk Easement Condemnation Area is comprised of three thousand two
hundred eighty square feet (3,280 sq. ft.), none of which is situated within
the Gaming District of Gilpin County, Colorado but all of which is included in
the description of the Property.

 

(iv)                              Except
as provided in Subsection (iii) above, there is no pending or
threatened legal action of any kind or character whatsoever affecting the
Property or any portion thereof which will in any manner affect JEI upon the
consummation of the Closing, nor is any such action presently contemplated.

 

(v)                                 Dakota
Group has complied with all applicable laws, ordinances, regulations, statutes,
rules and restrictions pertaining to and affecting the Property, and
Dakota Group’s performance of this Agreement will not result in any breach of,
or constitute any default under, or result in the imposition of, any lien or
encumbrance upon the Property under any agreement or other instrument to which
Dakota Group is a party or by which Dakota Group or the Property might be
bound.

 

14

 

(vi)                              Subject
to the Lease provided for below, Dakota Group will operate and manage the
Property in substantially the same manner it has been operated and managed
prior to the execution of this Agreement and will maintain the physical
condition of the Property in the same or better condition as it presently
exists to the date of Closing, reasonable wear and tear excepted.

 

(vii)                           All
documents delivered pursuant to Section 11 are the most recent
documents in existence in connection with the operation and maintenance of the
Property.  The balance of such statements
for the preceding thirty-six (36) months shall be made available to JEI within
five (5) days of JEI’s request.

 

(viii)                        No
action has been taken with respect to work performed or delivery of material
which would give rise to a lien on the Property and at Closing, there will be
no claim in favor of any person or entity which is or could become a lien on
the Property, arising out of the furnishing of labor or materials at Dakota
Group’s request; there will be no unpaid assessments against the Property,
except for property taxes assessed but not due and payable at the time of
Closing; and there will be no claim in favor of any person or entity (including
the present management company) for any unpaid commissions or fees for leasing
of the Property.  In the event of any such
claims at Closing, Dakota Group shall, at JEI’s option:  (aa) establish with the Title Company an
escrow of funds in an amount and upon conditions reasonably acceptable to
Dakota Group and JEI, or (bb) provide a bond in favor of JEI or Title Company
(or Title Company’s underwriter) in such amount, upon such conditions and for
such purposes as may be satisfactory to JEI, Dakota Group and Title Company, in
either case for the purpose of providing for such claims and/or inducing the
Title Company to insure JEI’s title to the Property free and clear of such
claims.

 

(ix)                                Dakota
Group agrees that benefits or compensation accrued prior to Closing, and due or
claimed to be due either before or after the Closing of the Real Estate Sales
Contract, to employees or former employees of Dakota Group shall constitute
obligations of Dakota Group only, and Dakota Group agrees to indemnify, defend
and hold JEI harmless from all such obligations and claims.

 

(x)                                   Dakota
Group will not borrow any money or do, or fail to do, any other act or thing
which would cause the Property to become pledged or otherwise utilized as
collateral or in any way stand as security for any indebtedness or obligation
(excepting encumbrances existing of record as of the Effective Date or any refinancing or extension thereof in
an amount not to exceed the current amount).

 

(xi)                                All
due and owing ad valorem taxes and personal property taxes, together with all
assessments or other charges for utilities, roads,  the widening of roads, sidewalks or any other
public infrastructure or any other fees imposed by any governmental authority
with respect to the Property which are currently due and payable, have been
paid in full.

 

(xii)                             To
the current knowledge of Dakota Group, no Hazardous Substances (as defined in Section 10,
above) are located on or about the Property.

 

15

 

(xiii)                          The
portion of the Property depicted on Exhibit “F” attached hereto and
incorporated herein as if set out word for word is situated within the Gaming
District of Gilpin County, Colorado.

 

(xiv)                         To
the current knowledge of Dakota Group, there are no pending assessments or
other charges for utilities, roads, widening of roads, sidewalks or any other
public infrastructure imposed by any governmental authority with respect to the
Property which will become due and owing after the Closing of the Real Estate
Sales Contract.

 

(c)                                  Continuing
Effect.  The representations,
warranties and covenants of Dakota Group contained in this Agreement or in any
document delivered to JEI pursuant to the terms of this Agreement (whether in
this Section 15 or elsewhere in this Agreement) shall be true and
correct in all material respects and not in default at the time of Closing of
the Real Estate Sales Contract, just as though they were made at such time,
Dakota Group shall deliver to JEI, at Closing of the Real Estate Sales
Contract, an affidavit to that effect.

 

(d)                                 Survival.  The provisions of this Section 15,
shall expressly survive the exercise of the Option and the Closing of the Real
Estate Sales Contract and shall not merge with the Deed or any conveyance
thereof for a period of one year from the date of Closing.

 

16.                               Condemnation.   During the period from the Effective Date of
this Agreement to the Closing of the Real Estate Sales Contract, all risk of
loss from condemnation or eminent domain, shall be borne by Dakota Group except
as set out in Section 15(b)(iii). 
If any condemnation proceedings are instituted or threatened, between
the Effective Date and the Closing of the Real Estate Sales Contract, JEI shall
have a period of twenty (20) calendar days (regardless of whether the Refund
Inspection Period has expired) to elect to: 
(a) terminate this Agreement and upon such event Dakota Group shall
within seven (7) days of JEI’s issuance of such notice, refund the Total
Option Fee to JEI and thereafter the Parties shall have no further obligations
to each other; or (b) proceed under this Agreement (and upon the exercise
of the Option, to proceed under the Real Estate Sales Contract), in which event
Dakota Group shall, at the Closing, assign to JEI its entire right, title and
interest in and to any condemnation or eminent domain award.  Notwithstanding any other language in this Section 16
to the contrary, if the condemnation or eminent domain is for less than 5% of
the total land area of the Property, JEI shall not be entitled to terminate
this Agreement and receive a refund of the Total Option Fee (unless JEI’s
notice of termination described above is delivered to Dakota Group prior to the
expiration of the Refund Inspection Period). 
The parties recognize that the property which the City of Blackhawk (“City”)
needs for Bobtail Street has been excluded from the description of the
Property.  Notwithstanding this Section 16
or any other provision of this Agreement, if the City condemns a sidewalk
easement on the lands shown in Exhibit E, Dakota Group shall be entitled
to retain all compensation paid for said easement and the amount of land
condemned thereby shall not be counted in the 5% described above in this Section 16.

 

17.                               Risk of Loss.  In
the event of material loss or damage to the Property prior to the Closing of
the Real Estate Sales Contract (and while this Agreement is in full force and
effect),

 

16

 

which
results in a diminution in the value of the Property (in Purchaser’s reasonable
determination) (each, a “Casualty Event”) and Seller cannot restore the
Property to its original condition and value within thirty (30) days
thereafter, to Purchaser’s satisfaction, JEI shall be entitled, within thirty (30) days of the occurrence of
such Casualty Event, to terminate this Agreement (and if the Option has been
exercised, to terminate the Real Estate Sales Contract) by giving a Refund
Inspection Period Termination Notice or a Post-Refund Inspection Period
Termination Notice to Dakota Group . 
Within seven (7) days of issuance of the applicable termination
notice described in the immediately preceding sentence, Dakota Group shall
refund the Total Option Fee to JEI.  In
the event JEI elects not to terminate this Agreement, JEI shall be entitled, on
exercise of the Option, to the rights set out in Section 9.1 of the
Real Estate Sales Contract.  The
provisions of this Section 17 shall expressly survive the exercise
of the Option.

 

18.                               Quitclaim Deed. 
Concurrently with the execution of this Agreement, JEI agrees to execute
and acknowledge a quitclaim deed quitclaiming its interest in the Property, and
to deliver the quitclaim deed to the Escrow Agent, who shall hold such
quitclaim deed in accordance with this provision.  On termination of this Agreement (without the
exercise of the Option pursuant to Section 6) or upon termination
of the Real Estate Sales Contract without Closing (except as a result of a
breach thereof by Dakota Group),  Escrow
Agent shall cause the quitclaim deed to be recorded in the Office of the Clerk
and Recorder, Gilpin County, Colorado. Dakota Group shall be responsible for
all reasonable costs of Escrow Agent for its performance in accordance with
this Section 18.

 

19.                               Effective Date. This Agreement (or a counterpart hereof) must
be executed by the Parties and a fully executed copy hereof (or executed
counterparts) deposited with the Escrow Agent not later than five (5) days
after execution hereof by the latter of the Parties (the confirmed date of
receipt by Escrow Agent of a fully executed original of this Agreement being
herein referred to as the “Effective Date”), or this Agreement shall become
null, void and of no effect whatsoever.

 

20.                               Successors and Assigns.  This
Agreement shall be binding upon and shall inure to the benefit of the Parties
hereto and their respective heirs, executors, personal representatives,
successors and assigns.  Dakota Group may
not assign this Agreement without the prior written consent of JEI except that
Dakota Group may assign this Agreement to a related entity without the consent
of JEI.  JEI may assign this Agreement if
such assignment is effected to an entity organized as a corporation, limited
liability company, limited partnership, limited liability partnership, limited
liability limited partnership, partnership or joint venture, the controlling
ownership and/or management of which resides in JEI so long as such assignee
assumes, in writing in an instrument delivered promptly to Dakota Group, all
obligations of JEI under this Agreement.

