Document:

Amendment No. 1 to the Amended and Restated Credit Agreement

    EXECUTION
      COPY

     

    AMENDMENT
      NO. 1

     

    TO

     

    AMENDED
      AND RESTATED CREDIT AGREEMENT

     

    THIS
      AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT (the “Amendment”)
      is
      made as of May 2, 2007 by and among Churchill Downs Incorporated, a Kentucky
      corporation (the “Borrower”),
      the
      Guarantors, the financial institutions listed on the signature pages hereto
      as
      the “Lenders” referred to below and JPMorgan Chase Bank, National Association,
      as the agent and the collateral agent for the Lenders (the “Agent”).
      Capitalized terms used but not otherwise defined herein shall have the
      respective meanings given to them in the “Credit Agreement” referred to
      below.

     

    W
      I T N E S S E T H:

     

    WHEREAS,
      the signatories hereto are parties to that
      certain Amended and Restated Credit Agreement, dated as of September 23, 2005,
      by and among the Borrower, the Guarantors, the financial institutions from
      time
      to time parties thereto (the “Lenders”)
      and
      the Agent (as the same may from time to time be amended, restated, supplemented
      or otherwise modified, the “Credit
      Agreement”);

     

    WHEREAS,
      certain existing Lenders (the “Departing
      Lenders”)
      identified on the signature pages hereof as Departing Lenders have decided
      to
      cease acting as Lenders;

     

    WHEREAS,
      the parties hereto have agreed to amend the Credit Agreement on the terms and
      conditions set forth herein;

     

    NOW,
      THEREFORE, in consideration of the premises set forth above, the terms and
      conditions contained herein, and other good and valuable consideration, the
      receipt and sufficiency of which are hereby acknowledged, the Borrower, the
      Guarantors, the Lenders and the Administrative Agent have agreed to the
      following amendment to the Credit Agreement.

     

    1.
        Amendments.
      Effective as of the date hereof and subject to the satisfaction of the
      conditions precedent set forth in Section
      2
      below,
      the Credit Agreement is hereby amended as follows:

     

    (a)
        Section
      1.1
      of the
      Credit Agreement is hereby amended to insert the following new definitions
      thereto in the appropriate alphabetical order as follows:

     

    “ContentCo”
means
      CD ContentCo HC, LLC, a Delaware limited liability company existing to hold
      Borrower’s interest in TrackNet Media Group, LLC, a Delaware limited liability
      company and joint venture formed by Borrower and Magna Entertainment Corp.,
      a
      Delaware corporation (“Magna”),
      which
      joint venture will consolidate racing signals, wagering rights, account wagering
      and related businesses of the Borrower and its Subsidiaries and third parties,
      including without limitation, Magna.

     

    “Florida
      Casino Project”
means
      the real property located in Miami-Dade County, Florida and the construction
      and
      development of a gaming and/or slot machine establishment thereon and related
      improvements, and other property and assets directly related or ancillary
      thereto or used in connection therewith, including, without limitation, any
      building, restaurant, hotel, theater, parking facilities, retail shops, land,
      golf courses, and other recreation and entertainment facilities, marina, vessel,
      barge, ship and equipment, and all other property related thereto to the extent
      required under applicable gaming laws, liquor laws or any other applicable
      laws
      to be registered with, or approved by, or not disapproved by, all applicable
      gaming authorities or liquor authorities or any other governmental authorities,
      as the case may be.

    

    “HRTV”
means
      CD HRTV HC, LLC, a Delaware limited liability company existing to hold
      Borrower’s fifty percent (50%) interest in Magna’s horse racing channel HRTVTM,
      which channel engages or will engage in the production of television broadcast
      of racing signals and related businesses of the Borrower and its Subsidiaries
      and third parties, including without limitation, Magna.

    

    (b)
        Section
      1.1
      of the
      Credit Agreement is hereby amended to restate the definition of “Permitted
      Investment” in its entirety as follows:

     

    “Permitted
      Investment”
means
      (i) a possible investment of up to $90,000,000 in Wagerco; (ii) a possible
      investment of up to $10,000,0000 in ContentCo; and (iii) a possible investment
      of up to $10,000,000 in HRTV.

    

    (c)
        Section
      1.1
      of the
      Credit Agreement is hereby amended to restate the following definitions in
      their
      entirety as follows:

     

    “Consolidated
      Indebtedness” means at any time the Indebtedness of the Loan Parties calculated
      on a consolidated basis as of such time in accordance with Agreement Accounting
      Principles. The Indebtedness of any Excluded Subsidiary shall not be included
      in
      Consolidated Indebtedness.

    

    “Consolidated
      Net Income” means, with reference to any period, the net income (or loss) of all
      of the Loan Parties calculated on a consolidated basis for such period in
      accordance with Agreement Accounting Principles. The net income (or loss) of
      any
      Excluded Subsidiary shall not be included in Consolidated Net
      Income.

    

    “Consolidated
      Net Worth” means as of any date of determination total stockholders’ equity of
      all of the Loan Parties as of such date determined and consolidated in
      accordance with Agreement Accounting Principles. The total stockholders’ equity
      of any Excluded Subsidiary shall not be included in Consolidated Net
      Worth.

    

    “Consolidated
      Rentals” means, with reference to any period, the Rentals of the Loan Parties
      calculated on a consolidated basis for such period in accordance with Agreement
      Accounting Principles. The Rentals of any Exlcuded Subsidiary shall not be
      included in Consolidated Rentals.

    

    “Excluded
      Subsidiaries” means any Excluded Entity which is a Subsidiary of any of the Loan
      Parties. The Excluded Subsidiaries on the date of Amendment No. 1 to this
      Agreement are: Churchill Downs Pennsylvania Company (formerly known as Churchill
      Downs California Foodservices Company), Tracknet, LLC, Churchill Downs
      California Company, Churchill Downs California Fall Operating Company, Fair
      Grounds International Ventures, L.L.C., a Louisiana limited liability company,
      F.G. Staffing Services, Inc., a Louisiana corporation, CD ContentCo HC, LLC,
      a
      Delaware limited liability company and CD HRTV HC, LLC, a Delaware limited
      liability company.

