COLONIAL DOWNS HOLDINGS INC, 10-K, 1999-04-01

COLONIAL DOWNS HOLDINGS INC
10-K, 1999-04-01
RACING, INCLUDING TRACK OPERATION

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year ended December 31, 1998

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

Commission file number 333-18295

COLONIAL DOWNS HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)

VIRGINIA 54-1826807
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

10515 Colonial Downs Parkway
New Kent, VA 23124
(Address of Principal Executive Offices)

(804) 966-7223
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class on Which Registered Name of Each Exchange
Class A Common Stock, par value $0.01 per share NASDAQ National Market

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes[ ] No[X]

Number of Shares of Class A Common Stock outstanding
as of March 26, 1999 - 5,007,500
Number of Shares of Class B Common Stock outstanding
as of March 26, 1999 - 2,242,500

DOCUMENTS INCORPORATED BY REFERENCE - Registrant's Definitive Proxy Statement
with respect to annual Shareholders' meeting to be held on July 6, 1999

<PAGE> 2
PART I

ITEM 1. BUSINESS

GENERAL

Colonial Downs Holdings, Inc., (the "Company"), a Virginia Corporation,
was incorporated in 1996. The Company owns and operates, through its wholly-
owned subsidiaries, Colonial Downs Racetrack (the "Track") in New Kent,
Virginia, which primarily conducts pari-mutuel wagering on Thoroughbred and
Standardbred horse racing. The Company also owns and operates four satellite
wagering facilities ("Racing Centers"), which provide simulcast pari-mutuel
wagering on Thoroughbred and Standardbred horse racing from selected racetracks
through out the United States.

The Company sends its race signal from the Track to out-of-state satellite
wagering facilities and receives race signals from out-of-state racetracks.
Depending upon the format permitted at each facility, patrons may participate
in a commingled pool or a separate pool. In commingled pool wagering, patrons
at a satellite wagering facility participate in the same pari-mutuel pool
payouts as those patrons at the host facility where the race is held. In
separate pool wagering, patrons at a satellite wagering facility participate in
the pool generated by wagers at that facility. Under Virginia law, a majority
portion of the pooled wagers is paid out as winnings, a portion is paid to the
applicable local governments and the Commonwealth of Virginia, a portion is
paid to the Virginia Breeders' Fund, a portion is distributed to the Track's
horsemen in the form of "purses", and the remainder is retained by the
wagering facility.

The Company's revenues are comprised of (i) pari-mutuel commissions from
wagering on races broadcast from out-of-state racetracks to the Company's
Racing Centers and the Track using import simulcasting; (ii) wagering at the
Track and the Company's Racing Centers on its live races; (iii) admission fees,
program, racing form and tip sheet sales, and certain other ancillary
activities; (iv) commissions from food and beverage sales and concessions; and
(v) fees from wagering at out-of-state locations on races run at the Track
using export simulcasting.

STRATEGY

The Company intends to be a leading participant in the industry by
capitalizing upon its unique dirt and turf track capabilities for live racing,
expanding its Racing Center network, and its alliance with Maryland Jockey Club
to provide experienced management for the Track and Racing Centers.

Track - The Track's one and a quarter mile dirt track is one of the
largest tracks in the United States and its 180 foot wide mile turf track is
the largest turf track in North America. These unique configurations have and
are expected to attract quality horses to the Track. The Track was host to the
1998 Breeders Crown, one of the premier North American Standardbred racing
events, in November 1998. The inaugural Virginia Derby, a race for three-year
old thoroughbreds, was held in October 1998 on the Company's turf track. The
Company intends to develop the Virginia Derby as a graded stakes race as a warm
up to the Breeders' Cup. The Company believes that by hosting and creating
marquee racing events, the Company will be able to improve its market
visibility, attract additional patrons to the Track and its Racing Centers, and
enhance its ancillary revenues from export simulcasting, corporate sponsorship,
group sales events, and food and beverage sales.

<PAGE> 3

The track facility was designed to provide patrons with a pleasant
atmosphere to enjoy quality horse racing. The outside grandstand area located
on the first floor of the track facility has an occupancy capacity of
approximately 4,000 patrons. Also located on the first floor of the track
facility are two simulcast/TV amphitheaters, two covered patio-seating areas,
four bars, a large concession food court, gift shop, and wagering locations
with approximately sixty tellers. The Jockey Club, which is in the main
grandstand area located on the third floor of the track facility, includes a
full-service dining area with a seating capacity of 548 patrons, two separate
lounge areas, and additional wagering locations with 38 tellers. The Turf
Club, a private club, as well as 10 luxury suites with skybox seating, are
located on the fourth floor of the track facility.

Racing Centers - By state law, the Company can operate up to six Racing
Centers in Virginia. The Company currently operates four Racing Centers
located in Richmond, Chesapeake, Hampton, and Alberta, Virginia. These Racing
Centers employ state-of-the-art audio/visual technology for maintaining quality
import simulcast Thoroughbred and Standardbred races from nationally known
racetracks. The Racing Centers are structured to accommodate the needs of
various patrons from the seasoned handicapper to the novice wagerer. The
Racing Centers provide patrons with a comfortable upscale environment including
a full bar and a range of restaurant services. In addition, automated wagering
equipment is available to patrons in order to make wagering more user-friendly
to the novice and more efficient for the expert. This automated wagering
equipment, touch-screen interactive terminals and personalized portable
wagering terminals, provide patrons with current odds information and enable
them to place wagers and credit winning tickets to their accounts without
waiting in line. Under current law, before the Company can open its last two
Racing Centers, it is required to win approval through a local referendum
process in the municipality in which the facility will be located. The Company
intends to open the additional Racing Centers by 2003.

Strategic Alliance - The Company entered into a Management and Consulting
Agreement (the "Agreement") with Maryland Jockey Club ("MJC") to provide
experienced management for the Track and Racing Centers and to create a
Virginia-Maryland Thoroughbred racing circuit. Under the Agreement, Maryland
Jockey Club agreed to suspend live racing at their racetracks, Laurel Park and
Pimlico Race Course, during the Company's live Thoroughbred meets. Parties to
the Agreement also agreed to exchange simulcast signals for their live meets at
no cost to either party. An amendment to the Agreement (the "Amended
Agreement") was signed by both parties on January 15, 1999, which restructured
among other terms, MJC's responsibilities as managers and the management fee
paid to MJC. Effective July 1, 1999, MJC will have operating responsibilities
for the Company's Racing Centers as well as the live Standardbred and
Thoroughbred meets. Prior to the Amended Agreement, MJC agreed to manage the
Company's Thoroughbred meet, and the Company agreed to reimburse MJC for the
personnel it provided to manage such meet. MJC will no longer be reimbursed
for expenses incurred while acting as managers of these operations. Under the
Amended Agreement, the management fee incurred in 1998 was reduced, from 2% of
amounts wagered at the Company's facilities (other than on live Standardbred
meets conducted at the Track), and going forward, the Company will pay MJC 1.0%
of the first $75 million of the aggregate gross amounts wagered in any calendar
year in the Commonwealth of Virginia excluding certain conditions ("Handle")
specified in the Amended Agreement. In addition, the Company will pay MJC an
annual management fee equal to 2.0% of all Handle in excess of $75 million per
calendar year. Management fees relating to the Company's new Racing Centers
will increase up to 3.25% of Handle depending upon their location.

<PAGE> 4

PURSE STRUCTURE

The Company has previously taken steps to ensure competitive purses to
attract quality horses at the Track by way of a guaranteed purse structure.
The Company contributed in 1998 to the thoroughbred and standardbred purse
accounts, respectively, a certain percentage of all thoroughbred and
standardbred wagers at its Racing Centers. The guaranteed purses are
negotiated each year with the respective horsemen's groups, the Virginia
Horsemen's Benevolent Protection Association ("VaHBPA") for thoroughbed and the
Virginia Harness Horse Association ("VHHA") for standardbred. The agreement
with the VaHBPA expired on December 31, 1998, and a new agreement has not yet
been agreed upon. The Company's agreement with the VHHA expires on August 4,
1999.

The Company's purses have been competitive with purses at racetracks in
the mid-Atlantic market that conduct meets concurrently with the Company's
meets, with the possible exception of Delaware Park, which has video lottery
terminals ("VLTs") or slot machines. This has enabled Delaware Park to
increase the purses offered. The racetrack in Charlestown, West Virginia also
has recently acquired video lottery terminals and the purses it offers are
expected to increase to become more competitive with those offered by the
Company.

COMPETITION

The Company competes with racetracks located outside Virginia (including
several in Delaware, Maryland, New Jersey, New York, Pennsylvania, and West
Virginia) and other forms of gaming, such as land-based casinos, including
those in Atlantic City, and statewide lotteries in Virginia and neighboring
states. The Company also faces competition from a wide range of entertainment
options, including live and televised sporting events and other recreational
activities such as theme parks (Kings Dominion to the northwest and Busch
Gardens to the southeast). The Company believes that it can expand its patron
base by establishing the Track as a tourist destination and is currently
working with tour and bus companies to include the Track in their itineraries.

The possible legalization of other forms of gaming in Virginia, such as
riverboat casinos could have an adverse effect on the Company's performance.
Although bills for the creation of riverboat casinos, have failed in the
Virginia legislature, proponents of riverboat gaming in Virginia may continue
to seek legislative approval. It is not possible, at this time, to determine
if or when additional forms of gaming will be permitted in Virginia or
neighboring states and, if so, the impact, if any, on the Company.

The Company competes and will compete for wagering dollars and simulcast
fees with live racing and races simulcast from racetracks in other states,
particularly racetracks in neighboring states such as Charles Town in West
Virginia, Pimlico Race Course, Laurel Park, and Rosecroft Raceway in Maryland,
and Delaware Park in Delaware. The Company believes that the Management
Agreement with MJC will promote coordination of Thoroughbred events between
Maryland and Virginia. However, if the Virginia or Maryland Racing Commissions
do not approve the party's proposed racing days, or if the Virginia-Maryland
Thoroughbred racing circuit is otherwise unsuccessful, the Track may compete
directly with Pimlico Race Course and Laurel Park in Maryland.

<PAGE> 5

The Company anticipates that it will experience adverse affects from the
legalization of VLT and slot machines in neighboring states such as Delaware
and West Virginia. Racetracks with VLTs and/or slot machines generally are
required to devote a significant portion of VLT and/or slot machine revenues to
the purses for which horses race. As a result, such racetracks may be able to
offer higher purses making it difficult for the Company to attract horsemen to
race at the Track.

REGULATION

The Company's success is dependent upon continued government and public
acceptance of horse racing as a form of legalized gaming. Although the Company
believes that pari-mutuel wagering on horse racing will continue to be legal in
Virginia, gaming has come under increasing scrutiny nationally and locally.
The United States Congress recently passed legislation creating a national
gaming study commission (the "National Gaming Commission"). The National
Gaming Commission has the duty to conduct a comprehensive legal and factual
study of gambling in the United States and existing federal, state, and local
policies and practices with respect to the legalization or prohibition of
gambling activities, to formulate and propose changes in such policies and
practices, and to recommend legislation and administration actions for such
changes. It is not possible to predict the future impact of any such proposals
on the Company and its operations. Any such proposals could have a material
adverse effect on the Company's business. Opposition to the Virginia Racing
Act has been unsuccessfully introduced in the Virginia legislature in the past,
but additional legislative opposition may arise in the future. If the Virginia
Racing Act was repealed or materially amended, such action could have a
material adverse effect on the Company's business of pari-mutuel wagering.

Virginia Racing Act - Under the Virginia Racing Act, the Virginia Racing
Commission is vested with control over all aspects of horse racing with pari-
mutuel wagering and the power to prescribe regulations and conditions under
which such racing and wagering are conducted. The Virginia Racing Commission
is responsible for, among other things, (i) conducting an annual review of the
Company's Track and Racing Center licenses, (ii) annually approving the
Company's proposed schedule of racing days, (iii) approving new or modified
types of pari-mutuel wagering pools requested by the Company, (iv) issuing
permits to all officers, directors, racing officials, and other employees of
the Company, and (v) approving simulcast schedules at the Track and at the
Racing Centers. The Virginia Racing Commission also has the authority to
promulgate regulations pertaining to the Company's Track facilities, equipment,
safety and security measures, and controls the issuing of licenses and permits
for participants in pari-mutuel racing, including Company employees at the
Track and at the Racing Centers. In addition, the Virginia Racing Commission
must approve any acquisition or continuing ownership of a 5% or greater
interest in the Company. Action by the Virginia Racing Commission that is
inconsistent with the Company's business plan could have a material adverse
effect on the Company.

<PAGE> 6

The licenses issued by the Virginia Racing Commission to the Company are
for a period of not less than 20 years, but are subject to annual review by the
Virginia Racing Commission. It is possible that such licenses will not be
renewed or that such licenses could be suspended or revoked by the Virginia
Racing Commission for violations of the Virginia Racing Act or Virginia Racing
Commission rules.

Other State and Local Regulation - The Company, the Track, and the Racing
Centers are also subject to a variety of other laws and regulations, including
zoning, construction, and land-use laws and the regulations of the Virginia
Alcoholic Beverage Control Board. Such laws and regulations may affect the
selection of Racing Center sites because of parking, traffic flow, and other
similar considerations. Any interruption or termination of the Company's
ability, or that of its concessionaires, to serve alcoholic beverages could
have a material adverse effect on the Company.

Federal Regulation - The Company's interstate simulcast operations are
subject to the provisions of the federal Interstate Horse Racing Act, which
regulates interstate off-track wagering. In order to conduct wagering on
import simulcasting at the Track or any Racing Center, the Interstate Horse
Racing Act requires the Company to obtain the consent of the Virginia Racing
Commission, the consent of the racing commission of the state where the horse
racing meet originates and the consent of the representative horsemen groups in
the origination state. To conduct export simulcasting, the Company must obtain
the consent of the Virginia Horseman's Benevolent and Protection Association or
the Virginia Harness Horseman's Association, and the Virginia Racing
Commission. Also, in the case of off-track wagering to be conducted at any of
the Company's Racing Centers, the Interstate Horse Racing Act requires the
Company to obtain the approval of all currently operating horse racetracks
within sixty miles of the Racing Centers or if there are no currently operating
tracks within sixty miles, the approval of the closest operating horse
racetrack, if any, in an adjoining state. Significant delay in obtaining such
consents and approvals or failure to obtain such consents or approvals could
have a material adverse effect on the Company.

Future Regulation - The Company's operations may become subject to
additional regulation from any of the foregoing or from other governmental
bodies. Such additional regulation could have a material adverse effect on the
Company.

TAXATION

The Company is subject to a number of federal, state, and local taxes and
fees. These include fees to support the Virginia Breeders' Fund, taxes payable
to the Commonwealth of Virginia, taxes payable to New Kent County where the
Track is located, and taxes payable to localities in which Racing Centers are
located based upon the amount of monies wagered both at the Track and at the
Company's Racing Centers. The Company believes that the public acceptance of
pari-mutuel wagering on horse races, as well as other forms of gaming, is
based, in part, on the governmental revenues it generates from taxes and fees
on such activities. It is possible that gaming activities, including horse
racing, may become a target for additional federal, state, or local taxes and
fees. A significant increase in such taxes or fees or the creation of
significant additional taxes or fees could have a material adverse effect on
the Company.

<PAGE> 7

EMPLOYEES

As of December 31, 1998, the Company had approximately 65 full time and
235 part-time employees. During the live meets, the Company employs up to 150
temporary employees. The Company considers its relations with its employees to
be good.

ITEM 2. PROPERTIES

Information regarding the Company's facilities as of December 31, 1998 is
as follows:
<TABLE>
<CAPTION>
Size
Location Use Leased/Owned (Sq. FT.)
-------- --- ------------ ----------
<S> <S> <S> <C>
Colonial Downs Racetrack
- ------------------------
New Kent, VA(1) Race Track and Owned 152,000
Administrative Offices
Racing Centers
- --------------
Richmond, VA Satellite Wagering Owned 20,000
Chesapeake, VA Satellite Wagering Leased 15,000
Hampton, VA Satellite Wagering Owned 13,500
Alberta, VA Satellite Wagering Owned 8,000

</TABLE>
(1) Colonial Downs Racetrack is located on approximately 345 acres of land with
paved parking to accommodate over 1,825 vehicles. Additional unpaved
parking is available for large and capacity crowds.

ITEM 3. LEGAL PROCEEDINGS

The Company is engaged in a contract dispute under the Construction
Agreement, dated February 10, 1997 (the "Construction Contract") between the
Company and Norglass, Inc. ("Norglass"), a related party. Pursuant to the
terms of the Construction Contract, the Company is proceeding before the
American Arbitration Association ("AAA") against Norglass, the general
contractor engaged to manage the construction of the Track. In the proceeding,
the Company challenges the validity of Norglass's mechanic's liens for
approximately $11.8 million (subsequently reduced to $6.5 million) and asserts
a damage claim against Norglass in an amount not less than $7.7 million.
Norglass' damage claim against the Partnership is $5.8 million as announced in
a hearing on December 14, 1998. The Company is vigorously pursuing its claims
against Norglass and is vigorously defending against claims for payment by
Norglass under the Construction Contract. If the Company does not prevail in
its claims and assuming it receives credit against Norglass's claims for the
amount the Company has paid directly to subcontractors, the Company believes
that its potential liability, included in accounts payable at December 31,
1998, is approximately $1.9 million in construction costs, plus interest, from
a date to be established and legal fees. Additionally, it will be unable to
recover approximately $3.8 million it had paid to subcontractors of Norglass.

In connection with the dispute with Norglass, subcontractors of Norglass
and parties claiming direct contracts with the Partnership and the Corporation
filed mechanic's liens against the property. As of December 31, 1998, four
actions remained pending. In S. W. Rodgers Company, Inc. v. Colonial Downs
Holdings, Inc. and Colonial Downs, L.P. (New Kent County Circuit Court Law No.
CL99-2), a contractor sought $16,909.81. A final dismissal order was entered
March 18, 1999. In Baker Roofing Company v. Colonial Downs Holdings, Inc., et
al. (New Kent County Circuit Court Case No. CH98-76), a roofing subcontractor
seeks payment of $137,790.10 and its subcontractor in turn seeks payment of
$40,541.32 in NCI Building Components v. Baker Roofing Company, et al. (New
Kent County Circuit Court Case No. CH98-78). Finally, in William T. Cantrell,
Inc. v. Colonial Downs Holding, Inc., Stansley Racing Corporation, and Colonial
Downs, L.P., which is pending in New Kent County Circuit Court, a contractor
seeks $66,094.02 for work performed at the Track. This matter is not related
to the Norglass arbitration and is expected to be resolved shortly.

<PAGE> 8

On January 8, 1998, Colonial Downs filed a demand for arbitration against
the Maryland-Virginia Racing Circuit, Inc. ("MVRC") and its operating entity,
the Maryland Jockey Club, before the Virginia Racing Commission (the
"Commission"). In its arbitration demand, Colonial Downs challenged the
management fee claimed to be due by MVRC pursuant to a Management and
Consulting Agreement dated as of April 22, 1996 (the "Consulting Agreement")
between Colonial Downs and MVRC. The arbitration was based upon the fact that
the demanded compensation under the Consulting Agreement has failed to consider
certain changed circumstances as well as the original intent of the parties.
The dispute was referred to an arbitrator, by the Virginia Racing Agreement
pursuant to the terms of the Management Agreement. The Company and the
Maryland Jockey Club settled their dispute and executed an Amended and Restated
Management and Consulting Agreement, dated as of January 15, 1999.

The Company is currently appealing the February 25, 1999 ruling of the
Virginia Racing Commission (the "Commission") regarding several issues relating
to the award of 1999 racing dates. In its ruling, the Commission required
Colonial Downs, L.P. and Stansley Racing (collectively, "Colonial Downs") to
conduct 25 days of live thoroughbred racing in September-October 1999 and 30
days of standardbred racing in July-August 1999. As a condition to the
thoroughbred racing days, the Commission ruled that Colonial Downs had to post
a bond in the amount of $3.125 million by March 10, 1999, or make daily
deposits beginning March 1, 1999, into a thoroughbred purse account equal to 5
1/4 percent of the amounts wagered at the Racing Centers on thoroughbred horse
races. The Commission also ruled that Colonial Downs must continue to fund the
standardbred purse account from July 6, 1999 through December 31, 1999 at the
rate previously established by a contract between Colonial Downs and the
Virginia Harness Horse Association ("VHHA").

On March 8, 1999, Colonial Downs filed a notice of appeal of the
Commission's rulings in the Circuit Court of the City of Richmond (Colonial
Downs, L.P. and Stansley Racing Corp. v. Virginia Racing Commission (Case No.
HK-647). On March 10, 1999, the Richmond Circuit Court entered a stay of the
Commission's rulings with respect to the bond requirement and funding of the
thoroughbred purse account. Finding no immediate harm to Colonial Downs from
the Commission's ruling that Colonial Downs fund the standardbred purse account
from July 6, 1999 through December 31, 1999, the Court concluded that a stay of
that ruling was not warranted.

Colonial Downs asserts in its appeal that (i) the Commission committed
reversible error and exceeded its authority by ordering Colonial Downs to make
daily deposits beginning March 1, 1999, into a thoroughbred purse account equal
to 5 1/4 percent of the amounts wagered at the Racing Centers on thoroughbred
horse races and by requiring Colonial Downs to continue to fund a standardbred
purse account from July 6, 1999 through December 31, 1999 at the rate
previously established by a contract between Colonial Downs and the VHHA; (ii)
the Commission violated a bond agreement it entered into with Colonial Downs
and committed reversible error by acting arbitrarily and beyond the scope of
its authority through its imposition of an alternative requirement that
Colonial Downs post a bond in the amount of $3.125 million by March 10, 1999;
and (iii) the Commission committed reversible error and ignored the substantial
evidence presented to it by arbitrarily requiring Colonial Downs to conduct 25
days of thoroughbred racing in September-October 1999 and 30 days of

<PAGE 9

standardbred racing in July-August 1999 at purse levels mandated by the
Commission without regard for Colonial Downs' financial inability to conduct
both meets for the durations and at the purse levels mandated by the
Commission. A hearing on the matter is scheduled for April 7, 1999. If
Colonial Downs does not prevail, it is unlikely that Colonial Downs will be
able to immediately acquire and post a bond of $3.125 million as directed by
the Commission, or alternatively, that Colonial Downs will have sufficient
resources to enable it to begin immediately funding the thoroughbred purse
account without having an adverse effect on the Company's cash flow.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is quoted on The NASDAQ National Market under
the symbol "CDWN". The Company's stock began trading on March 18, 1997. The
following table sets forth for the periods indicated the high and low closing
prices per share of the Company's Common Stock as reported on The NASDAQ
National Market.

1998 - By Quarter 1997 - By Quarter
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH
------------------------------ ------------------------------
High Bid $ 4.63 $ 4.38 $ 2.56 $ 1.50 $ 9.50 $ 7.88 $ 9.39 $ 7.25
Low Bid $ 3.75 $ 2.31 $ 0.88 $ 0.38 $ 7.38 $ 6.37 $ 6.37 $ 3.50

The closing price as of March 26, 1999 was $1.13 per share of Class A
Common Stock. There are approximately 682 holders of record of Class A Common
Stock on March 26, 1999.

There is no established market for the Class B Common Stock. There are
four holders of record of Class B Common Stock.

Dividend Policy - The Company has not paid any dividends to date and does
not anticipate paying any dividends on any class of its Common Stock in the
foreseeable future and intends to retain earnings to finance the development
and expansion of its operations. The payment of any future dividends will be
at the discretion of the Company's Board of Directors and will depend upon,
among other things, future earnings, operations, capital requirements, the
financial condition of the Company and general business conditions. Current
debt covenants with a lender preclude the Company from declaring and paying
dividends.

On November 18, 1998, the Company received notification from The NASDAQ
National Market that the Company had failed to meet certain market
capitalization criteria. A hearing has been set for April 24, 1999 to
determine whether the Company's common stock will be delisted from The NASDAQ
National Market. The Company has compiled and submitted requested information
to The NASDAQ National Market in order to remain listed.

<PAGE> 10

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected historical financial data
derived from the Company's financial statements and should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Financial Statements and Notes thereto,
included elsewhere herein.
<TABLE>
<CAPTION>
(In thousands)
Years (1)
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Total revenues $ 29,544 $ 23,647 $ 8,527 $ - $ -
Loss from operations (3,597) (467) (468) (318) (19)
Net earnings (loss) before
income taxes (5,372) 92 (645) (320) (19)
Net earnings (loss) (5,288) 8 (645) (320) (19)

Basic and diluted
earnings (loss) per share $ (0.73) $ 0.01 $ (0.22) $ (0.11) $ (0.01)

Balance Sheet Data
(at period end):
Working capital (deficit) $ (14,661) $ (9,466) $ (5,925) $ (1,589) $ (669)
Total assets 68,581 67,875 12,176 3,142 667
Current maturities of
long-term debt 9,184 1,373 1,685 632 671
Long-term debt excluding
current maturities 15,008 15,390 3,491 1,548 -
Stockholder's equity 36,634 36,922 995 (325) (4)

Cash Flow Data:
Net cash provided by (used in)
operating activities $ (2,289) $ 3,053 $ 327 $ (160)
Net cash used in investing
activities (5,884) (48,851) (3,999) (920)
Net cash provided by
financing activities 5,980 47,766 4,722 1,408

EBITDA (2) $ (1,995) $ 188 $ (184) $ (315)
</TABLE>

(1) The consolidated financial statements of the Company include entities
which prior to the Reorganization effective March 12, 1997(see Note 1 to
Consolidated Financial Statements) were affiliated through common
ownership and control.

(2) EBITDA is defined as the sum of the Company's net earnings (loss), net
interest expense, income taxes, depreciation, and amortization. EBITDA
is presented because it is a widely accepted financial indicator of a
company's ability to service and incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income or cash
flow measures prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.

<PAGE> 11

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following is an analysis of the financial condition and results of
operations of the Company. This analysis should be read in conjunction with
the Company's Financial Statements and Notes thereto, appearing elsewhere
herein.

GENERAL

The Company, through its subsidiaries, holds the only licenses to own and
operate a racetrack and Racing Centers in Virginia. The Company currently
operates Racing Centers in Chesapeake, Richmond, Hampton, and Alberta,
Virginia, and may open two additional Racing Centers if suitable opportunities
are identified.

The amount of revenue the Company earns from each wager depends on where
the race is run and where the wagering takes place. Revenues from import
simulcasting of out-of-state races and from wagering at the Track and at the
Racing Centers on races run at the Track consist of the total amount wagered at
the Company's facilities, less the amount paid as winning wagers. The
percentage of each dollar wagered on horse races that must be returned to the
public as winning wagers (typically about 79%) is legislated by the state in
which a race takes place. Revenues from export Simulcasting consists of
amounts payable to the Company by the out-of-state racetracks and the racing
centers with respect to wagering on races run at the Track.