 

21.                               Counterparts.  This
Agreement may be executed in any number of identical counterparts, any or all
of which may contain the signatures of less than all of the Parties, and all of
which shall be construed together as a single instrument.

 

22.                               Notices.  All
notices, demands, requests, and other communications under this Agreement shall
be in writing or electronic format and shall be deemed properly served and
delivered when: (a) delivered by hand to the Party to whose attention it
is directed; or (b) posted, if sent by registered or certified mail,
return receipt requested, postage pre-paid addressed; or (c)

 

17

 

actually received by the addressee thereof, after
being sent by overnight delivery (such as Federal Express); or (d) sent to
the addressee by confirmed telecopier, facsimile, electronic transmission
(email) or similar transmission, as follows (or at such changed address as the
Parties may from time to time specify in writing):

 

	
  If to Dakota Group:

  
	
   

  
	
   

  	
  Dakota/Blackhawk, LLC

  
	
   

  	
  1700 Kylie Drive,
  Suite 240

  
	
   

  	
  Longmont, Colorado
  80501

  
	
   

  	
  Attn: Wendell Pickett
  and Roger Pomainville

  
	
   

  	
  303-772-8348

  
	
   

  	
  303-772-8565
  (facsimile)

  
	
   

  
	
  With A Required Copy
  To:

  
	
   

  
	
   

  	
  Christopher C. O’Dell

  
	
   

  	
  O’Dell & Fell,
  LLC

  
	
   

  	
  1600 Jackson Street

  
	
   

  	
  Suite 250

  
	
   

  	
  Golden, Colorado 80401

  
	
   

  	
  (303) 436-9200

  
	
   

  	
  (303) 436-9700
  (facsimile)

  
	
   

  
	
  If to JEI:

  
	
   

  
	
   

  	
  Jacobs
  Entertainment, Inc.

  
	
   

  	
  240 Main Street

  
	
   

  	
  Black Hawk, Colorado 80224

  
	
   

  	
  Attention: Stephen R.
  Roark, President

  
	
   

  	
  (303) 582-1117

  
	
   

  	
  (303) 582-0239
  (facsimile)

  
	
   

  
	
  With A Required Copy
  To:

  
	
   

  
	
   

  	
  Jones &
  Keller, P.C.

  
	
   

  	
  1625 Broadway, 16th
  Floor

  
	
   

  	
  Denver, Colorado 80202

  
	
   

  	
  Attention:

  	
  Samuel E.
  Wing, Esq.

  
	
   

  	
   

  	
  R. Steven Jones, Esq.

  
	
   

  	
  (303) 573-1600

  
	
   

  	
  (303) 893-6506
  (facsimile)

  

 

18

 

23.                               Entire Agreement.  The Parties agree that all the terms and conditions of this Agreement
are contained herein and declare that no promises, representations, guarantees,
warranties or agreements other than those expressly herein contained have been
made or relied upon by either of the Parties hereto.  This Agreement represents the complete
understanding between the Parties hereto as the subject matter hereof, and
supersedes all prior written or oral negotiations, statements, or agreements
between the Parties hereto as to the Property or this Agreement, the condition
thereof, or any other matter whatsoever, made or furnished by any real estate
broker, agent, employee or other person representing or purporting to represent
either Party hereto.

 

24.                               Governing Law.  This
Agreement shall be construed in accordance with the laws of the State of
Colorado.

 

25.                               Independent Consideration.  Upon execution of this Agreement by the Parties, JEI shall pay to
Dakota Group the sum of One Hundred and No/100 Dollars ($100.00) as independent
agreement consideration for Dakota Group’s execution, delivery and agreement to
be bound by all of the provisions of this Agreement (the “Independent Agreement
Consideration”).  The Independent
Agreement Consideration shall be non-refundable to JEI and not applicable to
the Purchase Price at the Closing of the Real Estate Sales Contract.

 

26.                               Significance of Headings.  All
paragraph headings set forth in this Agreement are for purposes of
identification and are intended for convenience only.

 

27.                               Exhibits.  All exhibits to this Agreement, if any, shall bear the initials of each
Party hereto, and when so initiated, shall be conclusively deemed to be an Exhibit hereto,
whether or not physically attached to this Agreement.

 

28.                               Advice of Counsel.  Each of the Parties hereto represent that they have had the opportunity
to seek the advice and counsel of their own attorneys; that they are relying
upon their own judgment, belief, and knowledge with respect to the nature and
extent of this Agreement; and that no representation or statement made by any
other party has influenced them in executing or induced them to execute this
Agreement.

 

29.                               Further Acts.  Each
Party hereto agrees to perform, without delay, any and all such further and
additional acts and execute and deliver any and all such further and additional
instruments and documents as may be reasonably necessary in order to carry out
the provisions and effectuate the intent of this Agreement.

 

30.                               Authority.  Each Party hereto represents and warrants that it has full authority to
execute this Agreement and bind to this Agreement its respective partners,
trustees, beneficiaries, remaindermen, directors, officers, employees, agents,
advisors, attorneys, successors, assigns and personal representatives.

 

31.                               Breach.  Should any Party breach any part of this Agreement and litigation
ensue, the Parties agree that the prevailing Party shall be entitled to its
reasonable attorneys’ fees and costs in prosecuting or defending its claim.

 

19

 

32.                               Construction.  This Agreement is the result of negotiations between the Parties,
neither of whom has acted under any duress or compulsion, whether legal,
economic or otherwise.  Accordingly, the
terms and provisions hereof shall be construed in accordance with their usual
and customary meanings.  The Parties
hereby waive the application of any rule of law which otherwise would be
applicable in connection with the construction of this Agreement that ambiguous
or conflicting terms or provisions should be construed against the Party who
(or whose attorney) prepared the executed Agreement or any earlier draft of the
same.

 

33.                               Lease of Property. 
Effective upon execution of this Agreement by the Parties and continuing
until the first to occur of:  (a) the
expiration or earlier termination of this Agreement or (b) the Closing or
termination of the Real Estate Sales Contract, Dakota Group hereby leases to
JEI for the sum of One Dollar and No/100 ($1.00) the Property (the “Lease”).  The Lease shall be evidenced by a written
lease agreement setting out such terms as may be satisfactory to JEI, in its
sole discretion, including, but not limited to: 
(a) the right of JEI to erect a fence around the perimeter of the
Property; (b) the right of JEI to the exclusive possession of the
Property; and (c) the right of JEI to record a Memorandum of Lease in the
public records of Gilpin County, Colorado. 
The Lease to be executed by JEI and Dakota Group is attached to this
Agreement as Exhibit “G” and incorporated herein as if set out word
for word.  Prior to the commencement date
of the Lease, Dakota Group shall be solely responsible for the proper and
complete termination of all rights of tenancy to the Property vested with any
third party as of the Effective Date.

 

34.                               Date Computation.  If
any date of significance hereunder falls upon a Saturday, Sunday or recognized
Federal holiday, such date will be deemed moved forward to the next day which
is not a Saturday, Sunday or recognized Federal holiday.  The terms “working day” shall mean days
elapsed exclusive of Saturday, Sunday or recognized Federal holidays.

 

35.                               Dispute Resolution/Mediation/Arbitration.

 

(a)                                  Informal Resolution.  The
Parties shall attempt amicably to resolve any controversy, dispute or
difference arising out of this Agreement.

 

(b)                                 Mediation Predicate.

 

(i)                                     In the event the Parties are unable to
resolve such dispute, the Parties shall submit same to mediation.

 

(ii)                                  Each Party covenants and agrees that, within
seven (7) days after receipt of the other Party’s written request for
mediation, it will participate in at least two (2) hours with a mediator
for each issue brought forward by any Party. 
Any mediation proceeding shall be conducted in Denver, Colorado.  The fees of the mediator shall be borne
equally by all Parties to the dispute, unless otherwise agreed by them in
writing and all other court fees (including attorneys’ fees) and expenses
incurred by any Party shall be borne solely by the Party incurring same;
provided, however, should any Party fail or refuse to follow the terms of this
paragraph in pursuit of mediation, then such Party shall be fully liable for
the fees of the mediator and all costs, fees (including reasonable attorneys’
fees) and expenses incurred by both Parties in the other Party’s pursuit of
such

 

20

 

mediation. 
An agreement by the Parties to settle any issues of such dispute shall
be regarded as a contract which provisions are conclusive as to those issues of
the dispute.

 

(c)                                  Arbitration.

 

(i)                                     After satisfaction of the mediation predicate
set out in Section 35(b), above), upon demand of either Party,
(whether made before or after the institution of any judicial proceeding) any
controversy or claim whatsoever arising out of or relating to this Agreement,
or the breach thereof, shall be settled by binding arbitration in Denver,
Colorado in accordance with the rules of the American Arbitration
Association (“AAA”) and judgment upon the award rendered by the arbitrator(s)
may be entered by any court having jurisdiction thereof.  THE PARTIES UNDERSTAND THAT BY AGREEING TO
BINDING ARBITRATION FOR THE RESOLUTION OF ANY DISPUTES THEY ARE WAIVING THEIR
RESPECTIVE RIGHT TO A JURY TRIAL.

