Canterbury Park Holding Corp (Form: 10-Q, Received: 08/14/2018 14:21:32)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

TERLY PERIOD ENDED SEPTEMBER 30, 2012.

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30 , 201 8 .


☐		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: 001-37858

CANTERBURY PARK HOLDING CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Minnesota		47-5349765
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

	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	☒		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	☒		NO	☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

YES ☐ NO ☒

The Company had 4,4 96,275 shares of common stock, $.01 par value, outstanding as of August 1 , 201 8 .

Canterbury Park Holding Corporation

INDEX


			Page
PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements (unaudited)

		Condensed Consolidated Balance Sheets as of
		June 30, 2018 and December 31, 2017	2

		Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 and 2017	3

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	4

		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	25

	Signatures		26

PART 1 – FINANCIAL INFORMATION

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

C ONDENSED CONSOLIDATED B ALANCE SHEETS



	(Unaudited)
	June 30,		December 31,
	2018		2017
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	13,481,746	$	8,888,162
Restricted cash		7,541,504		3,137,391
Short-term investments		206,210		206,005
Accounts receivable, net of allowance of $19,250 for both periods		760,223		1,278,289
Current portion of notes receivable		1,048,654		1,048,654
Inventory		414,807		262,989
Prepaid expenses		253,894		588,634
Income taxes receivable		196,537		-
Total current assets		23,903,575		15,410,124

LONG-TERM ASSETS
Deposits		22,500		22,500
Notes receivable - long term portion		1,096,409		2,142,512
Land, buildings and equipment, net of accumulated depreciation of $29,971,794 and $29,670,916 , respectively		38,651,312		36,962,188
	$	63,673,796	$	54,537,324

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		4,268,924		2,854,305
Card Casino accruals		2,579,666		2,931,205
Accrued wages and payroll taxes		2,154,017		2,291,261
Cash dividend payable		314,054		265,113
Accrued property taxes		972,561		936,562
Deferred revenue		2,105,738		905,030
Payable to horsepersons		5,314,177		630,921
Income taxes payable		-		3,830
Total current liabilities		17,709,137		10,818,227

LONG-TERM LIABILITIES
Deferred income taxes		3,206,000		3,002,000
Total long-term liabilities		3,206,000		3,002,000
TOTAL LIABILITIES		20,915,137		13,820,227

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 4,482,567 and 4,414,492 , respectively, shares issued and outstanding		44,826		44,145
Additional paid-in capital		20,816,671		19,865,273
Retained earnings		21,897,162		20,807,679
Total stockholders’ equity		42,758,659		40,717,097
	$	63,673,796	$	54,537,324

S ee notes to condensed consolidated f inancial statements

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

C ONDENSED CONSOLIDATED ST ATEME NTS OF OPERATIONS

(Unaudited)



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
OPERATING REVENUES:
Pari-mutuel	$	3,504,767	$	3,454,737	$	5,045,711	$	4,960,674
Card Casino		8,480,489		8,112,734		16,757,470		15,817,205
Food and beverage		2,400,713		2,364,686		3,704,351		3,710,561
Other		2,126,755		1,914,318		3,225,140		2,801,106
Total Net Revenues		16,512,724		15,846,475		28,732,672		27,289,546

OPERATING EXPENSES:
Purse expense		2,102,873		2,004,688		3,347,759		3,137,111
Minnesota Breeders’ Fund		301,409		304,396		504,561		520,171
Other pari-mutuel expenses		484,754		452,583		763,276		724,471
Salaries and benefits		6,766,422		6,290,356		12,196,426		11,417,449
Cost of food and beverage and other sales		1,096,623		1,096,002		1,689,530		1,709,378
Depreciation		601,080		577,275		1,236,225		1,222,998
Utilities		382,365		337,857		700,226		618,763
Advertising and marketing		1,012,244		917,188		1,239,219		1,185,062
Professional and contracted services		1,159,925		1,152,893		2,020,218		2,014,427
Loss on disposal of assets		99,934		-		99,934		-
Gain on insurance recoveries		-		-		(21,064)		-
Other operating expenses		1,505,629		1,522,079		2,600,141		2,686,749
Total Operating Expenses		15,513,258		14,655,317		26,376,451		25,236,579
INCOME FROM OPERATIONS		999,466		1,191,158		2,356,221		2,052,967
OTHER INCOME
Interest income, net		5,048		11,415		17,455		23,603
Net Other Income		5,048		11,415		17,455		23,603
INCOME BEFORE INCOME TAXES		1,004,514		1,202,573		2,373,676		2,076,570
INCOME TAX EXPENSE		(279,163)		(486,000)		(658,633)		(847,000)
NET INCOME	$	725,351	$	716,573	$	1,715,043	$	1,229,570

Basic earnings per share	$	.16	$	.16	$	.39	$	.28
Diluted earnings per share	$	.16	$	.16	$	.38	$	.28
Weighted Average Basic Shares Outstanding		4,466,966		4,372,333		4,453,309		4,357,472
Weighted Average Diluted Shares Outstanding		4,515,648		4,395,009		4,502,397		4,378,481
Cash dividends declared per share	$	.07	$	.06	$	.14	$	.11

See notes to condensed consolidated financial statements.

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATE ME NTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2018		2017
Operating Activities:
Net income	$	1,715,043	$	1,229,570
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,236,225		1,222,998
Stock-based compensation expense		203,866		192,135
Stock-based employee match contribution		276,953		240,597
Deferred income taxes		204,000		64,000
Loss on disposal of assets		99,934		1,998
Gain on insurance proceeds		(21,064)		-
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		539,130		(393,993)
Increase in inventory		(151,818)		(175,646)
Decrease in prepaid expenses		334,740		180,858
(Increase) decrease in income taxes receivable		(196,537)		528,000
Increase in accounts payable		1,261,658		1,254,158
Increase in deferred revenue		1,200,708		1,282,893
Decrease in Card Casino accruals		(351,539)		(82,965)
(Decrease) increase in accrued wages and payroll taxes		(137,244)		400,135
Increase (decrease) in accrued property taxes		35,999		(68,022)
Decrease in income taxes payable		(3,830)		-
Increase in payable to horsepersons		4,683,256		3,927,247
Net cash provided by operating activities		10,929,480		9,803,963

Investing Activities:
Additions to buildings and equipment		(2,872,322)		(2,732,105)
Decrease in notes receivable		1,046,103		-
Purchase of investments		(205)		(295)
Net cash used in investing activities		(1,826,424)		(2,732,400)

Financing Activities
Proceeds from issuance of common stock		471,163		149,803
Cash dividends to shareholders		(576,522)		(434,483)
Net cash used in financing activities		(105,359)		(284,680)

Net increase in cash, cash equivalents, and restricted cash		8,997,697		6,786,883

Cash, cash equivalents, and restricted cash at beginning of period		12,025,553		8,288,820

Cash, cash equivalents, and restricted cash at end of period	$	21,023,250	$	15,075,703

See notes to condensed consolidated financial statements.

CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ( continued)

(Unaudited)


	2018		2017
Schedule of non-cash investing and financing activities
Additions to buildings and equipment funded through accounts payable	$	153,000	$	51,000
Dividend declared		314,000		481,000

Supplemental disclosure of cash flow information:
Income taxes paid	$	1,067,000	$	485,000

C AN T ERBURY PARK HOLDING CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CO NSOL IDATED FINANCIAL STATEMENTS

1. OVERVIEW AND BASIS OF PRESENTATION

Business – The Company’s Racetrack operations are conducted at facilities located in Shakopee, Minnesota, approximately 25 miles southwest of downtown Minneapolis. In May 1994, the Company commenced year-round horse racing simulcast operations and hosted the first annual live race meet during the summer of 1995. The Company’s live racing operations are a seasonal business as it hosts live race meets each year from May until September. The Company earns additional pari-mutuel revenue by televising its 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 conducting card play on a maximum of 80 tables. The Card Casino currently offers a variety of poker and table games. The Company’s three largest sources of revenues include: Card Casino operations, pari-mutuel operations and food and beverage sales. The Company also derives revenues from related services and activities, such as admissions, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.

Basis of Presentation and Preparation – The accompanying condensed consolidated financial statements include the accounts of the Company (Canterbury Park Holding Corporation and its subsidiaries Canterbury Park Entertainment, LLC; Canterbury Park Concession, Inc; and Canterbury Development, LLC). Intercompany accounts and transactions have been eliminated. The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2017, included in its Annual Report on Form 10-K (the “2017 Form 10-K”).

The condensed consolidated balance sheets and the related condensed consolidated statements of operations and the cash flows for the periods ended June 3 0 , 2018 and 2017 have been prepared by Company management. In the opinion of management, all adjustments (which include only normal recurring adjustments, except where noted) necessary to present fairly the financial position, results of operations, and cash flows at June 3 0 , 2018 and 2017 and for the periods then ended have been made.

Effective January 1, 2018, we adopted the requirements of Accounting Standards Update (“ASU”) No 2014-09, Revenue from Contracts with Customers and ASU No. 2016-18, Statement of Cash Flows, Restricted Cash as discussed in Note 2. All amounts and disclosures set forth in this Form 10-Q have been updated to comply with the new standards.

Deferred Revenue – Deferred revenue includes advance sales related to racing, events and corporate partnerships. Revenue from these advance billings are recognized when the related event occurs or services have been performed. Deferred revenue also includes advanced Cooperative Marketing Agreement ( “ CMA ” ) promotional funds and revenue is recognized when expenses are incurred. The Company maintains a deferred gain on sale of land of $240,000 due to a repurchase right.

Payable to Horsepersons - 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 Casino operations and wagering on simulcast and live horse races, for future payment as purses for live horse races or other uses of the horsepersons’ association. Pursuant to an agreement with the MHBPA, the Company transferred into a trust account or paid directly to the MHBPA, $2,678,000 and $2,213,000 for the six months ended June 30, 2018 and 2017, 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, and therefore these amounts are not recorded on the Company’s Consolidated Balance Sheet.

Reclassifications – Prior period financial statement amounts have been reclassified to conform to current period presentations. Certain amounts due to horsepersons have been reclassified on the December 31, 2017 Consolidated Balance Sheets to Payable to Horsepersons from Due to MHBPA . This reclassification has also been reflected on the Consolidated Statements of Cash Flows for the six months ended June 30 , 2017. Workers compensation amounts have been reclassified from other operating expenses to salaries and benefits on the Consolidated Statement of Operations for the three and six months ended June 30, 2017. Additionally, amounts related to RiverSouth have been reclassified from other operating expenses to advertising and marketing for the three and six months ended June 30, 2017.

2. ACCOUNTING STANDARDS AND SIGNIFICANT ACCOUNTING POLICIES

Recently Adopted Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (“ FASB ”) issued ASU 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash . ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. As a result of the adoption of ASU 2016-18 on January 1, 2018, we began combining amounts generally described as restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the condensed consolidated statement of cash flows. See the table at the end of this note for the effects of the adoption of ASU 2016-18 on our condensed consolidated statement of cash flows for the six months ended June 3 0 , 2017.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606") . Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition ("Topic 605"), and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those goods or services. Collectively, we refer to Topic 606 as the "new standard."

We adopted the requirements of the new standard as of January 1, 2018, u sing the full retrospective method . Adoption of the new standard resulted in changes to our accounting policies for revenue recognition and promotional allowances as detailed below. We applied the new standard using a practical expedient where the consideration allocated to the remaining performance obligations or an explanation of when we expect to recognize that amount as revenue for all reporting periods presented before the date of the initial application is not disclosed.

The impact of adopting the new standard on our fiscal 2018 and fiscal 2017 revenues is not material and resulted in no cumulative effect adjustment on net income or cash flows. The primary impact of adopting the new standard is the removal of the p romotional allowance line item on the condensed consolidated statement of operations. The amounts previously included as promotional allowance will now be presented on a net basis within Pari-mutuel revenues.

We adjusted our condensed consolidated financial statements from amounts previously reported due to the adoption of ASU No. 2014-09 and ASU No. 2016-18. Select unaudited condensed consolidated statement of operations line items, which reflect the adoption of ASU No. 2014-09 are as follows:


	Three months ended June 30, 2017
	As previously reported	Adjustments	As Adjusted
OPERATING REVENUES:
Pari-mutuel	$ 3,503,897	$ (49,160)	$ 3,454,737
Promotional allowances	(49,160)	(49,160)	-


	Six months ended June 30, 2017
	As previously reported	Adjustments	As Adjusted
OPERATING REVENUES:
Pari-mutuel	$ 5,035,761	$ (75,087)	$ 4,960,674
Promotional allowances	(75,087)	(75,087)	-

Select unaudited condensed consolidated statement of cash flow line items, which reflects the adoption of ASU No. 2016-18 are as follows:


	Six months ended June 30, 2017
	As previously reported	Adjustments	As Adjusted
Net cash provided by operating activities	5,494,800	4,309,163	9,803,963
Net increase in cash and cash equivalents	2,477,720	4,309,163	6,786,883
Cash, cash equivalents and restricted cash at beginning of period	6,298,807	1,990,013	8,288,820
Cash, cash equivalents and restricted cash at end of period	$ 8,776,527	$ 6,299,176	$ 15,075,703

Summary of Significant Accounting Policies

Except for the accounting policies for revenue recognition, promotional allowances , and restricted cash that were updated as a re sult of our recently adopted accounting pronouncements , there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on March 27, 2018, that have had a material impact on our condensed consolidated financial statements and related notes.

Revenue Recognition – The Company’s primary revenues with customers consist of Card Casino operations, pari-mutuel wagering on simulcast and live horse races, and food and beverage transactions. We determine revenue recognition through the following steps:

Identification of the contract, or contracts, with a customer

Identification of the performance obligations in the contract

Determination of the transaction price

Allocation of the transaction price to the performance obligation in the contract

Recognition of revenue when, or as, we satisfy a performance obligation

The transaction price for a Card Casino contract is a set percentage of wagers and is recognized at the time that the wagering process is complete. The transaction price for pari-mutuel wagering is the commission received on a wager, exclusive of any track fees and is 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. The transaction price for food and beverage contracts is the net amount collected from the customer for such goods. Food and beverage services have been determined to be separate, stand-alone performance obligations and the transaction price is recorded as revenue as the good is transferred to the customer when delivery is made.

Contracts for Card Casino operations and pari-mutuel wagering involve two performance obligations for those customers earning points under the Company’s loyalty program and a single performance obligation for customers who don’t participate in the program. The Company applies a practical expedient by accounting for its gaming contracts on a portfolio basis as these wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to an individual wagering contract. For purposes of allocating the transaction price in a wagering contract between the wagering performance obligation and the obligation associated with the loyalty points earned, the Company allocates an amount to the loyalty point contract liability based on the stand-alone selling price of the points earned, which is determined by the value of a point that can be redeemed for a cash voucher, food and beverage voucher, racing admission, valet parking, or racing forms. Based on past experience, the majority of customers redeem their points for cash vouchers. Therefore, there are no further performance obligations by the Company.

We have two general types of liabilities related to contracts with customers: (1) our MVP Loyalty Program and (2) outstanding chip liability. These are included in the line item card casino accruals on the consolidated balance sheet. We defer the full retail value of th ese complimentary reward items until the future revenue transaction occurs. Therefore, we do not recognize any contract revenue associated with future performance obligations.

The Company offers certain promotional allowances at no charge to patrons who participate in its player rewards program. The retail value of these promotional items is included as a deduction from pari-mutuel revenues and no longer shown as a separate line item on the Company’s condensed consolidated statements of operations.

We evaluate our on-track revenue, export revenue, and import revenue contracts in order to determine whether we are acting as the principal or as the agent when providing services, which we consider in determining if revenue should be reported gross or net. An entity is a principal if it controls the specified service before that service is transferred to a customer.

The revenue we recognize for on-track revenue and import revenue is the commission we are entitled to retain for providing a wagering service to our customers. For these arrangements, we are the principal as we control the wagering service; therefore, any charges, including simulcast fees, we incur for delivering the wagering service are presented as operating expenses.

For export revenue, our customer is the third party wagering site such as a race track, OTB, or advance deposit wagering provider. Therefore, the revenue we recognize for export revenue is the simulcast host fee we earn for exporting our racing signal to the third party wagering site.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires that lessees recognize assets and liabilities for leases with lease terms greater than 12 months in the statement of financial position and also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. The update is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within those fiscal years. Early adoption is permitted. We are currently analyzing the impact of this ASU and, at this time, we are unable to determine the impact on the new standard, if any, on our consolidated financial statements.

3 . STOCK-BASED COMPENSATION

Long Term Incentive Plan and Award of Deferred Stock

The Long Term Incentive Plan (the “LTI Plan”) authorizes the grant of Long Term Incentive Awards that provide an opportunity to Named Executive Officers (“NEOs”) and other Senior Executives to receive a payment in cash or shares of the Company’s common stock to the extent of achievement at the end of a period greater than one year (the “Performance Period”) as compared to Performance Goals established at the beginning of the Performance Period. Currently, there are three awards outstanding that are for three - year periods ending December 31, 2018, 2019, and 2020.

Board of Directors Stock Option , Deferred Stock Awards, and Restricted Stock Grants

The Company’s Stock Plan was amended to authorize annual grants of restricted stock , deferred stock, stock options, or any combination of the three , to non-employee members of the Board of Directors at the time of the Company’s annual shareholders ’ meeting as determined by the Board prior to each such meeting. Options granted under the Plan generally expire 10 years after the grant date. Restricted stock and deferred stock grants generally vest 100% one year after the date of the annual meeting at which they were granted , are subject to restrictions on resale for an additional year, and are subject to forfeiture if a board member terminates his or her board service prior to the shares vesting. The Board of Directors’ unvested deferred stock awards as of June 30, 2018 consisted of 7,456 shares with a weighted average fair value per share of $16.10 . There were no unvested restricted stock or stock options outstanding at June 30, 2018 .

Employee Deferred Stock Awards

Prior to January 1, 2016 the Company’s Board awarded deferred compensation to executive officers and key employees , that were not performance-based , in the form of d eferred s tock awards under the Company’s Stock Plan. These deferred stock awards are subject to forfeiture if an employee terminates employment prior to the vesting. Generally, the awards vest ratably over a four -year period and compensation costs are recognized over the vesting period. Compensation costs are recorded in “Salaries and benefits” on the Condensed Consolidated Statements of Operations. There were no unvested deferred stock awards outstanding at June 30, 2018 .

Stock-based compensation expense related to the LTI Plan, deferred stock awards and restricted stock awards is included on the Condensed Consolidated Statements of Operations and totaled $ 204,000 and $ 192,000 for the six months ended June 30, 2018 and 201 7 .

Employee Stock Option Grants

The Company has granted incentive stock options to employees pursuant to the Company’s Stock Plan with an exercise price equal to the market price on the date of grant. The options vest over a 42 -month period and expire in 10 years.

A summary of stock option activity as of June 30, 2018 and changes during the six months then ended is presented below:



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

Outstanding at January 1, 2018		142,502	$	8.19
Granted		-		-
Exercised		(44,525)		8.90
Expired/Forfeited		-		-
Outstanding at June 30, 2018		97,977	$	7.86		1.4 Years	$	770,295

Exercisable at June 30, 2018		97,977	$	7.86		1.4 Years	$	770,295

4. NET INCOME PER SHARE COMPUTATIONS

The following is a reconciliation of the numerator and denominator of the earnings per common share computations for the three and six months ended June 30 , 2018 and 2017:




	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Net income (numerator) amounts used for basic and diluted per share computations:	$	725,351	$	716,573	$	1,715,043	$	1,229,570

Weighted average shares (denominator) of common stock outstanding:
Basic		4,466,966		4,372,333		4,453,309		4,357,472
Plus dilutive effect of stock options		48,682		22,676		49,088		21,009
Diluted		4,515,648		4,395,009		4,502,397		4,378,481

Net income per common share:
Basic	$	.16	$	.16	$	.39	$	.28
Diluted		.16		.16		.38		.28

There were no out of-the-money options at June 30 , 2018; thus, all outstanding options to purchase shares of common stock were included in the computation of diluted net income per share.