The Company's revenues are heavily dependent on the operations of its
Racing Centers. Revenues from the Racing Centers help support live racing at
the Track. However, expenses from live racing and track operations exceeded
earnings from the Racing Centers for 1998. In 1998, several key contracts were
renegotiated which the Company expects will improve its profitability going
forward. The Company plans to open two additional Racing Centers by 2003,
which will improve the Company's earnings.

<PAGE> 12

The following table sets forth certain operating results as a percentage
of total revenues for the periods indicated:

<TABLE>
<CAPTION>
(Percentage of Net Revenues)
Fiscal Years
----------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Revenues:
Pari-mutuel and simulcasting commissions 90.5% 88.3% 92.0%
Other 9.5% 11.7% 8.0%
------ ------ ------
Total revenues 100.0% 100.0% 100.0%

Direct operating expenses:
Purses, fees, and pari-mutuel taxes 39.0% 43.0% 47.0%
Simulcast and other direct expenses 51.5% 37.8% 35.0%
------ ------ ------
Total direct operating expenses 90.5% 80.8% 82.0%
Selling, general, and administrative expenses 21.7% 21.2% 23.5%
Loss from operations (12.2)% (2.0)% (5.5)%
Interest income (expense), net (6.0)% 2.4% (2.1)%
------ ------ ------
Earnings (loss) before taxes (18.2)% 0.4% (7.6)%

</TABLE>

COMPARISON OF FISCAL YEARS 1998 AND 1997

Total Revenues. Total revenues in 1998 were $29.5 million, an increase of
$5.9 million (24.9%) over 1997 total revenues of $23.6 million. The increase
primarily reflects a full twelve month effect of the Hampton and Brunswick
Racing Centers and an increase from thirty live racing days in 1997 to seventy-
one days in 1998 at the Track (an increase of approximately $7.6 million) net
of a decrease of revenues at the Company's other Racing Centers (a decrease of
approximately $1.7 million).

Operating Expenses. As a percentage of revenues, operating expenses
increased 10.2%, from 102% in 1997 to 112.2% in 1998. The increase in
operating expenses was principally attributed to the increase in simulcast and
other direct expenses resulting from an increase from thirty live racing days
in 1997 to seventy-one days in 1998 (approximately $2.5 million or 8.5% of 1998
revenues) and an increase in purse expense (approximately $2.0 million or 6.8%
of 1998 revenues), net of a decrease in the Maryland Jockey Club management fee
(from $2.7 million in 1997 to $1.1 million in 1998).

Interest Income (Expense). Interest expense increased $1.5 million from
$0.3 million in 1997 to $1.8 million in 1998. The increase in interest expense
was primarily due to the increase in short-term and long-term debt from
approximately $16.8 million in 1997 to $24.2 million in 1998. Also
contributing to the increase in interest expense was capitalized interest of
approximately $1.1 million in 1997 during construction of the Track as compared
to capitalized interest of approximately $146,000 in 1998. Interest income
decreased $0.8 million in 1998 as compared to 1997. Interest income earned in
1997 primarily relates to interest earned on the proceeds from the Company's
initial public offering, which was used to complete construction of the Track.

Net Loss. The net loss incurred in 1998 was $5.3 million as compared to
net earnings of $7,863 in 1997, reflecting the factors described above.

<PAGE> 13

COMPARISON OF FISCAL YEARS 1997 AND 1996

Total Revenues. Total revenues in fiscal 1997 were $23.6 million, an
increase of $15.1 million (177%) over fiscal 1996 revenue of $8.5 million.
The increase primarily reflects the operation of the Richmond Racing Center for
a full year in 1997 versus only 21 days in 1996 ($11.1 million), and the
operation of the thirty day inaugural live thoroughbred meet held September-
October 1997 ($3.5 million).

Operating Expenses. Operating expenses in 1997 of $24.1 million increased
$15.1 million (168%) from $9.0 million in 1996. The overall increase was
primarily attributable to higher expenses ($8.6 million) resulting from a full
year of operations of the Richmond Racing Center versus only twenty-one days in
1996, and the costs associated with conducting the inaugural thirty day live
thoroughbred meet in 1997 ($6.1 million). Affecting the 1997 increase over
1996 operating expenses were marketing and referenda campaign costs incurred
($1.5 million) in the Company's attempt to win voter approval for additional
racing centers in targeted Virginia localities and an increase in depreciation
expense as a result of the completion of the Track.

Other Income. Other income increased to $559,000 in 1997 compared to
other expense of $177,000 in 1996, primarily reflecting the interest income
earned on the proceeds from the Company's initial public offering in March
1997.

Net Income. Net income increased by approximately $653,000 from a loss of
$645,000 in 1996 to earnings of $7,863 for the year ended December 31, 1997,
reflecting the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows. Operating activities used approximately $2.3 million of cash
in 1998. The net loss adjusted for non-cash items such as depreciation,
amortization, and other non-cash charges incurred was $3.8 million. Net
increase in operating liabilities provided $1.5 million of cash. Investing
activities utilized approximately $5.9 million of cash, principally consisting
of capital expenditures. Financing activities provided approximately $6.0
million of cash, primarily from the Company's revolving line of credit and
notes payable to a shareholder.

For 1997, operating activities provided net cash of approximately $3.1
million. Net earnings adjusted for non-cash items such as depreciation,
amortization, and other non-cash charges provided $0.8 million. Net increases
in operating liabilities provided an additional $2.3 million. Investing
activities utilized approximately $48.9 million of cash, principally consisting
of $47.1 million in capital expenditures for the continued construction and
completion of both the Track and the Company's new Racing Centers in Hampton
and Brunswick. Financing activities provided cash of approximately $47.8
million, which consisted of a net increase in long-term borrowings of
approximately $11.5 million and net proceeds from the issuance of common stock
of approximately $36.3 million.

<PAGE> 14

On January 11, 1999, the Company negotiated an agreement with PNC Bank,
N.A. ("PNC"), which restructured the principal payment of the Credit Agreement
dated June 26, 1997. Under the agreement, in lieu of making principal payments
on the due dates, the Guarantors are required to deliver to PNC, letters of
credit in the face amount of future principal payments. The letters of credit
shall have an expiration of July 31, 2000. A guarantor posted a $1 million
letter of credit in lieu of the Company making the principal due December 31,
1998. The Company anticipates that the guarantors will post letters of credit
for the principal payments due during 1999.

On March 30, 1999, the Company obtained an amendment to the note payable
with a shareholder, which deferred the due date of the note from August 26,
1999 to August 26, 2000.

The Company's capital expenditures budget for fiscal year 1999 is
$500,000. The Company expects, as a result of recent renogotiation of several
vendor contracts, that cash flows from operations and the availability of other
capital and financial resources will provide sufficient liquidity to meet its
normal operating requirements, capital expenditure plans, and existing debt
service over the 1999 fiscal year.

EFFECT OF INFLATION

The impact of inflation on the Company's operations has not been
significant in recent years. There can be no assurance, however, that a high
rate of inflation in the future will not have an adverse effect on the
Company's operating results.

SEASONALITY AND THE EFFECT OF INCLEMENT WEATHER

Revenues and expenses relating to the Track may be higher during scheduled
live racing than at other times of the year. In addition, weather conditions
sometimes cause cancellation of outdoor horse races or curtail attendance, both
of which reduce wagering. Attendance and wagering at both outdoor races and
indoor Racing Centers also may be adversely affected by certain holidays and
professional and college sports seasons as well as other recreational
activities. Conversely, attendance and wagering may be favorably affected by
special racing events which stimulate interest in horse racing, such as the
Triple Crown races in May and June and the Breeders' Cup in November. As a
result, the Company's revenues and net income may fluctuate from quarter to
quarter. Given that a substantial portion of the Company's Track expenses are
fixed, the loss of scheduled racing days could have a material adverse affect
on the Company's profitability. The Company believes that simulcasting
diminishes the effect of inclement weather on wagering.

IMPACT OF YEAR 2000

The result of computer programs being written using two digits rather than
four to define the applicable year is known as the "Year 2000" issue. Any of
the Company's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, or engage in similar normal business activities.

<PAGE> 15

The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and beyond. The Company is currently in
the process of replacing certain hardware and software in order to be year 2000
compliant. The project is scheduled to be completed during the first half of
1999 without material costs. The Company relies significantly on the Tote
system used in pari-mutuel wagering, which is provided and supported by an
outside vendor. If the software changes and modifications (both internal and
external) of existing software are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the Company.

NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS 130 became effective
in the first quarter of 1998. The Company had no components of comprehensive
income. SFAS No. 131 establishes new standards on reporting information about
operating segments in both annual and interim financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of the new requirements of
SFAS No. 131 did not impact the Company's disclosure of segment information
because the Company operates in one line of business.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments"
("SFAS133"). SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair market value. Presently, the
Company does not use derivative instruments either in hedging activities or as
investments. Accordingly, the Company believes that adoption of SFAS 133 will
have no impact on its financial position or results of operations.

FORWARD LOOKING INFORMATION

The statements contained in this report which are not historical facts,
including, but not limited to, statements found under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
above, are forward looking statements that involve a number of risks and
uncertainties. The actual results of the future events described in such
forward looking statements in this report could differ materially from those
contemplated by such forward looking statements. Among the factors that could
cause actual results to differ materially are the risks and uncertainties
discussed in the report, including without limitations the portions of such
statements under the caption referenced above, and the uncertainties set forth
from time to time in the Company's other public reports and filings and public
statements. Such risks include but are not limited to acts by parties outside
the control of the Company, including the Maryland Jockey Club, horsemen
associations, and the Virginia Racing Commission, political trends, the effects
of adverse general economic conditions, and governmental regulation.

<PAGE> 16

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Most of the Company's debt obligations at December 31, 1998 were either
fixed rate obligations or variable rate obligations which provide the Company
various options in determining the rate of interest. Management therefore does
not believe that the Company has any material market risk from its debt
obligations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

Page
----

Report of Independent Auditors 17

Balance Sheets at year end 1998 and 1997 18

Statements of Operations for years ended 1998, 1997 and 1996 19

Statements of Changes in Stockholders' Equity for years
1998, 1997 and 1996 20

Statements of Cash Flows for years ended 1998, 1997 and 1996 21

Notes to Financial Statements 22-34

<PAGE> 17

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Colonial Downs Holdings, Inc.

We have audited the accompanying balance sheets of Colonial Downs Holdings,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Colonial Downs
Holdings, Inc. and subsidiaries at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.

/s/ BDO Seidman, LLP

Richmond, Virginia
March 26, 1999

<PAGE> 18
COLONIAL DOWNS HOLDINGS, INC.
BALANCE SHEETS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,155 $ 3,348
Horsemen's deposits 600 1,657
Accounts receivable 296 293
Prepaid expenses and other assets 227 497
Refundable income taxes - 218
--------- ---------
Total current assets 2,278 6,013
Property, plant and equipment
Land and improvements 15,581 10,581
Buildings and improvements 47,363 46,903
Equipment, furnishings, and fixtures 3,444 2,902
Leasehold improvements 1,122 1,114
--------- ---------
67,510 61,500
Less accumulated depreciation 2,186 660
--------- ---------
Property, plant and equipment, net 65,324 60,840
Licensing and organization costs, net of accumulated
amortization of $266 and $207, respectively 772 841
Other assets 207 181
--------- ---------
Total assets $ 68,581 $ 67,875
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,417 $ 11,678
Purses due horsemen 608 1,597
Accrued liabilities and other 730 831
Current maturities of long-term debt,
and capital lease obligations 9,184 1,373
--------- ---------
Total current liabilities 16,939 15,479
Long-term debt and capital lease obligations 8,508 9,890
Notes payable - related parties 6,500 5,500
Deferred income taxes - 84
--------- ---------
Total liabilities 31,947 30,953

Commitments and contingencies

Stockholders' equity
Class A, common stock, $0.01 par value; 12,000 shares
authorized; 5,008 and 5,000 shares issued and
outstanding, respectively 50 50
Class B, common stock, $0.01 par value; 3,000 shares
authorized; 2,242 and 2,250 shares issued and
outstanding, respectively 23 23
Additional paid-in capital 42,842 37,842
Accumulated deficit (6,281) (993)
--------- ---------
Total stockholders' equity 36,634 36,922
--------- ---------
Total liabilities and stockholders' equity $ 68,581 $ 67,875
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE> 19
COLONIAL DOWNS HOLDINGS, INC.
STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
December 31, December 31, December 31,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Pari-mutuel and simulcasting commissions $ 26,737 $ 20,876 $ 7,848
Other 2,807 2,771 679
---------- ---------- ----------
Total revenues 29,544 23,647 8,527

Operating expenses
Direct operating expenses
Purses, fees, and pari-mutuel taxes 11,509 10,164 4,002
Simulcast and other direct expenses 15,206 8,936 2,986
---------- ---------- ----------
Total direct operating expenses 26,715 19,100 6,988

Selling, general, and administrative expenses 6,426 5,014 2,007
---------- ---------- ----------
Total operating expenses 33,141 24,114 8,995
---------- ---------- ----------
Loss from operations (3,597) (467) (468)
Interest expense (1,825) (278) (183)
Interest income 50 837 6
---------- ---------- ----------
Earnings (loss) before income taxes (5,372) 92 (645)
Provision for (benefit from) income taxes (84) 84 -
---------- ---------- ----------
Net earnings (loss) $(5,288) $ 8 $ (645)
========= ========== ==========

Earnings (loss) per share data:
Basic and diluted earnings (loss) per share $ (0.73) $ 0.01 $ (0.22)
Weighted average number of shares outstanding 7,250 6,318 3,000

</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE> 20
COLONIAL DOWNS HOLDINGS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)

Common Stock Additional Retained Total
Class A Class B Paid-In Earnings Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity
------ ------ ------ ------ ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995 750 $ 8 2,250 $ 23 $ 1 $ (356) $ (324)
Conversion of shareholder
debt to equity - - - - 1,965 - 1,965
Net loss - - - - - (645) (645)
------ ------ ------ ------ ------- --------- ----------
Balance at December 31,
1996 750 8 2,250 23 1,966 (1,001) 996
Sale of common stock 4,250 42 - - 35,876 - 35,918
Net earnings - - - - - 8 8
------ ------ ------ ------ ------- --------- ----------
Balance at December 31,
1997 5,000 50 2,250 23 37,842 (993) 36,922
Conversion of Class B 8 - (8) - - - -
Land contribution - - - - 5,000 - 5,000
Net loss - - - - - (5,288) (5,288)
------ ------ ------ ------ ------- --------- ----------
Balance at December 31,
1998 5,008 $ 50 2,242 $ 23 $42,842 $(6,281) $ 36,634
====== ====== ====== ====== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE> 21
COLONIAL DOWNS HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>

Years Ended
-----------------------------------------
December 31, December 28, December 30,
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (5,288) $ 8 $ (645)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 1,602 655 284
Deferred income taxes and other (78) 84 -
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable
and other assets 470 (1,094) (48)
Increase (decrease) in trade accounts payable and
accrued liabilities (51) 3,459 1,074
Decrease (increase) in horsemen's deposits
and purses 1,056 (59) (338)
----------- ----------- ------------
Net cash provided by (used in) operating activities $ (2,289) $ 3,053 $ 327
----------- ----------- ------------
Investing activities:
Capital expenditures (5,884) (47,133) (5,771)
Increase (decrease) in purse notes payable
due horsemen - (1,620) 1,958
Other - (98) (186)
----------- ----------- -----------
Net cash used in investing activities (5,884) (48,851) (3,999)
----------- ----------- -----------
Financing activities:
Proceeds from long-term debt and capital leases 6,398 11,389 46
Payments on long-term debt and capital leases (418) (216) (11)
Proceeds from notes payable - 4,612 4,988
Payment on notes payable - (4,199) (100)
Increase in financing costs - (70) (201)
Proceeds from issuance of common stock, net - 36,250 -
----------- ----------- -----------
Net cash provided by financing activities 5,980 47,766 4,722
----------- ----------- -----------
Net change in cash and cash equivalents (2,193) 1,968 1,050
Cash and cash equivalents, beginning of period 3,348 1,380 330
----------- ----------- -----------
Cash and cash equivalents, end of period $ 1,155 $ 3,348 $ 1,380
=========== =========== ==========

Supplemental Cash Flow Information:
Supplemental disclosure of noncash investing
and financing activities
Land contribution $ 5,000 $ - $ -
Capital lease obligation incurred - 229 39
Cash paid for interest 1,915 1,094 95
Conversion of debt to equity - - 1,965
Conversion of accounts payable to long-term debt 1,450 - -
Cash paid for income taxes - 218 -

</TABLE>
The accompanying notes are an integral part of the financial statements.

<PAGE> 22

COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Colonial Downs Holdings, Inc., ("Colonial"), a Virginia Corporation, was
incorporated in 1996. Colonial owns and operates, through its wholly-owned
subsidiaries, Colonial Downs Racetrack (the "Track") in New Kent, Virginia,
which primarily conducts pari-mutuel wagering on Thoroughbred and Standardbred
horse racing. Colonial also owns and operates four Racing Centers which
provide simulcast pari-mutuel wagering on Thoroughbred and Standardbred horse
racing from selected racetracks throughout the United States.

Principles of Consolidation

The consolidated financial statements include the following entities of
Colonial and its subsidiaries (collectively, the "Company"), which prior to the
reorganization, were affiliated through common ownership and control:

Colonial Downs, L.P. ("Partnership")
Stansley Racing Corp. ("SRC")
Colonial Downs Holdings, Inc. ("CD Holdings")

The consolidated financial statements have been prepared as if the
entities had operated as a single consolidated group and assuming that the
reorganization had taken place as of December 31, 1993. All significant
intercompany accounts and transactions have been eliminated.

Reorganization

The Company's licenses to own and operate the racetrack and its racing
centers ("Racing Centers") are held by the Partnership and SRC. Prior to the
Reorganization (defined below), Stansley Management Corp. ("SMC") and CD
Entertainment Ltd. each owned 50% of the Partnership. The ownership and
operating licenses held by the Partnership and SRC are nontransferable under
the Virginia Racing Act. In order to bring the licenses under the control of
one entity while avoiding transfer of the licenses, CD Holdings became a
holding company for the Partnership and SRC pursuant to an Agreement and Plan
of Reorganization ("Reorganization"). Pursuant to the Reorganization, CD
Holdings acquired, in exchange for 3,000,000 shares of its common stock, a 99%
limited partner interest in the Partnership and 100% of the outstanding stock
of SRC. Also, in conjunction with the Reorganization, SRC acquired a 1%
general partner interest in the Partnership. The Reorganization became
effective on March 12, 1997.

<PAGE> 23

COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

As a result of the Reorganization, the Company owns, directly, or through
its wholly-owned subsidiaries, the operating licenses for the racetrack and the
Chesapeake, Richmond, Hampton, and Brunswick Racing Centers; the property for
the Richmond, Hampton, and Brunswick Racing Centers; the rights to apply for
licenses to own and operate up to two additional Racing Centers in Virginia;
the 345 acres on which the racetrack exists; and the racetrack facilities and
certain related infrastructure.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all demand deposits and time deposits with original
maturities of three months or less to be cash equivalents.

Capitalized Interest

Interest in the amount of $146,000, $1,068,000 and $72,000 were
capitalized during 1998, 1997 and 1996, respectively, in connection with the
construction of the Track and development of the Racing Centers.

Property, Plant and Equipment

Property, plant and equipment are stated at historical cost. Depreciation
is computed using the straight-line method based on the estimated useful lives
of the related assets. Estimated useful lives used for depreciation purposes
are as follows:

Land improvements 20 to 40 years
Building and improvements 5 to 40 years
Equipment, furnishings, and fixtures 2 to 20 years
Leasehold improvements 7 to 40 years

Depreciation expense was $1,541,000, $534,000 and $120,000 for fiscal
years 1998, 1997 and 1996, respectively.

Costs of betterment, renewals, and major replacements are capitalized.
Maintenance, repairs and minor replacements are expensed as incurred. Gains
and losses from dispositions are included in the results from operations.

<PAGE> 24
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Licensing Costs and Amortization

Licensing costs, which are being amortized over a period of twenty years,
consist primarily of professional fees associated with the application for the
racetrack licenses and related licensing fees for the Racing Centers, which are
20 year licenses.

Revenue Recognition

The Company primarily derives revenue from import simulcasting, which is
the Company's share of wagering at its Racing Centers on races simulcasted from
other racetracks. Revenue also is derived from live racing at the Track as
well as export simulcasting of its live racing to other racetracks.

Horsemen's Purse and Awards

Amounts due under agreements with the Virginia Horsemen's Benevolent and
Protective Association, Inc. and the Virginia Harness Horse Association (Note
9) are accrued based on the terms of the agreements. Funds not yet remitted to
the associations to satisfy the liability are held in a restricted cash
account. As of December 31, 1998 and 1997 approximately $600,000 and
$1,656,500, respectively, were held in the restricted cash accounts.

Long-Lived Assets

The carrying value of long-lived assets, principally identifiable
intangibles, property, plant and equipment, are reviewed for potential
impairment when events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable, as determined based on the
undiscounted cash flows over the remaining amortization periods. In such a
case, the carrying value of the related assets would be reduced by the
estimated shortfall of discounted cash flows.

Fair Value of Financial Instruments

The following methods and assumptions are used to estimate the fair value
of each class of financial instruments for which it is practical to estimate.

Cash and Cash Equivalents - The carrying amount approximates the fair
value due to the short maturity of the cash equivalents.

Long-Term Debt and Capital Lease Obligations - The fair value of the
Company's long-term debt and capital lease obligations is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The carrying
amount approximates fair value since the Company's interest rates approximate
current interest rates.

<PAGE> 25

COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

2. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Reclassifications

Certain reclassifications have been made in the prior years' financial
statements in order to conform to the December 31, 1998 presentation.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to credit risk
consist of cash equivalents, including horsemen's deposits, and accounts
receivable. The Company's policy is to limit the amount of credit exposure to
any one financial institution and place funds with financial institutions
evaluated as being creditworthy. At December 31, 1998, the Company had cash
deposits which exceeded federally insured limits by approximately $970,500.

New Accounting Standards

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilutive effect of securities (which can consist of stock options and warrants)
that could share in earnings of an entity.

<PAGE> 26
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

2. MANAGEMENT AND CONSULTING AGREEMENT

The Company entered into a Management and Consulting Agreement (the
"Agreement") with Maryland Jockey Club ("MJC") to provide experienced
management for the Track and Racing Centers and to create a Virginia-Maryland
Thoroughbred racing circuit. Under the Agreement, Maryland Jockey Club agreed
to suspend live racing at their racetracks, Laurel Park and Pimlico Race
Course, during the Company's live Thoroughbred meets. Parties to the Agreement
also agreed to exchange simulcast signals for their live meets at no cost to
either party. An amendment to the Agreement (the "Amended Agreement") was
signed by both parties on January 15, 1999, which restructured among other
terms, MJC's responsibilities as managers and the management fee paid to MJC.
Effective July 1, 1999, MJC will have operating responsibilities for the
Company's Racing Centers as well as the live Standardbred and Thoroughbred
meets. MJC will no longer be reimbursed for expenses incurred while acting as
managers of these operations. Under the Amended Agreement, the management fee
incurred in 1998 of 2% of amounts wagered at the Company's facilities (other
than on live Standardbred meets conducted at the Track), was reduced and going
forward, the Company will pay MJC 1.0% of the first $75 million of the
aggregate gross amounts wagered in any calendar year in the Commonwealth of
Virginia excluding certain conditions ("Handle") specified in the Amended
Agreement. In addition, the Company will pay MJC an annual management fee
equal to 2.0% of all amounts wagered in excess of $75 million per calendar
year. Management fees relating to the Company's new Racing Centers will
increase up to 3.25% of Handle depending upon their location.

The Agreement will remain in effect for as long as the Company owns,
controls or operates the Track, not to exceed a term of 50 years. At the
Company's option, the Company may terminate the agreement any time after 25
years upon payment of a fee equal to 17 times the average management fee paid
during the three years immediately preceding such termination.

Management fees incurred in 1998, 1997, and 1996 were $1.1 million, $2.7
million, and $0.7 million, respectively.

3. LAND CONVEYANCE

Delmarva Properties, Inc. and Chesapeake Forest Products Company
(collectively "Delmarva") and the Company entered into an agreement in which
Delmarva, at no cost to the Company, conveyed the land required to build the
racetrack and facilities in New Kent County. The original agreement contained
certain land use restrictions and a reconveyance provision. On January 14, 1999
Delmarva and the Company entered into an agreement pursuant to which Delmarva
agreed to relinquish their rights to require reconveyance of the property and
to execute a deed of release to such effect. Delmarva also agreed to the
following additional potential uses for the land and facilities: i) performing
arts center; ii) athletic training facility; or iii) hotel conference center.
Additional uses for the facilities are allowed upon approval by all parties.
As of December 31, 1998, the $5.0 million estimated value of the land was
recorded by the Company as a contribution to equity.

<PAGE> 27

COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

4. LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, AND CAPITAL LEASES

Long-Term Debt, Notes Payable-Related Parties, and Capital Leases,
consisted of the following:

<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
----------- ------------
<S> <C> <C>
Note payable to a bank maturing June 2000, with two one year
extensions, bearing interest at a variable rate (8.69% at
December 31, 1998 and 1997), quarterly principal payments of
$500,000 commencing in March 1999, collateralized by
substantially all assets, except the Racing centers, of the
Company and guaranteed by certain shareholders and related
parties $ 10,000,000 $ 10,000,000

Convertible subordinated note payable to CD Entertainment,
Ltd., maturing September 2000, with interest payable quarterly
at a rate of 7.25%, collateralized by a second deed of
trust on the racetrack facility 5,500,000 5,500,000

Note payable to a bank, maturing August 1999, bearing
interest at prime (8.5% at December 31, 1998 and 1997)
plus 1.0%, with monthly principal payments of $15,000,
collateralized by certain fixed assets 645,000 840,000

Note payable to an insurance company, maturing October 1999,
Bearing interest at 6.83%, with monthly payments of $8,622
including interest 83,557 170,186

Installment loans and capitalized leases collateralized by
certain vehicles, machinery and equipment, maturing at
various dates through September 2000, at interest rates
ranging from 3% to 9% 153,974 252,465

Note payable to Maryland Jockey Club, maturing December 2005,
Bearing interest at a rate of 7.75% payable quarterly for
the first two years and equal installments of interest and
principal to be paid over the remaining five year term of
the note 1,450,000 -

Note payable under the revolving credit facility with a bank,
bearing interest at a variable rate (8.65% at December
31, 1998), due June 30, 1999, collateralized by substantially
all assets, except the Racing centers, of the Company and
guaranteed by certain shareholders and related parties 5,000,000 -

Convertible subordinated note payable to CD Entertainment,
Ltd., maturing August 2000, with an interest rate of 8.5% 1,000,000 -

</TABLE>

<PAGE> 28
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

4. LONG-TERM DEBT, NOTES PAYABLE-RELATED PARTIES, AND CAPITAL LEASES -
(CONTINUED)
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
----------- ------------
<S> <C> <C>
Note payable from the Thoroughbred purse account, due
August 1999, with interest rate of 3.1%, collateralized
by the Hampton Racing Center 360,000 -
----------- -----------
24,192,531 16,762,651
Less current maturities 9,184,378 1,373,059
----------- -----------
15,008,153 15,389,592
Less long-term debt - related party 6,500,000 5,500,000
----------- -----------
Long-term debt, including capital lease obligations $ 8,508,153 $ 9,889,592
=========== ===========
</TABLE>

The terms of the $10 million bank note and revolving credit loan with the
bank contain, among other provisions, affirmative and negative covenants. As
of December 31, 1998, the Company was in violation of certain covenants set
forth in the loan agreement. On January 11, 1999, the Company negotiated an
agreement with PNC Bank, N.A. ("PNC"), which restructured the principal payment
of the Credit Agreement dated June 26, 1997. Under the agreement, in lieu of
making principal payments on the due dates, the Guarantors are required deliver
to PNC a letter of credit in the face amount of the principal payment. The
letters of credit shall have an expiration of July 31, 2000. A guarantor
posted a $1 million letter of credit in lieu of the Company making the
principal payment due December 31, 1998.