 

(ii)                                  Any dispute submitted for arbitration shall
be referred to a panel of three (3) arbitrators.  The Party submitting (“Submitting Party”)
the intention to arbitrate (the “Submission”) shall nominate one
arbitrator.  Within thirty (30) days of
receipt of the Submission, the Party receiving the Submission (“Answering Party”)
shall nominate one arbitrator.  If the
Answering Party fails to timely nominate an arbitrator, then the second
arbitrator shall be appointed by the AAA in accordance with the industry
applicable AAA Rules (the “Rules”). 
If the arbitrator chosen by the Submitting Party and the arbitrator
chosen by or selected for the Answering Party can agree upon a neutral
arbitrator within fifteen (15) days of the choice or selection of the Answering
Party’s arbitrator, then such individual shall serve as the third
arbitrator.  If no such agreement is
reached, a third neutral arbitrator shall be appointed by the AAA in accordance
with the Rules.  The Parties agree that
they shall consent to an expedited proceeding under the Rules, to the full
extent the AAA can accommodate such a request.

 

(iii)                               The ruling of the arbitrators shall be
binding and conclusive upon all Parties hereto and any other person with an
interest in the matter.

 

(iv)                              Except as to either Party’s right to seek
injunctive relief under applicable law, the arbitration provision set forth
herein shall be a complete defense to any suit, action or other proceeding
instituted in any court regarding any controversy or claim (including, without
limitation, whether any controversy or claim is subject to arbitration) arising
out of or relating to this Agreement, or the breach thereof (whether, in any
case, involving: (x) a Party hereto, (y) their beneficiaries, successors,
assigns and subcontractors, or (z) such Party’s or successor’s directors,
officers, partners, members, managers, assigns or subcontractors,
representatives or agents); provided, however, that: (aa) any of the
parties to the arbitration may request a Colorado state court in Denver County,
Colorado, to provide interim injunctive relief in aid of arbitration hereunder
or to prevent a violation of this Agreement pending arbitration hereunder (and
any such request shall not be deemed a waiver of the obligations to arbitrate
set forth in this Section 35); (bb) any ruling on the award
rendered by the arbitrators may be entered as a final judgment in state or
federal court having jurisdiction over the Parties (and each of the Parties
hereto irrevocably submits to the jurisdiction of such court for such
purposes); and (cc) application may be made by a Party to any court of
competent jurisdiction

 

21

 

wherever situated for enforcement of any such final judgment and the
entry of whatever orders are necessary for such enforcement.  In any proceeding with respect hereto, all
direct, reasonable costs and expenses (including, without limitation, AAA
administration fees and arbitrator fees) incurred by the Parties to the
proceeding shall, at the conclusion of the proceeding, be paid by the Parties
incurring same.

 

(d)                                 Injunctive Relief. 
Nothing in this Section 35 shall prevent or prohibit a Party’s
right to seek injunctive relief under applicable law.

 

36.                               Recitals.  The
terms, definitions and provisions of the Recitals set out above are expressly
incorporated herein by reference as if set out word for word.

 

37.                               Defined/Capitalized Terms.  Any
capitalized terms which are not defined in this Agreement shall have the
meaning ascribed to such term in the Real Estate Sales Contract.

 

38.                               Survival. 
The provisions of Sections 7, 13, 15, 16, 17, 20, 22, 23,
24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37 and 38 of this
Agreement shall survive the exercise of the Option and the Closing of the Real
Estate Sales Contract and remain in full force and effect after Closing as
between the Parties hereto except to the extent limited herein and in the Real
Estate Sales Contract.  Provided,
further, nothing in this Section 38 shall construed or applied to
limit or negate the survival of other provisions in this Agreement which are
specified to expressly survive the exercise of the Option and the Closing of
the Real Estate Sales Contract but which may not be listed in this Section 38.

 

IN
WITNESS WHEREOF, the Parties have duly executed this Agreement on the 12th
day of September 2005.

 

 

	
   

  	
  DAKOTA
  GROUP:

  
	
   

  	
   

  
	
   

  	
  DAKOTA/BLACKHAWK, LLC,

  a Colorado limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Roger Pomanville

  	
   

  
	
   

  	
   

  	
  Roger Pomanville,
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Wendell G. Prichett

  	
   

  
	
   

  	
   

  	
  Wendell G. Prichett,
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  JEI:

  
	
   

  	
   

  
	
   

  	
  JACOBS ENTERTAINMENT,
  INC.,

  
	
   

  	
  And/Or Assigns

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen R. Roark

  	
   

  
	
   

  	
  Printed Name: Stephen
  R. Roark

  
	
   

  	
  Title: President/Chief
  Financial Officer

  
					

 

22

 

ACCEPTANCE
BY ESCROW AGENT

 

The undersigned title company, as Escrow Agent, hereby acknowledges
receipt of a fully executed original (or executed original counterparts) of the
foregoing Agreement and the sum of $250,000.00 as the Initial Deposit referred
to therein, and accepts the obligations of the Escrow Agent as set forth
therein.  The Effective Date of the
Agreement is the date identified below.

 

 

	
   

  	
  GILPIN
  TITLE, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/
  Mari O’Brien

  	
   

  
	
   

  	
  Name:

  	
    Mari
  O’Brien

  	
   

  
	
   

  	
  Title:

  	
  Commercial
  Escrow Officer

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
  September 13,
  2005

  	
   

  
	
   

  	
   

  	
  “Effective Date”

  
									

 

23EXHIBIT 10.18

 

Execution Version

 

Thoroughbred Horsemen’s Agreement

 

between Colonial Downs, L.P.,

Stansley Racing Corp. and

The Virginia Horsemen’s Benevolent

and Protective Association, Inc.

 

as of January 1, 2005

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Effective Date and Term of Agreement

  	
  2

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Exclusive Representation

  	
  2

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Accounts

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Thoroughbred Partners’ Account

  	
  3

  
	
   

  	
  B.

  	
  Horsemen’s Account

  	
  4

  
	
   

  	
  C.

  	
  Availability of Information on Accounts

  	
  4

  
	
   

  	
  D.

  	
  Distribution of Interest and Other Earnings on
  Accounts

  	
  4

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Administration of Accounts

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Amounts To Be Deposited

  	
  5

  
	
   

  	
  B.

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

  	
  5

  
	
   

  	
  C.

  	
  Signal Sales

  	
  5

  
	
   

  	
  D.

  	
  Account Wagering

  	
  6

  
	
   

  	
  E.

  	
  Virginia Derby

  	
  6

  
	
   

  	
  F.

  	
  Virginia Turf Festival Stakes Races

  	
  6

  
	
   

  	
  G.

  	
  National Thoroughbred Racing Association (“NTRA”)
  Dues

  	
  7

  
	
   

  	
  H.

  	
  Stakes Race Purses

  	
  8

  
	
   

  	
  I.

  	
  Administrative Fee

  	
  8

  
	
   

  	
  J.

  	
  Other Legalized Wagering

  	
  8

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Purse Mechanics

  	
  9

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Purse Schedules and Condition Books

  	
  9

  
	
   

  	
  B.

  	
  Funding of Purses

  	
  9

  
	
   

  	
  C.

  	
  Overpayment of Purses

  	
  10

  
	
   

  	
  D.

  	
  Underpayment of Purses

  	
  10

  
	
   

  	
  E.

  	
  Purse Notices

  	
  11

  
	
   

  	
  F.

  	
  Collection of Nomination, Starter and Similar Fees

  	
  11

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Number of Days of, and Dates and Average Daily
  Purses for, Live Thoroughbred Racing

  	
  12

  
	
   

  	
   

  	
   

  
	
  7.

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

  	
  13

  
	
   

  	
   

  	
   

  
	
  8.

  	
  Satellite Wagering Facility Expansion

  	
  13

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Licensing and Opening of New SWFs in Henry County
  and Scott County

  	
  14

  
	
   

  	
  B.

  	
  Distribution of Funds from the Henry County SWF and
  the Scott County SWF

  	
  15

  

 

 

	
   

  	
  C.

  	
  Chesapeake SWF

  	
  16

  
	
   

  	
  D.

  	
  SWF Referenda in Northern Virginia

  	
  17

  
	
   

  	
  E.

  	
  Additional SWFs in the Central-Southside Virginia
  Region

  	
  18

  
	
   

  	
  F.

  	
  Funding of Virginia Turf Festival

  	
  19

  
	
   

  	
  G.

  	
  Incorporation of Terms in SWF Licenses

  	
  20

  
	
   

  	
   

  	
   

  
	
  9.

  	
  Stalls and Track Facilities

  	
  20

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

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

  	
  20

  
	
   

  	
  B.

  	
  Vendors

  	
  21

  
	
   

  	
  C.

  	
  Stall Applications

  	
  21

  
	
   

  	
  D.

  	
  Racetrack Kitchen

  	
  23

  
	
   

  	
  E.

  	
  VHBPA Accommodations

  	
  23

  
	
   

  	
   

  	
   

  
	
  10.

  	
  Racing Committee

  	
  23

  
	
   

  	
   

  	
   

  
	
  11.

  	
  Representations and Warranties

  	
  24

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  VHBPA

  	
  24

  
	
   

  	
  B.

  	
  Colonial Downs

  	
  25

  
	
   

  	
   

  	
   

  
	
  12.

  	
  Racing Officials

  	
  26

  
	
   

  	
   

  	
   

  
	
  13.

  	
  Governmental Approval

  	
  26

  
	
   

  	
   

  	
   

  
	
  14.

  	
  Authorization for Out-of-State Simulcasting

  	
  26

  
	
   

  	
   

  	
   

  
	
  15.