Options to purchase 30,000 shares of common stock at an average price of $12.33 per share were outstanding but not included in the computation of diluted net income per share for the six months ended June 30 , 2017 because the exercise price of the options exceeded the market price of the Company’s common stock at June 30 , 2017.

5. PROMISSORY NOTES RECEIVABLE

In May 2016, the Company sold approximately 24 acres of land adjacent to the Racetrack for a total consideration of approximately $4.3 million. Promissory notes receivable consists of two promissory notes totaling $ 2,145,000 bearing interest at 1.43% . On May 31, 2017, the Company signed an amendment extending the maturity date of the notes to May 2020 . Payments totaling $1,094,000 are due annually on May 13 th until the notes mature. The promissory notes are secured by the mortgage on approximately 24 acres and management believes no allowance for doubtful accounts is necessary.

6. GENERAL CREDIT AGREEMENT

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line of up to $6,000,000, and expires September 30, 2018. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. The Company had no borrowings under the credit line during the three months ended June 30 , 2018.

7. OPERATING SEGMENTS

The Company has four reportable operating segments: horse racing, Card Casino, food and beverage, and development. The horse racing segment primarily represents simulcast and live horse racing operations. The Card Casino segment represents operations of Canterbury Park’s Card Casino, the food and beverage segment represents food and beverage operations provided during simulcast and live racing, in the Card Casino, and during special events. The development segment represents our real estate development operations. 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 process to produce those products and services. The Minnesota Racing Commission regulates the horse racing and Card Casino segments.

Depreciation, interest and income taxes are allocated to the segments, but no allocation is made to the food and beverage segment for shared facilities. However, the food and beverage 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.

The following tables represent a disaggregation of revenues from contracts with customers along with the Company’s operating segments (in 000’s):



	Six Months Ended June 30, 2018
	Horse Racing		Card Casino		Food and Beverage		Development		Total

Net revenues from external customers	$	8,112	$	16,758	$	3,863	$	-	$	28,733

Intersegment revenues		368		-		671		-		1,039

Net interest (expense) income		(4)		-		-		21		17

Depreciation		1,153		5		78		-		1,236

Segment (loss) income before income taxes		(456)		3,040		177		(2)		2,759

Segment income tax (benefit) expense		(231)		842		49		(1)		659

	At June 30, 2018
Segment Assets	$	50,077	$	633	$	23,006	$	10,547	$	84,263



	Six Months Ended June 30, 2017
	Horse Racing		Card Casino		Food and Beverage		Development		Total

Net revenues from external customers	$	7,639	$	15,817	$	3,834	$	-	$	27,290

Intersegment revenues		360		734		-		-		1,094

Net interest income		24		-		-		-		24

Depreciation		822		317		84		-		1,223

Segment (loss) income before income taxes		(890)		3,081		664		-		2,855

Segment income tax (benefit) expense		(692)		1,266		273		-		847

	At December 31, 2017
Segment Assets	$	41,077	$	642	$	21,583	$	11,436	$	74,738

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



	Six Months Ended June 30,
	2018		2017
Revenues
Total net revenues for reportable segments	$	29,773	$	28,384
Elimination of intersegment revenues		(1,040)		(1,094)
Total consolidated net revenues	$	28,733	$	27,290



Income before income taxes
Total segment income before income taxes	$	2,759	$	2,855
Elimination of intersegment income before income taxes		(385)		(778)
Total consolidated income before income taxes	$	2,374	$	2,077



	June 30,		December 31,
	2018		2017
Assets
Total assets for reportable segments	$	84,263	$	74,738
Elimination of intercompany receivables		(20,589)		(20,201)
Total consolidated assets	$	63,674	$	54,537

8. COMMITMENTS AND CONTINGENCIES

In accordance with an Earn Out Promissory 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 GAAP. 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.

The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community (“SMSC”), which became effective June 4, 2012 and was amended in each of January 2015, 2016, 2017, and 2018, and will expire on December 31, 2022. The CMA contains certain covenants which, if breached, would trigger an obligation to repay a specified amount related to such covenant. At this time, management believes that the likelihood that the breach of a covenant will occur and that the Company will be required to pay the specified amount related to such covenant is remote.

The Company is periodically involved in various claims and legal actions arising in the normal course of business. Management believes that the resolution of any pending claims and legal actions at June 30, 2018 , and as of the date of this report , will not have a material impact on the Company’s consolidated financial positions or results of operations.

9. COOPERATIVE MARKETING AGREEMENT

As discussed in Note 8, on June 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.

Under the terms of the CMA, as amended, the SMSC paid the horsemen $7.4 million and $7.2 million in the first three months of 2018 and 2017, respectively, primarily for purse enhancements for the live race meets in the respective years.

Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits and events. Under the CMA, the SMSC paid the Company $1,620,000 and $1,581,000 for marketing purposes during the six months ended June 3 0 , 2018 and 2017 .

In each of January 2015, 2016, 2017 , and 2018 the CMA was amended to adjust the payment amounts between the “Purse Enhancement Payments to Horsemen” and “Marketing Payments to Canterbury Park.” SMSC is currently obligated to make the following purse enhancement and marketing payments for 2019 through 2022:



Year	Purse Enhancement Payments to Horsemen		1	Marketing Payments to Canterbury Park
2019		$ 7,380,000			$ 1,620,000
2020		7,380,000			1,620,000
2021		7,380,000			1,620,000
2022		7,380,000			1,620,000

1 Includes $100,000 each year payable to various horsemen associations

The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s condensed consolidated statements of operations. For the three and six months ended June 30 , 2018, the Company recorded $ 572,000 and $678,000 in other revenue and incurred $515,000 and $565,000 in advertising and marketing expense and $57,000 and $113,000 in depreciation related to the SMSC marketing funds. For the three and six months ended June 30 , 2017, the Company recorded $ 468,000 and $625,000 in other revenue and incurred $ 458,000 and $558,000 in advertising and marketing expense and $57,000 and $113,000 in depreciation related to the SMSC marketing payment.

Under the CMA, the Company agreed for the term of the CMA, which is currently scheduled to terminate on December 31, 2022, that it would not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.

1 0 . REAL ESTATE DEVELOPMENT

On April 2, 2018, the Company’s subsidiary Canterbury Development LLC, entered into an Operating Agreement (“Operating Agreement”) with an affiliate of Doran Companies (“Doran”), a national commercial and residential real estate developer, as the two members of a Minnesota limited liability company named Doran Canterbury I, LLC. The Operating Agreement has a stated effective date of March 1, 2018. Doran Canterbury I, LLC was formed as part of a joint venture between Doran and Canterbury Development LLC to construct a n upscale apartment complex on land adjacent to the Company’s Racetrack (the “Project”). Doran Canterbury I, LLC will pursue development of Phase I of the Project, which will include approximately 300 units, a heated parking ramp, and a clubhouse. Under the Operating Agreement, Doran will lead the development, design and construction of the Phase I apartment complex, provide property management and leasing services, and be responsible for the day-to-day operations of the Project. Further information about the Operating Agreement and Project is presented under Item 1.01 of the Company’s Form 8-K dated April 2, 2018 and filed with the Commission on April 6, 2018.

11. SUBSEQUENT EVENTS

On August 8, 2018, the City Council of the City of Shakopee, Minnesota approved a Contract for Private Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority (“Shakopee EDA”) and Canterbury Park Holding Corporation and its subsidiary Canterbury Development LLC in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. The City of Shakopee, the Shakopee EDA and the Company entered into the Redevelopment Agreement on August 10, 2018.

Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure. More specifically, the Company is obligated to construct improvements on Shenandoah Drive and Barens c heer Boulevard with these improvements required to be substantially complete on or before December 31, 2019 and December 31, 2020, respectively.

If the Company does not proceed with the improvements to Shenandoah Drive on or before December 15, 2018 or the improvements to Barens c heer Boulevard on or before December 15, 2019, the City of Shakopee has the right to construct the improvements itself and assess the Company for the costs of these improvements.

Under the Redevelopment Agreement, the City of Shakopee has agreed that a portion of the tax increment revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing infrastructure improvements. The total estimated costs of TIF eligible improvements borne by the Company is $23,336,500. A detailed Schedule of the Public Improvements under the Redevelopment Agreement, the timeline for their construction and the source and amount of funding is set forth on Exhibit C of the Redevelopment Agreement. The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed, however, and will depend on future tax revenues generated from the developed property. A copy of the Redevelopment Agreement is attached as Exhibit 10.1 to this Form 10-Q.

The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility.

ITEM 2: MANAGEMENT’S DISCU SSION 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, our financial results and financial condition 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,” “we,” “our,” or “us”) conducts pari-mutuel wagering operations and hosts “unbanked” card games at its Canterbury Park Racetrack and Card Casino facility (the “Racetrack”) in Shakopee, Minnesota, which is approximately 25 miles southwest of downtown Minneapolis. The Racetrack is the only facility in the State of Minnesota that offers live pari-mutuel thoroughbred and quarter horse racing.

The Company’s pari-mutuel wagering operations include both wagering on thoroughbred and quarter horse races during live meets at the Racetrack each year from May through September , and year-round wagering on races held at out-of-state racetracks that are televised simultaneously at the Racetrack (“simulcasting”). Unbanked card games, in which patrons compete against each other, are hosted in the Card Casino at the Racetrack. The Card Casino operates 24 hours a day, seven days a week. The Card Casino offers both poker and table games at up to 80 tables. The Company also derives revenues from related services and activities, such as concessions, parking, advertising signage, publication sales, and from other entertainment events and activities held at the Racetrack.

Operations Review for the Three and Six Months Ended June 30, 2018 :

EBITDA

EBITDA represents earnings before interest, income tax expense, and depreciation and amortization. EBITDA is not a measure of performance or liquidity calculated in accordance with generally accepted accounting principles in the United States of America (“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 is presented as a supplemental disclosure because it is a widely used measure of performance and a basis for valuation of companies in our industry. Moreover, other companies that provide EBITDA information may calculate EBITDA differently than we do. Adjusted EBITDA reflects additional adjustments to net income to eliminate unusual items. For the three months ended June 30, 2018, adjusted EBITDA excluded the loss on disposal of assets. For the six months ended June 30, 2018, adjusted EBITDA excluded the loss on disposal of assets and gain on insurance recoveries.

The following table sets forth a reconciliation of net income, a GAAP financial measure, to EBITDA and to adjusted EBITDA (defined above) which are non-GAAP financial measures, for the three and six months ended June 30, 2018 and 2017 :


Summary of EBITDA Data
	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
NET INCOME	$	725,351	$	716,573	$	1,715,043	$	1,229,570
Interest income, net		(5,048)		(11,415)		(17,455)		(23,603)
Income tax expense		279,163		486,000		658,633		847,000
Depreciation		601,080		577,275		1,236,225		1,222,998
EBITDA		1,600,546		1,768,433		3,592,446		3,275,965
Gain on insurance recoveries		-		-		(21,064)		-
Loss on disposal of assets		99,934		-		99,934		-
Adjusted EBITDA	$	1,700,480	$	1,768,433	$	3,671,316	$	3,275,965

Adjusted EBITDA de creased $ 68,000 or 3 .8 % and decreased as a percentage of net revenues to 10.3% from 11.2% for the three months ended June 30, 2018 as compared to the same period in 2017 . Adjusted EBITDA increased $395,000 or 12.1% and increased as a percentage of net revenues to 12.8% from 12.0% for the six months ended June 30, 2018 compared to the same period in 2017. The decrease for the three months ended June 30, 2018 is primarily due to expenses increasing more than revenues compared to the same period in 2017. The increase for the six months ended June 30, 2018 is primarily due to the increase in revenues compared to the same period in 2017.

Revenues :

Total net revenues for the three months ended June 30, 2018 were $16,513,000, an increase of $666,000, or 4.2% , compared to total net revenues of $15,846,000 for the three months e nded June 30, 2017 . This increase primarily consists of increases in other and card casino revenue of 11.1% and 4.5%, respectively. Total net revenues for the six months ended June 30, 2018 were $28,733,000, an increase of $1,443,000, or 5.3%, compared to total net revenues of $27,290,000 for the six months ended June 30, 2017. This increase primarily consists of increases in other and card casino revenue of 15.1% and 5.9%, respectively. See below for a further discussion of our sources of revenues.


Pari-Mutuel Data Revenue:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017

Simulcast	$	1,780,000	$	1,733,000	$	3,052,000	$	2,979,000
Live Racing		943,000		943,000		943,000		943,000
Guest Fees		557,000		496,000		558,000		496,000
Other Revenue		225,000		283,000		493,000		543,000
Total Pari-Mutuel Revenue	$	3,505,000	$	3,455,000	$	5,046,000	$	4,961,000

Racing Days
Simulcast only racing days		63		63		153		154
Live and simulcast racing days		28		27		28		27
Total Number of Racing Days		91		90		181		181

Total pari-mutuel revenue increased $50,000, or 1.4%, and $85,000, or 1.7% for the three and six months , respectively, ended June 30, 2018 compared to the same period s in 2017. The increases are related to Simulcast revenue and Guest Fees due to th e possibility of a triple crown winner in 2018 , as well as an additional live race day in the 2018 second quarter compared to the same period in 2017 . These increases are partially offset by pari-mutuel wagering being impacted by inclement weather and a decline in Advanced Deposit Wagering (ADW) revenue for the three and six month periods.

Card Casino Revenue:


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Poker Games	$	2,053,000	$	2,211,000	$	4,231,000	$	4,547,000
Table Games		5,651,000		5,195,000		11,007,000		9,901,000
Total Collection Revenue		7,704,000		7,406,000		15,238,000		14,448,000
Other Revenue		776,000		707,000		1,519,000		1,369,000
Total Card Casino Revenue	$	8,480,000	$	8,113,000	$	16,757,000	$	15,817,000

The primary source of Card Casino revenue is a percentage of the wagers received from players as compensation for providing the Card Casino facility and services, which is referred to as “collection revenue.” Other Revenue presented above includes fees collected for the administration of tournaments , amounts earned as reimbursement of the administrative costs of maintaining jackpot funds , and amounts related to the outstanding chip liability that we expect will not be redeemed in the future.

As indicated in the table above, t otal Card Casino revenue increased $367,000, or 4.5%, and $940,000, or 5.9%, for the three and six months, respectively, ended June 30, 2018 compared to the same periods in 2017. The increase is primarily a result of the Company increasing the percentage of wagers received from the players from 18% in 2017 to 18.5% in April and 20% in May and June 2018. This percentage increase attributed to approximately $439,000 of additional revenue for the three and six months ended June 30, 2018. The increase for the six months ended June 30, 2018 is also a result of increased play on table games. In management’s judgement, increased play is attributable to expanded promotional efforts and players wagering more due to a strong economy. Also, higher jackpots on specific games contributed to increased play.

Food and Beverage Revenue:

Food and beverage revenue in creased $ 36 ,000, or 1.5 %, for the three months ended June 3 0 , 2018 compared to the same period s in 2017. The increase is attributable to price increases on select menu items and an additional live racing day held during the second quarter 2018 compared to 2017. Food and beverage revenue decreased $6,000, or 0.2% for the six months ended June 30, 2018 compared to the same period in 2017.

Other Revenue:

Other revenue increased $212,000, or 11.1 %, and $424,000, or 15.1% for the three and six months , respectively, ended June 3 0 , 2018 compared to the same period s in 2017. For the three months ended June 30, 2018, the increase is due to an increase in advertising revenue as well as increased rental fees from a special event held in the spring. For the six months ended June 2018, t he increase is primarily due to a short-term customer rental agreement in the first quarter of 2018 , related to the Super Bowl held in Minneapolis . A portion of th e revenues are reimbursed costs based on the terms of the contract . These costs are included as an expense in our Consolidated Statement of Operations.

Operating Expenses:

Total operating expenses increased $ 858,000 , or 5.9 %, and $1,140,000, or 4.5%, for the three and six months , respectively, ended June 30 , 2018 compared to the same period s in 2017. The following paragraphs provide further detail regarding certain operating expenses.

Purse expense increased $98,000 , or 4.9% , and $211,000, or 6.7% for the three and six months , respectively ended June 30, 2018 compared to the same period s in 2017. The increase s are primarily due to increased payments into the purse fund because of increased Card Casino and Pari-Mutuel revenues.

Salaries and benefits increased $ 476,000 , or 7.6 %, and $779,000, or 6.8% for the three and six months , respectively, ended June 30 , 2018 compared to the same period s in 2017. The increase s are partially due to the State of Minnesota mandated increase of $0.15 in the minimum wage effective January 1, 2018. Additionally, two executive positions were open and unfilled during t he majority of the 2017 first quarter and one executive position was open and unfilled for the majority of the 2017 second quarter. Furthermore, several new positions were added in 2018 due to the continued growth of the Company.

Utilities expense increased $46,000, or 13.2%, and $81,000, or 13.2% for the three and six months, respectively, ended June 30, 2018, compared to the same periods in 2017. This is due to an increase in electricity, water and sewer rates.

In June 2018, the Company recorded a loss on disposal of assets of $99,000 related to the write off of horse racing equipment.

Other operating expenses decreased $87,000, or 3.2% for the six months ended June 30, 2018, compared to the same periods in 2017. This is primarily due to a decline in repairs and maintenance expense and insurance costs.

Net i ncome for the three months ended June 30, 2018 and 2017 w as $725,000 and $717,000 , respectively. Net income for the six months ended June 30, 2018 and 2017 was $1,715,000 and $1,230,000.

Contingencies:

The Company entered into a Cooperative Marketing Agreement (the “CMA”) with the Shakopee Mdewakanton Sioux Community which became effective on June 4, 2012, and was amended in January 2015, 2016, 2017 and 2018, and will expire December 31, 2022. The CMA contains specific covenants that, if breached, would trigger an obligation to repay a specified amount related to these covenants. At this time, management believes that the likelihood that the breach of a covenant would occur and that the Company would be required to pay the specified amount related to a covenant is remote.

The Company continues to analyze the feasibility of various options related to the development of our underutilized land. The Company may incur substantial costs during the feasibility and predevelopment process, but the Company believes available funds are sufficient to cover the near-term costs. See Liquidity and Capital Resources for more information on liquidity and capital resource requirements.

Liquidity and Capital Resources:

Net cash provided by operating activities for the six months ended June 30, 2018 was $ 10,929,000, due in part to net income of $1,715,000, depreciation of $1,236,000, and stock-based compensation and 401(k) match totaling $481,000. The Company also experienced an increase in accounts payable of $1,262,000, deferred revenue of $1,200,000, and purse amounts due to Minnesota horsemen organizations totaling $4,683,000 .

Net cash provided by operating activities for the six months ended June 30, 2017 was $9,804,000 due in part to net income of $1,230,000, depreciation of $1,223,000, and stock-based compensation and 401(k) match of $241,000. The Company also experienced an increase in accounts payable and deferred revenue of $2,537,000 and purse amounts due to Minnesota horsemen organizations totaling $3,927,000.

Net cash used in investing activities for the first six months of 2018 and 2017 was $ 1,826,000 and $2,732,000, respectively, primarily for building remodel projects. The 2018 amount was partially offset by a decrease in notes receivable.

Net cash used in financing activities during the first six months of 2018 and 2017 was $105,000 and $285,000, respectively, relating to cash dividends paid to shareholders, partially offset by proceeds from purchases of stock through the Employee Stock Purchase Plan and the exercise of stock options.