    

    (d)
        Section
      2.1
      is
      hereby amended to (x) delete in its entirety the sentence reading as follows:
      “On the date of this Agreement, the amount of the Aggregate Commitment is
      $200,000,000.” and (y) delete the reference to “$250,000,000” appearing therein
      and substitute “$170,000,000” in lieu thereof.

     

    (e)
        Each
      of
Section
      2.22.1
      and
Section
      2.22.5
      of the
      Credit Agreement is hereby amended to delete the reference to “$250,000,000”
appearing therein and substitute “$170,000,000” in lieu thereof.

     

    (f)
        Section
      5.5
      of the
      Credit Agreement is hereby amended to delete the reference to “December 31,
      2004” appearing therein and substitute “December 31, 2006” in lieu
      thereof.

     

    (g)
        Section
      6.24.2
      of the
      Credit Agreement is hereby amended and restated in its entirety as
      follows:

     

    6.24.2
      Leverage
      Ratio.
      The
      Borrower will not permit the Leverage Ratio, determined as of the end of each
      of
      its fiscal quarters, of (i) Consolidated Funded Indebtedness to (ii)
      Consolidated Adjusted EBITDA for the then most-recently ended four fiscal
      quarters to be greater than 3.25 to 1.0; provided
      that,
      during the term of this Agreement, for a single period of eight (8) consecutive
      fiscal quarters, such period beginning with the fiscal quarter during which
      the
      Borrower’s aggregate amount of Capital Expenditures in respect of the Florida
      Casino Project (from the inception of such project) exceeds $10,000,000, the
      Leverage Ratio may be greater than 3.25 to 1.0 but less than or equal to 4.0
      to
      1.0; provided
      that
      from and after the end of such period of consecutive fiscal quarters, the
      Leverage Ratio shall not be greater than 3.25 to 1.0.

    

    (h)
        Section
      6.24.3
      of the
      Credit Agreement is hereby amended and restated in its entirety as
      follows:

     

    6.24.3
      Minimum
      Net Worth.
      The
      Borrower will at all times maintain Consolidated Net Worth of not less than
      (a)
      $190,000,000 as of the Closing Date, and (b) beginning with Borrower’s fiscal
      year ending December 31, 2006, the sum of (i) $290,000,000 plus (ii) 50% of
      Consolidated Net Income earned in each fiscal year (without deduction for
      losses), plus (iii) 100% of the proceeds from any public and/or private offering
      and/or sale of any common and/or preferred stock and/or other equity security,
      and/or any note, debenture, or other security convertible, in whole or in part,
      to common and/or preferred stock and/or other equity security, net of reasonable
      expenses, commissions and fees associates with such sale, from and after the
      date of this Agreement.

    

    (i)
        A
      new
Section
      6.37
      is
      hereby inserted into the Credit Agreement immediately following the existing
      Section
      6.36
      as
      follows:

     

    6.37
      Florida
      Casino Project Capital Expenditures.
      The
      Borrower will not, nor will it permit any of its Subsidiaries to, expend, or
      be
      committed to expend, an aggregate amount in excess of $100,000,000 for Capital
      Expenditures in connection with the Florida Casino Project. As used herein,
      “Capital
      Expenditures”
means,
      without duplication, any expenditure or commitment to expend money for any
      purchase or other acquisition of any asset which would be classified as a fixed
      or capital asset on a consolidated balance sheet of the Borrower and its
      Subsidiaries prepared in accordance with GAAP.

    

    (j)
        Section
      7.3
      of the
      Credit Agreement is hereby amended to insert a reference to “and/or 6.37” at the
      end thereof.

     

    (k)
        The
      Commitments of the Lenders are amended and restated as set forth on Exhibit
      A
      hereto.
      Each Departing Lender shall cease to be a Lender for all purposes under the
      Credit Agreement. The Borrower hereby agrees to compensate each Lender
      (including each Departing Lender) for any and all losses, costs and expenses
      incurred by such Lender in connection with the sale and assignment of any
      Eurodollar Loans and the reallocation described in Section 2(a) below, in each
      case on the terms and in the manner set forth in Section
      3.4
      of the
      Credit Agreement.

     

    (l)
        The
      Pricing Schedule is hereby amended and restated in its entirety as set forth
      on
Exhibit
      B
      hereto.
      Such Pricing Schedule shall be effective as of the first Monday following the
      date hereof and, beginning on such date, the Applicable Margin and the
      Applicable Fee Rate shall be calculated by reference to such Pricing Schedule
      based on the Leverage Ratio reflected in the most recent financial statements
      and compliance certificate delivered pursuant to Section
      6.1
      of the
      Credit Agreement and adjustments to the applicable Level shall thereafter be
      effected in accordance with the Pricing Schedule.

     

    (m)
        Schedules
      1,
      2,
      3,
      4.1(i)(p),
      4.1(i)(q),
      5.22,
      5.23,
      5.24,
      5.25
      and
5.26 of
      the
      Credit Agreement are hereby amended and restated in their entirety as set forth
      on Annex
      I
      hereto.

     

    2.
        Conditions
      of Effectiveness.
      This
      Amendment shall become effective and be deemed effective as of the date hereof,
      if, and only if, (a) the Agent and the Lenders shall have administered the
      reallocation of the Aggregate Outstanding Credit Exposure among the Lenders
      such
      that after giving effect to the amendments to the Commitments pursuant hereto,
      each Lender’s Pro Rata Share of the Aggregate Outstanding Credit Exposures is
      equal to such Lender’s Pro Rata Share of the total Commitments, (b) the Agent
      shall have received (i) executed copies of this Amendment from the Borrower,
      the
      Guarantors and the Lenders (including each Departing Lender) and (ii) for the
      account of each Lender (other than a Departing Lender) an amendment fee in
      the
      amount of $7,500.