  	
  Copies of Documents; Database

  	
  27

  
	
   

  	
   

  	
   

  
	
  16.

  	
  Horsemen’s Backstretch Improvements and Programs

  	
  27

  
	
   

  	
   

  	
   

  
	
  17.

  	
  Right to Terminate

  	
  28

  
	
   

  	
   

  	
   

  
	
  18.

  	
  Indemnification

  	
  29

  
	
   

  	
   

  	
   

  
	
  19.

  	
  Mediation; Arbitration

  	
  29

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Attempt to Resolve Disputes

  	
  29

  
	
   

  	
  B.

  	
  Administration

  	
  29

  
	
   

  	
  C.

  	
  Notice to Arbitrate

  	
  30

  
	
   

  	
  D.

  	
  Selection of Arbitrator(s)

  	
  30

  
	
   

  	
  E.

  	
  Pre-Hearing Conference

  	
  30

  
	
   

  	
  F.

  	
  Discovery

  	
  30

  
	
   

  	
  G.

  	
  Additional Conference

  	
  32

  
	
   

  	
  H.

  	
  Arbitration Hearing

  	
  32

  
	
   

  	
  I.

  	
  Arbitration Award

  	
  33

  
	
   

  	
  J.

  	
  Default

  	
  33

  
	
   

  	
  K.

  	
  Costs

  	
  33

  

 

ii

 

	
  20.

  	
  Contribution Adjustments

  	
  34

  
	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Changes in Applicable Law

  	
  34

  
	
   

  	
  B.

  	
  Changes in MVRC Management Fee

  	
  35

  
	
   

  	
  C.

  	
  Termination of Management Fee

  	
  36

  
	
   

  	
  D.

  	
  Duration

  	
  36

  
	
   

  	
   

  	
   

  
	
  21.

  	
  Consents, Approvals, Agreements or Assurances

  	
  36

  
	
   

  	
   

  	
   

  
	
  22.

  	
  Counterparts

  	
  36

  
	
   

  	
   

  	
   

  
	
  23.

  	
  Notices

  	
  37

  
	
   

  	
   

  	
   

  
	
  24.

  	
  Waivers

  	
  38

  
	
   

  	
   

  	
   

  
	
  25.

  	
  Applicable Law; Venue

  	
  38

  
	
   

  	
   

  	
   

  
	
  26.

  	
  Headings

  	
  38

  
	
   

  	
   

  	
   

  
	
  27.

  	
  Severability

  	
  38

  
	
   

  	
   

  	
   

  
	
  28.

  	
  Entire Agreement; Modification

  	
  39

  
	
   

  	
   

  	
   

  
	
  29.

  	
  Conditions Precedent to Effectiveness of this
  Agreement

  	
  39

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Form of Trust Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit B

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

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  Anticipated Development Schedule

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  Central Southside Virginia Region

  	
   

  

 

iii

 

THOROUGHBRED HORSEMEN’S AGREEMENT

 

THIS
AGREEMENT is entered into as of this 1st day of January 2005 by
and among COLONIAL DOWNS, L.P., a Virginia limited partnership, STANSLEY RACING
CORP., a Virginia corporation (collectively, “Colonial Downs”), and the
VIRGINIA HORSEMEN’S BENEVOLENT AND PROTECTIVE ASSOCIATION, INC., a Virginia
not-for-profit corporation (the “VHBPA”).

 

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

 

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

 

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

 

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

 

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

 

 

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

 

WHEREAS,
the parties desire to expand the network of SWFs throughout the Commonwealth of
Virginia beyond the six
existing SWFs and the currently statutorily authorized ten SWFs to support more days of live quality thoroughbred
racing at the Racetrack, including the promotion and development of a Virginia
Turf Festival; and

 

WHEREAS,
the parties agree that a
goal of achieving $200,000,000 of total thoroughbred handle (which is
approximately 50 days of live thoroughbred racing at current purse levels)
within three years from the
effective date of this Agreement is reasonable and desire to set forth certain
actions intended to lead to the achievement of this goal to which they are
committed.

 

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

 

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

 

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

 

2

 

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

 

3.                                       Accounts.

 

A.                                   Thoroughbred
Partners’ Account.  Colonial Downs
and the VHBPA currently maintain an account at the Middleburg, Virginia branch
of BB&T Bank, N.A. (the “Thoroughbred Partners’ Account” or the “Account”).  The parties agree that the financial
institution(s) at which the Thoroughbred Partners’ Account is maintained may be
changed at any time by agreement of the parties.  Colonial Downs and the VHBPA agree that all
funds maintained in the Thoroughbred Partners’ Account are funds that are to be
maintained in trust on behalf of and for the benefit of Horsemen, less those
funds to be distributed to Colonial Downs, as provided herein, and distributed
according to regulations promulgated by the Virginia Racing Commission (the “Commission”)
from time to time or by agreement between the parties to this Agreement.  In furtherance of such purpose, the parties
hereto have executed the trust agreement attached as Exhibit A and have
had the Thoroughbred Partners’ Account designated a trust account by the
financial institution at which the Thoroughbred Partners’ Account is
maintained.  The parties shall take
similar steps to have the Thoroughbred Partners’ Account designated as a trust
account by any other financial institution(s) to which the Account is
moved.  In addition, either party may
elect upon written notice to the other party to have a third-party trustee, acceptable
to both parties, appointed as trustee of the Account.  All interest and other earnings whatsoever on
the amounts paid or deposited into the Thoroughbred Partners’ Account shall
accrue solely to the benefit of the Thoroughbred Partners’ Account.  All funds paid or deposited into the Thoroughbred
Partners’ Account (i) shall be invested in an interest-bearing account
that

 

3

 

provides market rates of
return, or government or bank securities, and (ii) shall be used for
purses and for such other purposes as the parties may agree and the Commission
may approve.

 

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

 

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

 

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

 

4

 

maintaining such
accounts, including, but not limited to, the Horsemen’s bookkeeper and any
third-party trustee fees; and (b) the VHBPA for the benefit of Horsemen in
its sole and absolute discretion.

 

4.                                       Administration
of Accounts.

 

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

 

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

 

C.                                     Signal
Sales.  For 2005, 2006, and 2007 Colonial Downs shall deposit into an account
designated and exclusively controlled by the VHBPA fifty percent (50%) of all
revenues it receives from the sale of its live thoroughbred race signal to
entities outside Virginia less twenty-one percent (21%) of such amount to cover
Colonial Downs’ direct operational costs associated with that sale.  Revenues from signal sales shall be based on
information provided by

 

5

 

Colonial Downs to the
VHBPA using accounting practices generally accepted in the horse racing
industry.

 

D.                                    Account
Wagering.  Neither Colonial Downs nor
the VHBPA shall enter into an agreement, without the prior written consent of
the other, which consent shall not be unreasonably withheld, delayed or
conditioned, regarding telephone account or other electronic media wagering
systems pursuant to which Colonial Downs or the VHBPA would receive any fee
from any advance deposit account wagering licensee or any other telephone or
other electronic media account wagering entities for the right to accept wagers
from account holders located in Virginia on thoroughbred races simulcast from
within or outside of Virginia.  The
foregoing sentence shall not apply to Colonial Downs’ existing and future agreements
for the sale of its live thoroughbred racing signals to simulcast venues to
which the VHBPA’s consent is governed by Section 14 of this Agreement.

 

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

 

F.                                      Virginia
Turf Festival Stakes Races.  Colonial
Downs desires to continue to develop a premier event for turf course racing in
order to distinguish itself as the Mid-Atlantic

 

6

 

center for thoroughbred
turf racing.  To achieve this goal,
Colonial Downs desires to continue to structure a series of stakes races in conjunction
with the Virginia Derby in order to develop more fully the Virginia Turf
Festival.  The Virginia Turf Festival
shall consist of high quality races.  For
2005, total stake purses for the Virginia Turf Festival shall be $1,700,000,
which shall include the Virginia Derby ($750,000), the Colonial Turf Cup
($500,000), the All Along Breeder’s Cup Stakes ($200,000), the Virginia Oaks
($200,000), the Zeke Ferguson Memorial ($50,000), and such other races as the parties agree.  For 2006 and 2007, total stake purses for the
Virginia Turf Festival shall increase by $750,000 to $2,450,000, which shall
include the Virginia Derby ($1,000,000 with $150,000 contributed by Colonial
Downs or its affiliates in 2006, and no contribution from Colonial Downs or its
affiliates in 2007), the Colonial Turf Cup ($1,000,000), the All Along Breeder’s
Cup Stakes ($200,000), the Virginia Oaks ($200,000), and the Zeke Ferguson
Memorial ($50,000); provided that
forty-one and one-half percent (41.5%) of additional purse money provided by
the Richmond (Hull Street SWF), the SWFs in Chesapeake (for combined handle in
excess of $22,347,000), the new SWFs in the Central-Southside Region
(including, but not limited to, the Vinton SWF, the Henry County SWF, and the
Scott County SWF), and any Northern Virginia SWFs equals or exceeds $750,000 in
calendar year 2006 and $900,000 in calendar year 2007. For 2006 and
2007, the first $750,000 and $900,000, respectively, of such additional purse
money shall be used to fund the increase in purses for the Virginia Derby and
the Colonial Turf Cup.  For 2006 and
2007, purse money contributions in excess of $750,000 and $900,000,
respectively, as calculated and referred to above, shall be used to fund
overnight purses.