Scheduled maturities of notes payable and capital lease obligations are as
follows:

1999 $ 9,184,378
2000 13,558,153
2001 290,000
2002 290,000
2003 and thereafter 870,000
-------------
$ 24,192,531
=============

5. INCOME TAXES

Significant components of the provision for (benefit from) income taxes
are as follows:

(In Thousands)
Years Ended December 31,
1998 1997
------------ ------------
Current:
Federal $ - $ -
State - -
------------ ------------
- -

<PAGE> 29
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

5. INCOME TAXES - (CONTINUED)

(In Thousands)
Years Ended December 31,
1998 1997
------------ ------------
Deferred:
Federal (57) 57
State (27) 27
------------ ------------
(84) 84
------------ ------------
Total $ (84) $ 84
============ ============

Deferred income tax assets (liabilities) consist of the following:

(In Thousands)
December 31,
1998 1997
---------- ----------
Assets
Net operating loss $ 2,828 $ 276
Liabilities
Depreciation and amortization (276) (360)
---------- ----------
Net deferred tax asset (liability) 2,552 (84)
Valuation allowance (2,552) -
---------- ----------
Deferred tax liability $ - $ (84)
========== ==========

Income tax expense (benefit) as reported differs from the amounts computed
by applying the statutory federal income tax rate to pre-tax income as follows:

(In Thousands)
Year End
1998 1997
---------- ----------
Income taxes at statutory rate $ (1,798) $ 31
Increases (decreases) resulting
from state taxes, net of federal
income tax benefit (209) (10)
Valuation allowance 1,923 -
Campaign costs - 211
Income allocable to entities prior
to reorganization - (158)
Other - 10
---------- ----------
$ (84) $ 84
========== ==========

At December 31, 1998, the Company has net operating loss carryforward of
approximately $7.4 million for income tax purposes that expire in years 2012
through 2018. A valuation allowance has been recognized to reduce the deferred
tax assets to amounts expected to be realized.

<PAGE> 30
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

6. EMPLOYEE BENEFIT PLANS

In June 1998, the Company implemented a 401(k) Plan in which all full time
and part time employees are eligible to participate after six months of
employment. Employees may elect to make pre-tax contributions up to 15.0% of
their annual salary or the applicable statutory maximum limits to the 401(k)
Plan. The Company makes discretionary matching contributions (subject to
statutory limits) in an amount equal to 10.0% of the first 6% of the employee's
contribution. Company contributions are fully vested after three years of
employment.

The Company's contributions to the 401(k) Plan for the year ended December
31, 1998 were $2,400.

7. RELATED PARTY TRANSACTIONS

The Company had a management agreement to pay directly and indirectly to
SRC and CD Entertainment Ltd. a monthly management fee of $10,000 and $5,000,
respectively. The Company incurred management fees of $180,000 during the year
ended December 31, 1996. Upon consummation of the Initial Public Offering,
these agreements were terminated and the Company entered into a new five year
consulting agreement at $75,000 per year with the Vice Chairman of the Board of
Directors. Total expense under the agreement was $75,000 and $59,375 for the
years ended December 31, 1998 and 1997, respectively.

Virginia Concessions, L.L.C., ("VAC") an affiliate of a shareholder, has
an agreement with the Company to manage the food and beverage concessions at
the Company's Racing Centers. Under the agreement, VAC pays commissions to the
Company based upon a percentage of gross sales at each Racing Center. Under
the agreement, the Company earned commissions of approximately $146,500 and
$89,000 for the years ended December 31, 1997 and 1996, respectively. The
agreement was amended in 1998 to state that the Company receives 100% of VAC's
net income or loss. In 1998, VAC incurred a loss of approximatley $7,000
(unaudited). Accounts receivable from VAC amounted to approximately $181,000
at December 31, 1998 and 1997, respectively.

Norglass, Inc. ("Norglass"), an affiliate of a shareholder, was engaged as
the general contractor to construct the Track and related facilities in New
Kent County, Virginia. The original contract value with Norglass, Inc. for the
facilities (which does not include approximately $8.1 million for certain
equipment, furniture, fixtures, and improvements) was estimated at
approximately $29.5 million. The Company is currently engaged in arbitration
with Norglass regarding the construction agreement, dated February 10, 1997
(See Note 8).

<PAGE> 31
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

7. RELATED PARTY TRANSACTIONS - (CONTINUED)

The Company paid and capitalized a $125,000 development fee to Premier
Development Co. ("Premier"), an affiliate of a shareholder, pursuant to a 1996
agreement. On October 1, 1997, the Company entered into a new agreement with
Premier to pay annual consulting fees in the amount of $226,000 through
September 30, 1999. The Company paid $266,000 and $50,000 under the new
agreement for the years ended December 31, 1998 and 1997, respectively.

8. COMMITMENTS AND CONTINGENCIES

The Company has entered into an agreement with a totalisator company which
provides wagering services and designs, programs, and manufactures totalisator
systems for use in wagering applications. The basic terms of the agreement
state that the totalisator company shall provide totalisator services to the
Company for all wagering held at the Company's facilities during the first six
years of operations. As a part of the agreement, the Company agreed to pay the
totalisator company certain percentages of the gross amounts wagered at the
Track and Racing Centers, as well as a minimum of $37,500, payable annually for
equipment installed at the racetrack for live race meets. In addition, the
Company agreed to use certain equipment provided by the totalisator company.

The Company has entered into agreements with a company which provides
broadcasting and simulcasting equipment. The basic terms of the agreement
state that the company shall provide broadcasting and simulcasting equipment at
the Track and Racing Centers. Total expense incurred for totalisator and
broadcasting and simulcasting equipment (excluding host fees) was approximately
$1,662,000, $796,000 and $190,000 for the years ended December 31, 1998, 1997,
and 1996, respectively.

The Company leases automobiles, building space, and certain equipment
under operating leases expiring at various dates. Total rental expense under
these non-cancelable leases was approximately $207,000, $393,000 and $144,000
for the years ended December 31, 1998, 1997, and 1996, respectively.

The following are the future estimated minimum commitment relating to
non-cancelable operating agreements and leases:

Broadcasting
Simulcasting
and
Year ended December 31, Totalisator Other Total
- ----------------------- --------------- ----------- --------------
1999 $ 1,357,000 $ 108,500 $ 1,465,500
2000 1,236,000 48,800 1,284,800
2001 1,170,000 1,700 1,171,700
2002 783,000 500 783,500
--------------- ----------- --------------
$ 4,546,000 $ 159,500 $ 4,705,500
=============== =========== ==============

<PAGE> 32
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

8. COMMITMENTS AND CONTINGENCIES - (CONTINUED)

Pursuant to an agreement to provide credit support to the Company,
Diversified Opportunities Group Ltd. ("Diversified"), an affiliate of a
shareholder, will receive an annual fee equal to 3% of the amount of any
letters of credit or guarantees provided to the Company (subject, in the case
of a letter of credit, to a minimum annual fee of $50,000). The 1998 fee of
$450,000 is not payable until such time that the Company has successfully
opened two satellite wagering facilities in Northern Virginia. If such events
do not occur by December 31, 2007, the fee will be waived in its entirety.
Costs incurred under this agreement were $165,124 in 1997.

To assist in the development and improvement in certain public roads
adjacent to the racetrack facility, the Company entered into an agreement in
July 1996 with New Kent County and the Capital Area Training Consortium for a
Community Development Block Grant of $700,000. In addition to the grant, an
additional amount of approximately $700,000 was allocated by the Virginia
Department of Transportation to complete a project which widened State Route
155 from I-64 to the entrance of the racetrack grounds.

Under the above agreements, the Company must take affirmative steps to
employ a minimum number of low and moderate income persons based on HUD Section
8 Income Limits. In the event that the Company fails to honor its commitment
to take such affirmative steps, the Company must repay any local or grant funds
already expended in full to the locality and the Virginia Department of Housing
and Community Development. The Company is in compliance with the requirements.

On March 8, 1999, the Company filed a notice of appeal in the Circuit
Court of the City of Richmond (the "Court") pertaining to the February 25, 1999
ruling of the Virginia Racing Commission regarding certain issues related to
the award of 1999 racing dates and the funding of the thoroughbred and
standardbred purse accounts. On March 10, 1999, the Court entered a stay of
the Commission's ruling with respect to the posting of a $3.125 million bond by
March 10, 1999 or making daily deposits into the thoroughbred purse account
equal to 5 1/4 percent of amounts wagered on Thoroughbred races at the Racing
Centers beginning March 1, 1999, (which would have an adverse effect on the
Company's cashflow). A hearing on the matter is scheduled for April 7, 1999.

Pursuant to the terms of the Construction Contract, the Company is
proceeding before the American Arbitration Association ("AAA") against
Norglass, the general contractor engaged to manage the construction of the
Track. In the proceeding, the Company challenges the validity of Norglass's
mechanic's liens for approximately $11.8 million (subsequently reduced to $6.5
million) and asserts a damage claim against Norglass in an amount not less than
$7.7 million. Norglass' damage claim against the Partnership is $5.8 million
as announced in a hearing on December 14, 1998. The Company is vigorously
pursuing its claims against Norglass and is vigorously defending against claims
for payment by Norglass under the Construction Contract. If the Company does
not prevail in its claims and assuming it receives credit against Norglass's
claims for the amount the Company has paid directly to subcontractors, the
Company believes that its potential liability, included in accounts payable at
December 31, 1998, is approximately $1.9 million in construction costs, plus
interest, from a date to be established and legal fees. Additionally, it will
be unable to recover approximately $3.8 million it had paid to subcontractors
of Norglass.

<PAGE> 33
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

9. HORSEMEN'S AGREEMENT

In 1998, the Company contributed to the thoroughbred and standardbred
purse accounts, respectively, a certain percentage of all thoroughbred and
standardbred wagers at its Racing Centers. The purse structures are negotiated
each year with the respective horsemen's groups, the Virginia Horsemen's
Benevolent Protection Association ("VaHBPA") for thoroughbed and the Virginia
Harness Horse Association ("VHHA") for standardbred.

The Company entered into agreements with the VaHBPA regarding revenue
generated from pari-mutuel wagering on simulcast Thoroughbred races at all
facilities owned and operated by the Company in Virginia, and simulcasting of
live thoroughbred races at the racetrack. In accordance with the agreements,
the Company maintains a separate joint bank account, which is classified as
Horsemen's Deposits, (the "Thoroughbred Partner Account") into which the
Company deposited an amount equal to 5.25% of the thoroughbred handle at each
Racing Center. In addition, in accordance with the Virginia Racing Act, the
Company deposits approximately 8.5% of the handle generated by live
thoroughbred racing conducted at the Track. The Company also contributes 5% of
net revenue derived from export simulcasting of live thoroughbred races at the
Track to the Virginia Breeders Fund. Thoroughbred purse expense for 1998 and
1997 were $4.6 million and $3.2 million, respectively. The original agreement
expired December 31, 1998. The Company is currently negotiating a new
agreement with the VaHBPA.

The Company entered into agreements VHHA regarding revenue generated from
pari-mutuel wagering on simulcast Standardbred races at all facilities owned
and operated by the Company in Virginia, and simulcasting of live races held at
the racetrack. In accordance with the agreements, the Company maintains a
separate joint bank account (the "Standardbred Partner Account") into which the
Company deposits an amount equal to 5% of the Racing Center Standardbred
handle. In addition, in accordance with the Virginia Racing Act, the Company
deposits approximately 8.5% of the handle generated by live standardbred racing
conducted at the Track. The Company also contributes 5% of the net revenue
derived from export simulcasting of live Standardbred races at the Track to the
Virginia Breeders Fund. The contract between the Company and the VHHA was
amended in March 1999 to provide that the maximum standardbred purse expense
for 1999 will be $1.5 million. Standardbred purse expense for 1998 and 1997
were $1.5 million and $1.0 million, respectively.

<PAGE> 34
COLONIAL DOWNS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)

10. STOCK OPTIONS

In conjunction with the Reorganization and IPO, the Company implemented a
stock option plan on March 31, 1997. Options granted under the plan may be
either Incentive Stock Options or Non-qualified Stock Options, based on the
discretion of the Board of Directors. The maximum aggregate number of shares
which may be optioned and sold under the plan is 300,000 shares of Class A
Common Stock. The exercise price per share for Incentive Options will be no
less than the fair value of the stock at the grant date. The exercise of Non-
qualified Options is determined by the Board of Directors on the grant date.
The term of the plan is ten years. On December 15, 1998, 96,000 granted and
outstanding options were repriced from $9.50 per share to $1.00 per share.
<TABLE>
<CAPTION>
Weighted
Average
Exercise Available Options Vested and
Price For Grant Outstanding Exercisable
----------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Balance at March 31, 1997 $ - 300,000 - -
Granted 9.86 (242,000) 242,000 -
Forfeited - 50,000 (50,000) -
----------- ----------- ------------- --------------
Balance at December 31, 1997 9.86 108,000 192,000 -
Granted 1.00 (79,000) 79,000 -
Forfeited - 26,000 (26,000) -
Vested - - - 60,000
----------- ----------- ------------- --------------
Balance at December 31, 1998 $ 3.69 55,000 245,000 60,000
=========== =========== ============= =============
</TABLE>

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123). SFAS 123 establishes alternative methods of
accounting and disclosure for employee stock-based compensation arrangements.
The Company has elected to use the intrinsic value method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations, for stock options granted to
the Company's employees. This method does not result in the recognition of
compensation expense when employee stock options are granted if the exercise
price of the option equals or exceeds the fair market value of the stock at the
date of grant.

If the accounting provisions of SFAS 123 had been adopted, the effect on
1998 and 1997 earnings would have been as follows (In Thousands, Except Per
Share):

1998 1997
------------- --------------
Net earnings (loss):
Reported $ (5,288) $ 8
Proforma (5,299) (126)
Basic and diluted earnings (loss)
per share:
Reported $ (0.73) $ 0.01
Proforma (0.73) (0.02)

For purposes of computing the proforma amounts indicated above, the fair
value of each option on the date of grant is estimated using the Black-Scholes
option pricing model with the following assumptions: no dividend yield,
expected volatility of 50%, risk-free interest rate of 5.04% and expected lives
of three to ten years. Substantially all options become vested and exercisable
evenly over a five year period. The weighted average fair value of options
granted and outstanding at December 31, 1998 was $1.47.

<PAGE> 35

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 is incorporated by reference from the
Company's definitive proxy statement with respect to the Company's Annual
Meeting of Shareholders to be held on July 6, 1999. Such proxy statement shall
be filed pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended, within 120 days after the end of the fiscal year
covered by their Annual Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

<PAGE> 36
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements
Included in Part II of this report:

Report of Independent Auditors

Balance Sheets at fiscal year end 1998 and 1997

Statements of Operations for fiscal years 1998, 1997 and 1996

Statements of Changes in Stockholder's Equity for fiscal years
1998, 1997 and 1996

Statements of Cash Flows for fiscal years 1998, 1997 and 1996

Notes to Financial Statements

2. Financial Statement Schedule
Included in Part IV of this report:

All required schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial statements or
notes thereto.

3. Exhibits

2.1 Agreement and Plan of Reorganization (1)
3.1 Amended and Restated Articles of Incorporation of Colonial
Downs Holdings, Inc. (1)
3.2 Amended and Restated By-laws of Colonial Downs Holdings,
Inc. (1)
4.1 Stock Certificate representing Colonial Downs Holdings,
Inc. Common Stock (1)
10.1 Management and Consulting Agreement (1)
10.2 Amended and Restated Performance Guarantee Agreement (1)
10.3 Form of Deed for Track site (1)
10.4 Construction Agreement (1)
10.5 Development Agreement (1)
10.6 Hubbing Agreement (1)
10.7 VHHA Simulcast Wagering Agreement (1)
10.8 VaHBPA Simulcast Wagering Agreement (1)
10.9 Form of Convertible Subordinated Note (1)
10.10 Forms of Employment Agreements (1)
10.11 Form of Stansley Racing Agreement (1)
10.12 Amended and Restated Promissory Note to CD Entertainment
Lt. (1)
10.13 Agreement for Interim Financing (1)

<PAGE> 37

10.14 Registration Rights Agreement (1)
10.15 Not used (1)
10.16 Form of 1997 Stock Option Plan (1)
10.17 Agreement for Provision of Credit (1)
10.18 Management Agreement between Colonial Downs, L.P.
and Virginia Concessions, L.L.C. (2)
10.19 Construction Loan Agreement between Colonial Downs,
L.P. and PNC Bank, N.A. (2)
10.20 Revolving Line of Credit Agreement (2)
10.21 Deed of Trust Note (2)
10.22 Revolving Line of Credit Note (2)
10.23 Deed of Trust and Security Agreement (2)
10.24 Assignment of Leases and Rents (2)
10.25 Agreement of Guaranty and Suretyship (Completion) between
Stansley Racing Corp. and PNC Bank, N.A. (2)
10.26 Agreement of Guaranty and Suretyship (Completion) between
Colonial Downs, Holdings, Inc. and PNC Bank, N.A.
10.27 Agreement of Guaranty and Suretyship (Payment), between
Stansley Racing Corp. and PNC Bank, N.A. (2)
10.28 Agreement of Guaranty and Suretyship (Payment), between
Colonial Downs Holdings, Inc. and PNC Bank, N.A. (2)
10.29 Promissory Note payable to Citizens and Farmers Bank (3)
10.30 Business Loan Agreement between the Company, the
Partnership, and Citizens and Farmers Bank (3)
10.31 Commercial Security Agreement among the Company, the
Partnership, and Citizens and Farmers Bank (3)
10.32 Subordinated Agreement (Lighting) among the Company, CD
Entertainment, the Partnership, and David F. Belkowitz and
James W. Theobold (3)
10.33 Employment Agreement dated June 23, 1997 between the
Company and Ian M. Stewart (3)
10.34 Souvenir and Gift Concessions Agreement dated August 1,
1997, by and between the Partnership, and Stansley Racing
Corp., and Colonial Gifts and Sportswear, Inc. (4)
10.35 First Amendment to Deed of Trust Note and Construction Loan
Agreement dated as of February 27, 1998, between Colonial
Downs, L.P., and PNC Bank, N.A. (5)
10.36 Convertible Subordinated Note, dated August 26, 1998 in the
principal amount of $1.0 million issued to CD Entertainment
Ltd. (6)
10.37 Deed of Trust, Assignment of Rents and Leases, and Security
Agreement and Assignment thereto to CD Entertainment Ltd.
(6)
10.38 Amended and Restated Management and Consulting Agreement
and Addendum between the Company and Maryland-Virginia
Racing Circuit, Inc., dated January 15, 1999
10.39 Agreement between Delmarva Properties, Inc. and the Company
dated January 15, 1999

<PAGE> 38
10.40 Forbearance Agreement dated January 11, 1999 between the
Company and PNC Bank, N.A.
21.1 Subsidiaries of the Registrant (1)
24.1 Power of Attorney (1)
27 Financial Data Schedule

(1) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s Registration Statement on Form S-1 (Registration
No. 333-18295).
(2) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated August 14, 1997.
(3) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated September 14, 1997.
(4) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-K, dated March 30, 1998.
(5) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated May 15, 1998.
(6) Incorporated by reference to the Exhibits filed with Colonial Downs
Holdings, Inc.'s 10-Q, dated November 16, 1997.

(b) Reports on Form 8-K
Colonial Downs Holdings, Inc. filed a Current Report on Form 8-K dated
October 26, 1998 reporting, under Item 5, "Strategic Financial Plan"

<PAGE> 39

SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

COLONIAL DOWNS HOLDINGS, INC.

By: /s/ Ian M. Stewart
---------------------------------
Ian M. Stewart, President
and Chief Financial Officer
March 31, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

/s/ Jeffrey P. Jacobs /s/ Robert H. Hughes
- ------------------------- -----------------------
Jeffrey P. Jacobs, Chief Executive Officer, Robert H. Hughes,
Chairman of the Board, Director Director
March 31, 1999 March 31, 1999

/s/ Arnold W. Stansley /s/ David Grunenwald
- -------------------------- -----------------------
Arnold W. Stansley, David Grunenwald,
Director Director
March 31, 1999 March 31, 1999

/s/ William J. Koslo /s/ Patrick J. McKinley
- ------------------------ --------------------------
William J. Koslo, Jr., Patrick J. McKinley,
Director Director
March 31, 1999 March 31, 1999

/s/ Stephen D. Peskoff
- --------------------------
Stephen D. Peskoff,
Director
March 31, 1999

AMENDED AND RESTATED
MANAGEMENT AND CONSULTING AGREEMENT

This Amended and Restated Management and Consulting Agreement is entered into
By and among: (1) COLONIAL DOWNS, L.P., a Virginia limited partnership ("Owner")
STANSLEY RACING CORP., a Virginia corporation that is the sole general partner
of Owner ("Operator"), and COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation
("Holdings") that is the limited partner of Owner and the successor in interest
to STANSLEY MANAGEMENT CORP., a Virginia corporation that was the former sole
general partner of Owner (collectively "Colonial Downs" unless the context
indicates otherwise); and (2) MARYLAND-VIRGINIA RACING CIRCUIT, INC. (formerly
known as the OLD DOMINION JOCKEY CLUB, INC.), a Virginia corporation
("Manager").

R E C I T A L S:

1. Owner applied to the Virginia Racing Commission ("Commission") for a
license to own a horse racing facility with pari-mutuel wagering at a
345-acre site in New Kent County, Virginia (the "Racetrack").
Operator also applied to the Commission for a license to operate the
Racetrack.

2. The parents of Manager are Pimlico Racing Association, Inc. and
Laurel Racing Association Limited Partnership (collectively, the "Maryland
Jockey Club").

3. Colonial Downs and the Maryland Jockey Club entered into a letter
agreement dated January 1, 1994, as amended September 12, 1994 (the "Letter
Agreement"), which was filed with the Commission as part of Colonial Downs'
application for the licenses.

4. The Commission, by Decision and Order dated October 12, 1994, awarded
the licenses (the "Licenses") to own and operate a horse racing facility in
New Kent County to Owner and Operator, respectively.

5. The Commission in the Decision and Order made findings that the
Maryland Jockey Club had agreed to manage Colonial Downs' thoroughbred meet;
that Colonial Downs and the Maryland Jockey Club had agreed to coordinate
racing schedules to create a Virginia-Maryland thoroughbred circuit; and that
the Maryland Jockey Club and Colonial Downs had agreed to share the broadcast
signals from their respective thoroughbred meets.

6. Colonial Downs holds four licenses from the Commission to own and
operate four off-track betting facilities ("OTB Facilities") and intends to
apply to the Commission for additional licenses (collectively, the "OTB
Licenses," to include all such current and future licenses unless the context
clearly indicates otherwise) to develop and operate the maximum number of OTB
Facilities consistent with its business and financing.

7. Manager holds an operator's license from the Commission to operate
the thoroughbred meets at the Racetrack.

8. Operator has become the sole general partner of Owner, and Holdings
has become the successor in interest to Stansley Management Corp. and the owner
of both Owner and Operator; and

9. The parties (or successors to or affiliates thereof) hereto entered
into a Management and Consulting Agreement, dated as of April 22, 1996 (the
"1996 Agreement"). After conducting two thoroughbred race meets pursuant to
the 1996 Agreement, the parties desire to amend the 1996 Agreement in certain
respects and, accordingly, enter into this amended and restated agreement,which
subject to Section 9.14 below, supersedes the 1996 Agreement in its entirety.

A G R E E M E N T S:

NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:

SECTION 1
RESPONSIBILITIES OF COLONIAL DOWNS

1.1 Financing and Development of the Racetrack and OTB Facilities.
Owner shall have the exclusive responsibility to obtain all of the funds needed
to develop, build, equip and operate the Racetrack and all the OTB Facilities.
In addition, Owner shall develop, build and equip the Racetrack and all OTB
Facilities and in connection therewith shall acquire all movable and other
equipment necessary or desirable for the successful operation of the Racetrack
and OTB Facilities, including but not limited to all equipment reasonably
necessary for Manager to perform properly its duties and responsibilities under
this Agreement. The funds needed to develop additional OTB Facilities are
unknown at this time. The terms of all equity and debt financing for the
Racetrack and any or all of the OTB Facilities shall be determined solely by
Owner, but shall not restrict, without Manager's consent, Owner's authority to
pay the Management Fee and Performance Fee to Manager as required by this
Agreement. Manager shall have no obligation to obtain or provide any such
equity or debt financing.

1.2 Working Capital. Owner shall provide all the funds necessary for
working capital during the development and construction phase as well as during
the operating phases of the Racetrack and the OTB Facilities. Owner shall use
its reasonable best efforts to provide, timely and in adequate amounts, the
funds necessary to pay all of the costs and expenses of the Racetrack and all
OTB Facilities.

1.3. Licenses and Permits.

1.3.1 Owner and Operator. Owner and Operator shall apply for and obtain
and shall apply for and obtain renewal of, all licenses and permits necessary to
develop and operate the Racetrack and all OTB Facilities. Such licenses include
but are not limited to the Licenses and the OTB Licenses. If Owner or Operator
fails to apply timely for the issuance or renewal of any such license or permit
Manager shall have the right to do so, at the cost of Owner or Operator, as the
case may be, and in the name of and as attorney-in-fact for Owner or Operator,
upon at least thirty (30) days' advance notice to Colonial Downs.