     

    3.
        Representations
      and Warranties of the Loan Parties.
      The Loan
      Parties jointly and severally hereby represent and warrant as
      follows:

     

    (a)
        Each
      Loan
      Party has the power and authority and legal right to execute and deliver this
      Amendment and the Credit Agreement (as modified hereby) and to perform its
      obligations hereunder and thereunder. The execution and delivery by each Loan
      Party of this Amendment and the performance of its obligations hereunder and
      under the Credit Agreement (as modified hereby) have been duly authorized by
      proper corporate proceedings, and this Amendment and the Credit Agreement (as
      modified hereby) constitute legal, valid and binding
      obligations of such Loan Party, enforceable against such Loan Party in
      accordance with its terms
      except
      as enforceability may be limited by bankruptcy, insolvency or similar laws
      affecting creditors’ rights generally.

     

    (b)
        As
      of the
      date hereof and giving effect to the terms of this Amendment, (i) no Default
      or
      Unmatured Default has occurred and is continuing and (ii) the representations
      and warranties of the Loan Parties set forth in the Credit Agreement (as
      modified hereby) and the other Loan Documents are true and correct in all
      material respects except to the extent any such representation or warranty
      is
      stated to relate solely to an earlier date, in which case such representation
      or
      warranty shall have been true and correct on and as of such earlier
      date.

     

    4.
        Reference
      to and Effect on the Credit Agreement and Loan
      Documents.

     

    (a)
        Upon
      the
      effectiveness of this Amendment, each reference to the Credit Agreement in
      the
      Credit Agreement or any other Loan Document shall mean and be a reference to
      the
      Credit Agreement as modified hereby. This Amendment is a Loan Document pursuant
      to the Credit Agreement and shall (unless expressly indicated herein or therein)
      be construed, administered, and applied, in accordance with all of the terms
      and
      provisions of the Credit Agreement.

     

    (b)
        Each
      Loan
      Party, by its signature below, hereby (i) agrees that this Amendment and the
      transactions contemplated hereby shall not limit or diminish the obligations
      of
      the Company arising under or pursuant to the Credit Agreement and the other
      Loan
      Documents to which it is a party, (ii) reaffirms all of its obligations under
      the Credit Agreement and each and every other Loan Document to which it is
      a
      party (including, without limitation, each applicable Collateral Document),
      (iii) reaffirms all Liens on the Collateral which have been granted by it in
      favor of the Administrative Agent (for itself and the Lenders) pursuant to
      any
      of the Loan Documents, and (iv) acknowledges and agrees that, except as
      specifically modified above, the Credit Agreement and all other Loan Documents
      executed and/or delivered in connection therewith shall remain in full force
      and
      effect and are hereby reaffirmed, ratified and confirmed.

     

    (c)
        The
      execution, delivery and effectiveness of this Amendment shall not, except as
      expressly provided herein, operate as a waiver of any right, power or remedy
      of
      the Administrative Agent or the Lenders, nor constitute a waiver of or consent
      to any modification of any provision of the Credit Agreement or any other Loan
      Documents executed and/or delivered in connection therewith.

     

    5.
        GOVERNING
      LAW.
      THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT
      REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE COMMONWEALTH OF KENTUCKY,
      BUT
      GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
      BANKS.

     

    6.
        Headings.
      Section
      headings in this Amendment are included herein for convenience of reference
      only
      and shall not constitute a part of this Amendment for any other
      purpose.

     

    7.
        Counterparts.
      This
      Amendment may be executed by one or more of the parties hereto on any number
      of
      separate counterparts (including by means of facsimile or electronic
      transmission), and all of said counterparts taken together shall be deemed
      to
      constitute one and the same instrument.

     

    

    *******

    

     

    IN
      WITNESS WHEREOF, this Amendment has been duly executed as of the day and year
      first above written.

    

     

    
      	 	
              Borrower:

               

              CHURCHILL
                DOWNS INCORPORATED

               

              By:  /s/
                Michael Anderson__________

              Name: 
                Michael Anderson

              Title:   
                VP Finance & Treasurer

            
	 	
              Guarantors:

               

              CHURCHILL
                DOWNS MANAGEMENT COMPANY

               

              By:  /s/
                Michael Anderson__________

              Name: 
                Michael Anderson

              Title:   
                Treasurer

            
	 	
              CHURCHILL
                DOWNS INVESTMENT COMPANY

               

              By:  /s/
                Michael Anderson__________

              Name: 
                Michael Anderson

              Title:   
                Treasurer

            
	 	
              CHURCHILL
                DOWNS SIMULCAST PRODUCTIONS, LLC

               

              
                By:  /s/
                  Michael Anderson__________

                Name: 
                  Michael Anderson

                Title:   
                  Treasurer

              

            
	 	
              CHARLSON
                INDUSTRIES, INC.

               

              
                By:  /s/
                  Michael Anderson__________

                Name: 
                  Michael Anderson

                Title:   
                  Treasurer

              

            

    

     

    
      

    

    

    
      	 	
              CALDER
                RACE COURSE, INC.

               

              By:  /s/
                Steven P.
                Sexton____________

              Name: 
                Steven P. Sexton

              Title:   
                Vice President

            
	 	
              TROPICAL
                PARK, INC.

               

              
                By:  /s/
                  Steven P.
                  Sexton____________

                Name: 
                  Steven P. Sexton

                Title:   
                  Vice President

              

            
	 	
              ARLINGTON
                PARK RACECOURSE, LLC

               

              
                
                  By:  /s/
                    Michael Anderson__________

                  Name: 
                    Michael Anderson

                  Title:   
                    Treasurer

                

              

            
	 	
              ARLINGTON
                OTB CORP.

               

              By:  /s/
                Debra A.
                Wood____________

              Name: 
                Debbie A. Wood

              Title:   
                Secretary

            
	 	
              QUAD
                CITY DOWNS, INC.

               

              
                By:  /s/
                  Debra A.
                  Wood____________

                Name: 
                  Debbie A. Wood

                Title:   
                  Secretary

              

            

    

    

    
      

    

    

    
      	 	
              CDIP,
                LLC

               

              
                
                  By:  /s/
                    Michael Anderson__________

                  Name: 
                    Michael Anderson

                  Title:   
                    Treasurer

                

              

            
	 	
              CDIP
                HOLDINGS, LLC

               

              
                
                  By:  /s/
                    Michael Anderson__________

                  Name: 
                    Michael Anderson

                  Title:   
                    Treasurer

                

              

            
	 	
              CHURCHILL
                DOWNS LOUISIANA HORSERACING COMPANY, L.L.C.