 

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

 

7

 

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

 

H.                                    Stakes
Race Purses.  The percentage of the
purse monies available under Subsections A through F of this Section, excluding
promotional fees and sponsorships, to be paid to Horsemen participating in
stakes races held at the Racetrack shall be limited to twenty percent (20%) of
the total purses paid unless the VHBPA in its sole and absolute discretion
consents to a higher percentage.  Such
consent shall be granted by the VHBPA as necessary to assist Colonial Downs in
its attempts to maintain and improve the graded status of the Virginia Derby
and is hereby granted to develop the Virginia Turf Festival as set forth in
Sections 4.F. and 6 hereof.

 

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

 

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

 

8

 

legislation.  In the event the allocation of revenues is
not addressed by such legislative action, the parties shall negotiate in good
faith a written agreement governing the allocation between them of the revenues
to be received for thoroughbred racing from that legislative action.

 

5.                                       Purse
Mechanics.

 

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

 

B.                                     Funding
of Purses.

 

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

 

9

 

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

 

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

 

C.                                     Overpayment
of Purses.  Colonial Downs and the
VHBPA shall cooperate to the fullest extent possible to avoid overpayment of
purses to Horsemen as of the end of any year during the Term of this
Agreement.  If Colonial Downs makes an
overpayment in excess of the amount computed under Section 4 hereof, the
overpayment shall be repaid to Colonial Downs from funds accruing to the
Thoroughbred Partners’ Account commencing on January 1 of the following
calendar year on a “first dollar in first dollar out” basis.

 

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

 

10

 

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

 

F.                                      Collection
of Nomination, Starter and Similar Fees. 
Colonial Downs shall use its commercially reasonable efforts to collect
promptly all nomination, starter and similar fees that are, or prior to 2002
were, incurred by participants.  If such
fees attributable to the 2002, 2003, 2004, 2005, 2006 and 2007 Race Meetings remain unpaid six months after
the conclusion of the relevant Race Meeting, then Colonial Downs shall be
entitled to assign the accounts receivable for such fees to the VHBPA for
collection and to be reimbursed from the Thoroughbred Partners’ Account for the
aggregate amount of such fees; provided, however, that fees arising from
nominations or entries which the parties agree, acting reasonably and in good
faith, were accepted by the Racing Secretary for promotional or marketing
purposes shall not be included in the amounts for which reimbursement is sought
and shall not be assigned to the VHBPA. 
Anything contained in this Subsection F to the contrary
notwithstanding, Colonial Downs shall not be entitled to reimbursement for any
fee for which Colonial Downs has not met the following requirements: (i) Colonial
Downs shall have invoiced the debtor at least three times between the close of
the Race Meeting during which the debt was incurred and the end of the calendar
year in which that Race Meeting was conducted, and (ii) Colonial Downs
shall have furnished written notice to the VHBPA of the debtor’s name, address,
and the amount owed by that debtor within ninety (90) days of the close of the
Race Meeting at which the debt was incurred.

 

11

 

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

 

12

 

Virginia
Turf Festival.  A Turf Festival Planning
Committee made up of representatives from Colonial Downs, the VHBPA, the MVRC,
and the Virginia Breeders Fund shall assist the parties in formulating the
details of the 2006 and 2007 race dates request to be submitted to the
Commission for its approval (such request to be consistent with the terms and
provisions of Section 4.F. and this Section) and shall consider what
improvements, if any, may be necessary to the Racetrack’s facilities to support
and promote the Virginia Turf Festival.

 

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

 

8.                                       Satellite
Wagering Facility Expansion. 
Colonial Downs and the VHBPA agree that a greater dollar volume in
annual handle is necessary to increase the number of days of quality
thoroughbred racing in Virginia, and that increased handle will most likely
occur by opening additional SWFs beyond the six existing SWFs.  The
parties further agree that a goal of achieving $200,000,000 of total
thoroughbred handle (which is approximately 50 days of live thoroughbred racing
at current purse levels) within three
years from the effective date of this Agreement is reasonable and desire to set
forth certain actions intended to lead to the achievement of this goal to which
they are committed.  Accordingly, the
parties agree:

 

13

 

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

 

(1)                                  Colonial
Downs shall open in 2005 a new SWF in
each of Henry County and Scott County, subject to Force Majeure Events
(as defined herein).  Upon approval of
this Agreement by the Commission, Colonial Downs shall seek to secure sites and address any concerns relating
to compliance with all municipal laws and regulations (including zoning
compliance).  Upon securing sites and satisfying all applicable
municipal laws and regulations, Colonial Downs shall apply expeditiously to the
Commission for owner’s and operator’s licenses for the two new SWFs.  Upon
issuance of the licenses, Colonial Downs shall immediately commence build out
or construction of the new SWFs
and prosecute completion using all commercially reasonable means.  It is anticipated that the new SWFs will open no later than four
to six months after the Commission issues Colonial Downs licenses to own and
operate each new SWF, subject
to Force Majeure Events.  An anticipated
development schedule is set forth in Exhibit C hereto.

 

(2)                                  “Force Majeure Events”
shall mean:  (a) acts of God
(including flood, landslide, earthquake, hurricane, or tornado); (b) delay
caused by acts or neglect of the Commission or the Commonwealth in issuing
required permits or other administrative approvals regarding Colonial Downs’
proposed SWF; (c) acts of war or terrorism; (d) strikes or labor
disputes affecting the proposed SWF; (e) any legal action initiated by
third parties that challenges any permit, approval, license, or similar
governmental action that is necessary for the renovation, construction, or
operation of an SWF or any such action initiated by Colonial Downs to overturn
a ruling denying any permit, approval, license, or similar necessary
governmental

 

14

 

action; (f) materially
adverse weather conditions at the site not reasonably anticipated; (g) fire
or other unavoidable casualties at the site; (h) Colonial Downs’ inability
to obtain materials or the unavailability of specified materials where there
are no reasonable substitutes available or no alternative methods or means
available of obtaining such materials on a timely basis; (i) construction
delays caused by subsurface or otherwise concealed physical conditions at the
site differing materially from those indicated in the plans and specifications,
or from those originally encountered, which were not ascertainable by Colonial
Downs prior to the grant of the licenses; and (j) delays caused solely by the
failure of any governmental agency, department, or organization to timely issue
building permits or other construction-related permits that could not be
secured prior to the date of the licenses or to timely perform inspections that
cannot be completed prior to construction on matters necessary for the proper
execution and completion of the work necessary to build or complete the SWF,
provided that Colonial Downs has taken all actions reasonably available to it,
including the filing and aggressive prosecution of legal action, to compel such
agencies, departments, or organizations to issue such permits and to timely
perform such inspections.

 

(3)                                  The deadlines
specified in this Subsection A shall be suspended for each day that a
delay specified in this Subsection A(2) occurs
and continues, provided that Colonial Downs exercises all reasonable diligence
during such time to overcome the delay.

 

B.                                     Distribution
of Funds from the Henry County SWF and
the Scott County SWF. 
Colonial Downs and the VHBPA agree to distribute funds from the
Thoroughbred Partners’ Account in such a fashion as set forth in Exhibit B
hereto with respect to the Henry County SWF and the Scott County SWF.  If Colonial Downs is unsuccessful in 2005 in
opening the second Chesapeake SWF referred to below, other than as a result of
Force Majeure Events,

 

15

 

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

 

C.                                     Chesapeake
SWF.  Pursuant to Section 8 of the
Existing Agreement, Colonial Downs is obligated to relocate the existing
Chesapeake SWF to a location closer to Virginia Beach, subject to Force Majeure
Events, on or before December 31, 2005. 
The VHBPA and Colonial Downs agree that Colonial Downs will satisfy this
obligation by opening an additional Chesapeake SWF before December 31,
2005 (the “Second Chesapeake SWF”). 
Colonial Downs has applied to the Commission for owner’s and operator’s
licenses for the Second Chesapeake SWF. 
Upon issuance of the licenses, Colonial Downs shall immediately commence
build out or construction of the Second Chesapeake SWF and prosecute completion
using all commercially reasonable means. 
It is anticipated that the Second Chesapeake SWF will open no later than
four to six months after the Commission issues Colonial Downs licenses to own
and operate the Second Chesapeake SWF. 
If Colonial Downs opens a Second Chesapeake SWF in 2005, Colonial Downs
and the VHBPA agree to distribute funds from the Thoroughbred Partners’ Account
in such a fashion as set forth in Exhibit B hereto with respect to the
existing Chesapeake Facility and the Second Chesapeake SWF.  If Colonial Downs is unsuccessful in opening
the Second Chesapeake SWF in 2005 (other than as a result of Force Majeure
events), no handle generated at the existing Chesapeake SWF shall be included
in the calculation of the

 

16

 

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

 

D.                                    SWF
Referenda in Northern Virginia.  In
2005 Colonial Downs and the VHBPA shall organize an industry task force to
explore strategies for a successful statutory referendum in Northern Virginia
with the goal of conducting at least one Northern Virginia statutory referendum
by December 31, 2007. For purposes of this Agreement Northern Virginia is
defined as the counties of Loudoun, Prince William, Fairfax, Arlington, and Fauquier, the cities of Manassas,
Manassas Park, Fairfax City, Falls Church, and Alexandria and the towns with
population of 5,000 or more located within the foregoing counties.