1.3.2 Manager. Manager may apply to the Commission for an operator's
license to operate standardbred meets at the Racetrack and to operate the OTB
Facilities, but other than these operator's licenses and its operator's license
to operate the thoroughbred meets at the Racetrack, Manager agrees, subject to
Sections 5.4.1 and 5.4.2 of this Agreement, not to apply for or otherwise
obtain a license to own or operate a pari-mutuel horse racing facility or
pari-mutuel horse racing off-track betting facility in the Commonwealth of
Virginia during the Term of this Agreement.

1.4 Maintenance of Facilities and Capital Expenditures. Colonial Downs
shall use its best efforts to assure that the Racetrack and OTB Facilities are
maintained as first-class facilities with all repairs, maintenance and capital
expenditures made to assure that they continue to be first-class facilities.
For purposes of funding capital expenditures, the parties have agreed to the
procedures set forth in Section 6.2.4 below.

1.5 Responsibility and Authority of Colonial Downs. Except for the
delegation to Manager in this Agreement, Colonial Downs reserves and retains
management responsibility, control and authority over the operations of the
Racetrack and OTB Facilities, including the following functions the positions
for which shall be staffed with employees who shall be paid, managed and
supervised by Holdings, Owner or Operator as provided in Sections 2.4.1, 2.4.2
and 2.4.3 below:

(i) Controller, accounting, finance and treasury functions. The
foregoing include but are not limited to all matters related to: pari-mutuel
and simulcast accounting; auditing of tellers and money rooms; money room
operations and management; purse receipts and disbursements; horsemen's
bookkeeping; and selection and supervision of independent certified public
accountants;

(ii) Selection of and negotiations of all arrangements with food and
beverage concessionaires consistent with the budget;

(iii) For 1999, (1) negotiation of all agreements with horsemen
representatives as to the number of race days and aggregate purse funds, and
subject to agreement with Manager, in which months meets will be held, and (2)
the conduct of racing for less than four days a week (with the possible
exception of the first and last week of the meet) consistent with the budget.
After 1999, Manager shall be responsible for the foregoing, subject to Owner's
approval of any agreement providing for purses in excess of the 1999 budget for
each breed. Additionally, Owner shall have the right to approve the purse for
the Virginia Derby;

(iv) All requests and reports to the Commission and to the Securities
and Exchange Commission;

(v) All Virginia legislative matters;

(vi) All press releases and other communications with the media relating
to Colonial Downs other than matters relating exclusively to racing at the
Racetrack and events at the OTB Facilities;

(vii) Retention of professional advisors (accountants, attorneys,
engineers);

(viii) Development of additional OTB Facilities;

(ix) All financial reporting to third parties, including the Securities
and Exchange Commission, and all communications with stockholders and
securities firms; and

(x) Maintenance and access to all bank and similar accounts.

1.6 Execution of Contracts. In all instances under this Agreement in
which Colonial Downs is required to approve and enter into a contract or other
agreement at the request of Manager, Colonial Downs shall act reasonably and
promptly unless otherwise specifically provided in this Agreement.

SECTION 2
RESPONSIBILITIES OF MANAGER

2.1 Management of Live Meets. Colonial Downs has retained and hereby
retains Manager to manage the day-to-day operations of the Racetrack and all
live thoroughbred and standardbred racing meets to be conducted at the
Racetrack during the Term and on the terms and subject to the conditions of
this Agreement, with such changes therein as the parties hereto may from time
to time agree, and subject to the rules, regulations and orders of the
Commission. Manager shall have the following specific responsibility and
authority with respect to the live thoroughbred and standardbred meets
conducted at the Racetrack:

2.1.1 Racing. Manager shall be responsible for and have authority with
respect to all functions generally performed by the Racing Department (i) of a
major thoroughbred racetrack, including but not limited to the following with
respect to thoroughbred meets, and (ii) of a standardbred racetrack at a
similar level of quality to the Racetrack for the comparable activities that
are applicable with respect to standardbred meets:

a. Receiving stall applications and making stall assignments;

b. Determining the qualifications and acceptability of all horses;

c. Performing all race office and stable functions, including writing
the condition and stakes books, writing the races and conducting the draws for
the races;

d. Developing and producing the daily racing program and past
performance information, including, subject to the approval of Colonial Downs,
which shall not be unreasonably withheld, delayed or conditioned, negotiating
contracts or agreements with Equibase and/or the Daily Racing Form, and with
printers or other such entities necessary to produce the daily racing program;

e. In conjunction with the appropriate representative(s) of Colonial
Downs, establishing and maintaining the liaison between management and the
horsemen and jockeys and the organizations that represent them;

f. Charting and clerk of course functions;

g. Paddock and patrol judges;

h. Starter, assistant starters and gate crew; and

i. Negotiating photo finish, teletimer and starting gate contracts,
subject to the approval of Colonial Downs which shall not be unreasonably
withheld, delayed or conditioned.

2.1.2 Track Maintenance. Manager shall be responsible for and have
authority with respect to all functions generally performed by the Track
Maintenance Department of a major thoroughbred or standardbred racetrack, as
the case may be, including but not limited to the following:

a. All activities related to assuring that the dirt and turf courses and
all inner and outer rails are well-maintained and safe for the horses and
jockeys;

b. Using tractors, water trucks, harrows, floats and other vehicles and
other equipment provided by Owner to maintain the track surfaces at necessary
and proper levels of condition;

c. Supervising the watering systems for the turf courses and assuring
that sufficient fertilizer, seed and sod are applied as necessary;

d. Providing the moveable rail for the turf courses, provided that
Colonial Downs shall be responsible for any damage to such rail other than
normal wear and tear; and

e. Taking such action as may be necessary to shut down the racing
surfaces properly for periods of time when they are not utilized for
thoroughbred training or racing.

Unless Owner otherwise agrees, all of the direct labor required for track
maintenance, to the extent reasonably possible, shall be performed by employees
paid by Owner and managed and supervised (including hiring and dismissing) by
Manager as provided in Section 2.4.5 below. Manager's Track Superintendent
shall coordinate with the Director of Maintenance in his performance of the
foregoing.

2.1.3 Promotion and Marketing. Subject to the funds made available by
Owner for marketing in the Annual Operating Budget, Manager shall establish a
plan for the promotion, marketing and advertising of the Racetrack and OTB
Facilities. To the extent reasonably possible, all direct labor for the
administration of such promotion, marketing and advertising shall be performed
by employees paid by Owner and managed and supervised (including hiring and
dismissing) by Manager as provided in Section 2.4.5 below, to the extent such
services are not performed by third parties. Manager shall oversee, manage and
supervise (including hiring and dismissing) the Director of Marketing for the
Racetrack and OTB Facilities and any personnel deemed necessary to assist such
Director as provided in Section 2.4.5 below.

2.1.4 Virginia-Bred Races. In planning, scheduling, promoting and
conducting the live meets at the Racetrack, Manager shall use its best efforts
to schedule races that promote qualified Virginia-bred horses and otherwise to
promote and encourage the horse breeding industry in the Commonwealth of
Virginia.

2.1.5 Establishment and Maintenance of Purse Accounts. Owner has
established separate trust accounts, known as the purse accounts, to be used in
connection with meets at the Racetrack (the "Purse Accounts"). Owner shall
deposit into the Purse Accounts all amounts required by Virginia law,
applicable rules and regulations of the Commission and agreements with the
horsemen. Additional funds may be deposited in the Purse Accounts from time to
time as Owner, in its sole discretion, may determine. Manager shall have the
authority to determine the purses to be paid on races held during the meets at
the Racetrack, consistent with agreements with the horsemen, and to cause Owner
to pay such amounts from the Purse Accounts; provided, however, that the size of
the purse for the Virginia Derby shall be subject to the approval of Owner. Not
later than ninety (90) days prior to the commencement of each live race meet,
Colonial Downs shall notify Manager in writing of the total amount of purse
money to be distributed during the forthcoming race meet (exclusive of
contributions from horse owners, sponsors and persons other than Colonial Downs
for stakes races and similar events). Manager shall then establish the purse
schedule and Colonial Downs shall pay purses during such race meet within the
total amount established by Colonial Downs. By mutual written agreement of
Manager and Colonial Downs, appropriate adjustments may be made during the meet
to the purse schedule and total purses if warranted by factors such as the
Handle, as defined in Section 4.1.1 below, during the meet.

2.2 Management of OTB Facilities. Colonial Downs has retained and hereby
retains Manager to manage the day-to-day operations of its OTB Facilities during
the Term and on the terms and subject to the conditions of this Agreement, with
such changes therein as the parties hereto may from time to time agree, and
subject to the rules, regulations and orders of the Commission.

2.3 Simulcasting and Audio-Visual. Manager shall be responsible for and,
subject to the provisions of this Section 2.3, shall have authority with respect
to the following functions generally performed by the Simulcast and/or
Audio-Visual Departments of a major racetrack for the live meets at the
Racetrack:

a. Negotiating contracts on behalf of Colonial Downs for the sale of
simulcast signals of races run at the Racetrack, including both full cards and
individual races, for wagering, both on a commingled and non-commingled basis,
in any jurisdiction outside Virginia. Colonial Downs shall have the right to
participate in, and Manager shall keep Colonial Downs fully informed of the
status of, the negotiation of any such contract. Manager shall not have the
authority to bind Colonial Downs to any such contract unless Colonial Downs, in
its sole and absolute discretion, approves such contract.

b. Liaison with contractors for the above-mentioned services;

c. Developing and providing program information;

d. Liaison with the pari-mutuel department of the Racetrack regarding
post times and scheduling of races;

e. Liaison with the Racing Department regarding program information and
scheduling; and

f. Coordinating with Colonial Downs the dissemination of information to
the on- and off-track betting network in Virginia, Maryland and other
jurisdictions.

2.4 Personnel. In furtherance of the respective duties of Holdings,
Owner Operator and Manager under this Agreement, the personnel at the Racetrack
and OTB Facilities shall be employed, managed and supervised as follows:

2.4.1. Personnel Employed, Managed and Supervised by Holdings. Holdings
shall employ at its expense, shall pay directly the wages, salaries, benefits
and other costs and expenses of employment of, and shall oversee, manage and
supervise (including hiring and dismissing) at its expense, all staff necessary
to perform all controller, accounting, finance and treasury functions set forth
in Section 1.5(i) above.

2.4.2. Personnel Employed, Managed and Supervised by Owner. Owner shall
employ at its expense, shall pay directly the wages, salaries, benefits and
other costs and expenses of employment of, and shall oversee, manage and
supervise (including hiring and dismissing) at its expense, all persons
associated with those functions set forth in Section 1.5(ii) through (x) above
that it performs.

2.4.3. Personnel Employed, Managed and Supervised by Operator. Operator
shall employ at its expense, shall pay directly the wages, salaries, benefits
and other costs and expenses of employment of, and shall oversee, manage and
supervise (including hiring and dismissing) at its expense, all persons, if
any, associated with those functions set forth in Section 1.5(ii) through (x)
above that it performs.

2.4.4. Personnel Employed, Managed and Supervised by Manager. Manager
shall employ at its expense, shall pay directly the wages, salaries, benefits,
and other costs and expenses of employment of, and shall oversee, manage and
supervise (including hiring and dismissing) at its expense, (i) the
Thoroughbred Racing Staff set forth on Schedule I to this Agreement, as the
same may from time to time be amended by the mutual consent of Colonial Downs
and Manager, and (ii) senior management personnel from the Maryland Jockey Club,
including a primary management contact, as Manager deems necessary, in its sole
discretion, to manage the personnel designated in Section 2.4.5.

2.4.5. Personnel Employed by Owner and Managed and Supervised by Manager.
Owner, at its expense and subject to the Annual Operating Budget agreed upon by
Colonial Downs and Manager pursuant to Section 6.2.3 below, shall employ and
pay directly the wages, salaries, benefits, and other costs and expenses of
employment of, and Manager shall oversee, manage and supervise (including
hiring and dismissing) at its expense, and shall fix the salaries, wages and
benefits, subject to the Annual Operating Budget, of the following personnel:

(i) A Regional Vice President, mutually agreeable to Owner and Manager,
to oversee and supervise the general operations of the Racetrack and OTB
Facilities on behalf of Manager. Such regional vice president shall be
experienced in marketing and familiar with the operation of a racetrack and
related facilities and shall be paid a salary of up to $150,000.00;

(ii) Directors of Marketing, Human Resources, Maintenance, and Racing
Centers Operations (the OTB Facilities), and managers of the OTB Facilities,
and the individuals who presently fill these positions shall remain employed
through December 31, 1999;

(iii) Full-time and part-time personnel necessary to operate the OTB
Facilities and the Racetrack, other than staff provided by Manager and
described in Section 2.4.4 above. Such personnel shall include but not be
limited to personnel employed to perform human resources, maintenance, parking,
admissions, programs, group sales, administration of sky suites, guest services,
press and public relations, and pari-mutuel operations functions, except those
set forth in Section 1.5 above, and personnel necessary for the operations of
(1) all activities in the backstretch, racing surfaces, and paddock areas of the
Racetrack during live meets, and (2) additional miscellaneous services to be
performed in connection with live meets, including but not limited to,
consistent with the Annual Operating Budget, a track photographer and medical
support for the infirmary;

(iv) Security personnel set forth in Sections 2.4.6 and 2.4.7 below; and

(v) The Standardbred Racing Staff set forth on Schedule II.

2.4.6. Racetrack Security . Manager shall oversee and supervise
(including hiring and dismissing) the Director of Security for the Racetrack
and OTB Facilities, who, if permitted by the Commission, may be, at the
discretion of Manager, an employee of Manager but located in Maryland. During
live meets, Manager shall employ at Owner's expense additional personnel to
ensure the security of the Racetrack (including the backstretch) and the
health, safety and welfare of patrons and participants in racing.

2.4.7. OTB Facility Security. In cooperation with the Director of
Security, Director of Racing Centers, and local law enforcement agencies whose
employees provide security services while off duty, Manager shall oversee and
supervise security (including hiring and dismissing personnel) at the OTB
Facilities.

2.4.8. Responsibility and Liability to Third Parties for Acts and
Omissions of Employees. Subject to the provisions of Sections 7.2, 7.3 and 7.4
below, (i) Colonial Downs shall have the sole responsibility and liability to
third parties for all acts and omissions of all persons employed pursuant to
Sections 2.4.1, 2.4.2, 2.4.3 and 2.4.5 above and shall defend and hold harmless
Manager as to any claim arising from such persons' acts or omissions, and (ii)
Manager shall have the sole responsibility and liability to third parties for
all acts and omissions of all persons employed pursuant to Section 2.4.4 above
and shall defend and hold harmless the other parties to this Agreement as to
any claim arising from such persons' acts or omissions. Nothing in this
section is intended to change the substantive law of Virginia regarding an
employer's respondeat superior liability by enlarging the scope of the
circumstances under which a third party may hold an employee liable for the
acts or omissions of its employees. The parties to this Agreement acknowledge
that all employees described in Sections 2.4.1, 2.4.2, 2.4.3 and 2.4.5 are
engaged in the trade, business, or occupation of Colonial Downs and are
employees of Colonial Downs for purposes of the Virginia Workers' Compensation
Act. Colonial Downs shall purchase and maintain, at its expense, workers'
compensation insurance consistent with this acknowledgment, and the workers'
compensation insurance policy shall name Manager as an additional insured.
Colonial Downs shall defend and hold harmless Manager as to all claims
encompassed by the Virginia Workers' Compensation Act brought against Manager
or an employee of Manager by any employee described in Sections 2.4.1, 2.4.2,
2.4.3 and 2.4.5 above.

2.4.9. Food and Beverage Service. Manager shall oversee and supervise
the concessionaire selected by Owner to provide the food and beverage service
at the Racetrack and OTB Facilities.

2.5. Totalizator Contractor. Colonial Downs and Manager agree that it
is desirable to use the same contractor for totalizator services in both
Virginia and Maryland and to utilize one hub for all wagering in both
jurisdictions if (i) it is in the respective economic interests of each party
to do so, (ii) it is permissible under the laws of both Virginia and Maryland,
and (iii) it is not prohibited by either the Virginia or Maryland Racing
Commission. Provided, however, that Colonial Downs shall have the sole right
and authority to select the totalizator contractor to be utilized by the
Racetrack and the OTB Facilities, and to negotiate the contract to be entered
into by Colonial Downs for totalizator equipment and services, including hubbing
services, subject to Sections 3.5 and 3.6 below. The parties acknowledge that
Owner has renewed its agreement with Autotote for 1999 through 2001. Any
extension or material amendment to such Autotote agreement shall be subject to
the terms and provisions of this Section 2.5.

2.6. Virginia Horsemen's and Breeders' Associations. During calendar
year 1999, Manager shall have the right and authority to participate in all
discussions and negotiations with all organizations representing the Virginia
thoroughbred and standardbred horsemen and breeders. Manager shall have the
right to approve those organizations to be recognized by Colonial Downs as the
representatives of those groups and to approve all contracts and understandings
with such organizations, which approval shall not be unreasonably withheld,
delayed or conditioned. After calendar year 1999, the negotiations and
contracts with Virginia horsemen and breeders shall be governed by the second
sentence of Section 1.5(iii) above.

2.7 General Authority of Manager.

2.7.1. Protection of Assets. In performing its duties under this
Agreement, Manager shall supervise the management, operation and maintenance of
the Racetrack and OTB Facilities in a reasonably satisfactory manner and to do
all things reasonably necessary to protect the assets, goodwill and business of
Owner at the Racetrack and OTB Facilities; provided however, that Manager shall
have no responsibility to provide funds for any purpose other than payment of
the personnel set forth in Section 2.4.4 above.

2.7.2. Compliance with Agreements and Laws. Manager shall:

a. Refrain from any actions or failures of action that would give rise to
the suspension or cancellation of the Licenses, any alcoholic beverage control
license, or other material permit for the Racetrack or OTB Facilities;

b. Comply in material respects with federal, state and municipal laws,
ordinances, rules, regulations and orders relative to the operation and use, and
with respect to its obligations under Section 2.1.2 above, repair and
maintenance, of the Racetrack and OTB Facilities;

c. Notify Owner promptly in writing of any material violation of such
laws, ordinances, rules, regulations or orders that comes to Manager's
attention. Owner shall remedy such violation at its expense; provided,
however, that if Manager's actions or omissions gave rise to such violation,
Manager shall cure such violation at its expense; and

d. Refrain from any actions or failures to act, other than those required
by federal, state, or municipal laws, ordinance, rules, regulations, or orders,
including orders of the Commission, which, based upon specific written
instructions provided by Owner, would give rise to an event of default as
defined in the lease between Owner and Holdings or any credit agreement to which
Owner is a party. Such written instructions shall specify the actions that
Manager is to take or to refrain from taking and the specific provision of the
applicable lease or credit agreement.

Manager shall have no responsibility for a breach of the foregoing provisions
unless such breach arises from an action, omission, or condition that is
encompassed by the foregoing provisions and that first occurs or first exists
on or after July 1, 1999 involving (i) Manager's gross negligence, willful
misconduct, or bad faith with respect to the performance of its obligations
under Section 2.1.1, 2.1.2 or 2.3, or (ii) Manager's negligence, willful
misconduct or bad faith with respect to the performance of its other
obligations under this Agreement; provided that Manager shall have no
responsibility for a breach of the foregoing provisions arising from a
condition existing prior to July 1, 1999. Except as specifically provided
above, this Section 2.7.2 does not modify Section 7 of this Agreement.

Emergency Expenditures. In addition to implementing the capital
expenditures approved by Owner, Manager shall arrange, at the sole expense of
Owner and Holdings, for the maintenance, repair and minor alteration of
theRacetrack and OTB Facilities in order to keep them in a safe, sound and
attractive condition. Notwithstanding the foregoing, without the prior
approval of Owner, Manager shall not make or incur expenditures for the
operation, maintenance, repair or alteration of the Racetrack or OTB Facilities
in excess of the then current budget limitation set forth in the then current
budgets approved by Owner pursuant to Sections 6.2.3 and 6.2.4. below, except
for unbudgeted expenditures not to exceed $25,000.00 for emergency repairs to
the Racetrack or OTB Facilities that, in Manager's judgment reasonably
exercised, are required to be made immediately for the preservation and safety
of the Racetrack or OTB Facilities, or patrons thereof, or to avoid the
suspension of any service to or of the Racetrack or OTB Facilities, or to avoid
danger to life or property at the Racetrack or OTB Facilities. Manager shall
immediately advise Owner in writing of the need for such emergency
expenditures. Owner shall promptly reimburse Manager for such emergency
expenditures upon presentation of receipts or invoices for such expenditures.

2.7.4. Manager's Activities Under Agreement. In furtherance of its
duties under this Section 2, Manager shall have the right to arrange,
supervise, coordinate, develop and direct its activities under this Agreement.

2.8. Obligations of Manager. Manager accepts the engagement under this
Agreement and agrees to act with reasonable prudence and reasonable diligence
in the performance of its duties and responsibilities. Notwithstanding any
other provision of this Agreement, Manager shall be obligated to perform its
duties, responsibilities and obligations only to the extent that current funds
are made or caused to be made available by Colonial Downs to Manager. Subject
to the terms of this Agreement, Manager shall have the right to enter into
agreements with its affiliates or with unaffiliated third parties in performing
its duties under this Agreement, provided that such agreements with affiliates
are disclosed to Colonial Downs in advance, are not less favorable to Colonial
Downs than would have been reasonably available from comparably experienced and
competent independent third parties in arm's length transactions, and are
consistent with the Annual Operating or Capital Budget approved by Owner.

SECTION 3
COOPERATION BETWEEN COLONIAL DOWNS
AND THE MARYLAND JOCKEY CLUB

3.1. Establishment and Maintenance of Maryland-Virginia Thoroughbred
Circuit Manager shall cause the Maryland Jockey Club to take the following
action in order to provide for the establishment and maintenance of a Maryland
- -Virginia circuit for thoroughbred horses:

3.1.1. Thoroughbred Racing Dates. Each year, the Maryland Jockey Club
shall advise the Maryland Racing Commission that it will cease live
thoroughbred racing in Maryland for such period as the parties may agree, some
time between mid-June to mid-October, in order to provide a supply of
thoroughbred horses comparable in quality to those racing at the Maryland
Jockey Club's Maryland thoroughbred racetracks, to maximize the likelihood of
a successful thoroughbred meet at the Racetrack during such period, of up to a
maximum of 102 thoroughbred racing days.

3.1.2. Encouragement of Maryland Horsemen to Race in Virginia. The
Maryland Jockey Club shall use its reasonable best efforts to encourage
thoroughbred horsemen who normally race in Maryland during the aforesaid period
to race in Virginia during Colonial Downs' thoroughbred meet. No comparable
requirement shall be applicable with respect to standardbred racing, but
Manager shall use its reasonable best efforts to supervise solicitation of
horsemen to race their standardbred horses at the Racetrack. The Maryland
Jockey Club may, but shall not be required to, expend any of its own funds in
this regard.

3.1.3. Vanning Service. For the purpose of maintaining a Maryland
- -Virginia thoroughbred racing circuit, Colonial Downs and Manager shall share
equally the expense of a vanning service to transport thoroughbred horses from
Maryland to the Racetrack to participate in thoroughbred race meets at the
Racetrack.

3.2 Virginia Racing Dates

3.2.1. Virginia Thoroughbred Racing Dates. Colonial Downs shall apply
to the Commission for thoroughbred racing in Virginia on such dates as the
parties agree and days of the week as are designated by Manager (provided
racing is scheduled for at least four days a week, with the possible exception
of the first and last weeks of a meet), are consented to by Colonial Downs,
which consent shall not be unreasonably withheld, delayed or conditioned, and
are consistent with the thoroughbred racing dates to be sought in Maryland
pursuant to Section 3.1.1 above. Colonial Downs shall not apply for any
thoroughbred racing dates that would overlap with thoroughbred racing dates in
Maryland without the prior written consent of Manager. If the Maryland Racing
Commission refuses to permit the establishment of the Virginia-Maryland
thoroughbred racing circuit, or if the Maryland Jockey Club is otherwise unable
to continue the Virginia-Maryland thoroughbred racing circuit, each
substantially in the manner contemplated in this Agreement and as heretofore
conducted, subject to the rights of Colonial Downs under Section 8.1.5 below,
Colonial Downs shall consult with the Maryland Jockey Club as to the
thoroughbred race dates to be sought in Virginia and may, if reasonably
necessary, apply for overlapping race dates.

3.2.2. Virginia Standardbred Racing Dates. For 1999, Colonial Downs
shall apply to the Commission for standardbred racing in Virginia on such dates
and days of the week as it determines in its sole discretion. After 1999,
Colonial Downs shall apply to the Commission for standardbred racing in
Virginia on such dates and days of the week as are designated by Manager and
are consented to by Colonial Downs, which consent shall not be unreasonably
withheld, delayed or conditioned.

3.3. Stabling of Horses. Colonial Downs shall, and Manager shall cause
the Maryland Jockey Club to, cooperate with each other in keeping open the
stable, dormitory and other backstretch areas of their respective racetracks
during such times of the year as may be reasonably necessary or appropriate to
help assure a sufficient quantity of horses for a Maryland-Virginia
thoroughbred racing circuit. Such cooperation shall include but not be limited
to keeping open the backstretch areas of the Racetrack for stabling and
training of thoroughbred horses during times of the year when live standardbred
racing is not being conducted there and, in the reasonable opinion of Manager,
such action is necessary for the benefit of thoroughbred racing at the
Racetrack; provided, however, in no event shall Colonial Downs be required
hereunder to keep open its backstretch areas for periods more than thirty (30)
days prior to its meets, during its meets and fourteen (14) days following its
meets.

3.4. Exchange of Simulcast Racing Programs. Colonial Downs shall, and
Manager shall cause Maryland Jockey Club to, exchange simulcast racing programs
on the following basis:

3.4.1. During the period when there is no live thoroughbred racing at
the Racetrack, Manager shall cause the Maryland Jockey Club to make its
Maryland live thoroughbred race signals available to Colonial Downs and its
network of OTB Facilities in Virginia for simulcast pari-mutuel wagering in
Virginia.

3.4.2. During the period when there is live thoroughbred racing at the
Racetrack, Colonial Downs shall make its Virginia live thoroughbred
race signals available to the Maryland Jockey Club and its Maryland off-track
betting and intertrack facilities for simulcast pari-mutuel wagering in
Maryland.

3.4.3. No charge shall be imposed by the Maryland Jockey Club or
Colonial Downs for the aforesaid exchange of simulcast signals. Each such
entity shall, however, be responsible for all costs of receiving and
distributing the simulcast signal of the other's races within its network
(including without limitation the costs of downlinks, decoders and related
equipment) and charges for long distance data and other telephone lines,
totalizator and other services and equipment.

3.4.4. To the extent that the percentage of Handle wagered in Virginia
on Maryland races that is payable by the Maryland Jockey Club to Maryland
horsemen and breeders is reduced below one and six-tenths percent (1.6%), one
- -half of the savings from such reduction shall be shared by Manager with Owner
in the form of a reduction in the Management Fee due Manager under this
Agreement.