The Company has a general credit and security agreement with a financial institution, which provides a revolving credit line of up to $6,000,000. This agreement was amended on September 30, 2017 to extend the maturity date to September 30, 2018. The line of credit is collateralized by all receivables, inventory, equipment, and general intangibles of the Company. As of June 30, 2018, there were no borrowings under this agreement

The Company’s cash and cash equivalent balance at June 30, 2018 was $13.5 million compared to $8.9 million at December 31, 2017. The Company believes that unrestricted funds available in its cash accounts, amounts available under its revolving line of credit, along with funds generated from operations, will be sufficient to satisfy its liquidity and capital resource requirements for regular operations, as well as predevelopment expenses during 2018. However, if the Company engages in any significant real estate development, additional financing would more than likely be required.

Critical Acc ounting Policies and Estimates:

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) 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 GAAP . 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.

Our significant accounting policies are included in Note 1 to our consolidated financial statements in our 2017 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 60.7% of our total assets at June 30, 2018 . We use 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 undiscounted future net cash flows. If the sum of the related expected future net cash flows is less than the carrying value, management would determine how much of an impairment loss would be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset. We have determined that no impairment of these assets exists at June 30, 2018.

Stock-Based Compensation – Accounting guidance requires measurement of services provided in exchange for a share-based payment based on the grant date fair market value. We u se our judgment in determining the assumptions used to determine the fair value of equity instruments granted using a Black-Scholes model. The Company also grants Long Term Incentive Awards under the Long Term Incentive Plan (the “LTI Plan”) under which Company executive officers and other senior executives have the opportunity to receive a payout of shares of the Company’s common stock at the end of a three-year period. Management must make a number of assumptions to estimate future results to determine the compensation expense of the LTI Plan.

Commitments and Contractual Obligations:

T he Company entered into the CMA with the SMSC o n June 4, 2012, that was amended in January 2015, 2016, 2017, and 2018 and expires December 31, 2022. See “Cooperative Marketing Agreement” below.

Legislation:

Minimum Wage Legislation

Minnesota legislation enacted into law in 2014 increased the minimum wage that must be paid to most company employees from $7.25 to $8.00 on August 1, 2014, from $8.00 to $9.00 per hour on August 1, 2015, and from $9.00 to $9.50 per hour on August 1, 2016. Starting January 1, 2018, the minimum wage will increase at the beginning of each year by the rate of inflation with a maximum increase of up to 2.5% per year. The minimum wage for 2018 is $9.65 per hour. Prior to August 1, 2014, the Company employed a large number of individuals who received an hourly wage equal to or slightly above $7.25 per hour. As a result, this legislation had an adverse financial impact on us in 2014 through 2017 and will continue to have an adverse impact on us. We have implemented measures to partially mitigate the impact of this increase by raising our prices and reducing our employee count. These measures could themselves have an adverse effect because either higher prices or diminished service levels may discourage customers from visiting the Racetrack.

Cooperative Marketing Agreement:

On June 4, 2012, the Company entered into the CMA with the SMSC. The primary purpose of the CMA is to increase purses paid during live horse racing at Canterbury Park’s Racetrack in order to strengthen Minnesota’s thoroughbred and quarter horse industry. Under the CMA, as amended, this is achieved through “Purse Enhancement Payments to Horsemen” paid directly to the MHBPA. These payments have no direct impact on the Company’s consolidated financial statements or operations.

Under the terms of the CMA, as amended, the SMSC paid the horsemen $7.4 million and $ 7.2 million in the first three months of 201 8 and 201 7 , respectively, primarily for purse enhancements for the live race meets in the respective years.

Under the CMA, as amended, SMSC also agreed to make “Marketing Payments” to the Company relating to joint marketing efforts for the mutual benefit of the Company and SMSC, including signage, joint promotions, player benefits and events. Under the CMA, the SMSC paid the Company $ 1,620,000 and $1, 581,000 for marketing purposes during the six months ended June 30, 201 8 and 2017.



Year	Purse Enhancement Payments to Horsemen		1	Marketing Payments to Canterbury Park
2019		$ 7,380,000			$ 1,620,000
2020		7,380,000			1,620,000
2021		7,380,000			1,620,000
2022		7,380,000			1,620,000

1 Includes $100,000 each year payable to various horsemen associations

The amounts earned from the marketing payments are recorded as a component of other revenue and the related expenses are recorded as a component of advertising and marketing expense and depreciation in the Company’s consolidated statements of operations. For the three and six months ended June 30, 2018 , the Company recorded $ 572,000 and $678,000 in other revenue and incurred $ 515,000 and $565,000 in advertising and marketing expense and $ 57,000 and $113,000 in depreciation related to the SMSC marketing funds . For the three and six months ended June 30, 2017, the Company recorded $468,000 and $625,000 in other revenue and incurred $458,000 and $558,000 in advertising and marketing expense and $57,000 and $113,000 in depreciation related to the SMSC marketing payment.

Under the CMA, the Company has agreed for the 10-year term of the CMA expiring December 31, 2022 that it will not promote or lobby the Minnesota legislature for expanded gambling authority and will support the SMSC’s lobbying efforts against expanding gambling authority.

Redevelopment Agreement:

As noted above in note 11 of Notes to Financial Statements, on August 10, 2018, the City of Shakopee, the City of Shakopee Economic Development Authority, and the Company entered into a Redevelopment Agreement in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. Under the Redevelopment Agreement, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure and the City of Shakopee agreed that a portion of the tax revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing these improvements. The Company expects to finance its improvements under the Redevelopment Agreement with funds from its current operating resources and existing credit facility.

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, we may make forward-looking statements concerning possible or anticipated future financial performance, prospective business activities or plans that are typically preceded by words such as “believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties that could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. These risks and uncertainties include, but are not limited to:

material fluctuations in attendance at the Racetrack;

decline in interest in wagering on horse races at the Racetrack, at other tracks, or on unbanked card games offered at the Card Casino;

competition from other venues offering unbanked card games or other forms of wagering;

greater-than-anticipated expenses or a lower-than-anticipated return on the development of our underutilized land, including our joint venture to develop a luxury apartment complex;

competition from other sports and entertainment options;

increases in compensation and employee benefit costs;

increases in the percentage of revenues allocated for purse fund payments;

higher-than-expected expenses related to new marketing initiatives;

the impact of wagering products and technologies introduced by competitors;

legislative and regulatory decisions and changes, including decision or actions related to sports betting that would adversely affect our betting environment;

any legal, judicial, legislative or regulatory action or event that would adversely affect our ten-year Cooperative Marketing Agreement with the Shakopee Mdewakanton Sioux Community, which enhances the purses for daily racing at Canterbury Park and supports cooperative marketing programs for the two organizations, benefiting the stability and quality of live horse racing;

the success of the Company’s real estate development;

the fact that under the Redevelopment Agreement with the City of Shakopee, the Company has agreed to undertake a number of specific infrastructure improvements within the TIF District, and the funding that Canterbury Park will be paid as reimbursement under the TIF program for these improvements is not guaranteed, but will depend in part on future tax revenues generated from the developed property;

the general health of the gaming sector; and

other factors that are beyond our ability to control or predict.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISC LOSURES ABOUT MARKET RISK

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

ITEM 4: CONTROLS AND P ROCEDURES


(a)	Evaluation of Disclosure Controls and Procedures:

	The Company’s President and Chief Executive Officer , Randall D. Sampson and Chief Financial Officer, Robert M. Wolf, 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 repor t. 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 have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) that occurred during our fiscal quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION


Item 1.		Legal Proceedings

		Not Applicable.

Item 1A.		Risk Factors


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

	(a)	Not Applicable.
	(b)	Not Applicable.
	(c)	On December 17, 2007, the Company’s Board of Directors adopted a plan that authorized the repurchase of up to 250,000 shares of the Company’s common stock pursuant to Exchange Act Rule 12b-18 in open market transactions, block purchases of privately negotiated transactions (the “2008 Stock Repurchase Plan”). From its adoption until August 13, 2012, the Company repurchased 216,543 shares under the 2008 Stock Repurchase Plan and, on such date, authorized the repurchase of an additional 100,000 shares of the Company’s common stock. The Company did not repurchase any shares during the second quarter of 2018. The maximum number of shares that may yet be purchased under the above authorizations is 128,781 as of June 30, 2018.

Item 3.		Defaults upon Senior Securities

		Not Applicable.

Item 4.		Mine Safety Disclosures

		Not Applicable.

Item 5.		Other Information

		On August 8, 2018, the City Council of the City of Shakopee, Minnesota approved a Contract for Private Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority (“Shakopee EDA”) and Canterbury Park Holding Corporation and its subsidiary Canterbury Development LLC in connection with a Tax Increment Financing District (“TIF District”) that the City had approved in April 2018. The City of Shakopee, the Shakopee EDA and the Company entered into the Redevelopment Agreement on August 10, 2018. Under the Redevelopment Agreement, the Company agreed to undertake a number of specific infrastructure improvements within the TIF District and the City of Shakopee agreed that a portion of the tax revenue generated from the developed property will be paid to the Company to reimburse it for its expense in constructing these improvements. The total estimated cost of TIF eligible improvements borne by the Company is $23,336,500. A detailed Schedule of the Public Improvements under the Redevelopment Agreement, the timeline for their construction and the source and amount of funding is set forth on Exhibit C of the Redevelopment Agreement. The total amount of funding that Canterbury will be paid as reimbursement under the TIF program for these improvements is not guaranteed, however, and will depend in part on future tax revenues generated from the developed property . A more detailed description of the Redevelopment Agreement is set forth in Note 11 of Notes to F inancial S tatements, which is incorporated herein by reference

Item 6.		Exhibits

	10.1	Contract for Private Development between City of Shakopee, Minnesota, Economic Development Authority for the City of Shakopee, Minnesota, Canterbury Development LLC, and Canterbury Park Holding Corporation effective August, 2018 .

	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	Press Release dated August 14, 2018 announcing 2018 Second Quarter Results.
	101	The following financial information from Canterbury Park Holding Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended June 30 , 201 8 , formatted in eXtensible Business Reporting Language XBRL: (i) Condensed Consolidated Balance Sheets as of June 30 , 201 8 and December 31, 201 7 , (ii) Condensed Consolidated Statements of Operations for the T hree and Six M onths ended June 30 , 201 8 and June 30 , 201 7 , (iii) Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30 , 201 8 and June 30 , 201 7 , and (iv) Notes to Financial Statements.

SIGNATURES

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 aut horized.


	Canterbury Park Holding Corporation


Dated: August 14, 2018	/s/ Randall D. Sampson


	Randall D. Sampson,
	President and Chief Executive Officer


Dated: August 14, 2018	/s/ Robert M. Wolf


	Robert M. Wolf ,
	Chief Financial Officer

CONTRACT

FOR

PRIVATE RE DEVELOPMENT

between

CITY OF SHAKOPEE, MINNESOTA ,

ECONOMIC DEVELOPMENT AUTHORITY

FOR THE CITY OF SHAKOPEE, MINNESOTA ,

CANTERBURY DEVELOPMENT LLC ,

and

CANTERBURY PARK HOLDING CORPORATION

Dated: August 10 , 2018

This document was drafted by:

KENNEDY & GRAVEN, Chartered (JAE)

470 U.S. Bank Plaza

200 South Sixth Street

Minneapolis, Minnesota 55402

(612) 337-9300

http://www.kennedy-graven.com

TABLE OF CONTENTS



		Page

PREAMBLE		1

ARTICLE I
Definitions

Section 1.1.	Definitions	3

ARTICLE II
Representations and Warranties

Section 2.1.	Representations by the Authority	7
Section 2.2.	Representations by the City	7
Section 2.3.	Representations and Warranties by the Master Developer	7

ARTICLE III
Tax Increment Financing Assistance

Section 3.1.	Status of Redevelopment Property	9
Section 3.2.	Environmental Conditions	9
Section 3.3.	City Improvements	9
Section 3.4.	Financing for City Improvements and County Improvements	9
Section 3.5.	Developer Improvements	10
Section 3.6.	Acquisition of Right-of-Way	11
Section 3.7.	Reimbursement of Certain Master Developer Costs	11
Section 3.8.	Issuance of TIF Note and Principal Advances	11
Section 3.9.	No Business Subsidy	13
Section 3.10.	Payment of Authority and City Costs	13
Section 3.11.	Expenditures Outside TIF District	13
Section 3.12	Redevelopment of Blighted Property within TIF District	13

ARTICLE IV
Construction of Developer Improvements

Section 4.1.	Construction of Developer Improvements	15
Section 4.2.	Construction Plans	15
Section 4.3.	Commencement and Completion of Construction	16
Section 4.4.	Certificate of Completion	16
Section 4.5.	Five-Year Rule	16

ARTICLE V
Insurance

Section 5.1.	Insurance	17
Section 5.2.	Subordination	17


ARTICLE VI
Tax Increment; Taxes

Section 6.1.	Right to Collect Delinquent Taxes	18
Section 6.2.	Reduction of Taxes	18
Section 6.3	Petition to Reduce Tax	18

ARTICLE VII
Other Financing

Section 7.1.	Generally	19
Section 7.2.	Authority’s Option to Cure Default on Mortgage	19

ARTICLE VIII
Prohibitions Against Assignment and Transfer; Indemnification

Section 8.1.	Representation as to Redevelopment	20
Section 8.2.	Prohibition Against Master Developer’s Transfer of Property and
	Assignment of Agreement	20
Section 8.3.	Release and Indemnification Covenants	21

ARTICLE IX
Events of Default

Section 9.1.	Events of Default Defined	23
Section 9.2.	Remedies on Default	23
Section 9.3.	No Remedy Exclusive	24
Section 9.4.	No Additional Waiver Implied by One Waiver	24
Section 9.5.	Attorney Fees	24

ARTICLE X
Additional Provisions

Section 10.1.	Conflict of Interests; Representatives Not Individually Liable	25
Section 10.2.	Equal Employment Opportunity	25
Section 10.3.	Restrictions on Use	25
Section 10.4.	Titles of Articles and Sections	25
Section 10.5.	Notices and Demands	25
Section 10.6.	Counterparts	25
Section 10.7.	Recording	26
Section 10.8.	Amendment	26
Section 10.9.	Authority and City Approvals	26
Section 10.10	Joint and Several Obligations	26
Section 10.11.	Termination of Agreement	26

SIGNATURES	S-1

EXHIBIT A	Redevelopment Property	A-1
EXHIBIT B	Form of TIF Note	B-1

EXHIBIT C	Public Improvements	C-1
EXHIBIT D	Excerpt of Traffic Study Describing Public Improvements	D-1
EXHIBIT E	Developer Improvements Requirements	E-1
EXHIBIT F	Potential Phases of Redevelopment Project	F-1
EXHIBIT G	Concept Plan for Redevelopment Project	G-1
EXHIBIT H	Certificate of Completion	H-1
EXHIBIT I	Potential Expenditures Outside TIF District	I-1
EXHIBIT J	Consent of Canterbury Park Entertainment, LLC	J-1

CONTRACT FOR PRIVATE RE DEV ELOPMENT

THIS CONTRACT FOR PRIVATE RE DEVELOPMENT (the “ Agreement ” ) is made as of the 10 th day of August , 2018 , between the CITY OF SHAKOPEE, MINNESOTA , a statutory city organized and existing under the laws of the State of Minnesota (the “ City ” ) , the ECONOMIC DEVELOPMENT AUTHORITY FOR THE CITY OF SHAKOPEE, MINNESOTA, a public body corporate and politic under the laws of the State of Minnesota (the “ Authority ” ) , CANTERBURY DEVELOPMENT LLC , a Minnesota limited liability company ( “ Canterbury Development ” ), and CANTERBURY PARK HOLDING CORPORATION, a Minnesota corporation and the parent of Canterbury Development ( “ Canterbury Park Holding Corporation, ” and together with Canterbury Development, the “ Master Developer ” ) .

WITNESSETH:

WHEREAS, the Authority was created pursuant to Minnesota Statutes , Sections 469.090 through 469 .108 2 , as amended (the “ EDA Act ” ) and was authorized to transact business and exercise its powers by a resolution of the City Council of the City; and

WHEREAS, the City has undertaken a program to promote economic development and job opportunities and to promote the development and redevelopment of land which is underutilized within the City, and in this connection created the Minnesota River Valley Housing and Redevelopment Project No. 1 (the “ Project ” ) in an area (the “ Project Area ” ) located in the City pursuant to Minnesota Statutes, Sections 469.001 through 469 .047 , as amended (the “ HRA Act ” ); and

WHEREAS, by resolution dated April 4, 1995, the City Council of the City transferred control, authority , and operation of the Project to the Authority, which currently administers the Project, exercising the powers of a housing and redevelopment authority under the HRA Act, in accordance with the EDA Act ; and

WHEREAS, pursuant to the EDA Act and the HRA Act , the Authority is authorized to undertake certain activities to prepare real property for development and redevelopment by private enterprise; and

WHEREAS, the Master Developer or an affiliate owns certain property (the “ Redevelopment Property ” ) in the Project Area and has determined to redevelop, or cause to be redeveloped, the Redevelopment Property for housing, commercial/retail, hospitality and destination entertainment, and office space purposes as part of a multi - phased project (the “ Redevelopment Project ” ) ; and

WHEREAS, Canterbury Park Entertainment, LLC owns a portion of the property located within the TIF District (as defined below) and will provide a consent for this Agreement and the recording of a memorandum of this Agreement against its property in the form set forth in EXHIBIT J; and

WHEREAS, in conjunction with the Redevelopment Project, the Master Developer will undertake infrastructure improvements within the Project Area, including but not limited to the development of public streets, utilities, sidewalks, and other public infrastructure (the “ Developer Improvements ” ); and

WHEREAS, in conjunction with the Redevelopment Pro ject , the City will also undertake certain infrastructure improvements within or adjacent to the Project Area, including but not limited to public streets, utilities, sidewalks, and other public infrastructure (the “City Improvements”); and

WHEREAS, in order to achieve the objectives of the Housing and Redevelopment Plan (the “ Redevelopment Plan ” ) for the Project, the Authority is p repared to pay a portion of the costs related to the Developer Improvements and the City Improvements , in order to bring about development in accordance w ith the Plan and this Agreement ; and

WHEREAS, the Authority has established the Tax Increment Financing ( Redevelopment ) District No. 1 8 ( the “ TIF District ” ) pursuant to Minnesota Statutes, Sections 469.174 through 469.179 4 , as amended , made up of the area within the Project Area to be re dev eloped by the Master Developer ; and

WHEREAS, the Authority and the City believe that the development of the Redevelopment Property pursuant to and in general fulfillment of this Agreement, are in the vital and best interests of the City, will promote the health, safety, morals, and welfare of its residents, and will be in accord with the public purposes and provisions of the applicable State and local laws and requirements under which the Project has been undertaken and is being assisted.

NOW, THEREFORE, in consideration of the premises and the mutual obligations of the parties hereto, each of them does hereby covenant and agree with the other as follows:

(The remainder of this page is intentionally left blank.)

ARTICLE I

Definitions

Section 1.1. Definitions . In this Agreement, unless a different meaning clearly appears from the context:

“ Agreement ” means this Contract for Private Red evelopment , as the same may be from time to time modified, amended, or supplemented.

“ Authority ” means the Economic Development Authority for the City of Shakopee, Minnesota , a public body corporate and politic under the laws of the State .

“ Authority Representative ” means the Executive Director of the Authority, or any person designated by the Executive Director to act as the Authority Representative for the purposes of this Agreement.

“ Authorizing Resolution ” means the resolution of the Authority adopted by the Board of Commissioners of the Authority on August 8 , 2018 , approving this Agreement and authorizing the issuance of the TIF Note .