               

              
                
                  By:  /s/
                    Michael Anderson__________

                  Name: 
                    Michael Anderson

                  Title:   
                    Treasurer

                

              

            
	 	
              CHURCHILL
                DOWNS LOUISIANA VIDEO POKER COMPANY, L.L.C.

               

              
                
                  By:  /s/
                    Michael Anderson__________

                  Name: 
                    Michael Anderson

                  Title:   
                    Treasurer

                

              

            
	 	
              VIDEO
                SERVICES, INC. 

               

              
                
                  By:  /s/
                    Michael Anderson__________

                  Name: 
                    Michael Anderson

                  Title:   
                    Treasurer

                

              

            

    

    

    
      

    

     

    
      	 	
              JPMORGAN
                CHASE BANK, NATIONAL ASSOCIATION,

              as
                a Lender, as Agent and as Collateral Agent 

               

              By:  /s/
                H. J.
                Brenner______________

              Name: 
                H. J. Brenner

              Title:   
                S.V.P.

            

    

     

     

      
        

      

    

     

    
      	 	
              PNC
                BANK, NATIONAL ASSOCIATION,

              as
                a Lender, as LC Issuer and as Syndication Agent 

               

              By:  /s/
                Shelly B.
                Stephenson_________

              Name: 
                Shelly B. Stephenson

              Title:    Vice
                President

            

    

    

     

      

    

     

     

    
      	 	
              NATIONAL
                CITY BANK (successor in interest to National City Bank of
                Kentucky),

              as
                a Lender and as Documentation Agent 

               

              By:  /s/
                Rob
                King____________________

              Name: 
                Rob King

              Title:   
                Senior Vice President

            

    

    

     

      
        

      

    

    

    
      	 	
              FIFTH
                THIRD BANK, KENTUCKY, INC.,

              as
                a Lender 

               

              By:  /s/
                David
                O'Neal________________

              Name: 
                David O'Neal

              Title:   
                Vice President

            

    

     

     

      
        

      

    

    

    

    
      	 	
              U.S.
                BANK NATIONAL ASSOCIATION,

              as
                a Lender 

               

              By:  /s/
                Mark
                Wheeler______________

              Name: 
                Mark Wheeler

              Title:   
                Executive Vice President

            

    

     

     

      
        

      

    

    

    

    
      	 	
              BANK
                OF AMERICA, N.A.,

              as
                a Departing Lender 

               

              By:  /s/
                Lisa B.
                Barksdale___________

              Name: 
                Lisa B. Barksdale

              Title:   
                V.P.

            

    

     

     

      
        

      

    

    

    

    
      	 	
              BRANCH
                BANKING & TRUST COMPANY,

              as
                a Departing Lender 

               

              By:  /s/
                Johnny L.
                Perry_______________

              Name:  
                Johnny L. Perry

              Title:    
                Senior Vice President

            

    

     

     

      
        

      

    

    

    

    
      	 	
              COMERICA
                BANK,

              as
                a Departing Lender 

               

              By:  /s/
                Heather
                Whiting_____________

              Name: 
                Heather Whiting

              Title:   
                Vice President

            

    

     

     

      
        

      

    

    
 

    
      	 	
              SUNTRUST
                BANK,

              as
                a Departing Lender 

               

              By:  /s/
                Kap
                Yarbrough_____________

              Name: 
                Kap Yarbrough

              Title:   
                Vice President

            

    

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    

     

    
      	
              Lender

            	
              Commitment

            
	 	 
	
              JPMorgan
                Chase Bank, National Association

            	
              $30,000,000

            
	 	 
	
              PNC
                Bank, National Association

            	
              $30,000,000

            
	 	 
	
              National
                City Bank

            	
              $20,000,000

            
	 	 
	
              Fifth
                Third Bank, Kentucky, Inc.

            	
              $20,000,000

            
	 	 
	
              U.S.
                Bank National Association

            	
              $20,000,000

            
	 	 
	
              TOTAL:

            	
              $120,000,000

            

    

    

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

    

    PRICING
      SCHEDULE

    

    
      	
               

              Applicable
                Margin

               

            	
               

              Level
                I Status

               

            	
               

              Level
                II Status

               

            	
               

              Level
                III Status

               

            	
               

              Level
                IV Status

               

            	
               

              Level
                V Status

               

            	
               

              Level
                VI Status

               

            	
               

              Level
                VII Status

               

            
	
               

              Eurodollar
                Rate

               

            	
               

              0.50%

               

            	
               

              0.625%

               

            	
               

              0.75%

               

            	
               

              0.875%

               

            	
               

              1.00%

               

            	
               

              1.25%

               

            	
               

              1.50%

               

            
	
               

              Floating
                Rate

               

            	
               

              0%

               

            	
               

              0%

               

            	
               

              0%

               

            	
               

              0%

               

            	
               

              0%

               

            	
               

              0%

               

            	
               

              0%

               

            

    

    

    
      	
               

              Applicable
                Fee Rate

               

            	
               

              Level
                I Status

               

            	
               

              Level
                II Status

               

            	
               

              Level
                III Status

               

            	
               

              Level
                IV Status

               

            	
               

              Level
                V Status

               

            	
               

              Level
                VI Status

               

            	
               

              Level
                VII Status

               

            
	
               

              Commitment
                Fee

               

            	
               

              0.10%

               

            	
               

              0.12%

               

            	
               

              0.15%

               

            	
               

              0.15%

               

            	
               

              0.20%

               

            	
               

              0.20%

               

            	
               

              0.25%

               

            

    

    

    

    For
      the
      purposes of this Schedule, the following terms have the following meanings,
      subject to the final paragraph of this Schedule:

    

    “Financials”
      means the annual or quarterly financial statements of the Borrower delivered
      pursuant to Section 6.1(i) or (ii).

    

    “Level
      I
      Status” exists at any date if, as of the last day of the fiscal quarter of the
      Borrower referred to in the most recent Financials, the Leverage Ratio is less
      than 1.00 to 1.00.

    

    “Level
      II
      Status” exists at any date if, as of the last day of the fiscal quarter of the
      Borrower referred to in the most recent Financials, (i) the Borrower has not
      qualified for Level I Status and (ii) the Leverage Ratio is greater than or
      equal to 1.00 to 1.00 and less than 1.50 to 1.00.

    

    “Level
      III Status” exists at any date if, as of the last day of the fiscal quarter of
      the Borrower referred to in the most recent Financials, (i) the Borrower has
      not
      qualified for Level I Status or Level II Status and (ii) the Leverage Ratio
      is
      greater than or equal to 1.50 to 1.00 and less than 2.00 to 1.00.

    

    “Level
      IV
      Status” exists at any date if, as of the last day of the fiscal quarter of the
      Borrower referred to in the most recent Financials, (i) the Borrower has not
      qualified for Level I Status or Level II Status and (ii) the Leverage Ratio
      is
      greater than or equal to 2.00 to 1.00 and less than 2.50 to 1.00.

    

    “Level
      V
      Status” exists at any date if, as of the last day of the fiscal quarter of the
      Borrower referred to in the most recent Financials, (i) the Borrower has not
      qualified for Level I Status or Level II Status and (ii) the Leverage Ratio
      is
      greater than or equal to 2.50 to 1.00 and less than 3.00 to 1.00.

    

    “Level
      VI
      Status” exists at any date if, as of the last day of the fiscal quarter of the
      Borrower referred to in the most recent Financials, (i) the Borrower has not
      qualified for Level I Status or Level II Status and (ii) the Leverage Ratio
      is
      greater than or equal to 3.00 to 1.00 and less than 3.25 to 1.00.

    

    “Level
      VII Status” exists at any date if the Borrower has not qualified for Level I
      Status, Level II Status, Level III Status, Level IV Status, Level V Status
      or
      Level VI Status.

    

    “Status”
      means either Level I Status, Level II Status, Level III Status, Level IV Status,
      Level V Status, Level VI Status and Level VII Status.

    

    The
      Applicable Margin and Applicable Fee Rate shall be determined in accordance
      with
      the foregoing table based on the Borrower’s Status, adjusted quarterly and
      measured on the most recent four fiscal quarters ending on the determination
      date as reflected in the then most recent Financials. Adjustments, if any,
      to
      the Applicable Margin or Applicable Fee Rate shall be effective five Business
      Days after the Agent has received the applicable Financials. If the Borrower
      fails to deliver the Financials to the Agent at the time required pursuant
      to
      Section 6.1, then the Applicable Margin and Applicable Fee Rate shall be the
      highest Applicable Margin and Applicable Fee Rate set forth in the foregoing
      table until five days after such Financials are so delivered.

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    

      Exhibits
        and schedules to Exhibit 10.1, other than Exhibits A and B, have been
        intentionally omitted because they are not material. The registrant agrees
        to
        furnish such omitted exhibits and schedules supplementally to the Commission
        upon request.Exhibit 10-1 - Star Plan and related correspondence

    
      
        

          

          Short
            Term Achievement Reward Program

          

          The
            Short Term
            Achievement Reward (“STAR”) Program is The Procter & Gamble Company’s (the
“Company” or “P&G”) annual incentive program designed to support outstanding
            business results of the Company and its subsidiaries. Awards are made
            pursuant
            to the authority delegated by the Board of Directors to the Compensation
&
Leadership Development Committee (the “Committee”) for awarding additional
            remuneration and the 2001 Stock and Incentive Compensation Plan and/or
            the 2004
            Gillette Long Term Incentive Plan. 

          

          I. ELIGIBILITY

          

          Eligibility
            is
            based on job level and the requirement of working at least four weeks
            during the
            fiscal year. STAR participants who do not work a full schedule (leaves
            of
            absence, disability, and less-than-full time schedules) in the fiscal
            year in
            which the award is payable may have awards pro-rated. 

          

          

          II. CALCULATION

          

          The
            individual STAR
            Award Calculation is: (STAR Target) x (Business Unit Performance Factor)
            x
            (Corporate Adjustment Factor) x (Gillette Factor)

          

          	·  	
                  The
                    STAR
                    Target for
                    each
                    participant is calculated as: (Base Salary) x (STAR Target
                    percent)

                

          

          Base
            Salary
            as of the end of
            June is used to calculate the STAR award. If a participant’s level changes, the
            highest band level and salary during the fiscal year is used to determine
            the
            STAR Target. 

          

          The
STAR
            Target
            Percent
            is dependent on
            job level in the organization and will fall between 8% and 155%.

           

          
            	
                     Job
                      Band

                  	
                     STAR
                      Target as % of Base

                  
	
                     3

                  	
                     8%

                  
	
                     4

                  	
                     15%

                  
	
                     5

                  	
                     25%

                  
	
                     6

                  	
                     45%

                  
	
                     7

                  	
                     70%

                  
	
                     8

                  	
                     75%

                  
	
                     9

                  	
                     85%

                  
	
                     10

                  	
                     155%

                  

          

          
 

          An
            individual’s
            STAR target may vary from the Job Band target identified above in certain
            limited circumstances, including but not limited to, organizationally
            driven
            band reductions or certain corporate actions that result in specific
            employment
            obligations.

          

          	·  	
                  The
                    Business
                    Unit Performance Factor
                    is assigned
                    to each STAR business unit as a measure of success for the fiscal
                    year.
                    The factors range from 53% to 167% with the target at 100%. A
                    STAR
                    Committee, comprised of a small number of senior executives (who
                    do not
                    determine their own awards), conducts a retrospective assessment
                    of the
                    performance of each business unit according to one or more of
                    the
                    following measures and makes a recommendation to the Compensation
&
                    Leadership Development Committee: Operating Total Shareholder
                    Return, Key
                    Competitor Comparison, After Tax Profit, Operating Cash Flow,
                    Value Share,
                    Volume, Net Outside Sales, Value Contribution, Organization Head
                    Self
                    Assessment, and Cross Organization Assessment. There may also
                    be other
                    factors significantly affecting unit results positively or negatively.
                    

                

          

          	·  	
                  The
                    Corporate
                    Adjustment Factor
                    measures the
                    total Company success and ranges from 80% to 130%, with a 100%
                    target. The
                    same Corporate Adjustment Factor is applied to all STAR award
                    calculations. It is determined by a matrix that measures P&G’s market
                    total shareholder return (“TSR”) ranking for the fiscal year relative to a
                    competitive peer group and diluted earnings per share (“EPS”) growth for
                    the fiscal year. 

                

          

          The
            Committee may
            add additional factors with clear performance metrics (such as the Gillette
            factor described below) for supporting business needs.

          

          	·  	
                  The
                    Gillette
                    Factor
                    is derived
                    from a review and recommendation by the STAR Committee based
                    on the
                    results of the success of the Gillette integration. The factor
                    ranges from
                    80% to 130% with 100% as the target. The same Gillette Factor
                    will apply
                    to all STAR award calculations. It will be determined by assessing
                    performance during the fiscal year on various metrics including:
                    sustaining the overall health of both the P&G and Gillette businesses
                    during this period (based on market share and earnings progress);
                    achieving sales, research and administrative budget and synergy
                    objectives; meeting enrollment targets; and staying within integration
                    cost and restructuring estimates. The Gillette Factor was applied
                    starting
                    with the results of fiscal year 2005/06 and will remain a factor
                    as long
                    as applicable. 

                

          

          The
            STAR Committee
            makes recommendations to the Compensation & Leadership Development Committee
            regarding the performance factor percentages to be applied to all STAR
            awards
            (except those for the STAR Committee). The final award amounts for the
            principal
            officers are approved by the Compensation & Leadership Development
            Committee. Pursuant to a delegation from that Committee, awards for other
            employees are approved by the Chief Executive. STAR Awards for members
            of the
            Star Committee are determined exclusively by the Committee without any
            recommendation from the STAR Committee.

          

          

          III. TIMING
            AND FORM

          

          STAR
            awards are
            determined after the close of the fiscal year and are paid on or about
            September
            15. The award form choices and relevant considerations are explained
            in payment
            preference materials generally in the form of Appendix
            1.
            Participants receive written notice of their award detailing the calculation,
            generally in the form of Appendix
            2.
            The grant letters are generally in the form of Appendix
            3.
            

          

          Generally,
            STAR
            awards are paid in cash. However, before the end of the calendar year
            preceding
            the year of the award date, participants on record can choose their upcoming
            award in forms other than cash, such as stock options, local deferral
            programs
            in some countries, or restricted stock units or deferred compensation,
            (for
            participants also in the Business Growth Program), depending on local
            regulations. To pay a STAR award in stock options, the Company compares
            current
            cash value to stock option value with a conversion factor that is reviewed
            annually. Any STAR award paid in stock options, restricted stock units
            or other
            equity shall be awarded pursuant to this program and the terms and conditions
            of
            the 2001 Stock and Incentive Compensation Plan, the 2004 Gillette Long
            Term
            Incentive Plan or any successor stock plan approved in accordance with
            applicable listing standards, as they may be revised from time to
            time.

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          

          IV. SEPARATION
            FROM THE COMPANY

          

          	·  	
                  Retirement,
                    Death or Special Separation with a Separation Package:
                    If
                    participant worked at least 4 weeks, award is pro-rated based
                    on the
                    number of weeks worked in the fiscal year for which the award
                    is payable,
                    divided by 52. 

                

          

          	·  	
                  Voluntary
                    Resignation or Termination for cause: Separating
                    employees must be active as of June 30 (the close of the fiscal
                    year for
                    which the award is payable) to receive an award.
                    

                

          

          Eligible
            participants who have left the Company will receive a cash payment (equity
            such
            as stock options and RSUs can be issued to active employees only) on
            the same timing
            as STAR awards or as soon thereafter as possible.

          

          

          V. CHANGE
            IN CONTROL

          

          Notwithstanding
            the
            foregoing, if there is a Change in Control in any fiscal year, STAR awards
            will
            be calculated in accordance with Section II above, but each factor will
            be
            calculated for the period from the beginning of the fiscal year in which
            a
            Change in Control occurred up to and including the date of such Change
            in
            Control (“CIC Period”). “Change in Control” shall have the same meaning as
            defined in the 2001 Stock and Incentive Compensation Plan.

          

          

          VI. GENERAL
            TERMS AND CONDITIONS

          

          While
            any STAR
            award amount received by one individual for any year shall be considered
            as
            earned remuneration in addition to salary paid, it shall be understood
            that this
            plan does not give to any officer or employee any contract rights, express
            or
            implied, against any Company for any STAR award or for compensation in
            addition
            to the salary paid to him or her, or any right to question the action
            of the
Board of Directors or the Committee.

          

          Each
            award to the
            Chief Executive, Vice-Chairs, Group Presidents, Presidents, Global Function
            Heads and Senior Vice Presidents and equivalents, made pursuant to this
            plan, is
            subject to the Senior Executive Recoupment Policy adopted by the Committee
            in
            December 2006.

          

          This
            program
            document may be amended at any time by the Committee.

          

          

          2/13/07

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          Appendix
            1: Payment Preference Materials for BGP / STAR Awards

          

          [DATE]

          [NAME]

          

          Subject:
            Preferences
            for
            [YEAR] STAR and BGP Payments and Deferred Compensation Choices

          

          Your
            choices for
            the awards are:

          

           

          September
            [YEAR] STAR Award 

           

          	·  	
                  Cash
                    

                

          	·  	
                  Stock
                    Options
                    

                

          	·  	
                  Restricted
                    Stock Units (for BGP participants only) - no forfeiture provision
                    

                

          	·  	
                  Deferred
                    Compensation (for BGP participants only)

                

          

           

          September
            [YEAR] BGP Award
            (if
            applicable)

           

          	·  	
                  Three-Year
                    Restricted Stock Units (50% of award required in this
                    form)

                

          	·  	
                  Cash,
                    Restricted Stock Units - no forfeiture provision, or Deferred
                    Compensation
                    (50% of award subject to this election)

                

           

          

           

          Attached
            you will
            find an election form to be returned to [NAME]. 

          

          Please
            keep the
            following in mind as you consider your choices:

          	·  	
                  It
                    is
                    recommended that you consult legal/tax/financial advisors to
                    determine the
                    appropriate award form(s) for your personal
                    situation.

                

          	·  	
                  While
                    your
                    selection will be given consideration, it is not binding on the
                    Company
                    until approved by the Compensation & Leadership Development Committee
                    of the Board of Directors.

                

          

          IF
            YOU MISS THE [DATE] DEADLINE, YOU WILL RECEIVE THE DEFAULT (CASH).

          

          [NAME]

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          

          [YEAR]
            EXECUTIVE COMPENSATION AWARD FORM PREFERENCES

          

          [YEAR]
            STAR
            Award Payable [DATE] [YEAR] Preference Selection

          
            	
                    Cash

                  	
                    ______%

                  	 
	
                    Stock
                      Options
                      

                  	
                    ______%

                  	 
	
                    Restricted
                      Stock Units

                  	
                    ______%

                  	
                    _______________
                      (Select year you want shares delivered, e.g., [YEAR], or one
                      year after
                      retirement)

                  
	
                    Deferred
                      Compensation

                  	
                    ______%

                  	 
	
                    Total

                  	
                    100%

                  	 

          

          

          [YEAR]
            Payment BGP Award Payable [YEAR] Preference Selection 

          (Complete
            for
            remaining 50%)

          
            	
                    Three-Year
                      Restricted Stock Units (if you leave the Company within 3 years
                      of grant
                      for reasons other than retirement, you forfeit these
                      units)

                  	
                    ____50%
                      (required)

                  	
                    _______________
                      (Select year you want shares delivered, e.g., [three years
                      after grant
                      date, any year later than three years after grant date, or
                      one year after
                      retirement)

                  
	
                    Cash

                  	
                    ______%

                  	 
	
                    Restricted
                      Stock Units

                  	
                    ______%

                  	
                    _______________
                      (Select year you want shares delivered, e.g., [YEAR], or one
                      year after
                      retirement)

                  
	
                    Deferred
                      Compensation 

                  	
                    ______%

                  	 
	
                    Total

                  	
                    100%

                  	 

          

          

          	·  	
                  You
                    must be
                    an active employee as of the award date to receive any non-cash
                    award

                

          	·  	
                  All
                    elections
                    are irrevocable after [DATE].

                

          

          

          ____________________________________________ ________________________

          Signature      Date

          

          Return
            form to
            [NAME]

          

          

          

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          Appendix
            2: STAR Award Letter

          

          [DATE]

          Fellow
            P&G
            Leaders:

          

          I
            am pleased to
            announce the average STAR award for [YEAR] is [NUMBER] % of target. STAR
            awards
            are a combination of your individual business unit awards, the Company
            factor
            and the Gillette factor. Unit awards are decided by the STAR Committee
            based on
            a retrospective assessment of each unit’s performance. The Company factor is
            calculated based on P&G’s market TSR ranking in the peer group and earnings
            per share. The Gillette factor is based on a review done by the STAR
            Committee
            considering the results of the success of the Gillette integration. [EXPLANATION
            OF COMPANY RESULTS and COMPARISON TO PREVIOUS YEAR]

          

          Actual
            STAR awards
            as a percentage of target [HISTORICAL COMPARISON OF RESULTS TO PREVIOUS
            YEAR(S)]

          

          By
            remaining
            choiceful, focused, and disciplined, we can look forward to future success.
            Well
            done! Thanks.

          [NAME]

          

          Personal
            & Confidential

          Individual
            Award Summary

          [NAME]

          

          Your
            STAR Award is
            [NUMBER] payable in [FORM]

          

          
            	
                    [Number]

                  	
                    x

                  	
                    [Number]%

                  	
                    x

                  	
                    [Number]%

                  	
                    x

                  	
                    [Number]%

                  	
                    =

                  	
                    Number

                  
	
                    STAR
                      Target

                  	
                    x

                  	
                    Business
                      Unit
                      Performance Factor

                  	
                    x

                  	
                    Corporate
                      Adjustment Factor

                  	
                    x

                  	
                    Gillette
                      Factor

                  	
                    =

                  	
                    STAR
                      Award

                  

          

          

          STAR
            Target

          
            
              	Based
                      on	June
                      30
                      [YEAR] Base Salary: 	[NUMBER] 
	 	June
                      30
                      [YEAR] Band:	[NUMBER] 
	 	STAR
                      Target
                      Percent for Band:	[NUMBER]
	 	Based
                      x STAR
                      Target Percent:	[NUMBER]
	 	Your
                      STAR
                      Target:	[NUMBER]

            

          

          

          Business
            Unit Performance

          Business
            Unit                Weight  Performance
            Factor

          [Business
            Unit]              [NUMBER]       [NUMBER]
            %

          

          Corporate
            Adjustment Factor

          
            	 TSR
                    One
                    Year Ranking	 [NUMBER]
	 Earnigs
                    Per Share	 [NUMBER]
	 Corporate
                    Adjustment Factor	 [NUMBER]
                    %
	 	 
	Gillette
                    Factor 	 [NUMBER]%

          

           

          Your
            STAR Award is
            [NUMBER] % of STAR Target

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          Appendix
            3: Cover letter for STAR Grant 

          in
            Stock
            Options and Stock Appreciation Rights

          

          

          
            	
                    TO:

                  	
                    Short
                      Term Achievement Reward (STAR) Recipients of P&G Stock Options and
                      Stock Appreciation Rights*

                  

          

          

          The
            attached stock
            option grant letter refers to your STAR award. The grant was determined
            by
            dividing the gross award amount to be paid in stock options (shown on
            your award
            summary previously distributed) by the [DATE] average stock price of
            $ [NUMBER].
            The result was rounded up to the next full share, with those full shares
            multiplied by [NUMBER]. No further action to accept this grant is
            required.

          

          You
            may retain
            these STAR stock options until their expiration date in [NUMBER] years
            even if
            you leave the Company, as long as you are in good standing. This is true
            for
            STAR stock options only as they represent payment for the award that
            you have
            already earned. These options will vest in [NUMBER] years.

          

          Stock
            options are
            granted under the terms and conditions of the 2001 Procter & Gamble Stock
            and Incentive Compensation Plan. The updated plan prospectus is available
            via
            the [WEBSITE].

          

          Please
            keep a copy
            of the grant letter for your records. If you have any questions about
            the award
            granted, please direct them to [NAME]. Questions related to the exercise
            process
            should be directed to [NAME].

          

          [NAME]

          

          *
            Recipients of
            stock appreciation rights should see their subsidiary Chief Financial
            Officer
            regarding the procedure for redeeming such rights.

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          Grant
            Letter for STAR Award in Stock Options 

          and
            Stock Appreciation Rights

          

          [DATE]

          [NAME]

          Subject: Non-Statutory
            Stock
            Option Series xx-STAR-xx

          

          In
            recognition of
            your contributions to the success of the business, the Company hereby
            grants you
            an option to purchase, in accordance with and subject to the terms of
            The
            Procter & Gamble 2001 Stock and Incentive Compensation Plan, the Regulations
            of the Compensation & Leadership Development Committee of the Board of
            Directors and the Exercise Instructions in place from time to time, shares
            of
            the Procter & Gamble Common Stock as follows:

           

          
            	Grant
                    Value:	 [NUMBER]
	Option
                    Price
                    Per Share:	 [NUMBER]
	Number
                    of
                    Shares:	 [NUMBER]
	Date
                    of
                    Grant:	 [DATE]
	Expiration
                    of
                    Option:	 [DATE]
	Option
                    Exercisable:	 [NUMBER]

          

          

          You
            may access,
            download and/or print the terms, or any portion thereof, of the Plan
            by
            activating this hyperlink [LINK]. Nonetheless, if you would prefer to
            receive a
            paper copy of The Procter & Gamble 2001 Stock and Incentive Compensation
            Plan Prospectus, please send a written request via email to [EMAIL ADDRESS].
            Please understand that you will continue to receive future Plan prospectuses
            via
            electronic mail even though you may have requested a paper copy.

          

          This
            option is not
            transferable other than by will or the laws of descent and distribution
            and is
            exercisable during your life only by you. The Compensation & Leadership
            Development Committee has waived the provisions of Article G, paragraph
            4 in the
            event of separation from the Company.

          

          Please
            note that
            when the issue or transfer of the Common Stock covered by this option
            may, in
            the opinion of the Company, conflict or be inconsistent with any applicable
            law
            or regulation of any governmental agency, the Company reserves the right
            to
            refuse to issue or transfer said Common Stock and that any outstanding
            stock
            options may be suspended or terminated if you engage in actions that
            are
            significantly contrary to the best interests of the Company or any of
            its
            subsidiaries.

          

          Under
            IRS standards
            of professional practice, certain tax advice must meet requirements as
            to form
            and substance. To assure compliance with these standards, we disclose
            to you
            that this communication is not intended or written to be used, and cannot
            be
            used, for the purpose of avoiding penalties, or promoting, marketing
            or
            recommending to another party any transaction or matter addressed
            herein.

          

          You
            do not need to
            do anything further to accept this award under the terms of the 2001
            Stock
            Plan.

          

          The
            Procter &
Gamble Company

          [NAME]

          

          

          

          

           

          
            
              
              

            

            
              
              

              
                

              

            

            
              
              

            

          

          Grant
            Letter for STAR Award in RSUs

          

          

          [DATE]

          [NAME]

          

           

          Subject: Award
            of Restricted Stock Units (STAR)

           

          

          This
            is to advise
            you that The Procter & Gamble Company, an Ohio corporation, is awarding you
            with Restricted Stock Units, on the dates and in the amounts listed below,
            pursuant to The Procter & Gamble 2001 Stock and Incentive Compensation Plan,
            and subject to the attached Statement of Terms and Conditions Form
            [CODE]

           

          
            	 Grant
                    Date:	 [DATE]
	 Original
                    Settlement Date:	 [DATE]
	 Number
                    of Restricted Stock Units	 [NUMBER]

          

          

          Paragraph
            3(a) of
            Statement of Terms and Conditions Form [CODE] is not waived.

          

          As
            you will see from the Statement of Terms and Conditions Form [CODE],
            under
            certain circumstances you may agree with The Procter & Gamble Company to
            delay the settlement of your Restricted Stock Units beyond the Original
            Settlement Date. You may want to consult your personal tax advisor before
            making
            a decision about this matter.

          

          THE
            PROCTER &
GAMBLE COMPANY

          [NAME]

          

          

          
            	
                    
                      o

                    

                  	
                    I
                      hereby
                      accept the Award of Restricted Stock Units set forth above
                      in accordance
                      with and subject to the terms of The Procter & Gamble 2001 Stock and
                      Incentive Compensation Plan and the attached Statement of Terms
                      and
                      Conditions for Restricted Stock Units, with which I am familiar.
                      I agree
                      that the Award of Restricted Stock Units, The Procter & Gamble 2001
                      Stock and Incentive Compensation Plan, and the attached Statement
                      of Terms
                      and Conditions for Restricted Stock Units together constitute
                      an agreement
                      between the Company and me in accordance with the terms thereof
                      and
                      hereof, and I further agree that any legal action related to
                      this Award of
                      Restricted Stock Units may be brought in any federal or state
                      court
                      located in Hamilton County, Ohio, USA, and I hereby accept
                      the
                      jurisdiction of these courts and consent to service of process
                      from said
                      courts solely for legal actions related to this Award of Restricted
                      Stock
                      Units. 

                  

          

          

          
            	
                    
                      o

                    

                  	
                    I
                      hereby
                      reject the Award of Restricted Stock Units set forth
                      above.

                  

          

          

          

          

          _________________________________________________________________________

          Date                             Signature

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