CANTERBURY PARK HOLDING CORP (Form: 10-Q, Received: 08/14/2012 15:32:20)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012.

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.

Commission File Number: 001-31569

(CANTERBURY PARK LOGO)


CANTERBURY PARK HOLDING CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Minnesota		41-1775532
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation or		Identification No.)
Organization)

	1100 Canterbury Road Shakopee, MN 55379
(Address of principal executive offices and zip code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


	YES	X		NO

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).


	YES	X		NO


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).
	Large accelerated filer	Accelerated filer
	Non-accelerated filer	Smaller reporting company	X

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).


	YES			NO	X

The Company had 4,144,000 shares of common stock, $.01 par value, outstanding as of August 13, 2012.

Canterbury Park Holding Corporation

INDEX


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (unaudited)

		Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	3

		Condensed Consolidated Statements of Operations for the periods Ended June 30, 2012 and 2011	4

		Condensed Consolidated Statements of Cash Flows for the periods Ended June 30, 2012 and 2011	5

		Notes to Condensed Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

	Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings	24

	Item 1A.	Risk Factors	24

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

	Item 3.	Defaults Upon Senior Securities	24

	Item 4.	Mine Safety Disclosures	24

	Item 5.	Other Information	24

	Item 6.	Exhibits	24

	Signatures		25

	Certifications		26

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P ART 1 - FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

C ONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2012 AND DECEMBER 31, 2011 (Unaudited)


	June 30, 2012		December 31, 2011
ASSETS
CURRENT ASSETS
Cash	$	9,490,071	$	8,268,779
Restricted cash		2,515,514		1,146,163
Short-term investments		202,626		201,669
Accounts receivable, net of allowance of $27,773		859,037		540,167
Inventory		292,420		183,122
Prepaid expenses		962,855		682,404
Deferred income taxes		612,100		315,200
Income taxes receivable		144,010		—
Due from Minnesota horsemen associations		—		44,372
Total current assets		15,078,633		11,381,876

LONG-TERM ASSETS
Deposits		26,400		26,400
Land, buildings and equipment, net of accumulated depreciation of $21,180,077 and $20,364,053, respectively		22,704,802		22,776,115
	$	37,809,835	$	34,184,391

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	5,296,393	$	2,432,818
Card Casino accruals		1,337,167		1,314,173
Accrued wages and payroll taxes		870,483		775,256
Due to MHBPA		61,128		158,616
Accrued property taxes		609,229		606,252
Income taxes payable		—		97,000
Dividend payable		1,035,475		—
Payable to horsepersons		64,251		17,745
Total current liabilities		9,274,126		5,401,860

LONG-TERM LIABILITIES
Deferred income taxes		1,312,600		1,309,000
Stock appreciation rights		117,226		—

COMMITMENTS AND CONTINGENCIES		—		—

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,141,898 and 4,101,701, respectively, shares issued and outstanding		41,419		41,017
Additional paid-in capital		16,714,925		16,413,468
Retained earnings		10,349,539		11,019,046
Total stockholders’ equity		27,105,883		27,473,531
	$	37,809,835	$	34,184,391

See notes to condensed consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

C ONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

PERIODS ENDED JUNE 30, 2012 AND 2011 (Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
OPERATING REVENUES:
Pari-mutuel	$	3,095,486		$	3,055,969		$	4,871,317		$	4,739,719
Card Casino		6,050,038			6,132,831			12,593,111			11,733,633
Concessions		1,796,079			1,638,580			2,728,873			2,361,701
Other		1,075,935			901,078			1,473,431			1,238,587
Total Revenues		12,017,538			11,728,458			21,666,732			20,073,640
Less: Promotional Allowances		(53,454	)		(62,938	)		(93,938	)		(100,310	)
Net Revenues		11,964,084			11,665,520			21,572,794			19,973,330

OPERATING EXPENSES:
Purse expense		1,829,069			1,782,164			2,750,800			2,588,071
Minnesota Breeders’ Fund		234,719			233,027			394,648			376,015
Other pari-mutuel expenses		468,686			467,756			821,510			773,282
Salaries and benefits		5,174,074			4,899,306			9,361,649			8,609,908
Cost of sales		985,897			915,613			1,520,941			1,380,240
Depreciation		411,000			476,730			884,580			937,230
Utilities		276,129			311,003			502,939			545,541
Advertising and marketing		484,470			423,161			680,282			525,709
Other operating expenses		2,393,390			2,182,259			3,943,836			3,625,865
		12,257,434			11,691,019			20,861,185			19,361,861

(LOSS) INCOME FROM OPERATIONS		(293,350	)		(25,499	)		711,609			611,469

NONOPERATING (EXPENSES) REVENUES:
Interest expense		—			(587	)		—			(593	)
Other, net		2,225			1,264			3,339			2,623
		2,225			677			3,339			2,030

(LOSS) INCOME BEFORE INCOME TAXES		(291,125	)		(24,822	)		714,948			613,499

INCOME TAX BENEFIT (EXPENSE)		124,589			(323,234	)		(348,980	)		(751,000	)

NET (LOSS) INCOME	$	(166,536	)	$	(348,056	)	$	365,968		$	(137,501	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		4,115,771			4,066,539			4,113,901			4,067,743

WEIGHTED AVERAGE NUMBER OF DILUTIVE SHARES OUTSTANDING		4,115,771			4,066,539			4,162,094			4,067,743

BASIC NET (LOSS) INCOME PER COMMON SHARE	$	(.04	)	$	(.09	)	$	.09		$	(.03	)

DILUTED NET (LOSS) INCOME PER COMMON SHARE	$	(.04	)	$	(.09	)	$	.09		$	(.03	)

See notes to condensed consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

C ONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

PERIODS ENDED JUNE 30, 2012 AND 2011 (Unaudited)


	Six Months Ended June 30,
	2012			2011
Operating Activities:
Net income (loss)	$	365,968		$	(137,501	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		884,580			937,230
Stock-based compensation expense		91,558			132,750
(Decrease) increase in deferred income taxes		(293,300	)		205,200
Tax benefit from exercise of stock options		27,289			25,900
Changes in operating assets and liabilities:
Increase in restricted cash		(1,369,351	)		(1,329,973	)
Increase in accounts receivable		(318,870	)		(263,325	)
Increase in other current assets		(389,749	)		(379,817	)
(Decrease) increase in income taxes payable		(268,299	)		493,999
Increase in accounts payable and accrued wages and payroll taxes		2,899,089			3,010,184
Increase in Card Casino accruals		22,994			350,333
Increase in stock appreciation rights		117,226			—
Increase in accrued property taxes		2,977			16,965
Increase in payable to horsepersons		46,506			26,260
Decrease in due to MHBPA		(53,116	)		(41,834	)
Net cash provided by operating activities		1,765,502			3,046,371

Investing Activities:
Additions to buildings and equipment		(753,553	)		(348,465	)
Proceeds from sale of assets		—			1,000
Proceeds from redemption of investments		—			29,430
Purchase of investments		(957	)		(100,000	)
Net cash used in investing activities		(754,510	)		(418,035	)

Financing Activities
Proceeds from issuance of common stock		183,011			199,595
Tax benefit from exercise of stock options		27,289			25,900
Net cash provided by financing activities		210,300			225,495

Net increase in cash		1,221,292			2,853,831

Cash at beginning of period		8,268,779			5,451,462

Cash at end of period	$	9,490,071		$	8,305,293

Supplemental disclosure of noncash investing and financing activities:
Additions to buildings and equipment funded through accounts payable	$	88,999		$	4,119
Proceeds from issuance of common stock funded through shares swapped	$	—		$	210,470
Dividend declared	$	1,035,475		$	—

Supplemental disclosure of cash flow information:
Income taxes paid, net of refunds	$	856,000		$	—

See notes to condensed consolidated financial statements.

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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

N OTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PERIODS ENDED JUNE 30, 2012 AND 2011 (Unaudited)


	The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, and, in the opinion of management, contain all adjustments necessary to present fairly, in accordance with accounting principles generally accepted in the United States of America (GAAP), the financial position of Canterbury Park Holding Corporation as of June 30, 2012 and December 31, 2011, the results of its operations for the three and six months ended June 30, 2012 and 2011 and the results of its cash flows for the six months ended June 30, 2012 and 2011. The condensed consolidated balance sheet as of December 31, 2011 was derived from the audited financial statements. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Results for an interim period are not necessarily indicative of results for a full year.

	The complete summary of significant accounting policies is included in the notes to consolidated financial statements in the Company’s 2011 Annual Report on Form 10-K.

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

	Business – Canterbury Park Holding Corporation (the “Company”) was incorporated under the laws of Minnesota and acquired land and buildings to conduct pari-mutuel horse racing operations (the “Racetrack”) in March 1994. The Racetrack is located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, we commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995. Our live racing operations are a seasonal business as we host live race meets each year from May until early September. We earn additional pari-mutuel revenue by televising our live racing to out-of-state racetracks around the country. Canterbury Park’s Card Casino operates 24 hours a day, seven days a week and is limited by Minnesota State law to a maximum of 80 tables. The Card Casino currently offers a variety of poker and table games. Our three largest sources of revenues, Card Casino operations, pari-mutuel operations and concessions sales, generate cash revenues. We also derive revenues from related services and activities, such as advertising, parking and publication sales and from other entertainment events and activities held at the Racetrack.

	Revenue Recognition – Our revenues are derived primarily from the operations of a Card Casino, pari-mutuel wagering on simulcast and live horse races, concession sales, and related activities. Collection revenue from Card Casino operations, a set percentage of wagers, is recognized at the time that the wagering process is complete. Pari-mutuel revenues are recognized upon occurrence of the live race that is presented for wagering and after that live race is made official by the respective state’s racing regulatory body. Revenues related to concession and publication sales and parking and admission fees are recognized as revenue when the service has been performed or the product has been delivered. All sales taxes are presented on a net basis and are excluded from revenue.

	Estimates – The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

	Unrestricted Cash – Cash includes all investments with original maturities of three months or less or which are readily convertible into known amounts of cash and are not legally restricted. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

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	Restricted Cash – Restricted cash represents refundable deposits and amounts due to horsemen for purses, stakes and awards, and amounts accumulated in card game progressive jackpot pools, the player pool and poker promotional fund to be used to repay card players in the form of promotions, giveaways, prizes, or by other means.

	Short-term Investments – Securities are classified as held to maturity when the Company has the positive intent and ability to hold them to maturity, and are measured at amortized cost. At June 30, 2012 and December 31, 2011, all investments were classified as held-to-maturity. The Company continually reviews its investments to determine whether a decline in fair value below the cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the security is written down to fair value and the amount of the write-down is included in earnings. Short-term investments consist of certificates of deposits at June 30, 2012 and December 31, 2011. Amortized cost approximated fair value for both periods.

	Uncashed Winning Tickets – The Company records a liability for winning tickets upon the completion of a race. As winning tickets are redeemed, this liability is reduced for the respective cash payment. We recognize revenue associated with the uncashed winning tickets when the likelihood of the redemption of the winning ticket is remote.

	Promotional Allowances – The Company offers certain promotional allowances at no charge to patrons who participate in our player rewards program. The retail value of these promotional items is shown as a deduction from total revenues on the Company’s consolidated statements of operations.

	Due to Minnesota Horsemen’s Benevolent and Protective Association, Inc. (“MHBPA”) – The Minnesota Pari-mutuel Horse Racing Act specifies that the Company is required to segregate a portion of funds (recorded as purse expense in the statements of operations), received from card room operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’ associations. Pursuant to an agreement with the MHBPA, the Company transferred into a trust account or paid directly to the MHBPA, approximately $2,575,000 and $2,425,000 for the six-month periods ending June 30, 2012 and 2011, respectively, related to thoroughbred races. Minnesota Statutes specify that amounts transferred into the trust account are the property of the trust and not of the Company.

	Impairment of Long-Lived Assets – Management of the Company periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected future net cash flows. Should the sum of the related expected future net cash flows be less than the carrying value, management will determine whether an impairment loss should be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. Management has determined that no impairment of these assets exists at June 30, 2012.

	Land, Buildings, and Equipment – Land, buildings, equipment, and building improvements are capitalized at a level of $1,000 or greater and are recorded at cost. Repair and maintenance costs are charged to operations when incurred. Furniture, fixtures, and equipment are depreciated using the straight-line method over estimated useful lives ranging from 5 – 7 years, while buildings are depreciated over 15 – 39 years. Building improvements are amortized using the straight-line method over the useful life of the assets.

	Card Casino Accruals – Minnesota law allows the Company to collect amounts from patrons to fund progressive jackpot pools in the Card Casino. These amounts, along with amounts earned by the player pool, promotional pools and the outstanding chip liability, are accrued as short-term liabilities at each balance sheet date.