3.5. Approval of Contracts. Colonial Downs and Manager both desire to
maximize the benefits of the two-state circuit for racing and wagering between
Virginia and Maryland. Colonial Downs and Manager both recognize that such
benefits might be maximized by Colonial Downs and Manager jointly bidding,
negotiating and awarding for the Racetrack, Laurel Park and Pimlico Race
Course, and the off-track betting facilities in Virginia and Maryland, various
contracts for services purchased from independent contractors that are common
to both Virginia and Maryland. Colonial Downs and Manager shall cooperate with
each other and jointly bid such contracts if Colonial Downs and Manager each
believes it is in their respective best interests to do so and neither party
shall be liable to the other for its decision not to agree to jointly bid such
contracts. Any contract resulting from such joint bid shall be subject to
Colonial Downs' review and approval, which approval shall not be unreasonably
withheld, delayed or conditioned, and shall be granted promptly. Additionally,
Owner shall have the right to approve contracts that require the annual
expenditure by Owner of more than $25,000 in any twelve month period, which
approvals shall not be unreasonably withheld, delayed or conditioned, and shall
be granted promptly. With respect to such latter contracts, Manager shall
reasonably attempt to obtain bids from at least two potential service
providers, it being recognized, however, that it may not always be reasonably
possible to obtain more than one bid. Colonial Downs generally will approve
an agreement with the low bidder, provided that the quality of service among
the bidders is comparable.

3.6 Right of First Refusal for Certain Live Racing and Simulcast Service
Contracts. The parties recognize that there are various simulcast and
totalizator services related to wagering on live and simulcast races at the
Racetrack and the OTB Facilities that are not required to be provided by
Manager to Colonial Downs pursuant to this Agreement. These services include
reconciliations, telephone lines for transmittal of data and voice
communications, satellite downlinks, uplinks and decoders, signal fees, and
other "hub" and totalizator services (collectively, "simulcast services"). If
Colonial Downs desires to contract with a third party or parties for all or any
portion of such simulcast services, it shall advise Manager and Manager shall
have the right, but not the obligation, to submit a bid to Colonial Downs
setting forth the terms and conditions under which Manager would provide such
simulcast services to Colonial Downs, either alone or in conjunction with
another party or parties (including but not limited to a totalizator
contractor). Colonial Downs shall have the right to solicit bids from other
parties for such simulcast services. Colonial Downs shall advise Manager if it
has received a bid from a qualified third party or parties for such simulcast
services that Colonial Downs is prepared to accept and shall provide Manager a
true and complete copy of such bid. Manager shall have the right, within three
(3) business days after receipt of such copy, or such longer period as the
parties may agree, to elect to match all of the terms and provisions of such
bid and to be awarded the contract therefor either alone or in conjunction with
another party (including but not limited to a totalizator contractor).
Recognizing that different equipment manufacturers generally utilize different
equipment, Manager's aforesaid election to match another bid may include use of
equipment that is substantially equivalent, rather than identical, to equipment
that is contained in the bid being matched. If Manager does not make such
election to match or Manager's bid does not match, in Colonial Downs'
reasonable judgment, the bid presented, Colonial Downs shall be free to award
such contract to such third party on the aforesaid terms and provisions.

3.7 Liaisons. Owner and Manager shall each appoint one liaison. The
initial liaison for Owner shall be Jeffrey P. Jacobs. The initial liaison for
Manager shall be Joseph A. De Francis. The alternate liaison for Owner shall
be Ian M. Stewart. The alternate liaison for Manager shall be John Mooney.
The liaisons or the alternate liaisons shall meet at least monthly in person or
telephonically to report on the status of operations and the matters for which
each party is responsible under this Agreement and to address any disputes or
concerns arising from the performance of each party's obligations under this
Agreement. To the extent a question or dispute arises as to the scope of
Manager's authority that is not specifically addressed in this Agreement, the
liaisons or alternate liaisons shall attempt to resolve such question or
dispute prior to referring the matter to mediation as provided in Section 9.8
below.

3.8 Cooperation. The parties shall cooperate to enhance the public
perception of Colonial Downs and operations of the Racetrack and OTB
Facilities, and the parties shall use their reasonable best efforts to promote
the public image of each other.

3.9 Consent or Approval. Wherever this Agreement requires the consent
or approval of Colonial Downs or Manager, such consent or approval shall not be
unreasonably withheld, delayed or conditioned unless otherwise specifically
provided in this Agreement.

SECTION 4
COMPENSATION OF MANAGER

4.1 Management Fee. As compensation for the management and
consulting services under this Agreement, and regardless of the number of live
racing days at the Racetrack in any given year, Owner shall pay Manager an
annual fee (the "Management Fee") as follows:

4.1.1. Southern Virginia. For the Racetrack and all OTB Facilities not
located in the Virginia counties of Loudoun, Fairfax, Prince William, and
Arlington and the Virginia cities of Manassas, Manassas Park, Fairfax City,
Falls Church and Alexandria, Owner shall pay Manager a Management Fee equal to
one percent (1%) of the first $75 million of the aggregate of the gross
amounts wagered ("Handle") in any calendar year in the Commonwealth of
Virginia, whether at the Racetrack, at the OTB Facilities or in any other form
(including but not limited to account, telephone and home wagering) on all
races run live in Virginia, or received by simulcast in Virginia, excluding
only (1) Handle generated at racetracks, offtrack betting facilities or in any
other form licensed to persons or entities other than Colonial Downs and in
which Colonial Downs or any of its affiliates has no ownership, financial or
other interest, and (2) Handle generated at any racetrack in addition to the
Racetrack licensed by the Commission to persons or entities other than Colonial
Downs (as well as at off-track betting facilities licensed to such other
racetrack licensee or licensees) in which an affiliate of Colonial Downs has
a passive, non-controlling interest so long as such interest was not designed
or intended to circumvent this Agreement. (Handle, subject to the foregoing
exclusions, is referred to herein as "Adjusted Handle.") Additionally, Owner
shall pay Manager an annual Management Fee equal to two percent (2%) of all
Adjusted Handle in excess of $75 million per calendar year.

4.1.2. Northern Virginia - Outer Loop. For all OTB Facilities located
in the Virginia counties of Loudoun and Prince William and the Virginia cities
of Manassas and Manassas Park, Owners shall pay Manager an annual Management
Fee equal to two percent (2%) of all Adjusted Handle generated at such OTB
Facilities for such calendar year.

4.1.3. Northern Virginia - Inner Loop. For all OTB Facilities located in
the Virginia counties of Fairfax and Arlington and the Virginia cities of
Fairfax City, Falls Church and Alexandria, Owner shall pay Manager an annual
Management Fee equal to three and one-quarter percent (3 1/4%) of all Adjusted
Handle generated at such OTB Facilities for such calendar year.

4.1.4. Possible Reduction in Management Fee and Performance Fee. The
Management Fee payable by Owner to Manager shall be reduced by one-half in the
event that, before they are authorized and conducted in Virginia, expanded non-
pari-mutuel gaming activities are authorized and conducted in Maryland at
Laurel or Pimlico or offtrack wagering facilities controlled or managed by the
Maryland Jockey Club with contributions from such activities made to
thoroughbred purses. Additionally, the Operating EBITDA (as defined herein)
used to calculate the Performance Fee (as defined herein) shall be calculated
as if only one-half of the actual reduction in the Management Fee had occurred.
The aforesaid reduction shall terminate and the Management Fee shall revert to
the Management Fee provided in Sections 4.1.1, 4.1.2, and 4.1.3 above at such
time as expanded non-pari-mutuel gaming activities comparable to those in
Maryland are authorized and conducted in Virginia.

4.2. Payment of Management Fee. For the first six (6) months of 1999,
Owner shall pay the Management Fee monthly on or before the twenty-first (21st)
day of each month based on the Adjusted Handle report generated by the
totalizator system for the immediately preceding month. Thereafter, Owner
shall pay the Management Fee monthly on or before the seventh (7th) day of each
month based on the Adjusted Handle report generated by the totalizator system
for the immediately preceding month. After the audited financial statements of
Owner are completed for a fiscal year, Manager shall receive from or reimburse
Owner, or Owner shall have the right to offset against future payments to
Manager, any amount necessary for Manager to have received the correct
Management Fee for such fiscal year.

4.3. Performance Fee. In addition to the Management Fee, Owner shall
pay to Manager each year a fee (the "Performance Fee") based on Colonial Downs'
consolidated earnings before interest, taxes, depreciation, and amortization
("EBITDA") for the immediately preceding year determined by Colonial Downs'
independent auditors in accordance with generally accepted accounting practices
and principles consistently applied, adjusted by (a) deducting any revenues and
expenses excluded pursuant to Section 9.12 below and (b) adding back (i)
corporate overhead expenses of Holdings that are deducted in calculating
EBITDA, (ii) the amount of any Performance Fee that is deducted in calculating
EBITDA, (iii) write-offs of accounts receivable related to activities prior to
July 1, 1999, and (iv) expenses related to operations prior to January 1, 1999
that were not accrued in a prior year (as adjusted, "Operating EBITDA"), as set
forth below. It is the express intent of the parties that, in the calculation
of Operating EBITDA, Colonial Downs shall not directly or indirectly shift any
items of income or expense from one fiscal year to another for the purpose of
affecting adversely, even if otherwise permitted by generally accepted
accounting principles, payment of the Performance Fee. The calculation of the
Performance Fee shall be provided to Manager in detail and shall be accompanied
by an "Agreed Upon Procedures Report" issued by Colonial Downs' independent
auditors confirming that the calculation was made in accordance with the
foregoing.

4.3.1. 1999. No Performance Fee shall be due for 1999 unless Operating
EBITDA exceeds $6.5 million. Owner shall pay Manager an annual Performance Fee
equal to twenty percent (20%) of Operating EBITDA in excess of $6.5 million up
to $8.5 million and forty percent (40%) of Operating EBITDA in excess of $8.5
million.

4.3.2. After 1999. Each year after 1999, no Performance Fee shall be
due for any year unless Operating EBITDA exceeds $5.5 million for such year.
Owner shall pay Manager an annual Performance Fee equal to forty percent (40%)
of Operating EBITDA in excess of $5.5 million for such year.

4.3.3. Calculation of and Adjustments to Operating EBITDA. Operating
EBITDA shall be calculated each year by Colonial Downs. Additionally, the
Operating EBITDA thresholds set forth in Sections 4.3.1 and 4.3.2 above shall
be adjusted to reflect a ten percent (10%) per annum rate of return on
additional capital investments or up to ten percent (10%) on debt incurred by
Colonial Downs' investors necessary (i) to develop and/or construct OTB
Facilities in Northern Virginia or (ii) after 1999, to make capital
improvements in excess of $500,000 per year at the Racetrack and the OTB
Facilities, which improvements have been agreed to by Manager. The Management
Fee and Performance Fee shall have priority in payment to (i) Holdings'
corporate overhead expenses deducted in calculating EBITDA to the extent such
expenses exceed $1.7 million per year and (ii) any salaries or management or
other fees (including credit enhancement fees) paid by Colonial Downs to Owner,
Operator, or Holdings or to any of their affiliates, except for such salaries
and fees that are included in the $1.7 million of Holdings' corporate overhead
expenses set out in Schedule III of this Agreement. The 1999 Annual Operating
Budget that will be set forth on Schedule III to this Agreement pursuant to
Section 6.2.3 below shall contain a schedule detailing the $1.7 million in
Holdings' corporate overhead expenses that are to be deducted in calculating
EBITDA. None of such amounts shall be treated as or become other operating
expenses of Colonial Downs. In addition, any salaries or management or other
fees that are deducted in calculating EBITDA and are paid by Owner to Operator
or Holdings or to any of their affiliates shall be included in Holdings'
corporate overhead expenses for purposes of calculating Operating EBITDA.

4.3.4. Payment of Performance Fee. The Performance Fee shall be paid
no later than April 15 of the year following the year for which such fee is
determined (e.g., any such fee for 1999 is payable by April 15, 2000).

4.3.5. Termination of Performance Fee. In the event that after 1999
Manager fails to achieve Operating EBITDA on a two-year running average, not
including any portion of 1999 or previous years, of the sum of (i) $900,000.00
and (ii) one-half of the savings achieved from negotiations with the Virginia
horsemen for 1999, then Manager's authority shall revert to that provided in
Sections 2.1.1, 2.1.2, and 2.3 above and no Performance Fee shall be paid,
unless such failure was due to circumstances beyond the reasonable control of
Manager.

4.4. Payment of Expenses. All of the expenses of the development,
construction, operation, maintenance and repair of the Racetrack and the OTB
Facilities, including without limitation all costs and expenses of the live
meets and the OTB Facilities, whether contracted for by Colonial Downs or
Manager (in accordance with the terms of this Agreement), shall be borne and
paid for timely by Owner. Such costs and expenses shall include all direct and
indirect costs and expenses, other than the expenses of the Thoroughbred Racing
Staff and general overhead of the Maryland Jockey Club, incurred by Manager in
performing services under and in accordance with this Agreement. In the event
Manager pays any such expenses on behalf of Colonial Downs, it shall
be reimbursed therefor promptly by Owner, provided that such expenses are
contained in the Annual Operating Budget or Annual Capital Budget approved by
Owner under Sections 6.2.3 and 6.2.4 below, or constitute emergency
expenditures under Section 2.7.3 above. Expenses of the Thoroughbred Racing
Staff and general overhead of the Maryland Jockey Club shall be borne by
Manager.

4.5. Authorization of Additional Forms of Gaming in Virginia. In the
event there is authorized in Virginia at any time during the Term of this
Agreement any additional form of gaming permitted at or in connection with the
Racetracks and/or any of the OTB Facilities other than pari-mutuel wagering on
live or simulcast horse racing, Colonial Downs and Manager shall negotiate in
good faith with each other as to the appropriate sharing by them of the
benefits thereof. The foregoing shall not, however, preclude any person owning
an interest in any of the parties to this Agreement or in the respective
parents of the parties from participating in any such additional form of gaming
other than at or in connection with the Racetrack and/or any of the OTB
Facilities.

4.6. Management Fees through December 31, 1998. Owner shall pay
Manager $1,450,000.00 in lieu of all past due Management Fees owed by Owner to
Manager through December 31, 1998. Such amount shall be evidenced by a
promissory note, maturing December 31, 2005, bearing interest at the rate of
seven and three-quarters percent (73/4%) per annum, payable quarterly.
Interest only shall be payable quarterly for the first two years and principal
shall be amortized and paid together with interest in quarterly installments
over the remaining five-year term of the note. All payments shall be made on
or before the fifth day of the month following the end of the calendar quarter.

4.7. Late Charge. Any payment due from Colonial Downs under this
Agreement that is not paid in full within five (5) days after it is due shall
bear interest at the prime rate then in effect, as published in the Wall Street
Journal, plus four percent (4%) per annum.

SECTION 5
TERM OF AGREEMENT

5.1. Term. The 1996 Agreement shall continue in effect from April 22,
1996 to the date of this Agreement. The term of this Agreement (the "Term")
shall commence and be effective as of the date hereof and shall continue in
effect for as long as Colonial Downs (or any successors or transferees, as
provided in Sections 5.2 and 5.3 below) owns, controls or operates, directly or
indirectly, any of the Licenses and/or the OTB Licenses, unless terminated
earlier in accordance with this Agreement; provided, however, that in no event
shall the term of this Agreement continue beyond April 21, 2046; and provided
further, that Manager's authority and obligations, other than as specified in
Sections 2.1.1, 2.1.2, and 2.3 above, shall not commence until July 1, 1999.

5.2. Sale, Merger, Lease, or Other Transfer. In the event of any sale
of all or substantially all of the assets of Owner, Operator, or Holdings
(or of any successor or successors), or any merger or other business
combination of Owner, Operator, or Holdings (or of any successor or
successors) with any other entity, or any lease, license, or other agreement
with respect to the Racetrack for use of the Racetrack as a horse racetrack
this Agreement shall continue in full force and effect. Owner, Operator, and
Holdings (or any successor or successors) shall, as a condition of such
transaction, require the buyer or other acquirer, transferee, or lessee to be
bound by this Agreement as fully as if named herein.

5.3. Sale or Transfer of Licenses. In the event of any sale or other
transfer of any of the Licenses or the OTB Licenses, this Agreement shall also
continue in full force and effect. Colonial Downs (or any successor or
successors) shall, as a condition of such transaction, require the buyer or
other transferee to be bound by this Agreement as fully as if named herein.

5.4. Loss of Licenses.

5.4.1. Abandonment of Licenses. Notwithstanding anything to the
contrary contained in this Agreement, Colonial Downs may suspend live racing at
the Racetrack indefinitely in order to ensure the long term viability of horse
racing in Virginia at the Racetrack. However, if Colonial Downs both (i)
notifies Manager in writing of its intent to abandon any of the Licenses or all
of the OTB Licenses and (ii) thereafter does not seek the award of racing
days from the Virginia Racing Commission for the year following such notice,
then Colonial Downs shall, if Manager so requests, assign and transfer such
license or licenses to Manager without recourse. Colonial Downs and Manager
shall execute and deliver to each other all documents as may be reasonably
necessary to assign and transfer such licenses, but no other Colonial Downs
assets, rights, or obligations. Such assignment or transfer shall be subject
to such approval of the Commission as may be necessary. Upon such transfer,
this Agreement shall automatically terminate and be of no further force or
effect and neither Colonial Downs nor Manager shall have any further rights
or obligations hereunder, except for any obligations incurred prior to such
termination.

5.4.2. Revocation of Licenses. In the event the award of any of the
Licenses or OTB Licenses is revoked or otherwise nullified by the Commission or
a court of competent jurisdiction, Manager shall have the right to apply for
any such license in its own name and in its own behalf without any obligation
or liability to Colonial Downs hereunder. Provided, however, that in the event
Manager makes such application as aforesaid, Colonial Downs shall not oppose
such application or support another application. If Manager's application is
granted, this Agreement shall automatically terminate and be of no further
force and effect and neither Colonial Downs nor Manager shall have any further
rights or obligations hereunder, except for any obligation incurred prior to
such termination.

5.5. Option to Buy-Out Term. Not withstanding any other provision of
this Agreement, Colonial Downs shall have the right, at any time after
April 21, 2024 to buy out Manager's entire interest under this Agreement for
the then remaining term. Colonial Downs shall give Manager written notice of
the exercise of such right and the closing of the purchase and sale shall take
place at the principal office of Manager not later than sixty (60) days after
the giving of notice. The purchase price shall be an amount equal to the
product of seventeen (17) times the average gross amount paid and/or payable to
Manager as its Management Fee and Performance Fee during the three (3) full
calendar years immediately preceding the date of closing. At the closing, (i)
the purchase price shall be paid in full by Colonial Downs to Manager in
immediately available funds, without offset; (ii) the parties shall execute and
deliver general mutual releases excluding therefrom only any specifically
alleged claims theretofore properly asserted and submitted under this
Agreement; and (iii) the parties shall execute and deliver such additional
documents and instruments as may be reasonably necessary to effectuate the
purchase by Colonial Downs and sale by Manager.

5.6. Right of First Refusal upon Change in Control of Colonial Downs.

5.6.1. Transfer of Equity Interest. Owner, Operator, Holdings, CD
Entertainment, Ltd., ("Entertainment") and all their affiliates and successors
(all of the foregoing individually and collectively, "Offeror") shall not close
a Control Transaction except as permitted by this Section 5.6. Holdings shall
cause Entertainment and all affiliates of Offeror to be bound by this Section
5.6.

5.6.2. Right of First Refusal. Subject to this Section 5.6.2,
Offeror may enter into a written contract, including a letter of intent, to
consummate a Control Transaction (a "Written Control Transaction Agreement")
at any time, provided that such Written Control Transaction Agreement expressly
includes a provision that it is subject and subordinate to this Section 5.6.2
for a period equal to 30 days (the "Applicable Period").

a. Subject to Section 5.6.4 below, all Control Transactions shall be
subject to Manager's right of first refusal.

b. Upon execution of any Written Control Transaction Agreement, the
parties desiring to consummate such Control Transaction shall first submit
to Manager a complete copy of the Written Control Transaction Agreement,
together with reasonably satisfactory evidence of the would-be purchaser's
financial ability to close. For the Applicable Period, Manager shall have the
first right of refusal to contract to acquire all, but not less than all, of
the Equity Interest specified in the Written Control Transaction Agreement at
the same price and terms set forth in the Written Control Transaction
Agreement; provided, however, that Manager shall not be required to close prior
to the later of the date provided for under the Written Control Transaction
Agreement or the expiration of 120 days after Manager's exercise of the right
of first refusal.

c. If Manager exercises the right of first refusal within the
Applicable Period, Manager shall notify Offeror in writing and shall post a
deposit equal to the lesser of the deposit provided for under the Written
Control Transaction Agreement or 10% of the purchase price specified in the
Written Control Transaction Agreement. If Manager exercises this right,
Manager shall purchase and the selling party shall sell the Equity Interest
upon the terms specified in the Written Control Transaction Agreement. If
the proposed Control Transaction is not a sale for cash consideration, then,
for purposes of the right of first refusal, the purchase price shall be the
fair market value of the consideration as determined by an independent
reputable appraiser.

d. If within the Applicable Period, Manager (i) fails to act, (ii)
elects not to exercise its right, or (iii) exercises its right of first
refusal, but is unable to close within the time period specified in subsection
(b) above, Offeror may close upon the Control Transaction for the sale of the
Equity Interest on terms no more materially favorable than those provided in
the Written Control Transaction Agreement within 180 days after expiration of
the Applicable Period. In the event Manager is unable to close, all but
$500,000.00 of the deposit referred to in subsection (c) above shall be
refunded promptly and Manager shall have no other liability to Offeror for
failure to close.

5.6.3. Definitions. As used in this Section 5.6:

"Affiliate" means any person, entity or organization directly or
indirectly controlling, controlled by or under common control with one of the
parties hereto or an affiliate of such party.

"Control Transaction" means a single transaction or series of related
transactions resulting, or which if consummated would result, in (i)
Entertainment and its successors and affiliates owning less than twenty
percent (20%) of the outstanding Class A capital stock of Holdings or less
than fifty percent (50%) of the outstanding Class B capital stock, (ii) the
transfer of the general partnership interest or more than fifty percent (50%)
of the limited partnership interests of Owner, or (iii) the transfer of more
than fifty percent (50%) of the outstanding capital stock or voting control
of Operator.

"Equity Interest" means any equity ownership interest in Owner, Operator,
Holdings, or Entertainment, including any option, warrant, or other right with
respect to such interest.

5.6.4. No Rights. Notwithstanding the provisions of Section 5.6.2
above, Manager shall have no rights of first refusal with respect to (i) a
hostile tender offer for the outstanding capital stock of Holdings, (ii) the
issuance of additional shares of Holdings through an underwritten public
offering or otherwise, for the purposes of raising additional equity to expand
the operations of Holdings, that results in the dilution of Entertainment's and
its successors' and affiliates' percentage ownership of Holdings to below
twenty percent (20%) of the outstanding Class A capital stock or below fifty
percent (50%) of the outstanding Class B capital stock, or (iii) a transaction
between Entertainment and/or its successors or affiliates and an entity in which
(a) Jeffrey P. Jacobs and/or members of his family control at least twenty
percent (20%) of the votes of the issued and outstanding stock, or (b) Jeffrey
P. Jacobs controls and is the Chairman, Chief Executive Officer or President of
a publicly traded company; provided that, it is the intention of the parties
that this provision allows Entertainment and its successors and affiliates to
enter into business combinations with entities controlled by Jeffrey P. Jacobs
and/or members of his family and not to facilitate the transfer of an Equity
Interest to a third party.

SECTION 6
BOOKS, RECORDS, ACCOUNTING, AND REPORTS

6.1. Records and Accounting. Colonial Downs shall keep or cause to be
kept appropriate books and records with respect to the business of Owner and
Holdings, including both the Racetrack and the OTB Facilities, which shall at
all times be kept at the principal office of Owner in Virginia. Such books
shall be maintained for financial reporting purposes on the accrual basis, in
accordance with generally accepted accounting principles and applicable law,
including but not limited to the rules and regulations of the Commission.
Manager shall provide Colonial Downs, on a timely basis, with such information
as it has and Colonial Downs needs to maintain such books and records with
respect to the Racetrack and OTB Facilities.

6.2. Reports and Budgets.

6.2.1. Annual Statements. As soon as reasonably practicable after the
end of each fiscal year, but not later than (90) days after the end of the
fiscal year, Colonial Downs shall deliver to Manager reports containing audited
financial statements for Colonial Downs on a consolidated basis for such fiscal
year, presented on the accrual basis, including a balance sheet and statements
of income and cash flows, and shall disclose in detail (i) the overhead and
other expenses of Holdings that were deducted in determining that income and
(ii) the calculation of EBITDA and Operating EBITDA. The financial statements
shall be audited by a recognized national or regional firm of certified public
accountants selected by Colonial Downs.

6.2.2. Monthly and Quarterly Statements. Colonial Downs shall deliver
to Manager unaudited statements prepared in a similar format to the annual
statements of Colonial Downs on a consolidated basis, as follows: (1) monthly
statements within twenty (20) days after the end of each month, or such shorter
period in which such statements are provided to lenders; and (2) quarterly
statements within forty-five (45) days after the end of each fiscal quarter,
or such shorter period in which such statements are provided to lenders. Such
reports shall include detailed information regarding Handle at the Racetrack
and OTB Facilities separately for each location and a comparison of results of
operations with the budget for that period.

6.2.3. Annual Operating Budget. Manager and Colonial Downs shall agree
upon an Annual Operating Budget for calendar year 1999, which also is Colonial
Downs' fiscal year, on or before February 28, 1999. In the event that Manager
and Colonial Downs are unable to agree on such Annual Operating Budget, (i) the
parties shall submit their dispute to the Honorable John H. Shenefield for
mediation, and (ii) in the event such mediation does not produce agreement on
an Annual Operating Budget for 1999, then either party may terminate this
Agreement until such time as the parties agree upon an Annual Operating Budget
for 1999 and the 1996 Agreement shall be in full force and effect upon such
termination. Once Colonial Downs and Manager have agreed to the Annual
Operating Budget for 1999, such budget shall be attached hereto as Schedule
III. For each year after 1999, Owner shall notify Manager not later than ninety
(90) days prior to the commencement of each fiscal year of the amount of the
funds Owner will make available such fiscal year for the promotion, marketing
and advertising of the Racetrack and the OTB Facilities. Such amount shall
be reasonably adequate to promote and market live racing at the Racetrack and
simulcast racing at the Racetrack and the OTB Facilities, consistent with
normal industry standards. Thereafter, Manager shall provide Colonial Downs
not later than sixty (60) days before commencement of each fiscal year a
budget in reasonable detail as to all income and expenses for the operation
of the Racetrack and OTB Facilities (the "Annual Operating Budget "). Colonial
Downs shall within thirty (30) days thereafter approve or disapprove such
proposed Annual Operating Budget. If Colonial Downs shall disapprove the
proposed Annual Operating Budget, it shall advise Manager of its concerns.
Colonial Downs and Manager shall cooperate with each other and resolve in
good faith any disagreements in the proposed Annual Operating Budget prepared
by Manager; provided, however, that if a budget for a fiscal year has not
been agreed upon by December 15th of the prior year, the Annual Operating
Budget then in effect shall remain in effect for the following fiscal year.