 

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

 

(2)                                  Colonial Downs and
the VHBPA agree to distribute funds from the Thoroughbred Partners’ Account in
such a fashion as set forth in Exhibit B hereto for any SWF opened by
Colonial Downs in Northern Virginia, as
defined above, during
the three-year period
commencing on the effective date of this Agreement.

 

17

 

E.                                      Additional
SWFs in the Central-Southside Virginia Region.  Colonial Downs shall conduct two referenda
during the period from January 1, 2005 to December 31, 2006, and one
referendum during the period from January 1, 2007 to December 31,
2007 in the Central-Southside Virginia region as set forth in Exhibit D
hereto (the “Central-Southside Virginia Region”); provided however, upon
thoroughbred handle (live plus SWF) equaling or exceeding $200,000,000,
Colonial Downs’ obligations to conduct additional referenda in the Central-Southside
Virginia Region shall automatically terminate. 
Colonial Downs’ obligation to conduct the foregoing referenda in the
time periods specified shall be temporarily suspended, but not terminated, for
each year in which there are no statutorily authorized SWFs available for
initial licensing.

 

(1)                                  If
Colonial Downs conducts and wins such a referendum it shall proceed in the
manner described in Section 8.D (1) hereof with respect to such
referendum.  Upon the opening of any SWF
in Central-Southside Virginia Region, Colonial Downs and the VHBPA agree to
distribute funds from the Thoroughbred Partners’ Account in such a fashion as
set forth in Exhibit B hereto for
any SWF in the Central-Southside Virginia Region for which a license
application has been made within the eight-year period commencing on the
effective date of this Agreement or, if later, the date on which all conditions
set forth in Section 29 are satisfied or waived.

 

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

 

18

 

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

 

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

 

19

 

five percent (5%) of
purses per day at thoroughbred racetracks nationally.  Colonial Downs may supplement the purses for
the Virginia Turf Festival from its own funds, in its sole discretion, to
achieve this purse per day result.  For
2006 and 2007, the parties have agreed to seek a Virginia Turf Festival on the
terms set forth in Sections 4.F. and 6. 
Thereafter, upon the Virginia Turf Festival growing to ten (10) days
under the foregoing criteria, following discussions with the Turf Festival
Planning Committee (established pursuant to Section 6 hereof), Colonial
Downs may separate the Virginia Turf Festival from the summer thoroughbred
meet, in which event the Virginia Derby may cease to be included in the
Virginia Turf Festival, in Colonial Downs’ discretion, and remain a part of the
summer meet.  Funding for the Virginia
Turf Festival shall remain at the levels set forth herein, however, in such
event.

 

G.                                     Incorporation
of Terms in SWF Licenses.  Colonial
Downs and the VHBPA agree that in order for any and all owner’s and operator’s
licenses for the additional SWFs referenced herein (including but not limited
to the new SWFs in Henry and Scott
Counties, the Second Chesapeake SWF, and SWFs in Northern Virginia) to
be effective for purposes of this Agreement, such licenses shall contain or
incorporate the provisions of this Agreement relating to adjustments to
contributions from the Thoroughbred Partners’ Account to the Horsemen’s Account
and Section 20 hereof.  The parties
agree to use their best efforts to have the SWF licenses issued by the Commission
contain or incorporate such provisions.

 

9.                                       Stalls
and Track Facilities.

 

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

 

20

 

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

 

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

 

C.                                     Stall
Applications.  Not less than seventy-five
(75) days prior to each Race Meeting, Colonial Downs shall publish and
distribute stall applications to horsemen. 
Colonial Downs shall use its commercially reasonable efforts to ensure
that: (i) the stall application

 

21

 

contains notice of the
cut-off date for the submission of stall applications; (ii) the stall
application contains in bold face type any rules of entry preference for
Virginia-bred, Virginia-sired, Virginia-owned, or Virginia-stabled horses; (iii) the
stall application provides on the front cover that no dogs will be allowed in
the stable area, that no children will be allowed to stay in the backstretch
dormitories, and that the other rules applicable to the backside
anticipated by Colonial Downs to be enforced at each Race Meeting will be
posted at the Track and will be mailed upon request to trainers and others; and
(iv) each completed application contains the name, permanent address,
telephone number, and electronic mail (e-mail) address of the owner and trainer
of each horse expected to be stabled on the grounds of the Racetrack during
that Race Meeting.   Colonial Downs
shall, in the exercise of its sole business judgment, determine the terms for
and approve or disapprove applications for stalls, but to the extent reasonably
possible, preference shall be given to stall applications for Virginia-bred
horses, Virginia-owned horses, and Virginia-sired horses.  Colonial Downs may consider, among other
things, the following criteria in allocating stalls to Horsemen for use during
Race Meetings:

 

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

 

(2)                                  The
quality of the racetrack(s) where the horses listed on the stall applications
have previously raced;

 

(3)                                  The
number of starts a trainer listed on the application has made at past Colonial
Downs Race Meetings, where applicable;

 

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

 

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

 

22

 

(6)                                  The
best interests of Colonial Downs and thoroughbred racing.

 

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

 

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

 

E.                                      VHBPA Accommodations. Colonial
Downs shall provide a suitable location on the backstretch for construction of a permanent building by the VHBPA, to be used during the
Race Meetings for a classroom facility, an office for the chaplaincy program, a
counseling office, a chapel, recreation, and a secure office and storage facility for the VHBPA.  Colonial Downs
shall furnish electrical service, telephone hook-up, and television race simulcasting for the
building.  The VHBPA shall save and hold
harmless and shall indemnify Colonial Downs against any expenses, costs,
claims, or demands, including attorney’s fees, arising out of the construction and use of the building,
electrical service, telephone hook-up, and
television race simulcasting. Colonial Downs shall also provide the
VHBPA a grandstand suite, free of charge except for food service, for use by
its members and guests on each race day (except for the Virginia Derby) in
2005, 2006, and 2007, unless the parties agree otherwise.

 

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

 

23

 

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

 

11.                                 Representations
and Warranties.

 

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

 

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

 

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

 

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

 

24

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

25

 

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

 

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

 

14.                                 Authorization for
Out-of-State Simulcasting.  During
the Term of this Agreement, the VHBPA as the authorized representative of the
Horsemen for interstate simulcasting purposes, hereby consents and authorizes
Colonial Downs to negotiate and contract with simulcast and receiving
facilities, including off-track wagering facilities outside the Commonwealth of
Virginia, for (i) the conduct of off-track wagering at the Racetrack and
the SWFs, and (ii) off-track wagering on live thoroughbred races emanating
from the Racetrack, pursuant to the Interstate Horse Racing Act of 1978, P.L. 95-515
(the “Interstate Horse Racing Act”). 
This Agreement constitutes the contract required by Section 3004(a) of
the Interstate Horse Racing Act. 
Colonial Downs shall consider the best interests of live racing when
simulcasting.  To the extent required by
law, out-of-state simulcasting for all of Colonial Downs’ races at the
Racetrack shall be subject to the consent of the VHBPA, which consent shall not
be unreasonably withheld, delayed or conditioned.  In the event consent is withheld, the VHBPA
shall set forth its reasons for withholding its consent within a reasonable
time after notice from Colonial Downs in advance of the intended simulcast.

 

26

 

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

 

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

 

27

 

the Backstretch
Improvement Escrow Account, which shall be established at a financial
institution mutually acceptable to both Colonial Downs and the VHBPA, and shall
be expended as mutually agreed by Colonial Downs and the VHBPA and subject to
Commission approval pursuant to Section 30 hereof.  To the extent funds are available, the
improvements and programs shall include the following: (1) training and
educational programs such as the Groom Elite Program, which is a formal program
developed in cooperation with Texas A & M University to train grooms
in equine science concepts and practices; (2) chaplaincy and counseling,
including health and drug abuse programs; (3) participation in the
national Kids To The Cup program to encourage young people to learn about the
horse industry by participation in backstretch activities; (4) after-work
recreational programs for backstretch personnel, such as picnics, evening
television and videos, etc.; (5) expansion and improvement to dormitory facilities to better serve
the health needs of backstretch personnel; (6) implementation of a plan to
eliminate from all barns the water runoff problem that in the past has resulted
in standing water, which plan shall include appropriate landscaping and
pesticide spraying and installation of gutters; (7) structural modification to the Receiving Barn to improve
ventilation; and (8) construction of the office/classroom facility,
identified in Section 9.E. above. 
At the conclusion of each Race Meeting, the VHBPA shall within sixty
(60) days provide Colonial Downs with an accounting of all expenditures made
from the Backstretch Improvement Escrow Account.

 

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

 

28

 

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

 

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

 

19.                           Mediation; Arbitration.

 

A.                                   Attempt
to Resolve Disputes.  In the event of
any disputes or differences arising out of this Agreement, which the parties
have been unable to resolve after reasonable efforts to do so, either party may
refer the dispute or difference to a mediator mutually acceptable to the
parties.  In the event such mediation is
unsuccessful, or the parties are unable to agree on a mediator, either party
may refer the dispute or difference for final settlement to arbitration in
accordance with the following procedures.

 

B.                                     Administration.  The arbitration shall be administered by the
American Arbitration Association (“AAA”), or its successor, pursuant to the
expedited procedures (irrespective of the amount in controversy) of the AAA’s
then-prevailing Commercial Arbitration Rules (the “Rules”), subject to the
limitations and modifications set forth herein. 
The laws of the Commonwealth of Virginia will govern all matters arising
under the arbitration

 

29

 

without giving effect to
the choice of law principles thereunder. 
The arbitration will be held in Virginia unless the parties otherwise
agree.