	Income Taxes – Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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	Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to reverse. The effective income tax rate for 2012 is higher than the statutory rate primarily due to non-deductible lobbying expenses.

	Interest and penalties associated with uncertain income tax positions are presented in income tax expense. During the three months ended June 30, 2012 and 2011, we did not recognize any expense related to interest and penalties. Additionally, we do not have any amounts accrued at June 30, 2012 for the payment of interest and penalties.

2.	STOCK BASED COMPENSATION

	Stock based compensation is recorded at fair value as of the date of grant and included in the salaries and benefits expense line item on the consolidated statements of operations and amounted to $91,558 and $132,750 during the six months ended June 30, 2012 and 2011, respectively.

	Prior to June 2, 2011, the Company’s Stock Plan provided for annual, automatic grants to each non-employee member of the Board of Directors on the first business day each February of non-qualified stock options to acquire 3,000 shares of common stock. Pursuant to this provision, on February 1, 2011, 15,000 options were granted to five non-employee board members with an exercise price per share equal to the market price on the date of grant of $13.30. The stock options vested over a six-month period and expire in ten years. The compensation cost associated with this grant of Board of Directors options is $93,750 and was recognized as expense over the six-month vesting period.

	Pursuant to Board action taken on April 15, 2011 and shareholder approval on June 2, 2011, the Company’s Stock Plan was amended to authorize annual grants of restricted stock or stock options, or both, as determined by the Board, and, pursuant to the amended Stock Plan, on June 2, 2011, 1,000 shares of restricted stock were granted to each of the five non-employee members of the Board of Directors. The restricted stock vested 100% after one year and is subject to restrictions on resale for an additional year. The compensation cost associated with the total grant of 5,000 shares was $73,300 that was recognized as expense over the one-year vesting period. Also pursuant to the amended Stock Plan, on June 7, 2012, 2,364 shares of restricted stock were granted to each of the five non-employee members of the Board of Directors. The restricted stock will vest 100% after one year and will be subject to restrictions on resale for an additional year. The compensation cost associated with the total grant of 11,820 shares is $149,996 that will be recognized as expense over the one-year vesting period.

	On September 8, 2011, 54,250 shares of deferred stock awards were granted to employees with a price per share equal to the market price on the date of grant of $9.27. The issuance of these deferred stock awards is contingent upon the Company obtaining legislation authorizing the operation of a Racino at Canterbury Park on or before December 31, 2012 and the Racino opens for business to the public pursuant to such legal authority by December 31, 2014. The Company believes the likelihood of this event to be remote due to the signing of the Cooperative Marketing Agreement as noted in Note 7.

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	The number of shares that may be issued pursuant to options and restricted stock granted and the weighted average fair value during the periods presented were:


	Six Months Ended
	June 30, 2012				June 30, 2011
	Grant		Weighted Average Fair Value Per Share		Grant		Weighted Average Fair Value Per Share

Board stock options		—		—		15,000	$	6.25
Board restricted stock		11,820	$	12.69		5,000	$	14.66

Total shares		11,820				20,000


	The fair value of stock options granted under the Company’s 1994 Stock Plan during the first six months of 2011 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions and results; no stock options were granted during the first six months of 2012:


	2011
Expected dividend yield		0.00	%
Expected weighted-average volatility		50	%
Risk-free interest rate		2.02	%
Expected term of stock options ( in years )		5.5
Fair value of stock options on grant date	$	93,750


	A summary of stock option activity as of June 30, 2012 and changes during the six months then ended is presented below:


Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Grant Date Fair Value

Outstanding at January 1, 2012		318,002		$	9.21

Granted		—			—
Exercised		(19,750	)	$	7.23
Expired/Forfeited		—			—

Outstanding at June 30, 2012		298,252		$	10.06		5.8 Years	$	3,000,852

Exercisable at June 30, 2012		246,752		$	10.57		5.6 Years	$	2,607,492

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	A summary of stock option activity as of June 30, 2011 and changes during the six months then ended is presented below:


Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Grant Date Fair Value

Outstanding at January 1, 2011		368,437		$	9.21

Granted		15,000		$	13.30
Exercised		(59,935	)	$	6.84
Expired/Forfeited		(3,250	)	$	7.23

Outstanding at June 30, 2011		320,252		$	9.86		6.7 Years	$	3,157,726

Exercisable at June 30, 2011		212,877		$	10.67		5.8 Years	$	2,272,021


	Employee Stock Ownership Plan – Prior to 2008, the Company contributed shares of its common stock to its Employee Stock Ownership Plan (the “ESOP”). However, no contributions have been made from January 1, 2008 to date, and the Company has not taken any action to reinstate contributions to the ESOP.

	Employee Stock Purchase Plan – On April 3, 1995, the Board of Directors adopted an Employee Stock Purchase Plan (the “ESPP”). Pursuant to Board action taken in September 2011, the ESPP was amended to consist of three-month phases. The plan issued 2,096 shares during the second quarter of 2012. The plan did not issue any shares during the second quarter of 2011. The ESPP has issued a total of 248,262 shares since its inception. Pursuant to Board action taken on June 2, 2012, and effective during the third quarter of 2012, the discount offered to employees as part of the ESPP was raised 5% to 10%.

	Stock Appreciation Rights (“SARs”)
	As part of the Cooperative Marketing Agreement (the “Agreement”) discussed in Note 7, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued SARs to non-employees. The SAR Agreement granted rights to non-employees to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in 2013. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. SARs have no effect on dilutive shares or shares outstanding as any appreciation of the Company’s common stock value over the grant price is paid in cash and not in common stock. The SAR Agreement and all rights granted expire on December 31, 2022.

	The fair value of SARs is revalued (mark-to-market) each reporting period using the Black-Scholes valuation model based on the Company’s period-end stock price. The expected term of the SARs granted is based on the contractual term. Expected volatility is based on the historical volatility of the Company’s stock for the length of time corresponding to the expected term of the SARs. The expected dividend yield is based on the Company’s historical dividend payments. The risk-free interest rate is based on the U.S. treasury yield curve in effect as of the reporting date for the length of time corresponding to the expected term of the SARs.

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	The following weighted-average assumptions were used in calculating the fair value of SARs granted during the three-month period ended June 30, 2012, using the Black-Scholes valuation model; no SARs were granted during the three and six-month periods ended June 30, 2011:


	Three Months Ended June 30, 2012
Expected dividend yield		0.00	%
Expected weighted-average volatility		48.0	%
Risk-free interest rate		1.67	%
Expected term of SARs ( in years )		10.55

There were no exercises during the three and six-month periods ended June 30, 2012. The total fair value of SARs vested during the three and six-month periods ended June 30, 2012 was $117,226. This expense was recorded as a component of other pari-mutuel expenses due to the nature of the Agreement. In the future, changes in the fair value of these SARs will also be recorded to this expense.

Changes to the Company’s non-vested SARs during the six-month period ended June 30, 2012, are as follows:


	SARs			*Fair Value ()**
Non-vested SARs at December 31, 2011		—			—
Granted		165,000		$	6.09
Vested		(15,000	)	$	6.09
Cancellations		—			—
Non-vested SARs at June 30, 2012		150,000		$	6.09


	*Weighted-average

3.	EARNINGS PER SHARE COMPUTATIONS

	Basic net income per common share is based on the weighted average number of common shares outstanding during each period. Diluted net income per common share takes into effect the dilutive effect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options. Options to purchase 119,500 shares of common stock at an average price of $14.36 per share were outstanding but not included in the computation of diluted earnings per share for both the three and six-month periods ending June 30, 2012 because the options were out of the money at June 30, 2012. Options to purchase 29,500 shares of common stock at an average price of $16.94 per share were outstanding but not included in the computation of diluted earnings per share for both the three and six-month periods ending June 30, 2011 because the options were out of the money at June 30, 2011. Weighted average shares of 50,294 were considered anti-dilutive and excluded from the computation of common equivalent shares for the three month period ended June 30, 2012, as the Company reported a loss for that period. Additionally, weighted average shares of 51,667 and 59,397 were considered anti-dilutive and excluded from the computation of common equivalent shares for the three and six-month period ended June 30, 2011, as the Company reported a net loss for those periods.

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	The following is a reconciliation of the numerator and denominator of the earnings per common share computations for the three and six-month periods ending June 30, 2012 and 2011:


	Three Months Ended June 30, 2012			Three Months Ended June 30, 2011			Six Months Ended June 30, 2012		Six Months Ended June 30, 2011
Net (loss) income (numerator) amounts used for basic and diluted per share computations:	$	(166,536	)	$	(348,056	)	$	365,968	$	(137,501	)

Weighted average shares (denominator) of common stock outstanding:
Basic		4,115,771			4,066,539			4,113,901		4,067,743
Plus dilutive effect of stock options		—			—			48,193		—
Diluted		4,115,771			4,066,539			4,162,094		4,067,743

Net (loss) income per common share:
Basic	$	(.04	)	$	(.09	)	$	.09	$	(.03	)
Diluted		(.04	)		(.09	)		.09		(.03	)


4.	GENERAL CREDIT AGREEMENT

	The Company has a general credit agreement with Bremer Bank, which provides a revolving credit line of up to $3,000,000. On May 6, 2012, the Company signed an amendment with Bremer Bank extending the expiration date from May 8, 2012 to May 5, 2013, while keeping previous provisions intact. The Company had no borrowings under this credit line at June 30, 2012 and December 31, 2011. The credit agreement contains certain covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements as of June 30, 2012. The Company believes that unrestricted funds available in its cash accounts, funds available under this line of credit, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements during 2012.

5.	OPERATING SEGMENTS

	During the first six months of 2012 and 2011, the Company had three reportable operating segments: horse racing, Card Casino, and concessions. The horse racing segment primarily represents simulcast and live horse racing operations. The Card Casino segment primarily represents operations of Canterbury Park’s Card Casino, and the concessions segment primarily represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events. The Company’s reportable operating segments are strategic business units that offer different products and services. They are managed separately because the segments differ in the nature of the products and services provided as well as processes to produce those products and services. The Minnesota Racing Commission regulates the horse racing and Card Casino segments.

	The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the 2011 Annual Report on Form 10-K.

	Depreciation, interest expense and income taxes are allocated to the segments but no allocation is made to concessions for shared facilities. However, the concessions segment pays approximately 25% of gross revenues earned on live racing and special event days to the horse racing segment for use of the facilities.

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	The following tables provide information about the Company’s operating segments (in 000’s):


	Six Months Ended June 30, 2012
	Horse Racing			Card Casino		Concessions		Total

Net revenues from external customers	$	6,246		$	12,593	$	2,734	$	21,573

Intersegment revenues		249			—		733		982

Net interest income		3			—		—		3

Depreciation		526			294		65		885

Segment (loss) income before income taxes		(975	)		1,822		357		1,204

	At June 30, 2012
Segment Assets	$	34,599		$	2,560	$	11,818	$	48,977

	Six Months Ended June 30, 2011
	Horse Racing			Card Casino		Concessions		Total

Net revenues from external customers	$	5,873		$	11,734	$	2,366	$	19,973

Intersegment revenues		156			—		700		856

Net interest income		2			—		—		2

Depreciation		563			294		80		937

Segment (loss) income before income taxes		(946	)		1,705		219		978

	At December 31, 2011
Segment Assets	$	30,832		$	2,838	$	11,222	$	44,892


	The following are reconciliations of reportable segment revenue, income before income taxes, and assets, to the Company’s consolidated totals (in 000’s):


	Six Months Ended June 30,
	2012			2011
Revenues
Total net revenue for reportable segments	$	22,555		$	20,829
Elimination of intersegment revenues		(982	)		(856	)
Total consolidated net revenues	$	21,573		$	19,973

Income before income taxes
Total segment income before income taxes	$	1,204		$	978
Elimination of intersegment income before income taxes		(489	)		(365	)
Total consolidated income before income taxes	$	715		$	613

	June 30, 2012			Dec. 31, 2011
Assets
Total assets for reportable segments	$	48,977		$	44,892
Elimination of intercompany receivables		(11,167	)		(10,173	)
Total consolidated assets	$	37,810		$	34,719

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6.	COMMITMENTS AND CONTINGENCIES

	In accordance with an Earn Out Note, given to the prior owner of the Racetrack as part of the consideration paid by the Company to acquire the Racetrack in 1994, if (i) off-track betting becomes legally permissible in the State of Minnesota and (ii) the Company begins to conduct off-track betting with respect to or in connection with its operations, the Company will be required to pay to the IMR Fund, L.P. the greater of $700,000 per operating year, as defined, or 20% of the net pretax profit, as defined for each of five operating years. At this time, management believes that the likelihood that these two conditions will be met, and that the Company will be required to pay these amounts, is remote. At the date (if any) that these two conditions are met, the five minimum payments will be discounted back to their present value and the sum of those discounted payments will be capitalized as part of the purchase price in accordance with generally accepted accounting principles. The purchase price will be further increased if payments become due under the “20% of Net Pretax Profit” calculation. The first payment is to be made 90 days after the end of the third operating year in which off-track betting is conducted by the Company. Remaining payments would be made within 90 days of the end of each of the next four operating years.