“ Available Tax Increment ” means, on each Payment Date, the Tax Increment attributable to the TIF District Property and paid to the Authority by the County in the six (6) months preceding the Payment Date after first deducting therefrom ten percent (10%) of the Tax Increment to be used to reimburse the Authority for administrative expenses. Available Tax Increment shall not include any Tax Increment if, as of any Payment Date, there is an uncured Event of Default under this Agreement. As long as the TIF Bonds are outstanding, Available Tax Increment will not include Pledged Tax Increment.

“ Business Day ” means any day except a Saturday, Sunday, legal holiday, a day on which the City is closed for business, or a day on which banking institutions in the City are authorized by law or executive order to close.

“ Business Subsidy Act ” means Minnesota Statutes, Sections 116J.993 to 116J.995, as amended.

“ Canterbury Development ” means Canterbury Development LLC, a Minnesota limited liability company, its successors and assigns.

“ Canterbury Park Holding Corporation ” means Canterbury Park Holding Corporation, a Minnesota corporation, its successors and assigns.

“ Certificate of Completion ” means the Certificate of Completion , in substantially the form attached hereto as EXHIBIT H , provided by the Authority Representative and the City Representative to the Master Developer , or the purchaser of any part, parcel, or unit of the Redevelopment Property , pursuant to Section 4.4 hereof .

“ City ” means the City of Shakopee, Minnesota , a statutory city organized and existing under the laws of the State .

“City Improvements” means the construction of infrastructure, including but not limited to the development of public streets, utilities, sidewalks, and other public infrastructure and related design, survey, and engineering work, and site preparation work performed by the City on the Redevelopment Property and listed under “City – TIF” and “City – Other Funds” in EXHIBIT C .

“ City Representative ” means the City Administrator of the City, or any person designated by the City Administrator to act as the City Representative for the purposes of this Agreement.

“ Construction Plans ” means the plans, specifications, drawings and related documents on the construction work to be performed by the Master Developer on the Redevelopment Property which (a) shall be as detailed as the plans, specifications, drawings and related documents which are submitted to the appropriate officials of the City for review and approval , and (b) shall include at least the following for each improvement project : (1) s treet plan and profile ; (2) utility plan and profile ; (3) erosion and sediment control plans; (4) typical street cross sections; ( 5 ) detail plans ; ( 6 ) landscape plan; and ( 7 ) such other plans or supplements to the foregoing plans as the Authority may reasonably request to allow it to ascertain the nature and quality of the proposed construction work.

“ County ” means Scott County, Minnesota.

“ County Improvements” means the construction of infrastructure, including but not limited to the development of public streets, utilities, sidewalks, and other public infrastructure and related design, survey, and engineering work, and site preparation work performed by the County and listed under “ County-TIF ” or “County – Other Funds” in EXHIBIT C .

“Deficiency Payments” means any payments made by the City on the TIF Bonds from revenues or funds of the City other than Tax Increment, that are required to be reimbursed with Tax Increment in accordance with Section 3.4(b) hereof.

“Developer Improvements Requirements” mean the Developer Improvements Requirements set forth in EXHIBIT E.

“Developer Improvements” means the construction of infrastructure, including but not limited to the development of public streets, utilities, sidewalks, and other public infrastructure and related design, survey, and engineering work, and site preparation work performed by the Master Developer on the Redevelopment Property in conjunction with the Redevelopment Project and listed under “Canterbury – TIF” in EXHIBIT C and described in EXHIBIT D .

“ EDA Act ” means Minnesota Statutes, Sections 469.090 through 469 .1082 , as amended.

“ Event of Default ” means an action by the Master Developer listed in Article IX hereof .

“ Holder ” means the owner of a Mortgage.

“ HRA Act ” means Minnesota Statutes, Sections 469.001 through 469 .047, as amended.

“ Master Developer ” means , collectively, Canterbury Development and Canterbury Park Holding Corporation, or their permitted successors and assigns.

“ Material Change ” means a change in construction plans that decrease the cost of the Developer Improvements by $1,000,000 or more .

“ Maturity Date ” means the later of (i) the date that the TIF Note has been paid in full or terminated in a ccordance with its terms; or (ii) the date that the TIF Bonds have been paid in full, redeemed or defeased in accordance with their terms .

“ Mortgage ” means any mortgage made by the Master Developer that is secured, in whole or in part, with the Redevelopment Property and that is a permitted encumbrance pursuant to the provisions of Article VIII hereof .

“Party” means a party to this Agreement.

“ Payment Date ” means each February 1 and August 1, commenci ng August 1, 20 20, on which principal of the TIF Note is paid.

“Pledged Tax Increment” means, on each Payment Date, the Tax Increment attributable to the TIF District Property and paid to the City by the County equal to one-half of one hundred and five percent (105%) of the principal of TIF Bo nds

due on the next two Payment Dates and one hundred and five percent (105%) of the interest due on TIF Bonds on the next Payment Date, plus any amounts required to reimburse the City for any Deficiency Payments made as set forth in Section 3.4(b) hereof.

“ Project ” means the Minnesota River Valley Housing and Redevelopment Project No. 1.

“ Project Area ” means the property within the Project, as described in the Redevelopment Plan.

“ Qualified Public Redevelopment Costs ” has the meaning provided in Section 3. 7 hereof.

“ Redevelopment Plan ” means the Redevelopment Plan for the Project.

“ Redevelopment Property ” means the real property legally described in EXHIBIT A attached hereto and owned by the Master Developer or an affiliate .

“ Redevelopment Project ” means the proposed multi-phased housing, commercial/retail, hospitality and destination entertainment, and office space project to be redeveloped on the Redevelopment Property as described in EXHIBIT F and EXHIBIT G attached hereto.

“ State ” means the S tate of Minnesota.

“ Tax Increment ” means that portion of the real property taxes that is paid with respect to the TIF District Property and that is remitted to the Authority as tax increment pursuant to the Tax Increment Act.

“ Tax Increment Act ” or “ TIF Act ” means the Tax Increment Financing Act, Minnesota Statutes , Sections 469.174 through 469.179 4 , as amended.

“ Tax Increment District ” or “ TIF District ” means Tax Increment Financing ( Red evelopment) District No. 1 8 , a re development tax increment financing district created by the City and the Authority.

“ Tax Increment Plan ” or “ TIF Plan ” means the Tax Increment Financing Plan for the TIF District approved by the City Council of the City on March 6, 2018 , and as it may be amended.

“ Tax Official ” means any County assessor, County auditor, County or State board of equalization, the commissioner of revenue of the State, or any State or federal district court, the tax court of the State, or the State Supreme Court.

“TIF District Property” means the property included in the TIF District, which includes the Redevelopment Property and the additional property listed in the TIF Plan.

“ TIF Note ” means a Tax Increment Revenue Note, substantially in the form attached hereto as EXHIBIT B , to be delivered by the Authority to the Master Developer in accordance with Section 3. 4 hereof.

“TIF Bonds” means the (i) City’s Taxable General Obligation Tax Increment Financing Bonds , expected to be issued in 2019 in the amount sufficient to provide $ 9,630,000 for financing City Improvements ( net of capitalized interest, costs of issuance of the bonds, underwriter’s discount, and bond discount (if any) ) ; (ii) any bonds or obligations issued to refund the TIF Bonds (including, in the case of an interfund loan, any obligation to refinance such loan through issuance of an obligation to third parties).

“ Transfer ” has the meaning set forth in Section 8.2(a) hereof.

“ Unavoidable Delays ” means delays beyond the reasonable control of the Party seeking to be excused as a result thereof which are the direct result of strikes, other labor troubles, prolonged adverse weather or acts of God, fire or other casualty to the Developer Improvements , litigation commenced by third parties which, by injunction or other similar judicial action, directly results in delays, or acts of any federal, state or local governmental unit (other than the Authority or City in exercising their rights under this Agreement), including without limitation condemnation or threat of condemnation of any portion of the Redevelopment Property , which directly result in delays. Unavoidable Delays shall not include delays experienced by the Master Developer in obtaining permits or governmental approvals necessary to enable construction of the Developer Improvements by the dates such construction is required under Section 4.3 hereof , so long as the Construction Plans have been approved in accordance with Section 4.2 hereof.

(The remainder of this page is intentionally left blank.)

ARTICLE II

Representations and Warranties

Section 2.1. Representations by the Authority .

(a) The Authority is an economic development authority duly organized and existing under the laws of the State. Under the provisions of the EDA Act and the HRA Act, the Authority has the power to enter into this Agreement and carry out its obligations hereunder.

(b) The Authority will use its best efforts to facilitate development of the Developer Improvements , including but not limited to cooperating with the Master Developer in obtaining necessary administrative and land use approvals and construction financing pursuant to Section 7.1 hereof.

(d) The activities of the Authority are undertaken for the purpose of fostering the re development of certain real property in the City , which will create new tax base in the City and create employment opportunities in the City .

Section 2.2. Representations by the City .

(a) The City is a statutory city organized and existing under the Constitution and the laws of the State. Under the provisions of the HRA Act, the City has the power to enter into this Agreement and carry out its obligations hereunder.

(b) The City will construct the City Improvements pursuant to the provisions of this Agreement.

( c ) The activities of the City are undertaken for the purpose of fostering the re development of certain real property in the City , which will create new tax base in the City and create housing and employment opportunities in the City.

Section 2. 3 . Representations and Warranties by the Master Developer . The Master Developer represents and warrants that:

(a) Canterbury Development is a limited liability company which is duly organized and in good stand ing under the laws of the State; Canterbury Development is not in violation of any provisions of its articles of organization or bylaws; Canterbury Development is duly authorized to transact business within the State and has power to enter into this Agreement ; and Canterbury Development has duly authorized the execution, delivery, and performance of this Agreement by proper action of its respective officers, directors , managers, governors or members (as applicable) .

(b) Canterbury Park Holding Corporation is a corporation which is duly organized and in good standing under the laws of the State; Canterbury Park Holding Corporation is not in violation of any provisions of its articles of incorporation or bylaws; Canterbury Park Holding Corporation is duly authorized to transact business within the State and has power to enter into this Agreement; and Canterbury Park Holding Corporation has duly authorized the execution, delivery, and performance of this Agreement by proper action of its respective officers, directors, managers, governors or members (as applicable).

( d ) T he Master Developer will construct and pay for the Developer Improvements in accordance with the terms of this Agreement, the Redevelopment Plan and all local, S tate , and federal laws and regulations (including, but not limited to, environmental, zoning, building code , and public health laws and regulations).

( e ) The Master Developer has received no notice or communication from any local, S tate or federal official that the activities of the Master Developer or the Authority in the Project Area may be or will be in violation of any environmental law or regulation (other than those notices or communications of which the Authority is aware). The Master Developer is aware of no facts the existence of which would cause it to be in violation of or give any person a valid claim under any local, state or federal environmental law, regulation or review procedure.

( f ) The Master Developer will prepare and provide to the City the Construction Plans, will obtain or cause to be obtained, in a timely manner, all required permits, licenses and approvals, and will meet, in a timely manner, all requirements of all applicable local, state and federal laws and regulations which must be obtained or met before the Developer Improvements may be lawfully constructed.

( g ) Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement is prevented, limited by or conflicts with or results in a breach of, the terms, conditions or provisions of any corporate restriction or any evidences of indebtedness, agreement or instrument of whatever nature to which the Master Developer is now a Party or by which it is bound, or constitutes a default under any of the foregoing, which default or breach might prevent the Master Developer from performing its obligations under this Agreement.

( h ) The Master Developer shall promptly advise the Authority in writing of all litigation or claims affecting any part of the Developer Improvements and all written complaints and charges made by any governmental authority materially affecting the Developer Improvements or materially affecting Master Developer or its business which may delay or require changes in construction of the Developer Improvements .

( i ) The proposed development by the Master Developer hereunder would not occur but for the tax increment financing assistance being provided by the Authority hereunder.

( j ) Th e Master Developer will cause the Redevelopment Project to be constructed by secondary developers outside of the purview of this Agreement.

(The remainder of this page is intentionally left blank.)

ARTICLE III

Tax Increment Financing Assistance

Section 3.1. Status of Redevelopment Property . As of the date of this Agreement, t he Master Developer or an affiliate owns the Redevelopment Property . Neither the Authority nor the City has any obligation to acquire the Redevelopment Property .

Section 3.2. Environmental Conditions .

(a) The Master Developer ackno wledges that neither the Authority nor the City make s any representations or warranties as to the condition of the soils on the Redevelopment Property or the fitness of the Redevelopment Property for construction of the Developer Improvements or any other purpose for which the Master Developer may make use of such property, and that the assistance provided to the Master Developer under this Agreement neither implies any responsibility by the Authority or the City for any contamination of the Redevelopment Property nor imposes any obligation on such parties to participate in any cleanup of the Redevelopment Property .

(b) Without limiting its obligations under Section 8.3 hereof the Master Developer , jointly and severally, further agrees that it will indemnify, defend, and hold harmless the Authority, the City, and their governing body members, officers, and employees, from any claims or actions arising out of the presence, if any, of hazardous wastes or pollutants existing on or in the Redevelopment Property , unless and to the extent that such hazardous wastes or pollutants are present as a result of the actions or omissions of the indemnitees. Nothing in this S ection will be construed to limit or affect any limitations on liability of the City or Authority under State or federal law, including without limitation Minnesota Statutes , Sections 466.04 and 604.02.

Section 3. 3 . City Improvements . Subject to Unavoidable Delays, t he City will construct the City Improvements listed under “City – TIF” and “City – Other Funds” in EXHIBIT C. The City will also pay the County for the County Improvements listed under “ County-TIF ” in EXHIBIT C.

Section 3.4. Financing for City Improvements and County Improvements .

(a) Generally . The City will issue tax-exempt TIF Bonds in an amount that provides proceeds of at least $ 9,630,000 ( net of capitalized interest, costs of issuance of the bonds, underwriter’s discount, and bond discount (if any) ) to finance the costs of the City Improvements under “City – TIF” and “City – Other Funds” and the costs of the County Improvements listed under “ County-TIF ” as described in EXHIBIT C . The TIF Bonds will be issued upon satisfaction of the following conditions:


(i)	The City has determined in its sole discretion that the issuance of the TIF Bonds is feasible under market conditions at the time of issuance;
(ii)	The Master Developer has obtained and the City has approved one or more commitments for financing of the Shenandoah Drive project as described in EXHIBIT C, pursuant to Section 7.1 hereof;
(iii)	The financing for the housing development with approximately 300 market-rate housing units described in EXHIBIT F has closed; and
(iv)	There is no uncured Event of Default under this Agreement.

Notwithstanding the foregoing, the City shall have the option to delay issuance of any TIF Bonds temporarily or for as long as the City is prohibited from issuing the TIF Bonds pursuant to changes in federal or State law enacted after the date of this Agreement.

The City may , in its sole discretion , finance the City Improvements and the County Improvements listed under

“ County-TIF ” as described in EXHIBIT C through the issuance of TIF Bonds to third parties or through an interfund loan, or any combination thereof, provided that any interfund loan will constitute TIF Bonds for purposes of this Agreement.

(b) Payments . The TIF Bonds will have a final maturity of February 1, 20 __ , will be callable at a date determined by the City and its municipal advisor to ensure reasonable interest rates on such bonds, and will be secured by a pledge of Pledged Tax Increment. To the extent Pledged Tax Increment is insufficient to pay principal of and interest on the TIF Bonds, the City shall make Deficiency Payments. Prior to making any payments on the TIF Note, the City shall reimburse itself for any Deficiency Payments from Available Tax Increment. The Master Developer will have no obligations with respect to the payment of principal or interest on the TIF Bonds.

(c) Financing Other Improvements . The City will use approximately $1,584,000 of its own funds to finance a portion of the changes to County Road 83 listed under “City – Other Funds” in EXHIBIT C .

Section 3.5. Developer Improvements .

(a) The Master Developer intends to construct the Developer I mprovements listed in EXHIBIT C on or before the timelines set forth in EXHIBIT C pursuant to the requirements set forth in Article IV hereof . The Shenandoah Drive and Barenscheer Boulevard projects l isted under “Canterbury TIF” i n EXHIBIT C must be completed. The Master Developer may request reimbursement for Qualified Public Redevelopment Costs (pursuant to Section 3.8(b) hereof) for each project listed below in the maximum amounts listed below .


Developer Improvements	TIF Cap
Shenandoah Drive & Barenscheer Boulevard (with right-of-way acquisition)	$16,236,500
Vierling Drive extension/Internal roads	$7,000,000
General Wayfinding	$100,000
Total Tax Increment	$23,336,500

If any portion of Available T ax I ncrement allocated to the Shenandoah Drive and Barenscheer Boulevard projects is not expended by the Master Developer, such funds will be available for the Authority to allocate such funds to the acquisition of right-of-way for the changes to County Road 83 described in EXHIBIT C.

(b) The Master Developer shall substantially complete the Developer Improvements required on Shenandoah Drive on or before December 31, 2019 , with the bituminous wear course to be completed by September 30, 2020 . The completion of the Developer Improvements required on Shenandoah Drive is critical for the adjacent housing project to open in a timely fashion. If the Master Developer does not commence construction of the Developer Improvements required on Shenandoah Drive on or before December 15 , 201 8 , the Master Developer agrees to enter into a petition and waiver agreement with the City within thirty (30) days of notice by the City stating that the Master Developer will agree to pay 100% of the costs of the Developer Improvements require d on Shenandoah Drive through a special assessment against the Redevelopment Property and the City will construct such improvements.

(c) The Master Developer shall substantially complete the Developer Improvements required on Barenscheer Boulevard on or before December 31, 202 0 , with the bituminous wear course to be completed by September 30, 2021 . If the Master Developer does not commence construction of the Developer Improvements required on Barenscheer Boulevard on or before May 31, 2020 , the Master Developer agrees to enter into a petition and waiver agreement with the City within thirty (30) days of notice by the City stating that the Master Developer will agree to pay 100% of the costs of the Developer Improvements required on Barenscheer Boulevard through a special assessment against the Redevelopment Property and the City will construct such improvements.

(d) It shall not be a default under this Agreement if the Master Developer does not undertake the Vierling Drive extension/internal roads project.

Section 3.6. Acquisition of Right-of-Way . The City will negotiate with SanMar re garding acquisition of right-of- way .

Section 3. 7 . Reimbursement of Certain Master Developer Costs . The Master Developer shall undertake all necessary design, survey, and engineering work , acquisition of right-of-way, site preparation, and installation of public infrastructure related to the construction of the Developer Improvements . In order to make the development of the Developer Improvements economically feasible, the Authority shall reimburse the Master Developer for all necessary design, survey and engineering work, acquisition of right-of-way, site preparation, the portion of the cost of demolition of barns specifically related to construction of Developer Improvements, and installation of public infrastructure ( the “Qualified Public Redevelopment Costs”) in the maximum amount of $ 23,336,500 . Qualified Public Redevelopment Costs shall be reimbursed in the maximum amounts listed in Section 3.5(a) .

Section 3. 8 . Issuance of TIF Note and Principal Advances .

(a) Terms. In order to reimburse the Master Developer for the Qualified Public Redevelopment Costs related to constructing the Developer Improvements on the Redevelopment Property , the Authority shall issue and Master Developer shall purchase the TIF Note in the maximum principal amount of $ 23,336,500 , substantially in the form attached hereto as EXHIBIT B . The Authority and the Master Developer agree that the TIF Note shall be issued in consideration of the Master Developer paying the Qualified Public Redevelopment Costs . Before delivery of the TIF Note , the Master Developer shall have:


(i)	submitted the Construction Plans for the Shenandoah Drive project to the Authority and obtained approval for the Construction Plans from the Authority;
(ii)	submitted and obtained Authority approval of financing in accordance with Section 7.1 hereof;
(iii)	delivered to the Authority written evidence in a form satisfactory to the Authority that the Master Developer has paid Qualified Public Redevelopment Costs in at le ast the principal amount of $1,000,000; and
(iv)	delivered to the Authority an investment letter in a form reasonably satisfactory to the Authority.