 

C.                                     Notice
to Arbitrate.  Notice of a demand for
arbitration pursuant to this procedure (the “Notice to Arbitrate”) shall be
made in writing and delivered to all other affected parties as provided in Section 23 hereof.  The Notice to Arbitrate shall be accompanied
by a short and plain statement of the party’s claim(s), the grounds for same
and the relief sought.  Within ten (10) days
of receipt of the Notice to Arbitrate, the other party shall set forth in
writing and deliver to all other affected parties as provided in Section 23 hereof, an answer setting forth its
response to the claim for relief, as well as any affirmative defenses and
counterclaims.

 

D.                                    Selection
of Arbitrator(s).  The arbitration
shall be before one neutral arbitrator (the “Arbitrator”) to be selected in
accordance with the Rules (as modified herein).  In the event the parties cannot agree upon an
Arbitrator within ten (10) business days from receipt of the Notice to
Arbitrate, each party shall select one Arbitrator.  The Arbitrators so selected shall select a
third arbitrator at the Pre-Hearing Conference (as defined herein), who shall
be the chairperson of the three member panel.

 

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

 

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

 

30

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

31

 

all process and orders
permitted under the Rules to compel cooperation in discovery and otherwise
enforce the discovery rights and obligations of the parties.

 

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

 

H.                                    Arbitration
Hearing.  The arbitration hearing
(the “Arbitration Hearing”) shall commence within twenty (20) days after the
date of the Additional Conference, unless otherwise agreed by the parties.  For good cause shown, the Arbitrator(s) may
grant no more than one (1) continuance per party of a duration not to
exceed ten (10) days each; provided, however, no party shall be entitled
to any other continuances.  Unless
otherwise agreed by the parties or ordered by the Arbitrator(s) for good cause
shown, the Arbitration Hearing shall continue from day-to-day for such period
of time (not to exceed five (5) days) as may be set by the
Arbitrator(s).  Each party shall have
equal time for presentation and rebuttal, unless otherwise agreed by the
parties.  The parties may present
evidence, at their option, in the form of testimony (live and/or by
deposition), documents and other tangible evidence, or testimony summaries, or
any combination thereof.  The Arbitrator(s),
upon timely request by a party or if otherwise required by law, shall require
witnesses to testify under oath administered by any duly qualified person.  Any party, at its own cost and three (3) days’
notice to all other parties, may arrange for a stenographic record of the
proceedings.  Such record shall be made
available for inspection and copying by all other parties and the
Arbitrator(s).

 

32

 

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

 

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

 

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

 

33

 

20.                                 Contribution
Adjustments.

 

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

 

34

 

unless such increased
pari-mutuel tax is used to supplement purses or is used for the exclusive
activities of the representative horsemen group or groups for Horsemen racing
at Colonial Downs.

 

B.                                     Changes
in MVRC Management Fee.  The parties
have also negotiated the relevant transfers from the Thoroughbred Partners’
Account to the Horsemen’s Account from expected handle at the Richmond (Hull Street) SWF, the Vinton SWF, the existing Chesapeake
SWF, the Second Chesapeake SWF, and future SWFs located in Henry and Scott Counties, and
Northern Virginia based upon an amendment to the Management and Consulting
Agreement reducing MVRC’s management fee to 1.5% of handle wagered at Richmond (Hull Street), Vinton, and SWFs
located in Henry and Scott Counties.  If
that management fee is further reduced pursuant to Section 4.1.4 of the
Management and Consulting Agreement, then one-half of the amount of that
reduction attributable to handle at Richmond (Hull Street), Vinton, and SWFs located in the Henry and Scott Counties
(collectively, the “New Handle) shall be contributed by Colonial Downs to the
Thoroughbred Partners’ Account (such that the effective rate of contribution
attributable to the New Handle is increased by .375%) and such amount shall be
added to the annual transfer of funds from the Thoroughbred Partners’ Account
to the Horsemen’s Account regarding Richmond (Hull Street), Vinton, and all SWFs located in Henry and Scott Counties, as set
forth in Exhibit B hereto.  Such
payments shall commence upon the effective date of the management fee reduction
and shall terminate upon the termination of such reduction in the management
fee pursuant to Section 4.1.4 of the Management and Consulting
Agreement.  Similarly, if the management
fee in the Management and Consulting Agreement currently applicable to handle
at SWFs, other than those identified above, is reduced at any time, then
Colonial Downs shall annually provide $100,000 for capital improvements to the

 

35

 

Racetrack’s backstretch
pursuant to Section 16
hereof effective in the first full calendar year after the reduction in the
management fee goes into effect.  Such obligation
shall be reduced to $50,000 per year if the management fee reduction is
terminated pursuant to Section 4.1.4 of the Management and Consulting
Agreement.

 

C.                                     Termination
of Management Fee.  If the
above-referenced management fees are reduced to zero or otherwise eliminated
completely then the annual transfer of funds from the Thoroughbred Partners’
Account to the Horsemen’s Account for all SWFs, wherever located within
Virginia, shall be subject to good faith negotiations between the parties, or
their successors or assigns, as to the appropriate sharing between them of the
benefits of that reduction or elimination.

 

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

 

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

 

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

 

36

 

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

 

	
  Colonial
  Downs:

  	
  Mr. Jeffrey
  P. Jacobs

  
	
   

  	
  Colonial Downs,
  L.P.

  
	
   

  	
  10515 Colonial
  Downs Parkway

  
	
   

  	
  New Kent, VA
  23124

  
	
   

  	
   

  
	
   

  	
  Mr. Ian M.
  Stewart, President

  
	
   

  	
  Colonial Downs,
  L.P.

  
	
   

  	
  10515 Colonial
  Downs Parkway

  
	
   

  	
  New Kent, VA
  23124

  
	
   

  	
   

  
	
  Copy to:

  	
  James L.
  Weinberg, Esq.

  
	
   

  	
  Hirschler
  Fleischer

  
	
   

  	
  The Federal
  Reserve Bank Building

  
	
   

  	
  P.O. Box
  500

  
	
   

  	
  701 E. Byrd
  Street, 15th floor

  
	
   

  	
  Richmond, VA
  23219

  
	
   

  	
   

  
	
   

  	
  Mr. John E.
  Mooney, President

  
	
   

  	
  Maryland-Virginia
  Racing Circuit, Inc.

  
	
   

  	
  10515 Colonial
  Downs Parkway

  
	
   

  	
  New Kent, VA
  23124

  
	
   

  	
   

  
	
   

  	
  H. Lane Kneedler, Esq.

  
	
   

  	
  Reed Smith LLP

  
	
   

  	
  901 East Byrd
  Street, Suite 1700

  
	
   

  	
  Richmond, VA
  23219-4069

  

 

37

 

	
  VHBPA:

  	
  Ms. Althea
  D. Richards, President

  
	
   

  	
  Virginia
  Horsemen’s Benevolent and

  
	
   

  	
  Protective
  Association, Inc.

  
	
   

  	
  P.O. Box
  273

  
	
   

  	
  Millwood, VA
  22646

  
	
   

  	
   

  
	
  Copy to:

  	
  Frank Petramalo, Jr., Esq.

  
	
   

  	
  VHBPA

  
	
   

  	
  38-C Garrett Street

  
	
   

  	
  Warrenton, VA 20186

  

 

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

 

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

 

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

 

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

 

38

 

28.                                 Entire
Agreement; Modification.  This
Agreement contains the entire Agreement between the parties and supersedes all
prior agreements (including the
Existing Agreement) and understandings, both written and oral, between
the parties with respect to the subject matter of this Agreement; provided,
however, this Agreement shall not alter the allocation of funds to the Horsemen’s
Account from the New Richmond SWF and SWFs in Central-Southside Virginia Region
pursuant to the Existing Agreement.  This Agreement shall be binding upon and
inure to the benefit of each party hereto, its legal representatives and
successors, including, but not limited to, any successor group to the VHBPA
that is the recognized majority thoroughbred horsemen’s group.  No modification, variation or amendment of
this Agreement or of any attachment or exhibit to this Agreement shall be
effective unless such modification, variation or amendment is in writing and
has been signed by the parties to this Agreement.  This Agreement may be assigned by Colonial
Downs in its sole discretion, subject to applicable law.

 

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

 

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

 

39

 

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

 

 

	
  VIRGINIA
  HORSEMEN’S

  	
  COLONIAL DOWNS,
  L.P.

  	
   

  
	
  BENEVOLENT AND
  PROTECTIVE

  	
   

  	
   

  
	
  ASSOCIATION,
  INC.

  	
  By:

  	
  Stansley Racing
  Corp., its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Althea D.
  Richards

  	
   

  	
   

  	
  By:

  	
  /s/ Ian M.
  Stewart

  	
   

  
	
   

  	
  Althea D.
  Richards, President

  	
   

  	
   

  	
  Ian M. Stewart,
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  STANSLEY RACING
  CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ian M.
  Stewart

  	
   

  
	
   

  	
   

  	
  Ian M. Stewart,
  President

  	
   

  
										

 

40

 

EXHIBIT A

 

FORM OF

TRUST AGREEMENT

 

THIS
TRUST AGREEMENT is entered into this           
day of                   ,
200      , by and between COLONIAL
DOWNS, L.P., a Virginia limited partnership (the “Trustee”), and the
VIRGINIA HORSEMEN’S BENEVOLENT AND PROTECTIVE
ASSOCIATION, INC., a not-for-profit corporation (the “VHBPA”), on
behalf of the thoroughbred horsemen engaging in thoroughbred racing at Colonial
Downs’ racetrack (the “Track”) (collectively, the “Beneficiaries”).