	Additionally, if the Company breaches certain obligations as a result of the Cooperative Marketing Agreement that became effective on June 15, 2012, the Company will be forced to repay various amounts (depending on the breach).

	The Company periodically is subject to claims or involved in legal proceedings arising in the normal course of business. At June 30, 2012, management believes that the resolution of any pending claims or legal proceedings will not have a material impact on the consolidated financial statements.

7.	COOPERATIVE MARKETING AGREEMENT

	On June 4, 2012, Canterbury Park Holding Corporation (the “Company”) entered into a Ten-Year Cooperative Marketing Agreement (“Agreement”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), a federally recognized Indian tribe. The primary purpose of the Agreement is to increase purses paid during live horse racing at the Canterbury Park racetrack. Under the terms of the Agreement, SMSC will make purse enhancement payments in order to strengthen Minnesota’s horse industry. Under the Agreement, SMSC has agreed to contribute $2.7 million for purse enhancements in 2012 and, after 2012, the additional amounts listed below.

	In addition, the Company and SMSC have also agreed to partner in joint marketing efforts for their mutual benefit, including events, cross promotions, cooperative poker tournaments, shared promotions and player benefits and signage. Under the agreement, SMSC has agreed to pay the Company an additional $300,000 for 2012 marketing purposes and, after 2012, the additional amounts listed below.

	After 2012, under the Agreement, SMSC has agreed to make the following purse enhancement and marketing payments in the years 2013 through 2022:


Year	Purse Enhancement	Marketing Payment
2013	5,300,000	600,000
2014	5,840,000	660,000
2015	6,434,000	726,000
2016	7,087,400	798,600
2017	7,806,140	878,460
2018	8,000,000	900,000
2019	8,000,000	900,000
2020	8,000,000	900,000
2021	8,000,000	900,000
2022	8,000,000	900,000

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	The Company will not receive any part of any purse enhancement payment. As the Company will not directly be handling these funds, there will be no impact on the Company’s financial statements.

	The amounts earned from the marketing payments will be recorded as a component of other revenue and the related expenses will be recorded as a component of marketing and advertising expense in the Company’s financial statements. For the period ended June 30, 2012, the Company did not earn any revenues and did not incur any expenses related to the 2012 marketing payment.

	As part of the Agreement, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued stock appreciation rights to SMSC. The SAR Agreement granted rights to SMSC to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in 2013. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. The SAR Agreement and all rights granted expire on December 31, 2022. The liability related to these stock appreciation rights is recorded as a long-term liability and the Company will recognize the expense related to these stock appreciation rights as a component of other operating expenses due to the nature of the agreement. During the period ended June 30, 2012, the Company recognized $117,226 of expense related to these stock appreciation rights. In the future, changes in the fair value of these stock appreciation rights will increase or decrease the stock appreciation rights liability, and the Company will recognize additional expense or income related to these changes.

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ITEM 2:	M ANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Canterbury Park Holding Corporation, our operations and our present business environment. This MD&A is provided as a supplement to – and should be read in conjunction with – our condensed consolidated financial statements and the accompanying notes to the financial statements (the “Notes”).

Overview :

Canterbury Park Holding Corporation (the “Company”) owns and operates the Canterbury Park Racetrack and Card Casino in Shakopee, Minnesota (the “Racetrack”). The primary businesses of the Company are simulcast and live pari-mutuel horse racing, hosting unbanked card games, and food and beverage operations.

The Racetrack is the only pari-mutuel thoroughbred and quarter horse racing facility in the State of Minnesota. The Racetrack earns revenues from pari-mutuel take-out on races simulcast year-round to Canterbury Park from racetracks throughout the country and from live race meets featuring thoroughbred and quarter horse racing. Live race meets commence in the month of May and conclude in early September. During live race meets, the Company televises its races to out-of-state racetracks around the country, and earns additional pari-mutuel revenue on wagers placed on its races at the out-of-state racetracks.

The Card Casino at Canterbury Park currently hosts “unbanked” card games in which players compete against each other and not against the house. In addition, changes to the law governing Card Casino operations will enable us to begin offering banked games in the future. The Card Casino is open twenty-four hours a day, seven days a week. Under Minnesota law, the Company is required to pay up to 14% of gross Card Casino revenues to the Racetrack’s purse fund and the State of Minnesota Breeders’ Fund.

The Company also generates revenues from other activities such as parking and admission fees and from the sale of food and beverage, programs and other racing publications, and corporate sponsorships. Additional revenues are derived from the use of the Racetrack facilities for special events, such as concerts and craft shows.

Operations Review for the Three and Six Months Ended June 30, 2012 and June 30, 2011:

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA (defined below), which is a non-GAAP measure, for the six month periods ended June 30, 2012 and 2011:


	June 30, 2012			June 30, 2011
Net income (loss)	$	365,968		$	(137,501	)
Interest income, net of interest expense		(3,339	)		(2,030	)
Income tax expense		348,980			751,000
Depreciation		884,580			937,230
EBITDA	$	1,596,189		$	1,548,699

EBITDA represents earnings before interest income, income tax expense, and depreciation and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles (“GAAP”), and should not be considered an alternative to, or more meaningful than, net income as an indicator of our operating performance or cash flows from operating activities as a measure of liquidity. EBITDA has been presented as a supplemental disclosure because it is a widely used measure of performance and basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do.

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EBITDA as a percentage of net revenues was 7.4% for the first six months ended June 30, 2012, as compared to 7.8% for the first six months ended June 30, 2011.

Total net revenues increased $1,599,464, or 8.0%, during the six months ended June 30, 2012 compared to the six months ended June 30, 2011, and increased $298,564, or 2.6%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011. The six month improvement was due primarily to an increase in Card Casino revenues of 7.3%, an increase in pari-mutuel revenues of 2.8% and an increase in concessions revenue of 15.5% compared to the same period in the prior year. The three month increase represented an increase in pari-mutuel revenues of 1.3% and an increase in concessions revenues of 9.6% offset by a reduction of 1.3% in Card Casino revenues for the three months ended June 30, 2012 compared to the same period in the prior year. See below for a further discussion of revenue.

Summary of Pari-mutuel Data:


	Six Months Ended June 30,
	2012		2011
Racing Days
Simulcast only		158		159
Live and Simulcast		24		22
Total Number of Racing Days		182		181

On-Track Handle
Simulcast racing handle on simulcast only days	$	13,853,000	$	13,912,000
Live and Simulcast days:
Live racing handle		4,279,000		3,755,000
Simulcast racing handle		3,894,000		3,633,000
Total On-Track Handle		22,026,000		21,300,000

Out-of-State Live Handle		5,197,000		4,321,000

Total Handle	$	27,223,000	$	25,621,000

On-Track Average Daily Handle
Simulcast only racing days	$	87,677	$	87,497
Live and simulcast racing days	$	340,542	^$	335,818

Pari-mutuel revenues increased $131,598, or 2.8%, in the six-month period ended June 30, 2012 compared to the same period in 2011, and increased $39,517, or 1.3%, for the three-month period ended June 30, 2012 compared to the same period in 2011. Total handle wagered for the first half of 2012 was up $1,602,000, or 6.3%, compared to the same period last year. The six-month increase is primarily attributable to unusually mild weather in the first quarter of 2012 compared to inclement weather during the first quarter of 2011, when Minnesota experienced one of the snowiest winters on record which discouraged customers from coming to the track and wagering. Similar harsh weather in other parts of the United States in the first quarter of 2011 caused the cancellation of a significant number of races at racetracks simulcasting their signal to our racetrack. The three-month increase is primarily attributable to the Company scheduling two more live race days in the 2012 second quarter, which contributed to an increase in live meet handle compared to the same period in 2011.

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Summary of Card Casino Data:


	Six Months Ended June 30,
	2012		2011
Poker Games	$	5,205,000	$	5,237,000
Table Games		6,164,000		5,367,000
Total Collection Revenue		11,369,000		10,604,000

Other Revenue		1,224,000		1,130,000
Total Card Casino Revenue	$	12,593,000	$	11,734,000

Number of Days Offered		182		181
Average Revenue per Day	$	69,192	$	64,829

Total Card Casino revenue increased $859,478, or 7.3%, for the first six months of 2012 and decreased $82,793, or 1.3%, for the second quarter of 2012 compared to the same periods in 2011. The primary source of Card Casino revenue is a percentage of the wagers received from the players as compensation for providing the Card Casino facility and services, which is referred to as the “collection revenue.” Other revenue includes fees collected for the administration of tournaments, and amounts earned as reimbursement of the administrative costs of maintaining jackpot funds. Poker collection revenue during the first six months of 2012 remained relatively stable, decreasing $31,487, or 0.6%, compared to the first six months of 2011, and also decreased $205,182, or 7.8%, for the quarter ended June 30, 2012 compared to the same period in 2011. The Company believes that the decrease is largely attributable to the ban on Internet poker that began on April 15, 2011 which resulted in increased play during the second quarter of 2011 which has since subsided. Table games collection revenue increased $796,933, or 14.8%, compared to the first half of 2011 and $162,484, or 5.6%, for the quarter ended June 30 compared to the same period in 2011. The Company believes these increases are primarily due to a strengthening economy that encouraged increased interest in card play and the unusually mild weather in 2012 described above. Total Card Casino revenues represented 58.4% and 50.6% of net revenues for the six-month and three-month periods ended June 30, 2012, respectively. The second quarter percentage is usually lower in every calendar year due to substantially increased revenue from live racing.

Concession revenues increased $367,172, or 15.5%, for the first six months of 2012 and $157,499, or 9.6%, for the second quarter of 2012 compared to the same periods in 2011. The increases are primarily attributable to an additional two days of live racing conducted in the second quarter of 2012 compared to 2011, which also contributed to an increase in concession sales.

Total operating expenses increased $1,499,324, or 7.7%, and $566,415, or 4.8%, for the six-month and three-month periods ended June 30, 2012, respectively, compared to the same period in the prior year. See below for a further discussion of operating expenses.

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Summary of Purse and Breeders’ Fund Expense:


	Purse Expense				Minnesota Breeders’ Fund Expense
	Purse Expense				Minnesota Breeders’ Fund Expense
	Six Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011

Card Casino	$	1,371,000	$	1,263,000	$	152,000	$	140,000

Simulcast Horse Racing		951,000		954,000		200,000		199,000

Live Horse Racing		429,000		371,000		43,000		37,000

	$	2,751,000	$	2,588,000	$	395,000	$	376,000

Due to the increases in pari-mutuel and Card Casino revenues, total expense for statutory purses and the Minnesota Breeders’ Fund increased 6.1% to $3,145,448 for the first six months ended June 30, 2012 compared to the first six months ended June 30, 2011.

Salaries and benefits increased $751,741, or 8.7%, in the 2012 six-month period ended June 30, 2012 and $274,768, or 5.6%, in the three-month period ended June 30, 2012 compared to the same periods last year. The increases are partially due to supporting the increased revenue from all revenue categories during the three and six-month periods ending June 30, 2012 compared to the same periods in 2011. Additionally, there were increased salary and benefit costs as compared to the first six months of last year due to annual increases in wage rate.

Advertising and marketing costs increased $154,573, or 29.4%, in the 2012 six-month period ended June 30, 2012 and $61,309, or 14.5%, in the three-month period ended June 30, 2012 compared to the same periods last year primarily as a result of increased radio and billboard expenditures promoting the Card Casino and Racetrack.

Other operating expenses increased $317,971, or 8.8%, in the six-month period ended June 30, 2012 and $211,131, or 9.7%, in the three-month period ended June 30, 2012 compared to the same periods last year. The increases are primarily due to increased professional fees associated with the creation and signing of the Cooperative Marketing Agreement (the “Agreement”) entered into with the Shakopee Mdewakanton Sioux Community (the “SMSC”). The increases are also attributable to the fair value of the stock appreciation rights that were granted on June 14, 2012 as part of the Agreement with the SMSC. This is further discussed in “Cooperative Marketing Agreement” below.

