7. COOPERATIVE MARKETING AGREEMENT

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

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

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



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

The Company will not receive any part of any purse enhancement payment. Therefore, there will be no impact on the Company’s financial statements.

The amounts earned from the marketing payments will be recorded as a component of other revenue and the related expenses will be recorded as a component of marketing and advertising expense in the Company’s financial statements. For the nine and three-month periods ended September 30, 2012, the Company earned $88,607 in revenues and incurred $88,607 in expenses related to the 2012 marketing payment.

As part of the Agreement, on June 14, 2012, the Company signed a Stock Appreciation Rights Agreement (the “SAR Agreement”) and issued stock appreciation rights to SMSC. The SAR Agreement granted rights to SMSC to benefit from the appreciation in the value of 165,000 shares of Company common stock above $14.30 per share, a price agreed upon by the two parties. Each right represents the right to be paid the appreciation in the value of one share of stock above $14.30. Ten percent of the rights (16,500 rights) vested immediately and the remaining rights vest at the rate of 16,500 per year beginning in January 2013. The SAR Agreement provides for the cash payment of the excess of the fair market value of Canterbury Park Holding Corporation’s common stock price on the date of exercise over the grant price. The SAR Agreement and all rights granted expire on December 31, 2022. The liability related to these stock appreciation rights is recorded as a long-term liability and the Company will recognize the expense related to these stock appreciation rights as a component of other operating expenses due to the nature of the agreement. For the three and nine-month periods ended September 30, 2012, the Company recognized $66,256 and $183,482, respectively, of expense related to these stock appreciation rights. In the future, changes in the fair value of these stock appreciation rights will increase or decrease the stock appreciation rights liability, and the Company will recognize additional expense or income related to these changes.