(b) Principal Advances . Following the satisfaction of the requirements in Section 3. 8 (a) hereof , and on any date , the Master Developer may request the Authority enter an advance of principal under the TIF Note (a “ Principal Advance ” ) on the ledger of such advances maintained by the r egistrar (the “ Principal Advance Ledger ” ), by submitting to the Authority a certificate (the “ Principal Advance Certificate ” ) signed by the Master Developer’s duly authorized representative, containing the following: (i) a statement that each cost identified in the Principal Advance Certificate is a Qual ified Public Redevelopment Cost reimbur sable pursuant to Section 3. 7 hereof and that no part of such cost has been included in any previous Principal Advance Certificate; (ii) evidence that each identified Qualified Public Redevelopment Cost has been paid or incurred by or on behalf of the Master Developer ; (iii) a certification from the City Engineer that the Developer Improvements for which reimbursement is requested have been approved by the City and have been completed based on the requirements of EXHIBIT D and EXHIBIT E ; (i v ) a statement that no uncured Event of Default by the Master Developer has occurred and is continuing under th is Agreement ; (v) a statement describing the type and amount of Qualified Public Redevelopment Costs that were expended outside the TIF District, if any; and (v i ) a statement that the expenditures for which reimbursement is requested complies with Section 4.5 hereof . The Master Developer may submit one (1) Principal Advance Certificate per month to the Authority.

the reasons why the Principal Advance Certificate is not acceptable and requesting such further documentation or clarification as the Authority may reasonably require. Failure by the Authority to notify the Master Developer of any objections within thirty ( 30 ) days after receipt of the Principal Advance Certificate will be deemed acceptance thereof.

(c) Payment on TIF Note Solely from Available Tax Increment . Principal and interest payments on the TIF Note shall be payable each Payment Date solely with Available Tax Increment. The Master Developer understands and acknowledges that the City makes no representations or warranties regarding the amount of Available Tax Increment, or that revenues pledged to the TIF Note will be sufficient to pay the principal of the TIF Note . The Master Developer further understands and acknowledges that the TIF Note is subordinate to the City’s TIF Bonds. Therefore, Available Tax Increment will first be used by the City to provide debt service coverage equal to one hundred and five percent (105%) of the principal of and interest on the TIF Bonds and to reimburse the City for any Deficiency Payments. The City will only make payments on the TIF Note in the amount of the remaining Available Tax Increment.

( d ) Termination of R ight to TIF Note . Notwithstanding anything to the contrary in this Agreement, if the conditions for delivery of the TIF Note set forth in Section 3.8(a) are not met by August 9 , 2023 , the Authority may terminate this Agreement by ten (10) days ’ written notice to the Master Developer . Thereafter neither Party shall have any obligations or liability to the other hereunder, except that any obligations of the Master Developer under Sections 3. 11 and 8.3 hereof survive such termination.

( e ) Qualifications. The Master Developer understands and acknowledges that the Authority makes no representations or warranties regarding the amount of Available Tax Increment, or that revenues pledged to the TIF Note will be sufficient to pay the principal of the TIF Note . Any estimates of Tax Increment prepared by the Authority or its financial advisors in connection with the TIF District or this Agreement are for the benefit of the Authority, and are not intended as representations on which the Master Developer may rely. If the Qualified Public Redevelopment Costs exceed the principal amount of the TIF Note , such excess i s the sole responsibility of Master Developer .

Section 3. 9 . No Business Subsidy . Minn esota Statutes, Section 116J.993, subd ivision 3(17) provides an exception from the Business Subsidy Act for r edevelopment when the recipient’ s investment in the purchase of the site and in site preparation is seventy percent (70%) or more of the assessor ’s current year’ s estimated market value.

In order to use this exception, the Master Developer warrants and represents that its investment in the purchase of the Red evelopment P roperty and the site preparation on such Red evelopment P roperty (net of any portion of such costs to be reimbursed with tax increment or any other subsidies provided by the City or Authority ) will equal at least seventy percent ( 70% ) of the County assessor’s estimated market value for the Red evelopment P roperty for the 2018 assessment year, calculated as follows:

Development property cost $ 0.00

Plus Estimated cost of site preparation $ 3 5, 0 72,262.00

Equals land cost and site preparation $ 3 5, 0 72,262.00

2018 Assessor ’ s Estimated Fair Market Value

of Red evelopment P roperty $ 15,194, 5 90 .00

$ 3 5, 0 72,262.00 (acquisition and site preparation cost) less $ 23,336,500 (amount of financial assistance provided by City for acquisition and site preparation), equals $ 11 , 7 35,762 which is 7 7 % of $ 15,194, 5 90 (assessor’ s current estimated fair market value)

Therefore, the Master Developer is not required to comply with the requirements of the Business Subsidy Act.

Section 3. 1 0 . Payment of Authority and City Costs . T he Master Developer has deposited with the Authority $40 , 152.88 to pay Administrative Costs of the City and the Authority. The City and the Authority have used such deposit to pay “ Administrative Costs, ” which term means out-of-pocket costs incurred by the City and the Authority, together with staff and consultant costs of the City and the Authority, all attributable to or incurred in connection with the negotiation and preparation of this Agreement, the TIF Plan, and other documents and agreements in connection with the establishment of the TIF District and re development of the Red evelopment Property, and not previously paid by the Master Developer . The Authority agrees to reimburse the Master Developer for the $40, 152.88 as part of the Qualified Public Redevelopment Costs. The Authority and the City will reimburse itself for all other Administrative Costs with Tax Increment. If the TIF District does not produce a sufficient amount of Tax Increment to pay the City and the Authority’s remaining Administrative Costs, the Master Developer shall pay any remaining Administrative Costs of the City and the Authority upon demand.

Section 3.1 1 . Expenditures Outside TIF District . The Master Developer, the City, and the Authority understand and acknowledge that no more than 25% of the Tax Increment may be used for expenditures for items outside the TIF District but within the Project Area. 10% of the Tax Increment has been set aside to pay the Authority’s administrative costs of the TIF District. The 15% of Tax Increment may be used by the City and the Master Developer for costs outside the TIF District. Attached as EXHIBIT I is a list of the potential expenditures that may be incurred outside the TIF District. The Master Developer, the City, and the Authority will work cooperatively to ensure that no more than 15% of costs reimbursed with Tax Increment are expended outside the TIF District.

Section 3.12. Redevelopment of Blighted Property within TIF District . The Parties understand and acknowledge that 90% of the Tax Increment generated by the TIF District must be used to ameliorate the conditions for which the TIF District was established. The Master Developer intends to remedy the blight within the TIF District through the de molition of existing structures , construction of other improvements , and incurring the costs described in Section 469.176, subd. 4j of the TIF Act . If such work in not commenced by August 9, 2022 (the “four-year rule date”), the City, the Authority, and the Master Developer will work cooperatively to find secondary developers to redevelop the blighted parcels that have not yet been improved.

(The remainder of this page is intentionally left blank.)

ARTICLE IV

Construction of Developer Improvements

Section 4.1. Construction of Improvements . The Master Developer agrees that it will construct the Developer Improvements on the Redevelopment Property in accordance with the approved Construction Plans and the Developer Improvement s Requirements and will operate and maintain, preserve and keep the Developer Improvements or cause the Developer Improvements to be maintained, preserved and kept with the appurtenances and every part and parcel thereof, in good repair and condition until acceptance and transfer of the Developer Improvements by the City .

Section 4.2. Construction Plans .

(a) Before commencing construction of the Developer Improvements , the Master Developer shall submit to the City and the Authority Construction Plans for the Developer Improvements that conform with the Developer Improvement s Requirements . The Construction Plans shall provide for the construction of the Developer Improvements and shall be in conformity with this Agreement, the Redevelopment Plan and all applicable State and local laws and regulations. The City and the Authority will approve the Construction Plans in writing if (i) the Construction Plans conform to all terms and conditions of this Agreement; (ii) the Construction Plans conform to the goals and objectives of the Redevelopment Plan; (iii) the Construction Plans conform to all applicable federal, state and local laws, ordinances, rules and regulations; (iv) the Construction Plans are adequate to provide for construction of the Developer Improvements ; (v) the Construction Plans do not provide for expenditures in excess of the funds available to the Master Developer for construction of the Developer Improvements ; and (vi) no Event of Default has occurred. No approval by the City or the Authority shall relieve the Master Developer of the obligation to comply with the terms of this Agreement, applicable federal, S tate and local laws, ordinances, rules and regulations, or to construct the Developer Improvements in accordance therewith. No approval by the City or the Authority shall constitute a waiver of an Event of Default. The City and the Authority shall notify the Master Developer of any rejection of the Construction Plans , and set forth in detail the reasons for the rejection, within twenty ( 20 ) days after the date the City and the Authority receive final plans from the Master Developer . If the City or the Authority rejects any Construction Plans in whole or in part, the Master Developer shall submit new or corrected Construction Plans within twenty ( 20 ) days after written notification to the Master Developer of the rejection. The provisions of this Section relating to approval, rejection and resubmission of corrected Construction Plans shall continue to apply until the Construction Plans have been approved by the City and the Authority. The City and the Authority ’ s approval shall not be unreasonably withheld. Said approval shall constitute a conclusive determination that the Construction Plans (and the Developer Improvements , constructed in accordance with said plans) comply to the City and the Authority ’ s satisfaction with the provisions of this Agreement relating thereto. The City (and as applicable, the State and the County) shall approve the Construction Plans pursuant to their customary approval process.

(b) If the Master Developer desires to make any Material Change in the Construction Plans or any component thereof after their approval by the City and the Authority, the Master Developer shall submit the proposed change to the City and the Authority for its approval. If the Construction Plans, as modified by the proposed change, conform to the requirements of this Section 4.2 with respect to such previously approved Construction Plans, the City and the Authority shall approve the proposed change and notify the Master Developer in writing of its approval. The City and the Authority shall notify the Master Developer of any rejection of the Construction Plans, and set forth in detail the reasons for the rejection, within twenty ( 20 ) days after the date the City and the Authority receive final plans from the Master Developer . The Authority’s approval of any such change in the Construction Plans will not be unreasonably withheld.

Section 4.3. Commencement and Completion of Construction . The Master Developer expects to commence construction of the Developer Improvements by December 31 , 20 18 and will be reimbursed for the costs of Developer Improvements incurred by no later than five years after the TIF District is certified ( August 9 , 2023) . Subject to Unavoidable Delays, the Master Developer shall complete the construction of the Developer Improvements no later than five years after the date the TIF District is certified . All work with respect to the Developer Improvements to be constructed or provided by the Master Developer on the Redevelopment Property shall be in conformity with the Construction Plans as submitted by the Master Developer and approved by the Authority and the City .

The Master Developer agrees for itself, its successors, and assigns, and every successor in interest to the Redevelopment Property , or any part thereof, that the Master Developer , and such successors and assigns, shall promptly begin and diligently prosecute to completion the development of the Redevelopment Property through the construction of the Developer Improvements thereon, and that such construction shall in any event be commenced and paid for within the period specified in this Section 4.3. After the date of this Agreement and until construction of the Developer Improvements has been completed, the Master Developer shall make reports, in such detail and at such times as may reasonably be requested by the Authority, as to the actual progress of the Master Developer with respect to such construction

Section 4.4. Certificate of Completion .

(a) Promptly after construction and acceptance of each of the Developer Improvements described in EXHIBIT C atta ched hereto as “Shenandoah Drive Construct,” “Barenscheer Blvd Construct,” and “Vierling Drive extension/Internal roads” in accordance with those provisions of the Agreement relating solely to the obligations of the Master Developer to construct the Developer Improvements , the Authority Representative will furnish the Master Developer with a Certificate of Completion as shown in EXHIBIT H attached hereto .

(b) If the Authority Representative shall refuse or fail to provide any certification in accordance with the provisions of this Section 4.4, the Authority Representative shall, within thirty ( 30 ) days after written request by the Master Developer , provide the Master Developer with a written statement, indicating in adequate detail in what respects the Master Developer has failed to construct the Developer Improvements in accordance with the provisions of the Agreement, or is otherwise in default, and what m easures or acts will be necessary, in the opinion of the Authority, for the Master Developer to take or perform in order to obtain such certification.

(c) The construction of the Developer Improvements shall be deemed to be complete upon a determination by the Authority Representative , in its reasonable discretion, that the Developer Improvements on the Redevelopment Property have been substantially completed in accordance with approved Construction Plans and the Developer Improvement s Requirements .

Section 4.5. Five-Year Rule . As of the date of this Agreement, the five-year rule date for the TIF District is August 9 , 2023 . The Secondary Developer acknowledges and understands that it must comply with Minnesota Statutes, Section 469.1763, subdivision 3, as amended, on or prior to such date. Principal Advances under Section 3.8(b) will not be made for any activities that do not comply with Minnesota Statutes, Section 469.1763, subdivision 3, as amended .

ARTICLE V

Insurance

Section 5.1. Insurance .

(a) The Master Developer will provide and maintain at all times during the process of constructing the Developer Improvements the insurance required by the Developer Improvement s Requirements .

(b) All insurance shall be taken out and maintained in responsible insurance companies selected by the Master Developer that are authorized under the laws of the State to assume the risks covered thereby. Upon request, the Master Developer will deposit annually with the Authority policies evidencing all such insurance, or a certificate or certificates or binders of the respective insurers stating that such insurance is in force and effect.

(c) The Master Developer agrees to notify the Authority and the City immediately in the case of damage exceeding $ 5 00,000 in amount to, or destruction of, the Developer Improvements or any portion thereof resulting from fire or other casualty. In such event the Master Developer will promptly repair, reconstruct, and restore the Developer Improvements to substantially the same or an improved condition or value as it existed prior to the event causing such damage and, to the extent necessary to accomplish such repair, reconstruction, and restoration, the Master Developer will apply the net proceeds of any insurance relating to such damage received by the Master Developer to the payment or reimbursement of the costs thereof.

The Master Developer shall complete the repair, reconstruction and restoration of the Developer Improvements , regardless of whether the net proceeds of insurance received by the Master Developer for such purposes are sufficient to pay for the same. Any net proceeds remaining after completion of such repairs, construction, and restoration shall be the property of the Master Developer .

(d ) The Master Developer , the City, and the Authority agree that all of the insurance provisions set forth in this Article V shall terminate upon t he conveyance of the Developer Improvements to the City .

Section 5.2. Subordination . Notwithstanding anything to the contrary herein, the rights of the Authority and the City with respect to the receipt and application of any insurance proceeds shall, in all respects, be subordinate and subject to the rights of any Holder under a Mortgage allowed pursuant to Article VII hereof .

(The remainder of this page is intentionally left blank.)

ARTICLE VI

Tax Increment; Taxes

Section 6.1. Right to Collect Delinquent Taxes . The Master Developer acknowledges that the Authority is providing substantial aid and assistance in furtherance of the R e development Project through the issuance of the TIF Note and the TIF Bonds . The Master Developer und erstands that the Tax Increment pledged to payment s on the TIF Note and the TIF Bonds are derived from real estate taxes on the Redevelopment Property , which taxes must be promptly and timely paid. To that end, the Master Developer agrees for itself, its successors and assigns, in addition to the obligation pursuant to statute to pay real estate taxes, that it is also obligated by reason of this Agreement to pay before delinquency all real estate taxes assessed against the Redevelopment Property and the Developer Improvements . The Master Developer acknowledges that this obligation creates a contractual right on behalf of the Authority to sue the Master Developer or its successors and assigns to collect delinquent real estate taxes and any penalty or interest thereon and to pay over the same as a tax payment to the county auditor. In any such suit, the Authority shall also be entitled to recover its costs, expenses and reasonable attorney fees.

Section 6.2. Reduction of Taxes . The Master Developer agrees that prior to the Maturity Date it will not cause a reduction in the real property taxes paid in respect of the Redevelopment Property through: (A) willful destruction of the Redevelopment Property or any part thereof (except for the planned demolition of barns, stable dormitories and related improvements designed to promote the redevelopment of the Redevelopment Property) ; or (B) willful refusal to reconstruct damaged or destroyed property. The Master Developer also agrees that it will not, prior to the Maturity Date, seek exemption from property tax for the Redevelopment Property or any portion thereof or transfer or permit the transfer of the Redevelopment Property to any entity that is exempt from real property taxes and state law (other than any portion thereof dedicated or conveyed to the City or the County in accordance with platting of the Redevelopment Property or for public improvements, right-of-way, or storm water ponding ), or apply for a deferral of property tax on the Redevelopment Property pursuant to any law.

Section 6.3. Petition to Reduce Tax . The Master Developer may seek through petition or other means to have the County Assessor ’ s e stimated m arket v alue for the Redevelopment Property reduced. Until the TIF Note and TIF Bonds are fully paid, such activity must be preceded by written notice from the Master Developer to the Authority indicating its intention to do so. Upon receiving such notice, or otherwise learning of the Master Developer ’s intentions, the Authority may suspend payments due under the TIF Note until the actual amount of the reduction is determined, whereupon the Authority will make the suspended payments less any amount that the Authority is required to repay the County as a result any reduction in market value of the Redevelopment Property . During the period that the payments are subject to suspension, the Authority may make partial payments on the TIF Note if it determines, in its sole and absolute discretion that the amount retained will be sufficient to cover any repayment which the County may require. The Authority’s suspension of payments on the TIF Note pursuant to this Section shall not be considered a default under Section 9.1 hereof.

(The remainder of this page is intentionally left blank.)

ARTICLE VII

Other Financing

Section 7.1. Generally . Before issuance of the TIF Note and the TIF Bonds , the Master Developer shall submit to the Authority or provide access thereto for review by Authority staff, consultants , and agents, evidence reasonably satisfactory to the Authority that Master Developer has available funds, or commitments to obtain funds, whether in the nature of mortgage financing, equity, grants, loans, or other sources sufficient for paying the cost of the constructing the Developer Improvements , provided that any lender or grantor commitments shall be subject only to such conditions as are normal and customary in the commercial lending industry.

Section 7.2. Authority ’ s Option to Cure Default on Mortgage . In the event that any portion of the Master Developer ’ s funds is provided through mortgage financing, and there occurs a default under any Mortgage authorized pursuant to this Article VII , the Master Developer shall cause the Authority to receive copies of any notice of default received by the Master Developer from the H older of such Mortgage. Thereafter, the Authority shall have the right, but not the obligation, to cure any such default on behalf of the Master Developer within such cure periods as are available to the Master Developer under the Mortgage documents.

(The remainder of this page is intentionally left blank.)

ARTICLE VIII

Prohibitions Against Assignment and Transfer; Indemnification

Section 8.1. Representation as to Redevelopment . The Master Developer represents and agrees that its purchase of the Redevelopment Property , and its other undertakings pursuant to the Agreement, are, and will be used, for the purpose of development of the Redevelopment Property and not for speculation in land holding.