Income before income taxes was $714,948 for the six months ended June 30, 2012 compared to $613,499 for the six months ended June 30, 2011. After income tax expense of $348,980 for the six months ended June 30, 2012, the Company reported net income of $365,968 in 2012 compared to a net loss of $137,501 in 2011. For the quarter ended June 30, 2011, the Company recorded a net loss of $291,125 before income tax benefit compared to a loss before income tax expense of $24,822 for the quarter ended June 30, 2011. After income tax benefit of $124,589, the net loss in the second quarter of 2012 was $166,536 compared to a net loss of $348,056 for the second quarter of 2011. The significant level of income taxes estimated for the second quarter and six-month periods ending June 30, 2012 is primarily due to the non-deductibility of lobbying expenses incurred by the Company.

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Contingencies:

As noted below, on June 4, 2012, the Company entered into a Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, a federally recognized Indian tribe. If the Company breaches certain obligations as a result of the Agreement, that became effective on June 15, 2012, the Company will be forced to repay various amounts (depending on the breach).

Liquidity and Capital Resources:

Cash provided by operating activities for the six months ended June 30, 2012 was $1,765,502 and was due to several factors. First, the Company reported net income of $365,968. Additionally, the Company recorded depreciation of $884,580. The Company also experienced an increase in accounts payable and accrued wages and payroll taxes of $2,899,089, caused primarily by a seasonal increase of $1.43 million in horsemen payables. These items were somewhat offset by an increase in other current assets of $389,749 and an increase in restricted cash of $1,369,351, resulting primarily from the increase in horsemen payables of $1.34 million. Cash provided by operating activities for the six months ended June 30, 2011 was $3,046,371 and was the result of several factors. Depreciation during the first six months of 2011 was $937,230, and the Company experienced an increase in accounts payable and accrued wages and payroll taxes of $3,011,184, caused primarily by a seasonal increase of $1.33 million in horsemen payables. These items were somewhat offset by a net loss of $137,501 and an increase in restricted cash of $1,329,973, resulting primarily from the increase in horsemen payables of $1.33 million.

Net cash used in investing activities for the first six months of 2012 was $754,510 and was used primarily for a variety of equipment purchases. Net cash used in investing activities for the first six months of 2011 was $418,035 due to purchasing a variety of fixtures and equipment for operational purposes.

During the period January 1, 2012 through June 30, 2012, cash provided by financing activities consisted of proceeds and excess tax benefits received upon the exercise of stock options of $210,300. During the period January 1, 2011 through June 30, 2011, cash provided by financing activities consisted of proceeds and excess tax benefits received upon the exercise of stock options of $225,495.

The Company has a general credit agreement with Bremer Bank, which provides a revolving credit line of up to $3,000,000 until May 5, 2013 with interest at the prime rate but not less than 4.5% per annum. The Company had no borrowings under the line of credit at June 30, 2012 or December 31, 2011. This credit agreement contains covenants requiring the Company to maintain certain financial ratios. The Company was in compliance with these requirements at all times throughout the quarter ended June 30, 2012.

Unrestricted cash balances at June 30, 2012 were $9,490,071 compared to $8,268,779 at December 31, 2011. The Company believes that funds available in its cash accounts, amounts available under the general credit and security agreement, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements during 2012 for regular operations.

Critical Accounting Policies and Estimates:

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with generally accepted accounting principles. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.

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Our significant accounting policies are included in Note 1 to our consolidated financial statements in our 2011 Annual Report on Form 10-K. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Property and Equipment - We have significant capital invested in our property and equipment, which represents approximately 60.1% of our total assets at June 30, 2012. We utilize our judgment in various ways including: determining whether an expenditure is considered a maintenance expense or a capital asset; determining the estimated useful lives of assets; and determining if or when an asset has been impaired or has been disposed. Management periodically reviews the carrying value of property and equipment for potential impairment by comparing the carrying value of these assets with their related expected future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, we will determine whether an impairment loss should be recognized. An impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. To date, we have determined that no impairment of these assets exists.

Stock Based Employee Compensation – ASC 718, Compensation – Stock Compensation (“ASC 718”), requires recognition of services provided in exchange for a share-based payment based on the grant date fair market value. We utilize our judgment in determining the assumptions used to determine the fair value of options granted using a Black-Scholes model.

Commitments and Contractual Obligations:

On June 4, 2012, the Company entered into a Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, a federally recognized Indian tribe that expires December 31, 2022. See “Cooperative Marketing Agreement” below.

Legislation:

On May 4, 2012, Minnesota Governor Mark Dayton signed legislation approved by the Minnesota Legislature that amended laws governing the Company’s Card Casino. The amendments, which were effective immediately, will increase the Company’s flexibility to operate its Card Casino which should lead to increased revenues, as well as increased purses for live races at Canterbury Park’s Racetrack.

As amended, the law authorizes the Company to increase the number of tables in its Card Casino from 50 to 80 and increases the poker bet limit from $60 to $100. It also removes limits on the number of poker tournaments the Company can conduct, as well as limits on the number of tables used in poker tournaments. In addition, it allows Canterbury to conduct “banked” card games, in which customers play against the house, along with the unbanked games it currently conducts. In a separate provision, the amended law establishes a framework for the possible implementation of pari-mutuel simulcasting of horse races conducted at Canterbury and other racetracks to Tribal casinos in Minnesota.

Implementation of the amended law will occur in stages. The Company has increased the number of tables hosting live play from 50 to approximately 60 to accommodate customers during peak periods. Additional expansion, higher betting limits and expanded poker tournaments will be implemented based on market demand. While it will take some time to determine the incremental revenue and purse enhancements from the amended law, management believes it will enable the Company to better meet customer demand and grow Card Casino revenues.

Cooperative Marketing Agreement:

On June 4, 2012, the Company entered into a Cooperative Marketing Agreement (the “Agreement”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), a federally recognized Indian tribe. The primary purpose of the Agreement is to increase purses paid during live horse racing at the Canterbury Park racetrack. Under the terms of the Agreement, SMSC will make purse enhancement payments in order to strengthen Minnesota’s horse industry. Under the Agreement, SMSC has agreed to contribute $2.7 million for purse enhancements in 2012 and, after 2012, the additional amounts listed below.

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In addition, the Company and SMSC have also agreed to partner in joint marketing efforts for their mutual benefit, including events, cross promotions, cooperative poker tournaments, shared promotions and player benefits and signage. Under the agreement, SMSC has agreed to pay the Company an additional $300,000 for 2012 marketing purposes and, after 2012, the additional amounts listed below.

After 2012, under the Agreement, SMSC has agreed to make the following purse enhancement and marketing payments in the years 2013 through 2022:


Year	Purse Enhancement	Marketing Payment
2013	5,300,000	600,000
2014	5,840,000	660,000
2015	6,434,000	726,000
2016	7,087,400	798,600
2017	7,806,140	878,460
2018	8,000,000	900,000
2019	8,000,000	900,000
2020	8,000,000	900,000
2021	8,000,000	900,000
2022	8,000,000	900,000

The Company will not receive any part of any purse enhancement payment. As the Company will not directly be handling these funds, there will be no impact on the Company’s financial statements.

The amounts earned from the marketing payments will be recorded as a component of other revenue and the related expenses will be recorded as a component of marketing and advertising expense in the Company’s financial statements. For the period ended June 30, 2012, the Company did not earn any revenues and did not incur any expenses related to the 2012 marketing payment.

The Agreement also requires that the Company and Minnesota Horse Associations (as defined in the Agreement) will not promote or lobby the Minnesota legislature in the media or in other forums for expanded gambling authority and will support SMSC’s lobbying efforts against expanding gaming authority. Under the agreement, the Company and SMSC also agree to work together to assist SMSC to implement simulcast horse racing on their property, to the extent allowed by Minnesota’s Gaming Compacts, state law and applicable court decisions.

As part of the Agreement, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued stock appreciation rights to SMSC. The SAR Agreement granted rights to SMSC to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in 2013. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. The SAR Agreement and all rights granted expire on December 31, 2022. The liability related to these stock appreciation rights is recorded as a long-term liability and the Company will recognize the expense related to these stock appreciation rights as a component of other operating expenses due to the nature of the agreement. During the period ended June 30, 2012, the Company recognized $117,226 of expense related to these stock appreciation rights. In the future, changes in the fair value of these stock appreciation rights will increase or decrease the stock appreciation rights liability, and the Company will recognize additional expense or income related to these changes.

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Forward-Looking Statements:

From time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, the Company may make forward-looking statements concerning possible or anticipated future financial performance, business activities or plans which are typically preceded by the words “believes,” “expects,” “anticipates,” “intends” or similar expressions. For such forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that such forward-looking statements are subject to risks and uncertainties which could cause actual performance, activities or plans to differ significantly from those indicated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: fluctuations in attendance at the Racetrack, material changes in the level of wagering by patrons, decline in interest in the unbanked card games offered in the Card Casino, legislative and regulatory changes, the impact of wagering products and technologies introduced by competitors; increases in the percentage of revenues allocated for purse fund payments; increase in compensation and employee benefit costs; the economic health of the gaming sector; higher than expected expense related to new marketing initiatives; and other factors discussed under Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2011 and in the Company’s other filings with the Securities and Exchange Commission.


I TEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Canterbury Park is not required to provide the information requested by this Item as it qualifies as a smaller reporting company.


I TEM 4:	CONTROLS AND PROCEDURES

(a)	Evaluation of Disclosure Controls and Procedures:

	The Company’s Chief Executive Officer, Randall D. Sampson, and Chief Financial Officer, David C. Hansen, have reviewed the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based upon this review, these officers have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that the disclosure controls are also effective to ensure that information required to be disclosed in the Company’s Exchange Act reports is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b)	Changes in Internal Control Over Financial Reporting:

	There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934) that occurred during our fiscal quarter ended June 30, 2012 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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P ART II
OTHER INFORMATION


I tem 1.	Legal Proceedings

	Not Applicable.

I tem 1A.	Risk Factors

	There have been no material changes to the Risk Factors reported under Item 1A in the Form 10-K for the year ended December 31, 2011, and the statement of risk factors presented therein are incorporated by reference herein.

I tem 2.	Unregistered Sales of Equity Securities and Use of Proceeds


	(a)	Not Applicable.
	(b)	Not Applicable.
	(c)	On January 16, 2008, the Company announced that its Board of Directors had authorized a program to repurchase up to an additional 250,000 shares of the Company’s common stock. During the first six months of 2012, the Company did not repurchase any shares of common stock. As of June 30, 2012, there are 33,457 shares at maximum that the Company may buy back as a result of this repurchase program.


I tem 3.	Defaults Upon Senior Securities

	Not Applicable.

I tem 4.	Mine Safety Disclosures

	Not Applicable.

I tem 5.	Other Information

	Not Applicable.

I tem 6.	Exhibits


(a)	The following exhibits are included herein:

(b)

	11	Statement re computation of per share earnings – See Net Income Per Share under Note 3 of Notes to Consolidated Financial Statements under Part 1, Item 1, which is incorporated herein by reference.

	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the Exchange Act).

	31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (rules 13a-14 and 15d-14 of the Exchange Act).

	32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

	99.1	Cooperative Marketing Agreement signed on June 4, 2012.

	99.2	Stock Appreciation Rights Agreement signed on June 14, 2012.

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S IGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Canterbury Park Holding Corporation

Dated: August 14, 2012		/s/ Randall D. Sampson
		Randall D. Sampson,
		President, and Chief Executive Officer

Dated: August 14, 2012		/s/ David C. Hansen
		David C. Hansen,
		Vice President, and Chief Financial Officer

Exhibit 31.1

CERTIFICATION

I, Randall D. Sampson certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Canterbury Park Holding Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d- 15(f)) for the registrant and have:

		a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

		b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

		c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

		d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case on an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

		a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

		b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: August 14, 2012	CANTERBURY PARK HOLDING CORPORATION

	/s/ Randall D. Sampson
	Randall D. Sampson
	President, and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, David C. Hansen certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Canterbury Park Holding Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

		a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

		b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

		c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

		d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

		a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

		b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: August 14, 2012	CANTERBURY PARK HOLDING CORPORATION

	/s/ David C. Hansen
	David C. Hansen
	Vice President, and Chief Financial Officer

Exhibit 32

CERTIFICATION

Pursuant to18 U.S.C. 1350, the undersigned Chief Executive Officer and Chief Financial Officer, respectively, of Canterbury Park Holding Corporation (the “Company”) herby certify that:


	(1)	The accompanying quarterly report on Form 10-Q for the period June 30, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)	The information contained in the accompanying Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


	CANTERBURY PARK HOLDING CORPORATION

Dated: August 14, 2012	/s/ Randall D. Sampson
	Randall D. Sampson,
	President, and Chief Executive Officer

Dated: August 14, 2012	/s/ David C. Hansen
	David C. Hansen,
	Vice President, and Chief Financial Officer

Exhibit 99.1

COOPERATIVE MARKETING AGREEMENT

This Cooperative Marketing Agreement (“Agreement”) is entered into this 4th day of June, 2012 by and between Canterbury Park Holding Corporation (“CPHC”) and Shakopee Mdewakanton Sioux Community (“SMSC”), a federally recognized Indian tribe. CPHC and SMSC are sometimes referred to herein collectively as the “Parties” or individually as a “Party.”