 

W I T N E S S E T H:

 

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

 

NOW,
THEREFORE, in consideration of the mutual promises and
covenants set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:

 

1.                                       The
Account.  The Trustee shall maintain
the Thoroughbred Partners’ Account at a financial institution mutually
acceptable to the parties and that is insured by an agency of the United States
government.

 

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

 

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

 

A-1

 

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

 

5.                                       Interest.  The Trustee understands and accepts that
interest, if any, earned on the Funds will be reported under its employer
identification number, that such reporting is done as a matter of convenience
for the administration of the Thoroughbred Partners’ Account and that the
receipt of such interest does not affect the beneficial and equitable title
that the parties have to such interest and is not in derogation of the rights
and entitlements of the parties as set forth herein and in the Horsemen’s
Agreement.

 

6.                                       Trustee’s
Duties.  The duties of the Trustee
under this Agreement shall be limited to the safekeeping and disbursement of
the Trust Account Funds and documents under the terms and conditions of this
Agreement.  The Trustee shall be entitled
to rely on and may assume the genuineness and authenticity of any signatures
purported to be made by the parties hereto, their lawful representatives, and
successors or assigns.  Upon election of
either party hereto, an independent third party may be appointed trustee of the
Thoroughbred Partners’ Account and the Trustee hereunder may be relieved of its
duties as trustee but shall be bound by the other provisions of this Agreement.

 

7.                                       Limitation
on Liability.  The Trustee shall not
be liable for any claims, damages, liabilities, losses, costs, or expenses
arising from the Trustee’s acts or omissions with respect to the Trust Account
Funds or its performance hereunder, unless such actions or omissions result
from the Trustee’s negligence or willful misconduct.

 

8.                                       Reimbursement
of Expenses.  The Trustee shall be
reimbursed in the form of one-half of the interest accruing on the Trust
Account Funds for all costs and expenses reasonably incurred by it in
connection with the administration of the Account, including payment of any
trustee fees to a third-party trustee.

 

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

 

10.                                 Notices.  All notices, approvals, and other
communications authorized or required to be given between the parties hereto
shall be validly given or made if in writing and sent in accordance with the
terms and conditions of the Horsemen’s Agreement.

 

11.                                 Governing
Law.  This Agreement shall be
governed, construed, and enforced in accordance with the laws of the
Commonwealth of Virginia, without regard to any conflicts of law, rules or
provisions thereof.

 

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

 

A-2

 

Virginia and having
jurisdiction over the subject matter of any such action, suit, or
proceeding.  The invalidity or
unenforceability of any provision of this Agreement in any particular respect
shall not affect the validity and enforceability of any other provision of this
Agreement or of the same provision in any other respect.  This Agreement and the Horsemen’s Agreement
set forth the entire understanding of the parties to this Agreement with
respect to the operation of the trust for the Thoroughbred Partners’ Account
and may not be amended except by a written instrument executed by all parties
hereto.  Other than the Horsemen’s
Agreement, any previous agreements or understandings among the parties hereto
regarding the subject matter hereof are merged into and superseded by this
Agreement.  All of the covenants,
stipulations, terms, and conditions of this Agreement shall extend to and be
binding upon the respective successors and assigns of the parties hereto, but
this Agreement shall not be assigned by the Trustee without the prior written
consent of the Beneficiaries.

 

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

 

	
  VIRGINIA
  HORSEMEN’S

  	
  COLONIAL DOWNS,
  L.P.

  	
   

  
	
  BENEVOLENT AND
  PROTECTIVE

  	
   

  	
   

  
	
  ASSOCIATION,
  INC.

  	
  By:

  	
  Stansley Racing
  Corp., its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Althea D.
  Richards, President

  	
   

  	
   

  	
  Ian M. Stewart,
  President

  
								

 

A-3

 

EXHIBIT B

 

Annual Transfers of Funds from
Thoroughbred

Partners’ Account to Horsemen’s
Account

 

	
  All SWFs located
  in the Central-Southside Virginia Region (including, but not limited to, the town of Vinton and Scott and
  Henry Counties)

  	
   

  	
  4.5% of all
  thoroughbred handle in a calendar year at each such facility for ten years
  from the opening date of each such facility.

  

  After ten years from opening date, for each calendar year:

  

  5% of the first $75,000,000 of thoroughbred handle at each such facility;
  plus 6% of thoroughbred handle in excess of $75,000,000 up to $150,000,000 at
  each such facility; and plus 7% of thoroughbred handle in excess of
  $150,000,000 at each such facility.

  
	
   

  	
   

  	
   

  
	
  The Richmond (Hull St.) SWF

  	
   

  	
  4% of the first
  $15,000,000 of thoroughbred handle in a calendar year at such facility;

  

  plus 5% of thoroughbred handle in excess of $15,000,000 up to $20,000,000 in
  a calendar year at such facility;

  

  plus 6% of thoroughbred handle in excess of $20,000,000 up to $25,000,000 in
  a calendar year at such facility; and

  

  plus 7% of thoroughbred handle in excess of $25,000,000 in a calendar year at
  such facility.

  
	
   

  	
   

  	
   

  
	
  The existing
  Chesapeake SWF and the Second Chesapeake SWF

  	
   

  	
  4.5% of all
  thoroughbred handle in a calendar year in excess of the aggregate sum of
  $22,375,000 of the combined thoroughbred handle from the two facilities.

  
	
   

  	
   

  	
   

  
	
  Northern
  Virginia SWF

  	
   

  	
  0% of all
  thoroughbred handle wagered at each such facility for the first 12 months of
  operation and thereafter as provided for “All Other SWFs” described below.

  
	
   

  	
   

  	
   

  
	
  All Other SWFs
  (including the aggregate thoroughbred handle of the two Chesapeake SWFs up to
  $22,375,000)

  	
   

  	
  5% of the first
  $75,000,000 of aggregate thoroughbred handle from such facilities; plus
  6% of aggregate thoroughbred handle in excess of $75,000,000 up to
  $150,000,000 from such facilities; plus 7% of thoroughbred handle in
  excess of $150,000,000 from such facilities less the amounts the VHBPA
  is authorized to deduct from the Thoroughbred Partners’ Account pursuant to
  the Agreement (including but not limited to NTRA dues, an administrative fee,
  and repayment of advances (including interest) made by Colonial Downs to the
  Thoroughbred Partners’ Account).

  

 

B-1

 

EXHIBIT C

 

Anticipated Development Schedule

 

	
  Action Item

  	
   

  	
  Time Period

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Identify and
  bring under contract potential SWF site.

  	
   

  	
  4 to 6 weeks
  from approval of Agreement.

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Meeting with
  local government officials and neighbors; confirmation of zoning compliance.

  	
   

  	
  3 to 6 weeks
  from having site under contract.

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Application to
  the Virginia Racing Commission.

  	
   

  	
  1 to 2 weeks
  from satisfaction of Item 2.

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Action by the
  Virginia Racing Commission on application after filing.

  	
   

  	
  6 to 12 weeks.

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Application for
  permits to commence construction or renovation after grant of licenses.

  	
   

  	
  Within 1 week
  after grant of licenses.

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Construction or
  renovation period.

  	
   

  	
  3 to 6 months.

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Total time from
  identifying a site to opening.

  	
   

  	
  7 to 13 months.

  

 

C-1

 

EXHIBIT D

 

Central-Southside Virginia Region

 

Counties

 

1.                           Albemarle

2.                           Allegheny

3.                           Amherst

4.                           Augusta

5.                           Bath

6.                           Bedford
County

7.                           Bland

8.                           Botetourt

9.                           Buchanan

10.                     Campbell

11.                     Carroll

12.                     Craig

13.                     Dickenson

14.                     Floyd

15.                     Franklin
County

16.                     Giles

17.                     Grayson

18.                     Greene

19.                     Halifax

20.                     Henry

21.                     Highland

22.                     Lee

23.                     Montgomery

24.                     Nelson

25.                     Patrick

26.                     Pittsylvania

27.                     Pulaski

28.                     Roanoke
County

29.                     Rockbridge

30.                     Russell

31.                     Scott

32.                     Smyth

33.                     Tazewell

34.                     Washington

35.                     Wise

36.                     Wythe

 

Cities

 

1.                           Bedford
City

2.                           Bristol

3.                           Buena
Vista

4.                           Charlottesville

5.                           Covington

6.                           Danville

7.                           Franklin
City

8.                           Galax

9.                           Lexington

10.                     Lynchburg

11.                     Martinsville

12.                     Norton

13.                     Radford

14.                     Roanoke
City

15.                     Salem

16.                     South
Boston

17.                     Staunton

18.                     Waynesboro

 

Towns (Population Greater Than 5,000)

 

1.                          Vinton

2.                          Abingdon

3.                          Blacksburg

4.                          Big Stone Gap

5.                          Farmville

6.                          Marion

7.                          Pulaski

8.                          South Boston

9.                          Wytheville

 

D-1

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