Section 8.2. Prohibition Against Master Developer ’ s Transfer of Property and Assignment of Agreement . The Master Developer represents and agrees that prior to issuance of a Certificate of Completion for the Developer Improvements :

(a) Except only by way of security for, and only for, the purpose of obtaining financing necessary to enable the Master Developer or any successor in interest to the Redevelopment Property , or any part thereof, to perform its obligations wi th respect to undertaking the development contemplated under this Agreement, and any other purpose authorized by this Agreement, the Master Developer has not made or created and will not make or create or suffer to be made or created any total or partial sale, assignment, conveyance, or lease, or any trust or power, or transfer in any other mode or form of or with respect to this Agreement or the Redevelopment Property or any part thereof or any interest therein, or any contract or agreement to do any of the same, to any person or entity whether or not related in any way to the Master Developer (collectively, a “ Transfer ” ), without the prior written approval of the Authority and the City (whose approval will not be unreasonably withheld, subject to the standards described in paragraph (b) of this Section) unless the Master Developer rem ains liable and bound by this Agreement in which event the Authority ’ s approval and the City ’ s approval are not required. Any such Transfer shall be subject to the provisions of this Agreement. For the purposes of this Agreement, the term Transfer does not include acquisition of a controlling interest in Master Developer by another entity or merger of Master Developer with another entity.

(b) In the event the Master Developer , upon Transfer of the Redevelopment Property or any portion thereof , seeks to be released from its obligations under t his Agreement as to the portion of the Redevelopment Property th at is transferred or assigned , the Authority and the City shall be entitled to require, except as otherwise provided in the Agreement, as conditions to any such release that:


(i)	Any proposed transferee shall have the qualifications and financial responsibility, in the reasonable judgment of the Authority and the City, necessary and adequate to fulfill the obligations undertaken in this Agreement by the Master Developer as to the portion of the Redevelopment Property to be transferred.

(ii)

Any proposed transferee, by instrument in writing satisfactory to the Authority and the City shall, for itself and its successors and assigns, and expressly for the benefit of the Authority and the City, have expressly assumed all of the obligations of the Master Developer under this Agreement as to the portion of the Redevelopment Property and Developer Improvements to be transferred and agreed to be subject to all the conditions and restrictions to which the Master Developer is subject as to such portion; provided, however, that the fact that any transferee of, or any other successor in interest whatsoever to, the Redevelopment Property and Developer Improvements , or any part thereof, shall not, for whatever reason, have assumed such obligations or so agreed, and shall not (unless and only to the extent otherwise specifically provided in this Agreement or agreed to in writing by the Authority and the City) deprive the Authority or the City of any rights or remedies or controls with respect to the Redevelopment Property , the Developer Improvements or any part thereof or the construction of the Developer Improvements ; it being the intent of the parties as expressed in this Agreement that (to the fullest extent permitted at law and in equity and excepting only in the manner and to the extent specifically provided otherwise in this Agreement) no transfer of, or change with respect to, ownership in the Redevelopment Property , the Developer Improvements or any part thereof, or any interest therein, however consummated or occurring, and whether voluntary or involuntary, shall operate, legally, or practically, to deprive or limit the Authority or the City of or with respect to any rights or remedies on controls provided in or resulting from this Agreement with respect to the Redevelopment Property and Developer Improvements that the Authority or the City would have had, had there been no such transfer or change. In the absence of specific written agreement by the Authority and the City to the contrary, no such transfer or approval by the Authority and the City thereof shall be deemed to relieve the Master Developer , or any other Party bound in any way by this Agreement or otherwise with respect to the Redevelopment Property and Developer Improvements , from any of its obligations with respect thereto.

(iii)

Any and all instruments and other legal documents involved in effecting the transfer of any interest in this Agreement or the Redevelopment Property governed by this Article VIII, shall be in a form reasonably satisfactory to the Authority and the City.

In the event the foregoing conditions are satisfied then the Master Developer shall be released from its obligation under this Agreement, as to the portion of the Redevelopment Property that is transferred, assigned, or otherwise conveyed. The restrictions under this Section terminate upon issuance of the Certificate of Completion.

Section 8.3. Release and Indemnification Covenants .

(a) T he Master Developer releases from and covenants and agrees that the Authority, the City, and the governing body members, officers, agents, servants, and employees thereof (the “ Indemnified Parties ” ) shall not be liable for and agrees , jointly and severally, to indemnify and hold harmless the Indemnified Parties against any loss or damage to property or any injury to or death of any person occurring at or about or resulting from any defect in the Developer Improvements (until acceptance of the Developer Improvements by the City pursuant to the Developer Improvement s Requirements ) or the Redevelopment Property .

(b) Except for any willful misrepresentation or any willful or wanton misconduct or negligence of the Indemnified Parties, and except for any breach by any of the Indemnified Parties of their obligations under this Agreement, the Master Developer agrees to protect and defend the Indemnified Parties, now and forever, and further agrees to hold the aforesaid harmless from any claim, demand, suit, action, or other proceeding whatsoever by any person or entity whatsoever arising or purportedly arising from this Agreement, or the transactions contemplated hereby or the acquisition, construction, installation,

ownership, maintenance, and operation of the Developer Improvements (until acceptance of the Developer Improvements by the City pursuant to the Developer Improvement s Requirements) or the Redevelopment Property .

(c) T he Indemnified Parties shall not be liable for any damage or injury to the persons or property of the Master Developer or its officers, agents, servants, or employees or any other person who may be about the Developer Improvements (until acceptance of the Developer Improvements by the City pursuant to the Developer Improvement s Requirements ) or the Redevelopment Property .

(d) All covenants, stipulations, promises, agreements , and obligations of the Authority and the City contained herein shall be deemed to be the covenants, stipulations, promises, agreements, and obligations of such entity and not of any governing body member, officer, agent, servant, or employee of such entities in the individual capacity thereof.

(The remainder of this page is intentionally left blank.)

ARTICLE IX

Events of Default

Section 9.1. Events of Default Defined . The following shall be “ Events of Default ” under this Agreement and the term “ Event of Default ” shall mean, whenever it is used in this Agreement, any one or more of the follow ing events , after the non-defaulting P arty provides sixty (60) days’ notice to the defaulting Party of the event of default, but only if the event has not been cured within said 60 days or, if the event is by its nature incurable within sixty (60) days, the defaulting P arty does not, within such sixty (60) day period, provide assurances reasonably satisfactory to the Party providing notice of default that the event will be cured and will be cured as soon as reasonably possible :

(a) If the Master Developer , the City, or Authority fails to observe or perform any covenant, condition, obligation, or agreement on its part to be observed or performed under this Agreement.

(b) If the Holder of any Mortgage on the Redevelopment Property for which the Master Developer is the mortgagor or any improvements thereon, or any portion thereof, commences foreclosure proceedings as a result of default under th e applicable Mortgage documents.


(i)	file any petition in bankruptcy or for any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under the United States Bankruptcy Act or under any similar federal or State law; or
(ii)	make an assignment for benefit of its creditors; or
(iii)	fails to pay real estate taxes on the Redevelopment Property that it owns as they become due; or
(iv)	admit in writing its inability to pay its debts generally as they become due; or
(v)	be adjudicated a bankrupt or insolvent.

Notwithstanding the foregoing, it is expressly agreed that the failure of the Master Developer to commence the construction of Vierling Drive extension/Internal roads as set forth in Section 3.5 shall not be deemed an Event of Default.

Section 9.2. Remedies on Default . Whenever any Event of Default referred to in Section 9 .1 hereof occurs, the non-defaulting P arty may exercise its rights under this Section 9 .2 after providing sixty (60) days ’ written notice to the defaulting P arty of the Event of Default, but only if the Event of Default has not been cured within said sixty (60) days or, if the Event of Default is by its nature incurable within thirty (60) days, the defaulting P arty does not provide assurances reasonably satisfactory to the non-defaulting P arty that the Event of Default will be cured and will be cured as soon as reasonably possible:

(a) Suspend its performance under the Agreement until i t receives reasonably satisfactory assurances that the defaulting Party will cure its default and continue its performance under the Agreement.

(b) If Shenandoah Drive or Barenscheer Boulevard are not commenced and completed based on the timelines set forth in EXHIBIT C, the Authority and the City may c ancel and rescind or terminate this Agreement.

( c ) Upon a n Event of D efault by the Master Developer , the Authority may suspend payments under the TIF Note and decline to provide any further Principal Advances (as described in Section 3.8(b)) after the Event of Default has occurred until the Event of Default has been cured.

( d ) Take whatever action, including legal, equitable, or administrative action, which may appear necessary or desirable to collect any payments due under this Agreement, or to enforce performance and observance of any obligation, agreement, or covenant of the defaulting Party under this Agreement.

Section 9.3. No Remedy Exclusive . No remedy herein conferred upon or reserved to any Party is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order for a Party to exercise any remedy reserved to it, it shall not be necessary to give notice, other than such notice as may be required in this Article IX.

Section 9.4. No Additional Waiver Implied by One Waiver . In the event any agreement contained in this Agreement should be breached by a Party and thereafter waived by the non-defaulting Party , such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other concurrent, previous or subsequent breach hereunder.

Section 9.5. Attorney Fees . Whenever any Event of Default occurs and if the Authority or the City shall employ attorneys or incur other expenses for the collection of payments due or to become due or for the enforcement of performance or observance of any obligation or agreement on the part of the Master Developer under this Agreement, the Master Developer agrees that it shall, within ten ( 10 ) days of written demand by the Authority or the City , pay to the Authority or the City the reasonable fees of such attorneys and such other expenses so incurred by the Authority or the City .

(The remainder of this page is intentionally left blank.)

ARTICLE X

Additional Provisions

Section 10.1. Conflict of Interests; Representatives Not Individually Liable . The City, the Authority , and the Master Developer , to the best of their respective knowledge, represent and agree that no member, official, or employee of the City or Authority shall have any personal interest, direct or indirect, in the Agreement, nor shall any such member, official, or employee participate in any decision relating to the Agreement that affects his personal interests or the interests of any corporation, partnership, or association in which he, directly or indirectly, is interested. No member, official, or employee of the City or Authority shall be personally liable to the Master Developer , or any successor in interest, in the event of any default or breach by the City or the Authority or for any amount that may become due to the Master Developer or successor or on any obligations under the terms of the Agreement.

Section 10.2. Equal Employment Opportunity . The Master Developer , for itself and its successors and assigns, agrees that during the construction of the Developer Improvements provided for in the Agreement it will comply with all applicable federal, S tate, and local equal employment and non-discrimination laws and regulations.

Section 10.3. Restrictions on Use . The Master Developer agrees it shall not discriminate upon the basis of race, color, creed, sex or national origin in the sale, lease, or rental or in the use or occupancy of the Redevelopment Property or any improvements erected or to be erected thereon, or any part thereof.

Section 10. 4 . Titles of Articles and Sections . Any titles of the several parts, Articles, and Sections of the Agreement are inserted for convenience of reference only and shall be disregarded in construing or interpreting any of its provisions.

Section 10. 5 . Notices and Demands . Except as otherwise expressly provided in this Agreement, a notice, demand, or other communication under the Agreement by either Party to the other shall be sufficiently given or delivered if it is dispatched by registered or certified mail, postage prepaid, return receipt requested, or delivered personally, to the following addresses (or to such other addresses as either Party may notify the other):

To the Master Developer : Canterbury Development LLC

1100 Canterbury Road South

Shakopee, MN 55379

Attn: Randy Sampson, President and CEO

To the City: City of Shakopee

485 Gorman Street

Shakopee, MN 55379

Attn: City Administrator

To the Authority: Shakopee EDA

485 Gorman Street

Shakopee, MN 55379

Attn: Executive Director

Section 10. 6 . Counterparts . This Agreement may be executed in any number of counterparts, each of which shall constitute one and the same instrument.

Section 10. 7 . Recording . The Authority may record this Agreement and any amendments thereto with the County R ecorder or the Registrar of Titles of the County, as the case may be . The Master Developer shall pay all costs for recording.

Section 10. 8 . Amendment . This Agreement may be amended only by written agreement approved by the City, the Authority , and the Master Developer .

Section 10. 9 . Authority and City Approvals . Unless otherwise specified, any approval required by the Authority under this Agreement may be given by the Authority Representative an d any approval required by the City under this Agreement may be given by the City Representative , except that final approval of issuance of the TIF Note shall be made by the Authority ’ s B oard of C ommissioners.

Section 10.10. Joint and Several Obligations . The obligations of the Master Developer under this Agreement shall be joint and several.

Section 10.11. Termination of Agreement . This Agreement shall terminate on the Maturity Date.

(The remainder of this page is intentionally left blank.)

IN WITNESS WHEREOF, the City, Authority , and Master Developer have caused this Contract for Private Red evelopment to be duly executed by their duly authorized representatives as of the date first above written.

CITY OF SHAKOPEE, MINNESOTA

Its Mayor

Its City Administrator

STATE OF MINNESOTA )

) SS.

COUNTY OF SCOTT )

The foregoing instrument was acknowledged before me this ____ day of __________ , 201 8 , by William P. Mars , the Mayor of the City of Shakopee, Minnesota, a statutory city organized and existing under the laws of the State of Minnesota, on behalf of the City.

____________________________________

Notary Public

STATE OF MINNESOTA )

) SS.

COUNTY OF SCOTT )

The foregoing instrument was acknowledged before me this ____ day of ___________, 2018 , by William H. Reynolds , the City Administrator of the City of Shakopee, Minnesota, a statutory city organized and existing under the laws of the State of Minnesota, on behalf of the City .

____________________________________

Notary Public

S- 1

Execution page of the Authority to the Contract for Private Red evelopment, dated as of the date and year first written above.

ECONOMIC DEVELOPMENT AUTHORITY FOR THE CITY OF SHAKOPEE, MINNESOTA

Its President

Its Executive Director

STATE OF MINNESOTA )

) SS.

COUNTY OF SCOTT )

The foregoing instrument was acknowledged before me this ____ day of _________, 2018 , by Matt Lehman , the President of the Economic Development Authority for the City of Shakopee, Minnesota , a public body corporate and politic under the laws of the State of Minnesota , on behalf of the Authority .

____________________________________

Notary Public

STATE OF MINNESOTA )

) SS.

COUNTY OF SCOTT )

The foregoing instrument was acknowledged before me this ____ day of __________, 2018 , by William H. Reynolds, the Executive Director of the Economic Development Authority for the City of Shakopee, Minnesota, a public body corporate and politic under the laws of the State of Minnesota , on behalf of the Authority .

____________________________________

Notary Public

S- 2

Execution page of Canterbury Development LLC to the Contract for Private Red evelopment, dated as of the date and year first written above.

CANTERBURY DEVELOPMENT LLC

Its

STATE OF MINNESOTA )

) SS.

COUNTY OF __________ )

The foregoing instrument was acknowledg ed before me this _____ day of _____________, 2018 , by _________________________, the _________________ of Canterbury Development LLC , a Minnesota limited liability company , on behalf of Canterbury Development LLC .

____________________________________

Notary Public

S- 3

Execution page of Canterbury Park Holding Corporation to the Contract for Private Redevelopment, dated as of the date and year first written above.

CANTERBURY PARK HOLDING CORPORATION

Its

STATE OF MINNESOTA )

) SS.

COUNTY OF __________ )

The foregoing instrument was acknowledged before me this _____ day of _____________, 2018 , by _________________________, the _________________ of Canterbury Park Holding Corporation , a Minnesota corporation , on behalf of Canterbury Park Holding Corporation .

____________________________________

Notary Public

S- 4

EXHIBIT A

REDEVELOPMENT PROPERTY

PID 274500010 Lot 1, Block 1, CanterburyPark 6 th Addition , according to the plat thereof, Scott County, Minnesota.

PID 274500030 Outlot A, Canterbury Park 6 th Addition , according to the plat thereof, Scott County, Minnesota.

PID 274500020 Lot 2, Block 1, CanterburyPark 6 th Addition , according to the plat thereof, Scott County, Minnesota.

PID 274500040 Outlot B, Canterbury Park 6 th Addition , according to the plat thereof, Scott County, Minnesota.

PID 272450010 Lot 1, Block 1, CanterburyPark 5 th Addition , according to the plat thereof, Scott County, Minnesota.

PID 274500050 Outlot C and Outlot B, Canterbury Park 6 th Addition , according to the plat thereof, Scott County, Minnesota.

PID 274500100 Outlot H, Canterbury Park 6 th Addition , according to the plat thereof, Scott County, Minnesota.

PID 274500090 Outlot G, CanterburyPark 6 th Addition , according to the plat thereof, Scott County, Minnesota.

PID 274500060 Outlot D, Canterbury Park 6 th Addition , according to the plat thereof, Scott County, Minnesota.

PID 274500080 Outlot F, CanterburyPark 6 th Addition , according to the plat thereof, Scott County, Minnesota.

[ TO BE REPLACED WITH PLATTED LEGAL DESCRIPTION UPON RECORDING OF NEW PLAT ]

A- 1

EXHIBIT B

FORM OF TIF NOTE

UNITED STATE OF AMERICA

STATE OF MINNESOTA

COUNTY OF SCOTT

ECONOMIC DEVELOPMENT AUTHORITY

FOR THE CITY OF SHAKOPEE

No. R-1 $__________

TAX INCREMENT REVENUE NOTE

SERIES 20 ___

Date

of Original Issue

6.0%

_________, 20 ____

The Economic Development Authority for the City of Shakopee ( the “ Authority ” ) hereby acknowledges itself to be indebted and, for value received, promises to pay to the order of Canterbury Development LLC, a Minnesota limited liability company, or registered assigns , and Canterbury Park Holding Corporation, a Minnesota corporation and the parent of Canterbury Development LLC ( together, the “ Owner ” ), solely from the source, to the extent and in the manner hereinafter provided, the maximum principal sum of $ 23,336,500 , as provided in the Agreement (hereinafter defined ), or so much thereof as has been from time to time advanced as hereinafter provided (the “ Principal Amount ” ), together with interest on the unpaid balance thereof accrued from the respective dates of entry of each Principal Advance on the Principal Advance Ledger attached hereto , at the rate of 6.0 % per annum. This Note is given in accordance with that certain Contract for Private Red evelopment , dated _________ __ , 2018 (the “ Agreement ” ), between the Authority, the City of Shakopee, Minnesota (the “ City ” ), and the Owner . Capitalized terms used and not otherwise defined herein shall have the meaning provided for such terms in the Agreement unless the context clearly requires otherwise.

1. Payments . Principal and interest payments ( the “ Payments ” ) shall be paid on August 1, 20 20 and each February 1 and August 1 thereafter to and including February 1, 20 46 ( the “ Payment Dates ” ) in the amounts and from the sources set forth in Section 3 herein. Payments shall be applied first to accrued interest, and then to unpaid principal. Interest accruing from the respective dates of entry of each Principal Advance on the Principal Advance Ledger

Payments are payable by mail to the address of the Owner or such other address as the Owner may designate upon thirty ( 60 ) days ’ written notice to the Authority. Payments on this Note are payable in any coin or currency of the United States of America which, on the Payment Date, is legal tender for the payment of public and private debts.

2. Interest . Interest at the rate stated herein shall accrue on the unpaid principal, commencing on the date of original issue. Interest shall be computed on the basis of a year of 360 days and charged for actual days principal is unpaid. Interest on this Note shall accrue but shall not compound into principal .

3. Principal Advances . Following the satisfaction of the requirements in Section 3.8(a) of the Agreement, and on any date thereafter through the fifth anniversary of the date that the TIF District is certified , the Owner may request the Authority enter an advance of principal under this Note (a “ Principal Advance ” ) on the ledger of such advances maintained by the r egistrar (the “ Principal Advance Ledger ” ), by submitting to the Authority a certificate (the “ Principal Advance Certificate ” ) signed by the Owner’s duly authorized representative, containing the following: (i) a statement that each cost identified in the Principal

B- 1

Advance Certificate is a Qualified Public Redevelopment Cost reimbur sable pursuant to Section 3.7 hereof and that no part of such cost has been included in any previous Principal Advance Certificate; (ii) evidence that each identified Qualified Public Redevelopment Cost has been paid or incurred by or on behalf of the Master Developer ; (iii) a certification from the City Engineer that the Developer Improvements for which reimbursement is requested have been approved by the City and have been completed based on the requirements of EXHIBIT D and EXHIBIT E; (i v ) a statement that no uncured Event of Default by the Master Developer has occurred and is continuing under the Agreement (as defined below); (v) a statement describing the type and amount of Qualified Public Redevelopment Costs that were expended outside the TIF District, if any; and (vi) a statement that the expenditures for which reimbursement is requested complies with Section 4.5 of the Agreement . The Owner may submit one (1) Principal Advance Certificate per month to the Authority.

Within forty-five (45) days after receipt of the Principal Advance Certificate, the Authority shall, if the Authority Representative has determined that all the aforementioned requirements have been satisfied, so notify the Owner and direct the r egistrar to enter the amount requested in the Principal Advance Ledger on the next February 1 or August 1 , provided that the aggregate amount of sums entered on the Principal Advance Ledger shall not exceed $ 23,336,500 . The Authority may, if not satisfied that the conditions described herein have been met, return the Principal Advance Certificate with a statement of the reasons why the Principal Advance Certificate is not acceptable and requesting such further documentation or clarification as the Authority may reasonably require. Failure by the Authority to notify the Owner of any objections within thirty ( 60 ) days after receipt of the Principal Advance Certificate will be deemed acceptance thereof.

4. Available Tax Increment . Payments on this Note are payable on each Payment Date solely from and in the amount of “ Available Tax Increment, ” which shall mean, on each Payment Date, ninety percent (90%) of the Tax Increment attributable to the TIF District Property and paid to the Authority by Scott County , Minnesota in the six (6) months preceding the Payment Date, all as such terms are defined in the Contract for Private Redevelopment , dated _____________, 2018 (the “ Agreement ” ), between the City, the Authority, and the Owner, as the m aster developer. Principal payments on this Note are subordinate to the City’s General Ob ligation Tax Increment Bonds , Series _________ issued in the amount of $__________ (the “TIF Bonds”). Therefore, Available Tax Increment (as defined in the Agreement) will first be used by the City to provide debt service coverage in the amount of one hundred and five percent (105%) of the principal of and interest on the TIF Bonds and to reimburse the City for any Deficiency Payments (as defined in the Agreement). The City will only make payments on th is TIF Note in the amount of Available Tax Increment remaining after the payment of principal of and interest on the TIF Bonds on each Payment Date .

The Authority shall have no obligation to pay principal of and interest o n this Note on each Payment Date from any source other than Available Tax Increment and the failure of the Authority to pay the entire amount of principal and interest on this Note on any Payment Date shall not constitute a default hereunder as long as the Authority pays principal hereon to the extent of Available Tax Increment. The Authority shall have no obligation to pay the unpaid balance of principal or accrued interest that may remain after the final Payment on February 1, 20 46 .

5 . Default . If on any Payment Date there has occurred and is continuing any Event of Default under the Agreement, the Authority may withhold from payments hereunder under all Available Tax Increment. If the Event of Default is thereafter cured in accordance with the Agreement, the Available Tax Increment withheld under this Section shall be deferred and paid, without interest thereon, on the next Payment Date after the Event of Default is cured. If the Event of Default is not timely cured, the Authority may terminate this Note by written notice to the Owner in accordance with the Agreement.

6 . Optional Prepayment . The principal sum and all accrued interest payable under this Note is prepayable in whole or in part at any time by the Authority without premium or penalty. No partial prepayment shall affect the amount or timing of any other regular payment otherwise required to be made under this Note.

7 . Nature of Obligation . This Note is the sole note of an issue in the maximum principal amount of $ 23,336,500 , issued to aid in financing certain Qualified Public Redevelopment Costs and administrative costs of a Project undertaken by the Authority pursuant to Minnesota Statutes , Sections 469.0 90 through 469. 1082 , as amended, and is issued pursuant to an authorizing resolution (the “ Resolution ” ) duly adopted by the Authority on March 6, 2018 , and pursuant to and in full conformity

B- 2

with the Constitution and laws of the State of Minnesota, including Minnesota Statutes , Sections 469.174 through 469.179 4 , as amended . This Note is a limited obligation of the Authority which is payable solely from Available Tax Increment pledged to the payment hereof under the Resolution. This Note shall not be deemed to constitute a general obligation of the State of Minnesota or any political subdivision thereof, including, without limitation, the Authority. Neither the State of Minnesota nor any political subdivision thereof shall be obligated to pay the principal of this Note or other costs incident hereto except out of Available Tax Increment, and neither the full faith and credit nor the taxing power of the State of Minnesota or any political subdivision thereof is pledged to the payment of the principal of this Note or other costs incident hereto.

8 . Estimates of Available Tax Increment . Any estimates of Tax Increment prepared by the Authority, the City or their respective municipal advisors in connection with the Available Tax Increment and the Agreement are for the benefit of the Authority and the City only, and are not intended as representations on which the Master Developer may rely.

THE AUTHORITY AND THE CITY MAKE NO REPRESENTATIONS OR WARRANTIES THAT THE AVAILABLE TAX INCREMENT WILL BE SUFFICIENT TO PAY THE PRINCIPAL OF THIS NOTE.

9 . Registration and Transfer . This Note is issuable only as a fully registered note without coupons. As provided in the Resolution, and subject to certain limitations set forth therein, this Note is transferable upon the books of the Authority kept for that purpose at the principal office of the Finance Director of the City , by the Owner hereof in person or by such Owner’s attorney duly authorized in writing, upon surrender of this Note together with a written instrument of transfer satisfactory to the Authority, duly executed by the Owner. Upon such transfer or exchange and the payment by the Owner of any tax, fee, or governmental charge required to be paid by the Authority with respect to such transfer or exchange, there will be issued in the name of the transferee a new Note of the same aggregate principal amount and maturing on the same dates.

This Note shall not be transferred to any person other than an affiliate, or other related entity, of the Owner, unless the Authority has been provided with an investment letter in a form substantially similar to the investment letter submitted by the Owner or a certificate of the transferor, in a form satisfactory to the Authority, that such transfer is exempt from registration and prospectus delivery requirements of federal and applicable state securities laws.

IT IS HEREBY CERTIFIED AND RECITED that all acts, conditions, and things required by the Constitution and laws of the State of Minnesota to be done, to exist, to happen, and to be performed in order to make this Note a valid and binding limited obligation of the Authority according to its terms, have been done, do exist, have happened, and have been performed in due form, time and manner as so required.

IN WITNESS WHEREOF, the Board of Commissioners of the Economic Development Authority for the City of Shakopee have caused this Note to be executed with the manual signatures of its President and Executive Director, all as of the Date of Original Issue specified above.

ECONOMIC DEVELOPMENT

AUTHORITY FOR THE CITY OF

SHAKOPEE

Executive Director President

_____________________________________

REGISTRATION PROVISIONS

B- 3

The ownership of the unpaid balance of the within Note is registered in the bond register of the Economic Development Authority for the City of Shakopee , in the name of the person last listed below.

		Director
Date of Registration	Registered Owner	Signature of Finance Director

	Canterbury Development LLC Federal ID # ____________ Canterbury Park Holding Corporation Federal ID # ____________

_____________________________________

PRINCIPAL ADVANCE LEDGER


Date of Principal Advance		Amount of Principal Advance

B- 4

EXHIBIT C

PUBLIC IMPROVEMENTS


Location of Improvement	Preliminary Costs	Timeline	Canterbury TIF	City -- TIF	City – Other Funds	County -- TIF	County – Other Funds
CH 83 Improvements	$8,860,000	2021			$1,584,000		$7,276,000
Changes to County Road 83*	$900,000	2021				$900,000
Eagle Creek Blvd/Vierling Roundabout	$1,400,000	2023		$1,400,000
CR 83/US 169 North Ramp Turn Lane**	$230,000	202 5+				$230,000
Shenandoah Drive Construct	$8,400,000	2018-2019	$8,400,000
12 Avenue Reconstruction including east side	$6,850,000	2019-2020		$6,850,000
Barenscheer Blvd Construct	$7,200,000	2020 -2021	$7,200,000
Vierling Drive extension/Internal roads	$7,000,000	2024	$7,000,000
Shenandoah/Vierling/12th Roundabout	$350,000	2019-2020		$350,000
General Wayfinding	$100,000	2019-202 1	$100,000
ROW Acquisition	$636,500		$636,500

Total	$42,460,000		$23,336,500	$8,600,000	$1,584,000	$1,130,000	$7,276,000
Total TIF			$33,066,500

*Balance of CH83 Improvements are expected to be funded by Scott County and a Federal grant.

**County may or may not construct the CR 83/US 169 North Ramp Turn Lane.

C- 1

EXHIBIT D

EXCERPT OF TRAFFIC STUDY DESCRIBING PUBLIC IMPROVEMENTS

(Elements of Study may be modified as development progresses)

D- 1

EXHIBIT E

DEVELOPER IMPROVEMENT S REQUIREMENTS

CITY OF SHAKOPEE

SCOTT COUNTY, MINNESOTA

DEVELOPER IMPROVEMENT S REQUIREMENTS

(A) Construction Plans and Specifications and Approval Thereof. The Developer will engage, at Developer's expense, a duly licensed professional civil engineer authorized to practice within the State of Minnesota to prepare detailed plans, specifications, and a cost estimate for the complete installation of all Developer Improvements, in accordance with the most recent editions of the City of Shakopee Design Criteria; the City of Shakopee General Specifications and Standard Detail Plates for Street & Utility Construction; Municipal State Aid Rules and Plan Requirements; and the Shakopee Public Utilities Commission (SPUC) Water Policy Manual and submit them to the City Engineer and to the SPUC Utilities Manager for written approval prior to commencement of construction.

The Developer must submit the appropriate grading plan, specifications, storm water management plan, erosion and sediment control plan and Storm Water Pollution Prevention Plan (SWPPP) to the City Engineer for approval for each phase of the project. Before any construction is commenced within that phase, the plans and specifications must be approved by the City Engineer and copies of all required permits must be provided to the City Engineer. After the City Engineer has approved the plans, any changes to the plans must be resubmitted to the City Engineer for approval. No changes may be made without written approval from the City Engineer. The Developer must comply with any erosion and sediment control method required by the City for the prevention of damage to adjacent property, for prevention of damage to downstream storm sewer systems and for the control of surface water runoff.

The Developer, the Developer’s contractors and subcontractors must submit drawings to the City Engineer outlining all proposed haul routes for the import or export of soil, construction material, construction equipment or construction debris, or any other purpose. All haul routes must be approved in writing by the City Engineer.

The Developer must furnish to the City and to SPUC street and utility plans and specifications for approval for each phase of construction. Before any construction is commenced within that phase, the plans and specifications must be approved by the City Engineer, State Aid, and the SPUC Utilities Manager, and copies of all required permits must be provided to the City Engineer and to SPUC. After the City Engineer and SPUC have approved the plans, no changes may

E- 1

be made without written approval from the appropriate authority.

(B) Right to Proceed with Construction. The Developer must not construct site grading improvements or otherwise disturb the earth or remove trees until all the following condit ions have been satisfied: (1) the necessary security and applicable fees have been received by the City; (2) all required grading plans, storm water management plans, erosion and sediment control plans, SWPPP’s and specifications have been approved by the Cit y Engineer or assigns; and (3) the City Engineer or assigns has issued a grading permit.

The Developer must not construct street improvements, sanitary sewer improvements, storm sewer improvements, water distribution system improvements, public or private improvements, nor any buildings until all the following conditions have been satisfied: (1) this agreement has been fully executed by both parties and filed with the City Clerk; (2) the necessary security and all applicable fees have been received by the City; (3) all required plans and specifications have been approved by the City Engineer, State Aid, and the SPUC Utilities Manager.

(C) Construction Observation. The City will, at the Developer's expense, have one or more construction observers observe the work on a full or part ‑time basis. The Developer must also provide a qualified engineer to perform site inspections on a daily basis and geotechnical consultant to provide all project materials testing as required and directed by the City Engineer; State Aid Rules; and MnDOT’s Schedule of Materials Control. The engineers’ qualifications must be submitted in writing to the City Engineer. The Developer must instruct its project engineer/inspector to respond to questions from the City observer(s) and to make periodic site visits to verify the construction is being performed to an acceptable level of quality in accordance with the engineer's design. The Developer or his engineer must schedule a preconstruction meeting at a mutually agreeable time with all parties concerned, including City staff, to review the program for the improvements.

(D) Trunk Charges and Lateral Charges. The Developer agrees to pay the City the applicable City trunk charges and lateral charges. Those charges are set forth in the City’s annual fee schedule. All trunk charges and lateral charges must be paid to the City prior to recording the final plat.

(E) Sealcoating Charge. The Developer agrees to pay the City for costs associated with the first bituminous seal coat on all bituminous paved streets as set forth in the City’s annual fee schedule.

(F) Construction of Developer Improvements.

(1) Construction. The Developer must furnish materials and equipment, construct and install all proposed improvements and conduct all operations in accordance with the most recent editions of the State Aid Rules and the City’s General Specifications and Standard Detail Plates for Street and Utility Construction, the City’s Design Criteria, the City’s Comprehensive Water Resource Management Plan, the City’s SWPPP, SPUC’s Water Policy Manual, City standards, City Policies, City ordinances, all general and supplemental conditions received from the City, the approved plans and specifications. For street lighting improvements, the Developer must furnish materials and equipment and construct and install the proposed improvements in accordance with the Street Lighting Agreement adopted jointly by the City and SPUC.

(2) Easements. The Developer must grant or cause to be granted to the City, at no cost to the City, all permanent or temporary easements necessary for the installation and maintenance of the Developer Improvements.

(3) Insurance. The Developer will provide or the Developer will cause each person with whom the Developer contracts for the construction of any Developer Improvement to furnish to the City the Contractor's Insurance Certificates as specified in Article S.G.C.5 of the Supplementary General Conditions of the General Specifications and Standard Detail Plates for Street & Utility Construction. No construction must commence until the City Clerk receives the insurance certificates with the City listed as additional insured, including a cancellation clause providing the City with thirty (30) days written notice, and the certificates are approved by the City Attorney.

E- 2

(4) Grading and Erosion and Sediment Control. The grading required for the Developer Improvements must be in compliance with the approved Tree Management Plan, as required per Section 11.60, Subdivision 9 of the City Code.

Prior to any grading operations commencing and before any utility construction commencing or building permits being issued , the Developer must identify, in writing to the City Engineer, a responsible party and schedule for erosion and sediment control inspection and maintenance, street cleaning, and weekly street sweeping.

Prior to grading operations commencing and before any street and utility construction commencing or building permits being issued, all erosion and sediment control measures must be installed, inspected, and approved by the City Engineer or assigns. The City Engineer or assigns may impose additional erosion and sediment control requirements if they would be beneficial.

All areas disturbed by the excavation and backfilling operations must be reseeded forthwith after the completion of the work in that area. Except as otherwise provided in the City approved plans , seed must be certified seed to provide temporary ground cover as rapidly as possible. All seeded areas must be fertilized, mulched, and disc anchored as necessary for seed retention.

The parties recognize that time is of the essence in erosion and sediment control. If the Developer does not comply with the requirements set forth in this Agreement, the City may take such action as it deems appropriate to control erosion and sediment transport at the Developer's expense. The City Engineer or assigns will endeavor to notify the Developer in advance of any proposed action, but failure to do so will not affect the Developer's and City's rights or obligations. No development will be allowed and no building permits will be issued unless the Developer Improvements are in full compliance with all erosion and sediment control requirements.

Erosion and sediment control measures must be maintained until turf is established on all areas disturbed as a result of development/construction. After the site has been stabilized to where, in the opinion of the City Engineer or assigns, there is no longer a need for erosion and sediment control, they will authorize the removal of the erosion and sediment control measures, i.e. hay bales and silt fence. The Developer must properly remove and dispose of the erosion and sediment control measures. The Developer is responsible for ensuring that all contractors, homebuilders, home purchasers and other parties involved in the development/construction are notified of this responsibility.

The Developer is responsible for regular erosion and sediment control inspection and maintenance or work as deemed necessary by the City Engineer or assigns until turf is established on all areas disturbed as a result of development/construction. If the Developer fails to perform the required clean up within twenty-four (24) hours of receiving instructions and notice from the City Engineer or assigns, the City, without further notice, can perform the work and charge the associated cost to the Developer. If the Developer does not reimburse the City for any cost the City incurred for such work within ten (10) days of receipt of the invoice, the City may draw down, without further notice, the security provided to pay any costs incurred by the City.

The Developer is responsible for weekly street sweeping of all streets within the development and all streets adjacent to the development if sediment is tracked off site. All street sweeping must be performed utilizing a pick-up sweeper. If the Developer fails to perform the required street sweeping within twenty-four (24) hours of receiving instructions and notice from the City Engineer and/or the Building Official or their assigns, they, without further notice, can perform the work and charge the associated cost to the Developer. If the Developer does not reimburse the City for any cost the City incurred for such work within ten (10) days of receipt of the invoice, the City may draw down, without further notice, the security provided to pay any costs incurred by the City. The Developer shall be responsible for weekly street sweeping until final acceptance by the City.

The Developer is responsible for soil correction work required for the Developer’s Improvements. The City makes no represen tation to the Developer concerning either the nature of suitability of soils or the cost of correcting any unsuitable soil conditions which may exist.

E- 3

(5) Signage Requirements. All street signs and traffic signs required by the City as part of the street and utility plan approval must be furnished and installed by the City at the expense of the Developer. All conservation and wetland easement boundary marking posts required for the Subdivision must be furnished and installed by the Developer at the expense of the Developer. All conservation and wetland easement boundary marking signage required for the Subdivision must be furnished and installed by the City at the expense of the Developer. All park and open space boundary marking posts and signage required for the Subdivision must be furnished and installed by the City at the expense of the Developer. All conservation easement, wetland easement and park and open space posts and signage required for the Subdivision by the City must be installed within one (1) year from the date of recording the plat, or the posts and signage must be installed on a per lot basis at the time the building permit for the subject lot is issued, whichever occurs first. These fees are set forth in the City’s annual fee schedule.

(6) Landscaping Requirements. Trees must be planted according to the Tree, Shrub and Bush Planting and Placement Policy and Standards and may not be planted within the right-of-way or within drainage and utility easements adjacent to public right-of-way, unless approved with a tree planting permit from the City of Shakopee. L andscaping is not allowed within any easements containing an emergency overflow nor is it allowed within any easements as outlined in the City’s most recent edition of its Easement Fencing and Landscaping Policy. In addition to any sod required as a part of the grading, drainage and erosion control plan or the SWPPP, the Developer must sod the full easement width of all drainage ways/swales leading to drainage structures on each lot utilizing a minimum of six (6) inches of topsoil. The Developer must also install silt fence behind the sod in the drainage ways/swales leading to drainage structures. Seed or sod must also be placed on all disturbed areas of the lot. These requirements supplement, but do not replace, specific landscaping conditions that may have been required by the City Council for plat approval.

(7) Plat Monuments. Before the security for the completion of the public improvements is released, all plat monuments must be correctly placed in the ground in accordance with Minnesota Statutes, Chapter 505. The Developer's surveyor shall submit a written notice to the City Engineer certifying that the iron monuments have been installed.

(8) Project Testing Requirements. The Developer is responsible, at the Developer’s sole cost, to provide testing to certify that Developer installed improvements have been completed in compliance with State Aid Rules and MnDOT’s Schedule of Materials Control approved plans and specifications. The personnel performing the testing must be certified by the Minnesota Department of Transportation. The City Engineer has the sole discretion to determine if additional testing is necessary. The cost of additional testing is to be paid by the Developer.

(9) Street, Sanitary Sewer, Storm Sewer and Water Distribution System Maintenance. The Developer is responsible for all street maintenance, with the exception of snow plowing, until all streets are accepted by the City. Warning signs must be placed by the Developer when hazards develop in streets to prevent the public from traveling on them and directing attention to detours. If streets become impassable, the City may order that such streets must be barricaded and closed. The Developer must maintain a smooth roadway surface and provide proper surface drainage. The City will not be responsible for reshaping or damage to the street base, the street surfacing, the curb and gutter or utilities because of snow plowing operations. The provision of City snow plowing service does not constitute final acceptance of the streets by the City.

The Developer is responsible for cleaning and maintenance of the sanitary sewer system (including, but not limited to, pipes, manholes and lift stations) and the adjacent off-site sanitary sewer system that receives sewage from the plat. The Developer must follow all instructions received from the City Engineer or assigns concerning the cleaning and maintenance of the sanitary sewer system. The Developer's obligations under this paragraph end on the date of final acceptance by the City.

The Developer is responsible for cleaning and maintenance of the storm sewer system (including, but not limited to, ponds, pipes, catch basins, culverts and swales) and the adjacent off-site storm sewer system that receives storm water from the plat. The Developer must follow all instructions it receives from the City Engineer or assigns concerning the cleaning and maintenance of the storm sewer system. The Developer's obligations under this paragraph end on the date of final acceptance by the City.

E- 4

The Developer is responsible for cleaning and maintenance of the water distribution system within the plat and the adjacent off-site water distribution systems. The Developer must follow all instructions it receives from SPUC or assigns concerning the cleaning and maintenance of the water distribution system. The Developer's obligations under this paragraph end on the date of final acceptance by the City and SPUC.

(10) Record Plans/Drawings. Upon completion of the site grading improvements, the Developer’s engineer(s) of record must provide to the City Engineer a certified Record “As-Built” grading and erosion and sediment control plan/drawing in hard copy (mylar and paper) and electronic form as outlined in the most recent edition of the City Design Criteria. Prior to issuance of building permits in addition to the model building permit, the Developer must provide to the City Engineer and to SPUC an Operations Record Plan in hard copy form (paper) as outlined in the most recent edition of the City of Shakopee Design Criteria and the SPUC Water Policy Manual. Upon completion of the street and utility construction, the Developer’s engineer(s) of record must provide to the City and to SPUC a certified Record “As-Built” street and utility plan/drawing in hard copy (mylar and paper) and electronic form as outlined in the most recent edition of the City of Shakopee Design Criteria and the SPUC Water Policy Manual. In addition to and upon completion of the project, the Developer’s engineer(s) of record must provide a certified letter indicating that “all improvements have been constructed under the direct supervision (of the engineer(s) of record) and are certified accordingly to have been constructed to be in compliance with the approved plans and specifications.”

The Record “As-Built” plans/drawings referenced above must, at a minimum, include all items referenced in the most recent edition of the City Design Criteria and must also include any additional features as directed by the City Engineer.

The Record “As-Built” plans/drawings referenced above must be approved by the City and SPUC prior to final acceptance of the Developer’s Improvements.

(11) Faithful Performance of Construction Contracts and Bond. The Developer will fully and faithfully comply with all terms of any and all contracts entered into by the Developer for the installation and construction of all Developer Improvements and the Developer guarantees the workmanship and materials for a period of one (1) year following the City's final acceptance of the Developer Improvements. The Developer must also provide the Maintenance Bond required in this Agreement.

E- 5

EXHIBIT F

POTENTIAL PHASES OF REDEVELOPMENT PROJECT

The overall Redevelopment Project will be completed in multiple phases and is envisioned to consist of the following: 46 owner-occupied townhomes, 65 owner-occupied senior cooperative condominium units, 60 0 apartment units, 100,400 square feet of retail/restaurant space, 2 destination entertainment buildings of approximately 75,000 square feet each, 300 hotel rooms split between 2 anticipated hotels, and approximately 783,000 square feet of office/commercial buildings. The overall Redevelopment Project will also include the demolition and redevelopment of a number of existing stable/dormitory buildings within the boundaries of the TIF District and the corresponding demolition, geotechnical work, site work, parking improvements, public streets, utilities, sidewalks, and other improvements associated with the project.

The Redevelopment Project is envisioned to be completed in the following phases:

Apartments, first phase approximately 300 units

Apartments, second phase approximately 300 units

Owner-occupied townhomes, estimated 46 units

Owner-occupied senior cooperative condominium, estimated 65 units

Retail, estimated 17,000 square feet

Coffee shop, estimated 1,800 square feet

Daycare, estimated 12,000 square feet

Hotel, estimated 120 keys

Office headquarters, estimated 300,000 square feet

Entertainment/waterpark, estimated 75,000 square feet

Restaurant, estimated 6,000 square feet

Dual concept hotel, estimated 180 keys

Destination entertainment, estimated 75,000 square feet

Retail/fast casual restaurant, estimated 19,000 square feet

Retail/fast casual restaurant, estimated 19,600 square feet

Specialty retail/restaurant, estimated 19,000 square feet

Office headquarters, best corner, estimated 250,000 square feet

Office/tech, estimated 118,000 square feet

Office/tech, estimated 115,000 square feet

Construction of the first phase of development is anticipated to begin in late 2018 and will consist of approximately 300 units of market rate housing . Construction of the subsequent phases will be driven by market conditions over the next approximately ten years; therefore, the subsequent phases will not necessarily occur in the order and densities listed above.

F- 1

EXHIBIT G

CONCEPT PLAN FOR REDEVELOPMENT PROJECT

G- 1

EXHIBIT H

CERTIFICATE OF COMPLETION

WHEREAS, the City of Shakopee , Minnesota (the “ City ” ), the Economic Development Authority for the City of Shakopee (the “ Authority ” ) , Canterbury Development LLC ( “ Canterbury Development ” ), and Canterbury Park Holding Corporation ( “ Canterbury Park Holding Corporation, ” and together with Canterbury Development, the “ Master Developer ” ) have entered into a certain Contract for Private Red evelopment , dated _____________, 201 8 ( the “ Agreement ” ); and

WHEREAS, the Agreement contains certain covenants and restrictions set forth in Articles III and IV thereof related to completing certain Developer Improvements ; and

WHEREAS, the Master Developer has performed said covenants and conditions insofar as it is able in a manner deemed sufficient by the Authority to permit the execution and recording of this certification; and

NOW, THEREFORE, this is to certify that all construction and other physical improvements related to the Developer Improvements specified to be done and made by the Master Developer have been completed and the agreements and covenants in Articles III and IV of the Agreement have been performed by the Master Developer , and this Certificate is intended to be a conclusive determination of the satisfactory termination of the covenants and conditions of Articles III and IV of the Agreement related to completion of the Developer Improvements , but any other covenants in the Agreement shall remain in full force and effect.

Dated: _______________, 20__.

ECONOMIC DEVELOPMENT AUTHORITY

FOR THE CITY OF SHAKOPEE , MINNESOTA

Its Executive Director

CITY OF SHAKOPEE, MINNESOTA

Its City Administrator

H- 1

STATE OF MINNESOTA )

) SS.

COUNTY OF SCOTT )

The foregoing instrument was acknowledged before me this _______________, 20 __ , by _________________, the Executive Director of the Economic Development Authority for the City of Shakopee , on behalf of the Authority.

Notary Public

STATE OF MINNESOTA )

) SS.

COUNTY OF SCOTT )

The foregoing instrument was acknowledged before me this _______________, 20 __ , by _________________, the City Administrator of the City of Shakopee , Minnesota on behalf of the City .

Notary Public

H- 2

EXHIBIT I

POTENTIAL EXPENDITURES OUTSIDE TIF DISTRICT


Public Improvement	Estimated Percentage Outside District
12 th Avenue Reconstruction, including east side	25%
Barenscheer Boulevard	20%

I- 1

EXHIBIT J

Consent of Canterbury Park Entertainment, LLC

Canterbury Park Entertainment, LLC, hereby consents to the Contract for Private Redevelopment between City of Shakopee, Minnesota, Economic Development Authority for the City of Shakopee, Minnesota; Canterbury Development LLC and Canterbury Park Holding Corporation, dated ______________, 2018, (the “Agreement”) and agrees that its property shall be subject to the terms of the Agreement.

Canterbury Park Entertainment, LLC

By____________________________

Its____________________________

Dated: _______________

ACKNOWLEDGMENT

STATE OF MINNESOTA )

) ss.

COUNTY OF SCOTT )

On this _____ day of , 2018, before me, a Notary Public of said State, duly commissioned and sworn, personally appeared _____________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person that executed the within instrument as _____________________________ of Canterbury Park Entertainment, LLC, a Minnesota limited liability company, and acknowledged to me that such limited liability company executed the same.

In Witness Whereof, I have hereunto set my hand and affixed my official seal the day and year first above written.

Notary Public, State of

My Commission expires:

J- 1

CERTI FIC ATION

Exhibit 31.1

I, Randall D. Sampson certify that:

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

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;

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;

I am 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:

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;

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;

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

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;

I have disclosed, based on my 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):

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

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, 2018 CANTERBURY PARK HOLDING CORPORATION

/s/ Randall D. Sampson

Randall D. Sampson

President and Chief Executive Officer

CERTI FIC ATION

Exhibit 31.2

I, Robert M. Wolf certify that:

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

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, 2018 CANTERBURY PARK HOLDING CORPORATION

/s/ Robert M. Wolf

Robert M. Wolf

Chief Financial Officer

Exhibit 32

CERTIFICATION

Pursuant to 18 U.S.C. 1350, the undersigned Chief Executive Officer and Chief Financial Officer, respectively, of Canterbury Park Holding Corporation (the “Company”) herby certifies that:

(1)

The accompanying quarterly report on Form 10-Q for the period ended June 30, 2018 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, 2018 /s/ Randall D. Sampson

Randall D. Sampson,

President and Chief Executive Officer

Dated: August 14, 2018 /s/ Robert M. Wolf

Robert M. Wolf,

Chief Financial Officer

CANTERBURY PARK

1100 Canterbury Road

Shakopee, MN 55379

Canterbury Park Holding Corporation Reports Financial

Results for the Second Quarter and First Six Months of 201 8

FOR IMMEDIATE RELEASE		CONTACT: Randy Sampson
August 14, 2018		(952) 445-7223

SHAKOPEE, MN – Canterbury Park Holding Corporation (the “Company”) (NASDAQ: CPHC) today announced financial results for its second quarter and six month period s ended June 30, 201 8 .

The Company reported net revenues of $ 1 6.5 million f or the three months ended June 30, 201 8 , an increase of 4 .2 % from revenues of $ 1 5.8 million in the same 201 7 period. Car d Casino revenues increased $ 368 ,000, or 4.5 % , due to a $ 456 ,000 increase in table games revenues . This increase was partially offset by a $159,000 decrease in poker revenues . Pari-mutuel revenues increased $ 50 ,000, or 1.4 %, primarily due to an increase in simulcast and guest fee revenue . Food and beverag e revenues in creased $ 36 ,000, or 1.5 % .

For the six months ended June 30, 201 8 , the Company’s net revenues were $ 28.7 million, an increase of 5.3 % from revenues of $ 27.3 million for the same period in 201 7 . C ard Casino revenues increased $ 940,000 , or 5.9 %, which reflected a $ 1.1 million increase in table games revenues, partially offset by a modest decline in poker revenues. Pari-mutuel revenu es increased $ 85,000 , or 1 .7 %, primarily due to an increase in simulcast and guest fee revenue. Food and beverage revenues de creased $ 6,000 , or 0.2 % .

The Company’s operating expenses during the 201 8 second quarter were $1 5.5 million , a n in crease of $ 858,000 , or 5.9 %, compared to the 201 7 second quarter expenses of

$1 4.7 million , and the Company’s operating expenses during the six months ended June 30, 201 8 were $ 26.4 million , a n in crease of $ 1.1 million , or 4.5 %, from $ 25. 3 million in the six month s ended June 30, 201 7 . The increases in both the three and six month periods as compared to the same periods in the prior year are due to increased purse related expense , salaries and benefits , and utilities.

N et income for the three and six months ended June 30, 201 8 totaled $ 725 ,000 and $ 1.7 million, respectively, compared to $ 717,000 and $ 1.2 million for the same periods in 201 7 . The increase in net income for the three and six month periods benefited from a reduction in income tax expense of $207,000 and $188,000, respectively. Diluted income per share for the three and six months ended June 30, 201 8 was $ 0 . 16 and $0. 38 , respectively, compared to $ 0 . 16 and $0. 28 for the same period s in 201 7 .

The Company generated adjusted EBITDA of $ 1.7 million for the three months ended June 30, 201 8 , a de crease of $ 68,000 , or 3 .8 % from the same period a year ago. Adjusted EBITDA as a percentage of net revenues for the three months ended June 30, 201 8 de creased to 1 0.3 % from 11.2 % for the same period in 201 7 . The Company generated adjusted EBITDA of $ 3.7 million in the first six months of 201 8 , an increase of $ 395,000 , or 12.1 % from the same period a year ago. Adjusted EBITDA as a percentage of net revenues for the six months ended June 30, 201 8 increased to 12. 8 % from 12.0 % for same period in 201 7 . EBITDA represents earnings before interest, income tax expense, and depreciation and amortization . Adjusted EBITDA reflects additional adjustments to net income to eliminate unusual items , which for the 201 8 second quarter excluded loss on disposa l of assets of $100,000 and, for the first six months of 201 8 , excluded the loss on disposal of assets and gain on insurance recoveries .

Additional information regarding the results of the Company’s second quarter and first six months of 201 8 is presented in the accompanying table and in our Form 10-Q Report that will be filed with the Securities and Exchange Commission on August 14, 201 8 .

Management Comments :

Randy Sampson, Canterbury Park’s President and Chief Executive Officer, commented: “Our operating results for the second quarter were lower than expected and lower than the first quarter, due primarily to inclement weather during the period, which negatively impacted both card casino and live racing revenues. Weather challenges during the period included a weekend blizzard in April and rain on several weekends in May and June, including a storm that resulted in cancellation of a portion of the live racing program on Memorial Day, typically one of our busiest live racing days. Despite the inclement weather, our Pari-mutuel revenue during the second quarter of 2018 increased slightly compared to the prior year period. This was attributable to stronger simulcast and guest fee revenues due in part to the possibility of a Triple Crown winner as well as an additional live racing day. This increase marks the sixth consecutive quarter-over-quarter growth in Pari-mutuel revenue. Our increase in Card Casino revenue during the second quarter of 2018 was primarily due to an unusually high hold percentage on our table games during the period. Food and beverage revenue increased slightly during the second quarter of 2018, benefitting from the extra live racing day as well as price increases compared to the prior year. Net income was positively impacted by recent reductions in corporate tax rates resulting in our effective tax rate for the first six months of 2018 decreasing to 27.7% compared to 40.8% for the same period in 2017.”

Mr. Sampson added: “We continue to make progress on our development plans as we work with the City of Shakopee and various potential development partners. On August 8, 2018, the City Council of the City of Shakopee approved a Contract for Private Redevelopment (“Redevelopment Agreement”) between the City of Shakopee Economic Development Authority and Canterbury Park Holding Corporation and its subsidiary Canterbury Development LLC in connection with a Tax Increment Financing District (“TIF District”), that the City had approved in April 2018. The Redevelopment Agreement was signed on August 10, 2018. With that final approval in place, we expect to break ground on the first phase of the Canterbury Commons development in September.”

Under the Redevelopment Agreement, the Company has agreed to undertake specific infrastructure improvements within the TIF District, including the development of public streets, utilities, sidewalks, and other public infrastructure and the City of Shakopee has agreed that a portion of the incremental tax revenue generated from the infrastructure improvements will be reimbursed to the Company, with a maximum reimbursement amount of approximately $23.34 million. See footnote 11 of the Company’s Form 10-Q, filed with the Securities and Exchange Commission on August 14, 2018 for more detailed information on this Redevelopment Agreement.

Use of Non-GAAP Financial Measures :

To supplement our financial statements, we also provide investors with information about our EBITDA and Adjusted EBITDA, both of which are non-GAAP measures. 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. Adjusted EBITDA reflects additional adjustments to our net income to eliminate unusual items. We have presented Adjusted EBITDA as a supplemental disclosure because it enables investors to understand our results excluding the effect of unusual or infrequent items for the three months ended. For the three and six months ended June 30, 2018, Adjusted EBITDA excluded the loss on disposal of assets and gain on insurance recoveries.

About Canterbury Park :

Canterbury Park Holding Corporation owns and operates Canterbury Park Racetrack, Minnesota’s only thoroughbred and quarter horse racing facility. The Company’s 70 -day 201 8 live race meet began on May 4 and end s September 1 5 . In addition, Canterbury Park’s Card Casino hosts “unbanked” card games 24 hours a day, seven days a week, offering both poker and table games. The Company also conducts year-round wagering on simulcast horse racing and hosts a variety of other entertainment and special events at its facility in Shakopee, Minnesota. For more information about the Company, please visit us at www.canterburypark.com .

Cautionary Statement :

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, we may make forward-looking statements concerning possible or anticipated future financial performance, business activities or plans. These statements are typically preceded by the words “believes,” “expects,” “anticipates,” “intends” or similar expressions. For these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties which could affect our actual results and cause actual results to differ materially from those indicated in the forward-looking statements. We report these risks and uncertainties in our Annual Form 10-K Report to the SEC and subsequent Form 10-Q. They include, but are not limited to: material 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; competition from other venues offering unbanked card games or other forms of wagering; competition from other sports and entertainment options; increases in compensation and employee benefit costs; increases in the percentage of revenues allocated for purse fund payments; higher than expected expense related to new marketing initiatives; the impact of wagering products and technologies introduced by competitors; the general health of the gaming sector; legislative and regulatory decisions and changes; our ability to successfully develop our real estate; and other factors that are beyond our ability to control or predict.

canterbury park holding corporation’s

summary of operating results

(UNAUDITED)


	Three Months	Three Months	Six Months	Six Months
	Ended	Ended	Ended	Ended
	June 30,	June 30,	June 30,	June 30,
	2018	2017	2018	2017
Operating Revenues, (net)	$16,512,724	$15,846,475	$28,732,672	$27,289,546

Operating Expenses (1)	$15,513,258	$14,655,317	$26,376,451	$25,236,579

Non-Operating Income, (net)	$5,048	$11,415	$17,455	$23,603

Income Before Income Taxes	$1,004,514	$1,202,573	$2,373,676	$2,076,570

Income Tax Expense	($279,163)	($486,000)	($658,633)	($847,000)

Net Income	$725,351	$716,573	$1,715,043	$1,229,570

Basic Net Income Per Common Share	$0.16	$0.16	$0.39	$0.28

Diluted Net Income Per Common Share	$0.16	$0.16	$0.38	$0.28

(1) Operating expenses for the three months ended June 30, 201 8 include a $ 99,000 loss on disposal of assets . Operating expenses for the six months ended June 30, 201 8 include the $99,000 loss on disposal, and a $ 21,000 gain on insurance recoveries . Note the loss on disposal of assets was accounted for as an addition to expenses and the gain on insurance recoveries w as accounted for as a reduction of expenses.

Reconciliation of net income to ADJUSTED ebitda


		Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
NET INCOME	$	725,351	$	716,573	$	1,715,043	$	1,229,570
Interest income, net		(5,048)		(11,415)		(17,455)		(23,603)
Income tax expense		279,163		486,000		658,633		847,000
Depreciation		601,080		577,275		1,236,225		1,222,998
EBITDA		1,600,546		1,768,433		3,592,446		3,275,965
Gain on insurance recoveries		-		-		(21,064)
Loss on disposal of assets		99,934		-		99,934
ADJUSTED EBITDA	$	1,700,480	$	1,768,433	$	3,671,316	$	3,275,965