RECITALS

WHEREAS, CPHC conducts live and simulcast pari-mutuel horse racing at its facility in Shakopee, Minnesota, card play (as defined in Minn. Stat. §240.01, Subd. 25) at its card room, and other activities (herein collectively the “ Racetrack ”);

WHEREAS, SMSC conducts live card table and video gaming, hotel operations, and other activities at its Mystic Lake Casino Hotel and Little Six Casino facilities (“ Mystic Lake ”), pursuant to its authority as a tribal government;

WHEREAS, Minnesota’s horse breeding and horse training industries and related agri-businesses have been adversely affected to a material degree by the decline in the level of purses paid in connection with live horse races at the Racetrack;

WHEREAS, the Parties desire to cooperate with the Minnesota Horsemen’s Benevolent and Protective Association, the Minnesota Quarter Horse Racing Association, the Minnesota Thoroughbred Association, and the Equine Development Coalition of Minnesota (collectively, the “Minnesota Horse Associations”) for the purpose of strengthening purses paid for live horse races conducted at the Racetrack in order to encourage and sustain Minnesota’s horse breeding and horse training industries and related agri-businesses; and

WHEREAS, each Party believes it is in its best interest to cooperate with the other with respect to marketing each other’s facility for the following purposes:


	•	Increasing simulcast, live racing and card club revenues at the Racetrack,

	•	Increasing attendance at the Racetrack for live racing, and

	•	Improving marketing opportunities for Mystic Lake.

NOW, THEREFORE, in consideration of the above premises, the representations and covenants set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows:

ARTICLE I

Effectiveness

Section 1.1. Conditions to Effectiveness . This Agreement shall be effective (the “ Effective Date ”) on, and will be of no force or effect prior to, the first business day following the later to occur of: (i) the approval of this Agreement by the Minnesota Racing Commission, (ii) execution of one or more effective Horse Association Agreements in a form satisfactory to SMSC, and (iii) delivery to SMSC of the Warrants (as defined below), or, to the extent permitted by Section 3.7, stock appreciation rights. If the Effective Date does not occur by August 1, 2012, this Agreement shall terminate and be of no force or effect. For purposes of this Agreement, “Horse Association Agreement” means a written agreement among each of the Minnesota Horse Associations, SMSC and CPHC whereby the Minnesota Horse Associations agree to the extent provided in such agreement that they (i) will not promote or lobby before the Minnesota legislature, in the media or in other forums, for Expanded Gaming Authority (as defined below), (ii) will support SMSC’s lobbying efforts against Expanded Gaming Authority to the extent reasonably requested to do so by SMSC; and (iii) agree that Annual Purse Enhancement payments will solely be applied to purses unless other uses are consented to in writing by the SMSC and CPHC. The Horse Association Agreement will also contain a consent by the Minnesota Horsemen’s Benevolent and Protective Association that it waives the statutory requirement of 125 days of live racing during the term of this Agreement; provided that there are at least 65 days of live racing each year.

ARTICLE II

SMSC Obligations

Section 2.1. Purse Enhancements/Marketing Payments . On each Annual Payment Date (defined below) SMSC will pay the Annual Purse Enhancement and the Annual Marketing Payment in accordance with the terms of this Agreement. SMSC will not be obligated to make any Annual Purse Enhancement or Annual Marketing Payment if a default by CPHC has occurred and is continuing under this Agreement. The Annual Purse Enhancement and Annual Marketing Payment to be paid in each year during the term of this Agreement are set forth on Schedule 1. The following additional provisions shall apply to payment of the Annual Purse Enhancement and Annual Marketing Payment:

(a) CPHC has established a bank account at Bremer Bank, with the Chief Executive Officer of CPHC as the initial authorized signatory of such account (the “ SMSC Purse Enhancement Account ”). Any change to the authorized signatories of the SMSC Purse Enhancement Account will require the consent of SMSC. CPHC warrants that funds deposited from time to time in the SMSC Purse Enhancement Account will at all times be held for the benefit of the horsepersons racing at the Racetrack. SMSC will pay each required Annual Purse Enhancement due under this Agreement by wire transfer to the SMSC Purse Enhancement Account on the Annual Payment Date applicable to such payment. CPHC warrants that amounts deposited from time to time in the SMSC Purse Enhancement Account will only be used to enhance purse amounts as provided in this Agreement.


	(b) Subject to the terms of this Agreement, SMSC will wire the amount of each Annual Marketing Payment payable to CPHC under this Agreement on the Annual Payment Date applicable to such payment.

	(c) CPHC agrees that Annual Purse Enhancements are to enhance purses at the Racetrack and that such amounts will not be used to offset any purse amounts that CPHC is otherwise required to pay pursuant to Minnesota law or agreement with the Minnesota Horse Associations.

	(d) For purposes of this Agreement “Annual Payment Date” means, for any year during the term of this Agreement beginning with 2013, the date that is the last of (i) January 15 of such year, (ii) 15 business days following the receipt by SMSC of the Draft Preliminary Annual Racing Schedule (defined below), (iii) the date SMSC receives the Preliminary Annual Racing Schedule from CPHC and (iii) 30 business days following the receipt by SMSC of the Preliminary Marketing Plan (defined in Section 6.3 below) for such year.

	(e) Beginning with 2013 and for each year thereafter, CPHC will deliver to SMSC a draft preliminary schedule of all horse races for the entire year by January 1 of such year (the “Draft Preliminary Annual Racing Schedule”). During the 15 business day period following delivery of the Draft Preliminary Annual Racing Schedule, CPHC will consult with SMSC regarding possible changes to such schedule and make changes to such schedule based on SMSC input to the extent it reasonably determines is appropriate (such Draft Preliminary Annual Racing Schedule as so modified is herein referred to as the “ Preliminary Annual Racing Schedule ”). The Preliminary Annual Racing Schedule shall contain the purse size for each proposed race, including the portion of the purse budgeted for each race that will be funded by the Annual Purse Enhancement (the “Per Race Purse Enhancement”), and other information for each proposed race. CPHC shall pay each Per Race Purse Enhancement as set forth in the Preliminary Annual Racing Schedule subject to the following: (i) CPHC may increase or decrease any Per Race Purse Enhancement not more than 25% and (ii) CPHC may reallocate of any Per Race Purse Enhancement for a particular race to another race when such Per Race Purse Enhancement cannot be paid due to cancellation of the applicable horse race. CPHC will also deliver to SMSC a copy of all preliminary and final condition books for races as they are available.

	(f) CPHC will supply an annual audit of payments from the SMSC Purse Enhancement Account prepared by an independent accounting firm to confirm such funds were only applied to enhance purse amounts as contemplated by this Agreement.

Section 2.2. Initial Purse Enhancement and Marketing Payments . On the Effective Date, SMSC will pay $2,700,000 to the SMSC Purse Enhancement Account (the “ 2012 SMSC Purse Enhancement ”) and pay $300,000 to CPHC (the “ 2012 Marketing Payment ”); provided that SMSC will not be obligated to make such payments if a default by CPHC has occurred and is continuing under this Agreement. The 2012 Marketing Payment shall be used by CPHC as set forth on Schedule 2.

Section 2.3. Marketing Materials for CPHC . To facilitate marketing under Sections 3.1, 6.2 and 6.3, SMSC shall, to the extent such materials are not purchased with the 2012 Marketing Payment or Annual Marketing Payment, provide copy and signage materials regarding SMSC and Mystic Lake for display throughout the Racetrack which shall be used and placed as provided in Schedule 3. CPHC will provide an opportunity for SMSC to approve the use and placement of such materials. CPHC agrees that it may not use any trademark, trade dress or logo of SMSC other than as expressly permitted in this Agreement. All goodwill associated with the SMSC trademarks, trade dress and logos shall inure to the benefit of SMSC.

Section 2.4. Legislative Support . SMSC, to the extent it determines in its sole discretion, will support legislative efforts by CPHC that affect the common interests of the Parties under this Agreement.

ARTICLE III

CPHC Obligations

Section 3.1. Promotion of SMSC by CPHC . CPHC will provide the marketing and promotional opportunities for SMSC and Mystic Lake set forth on Schedule 3 for no cost and without application of any Annual Marketing Payment or the 2012 Marketing Payment, except to the extent provided for in Schedules 2 or 4.

Section 3.2. Support for Agreement’s Purposes .


	(a) To the extent that SMSC reasonably requests, and except in circumstances where SMSC determines to support CPHC legislative initiatives pursuant to Section 2.4, CPHC will cooperate with SMSC in opposing and lobbying against proposed legislation that seeks to authorize forms of gaming not currently authorized at CPHC – i.e., card play as defined in Minn. Stat. §240.01, Subd. 25 and pari-mutuel wagering on horse races.

	(b) To the extent that SMSC reasonably requests, CPHC will in good faith cooperate with SMSC in opposing and lobbying against proposed legislation that seeks to authorize forms of gaming at locations in the State of Minnesota other than at the Racetrack.

	(c) CPHC will assist SMSC in implementing the right to simulcast horseracing at Mystic Lake including, but not limited to, through a tribal-state compact pursuant to the Indian Gaming Regulatory Act, subject to compliance with Minn. Stat. Section 240.13, Subd. 9 and applicable federal law, so long as CPHC’s participation in such simulcast activity does not constitute “off track” betting which the Minnesota Supreme Court has determined is not authorized under the Minnesota Constitution.

	(d) CPHC’s obligations under this Section 3.2 do not include requiring CPHC to engage any lobbyist or third party.

Section 3.3. Affirmative Obligations .


	(a) CPHC agrees that it will not promote or lobby (or assist others in such efforts) before the Minnesota Legislature, in the media or in other forums: (i) for expanded gaming at the Racetrack including, but not limited to, authority to install video slot machines and other video gaming technology at the Racetrack, (ii) for expanded gaming in Minnesota, or (iii) for any other changes to Minnesota law relating to gambling that would be materially adverse to the interests of SMSC (any such expansion or changes referred to herein as “ Expanded Gaming Authority ”).

	(b) If Expanded Gaming Authority is enacted into law, CPHC will not operate, host, permit, accommodate, participate in or assist others in participating in activities permitted under any Expanded Gaming Authority so long as this Agreement is in effect under its initial term or any renewal term (including, for the avoidance of doubt, any Wind Down Period).

	(c) Notwithstanding the foregoing, nothing in paragraphs 3.2(a), 3.3(a) and 3.3(b) above shall limit or restrict CPHC from (i) lobbying for changes in the laws governing pari-mutuel wagering on horse races at the Racetrack; (ii) seeking approval from the Minnesota Racing Commission (the “MRC”) for changes in its gaming operations to the extent such changes are within the authority conferred on the MRC by Minnesota Statutes Chapter 240 as such statute exists as of the date this Agreement is executed, and (iii) implementing any changes in the laws governing pari-mutuel wagering on horse races at the Racetrack that are enacted into law or any changes that are approved by the MRC that are within the authority conferred on the MRC by Minnesota Statutes Chapter 240 as such statute exists as of the date this Agreement is executed.

Section 3.4. Marketing Collateral . CPHC will supply marketing materials for use by SMSC as and to the extent contemplated by agreements in or under Sections 6.2 and 6.3 below. SMSC shall provide an opportunity for CPHC to approve the use and placement of such materials. SMSC agrees that it may not use any trademark, trade dress or logo of CPHC other than as expressly permitted in this Agreement. All goodwill associated with the CPHC trademarks, trade dress and logos shall inure to the benefit of CPHC.

Section 3.5. Reporting and Access to Records . No later than the 25 ^th day following each month during which it conducts live horse races at the Racetrack, CPHC will deliver to SMSC an accounting of the use of the Annual Purse Enhancement for the prior month. No later than the 25 ^th day following each month expenditures are contemplated under the marketing plan supplied pursuant to Section 6.2 or 6.3, CPHC will deliver to SMSC an accounting of the use of the Annual Marketing Payment for the prior month. In addition, CPHC will provide copies of each report provided by CPHC to any of the Minnesota Horse Associations. CPHC will also allow SMSC to review books and records during business hours as SMSC shall reasonably request for purposes of auditing payments of purses and marketing expenses and confirming compliance with this Agreement.