6.2.4. Annual Capital Budget. Each year, as set forth below, Owner
shall determine the amount of capital expenditures to be made by Owner at the
Racetrack and/or the OTB Facilities, which amount shall not be less than
$500,000.00 for any year, and the allocation of such amount shall be determined
as set forth below (the "Annual Capital Budget"). Manager and Colonial Downs
shall agree upon an Annual Capital Budget for 1999 on or before February 28,
1999. In the event that Manager and Colonial Downs are unable to agree on such
Annual Capital Budget, the parties shall submit their dispute to the Honorable
John H. Shenefield for mediation. Once the parties have agreed upon the Annual
Capital Budget for 1999, that budget shall be attached hereto as Schedule IV.
Hereafter, Colonial Downs shall advise Manager in writing on or before November
15th of each year of the amount of capital expenditures to be made at the
Racetrack and/or OTB Facilities for the following year. On or before December
15th of each year, Manager may recommend which capital improvements should be
made to the Racetrack and/or the OTB Facilities within the capital expenditures
budget provided by Colonial Downs. Colonial Downs shall be under no obligation
to make all or any of the capital improvements recommended by Manager unless
(1) Colonial Downs determines, in its sole and absolute discretion, that such
capital improvements are necessary or desirable; or (2) such improvements are
necessary for the health or safety of persons or animals. In the event that
Colonial Downs and Manager are unable to agree on capital improvements to be
made for a given year within the Annual Capital Budget, Colonial Downs and
Manager shall jointly request that the Chair of the Commission determine
privately which capital improvements should be made that year to the Racetrack
and/or OTB Facilities.

6.2.5. Other Information. Colonial Downs may release information
concerning the operations of the Racetrack and the OTB Facilities to the
Commission and to any financial institution or other person that has loaned
or may loan funds to Owner. Colonial Downs may also release such information
to any other person for reasons reasonably related to the business and
operations of the Racetrack and the OTB Facilities, as determined by Colonial
Downs, in its sole discretion, or as required by law or regulation of the
Commission or by any other regulatory body. The Maryland Jockey Club may
release such information concerning the Racetrack, the OTB Facilities, and the
race meets to the Maryland Racing Commission, the Maryland horsemen's and
breeders' associations and its owners and lenders, and, with Owner's prior
consent which shall not be unreasonably withheld, delayed or conditioned,
to any other person for any reasonable purpose.

6.3. Right of Inspection and Review. During the Term of this Agreement
and in the course of performing its obligations hereunder, Manager, its
representatives, accountants, attorneys and agents shall have the absolute
right to enter upon any part of the Racetrack and the OTB Facilities at all
reasonable times for any reasonable purpose and with reasonable notice,
including but not limited to examining or inspecting Colonial Downs' books
and records relating to the Racetrack or the OTB Facilities.

6.4. Accounts. All monies collected or received by Manager with respect
to the Racetrack and OTB Facilities shall promptly be deposited into one or more
separate bank accounts specified by Owner in the name of Owner, which accounts
shall be used solely for funds of the Racetrack and the OTB Facilities, and
such monies shall not be commingled with Manager's other funds. Owner shall
be responsible for issuing checks drawn on its accounts in response, timely and
reasonably promptly, to purchase orders or invoices submitted by Manager
consistent with the Annual Operating Budget and/or Annual Capital Budget.

SECTION 7
GENERAL COVENANTS OF COLONIAL DOWNS AND MANAGER

7.1 Insurance. Owner shall at all times maintain in full force and
effect, at its sole cost and expense, all insurance customarily maintained by
first-class horse racetracks, including but not limited to liability, property,
automobile and other vehicle, crime, and workers' compensation insurance, with
limits, coverages, deductibles, policies and carriers reasonably acceptable to
Owner and Manager. Owner shall provide Manager annually with certificates of
insurance and copies of all such insurance policies evidencing the required
coverages and providing for Manager to be sent all notices of cancellation.
The following provisions shall be applicable to such insurance:

7.1.1. Liability Insurance. Manager shall be an additional named
insured on all liability insurance carried by or on behalf of Owner and such
insurance shall contain cross-liability and severability of interests
provisions. Such policy or policies shall include a waiver of the insurer's
rights, if any, of subrogation against Manager.

7.1.2. Property Insurance. Manager shall be an additional named insured
on all property insurance carried in relation to physical loss of or damage to
property of Owner, or of Manager, as Manager's interests may appear, including
but not limited to fire and extended coverage insurance, all-risk insurance and
loss of use insurance. Such insurance shall include the property of Manager, if
any, used in connection with performance of its duties hereunder (provided that
Manager gives timely notice to the carrier of its acquisition of such property
and the full value thereof) and shall include a waiver of the insurer's right
of subrogation against any named insured.

7.2. Exculpation.

7.2.1. Manager shall perform its duties under this Agreement with
ordinary prudence and in a manner consistent with normal business practices
in the horse racetrack business. Manager shall have no liability whatsoever
to Owner, Operator or Holdings, or any limited partner, stockholder or other
owner of any such entity, for any loss caused by any act of Manager or by the
failure of Manager to do any act, notwithstanding the fact that the loss arises
out of the negligence or a mistake in judgment of Manager, provided that
Manager, acting in good faith, reasonably believed that the action or lack of
action giving rise to the loss was in the best interests of Owner, Operator or
Holdings, as the case may be. Such exculpation from liability shall not,
however, apply to any loss which arises out of or involves the gross
negligence, willful misconduct or bad faith of Manager, or results from willful
violation by Manager of a material provision of this Agreement. As used in
Sections 7.1, 7.2 and 7.3 herein, "Manager" shall include that entity and its
affiliates, including but not limited to Laurel Racing Association Limited
Partnership and The Maryland Jockey Club of Baltimore City, Inc., and its and
their respective stockholders, partners, officers, directors and employees.

7.2.2. Notwithstanding any other provision of this Agreement, Colonial
Downs shall be solely responsible for, and Manager shall have no responsibility
for, Colonial Downs entering into any agreement not recommended by or opposed
by Manager, and Manager shall not be considered to be in breach of this
Agreement or otherwise prejudiced by failing to provide or perform any
management or consulting service which Colonial Downs has not asked Manager
to provide or perform or as to which Colonial Downs has disregarded Manager's
advice.

7.3 Indemnity of Manager.

7.3.1. Owner shall indemnify and save Manager completely harmless in
respect of, and at Manager's request shall defend Manager and its stockholders,
partners, directors, officers, agents and employees, against any action, cause
of action, suit, debt, liability, cost, expense, penalty, claim or demand
whatsoever, including reasonable fees and expenses of counsel, brought by any
person at law or in equity, arising in connection with the performance or
failure of performance by Manager of any and all of its duties or obligations
under this Agreement. The foregoing shall not be applicable if it is proven
that Manager's gross negligence, willful misconduct, bad faith, or willful
violation of a material provision of this Agreement resulted in the liability
unless Manager's conduct was covered by Section 7.2.2 above.

7.3.2. Colonial Downs shall indemnify and hold harmless Manager and
its affiliates from and against any liability to any person under the
securities laws of the United States and any state for any act or omission
performed within the scope of Manager's obligations under this Agreement,
absent Manager's gross negligence, fraud or willful misconduct. Such indemnity
and hold harmless shall be made to the fullest extent allowed by applicable law
and without any requirement for contribution by Manager or any of its
affiliates and shall include but not be limited to reasonable attorney's fees
and expenses incurred by Manager and/or its affiliates.

7.3.3. This indemnity shall continue notwithstanding the termination
of this Agreement with respect to any act or occurrence preceding such
termination. In no event shall this indemnity apply to any action, cause of
action, suit, debt, liability, cost, expense, penalty, claim or demand which is
insured for the full amount of such claim or which is caused by (1) the gross
negligence, willful misconduct or bad faith of Manager or (2) any action taken
by Manager in willful violation of a material provision of this Agreement.

7.3.4. No person who shall be engaged as an independent contractor by
Manager shall be considered an employee or agent for the purposes of Section
7.3.

7.4 Indemnity of Colonial Downs.

7.4.1. Manager shall indemnify and save Colonial Downs completely
harmless in respect of, and at Colonial Downs' request shall defend Colonial
Downs and its respective general partner, limited partners, stockholders,
directors, agents and employees against any action, cause of action, suit,
debt, liability, cost, expense, penalty, claim or demand whatsoever, including
reasonable fees and expenses of counsel, brought by any person at law or in
equity, arising as a result of any action or decision by Manager taken or made
or purportedly taken or made in violation of this Agreement, and if and only
to the extent proven to have been caused by the gross negligence, willful
misconduct or bad faith of Manager or willful violation by Manager of a
material provision of this Agreement. The foregoing is subject to Section
7.4.2 below and Section 7.2.2 above.

7.4.2. This indemnity shall continue notwithstanding the termination
of this Agreement with respect to any act or occurrence preceding such
termination. In no event shall the indemnity provided under section 7.4.1.
apply to any action, cause of action, suit, debt, liability, cost, expense,
penalty, claim or demand which is insured for the full amount of such claim or
which is caused by (1) the gross negligence, willful misconduct or bad faith
of Colonial Downs or (2) any action taken by Colonial Downs in willful
violation of a material provision of this Agreement.

7.5. No Other Agreements. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and, subject to Section 9.14 below, supersedes all prior oral and written
discussions and understandings. Acceptance of, or acquiescence in, a course
of performance rendered under this Agreement shall not be relevant or
admissible to determine the meaning of this Agreement even though the accepting
or acquiescing party has knowledge of the nature of the performance and an
opportunity to make objection. No representations, understandings or agreements
have been made or relied upon in making of this Agreement other than those
specifically set forth herein.

7.6. Independent Activities. Notwithstanding the existence of
this Agreement, Colonial Downs and Manager, and each of their respective
affiliates (including but not limited to Raceway Park, Laurel Park and Pimlico
Race Course and their respective stockholders, partners, directors, officers
and employees) may engage in whatever activities each such party may choose
without having or incurring any obligation to offer any interest in any such
activities to the other party unless they relate to racing or off-track
wagering in Virginia. Other than the operator's license it currently holds
to operate the thoroughbred meets at the Racetrack or any license for which it
may apply pursuant to Section 1.3.2 above, Manager, subject to the provisions
of Sections 5.4.1 and 5.4.2 above, shall not apply for or otherwise obtain a
license(s) to own or operate a pari-mutuel horse racing facility or pari-mutuel
horse racing off-track wagering facility in the Commonwealth of Virginia as
long as this Agreement is in effect. This Agreement shall be applicable to
all license(s) to own or operate a pari-mutuel horse racing facility or pari-
mutuel horse racing off-track wagering facility in Virginia sought by Colonial
Downs, its subsidiaries or its affiliates controlling, controlled by or under
common control with Colonial Downs as long as this Agreement is in effect.
Colonial Downs shall not apply for or otherwise obtain a license(s) to own
or operate a pari-mutuel horse racing facility or pari-mutuel horse racing
off-track wagering facility in the State of Maryland as long as this Agreement
is in effect. Except as set forth above, neither this Agreement nor any
activity undertaken pursuant hereto shall prevent Colonial Downs and Manager,
or their respective affiliates, from engaging in such activities, or require
participation in such activities by the other party. As a material part of
the consideration hereof, each party hereto hereby waives, relinquishes and
enounces any such right of or claim to participation in any such activities.

SECTION 8
TERMINATION

8.1. Termination by Owner. Notwithstanding any other provision of
this Agreement, Owner shall have the right but not the obligation to terminate
this Agreement on the occurrence of any of the following events:

8.1.1. The filing against Manager of a petition in bankruptcy or other
similar proceeding under law for relief of debtors, or the involuntary
appointment of a receiver, custodian, liquidator or trustee in bankruptcy
of the property of Manager, and such petition or appointment is not vacated
or discharged within one hundred twenty (120) calendar days after the filing
or making thereof.

8.1.2. Manager, without the knowledge of Owner, violates any material
provision of any material federal, state or local law or regulation relating to
the development, construction or operation of the Racetrack and/or the OTB
Facilities and fails to cure (or diligently pursue the cure of) the violation
within thirty (30) days following receipt of notice from the governmental
agency of such violation.

8.1.3. The licenses of Owner and/or Operator from the Commission to own
and operate the Racetrack are permanently revoked, permanently withdrawn or
otherwise no longer available to Owner or Operator for any reason.

8.1.4. The license or other required approval of Manager or any of its
affiliates from the Commission to manage the meets and/or the OTB Facilities,
as provided in this Agreement, is permanently revoked, withdrawn or otherwise
no longer permanently available for any reason and such revocation, withdrawal
or other unavailability is upheld on appeal, or any applicable appeal time
has expired without an appeal having been filed by Manager.

8.1.5. Either the Commission or the Maryland Racing Commission refuses
to authorize Colonial Downs and/or the Maryland Jockey Club to participate in
the Virginia-Maryland thoroughbred racing circuit and/or requires Colonial
Downs and/or the Maryland Jockey Club to conduct a thoroughbred meet on dates
that substantially overlap with the thoroughbred meets of the other.
Notwithstanding the foregoing, the parties recognize that there may be periods
when either or both aforesaid racing commissions require Colonial Downs and/or
the Maryland Jockey Club to conduct overlapping thoroughbred meets on a
temporary basis which shall not constitute a basis for termination, it being
the parties' intent that termination under this section be allowed only in the
event that the ability of the parties to operate the Virginia-Maryland
thoroughbred racing circuit is frustrated for other than a temporary period.

8.2. Termination by Manager. Notwithstanding any other provision of
this Agreement, Manager shall have the right but not the obligation to
terminate this Agreement on the occurrence of any of the following events:

8.2.1. The filing against Owner, Operator, and/or Holdings of a petition
in bankruptcy or other similar proceeding under law for relief of debtors, or
the involuntary appointment of a receiver, custodian, liquidator or trustee in
bankruptcy of the property of Owner, Operator, and/or Holdings, and such
petition or appointment is not vacated or discharged within one hundred twenty
(120) calendar days after the filing or making thereof.

8.2.2. Colonial Downs, without the knowledge of Manager, violates any
material provision of any material federal, state or local law or regulation
relating to the development, construction or operation of the Racetrack and/or
any of the OTB Facilities and fails to cure (or diligently pursue the cure of)
the violation within thirty (30) days following receipt of notice from the
governmental agency of such violation.

8.2.3.The Commission revokes, withdraws or suspends either of the
Licenses and such action is upheld on final appeal or the time in which to file
an appeal has expired without an appeal having been filed.

8.3. Effect of Termination. Upon termination of this Agreement,
Colonial Downs shall:

8.3.1. Assume any contracts that may have been entered into by Manager
in its own name relating to the development or operation of the Racetrack or
the OTB Facilities if such contracts have been entered into in the ordinary
and customary course of business and in accordance with the provisions of this
Agreement and, to the extent required under this Agreement, indemnify Manager
against any liability by reason of anything done or required to be done under
any such contract by Manager after the effective date of such termination.

8.3.2. Pay for and indemnify Manager against the cost of all services,
materials and supplies, if any, that may have been ordered by Manager in the
ordinary and normal course of business and either (1) with the knowledge and
consent of Colonial Downs or (2) in accordance with a budget approved or
established by Colonial Downs. Upon such termination, Manager shall execute
and deliver to Colonial Downs such documents of transfer and assignment as may
be required to vest in owner all of Manager's rights under any and all
contracts required to be assumed by Colonial Downs under this Section 8.3.

8.3.3. Pay Manager any unpaid portion of the Management Fee and
Performance Fee.

SECTION 9
MISCELLANEOUS PROVISIONS

9.1. Notices. Any notices by either party to the other shall be in
writing and shall be delivered personally or deposited in the U. S. mail by
certified mail or sent via Federal Express or other overnight courier, return
receipt requested, prepaid and addressed as follows and sent as well by
facsimile transmission to the telefax number as follows:

To Colonial Downs: Colonial Downs L.P
P. O. Box 173
New Kent, Virginia 23124
Facsimile: 804-966-2086
Telephone: 804-966-7223

With a copy to: James L. Weinberg, Esq.
Hirschler, Fleischer, Weinberg,
Cox & Allen
The Federal Reserve Bank Building
701 East Byrd Street
Richmond, Virginia 23219
Facsimile: 804-644-0957
Telephone: 804-771-9527

To Manager: The Maryland Jockey Club
ATTN: Joseph A. De Francis
Route 198 and Racetrack Road
P. O. Box 130
Laurel, MD 20725
Facsimile: 410-792-4877
Telephone: 301-725-4003

With copies to: Martin Jacobs, Esq.
The Maryland Jockey Club
Route 198 and Racetrack Road
P. O. Box 130
Laurel, MD 20725
Facsimile: 410-792-4877
Telephone: 301-725-1555

William G. Thomas, Esq.
Hazel & Thomas, P.C.
P. O. Box 820
Alexandria, VA 22313
Facsimile: 703-836-8099
Telephone: 703-836-8400

Any party may at any time change the address for notices to it by delivering or
mailing, as aforesaid, a notice to the other party stating the change and
setting forth the changed address. The effective date of any notice shall be
the date it is personally delivered or three (3) days after it is deposited
in the U.S. Mail in accordance with the provisions of this Section.

9.2. No Partnership or Joint Venture. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership or
joint venture between Colonial Downs and Manager and, except as specifically
set forth herein or otherwise agreed in writing, neither shall have the power
or authority to bind or obligate the other.

9.3. Modification and Changes. This Agreement may not be changed or
modified except by another agreement in writing signed by the parties hereto.

9.4. Headings. The Section numbers and headings contained herein are
for convenience of reference only and are not intended to define, limit or
describe the scope or intent of any provision of this Agreement.

9.5. Binding Agreement; Assignment. This Agreement shall be binding
upon and inure to the benefit of each party hereto, and its respective
successors and assigns. This Agreement may not be assigned by any party
without the prior written consent of the other parties hereto, which consent
shall not be unreasonably withheld, delayed or conditioned.

9.6. Governing Law. This Agreement shall be deemed to have been made and
shall be construed and interpreted in accordance with the laws of the
Commonwealth of Virginia. Jurisdiction and venue over any dispute arising
hereunder shall be deemed to be exclusively in Richmond, Virginia.

9.7. Attorneys' Fees. Except as otherwise provided herein, in the event
of any dispute arising out of or concerning the terms hereof, the prevailing
party in such dispute shall be entitled to recover its reasonable attorneys'
fees and other costs incurred in enforcing its rights hereunder.

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

9.8.1. By the Commission. The party so desiring to refer the matter
shall request the Commission to arbitrate the dispute or difference by a panel
comprised of either one (1) or three (3) of its members, as its Chairman shall
designate, in accordance with such rules as the Chairman of the Commission
determines, including, but not limited to, the Commercial Arbitration Rules of
the American Arbitration Association (the "AAA") in effect on the date of this
Agreement.

9.8.2. By Another Arbitrator. If the Commission declines to arbitrate
the dispute or difference, the arbitration shall be conducted by a single
arbitrator designated by the Chairman of the Commission; and if the Chairman
declines to designate an arbitrator, the arbitration shall be conducted by
a single arbitrator selected by Colonial Downs and Manager in accordance
with the aforesaid rules of the AAA.

9.8.3. General. The arbitration shall take place in Richmond, Virginia,
unless the parties otherwise mutually agree, and shall be governed by the
substantive contract law of the Commonwealth of Virginia and the arbitration
rules as determined pursuant to Section 9.8.1. The arbitration award shall be
final, binding and conclusive on the parties, and not subject to any appeal.
No party nor the arbitrator may disclose the existence or results of any
arbitration hereunder except as may be necessary in litigation to enforce the
award or as may be required by the Commission. Judgment upon the award
rendered may be entered in any court having jurisdiction, or application may be
made to such court for judicial recognition of the award or any order of
enforcement thereof, as the case may be. This Section 9.8 shall not be
construed to limit the right of either party to apply to a court of competent
jurisdiction for other equitable relief to preserve the status quo or prevent
irreparable harm. Unless the arbitrator otherwise so determines and provides in
the arbitration award, (1) costs of the arbitration incurred jointly by the
parties (including hearing reporting fees, rental of a hearing room and all AAA
fees, costs and services charges) and of the arbitrator shall be shared equally
by the parties, except that hearing postponement or cancellation fees charges
by AAA or the arbitrator shall be borne exclusively by the canceling or
postponing party; and (2) each party shall bear its own costs and expenses
incurred by that party in connection with arbitration, including without
limitation each party's own travel expenses, hearing witness expenses and
attorney's fees.

9.9. Force Majeure. If at any time during the term hereof it becomes
necessary in Colonial Downs' reasonable opinion to cease operation of the
Racetrack or any portion thereof in order to protect the Racetrack and/or the
health, safety, and welfare of the guests, invitees, and/or employees of the
Racetrack for a period of time or permanently for reasons of force majeure such
as, but not limited to, acts of war, insurrection, civil strife and commotion,
serious labor unrest, inclement weather, or acts of God, then in such event
Colonial Downs may close and cease operation of all or part of the Racetrack,
reopening and commencing operation when Colonial Downs reasonably deems that
such may be done without jeopardy to the Racetrack, its guests, invitees, and
employees. Either Colonial Downs or Manager may terminate this Agreement upon
thirty (30) days' written notice if the conditions that caused the interruption
of business at the Racetrack have not ceased or improved sufficiently after the
end of one hundred eighty (180) days to permit the operation of the Racetrack
in accordance with the provisions of this Agreement. Provided, however, that
this Agreement shall continue in full force and effect as to OTB facilities,
if any, which continue to be licensed to Colonial Downs and continue to be
operated. If within the next following period of one hundred eighty (180)
days Owner reopens the Racetrack, Manager may by written notice to Owner
reactivate this Agreement, whereupon it shall be in full force and effect as
if not terminated.

9.10. Limitation of Liability. Anything contained herein to the
contrary notwithstanding, neither Colonial Downs nor any of its respective
general partner, limited partners, stockholders, directors, officers, employees
or agents shall be liable to Manager or to any of its affiliates or their
respective general partner, limited partners, stockholders, directors,
officers, employees and agents for (1) the failure of Colonial Downs to obtain
or retain licenses for the Racetrack and for all or a portion of the permitted
OTB Facilities or (2) the failure, for any reason, of Colonial Downs to raise
the capital necessary to construct, or to construct, additional OTB facilities.

9.11. Action of Operator and Holdings. Wherever in this Agreement and
obligation is imposed on Owner, and it is within the power of Operator or
Holdings to cause such obligation to be performed, then Holdings and/or
Operator shall take such action.

9.12. Separate Activities of Colonial Downs. All revenues generated
and expenses incurred, directly or indirectly, by Colonial Downs (i) from the
ownership, operation or use of the Racetrack, the current facilities at the
Racetrack, or the current or future OTB Facilities, whether or not related
to horse racing at the Racetrack, or (ii) in any other manner from the use
by Colonial Downs of the Licenses or the OTB Licenses, shall be accounted for
as revenues and expenses of Colonial Downs and shall be included in the
calculation of Operating EBITDA pursuant to Section 4.3 above. All revenues
generated and expenses incurred, directly or indirectly, by Colonial Downs
from the ownership, operation, or use of facilities (i) located at the
Racetrack or OTB Facilities in the future and requiring capital expenditures
by Colonial Downs but not related to or adversely affecting the operations of
the Racetrack or OTB Facilities or (ii) located somewhere other than at the
Racetrack or OTB Facilities shall not be accounted for as revenues and expenses
of Colonial Downs for purposes of calculating Operating EBITDA pursuant to
Section 4.3 above.

9.13. Restructuring of Owner. If there is any restructuring of Colonial
Downs after the date of this Agreement, the effect of which could be to divert
revenues generated by the Racetrack or the OTB Facilities, or the Licenses or
the OTB Licenses, which revenue is includable in the calculation of Operating
EBITDA as provided in Section 9.12 above, to Operator, Holdings or any other
person or entity, Operator, Holdings and such other person or entity shall be
jointly and severally responsible with Owner for the obligations of Owner to
Manager under this Agreement and such other person or entity shall become a
party to this Agreement to reflect the aforesaid responsibility.

9.14. Bankruptcy of Colonial Downs. Colonial Downs has indicated both
publicly and to Manager on numerous occasions during 1998 that it is
considering filing for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code. Nonetheless, Colonial Downs also has stated to and assured
Manager that it intends in good faith to perform its duties and
responsibilities fully under this Agreement, and that it does not intend to
reject this Agreement in any such bankruptcy proceeding. As more fully set
out in an Addendum to this Agreement, dated the same date as this Agreement,
however, in the event that Colonial Downs files for protection under the U. S.
Bankruptcy Code on or before January 1, 2001, at the election of Manager in its
sole and absolute discretion, this amended and restated Management Agreement
shall be of no further force or effect and the 1996 Agreement shall control as
if not amended or restated. Until such time, this Agreement shall control as
to all matters between the parties that are subject to this Agreement or the
1996 Agreement.

9.15. Interpretation. Colonial Downs and Manager acknowledge and agree
that this Agreement has been jointly prepared by the parties hereto and, in the
event of any dispute among or between the parties, this Agreement or any
provision hereof shall not be construed against any of the parties as the party
drafting this Agreement or that provision.

9.16. Submission to Commission. This Agreement shall not be effective
until (i) a fully executed copy of this Agreement has been submitted to the
Virginia Racing Commission and (ii) forty-five (45) days have passed since
the date of that submission without the Virginia Racing Commission disapproving
or formally voicing, in the form of a resolution, any objection to this
Agreement.

[Balance of page intentionally blank.]

IN WITNESS WHEREOF, each of the parties through its respective duly
authorized representatives has executed and delivered this Agreement as of
January 15, 1999.

COLONIAL DOWNS, L.P.

By: Stansley Racing Corp., its general partner

By: /s/ Jeffrey P. Jacobs
----------------------
Jeffrey P. Jacobs, CEO

STANSLEY RACING CORP.

By: /s/ Jeffrey P. Jacobs
----------------------
Jeffrey P. Jacobs, CEO
CEO

COLONIAL DOWNS HOLDINGS, INC.

By: /s/ Jeffrey P. Jacobs
----------------------
Jeffrey P. Jacobs, CEO

MARYLAND-VIRGINIA RACING CIRCUIT, INC.

By: /s/ Joseph A. DeFrancis
------------------------
Joseph A. De Francis, President

ADDENDUM TO
AMENDED AND RESTATED MANAGEMENT AGREEMENT

WHEREAS, the parties to this Addendum to Amended and
Restated Management Agreement, Colonial Downs, L.P., Stansley Racing
Corp., and Colonial Downs Holdings, Inc. (collectively, "Colonial Downs")
and Maryland-Virginia Racing Circuit, Inc. ("Manager") were the parties
to, or are successors to the parties to, a Management and Consulting
Agreement dated April 22, 1996 (the "1996 Agreement"); and

WHEREAS, the parties to this Addendum are parties to an
Amended and Restated Management Agreement, dated January 15,
1999, into which this Addendum is incorporated; and

WHEREAS, the parties to this Addendum intend that the defined
terms in the Amended and Restated Management Agreement be
incorporated in and apply in full to this Addendum; and

WHEREAS, by a letter dated January 8, 1998, Colonial Downs
submitted a written Demand for Arbitration to the Virginia Racing
Commission (the "Commission") for arbitration of certain differences
between the parties hereto regarding the 1996 Agreement; and

WHEREAS, the foregoing letter stated, in part, that "on multiple
occasions over the last year and a half . . .," efforts were made to
negotiate the differences between the parties regarding the 1996
Agreement; and

WHEREAS, the Demand for Arbitration itself stated that the issues
in dispute included, without limitation, impossibility of performance,
rescission, modification and/or reformation of the 1996 Agreement; and

WHEREAS, Colonial Downs' request for relief in the foregoing
arbitration included, among other things, a reduction in the annual
management fee payable to Manager, a retroactive adjustment to that fee
to February 17, 1996, a resolution of an alleged dispute over the amount
owed to Manager by Colonial Downs, or alternatively rescission of the
agreement, a refund of sums paid by Colonial Downs to Manager, and a
mandate that the parties enter into a new management agreement, plus
attorneys' fees and "any other relief" that was deemed appropriate
based upon the evidence presented; and

WHEREAS, Manager filed a response to the arbitration claim
denying Colonial Downs' entitlement to any relief and counterclaimed for
$1,480,568 in past due management fees plus interest, $174,947 in
reimbursable out-of-pocket expenses, and certain other damages, which
counterclaim was contested by Colonial Downs; and

WHEREAS, with the consent of Colonial Downs and Manager, the
Honorable John H. Shenefield, a Washington, D.C. attorney who was the
former Chairman of the Commission, was appointed as the arbitrator of
the arbitration dispute; and

WHEREAS, the parties thereafter again entered into negotiations
and discussions and voluntarily consented to mediation in an effort to
resolve their differences regarding the 1996 Agreement; and

WHEREAS, Colonial Downs through its authorized
representatives has stated on numerous occasions during the past year
that one or more of the entities comprising it was considering seeking,
and later that it would seek, bankruptcy protection under Chapter 11 of
the United States Bankruptcy Code; and

WHEREAS, Manager states that it never would agree to negotiate
an Amended and Restated Management Agreement only to have that
Amended and Restated Management Agreement rejected under 11
U.S.C. 365 in a bankruptcy proceeding; and

WHEREAS, Colonial Downs has represented that it does not now
intend to file for bankruptcy under circumstances as they exist as of the
date hereof; and

WHEREAS, Colonial Downs has represented that it expects, after
the execution of the Amended and Restated Management Agreement, to
generate revenues sufficient to pay its obligations under that Amended
and Restated Management Agreement; and

WHEREAS, Manager states that it would not make the significant
concessions provided for in the Amended and Restated Management
Agreement only to thereafter have one or more of the entities comprising
Colonial Downs breach and/or reject the Amended and Restated
Management Agreement in bankruptcy; and

WHEREAS, the parties hereto wish to suspend the 1996
Agreement until January 1, 2001, but not now terminate the 1996
Agreement; and

WHEREAS, in order to induce Manager to enter into the
suspension of the 1996 Agreement and be bound by the Amended and
Restated Management Agreement, the parties hereto wish to ensure thatby
entering into the Amended and Restated Management Agreement,
Manager will not lose or reduce its rights under the 1996 Agreement if
the Amended and Restated Management Agreement is rejected in
bankruptcy; and

WHEREAS, the parties agree that the filing of bankruptcy and the
rejection, breach or avoidance of the Amended and Restated
Management Agreement should and will, at the election of Manager in its
sole and absolute discretion, vitiate the Amended and Restated
Management Agreement as provided below; and

WHEREAS, the parties want to provide for the suspension and
reinstatement of the 1996 Agreement and the potential voiding of the
Amended and Restated Management Agreement as provided below
should bankruptcy be filed by one or more of the entities comprising
Colonial Downs and rejection of the Amended and Restated Management
Agreement result; NOW THEREFORE, the parties hereto enter into this
Addendum to Amended and Restated Management Agreement as
follows:

1. The foregoing recitals are hereby incorporated in the body
of this Addendum.

2. This Addendum to Amended and Restated Management
Agreement is contingent upon and shall be valid if and only if:

A. One or more of the entities comprising Colonial
Downs does not file for bankruptcy relief prior to January 1, 2001; or

B. If a bankruptcy is filed, such bankruptcy results in
one or more of the entities comprising Colonial Downs successfully
moving to accept the Amended and Restated Management Agreement
under 11 U.S.C. 365.

3. If one or more of the entities comprising Colonial Downs
does not file for bankruptcy prior to January 1, 2001, the foregoing
contingency shall be removed and the suspension of the 1996
Agreement shall terminate and the 1996 Agreement shall be of no further
force or effect.

4. If one or more of the entities comprising Colonial Downs
does file for bankruptcy prior to January 1, 2001, and (i) the filing
entity(ies) of Colonial Downs do not move within 60 days of such filing to
accept, or following such motion do not diligently pursue acceptance
of, the Amended and Restated Management Agreement under 11 U.S.C.
365; or (ii) such motion to accept is not approved by the United States
Bankruptcy Court; or (iii) the filing entity(ies) of Colonial Downs attempt to
promote or confirm a plan that purports to reject or modify the Amended
and Restated Agreement, then in any of the above events, the Amended
and Restated Agreement shall, at the election of Manager in its sole and
absolute discretion after the occurrence of the events specified in
paragraphs 4(i), (ii) or (iii) above, be null and void ab initio and the 1996
Agreement between the parties shall cease to be suspended and shall
become the controlling agreement between the parties.

5. During the time frame set forth in paragraphs 2, 3 and 4
above and under the conditions set forth therein, the 1996 Agreement
shall be deemed suspended until January 1, 2001, and the parties shall
be governed by, and shall perform their respective duties and
responsibilities as provided in, the Amended and Restated Management
Agreement. Should the contingencies set forth in paragraphs 2, 3 and/or
4 above not occur or be met, and Manager in its sole and absolute
discretion so elects, then, in that event, all sums paid by Colonial Downs
to Manager during the term of the suspension of the 1996 Agreement
shall be applied to sums owed under the 1996 Agreement, said 1996
Agreement shall be considered to have been in full force and effect
continuously as if the Amended and Restated Management Agreement
was never made and entered into, and the Amended and Restated
Management Agreement shall be deemed null and void ab initio and of no
legal effect. The 1996 Agreement shall cease to be suspended and shall
be deemed terminated and of no force or effect as of the date hereof (i)
if no Colonial Downs entity files for bankruptcy relief prior to January 1,
2001, or (ii) if one or more entities comprising Colonial Downs files for
bankruptcy prior to January 1, 2001, and the Amended and Restated
Management Agreement is successfully accepted and assumed
pursuant to 11 U.S.C. 365.

IN WITNESS WHEREOF, each of the parties through its respective
duly authorized representatives has executed and delivered this
Addendum to Amended and Restated Management Agreement effective
as of January 15, 1999.

COLONIAL DOWNS, L.P.

By: Stansley Racing Corp.,
its general partner

By: /s/ Jeffrey P. Jacobs
----------------------
Jeffrey P. Jacobs, CEO

STANSLEY RACING CORP.

By: /s/ Jeffrey P. Jacobs
----------------------
Jeffrey P. Jacobs, CEO

COLONIAL DOWNS HOLDINGS, INC.

By: /s/ Jeffrey P. Jacobs
----------------------
Jeffrey P. Jacobs, CEO

MARYLAND-VIRGINIA RACING CIRCUIT, INC.

By: /s/ Joseph A. DeFrancis
-------------------------
Joseph A. DeFrancis, President

AGREEMENT

THIS AGREEMENT is made as of January 15, 1999 between DELMARVA
PROPERTIES, INC., a Virginia corporation ("Delmarva"), and COLONIAL DOWNS,
L.P., a Virginia limited partnership (the "Partnership") and COLONIAL DOWNS
HOLDINGS, INC., a Virginia corporation (together with the Partnership,
"Colonial Downs").

In consideration of the mutual promises and covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:

1. Gray Water. (a) In order to further enhance service at the rest
stops along Highway 64 near the Racetrack and the development of adjacent
property owned by Delmarva, Colonial Downs agrees to cooperate with the County
of New Kent, Virginia (the "County") with respect to the treatment of gray
water ("Third Party Gray Water") arising from these sources. Colonial Downs
will accept the Third Party Gray Water at no cost, provided the acceptance of
such water is consistent with the irrigation management plan for the Racetrack.
Colonial Downs will bear the cost of constructing the Enhancements to the
existing water delivery and treatment system necessary to accommodate the Third
Party Gray Water (the "Enhancements"), provided the costs of the Enhancement
does not exceed $50,000.00.

(b) The parties acknowledge that additional permits or licenses may be
required to design, construct, and operate the Enhancements and that the County
should be the holder of such permits and licenses. The parties shall cooperate
in assisting the County to secure such permits and licenses and will further
cooperate to secure the approval and support of the County in the design
construction, and operation of the Enhancements.

2. Land Reverter/Deed Restriction. (a) Delmarva will not exercise the
Reconveyance Rights set forth in Schedule C to the Deed, dated March 19, 1997
(the "Deed"), from Chesapeake Forest Products Company ("Chesapeake") to
Colonial Downs Holdings, Inc., recorded at Deed Book 241, page 453, in the
Clerk's Office of the Circuit Court of New Kent County, Virginia, pursuant to
the Deed deleting the reconveyance provision substantially in the form attached
as Exhibit A.

(b) In addition to those uses currently permitted, Delmarva agrees
that the following additional uses shall be permitted:

1. Performing Arts Center;
2. Athletic training facility; or
3. Hotel conference facility.

Any other change in use shall be subject to the prior written approval of
Delmarva, which approval may be withheld, conditioned, or delayed in Delmarva's
sole discretion.

<PAGE> 2

3. Notice of Violation. Colonial Downs, at its sole cost and
expense, agrees to complete, by February 28, 1999, the work necessary to comply
with the Notice of Violation, dated June 22, 1998, from the Department of
Environmental Quality of the Commonwealth of Virginia.

4. Miscellaneous. This Agreement shall be binding upon and inure
to the benefit of each party hereto, its legal representatives and assigns and
may not be assigned without the consent of each party hereto, except that
Delmarva may assign this Agreement to the County. This Agreement constitutes
the entire agreement between the parties hereto with respect to the subject
matter hereof. Any modification or amendment to this Agreement or waiver by
either party of any rights or remedies available to it shall not be effective
unless, and only to the extent that, such modification, amendment or waiver is
set forth in a writing delivered to the other party. This Agreement shall be
construed and enforced in accordance with and governed by the law of the
Commonwealth of Virginia, exclusive of its rules regarding choice of law. Any
headings preceding the text of the several Sections and subparagraphs hereof
are inserted solely for convenience of reference and shall not constitute a
part of this Lease, nor shall they affect its meaning, construction or effect.
All provisions in this Agreement are severable and each valid and enforceable
provision shall remain in effect and shall be binding upon the undersigned,
notwithstanding that other provisions may be held by legislative or judicial
process to be invalid or unenforceable. This Agreement may be executed in two
or more counterparts, each of which shall constitute an original, and all of
which together shall constitute one and the same agreement.

WITNESS the following signatures as of the date first above written.

DELMARVA PROPERTIES, INC., a Virginia corporation

By: /s/ Joel Mostrom
-----------------------
Joel Mostrom, President

COLONIAL DOWNS, L.P., a Virginia limited partnership

By: Stansley Racing Corp., its general partner

/s/ Jeffrey P. Jacobs
-----------------------
Jeffrey P. Jacobs, Chief Executive Officer

COLONIAL DOWNS HOLDINGS, INC., a Virginia corporation

/s/ Jeffrey P. Jacobs
-----------------------
Jeffrey P. Jacobs, Chief Executive Officer

FORBEARANCE AGREEMENT DATED JANUARY 11, 1999

BY AND AMONG

PNC BANK, NATIONAL ASSOCIATION

AND

COLONIAL DOWNS, L.P.; STANSLEY RACING CORP.;
COLONIAL DOWNS HOLDINGS, INC.;
JEFFREY P. JACOBS; RICHARD E. JACOBS;
and THE TRUST CREATED UNDER THE RICHARD E. JACOBS
DECLARATION OF TRUST DATED APRIL 23, 1987

Effective as of December 1, 1998

<PAGE> 1

FORBEARANCE AGREEMENT

THIS FORBEARANCE AGREEMENT (the "Agreement"), made this 11th day of
January, 1999, by and among PNC Bank, National Association ("Lender"),
Colonial Downs, L.P., a Virginia limited partnership ("Borrower"), Stansley
Racing Corp., a Virginia corporation ("SRC"), Colonial Downs Holdings, Inc.,
a Virginia Corporation ("CDH"), Jeffrey P. Jacobs ("Jeffrey Jacobs"),
Richard E. Jacobs ("Richard Jacobs"), and The Trust Created Under The Richard
E. Jacobs Declaration of Trust dated April 23, 1987 (the"Jacobs Trust") (SRC,
CDH, Jeffrey Jacobs, Richard Jacobs and the Jacobs Trust are collectively
referred to herein as the "Guarantors".)

WITNESSETH:

1. WHEREAS, Borrower is the owner of leasehold interest in certain
land and the owner of improvements thereon which are used to operate a
thoroughbred and standardbred race track and related facilities located in
New Kent County, Virginia (the "Property"); and

2. WHEREAS, pursuant to a Construction Loan Agreement dated as of
June 26, 1997, by and between Borrower and Lender, Lender made a
Construction loan to Borrower in the principal amount of $10,000,000 (the
"Construction Loan Agreement"); and

3. WHEREAS, the obligation to repay the Construction Loan is evidenced
by a Deed of Trust Note in the principal amount of $10,000,000 (the
"Construction Note"); and

4 WHEREAS, pursuant to a Revolving Line of Credit Agreement dated
as of June 26, 1997, by and between Borrower and Lender, Lender extended to
Borrower a revolving line of credit in a maximum principal amount not to
exceed $5,000,000 (the "Revolving Credit Agreement"); and

5. WHEREAS, the obligation to repay the Line of Credit is evidenced
by a Revolving Credit Note in the amount of $5,000,000 (the "Revolving Credit
Note"); and

6. WHEREAS, each of SRC, CDH, Jeffrey Jacobs and Richard Jacobs,
(each an "Original Guarantor" and collectively, the "Original Guarantors")
have executed and delivered to Lender: (i) an Agreement of Guaranty and
Suretyship (Payment) dated as of June 26, 1997 (each a "Payment Guaranty"
and collectively the "Payment Guaranties") pursuant to which each Original
Guarantor has among other things, guaranteed the payment and performance by
the Borrower of its obligations under and in connection with the Construction
Loan Agreement and the Line of Credit Agreement; and (ii) an Agreement of
Guaranty and Suretyship (Completion) dated as of June 26, 1997 (each a
"Completion Guaranty" and collectively the "Completion Guaranties") pursuant
to which each Original Guarantor has, among other things, guaranteed
completion of certain improvements to the Property (the Payment Guaranties
and the Completion Guaranties are collectively referred to herein as the
"Original Guaranties"); and

7. WHEREAS, the Borrower's obligations under the Credit Agreements
and the Notes (each as hereinafter defined) are secured by, among other
things, a Deed of Trust and Security Agreement dated as of June 26, 1997,
from the Borrower and CDH to lawyers Title Realty Services, Inc. as Trustee
for the benefit of Lender (the "Deed of Trust"); and

8. WHEREAS, pursuant to an Assignment of Leases and Rents dated
as of June 26, 1997, Borrower assigned to Lender its rights under certain
leases and rents as security for the Borrower's obligations under the Credit
Agreements and the Notes ("Assignment of Leases"); and

<PAGE> 2
9. WHEREAS, the Deed of Trust and the Assignment of Leases were
recorded in the Clerk's office in the Circuit Court of New Kent County,
Virginia in order to perfect the Lender's interest therein; and

10. WHEREAS, pursuant to a Hazardous Material Certificate and
Indemnity Agreement dated as of June 26, 1997, Borrower, CDH, Jeffrey Jacobs
and Richard Jacobs made certain warranties about, and agreed to indemnify
Lender against, damages or claims caused by the presence of hazardous
material or environmental claims related to the Property (the
"Indemnification Agreement"); and

11. WHEREAS, pursuant to an Assignment of Construction and Development
Documents dated as of June 26, 1997, Borrower assigned to Lender its rights
to certain documents and agreements related to the construction of
improvements to the Property as security for the obligations under the Credit
Agreements and Notes (the "Construction Assignment"); and

12. WHEREAS, pursuant to an Assignment of Management Agreement dated
as of June 25, 1997, Borrower assigned to Lender its rights under a
Management Consulting Agreement dated April 22, 1996, and a side letter
amendment thereto between Borrower and Maryland-Virginia Racing Circuit,
Inc., as security for the Borrower's obligations under the Credit Agreements
and Notes (the "Assignment of Management Agreement"); and

13. WHEREAS, pursuant to an Assignment of Development Agreement dated
as of June 26, 1997, Borrower assigned to Lender its rights under a
Development Agreement, dated October 16, 1996 between Borrower and Delmarva
Properties, Inc., as security for Borrower's obligations under the Credit
Agreements and Notes (the "Assignment of Development Agreement"); and

14. WHEREAS, pursuant to a Pledge Agreement dated as of June 26, 1997,
SRC pledged to Lender its general partnership interest in Borrower as
security for SRC's performance under its Guaranties (the "SRC Pledge"); and

15. WHEREAS, pursuant to a Pledge Agreement dated as of June 26, 1997,
CDH pledged to Lender its partnership interests in Borrower and 100% of the
stock of SRC as security for CDH's performance under its Guaranties (the "CDH
Pledge"); and

16. WHEREAS, the Borrower and Original Guarantors have provided Lender
with a list of defaults under various provisions of the Credit Agreements and
Original Guaranties as of December 18, 1998, which list is attached hereto as
Exhibit A; and

17. WHEREAS, each of Borrower and SRC have advised Lender that it
may file a petition for relief under Chapter 11 of the Bankruptcy Code, which
filing will constitute an Event of Default under the Credit Agreements; and

18. WHEREAS, Borrower and Guarantors have requested that Lender
forbear from exercising its rights and remedies under the Credit Agreements
and Original Guaranties; and

19. WHEREAS, Lender has agreed to such request on the terms and
conditions hereinafter set forth.

NOW, THEREFORE, Borrower, Guarantors and Lender, in consideration of
their mutual covenants contained herein and intending to be legally bound
hereby, agree as follows:

<PAGE> 3

Article I
Definitions

In addition to terms defined elsewhere in this agreeement, as used herein,
the following terms shall have the following meanings. Otherwise, capitalized
terms used herein shall have the meanings set forth in the Transaction
Documents:

1.1 "Adequate Protection Order" shall mean a Final Order of the
Bankruptcy Court, in form and substance acceptable to the Lender, directing
the Borrower (and/or SRC) and its Estate to pay current interest on the
Obligations as adequate protection of the Lender's interests under the Loan
Agreements.

1.2 Bankruptcy Code" shall mean Title 11 of the United States Code,
11 U.S.C. Sections 1101 et sea.

1.3 "Bankruptcy Court" shall mean the United States Bankruptcy Court
with jurisdiction over the Bankruptcy Proceeding.

1.4 "Bankruptcy Proceeding(s)" shall mean a case under the Bankruptcy
Code commenced by a petition for relief filed by or against the Borrower or
SRC.

1.5 "Credit Agreements" shall mean the Construction Loan Agreement and
the Revolving Credit Agreement.

1.6 "Effective Date" shall mean December 1, 1998.

1.7 "Eligible Collateral" shall mean either cash, certificates of
deposit of Lender, or United States Treasury obligations.

1.8 "Estate" shall mean the Borrower's estate, and the estate of
SRC, if applicable, created upon the commencement of the Bankruptcy
Proceeding(s).

1.9 "Final Order" shall mean an order entered by the Bankruptcy
Court, which shall not be subject to appeal or certiorari.

1.10 "Guaranties" shall mean the Original Guaranties and the Jacobs
Trust Guaranty.

1.11 "Guarantor Pledge Agreement" shall mean an agreement substantially
in the form of Exhibit B hereto, executed and delivered by each of the
Guarantors in accordance with Section 3.1(e) hereof, pursuant to which the
Guarantors shall pledge to Lender Eligible Collateral.

1.12 "Interest/Fees Letter of Credit" shall mean an unconditional,
irrevocable standby letter of credit issued for the benefit of Lender by an
issuer acceptable to Lender at its sole discretion. An Interest/Fees Letter
of Credit shall be payable at sight, and shall have an expiration of July 31,
2000. An Interest/Fees Letter of Credit shall be substantially in the form
of Exhibit E hereto with blanks appropriately filled.

1.13 "Jacobs Trust Guaranty" shall mean a guaranty and suretyship
agreement executed and delivered to Lender by the Jacobs Trust pursuant to
Section 3.1 (c) hereof, substantially in the form of Exhibit C hereto.

<PAGE>..4

1.14 "Letter of Credit No. 1" shall mean an unconditional,
irrevocable standby letter of credit issued for the benefit of Lender
in the stated amount $5,000,000 minus any Principal Amount Letters of Credit
theretofore provided to Lender or Eligible Collateral delivered to Lender in
lieu thereof. Letter of Credit No. 1 shall be issued by an issuer acceptable
to Lender in its sole discretion, shall be payable at sight and shall have an
expiration of 400 days from the Petition Date. Letter of Credit No. 1 shall
be substantially in the form of Exhibit D hereto with blanks appropriately
filled.

1.15 "Letter of Credit No. 2" shall mean an unconditional, irrevocable
standby letter of credit issued for the benefit of Lender in the stated
amount of $5,000,000. Letter of Credit No.2 shall be issued by an issuer
acceptable to lender in its sole discretion, shall be payable at sight and
shall have an expiration of 400 days form the Petition Date. Letter of
Credit No. 2 shall be substantially in the form of Exhibit D hereto with
blanks appropriately filled.

1.16 "Notes" shall mean the Construction Note and the Revolving
Credit Note.

1.17 "Obligation" shall mean all of Borrower's liabilities and
indebtedness to Lender of any and every kind and nature arising under this
Agreement, the Transaction Documents or any other agreements among any of the
parties, whether heretofore, now or hereafter owing, arising, due or payable
from Borrower to Lender and however evidenced, created, incurred, acquired or
owing, whether primary, secondary, direct, contingent, fixed or otherwise,
including obligations of performance.

1.18 "Petition Date" shall be the date on which a petition for relief
under the Bankruptcy Code is filed by the Borrower in a voluntary case or
an order for relief is entered against the Borrower in an involuntary case

1.19 "Plan of Reorganization" shall mean a plan of reorganization
filed by the Borrower or SRC, as the case may be, in a Bankruptcy Proceeding
which has been approved by the Bankruptcy Court in accordance with Section 1129
of the Bankruptcy Code and which is acceptable to Lender.

1.20 "Principal Amount Letter of Credit" shall mean an unconditional,
irrevocable standby letter of credit issued for the benefit of Lender by an
issuer acceptable to Lender at its sole discretion. A Principal Amount
Letter of Credit shall be payable at sight and shall have an expiration of
July 31, 2000. A Principal Amount Letter of Credit shall be substantially in
the form of Exhibit E hereto with blanks appropriately filled.

1.21 "Termination Event" shall mean those events specified in Article
VIII hereof.

1.22 "Transaction Documents" shall mean this Agreement, the Construction
Loan Agreement, the Line of Credit Agreement, the Notes, the Deed of Trust,
the Assignment of Leases, the Construction Assignment, the Assignment of
Management Agreement, the Assignment of Development Agreement, the CDH
Pledge, the SRC Pledge, the Guaranties, the Indemnification, and the Guarantor
Pledge Agreement.

<PAGE> 5
Article II
Forbearance

2.1 Agreement to Forbear. Borrower and Original Guarantors acknowledge
that certain Events of Default as set forth in Exhibit A hereto have occurred
under the Credit Agreements and Original Guaranty of Holdings and that an
Event of Default will occur upon the filing of a Bankruptcy Proceeding by
either the Borrower and/or SRC. As a result of such existing Events of
Default the Borrower and Original Guarantors hereby agree that Lender has
the right to exercise its remedies under the Credit Agreement and all
Original Guaranties.

Without waiving any of the above-described existing Events of Default or
its rights under the Credit Agreements or the original Guaranties and subject
to the terms and conditions set forth herein, Lender hereby agrees to forbear
as of the Effective Date from exercising its remedies under the Credit
Agreement and Original Guaranties until the termination of this Agreement in
accordance with Article VIII hereof. Notwithstanding such forbearance,
Borrower and Original Guarantors agree that Lender may take such actions
in a Bankruptcy Proceeding as may be reasonably necessary to protect its
interests in a manner consistent with this Agreement, including but not
limited to, actions such as filing proof(s) of claim, objecting to any
attempts to challenge Lender's claims, liens or rights under the Transaction
Documents, voting on any proposed plan of reorganization, and otherwise
appearing and being heard in the Bankruptcy Proceedings in any matter in
which the Lender's interests may be affected.

Article III
Conditions Precedent to Forbearance

3.1 Conditions. This Agreement shall become effective upon the
satisfaction of the following conditions in form and substance reasonably
satisfactory to the Lender and its counsel:

(a) No Event of Defaults shall have occurred under the Credit
Agreements or Guaranties other than those referred to in Exhibit A hereto
or continuing defaults of the same covenants or conditions so long as there
is no material adverse change in the financial condition of Borrower and
Original Guarantors from their respective financial conditions at the
execution and delivery hereof.

(b) All representations and warranties contained herein shall
be true and correct as of the Effective Date and as of the date of the execution
and delivery hereof.

(c)The Jacobs Trust shall have executed and delivered to Lender the Jacobs
Trust Guaranty.

(d) The Guarantors shall have executed and delivered to the Lender
a Principal Amount Letter of Credit in the face amount of $1,000,000.

(e) The Guarantors shall have executed and delivered to Lender the
Guarantor Pledge Agreement

(f) The Borrower and the Guarantors shall have delivered to
Lender financial statements and other reports required under the Transaction
Documents which have not previously been delivered.

(g) CD Entertainment Ltd., an Ohio limited liability company
("Entertainment") shall have reaffirmed the Subordination Agreement (Deed of
Trust) dated June 26, 1997, by and among Entertainment, David Belkowitz and
James W. Theobald, as Trustees, CDH, the Borrower and the Lender, pursuant
to a letter in the form of Exhibit F hereto.

<PAGE> 6

(h) One or more of the Borrower and/or Guarantors shall have
reimbursed Lender for its costs and expenses related to the preparation and
execution of this Agreement, including but not limited to, all filing fees
and taxes, fees and expenses of Lender's in-house and outside legal counsel,
auditors, appraisers and environmental consultants.

(i) The Borrower and Guarantors shall have delivered to the
Lender an opinion of counsel substantially in the form of Exhibit G hereto.

Article IV
Payment of Principal, Interest and Fees

4.1 Principal Amount. During the term hereof, Borrower shall pay
to Lender on the due date all principal amounts required to be paid pursuant
to the terms of the Credit Agreements and Notes. In lieu thereof, on the date
of such principal payment any Guarantor may deliver to Lender a Principal
Amount Letter of Credit in the face amount of the principal payment then due
under the Credit Agreements and Notes.

4.2 Interest and Fees. During the term hereof, Borrower shall
pay to Lender on the due date all interest and fees required to be paid
pursuant to the terms of the Credit Agreements and Notes. In lieu thereof,
within 10 days after the due date thereof, any Guarantor may deliver to
Lender an Interest/Fees Letter of Credit in the face amount of the interest
and fees then due under the Credit Agreements and Notes.

4.3 Eligible Collateral. (a) So long as a Termination Event has not
occurred, any Guarantor other than SRC may deliver to Lender Eligible
Collateral in place of Letter of Credit No. 1,Letter of Credit No. 2, any
Principal Amount Letter of Credit or Interest/Fees Letter of Credit. Such
Eligible Collateral shall be delivered to Lender on the due date if
substituted for Letter of Credit No. 1,Letter of Credit No. 2, or a Principal
Amount Letter of Credit and within ten (10) days after the due date
if substituted for an Interest/Fees Letter of Credit. All such Eligible
Collateral shall be subject to the Guarantor Pledge Agreement.

(b) Lender, in its sole discretion, may draw on an Interest/Fees
Letter of Credit and/or liquidate Eligible Collateral delivered in lieu
thereof and apply the proceeds to satisfy the amount of interest and fees
then due on the later of sixty (60) days after the delivery of such
Interest/Fees Letter of Credit or Eligible Collateral or the last business
day of the calendar quarter in which the payment of interest or fees was due.

Article V
Representations and Warranties

In order to induce Lender to enter into this Agreement, the Borrower
and each Guarantor, for itself or himself, as the case may be, and for its
or his heirs, personal representatives, successors and assigns, hereby
acknowledges, represents and warrants to Lender the following insofar as
it is applicable to it or him:

5.1 Borrower Status. Borrower is duly organized, validly existing
and in good standing under the Laws of the Commonwealth of Virginia, and has
full power and authority to own or lease and operate its properties and
assets, and to conduct its affairs as now being conducted and as proposed
to be conducted. The sole general partner of Borrower is SRC and the sole
limited partner of Borrower is CDH.

<PAGE> 7

5.2 Corporate Status. CDH and SRC are corporations duly organized
and validly existing and in good standing under the laws of the Commonwealth
of Virginia; both CDH and SRC have the power to carry on their businesses
as now being conducted.

5.3 Power and Authority. Borrower and the Guarantors have full
power and authority to enter into, execute,deliver and carry out this Agreement
and the Transaction Documents being executed and delivered pursuant hereto, and
to perform their respective obligations hereunder and thereunder, and
all such actions have been duly authorized by all necessary proceedings on
their parts.

5.4 Enforceability of Documents. This Agreement and the
Transaction Documents being executed and delivered hereto constitute the
legal, valid and binding obligations of the Borrower and each
of the parties hereto and thereto, enforceable in accordance with their
respective terms, except as may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws
of general application affecting creditors', rights and (b) general principals
of equity.

5.5 No Conflict. Neither the execution and delivery of this
Agreement nor the Transaction Documents being executed and delivered pursuant
hereto nor the consummation of the transactions herein or therein
contemplated, nor compliance with the terms and provisions hereof or thereof,
has constituted or resulted in or will constitute or result in a breach of
the partnership agreement of the Borrower, the articles of incorporation or
the by-laws of CDH and SRC or the governing document of the Jacobs Trust, or
the violation of any law, order, writ, injunction or decree of any court or
governmental department, commission, board, bureau, agency or instrumentality
applicable to Borrower or Guarantors, or will conflict or will be
inconsistent with or will result in any breach of, any of the terms,
covenants, conditions or provisions thereof, or will constitute a default
under, any indenture, deed of trust, instrument, document, agreement or
contract of any kind to which Borrower or any Guarantor may be bound or
Subject.

5.6 Litigation. Except as set forth in Schedule 5.6, there is no
litigation, at law or in equity, nor any proceeding before any federal, state
or other governmental or administrative agency or any arbitrator pending or,
to the knowledge of Borrower or Guarantors threatened against Borrower or
Guarantors which may have a material adverse effect on the assets,
properties, business or operations of Borrower or Guarantors.

5.7 Solvency of Borrower. Borrower represents that (i) Lender
holds a valid, enforceable, perfected security interest and lien on the
Borrower's assets as more particularly described in the Transaction
Documents, and (ii) the fair value of the Borrower's assets securing the
Obligations exceeds the stated amount of the Obligations.

5.8 Solvency of Each Guarantor. Each Guarantor represents that he
or its is solvent on the date hereof and will not be rendered insolvent by
virtue of the execution and delivery hereof or the consummation of the
transactions contemplated hereby.

5.9 Compliance with Law. Except as provided in Schedule 5.9
Borrower and Guarantors are in compliance with all material laws, ordinances,
rules and regulations of all governmental entities (and all agencies,
bodies and subdivisions thereof), and Borrower and Guarantors have not
received any notice of noncompliance from any such governmental entity.

5.10 Benefits. Borrower and Guarantors have derived direct and
substantial benefit from this Agreement and the transactions contemplated
hereby.

5.11 Full Disclosure. All documents, reports, certificates and
statements furnished to Lender by or on behalf of Borrower and Guarantors in
connection with the transactions contemplated hereby are true, correct and
complete, do not contain any untrue statement of material fact and do not
omit any fact necessary to make the information contained therein not
misleading.

<PAGE> 8

5.12 Environmental Matters. To the best of Borrower's and
Guarantors'knowledge based upon the prepared reports and information that
have come to their attention during Borrower's operation of the Property,
the Property is free from all Hazardous Materials (as defined in the
Indemnification Agreement) which may have a material adverse effect on the
use and operation of the Property or its value.

5.13 Property Taxes. All real property taxes and other taxes,
assessments levies, license fees, permit fees and all other charges
heretofore levied, assessed, confirmed or imposes upon, or in respect to,
or which might become a lien upon, the Property have been paid in full
except for real estate taxes due and owing on December 5, 1998 in the
amount of $287,000 as more fully described on Schedule 5.13. Such unpaid
taxes have become a first lien on the Property.

5.14 Insurance. All insurance coverages required by Section 4.7 of the
Construction Loan Agreement are in full force and effect and no notice
canceling, modifying or suspending any such insurance coverages has been
received or threatened.

Article VI
Releases and Waivers

6.1 Reaffirmation. Notwithstanding anything to the contrary in
this Agreement, the Borrower and the Original Guarantors hereby agree that
all Transaction Documents to which they are a party are in full force and
effect in accordance with their respective terms, remain valid and binding
obligations of Borrower and the Original Guarantors. Such Transaction
Documents are hereby reaffirmed and ratified by the Borrower and Original
Guarantors in all respects, except defaults set forth an Exhibit A and
continuing defaults described in Section 3.1(a). The liens, security
interests and assignments created by the Transaction Documents are and
continue to be valid, effective, properly perfected, enforceable and such
liens, security interests and assignments are hereby ratified and confirmed
in all respects.

6.2 No Defenses. Borrower and Guarantors hereby acknowledge that
Borrower and Guarantors have no defenses of any nature whatsoever to the
acceleration by Lender of all indebtedness under the Credit Agreements or the
enforcement of the Transaction Documents including the Guaranties, and
Borrower and Guarantors have no claims, counterclaims or offsets against
Lender in respect of the amounts owed under the Transaction Documents, or
which could be asserted against Lender, nor shall this Agreement or the
forbearance contemplated by this Agreement give rise to any such defenses,
claims, counterclaims or offsets. Borrower and Guarantors have no defenses,
affirmative defenses, setoffs, claims, counterclaims, actions or causes of
action of any kind or nature whatsoever against Lender or any of its past,
present or future directors, officers, employees, agents, attorneys, legal
representatives, predecessors, affiliates, successors or assigns directly or
indirectly, arising out of, based upon, or in any manner connected with any
transaction, event, circumstance, action, failure to act or occurrence of any
sort or type, whether known or unknown, which occurred, existed, was taken,
permitted or begun prior to the execution of this Agreement and occurred,
existed, was taken, permitted or begun in accordance with, pursuant to or by
virtue of the Transaction Documents, or any of the terms of any of the
Transaction Documents, or which directly or indirectly relate to or arise
out of or in any manner are connected with any of the Transaction Documents,
or any part thereof.

6.3 No Waiver of Rights Under Transaction Documents. Except as
provided in this Agreement, neither the failure nor delay by Lender to
exercise its remedies nor the acceptance of partial payments or the payments
described in this Agreement or any other partial performance nor the
discussions (whether any of the foregoing is before or after the date of
this Agreement) nor any provision

<PAGE> 9

of this Agreement shall amend, modify, supplement, extend, delay, renew,
terminate, waive, release or otherwise limit or prejudice Lender's rights
and remedies or Borrower's or Original Guarantor's obligations under the
Transaction Documents (including, but no limited to, Lender's right to
receive full payment of principal and interest as well as late charges,
delinquent interest, attorneys' fees and expenses, and other charges to the
extent provided in the Transaction Documents) or Original Guarantors'
obligations under the Original Guaranties, nor shall it affect the priority
of Lender's security interests created under the Transaction Documents. In
particular, each of the Borrower and Guarantors understands that nothing
referred to above shall operate to prohibit, restrict or otherwise inhibit
Lender from exercising any right or remedy it may have under the Transaction
Documents (except to the extent provided herein ) or constitute a cure of any
existing default and, without limitation, shall not extend any applicable
reinstatement or redemption period.

6.4 Release. Borrower and each Original Guarantor, for itself and its
successors and assigns hereby, on Original Guarantor's behalf and not on
behalf of other parties hereto, knowingly and voluntarily releases,
discharges and forever waives and relinquishes any and all claims, demands,
obligations, liabilities, defenses, affirmative defenses, setoffs,
counterclaims, actions and causes of action of whatsoever kind and nature,
whether known or unknown, which he or it has, may have, or might have or may
assert now or in the future against the Lender directly or indirectly,
arising out of, based upon, or in any manner connected with any transaction,
event, circumstance, action, failure to act or occurrence of any sort or
type, whether known or unknown, which occurred, existed, was taken, permitted
or begun prior to the execution of this Agreement and occurred, existed, was
taken, permitted or begun in accordance with, pursuant to, or by virtue of
any of the terms of any of the Transaction Documents, or which was related
or connected in any manner, directly or indirectly, to the Property, the
Transaction Documents, or any part thereof. Borrower and Original Guarantors
acknowledge and agree that the execution of this Agreement by Lender shall not
constitute an acknowledgement of or admission by Lender of the existence of
any such claims or of liability for any matter or precedent upon which any
liability may be asserted. Each of the Borrower and Original Guarantors
hereby further acknowledges and agrees that, to the extent that any
such claims may exist, they are of a speculative nature so as to be incapable
of objective valuation and that, in any event, the value to Borrower of the
covenants and obligations of Lender contained in this Agreement and the other
documents and instruments executed and delivered in connection herewith
substantially and materially exceeds any and all value of any kind or nature
whatsoever of any such claims. Notwithstanding the foregoing, the release
herein shall not effect any subrogation rights that any Original Guarantor
may have or become entitled to in respect of the Obligations.

6.5 Voluntary Agreement. Borrower and each Guarantor represents
and warrants to the Lender that it is represented by legal counsel of its
choice, that it has consulted with counsel regarding this Agreement, that it
is fully aware of the terms contained herein and that it has voluntarily and
without coercion or duress of any kind entered into this Agreement.

Article VII
Additional Agreements

7.1 Reporting Requirements. The Jacobs Trust shall deliver to the
Lender annual tax returns and current financial statements within one hundred
fifty (150) days of the end of each calendar year hereunder required by
Section 10 of the Jacobs Trust Guaranty and quarterly compliance certificates
required by Section 11 of the Jacobs Trust Guaranty.

7.2 Negative Covenant. CDH agrees not to declare or make any dividend
or distribution or payment of any nature in respect of the Class A Common
Stock or Class B Common Stock held by CD Entertainment Ltd. The foregoing
limitation shall include a purchase, acquisition, redemption or retirement of
such Class A Common Stock or Class B Common Stock.

<PAGE> 10
7.1 Additional Party. The parties agree that for all purposes the term
"Guarantors" as used in the Transaction Documents shall include the Jacobs
Trust.

7.2 Indefeasible Payment. To the extent any payment due under the
Transaction Documents or hereunder is deemed to be a fraudulent or preferential
transfer, set aside or required to be paid under any insolvency, bankruptcy or
similar law, the payment shall be deemed reinstated and outstanding as if no
such payment had occurred.

Article VIII
Termination Events

8.1 Termination Event. The occurrence of any one or more of the following
shall constitute a "Termination Event" under this Agreement:

(a) Failure of Borrower or any Guarantor to observe or perform any
covenant, agreement, term of this Agreement.

(b) If any representation or warranty made herein or in any Transaction
Documents, or in any report, certificate, financial statement or other
instrument or document furnished in connection with this Agreement or the
Transaction Documents shall prove to have been materially false or misleading on
the date as of which it was made.

(c) The Borrower or any Guarantor repudiates, or asserts a defense to, any
obligation or liability under the Credit Agreements, Notes or the Guaranties or
makes or pursues a claim against Lender.

(d) If Letter of Credit No. 1 has not been delivered to Lender within two
business days of the filing of a Bankruptcy Petition.

(e) (i) In the event of a filing of a Bankruptcy Petition, if the
Bankruptcy Court has not entered an Adequate Protection Order within sixty (60)
days after the Petition Date or (ii) if the Adequate Protection Order is
terminated, revoked, suspended, discontinued or amended, and within ten (10)
days after either of (i) or (ii) Letter of Credit No. 2 shall not have been
delivered to Lender.

(f) In the event Eligible Collateral is substituted for Letter of Credit
No. 1, Letter of Credit No. 2, or a Principal Amount Letter of Credit or an
Interest/Fees Letter of Credit and in the case of Eligible Collateral consisting
of cash or certificates of deposit such Eligible Collateral is less than the
face amount of the obligation for which the Eligible Collateral is substituted,
and in the case of Eligible Collateral consisting of United States Treasury
Obligations, the market value of such Eligible Collateral is less than 120% of
the face amount of the obligation for which it was substituted.

(g) In the event of the filing of a Bankruptcy Petition, all Obligations
are not paid in full on the earlier of twelve (12) months after the Petition
Date unless a Plan of Reorganization shall have been confirmed prior to that
time.

(h) In the event a Bankruptcy Petition is not filed during the term
hereof, all Obligations are not paid by June 30, 2000.

(i) The value of the real property pledged under the Deed of Trust is
determined to be less than $17,000,000 by the Bankruptcy Court.

<PAGE> 11

(j) A Chapter 11 Trustee is appointed in a Bankruptcy Proceeding; a
Bankruptcy Proceeding is converted to a case under Chapter 7 of the Bankruptcy
Code; or a Bankruptcy Proceeding is dismissed.

(k) Borrower, CDH or SRC ceases operation of its business.

(l) The Jacobs Trust liquidates its assets or ceases its operations.

Article IX
Remedies

9.1 Remedies on Termination. Immediately upon the occurrence of any
Termination Event, the obligation and agreements of Lender set forth in this
Agreement shall terminate and Lender shall have the right to exercise any and
all rights and remedies available to it hereunder, under the Transaction
Documents including the Guaranties and under applicable law. Such remedies
shall include, but not be limited to, upon twenty (20) days prior written notice
to Richard Jacobs, drawing on any of Letter of Credit No. 1, Letter of Credit
No. 2, any Principal Amount Letter of Credit, any Interest/Fees Letter of Credit
and/or liquidating and applying Eligible Collateral to the Obligations.

9.2 Remedies Cumulative. All rights and remedies available to Lender
under any of the Transaction Documents and applicable law may be asserted
concurrently, cumulatively or successively, from time to time, as long as any of
the Obligations shall remain unpaid or outstanding.

Article X
Buy-Out and Release of Collateral

10.1 Buy-Out. At any time prior to payment in full of the amounts owed
under the Credit Agreements and Notes, the Lender will assign all of its rights
and interests under the Transaction Documents to Richard Jacobs or his nominee
upon receipt of an indefeasible payment equal to the then unpaid Obligations.

10.2 Release of Collateral. Upon consummation of the transaction
contemplated by Section 10.1, or upon consummation of the Plan of Reorganization
on or before the first anniversary of the Petition Date or upon payment in full
of the obligations, the Lender shall return the Jacobs Trust Guaranty, Letter of
Credit No. 1, Letter of Credit No. 2, any Principal Amount Letters of Credit,
any Interest/Fees Letters of Credit and any remaining Eligible Collateral.

Article XI
Miscellaneous

11.1 Incorporation of Recitals. The recitals set forth immediately
preceding Article I of this Agreement are hereby incorporated in their entirety
and are a material part of this Agreement.

11.2 Only Written Amendments. This Agreement may be amended or modified
only by a written agreement, fully executed and delivered by the parties hereto.

11.3 Survival; Successors and Assigns. All covenants, agreements,
representations and warranties made in this Agreement and in the Transaction
Documents delivered hereunder shall survive closing hereunder and shall continue
in full force and effect until the payment in full of the Obligations. Whenever
in this Agreement any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party, but this shall
not be deemed to permit assignment by the Borrower of any or all of its
interests in the Property or any part thereof. All covenants, agreements

<PAGE> 12
representations and warranties by or on behalf of the Borrower and any
Guarantors that are contained in this Agreement or any of the Transaction
Documents shall inure to the benefit of Lender and its successors and assigns
and shall bind Borrower and its respective heirs, personal representatives,
successors and assigns. Borrower nor any Guarantor may assign this Agreement or
any of its rights hereunder.

11.4 Notices: Any notice, demand or other communication which
any party may desire or may be required to give to any other party shall be in
writing, and shall be deemed given if and when personally delivered (personal
delivery shall include delivery by messenger or expedited delivery service
regularly providing proof of delivery, such as Federal Express or Airborne), or
when delivered (whether accepted or refused) by United States registered or
certified mail, postage prepaid and return receipt requested, addressed to a
party at its address set forth below, or to such other address as the party to
receive such notice may have designated to all other parties by notice in
accordance herewith:

(a) If to Lender:

Mr. Robert G. Radermacher
PNC Bank, National Association
One PNC Plaza, 18th Floor
249 Fifth Avenue
Pittsburgh, PA 15222
Tel: (412) 762-7868
Fax: (412) 762-4157

and

Paul M. Singer, Esquire
Reed Smith Shaw & McClay LLP
435 Sixth Avenue
Pittsburgh, PA 15219
Tel: (412) 288-3114
Fax: (412) 288-3069

(b) If to Borrower:

Colonial Downs, L.P.
67201 North Courthouse Road
P.O. Box 456
Providence Forge, VA 23140
Tel: (804) 966-2477
Fax: (804) 966-2063

and

<PAGE> 13

Frank J. Santoro, Esquire
Marcus, Santoro, Kozak & Melvin, P.C.
355 Crawford Parkway, Suite 7000
P.O. Box 69
Portsmouth, VA 23705-0069
Tel: (757) 393-2555
Fax: (757) 399-6870

Colonial Downs, Inc.
67201 North Courthouse Road
P.O. Box 456
Providence Forge, VA 23140
Tel: (804) 966-2477
Fax: (804) 966-2063

and

Stansley Racing Corp.
67201 North Courthouse Road
P.O. Box 456
Providence Forge, VA 23140
Tel: (804) 966-2477
Fax: (804) 966-2063

and

Jeffrey P. Jacobs
c/o Jacobs Entertainment, Inc.
425 West Lakeside Ave., Suite 601
Cleveland, Ohio 44113
Tel: (216) 861-4080
Fax: (216) 861-6315

and

James L. Weinberg, Esquire
Hirschler, Fleischer, Weinberg, Cox & Allen
Federal Reserve Bank Building
701 East Byrd Street
Richmond, VA 23219
Tel: (804) 771-9500
Fax: (804) 644-0957

and

<PAGE> 14

Richard E. Jacobs and
The Richard E. Jacobs Trust
c/o The Richard E. Jacobs Group
25425 Center Ridge Road
Cleveland, Ohio 44145-4122

with a cc to:

Matthew R. Goldman, Esquire
Baker & Hostetler LLP
3200 National City Center
1900 East Ninth Street
Cleveland, OH 44114
Tel: (216) 621-0200
Fax: (216) 696-0740

11.5 Entire Agreement, Modifications. This Agreement constitutes
the entire agreement concerning this subject matter and supersedes any prior or
contemporaneous representations or agreements not contained herein concerning
the subject matter of this Agreement. No modification of this Agreement shall
be binding unless it is in writing and executed by all parties or their
authorized representative.

11.6 Governing Law. This Agreement, the Credit Agreements, and the
Guaranties shall be governed by Pennsylvania law without giving effect to the
principles of conflicts of laws.

11.7 Counterparts. This Agreement may be executed in one or more
counterparts,each of which shall constitute an original and all of which taken
together shall constitute one agreement.

11.8 Consent to Jurisdiction. EACH OF THE BORROWER (SO LONG AS IT
IS NOT SUBJECT TO A BANKRUPTCY PROCEEDING) AND EACH GUARANTOR HEREBY IRREVOCABLY
CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS OF
ALLEGHENY COUNTY AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT
OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
AGREES THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL
DIRECTED TO THE BORROWER AT THE ADDRESSES PROVIDED FOR IN SECTION 11.4 HEREOF
AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF,
BORROWER AND EACH GUARANTOR WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF
ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY
DEFENSE BASED ON LACK OF JURISDICTION OR VENUE.

11.9 Waiver of Jury Trial. BORROWER, THE GUARANTORS AND LENDER EACH
WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR
RELATED TO, THE SUBJECT MATTER OF THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS RELATED TO ANY OF THE LOAN DOCUMENTS.
THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY BORROWER THE
GUARANTOR AND LENDER AND EACH ACKNOWLEDGES THAT NONE OF THEM NOR ANY PERSON
ACTING ON BEHALF HAS OR HAVE MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
BORROWER, THE GUARANTOR AND LENDER

<PAGE> 15

EACH FURTHER ACKNOWLEDGES THAT EACH OF THEM HAD BEEN REPRESENTED (OR HAS HAD THE
OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED BY ITS OWN FREE
WILL,AND THAT BORROWER, GUARANTORS AND LENDER EACH HAS HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL. BORROWER, THE GUARANTORS AND LENDER EACH
AGREES THAT THE OBLIGATIONS EVIDENCED BY THIS AGREEMENT ARE EXEMPTED
TRANSACTIONS UNDER THE TRUTH-IN-LENDING ACT, 15 U.S.C. SECTION 1061, ET SEQ.
BORROWER, THE GUARANTOR AND THE LENDER EACH FURTHER ACKNOWLEDGES THAT IT HAS
READ AND UNDERSTANDS THE MEANING OF THIS WAIVER PROVISION.

11.10 Confession of Judgment. Each of the Borrower and Guarantors hereby
agree that the following paragraph shall be incorporated in and become a part of
this Agreement and all other Transaction Documents as if originally stated
therein.

THE UNDERSIGNED BORROWER AND GUARANTORS HEREBY EMPOWER THE PROTHONOTARY OR
ANY ATTORNEY OF ANY COURT OF RECORD WITHIN THE UNITED STATES OR ELSEWHERE TO
APPEAR FOR THE UNDERSIGNED AND, WITH OR WITHOUT ONE OR MORE DECLARATIONS FILED,
TO CONFESS JUDGMENT AS OFTEN AS NECESSARY AGAINST THE UNDERSIGNED IN FAVOR OF
THE LENDER IN ANY SUCH COURT, AFTER AN EVENT OF DEFAULT HEREUNDER, FOR THE
OBLIGATIONS UNDER THE TRANSACTION DOCUMENTS, TOGETHER WITH COSTS OF SUIT AND
REASONABLE ATTORNEY'S FEES, AND WITH RELEASE OF ALL ERRORS AND DEFECTS
WHATSOEVER IN ENTERING SUCH ACTION OR JUDGMENT AND IN CAUSING ANY WRIT OR WRITS
TO BE ISSUED, AND IN ANY PROCEEDING THEREON OR CONCERNING THE SAME, AND HEREBY
AGREEING THAT NO WRIT OF ERROR OR OBJECTION SHALL BE MADE OR TAKEN THERETO,

The Lender agrees to exercise the foregoing confession of judgment only
after ten (10) days prior written notice to the party against whom such action
is to be taken.

<PAGE> 16
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.

BORROWER:

Colonial Downs, L.P. a Virginia
Limited Partnership

By: STANSLEY RACING CORP., A
Virginia Corporation, Its
ATTEST/WITNESS: Sole General Partner

/s/ Linda M. DeCoursey By: /s/ Jeffrey P. Jacobs
- ------------------------ --------------------------
Name: Linda M. DeCoursey Name: Jeffrey P. Jacobs
Title: Title: Chairman, CEO

LENDER:

PNC BANK, NATIONAL ASSOCIATION, a
ATTEST/WITNESS: National Banking Association

/s/ Dennis P. Herdenreich By: /s/ Robert G. Radermacher
- ---------------------------- -------------------------------
Name: Dennis P. Herdenreich Name: Robert G. Radermacher
Title: Vice President Title: Vice President

GUARANTORS:

STANSLEY RACING CORP., a
ATTEST/WITNESS: Virginia Corporation

/s/ Linda M. DeCoursey By: /s/ Jeffrey P. Jacobs
- ------------------------ --------------------------
Name: Linda M. DeCoursey Name: Jeffrey P. Jacobs
Title: Title: Chairman, CEO

COLONIAL DOWNS HOLDINGS, INC., a
ATTEST/WITNESS: Virginia Corporation

/s/ Linda M. DeCoursey By: /s/ Jeffrey P. Jacobs
- ------------------------ --------------------------
Name: Linda M. DeCoursey Name: Jeffrey P. Jacobs
Title: Title: Chairman, CEO

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