Section 3.6. Board Meetings . CPHC will provide representatives of SMSC the opportunity to discuss the performance of this Agreement and related matters with CPHC’s Board of Directors during at least two regular board meetings each year during the term of this Agreement.

Section 3.7. Warrants . Subject to the last sentence below, CPHC will deliver on or before the Effective Date warrants to purchase 165,000 shares of CPHC common stock at a price per share equal to $14.30 (the “ Warrants ”). The Warrant Agreement covering the Warrants shall be in a form reasonably acceptable to SMSC and shall provide that: (i) the Warrants will vest 10% on the Effective Date and 10% on each of the succeeding nine Annual Payment Dates during the term of this agreement; (ii) to the extent vested, the Warrants will be exercisable at any time on or prior to December 31, 2022; and (iii) vesting of the Warrants will accelerate upon a Change in Control or a termination of this agreement by SMSC pursuant to Section 5.2 upon a default by CPHC of its obligations under this Agreement. The Warrant Agreement shall also contain customary registration rights for shares issuable under the Warrants. Notwithstanding the foregoing, in lieu of the Warrants, CPHC may instead deliver stock appreciation rights in a form reasonably acceptable to SMSC that have the same terms as specified above for the Warrants.

Section 3.8. Change in Control . If the Board of Directors of CPHC agrees to a transaction involving a Change in Control (as defined on Schedule 5), before approving or consenting to the Change in Control, the Board of CPHC will require that the person or persons who will be the Class A and Class B licensees following the Change in Control affirm and assume all of CPHC’s obligations in this Agreement.

Section 3.9 Majority Horseperson Organization . CPHC represents to SMSC that the Minnesota Horsemen’s Benevolent and Protective Association (the “MHBPA”) is the horseperson’s organization representing the majority of horsepersons at the Racetrack.

ARTICLE IV

Term

Section 4.1. Initial Term . The initial term hereof shall commence on the Effective Date and shall terminate on December 31, 2022.

Section 4.2. Renewal Term . Beginning on or before July 1, 2022, the Parties shall negotiate with respect to a renewal of this Agreement for an additional term of at least five years on such terms as the Parties shall mutually agree (the “ Renewal Term ”). If the Parties do not reach agreement with respect to the terms and conditions of the Renewal Term, this Agreement shall terminate on December 31, 2022 without further obligation by either Party except for obligations arising prior to such termination date.

ARTICLE V

Termination

Section 5.1. Termination by SMSC Without Cause . SMSC may terminate this Agreement without cause upon written notice to CPHC in the event of a change in circumstances regarding gaming in the State of Minnesota adverse to SMSC, including, but not limited to an expansion of the number of locations or type of gaming authorized by the State of Minnesota, such change in circumstances to be determined by SMSC in its sole discretion; provided , that SMSC’s right to terminate this Agreement pursuant to this Section 5.1 (the “ Termination Right ”) will be subject to the following conditions, obligations and other provisions: (i) SMSC shall be obligated to make all payments required under this Agreement from the date the Termination Right is exercised to the end of the year in which it is exercised; (ii) termination of this Agreement shall be effective at the end of the three calendar years following the calendar year in which SMSC exercises the Termination Right (such three year period being herein defined as the “ Wind Down Period ”); (iii) during the first two years of the Wind Down Period, SMSC will continue to make the Annual Purse Enhancement and Annual Marketing Payment provided on Schedule 1 when due and during the third year of the Wind Down Period, the amount of Annual Purse Enhancement and Annual Marketing Payment to be paid by SMSC shall be 50% of such amounts as are set forth on Schedule 1 for such year (the “ Wind Down Payments ”), subject to the limitation in clause (iv); (iv) notwithstanding anything else to the contrary in this Agreement, the amount of the Annual Purse Enhancement and Annual Marketing Payment paid in the year in which the Termination Right is exercised, plus the aggregate Wind Down Payments shall not be more than $25 million and SMSC shall reduce the Wind Down Payments by any amount in excess of $25 million (first from the payment due in the third year of the Wind Down Period, and then from the second year of the Wind Down Period); (v) all prohibitions and limitations on CPHC’s ability to promote, advocate and lobby for additional gaming authority for CPHC in paragraph 3.2(a) and paragraph 3.3(a) above (whether before the Minnesota Legislature, in the media or otherwise) and all of CPHC’s affirmative obligations in Section 3.2 (b) above shall terminate concurrent with SMSC’s exercise of its Termination Right; and (vi) all remaining provisions of this Agreement shall continue in full force and effect (including, but not limited to, the prohibitions and limitations in the paragraph Section 3.3(b) above) until the end of the Wind Down Period.

Section 5.2. Termination for Cause by SMSC .


	(a) If CPHC breaches its obligations under either paragraphs 3.3(a) or 3.3(b), and if, after receiving written notice from SMSC of an alleged breach, CPHC fails to cure its breach within 30 days, SMSC may terminate this Agreement; provided that SMSC shall not have the right to terminate this Agreement for di minimis or inadvertent, immaterial breaches of paragraphs 3.3(a). Upon such termination, CPHC will repay all amounts paid by SMSC pursuant to this Agreement, pay to SMSC an amount equal to all Horse Association Payments (as defined in the Horse Association Agreement) paid by SMSC to the Minnesota Horse Associations pursuant to a Horse Association Agreement, and pay to SMSC any additional amounts for any other damages SMSC incurs.

	(b) If CPHC breaches its warranty in the last sentence of paragraph 2.1(a) that amounts in the SMSC Purse Enhancement Account will only be used to enhance purse amounts as provided in this Agreement, and if, after receiving written notice from SMSC of an alleged breach of such warranty, CPHC fails to cure its breach within 30 days, SMSC may terminate this Agreement and upon such termination, CPHC will pay to SMSC an amount equal to five times (5X) the funds used in a manner other than to enhance purse amounts and any additional amounts for any other damages it incurs.


	(c) If CPHC breaches its obligations under Section 3.2(a) above or any other of its obligations in this Agreement (other than paragraphs 3.3(a) or 3.3(b) or the last sentence of paragraph 2.1(a)), and if, after receiving written notice from SMSC of an alleged breach, CPHC fails to cure its breach within 30 days, CPHC shall have no monetary liability to SMSC for such breach and SMSC’s only recourse shall be to terminate this Agreement and upon such termination, neither Party shall have any further obligation or liability hereunder.

	(d) If any of the Minnesota Horse Associations breach the Horse Association Agreement, and if, after SMSC provides written notice of the alleged breach to each of the Horse Associations and CPHC, the alleged breach is not cured within 30 days, CPHC shall have no monetary liability to SMSC for such breach and SMSC’s only recourse shall be to terminate this Agreement and upon such termination, neither Party shall have any further obligation or liability hereunder.

	(e) If (i) CPHC loses licenses or other authorization necessary to conduct live horse races as contemplated by the Parties, (ii) CPHC is generally not paying its debts as they become due, (iii) CPHC consents to the appointment of a custodian of it or for all or substantially all of its property, or (iv) CPHC makes a general assignment for the benefit of its creditors, SMSC shall have the right to terminate this Agreement 30 days after giving notice to CPHC unless within such 30 day period CPHC cures the event or circumstance giving rise to such notice. If SMSC exercises its right to terminate this Agreement under this paragraph (e), upon such termination, neither Party shall have any further obligation or liability hereunder.

Section 5.3. Termination by CPHC . If SMSC fails to pay any amount when due under the terms of this Agreement, and, after receiving written notice from CPHC of such failure to pay, SMSC fails to make such payment within 30 days, CPHC shall be entitled to terminate this Agreement without further obligation or liability to SMSC and shall be entitled to recover an amount equal to the amount that would be payable by SMSC if it elected to terminate this Agreement at such date pursuant to Section 5.1 above. In order to recover such amount from SMSC, CPHC shall have the right pursuant to the terms and conditions of the Security Agreement (defined below) and the Control Agreement (defined below) to deliver a Notice of Exclusive Control to foreclose its security interest, to apply the Collateral to the payment of the Obligations, and/or the right to exercise any other remedy permitted by the Security Agreement, the Control Agreement or by law for payment of the Obligations. Notwithstanding anything to the contrary in this Agreement, the Security Agreement or the Control Agreement, CPHC’s only recourse for any breach of this Agreement, the Security Agreement and the Control Agreement is to the Collateral and the proceeds thereof. Terms used in this Section 5.3 which are not defined in this Agreement are used as defined in the Security Agreement.

Section 5.4. Termination To Comply With Law . If a federal or state court with jurisdiction in the U.S. determines any material provision in this Agreement is contrary to law, and such determination is not appealed or is upheld on appeal, following the expiration of all appeal periods, either Party may terminate this Agreement on five days notice and upon the expiration of such period neither Party shall have any further obligation or liability hereunder; provided, however, that if CPHC initiates or supports any such determination, CPHC shall repay all funds paid by SMSC pursuant to this Agreement.

ARTICLE VI

Cooperative Marketing

Section 6.1. Purpose of Marketing Payments . Annual Marketing Payments and the 2012 Marketing Payment shall be used by CPHC in accordance with this Agreement. CPHC agrees that the Annual Marketing Payment and the 2012 Marketing Payment are to be used for cooperative marketing purposes to promote SMSC (including Mystic Lake) and CPHC, and will not be used to offset any marketing amounts that CPHC would have otherwise expended had the Annual Marketing Payment and the 2012 Marketing Payment not been available.

Section 6.2. 2012 Marketing Payment . The 2012 Marketing Payment shall be used and applied by CPHC as provided on Schedule 2 .

Section 6.3. Annual Marketing Plan . Beginning with 2013 and for each year thereafter, after consultation and discussion with SMSC, CPHC will deliver to SMSC a plan for the expenditure of the Annual Marketing Payment for such year (the “ Preliminary Marketing Plan ”). The Preliminary Marketing Plan shall contain the proposed amount, type and schedule of marketing for such year for joint promotion of the two venues through actions or activities such as cooperative poker tournaments, joint musical concert events, shared player parties, shared promotions and other activities designed to enhance revenues for each venue. The Parties will discuss the Preliminary Marketing Plan and work in good faith to agree upon a final marketing plan containing the amount, type and schedule of marketing for such year (the “ Final Marketing Plan ”) for the year no later than 20 business days after receipt by SMSC of the Preliminary Marketing Plan. In the event that the Parties do not agree upon a Final Marketing Plan, CPHC will spend the Annual Marketing Payment for such year in accordance with Schedule 4 hereto.

ARTICLE VII

Miscellaneous

Section 7.1 Notices . All notices or other communications required to be given hereunder will be in writing and will be (a) delivered by hand, (b) sent by first class mail, (c) sent by recognized overnight delivery service for next available business day delivery, or (c) sent by email, in each case as follows:


(1)	(1)	if to CPHC to:

Canterbury Park Holding Corporation
1100 Canterbury Road
Shakopee, Minnesota 55379

Attn: Randall D. Sampson
Email: rsampson@canterburypark.com

With a copy to:

Lindquist & Vennum PLLP
4200 IDS Center
80 So. Eighth Street
Minneapolis, MN 55402

Attn: Richard Primuth and Managing Partner

(2)	if to SMSC, to:

	Shakopee Mdewakanton Sioux Community
	2330 Sioux Trail N.W.
	Prior Lake, MN 55372

	Attn: Stanley R. Crooks, Chairman

	With a copy to:

	BlueDog, Paulson and Small, P.L.L.P.
	Southgate Office Plaza, Suite 500
	5001 American Boulevard West
	Minneapolis, MN 55437

	Attn: Kurt V. BlueDog

Such notices or communications will be deemed given (A) if so delivered by hand, when so delivered, (B) if so sent by first class mail, five business days after being deposited in the mail, postage prepaid, (C) if so sent by recognized overnight delivery service, one business day after delivery to such service and (D) if so sent by email, the time at which such email is sent. A Party may change the address to which such notices and other communications are to be given by giving each other Party notice in the foregoing manner.

Section 7.2 Expenses . Except as is expressly stated otherwise herein, each Party will bear its own costs and expenses incurred in connection with the transactions contemplated herein.

Section 7.3 Parties in Interest; No Third-Party Beneficiaries . There is no third party beneficiary hereof and nothing in this Agreement (whether express or implied) will or is intended to confer any right or remedy under or by reason of this Agreement on any Person, except each Party and their respective permitted successors and assigns.

Section 7.4 Other Agreements . The Parties have entered into a security agreement, dated the date hereof (the “ Security Agreement ”), whereby SMSC grants a security interest in certain securities (the “ Collateral ”) to secure SMSC’s obligations hereunder. SMSC has executed a Pledged Collateral Account Control Agreement dated the date hereof (the “Control Agreement”), with respect to the Collateral.

Section 7.5 Governing Law; Jurisdiction . This Agreement will be construed and enforced in accordance with the substantive laws of the State of Minnesota, United States, without reference to principles of conflicts of law. By its execution and delivery of this Agreement, the Security Agreement, the Control Agreement, and any other agreement to which SMSC and CPHC are parties, CPHC is not consenting to the jurisdiction of any court other than a State of Minnesota or U.S. federal court.

Section 7.6 Arbitration . CPHC irrevocably and unconditionally agrees that SMSC may in its sole discretion and election, submit any controversy, claim, suit or other action between or among the Parties arising out of or relating to this Agreement, the Security Agreement, the Control Agreement or the Horse Association Agreements, or the enforcement of rights thereunder, to binding arbitration. SMSC irrevocably and unconditionally agrees that it will submit any controversy, claim, suit that SMSC elects to bring arising out of or relating to this Agreement, the Security Agreement, the Control Agreement or the Horse Association Agreements, or the enforcement of rights thereunder, to binding arbitration in lieu of submitting such controversy, claim, suit or other action to a court for adjudication. Any such arbitration shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”); provided, however, that notwithstanding anything to the contrary therein or herein, any order, judgment, ruling or other remedies against SMSC related to a controversy shall be enforceable only as against the Collateral. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrators in accordance with the AAA Commercial Arbitration Rules. The arbitrator shall have the power to issue injunctive or other equitable relief as may be necessary to preserve a Party’s rights to the Collateral. CPHC agrees that judgment upon the arbitration award may be entered in any court having jurisdiction. Any arbitration undertaken pursuant to this Agreement, the Security Agreement, the Control Agreement or the Horse Association Agreements, will take place in the City of Minneapolis, Minnesota.

Section 7.7 Sovereign Immunity . SMSC does not consent to any suit, arbitration, legal process, enforcement proceeding or any dispute resolution method. The Parties agree that SMSC has not waived its sovereign immunity, and nothing in this Agreement, the Security Agreement, the Control Agreement or the Horse Association Agreements shall be deemed to be a waiver of SMSC’s sovereign immunity. CPHC’s sole recourse for any breach by SMSC under this Agreement shall be against the Collateral pursuant to the terms of this Agreement, the Security Agreement and the Control Agreement.

Section 7.8 Notice of Default . CPHC shall give SMSC prompt notice of any default by CPHC of any terms of this agreement.

Section 7.9 Entire Agreement; Amendment; Waiver . Upon effectiveness of this Agreement, this Agreement, the Security Agreement, the Control Agreement or the Horse Association Agreements constitute the entire agreement between the Parties pertaining to the subject matter herein and supersede any other existing representation, warranty, covenant, agreement or similar assurance (whether direct or indirect, written or oral, or statutory, express or implied) of any Party regarding such subject matter. No supplement, modification or amendment hereof will be binding unless expressed as such and executed in writing by each Party. Except to the extent as may otherwise be stated herein, no waiver of any term hereof will be binding unless expressed as such in a document executed by the Party making such waiver (and then only to the extent so expressed). No waiver of any term hereof will be a waiver of any other term hereof, whether or not similar, nor will any such waiver be a continuing waiver beyond its stated terms. Except to the extent as may otherwise be stated herein, failure to enforce strict compliance with any term hereof will not be a waiver of, or estoppel with respect to, any existing or subsequent failure to comply.

Section 7.10 Assignment; Binding Effect . Neither this Agreement nor any right or obligation hereunder will be assigned, delegated or otherwise transferred (by operation of law or otherwise) by any Party without the prior written consent of each other Party. This Agreement will be binding on and inure to the benefit of the respective permitted successors and assigns of the Parties. Any purported assignment, delegation or other transfer not permitted by this Section is void.

Section 7.11 Counterparts . This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Such counterparts may be executed and delivered by facsimile or other electronic means by any of the Parties, and the receiving Party may rely on the receipt of such document so executed and delivered as if the original had been received.

Section 7.12 Approvals; Authority. Each Party represents and warrants to the other, except as provided in Section 1.1, that it has obtained all necessary approvals to execute, deliver and perform this Agreement and that it has the requisite power and authority to execute this Agreement, and has duly executed and delivered it to the other.

IN WITNESS WHEREOF, each Party has executed this Cooperative Marketing Agreement effective as of the date first written above.


Canterbury Park Holding Corporation

/s/ Randall D. Sampson
By:	Randall D. Sampson
Its:	President & CEO

Shakopee Mdewakanton Sioux Community

/s/ Stanley R. Crooks
By:	Stanley R. Crooks
Its:	Chairman


Schedule Number	Section Reference	Description of Purpose

1	2.1	Annual Purse Enhancement and Annual Marketing Payment amounts

2	2.2	Application of 2012 Marketing Payment

3	2.3, 3.1	SMSC Marketing and Promotional Opportunities at CPHC

4	6.3	Application of 2013 - 2022 Marketing Payments, in the event a Final Marketing Plan for a given year is not agreed to by the Parties

5	3.8	Definition of Change in Control

Schedule 1


Year	Purse Enhancement	Marketing Payment

2013	5,300,000	600,000

2014	5,840,000	660,000

2015	6,434,000	726,000

2016	7,087,400	798,600

2017	7,806,140	878,460

2018	8,000,000	900,000

2019	8,000,000	900,000

2020	8,000,000	900,000

2021	8,000,000	900,000

2022	8,000,000	900,000

Schedule 2

Application of 2012 Marketing Payment

The 2012 Marketing Payment shall be spent on cooperative marketing as follows:


●	Up to $50,000 for Mystic Cup Day (July 28 or August 18, 2012)
	o	Includes cost for premium giveaway to all attendees and advertising
		§	Giveaway item to be agreed upon by CPHC and Mystic Lake
		§	Media buy and creative execution to be agreed upon by both parties
	o	Mystic Lake to include coupon in giveaway (optional)
		§	Redemption expense to be paid by Mystic Lake
	o	Includes optional hospitality expenses for Club Mystic VIP players or SMSC Community members.
	o	Unused dollars to be reallocated toward new digital signage expense

●	Up to $50,000 for Festival of Champions Day (Labor Day Weekend 2012)
	o	Includes cost of mailing full Canterbury database (approx. 25,000 players)
	o	Includes Media buy and creative production expenses
		§	To be agreed upon by both parties
	o	Includes $12,500 of Mystery Mutuel redemption costs incurred by Canterbury Park to be paid from 2012 Marketing Partnership
	o	Includes $12,500 of coupon/mystery offer expense incurred by Mystic Lake to be paid from 2012 Marketing Partnership
		§	Note: neither party required to provide redemption information other than quantity.
	o	Unused dollars to be reallocated toward new digital signage expense

●	Up to $25,000 for Fall Poker Classic Promotion/Sponsorship
	o	Includes media buy and creative production expenses promoting event
		§	To be agreed upon by both parties
	o	Mystic Lake Casino Hotel to be named Hotel Sponsor of event and included in all event related messaging
	o	Includes up to $5,000 for Mystic Lake promotional expense targeting tournament participants
	o	Unused dollars to be reallocated toward new digital signage expense

●	Up to $15,000 in Trade Giveaways
	o	Specific breakdown and use to be determined and agreed upon by both parties
	o	Unused dollars to be reallocated toward new digital signage expense


●	Signage
		o	Canterbury Park and Mystic Lake to begin project planning / design in 2012 for Tote Board and digital signage enhancements
				§	Digital signage to include new exit signage with Mystic Lake Casino Hotel messages and infrastructure enhancements/upgrades to current systems
		o	2012 Marketing Payment allocation not spent in 2012 will carry forward to 2013 for the specific use of this project
		o	The entirety of the new Tote Board and digital signage expenses to be paid by allocations from the Marketing Payment over a period of years as agreed upon by both parties
		o	Projects to be planned and bid in 2012 with both parties agreeing to expense allocation

2012 Signage Production and Placement :
	●	Mystic Lake to receive 100% of Daktronics Messages following the City Pages Two Minute Warning through completion of the race for each of the final two live races daily.
		o Mystic Lake to provide file to spec. No incremental production cost.
	●	Mystic lake to receive a minimum of 25 Daktronics Messages daily.
		o Mystic Lake to provide file to spec. No incremental production cost.
	●	Mystic to receive two :30 TV commercials daily during live racing
		o Mystic Lake to provide commercial. No incremental cost.
	●	Mystic Lake may install temporary structural signage on the existing Tote Board.

Schedule 3

SMSC Marketing and Promotional Opportunities


Signage Messaging, Production and Placement :
	●	Mystic Lake to maintain dominant signage in entry/exit of the Grandstand Entrance (located near the paddock)
		o	Production to be paid by Mystic Lake Casino
	●	Mystic Lake to be exclusive sponsor of new race results board when constructed
		o	Canterbury Park and Mystic Lake to begin plan design in 2012 for new Tote Board which features Mystic Lake Casino Hotel
		o	Canterbury Park and Mystic Lake to work cooperatively in determining payment schedule for new Tote Board, to be installed for 2013 race season
	●	Mystic Lake to receive Daktronics messaging
		o	Specific opportunities / quantity of impressions subject to inventory availability, but is guaranteed to at least equal the most featured paid sponsor.
	●	Mystic Lake to produce :10 second TV commercial featuring joint partnership messaging to be played between every race unless otherwise agreed to by both parties.
	●	Mystic Lake to receive exclusive promotional opportunities on a minimum of 5 indoor plasma displays at Canterbury Park in mutually agreed upon locations.
		o	New signage locations and infrastructure provided from Marketing Payment
	●	Canterbury Park to install up to three incremental exit signs toward County Road 83 exit.
		o	Mystic Lake to receive the back advertising position on all new exit signs.
		o	New signage costs provided by Marketing Payment.
	●	Non-exclusive signage opportunities in the Paddock area
		o	Signage production to be paid by Mystic Lake
	●	Signage containing joint marketing message to be displayed in multiple public areas at Canterbury Park
		o	All signage messages, materials and locations to be approved by both parties
		o	Production to be paid by Mystic Lake
	●	Mystic Lake to receive a minimum of 8 pillar wrap advertisements at Canterbury Park in mutually agreed upon locations.
		o	Production to be paid by Mystic Lake
	●	Daily Race Program back cover to include joint marketing message beginning with 2013 season
	●	First right of refusal on all new signage positions
		o	Compensation and/or substitution for existing signage to be agreed upon by both parties
	●	Mystic Lake messaging at Canterbury Park to be limited to non-competitive business areas, and may not include table games or convention advertising
	●	Canterbury Park to avoid use of “casino” reference in all joint marketing messaging


Naming Rights
	●	Exclusive sponsorship and naming rights to the Winners Circle
		o	Signage production to be paid by Mystic Lake
	●	Mystic Lake to have first opportunity for naming rights to Music Stage upon completion of existing Budweiser sponsorship with compensation to be determined

Exclusive Hotel Partner
Beginning in 2013 Mystic Lake Casino Hotel will be the “Exclusive Casino Hotel of Canterbury Park”

Exclusive Casino Marketing Rights
	●	Mystic Lake will have exclusive Casino marketing rights with Canterbury Park
		o	Subject to Mystic Lake approval, Canterbury Park may conduct Las Vegas giveaways which include room nights and promotion thereof provided by Las Vegas hotels.
		o	Advertising materials related to promotion of possible Las Vegas giveaways subject to review and approval by Mystic Lake.

Direct Marketing
	●	Joint marketing mailer to active Canterbury Park database to be sent a minimum of 2x per racing season and 2x during the off season.
		o	Agreed upon offer redemption expense for each party to be paid from the Annual Marketing Payment
		o	Production and postage expense to paid from the Annual Marketing Payment
		o	Timing and creative subject to approval by both parties

Promotional Public Relations Efforts
	●	Canterbury Park to incorporate Mystic Lake in Public Relations efforts related to elements resulting from this agreement
	●	Canterbury Park and Mystic Lake to pursue joint Public Relations opportunities and initiatives as is reasonable

Distribution of Marketing Materials
	●	At entrance as requested by Mystic Lake Casino Hotel with minimum of one week notice
		o	Materials and redemptions paid for by Mystic Lake
		o	Distribution staff provided by Canterbury Park whenever reasonably possible

Website
	●	Mystic Lake Casino Hotel and agreed upon “partner” verbiage to be featured on Canterbury Park home page

Non-racing Events
	●	Limited number of complementary tickets to non-racing events for VIP Club Mystic members (i.e. craft show, concerts, computer show, home show etc)


	●	Quantity to be agreed upon by both parties based on show type and availability
	●	Complementary tickets subject to approval of show promoter (when not Canterbury Park) Canterbury Park to assist Mystic Lake in obtaining opportunities for supplying message to the attendees of concerts at Canterbury Park.

Schedule 4

Annual Marketing Payment

In the event that the Parties do not agree upon a Final Marketing Plan for a given year, CPHC will spend the Annual Marketing Payment for such year on cooperative marketing as follows:


	•	At least 10% of the Annual Marketing Payment will be used for signage and internal messaging production and placement
	•	Up to 30% of the Annual Marketing Payment may be used for trade-out programs and promotions
	•	The remaining amount of Annual Marketing Payment, which shall be at least 60% of the Annual Marketing Payment, shall be used for mass media


Amounts used for mass media will comply with the following requirements :
	•	Media messages must support a specific event/program involving both the Racetrack and Mystic Lake. Logo inclusion in print or broadcast media is not sufficient to constitute utilization of the joint marketing resources.
	•	Production expenses are to be included in the required minimum 60% spend for mass media
	•	Both CPHC and SMSC must provide approval of creative execution and media buy
	•	Mystic Lake to handle all media buying utilizing joint marketing fund dollars
		o	Media buy subject to approval by both parties
	•	All added value related to media buys paid by the Marketing Payment will be shared equally between Canterbury Park and Mystic Lake to be used independently without requiring the other party’s approval.


All cooperative marketing will include :
Mystic Lake Casino Hotel logo and agreed upon “partner” verbiage to be included on all Canterbury Park advertising messaging
	•	Exceptions must be approved by Mystic Lake Casino Hotel


Amounts used for Trade-out programs may include the following:
	•	VIP Hospitality Events for Club Mystic members at Canterbury Park
	•	Prize expense for drawings, tournaments or giveaways held at Mystic Lake as part of a joint promotion
	•	Prize expense for Mystic Lake trade items and gift certificates given away at Canterbury park via contests and promotions
		o	Redemption costs incurred by Canterbury Park and/or Mystic Lake subject to mutually agreed upon totals.


	•	A minimum of two mutually agreed upon social marketing initiatives driving visitors to Mystic Lake will be implemented each year - at least one of which is to occur during the racing season.
	•	Daily Race Program back cover positioning beginning 2013
	•	Between-Race Sponsorship and giveaway items

o minimum of 1 between-race event per race day executed by Canterbury Park A minimum of 2 Mystic Lake featured days including giveaway items equally promoting both properties

Schedule 5

“Change in Control” of the Company means any of the following events:

1. Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or other than a Subsidiary of the Company, becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company’s then outstanding securities; or

2. The Incumbent Directors cease for any reason to constitute at least a majority of the Board. The term “Incumbent Directors” shall mean those individuals who are members of the Board of Directors on the effective date of this Agreement and any individual who subsequently becomes a member of the Board (other than a director designated by a person who has entered into agreement with the Company to effect a transaction contemplated by paragraph 3 below) whose election or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the then Incumbent Directors; or

3. In the event:

a. the Company consummates a merger, consolidation, share exchange, division or other reorganization of the Company with any corporation or entity, other than an entity owned at least 80% by the Company, unless immediately after such transaction, the shareholders of the Company immediately prior to such transaction beneficially own, directly or indirectly 51% or more of the combined voting power of resulting entity’s outstanding voting securities as well as 51% or more of the Total Market Value of the resulting entity, or in the case of a division, 51% or more of the combined voting power of the outstanding voting securities of each entity resulting from the division as well as 51% or more of the Total Market Value of each such entity, in each case in substantially the same proportion as such shareholders owned shares of the Company prior to such transaction;

b. the Company consummates an agreement for the sale or disposition (in one transaction or a series of transactions) of assets of the Company, the total consideration of which is greater than 51% of the Total Market Value of the Company;

c. the Company consummates an agreement for the sale or disposition (in one transaction or a series of transactions) of the Racetrack; or

d. approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, in circumstances where the gaming business at the Racetrack continues and a person or persons become the Class A and Class B licensees.

4. “Total Market Value” shall mean the aggregate market value of the Company’s or the resulting entity’s outstanding common stock (on a fully diluted basis) plus the aggregate market value of the Company’s or the resulting entity’s other outstanding equity securities as measured by the exchange rate of the transaction or by such other method as the Company’s Board of Directors reasonably determines where there is not a readily ascertainable exchange rate.

Exhibit 99.2

Execution Copy

STOCK APPRECIATION RIGHTS AGREEMENT

This Stock Appreciation Rights Agreement (“Agreement”) is entered into this 14th day of June, 2012 by and between Canterbury Park Holding Corporation (“CPHC”) and Shakopee Mdewakanton Sioux Community (“SMSC”), a federally recognized Indian tribe. CPHC and SMSC are sometimes referred to herein collectively as the “Parties” or individually as a “Party.”

RECITALS

WHEREAS, CPHC and SMSC have entered into a Cooperative Marketing Agreement (“ Marketing Agreement ”) on 4 June, 2012; and

WHEREAS, pursuant to Section 3.7 of the Marketing Agreement, CPHC is permitted to discharge its obligations under Sections 1.1 and 3.7 of the Marketing Agreement by delivering to SMSC stock appreciation rights in a form reasonably acceptable to SMSC that have the same terms as specified for the Warrants in Section 3.7 of the Marketing Agreement.

NOW, THEREFORE, in consideration of the above premises, the representations and covenants set forth herein and for other good valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties agree as follows:

1. Term . This Agreement shall become effective immediately upon execution by the Parties. If the Marketing Agreement is terminated in accordance with its terms prior to the Effective Date, as defined in the Marketing Agreement (“ Effective Date ”), this Agreement will terminate and be of no further force or effect, and all stock appreciation rights granted hereunder shall be forfeited. The term of this Agreement shall continue until December 31, 2022 (“ Term ”), subject to earlier termination as set forth in this Agreement.

2. Grant of Stock Appreciation Rights . As of the Effective Date, CPHC hereby grants SMSC the right, upon exercise, to receive the appreciation in the value of 165,000 shares of CPHC common stock (collectively, “ Stock Appreciation Rights ”) in excess of $14.30 per share (“ Base Value ”), subject to the terms, restrictions, and other conditions of this Agreement and the Marketing Agreement. Each Stock Appreciation Right shall equal the right to the appreciation on one share of common stock of CPHC (“ Common Stock ”) in excess of $14.30 per share.

3. Vesting and Forfeiture .

3.1 Vesting . During the term of the Marketing Agreement, SMSC will vest 10% (16,500 shares) in the Stock Appreciation Rights on the Effective Date and an additional 10% (16,500 shares) on each of the succeeding nine Annual Payment Dates, as defined in the Marketing Agreement (“ Annual Payment Dates ”).

3.2 Acceleration of Vesting . Notwithstanding the provisions in Section 3.1 of this Agreement, SMSC shall vest 100% in the remaining unvested Stock Appreciation Rights upon the occurrence of either of the following events that occurs on or after the Effective Date and prior to the end of the Term of this Agreement:


	(A) Change in Control of CPHC, as defined in Schedule 5 to the Marketing Agreement, or

	(B) A termination of the Marketing Agreement by SMSC pursuant to Section 5.2 of the Marketing Agreement upon a default by CPHC of its obligations under the Marketing Agreement.

3.3 Forfeiture of Stock Appreciation Rights . Stock Appreciation Rights will terminate and be forfeited upon the occurrence of the following events to the extent not exercised prior to such events:


	(A) Notwithstanding any other provision in this Agreement, all unvested and vested but unexercised Stock Appreciation Rights will terminate and be forfeited on the date the Marketing Agreement terminates as a result of termination without cause by SMSC under Section 5.1 of the Marketing Agreement,

	(B) Notwithstanding any other provision in this Agreement, all unvested and vested but unexercised Stock Appreciation Rights will terminate and be forfeited on the date the Marketing Agreement terminates as a result of termination by CPHC of the Marketing Agreement pursuant to Section 5.3 thereof,

	(C) All unvested and vested but unexercised Stock Appreciation Rights will terminate and be forfeited at the end of the Term of this Agreement.

4. Exercise . SMSC may exercise all or any portion of vested Stock Appreciation Rights at any time during the Term of this Agreement by written notice to CPHC (“ Exercise Notice ”) in the form attached hereto, specifying the number of Stock Appreciation Rights exercised. A Stock Appreciation Right may only be exercised once. Upon exercise, the Stock Appreciation Right shall expire as to the number of shares exercised, and thereafter, no further appreciation shall accrue or be due to SMSC with respect to such shares.

5. Payment . Within 14 days following receipt of an Exercise Notice, CPHC shall pay SMSC a lump sum cash payment that is equal to the number of exercised Stock Appreciation Rights multiplied by the amount which equals:


	(A) The closing price quoted on the National Association of Securities Dealers Automatic Quotation System of a share of Common Stock on the date CPHC receives an Exercise Notice, or if not a business day, the first business day thereafter, less

	(B) The Base Value.

6. Miscellaneous .

6.1 Exercise Notice . SMSC shall send all Exercise Notices to CPHC by mail or email as follows:


	Canterbury Park Holding Corporation
	1100 Canterbury Road
	Shakopee, Minnesota 55379

	Attn: Randall D. Sampson
	Email: rsampson@canterburypark.com

6.2 Amendment . This Agreement may only be amended, modified, or waived by a written agreement executed by both of the Parties.

6.3 Taxes . SMSC is responsible for the payment of any income taxes required to be paid by SMSC by law with respect to any payment made under this Agreement.

6.4 Adjustment . In the event of any equity restructuring (within the meaning of FASB ASC Topic 718) that causes the per share value of shares of Common Stock to change, such as a stock dividend, stock split, spinoff, rights offering or recapitalization through an extraordinary dividend, or merger, consolidation, share exchange, reorganization, subdivision or other similar capital adjustment involving the Company, the Board of Directors of the Company shall make such equitable adjustments to the number Stock Appreciation Rights, the Base Value and the kind of shares or other securities underlying the Stock Appreciation Rights as may be necessary and appropriate to preserve the aggregate appreciation over the aggregate Base Value of the Stock Appreciation Rights that existed immediately before the event giving rise to the adjustment(s) and to otherwise prevent dilution or enlargement of rights of SMSC under this Agreement.

6.5 Assignment; Binding Effect . Neither this Agreement nor any right or obligation hereunder will be assigned, delegated or otherwise transferred (by operation of law or otherwise) by any Party without the prior written consent of each other Party; provided, however, that SMSC may assign its rights and obligations hereunder to any authority, instrumentality or entity that is wholly owned or controlled by SMSC without the consent of CPHC. This Agreement will be binding on and inure to the benefit of the respective permitted successors and assigns of the Parties. Any purported assignment, delegation or other transfer not permitted by this Section is void.

6.6 Voting and Dividend Rights . The Stock Appreciation Rights do not constitute an equity interest in CPHC. Accordingly, SMSC is not entitled to any voting rights, to receive any dividend or other distribution with respect to Stock Appreciation Rights or, except as provided in Section 6.4 above, to have the value of the Stock Appreciation Rights credited or increased as a result of any other distribution or contribution with respect to the Common Stock.

6.7 Counterparts . This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. Such counterparts may be executed and delivered by facsimile or other electronic means by any of the Parties, and the receiving Party may rely on the receipt of such document so executed and delivered as if the original had been received.

6.8 Satisfaction of Marketing Agreement Terms . SMSC acknowledges and agrees, this Agreement satisfies and discharges all of CPHC’s obligations under Sections 1.1 and 3.7 of the Marketing Agreement with respect to the delivery of Warrants as defined therein.

6.9 Governing Law . This Agreement shall be construed in accordance with and governed by the laws of the state of Minnesota.

IN WITNESS WHEREOF, each Party has executed this Stock Appreciation Rights Agreement effective as of the date first written above.


Canterbury Park Holding Corporation

/s/ Randall D. Sampson
By:	Randall D. Sampson
Its:	President & CEO

Shakopee Mdewakanton Sioux Community

/s/ Stanley R. Crooks
By:	Stanley R. Crooks
Its:	Chairman

STOCK APPRECIATION RIGHTS AGREEMENT

EXERCISE NOTICE

Shakopee Mdewakanton Sioux Community hereby elects to exercise _____________ Stock Appreciation Rights under and pursuant to the Stock Appreciation Rights Agreement entered into June 14th, 2012 by and between Canterbury Park Holding Corporation and Shakopee Mdewakanton Sioux Community.


Shakopee Mdewakanton Sioux Community


By:
Its: