CHURCHILL DOWNS INC, S-3, 1999-05-21

CHURCHILL DOWNS INC
S-3, 1999-05-21
RACING, INCLUDING TRACK OPERATION

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

FORM S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
--------------------------

CHURCHILL DOWNS INCORPORATED

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
KENTUCKY 61-0156015
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>

700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
(502) 636-4400

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------

THOMAS H. MEEKER, PRESIDENT
CHURCHILL DOWNS INCORPORATED
700 CENTRAL AVENUE
LOUISVILLE, KENTUCKY 40208
(502) 636-4400

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------

COPIES TO:

<TABLE>
<S> <C> <C>
ROBERT A. HEATH, ESQ. WILLIAM R. KUNKEL, ESQ. HOWARD L. SHECTER, ESQ.
WYATT, TARRANT & COMBS SKADDEN, ARPS, SLATE, MORGAN, LEWIS & BOCKIUS LLP
2800 CITIZENS PLAZA MEAGHER & FLOM (ILLINOIS) 101 PARK AVENUE
LOUISVILLE, KENTUCKY 40202 333 WEST WACKER DRIVE NEW YORK, NEW YORK 10178
(502) 562-7201 CHICAGO, ILLINOIS 60606 (212) 309-6000
(312) 407-0700
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------

If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: / /

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value per share........ 2,300,000 shares $34.81 $80,063,000 $22,258
Preferred Stock Purchase Rights.............
</TABLE>

(1) Includes 300,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the bid and asked price on
May 17, 1999.
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 21, 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
2,000,000 SHARES
[LOGO]
COMMON STOCK
$ PER SHARE
--------------------------------------------------------------------------
Churchill Downs Incorporated is offering 2,000,000 shares of common stock with
this prospectus. This is a firm commitment underwriting.
The common stock is listed on the Nasdaq Small Cap Market under the symbol
"CHDN." On May 20, 1999, the last reported sale price of the common stock on the
Nasdaq Small Cap Market was $35.25 per share. We have applied to list the common
stock on the Nasdaq National Market.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 12.

<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Price to the public.......................................... $ $
Underwriting discount........................................ $ $
Proceeds to Churchill Downs.................................. $ $
</TABLE>

Churchill Downs has granted an over-allotment option to the underwriters. Under
this option, the underwriters may elect to purchase a maximum of 300,000
additional shares from Churchill Downs within 30 days following the date of this
prospectus to cover over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
LEHMAN BROTHERS
J.C. BRADFORD & CO.
J.J.B. HILLIARD, W.L. LYONS, INC.

The date of this prospectus is , 1999
<PAGE>
[Collage of color photos related to Churchill Downs, including the entrance to
the Churchill Downs racetrack, the bugler, Churchill Downs racetrack, patrons at
Churchill Downs racetrack, the grounds at Churchill Downs racetrack, the
starting gate at Churchill Downs racetrack, the trumpet and flowers at Churchill
Downs racetrack.]

[Gatefold picture of the horses finishing the 1999 Kentucky Derby at Churchill
Downs racetrack, with the grandstand in the background.]

2
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Forward-Looking Statements................................................................................. 3
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 12
Use of Proceeds............................................................................................ 19
Capitalization............................................................................................. 20
Unaudited Pro Forma Condensed Consolidated Financial Statements............................................ 21
Selected Consolidated Financial Information................................................................ 30
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 32
Business................................................................................................... 41
Management................................................................................................. 52
Principal Shareholders..................................................................................... 56
Certain Relationships and Related Transactions............................................................. 58
Description of Capital Stock............................................................................... 59
Underwriting............................................................................................... 61
Legal Matters.............................................................................................. 63
Experts.................................................................................................... 63
Where You Can Find More Information........................................................................ 64
Index to Financial Statements.............................................................................. F-1
</TABLE>

------------------------

As used in this prospectus, the term "Churchill Downs" means Churchill Downs
Incorporated and its subsidiaries, unless the context indicates a different
meaning, and the term "common stock" means Churchill Downs' common stock. Unless
otherwise stated, all information contained in this prospectus assumes no
exercise of the over-allotment option granted to the underwriters. All share and
per share information is adjusted to reflect our 2 for 1 stock split in March
1998. Industry information contained in this prospectus is based on published
industry sources that we believe are reliable.

The underwriters are offering the shares subject to various conditions and may
reject all or part of any order. The shares should be ready for delivery on or
about - , 1999, against payment in immediately available funds.

------------------------

FORWARD-LOOKING STATEMENTS

Information set forth in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business"
contain various "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These statements represent our judgment concerning the future and are
subject to risks and uncertainties that could cause our actual operating results
and financial condition to differ materially. Forward-looking statements are
typically identified by the use of terms such as "may," "will," "expect,"
"anticipate," "estimate," and similar words, although some forward-looking
statements are expressed differently. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance that such expectations will prove to be correct. Important factors
that could cause actual results to differ materially from our expectations are
set forth under the caption "Risk Factors" and elsewhere in this prospectus.

3
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PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN OTHER PARTS OF THIS PROSPECTUS.
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION
REGARDING CHURCHILL DOWNS AND THE COMMON STOCK BEING SOLD IN THIS OFFERING AND
OUR FINANCIAL STATEMENTS AND ACCOMPANYING NOTES THAT APPEAR ELSEWHERE IN THIS
PROSPECTUS.

THE COMPANY

We are a leading pari-mutuel horse racing company and a leading provider of live
racing programming content for the growing simulcast wagering market. We
currently simulcast our races to over 1,000 locations in 41 states and nine
countries. From 1993 to 1997, simulcast wagering in the United States grew at a
compound annual rate of 11.9% to approximately $11.9 billion, representing 77%
of the total amount wagered on horse racing. We believe that quality live racing
is the basis for building our branded simulcast product. We intend to strengthen
our position as a leading provider of programming content through product
enhancements and strategic acquisitions of quality racetracks.

We operate four racetracks and four remote simulcast wagering facilities that
accept wagers on our races as well as on races simulcast from other locations.
Our flagship operation, the Churchill Downs racetrack, has conducted
Thoroughbred racing since 1875 and is the internationally known home of the
Kentucky Derby. In 1999, the 125th annual Kentucky Derby had an attendance of
151,000 and received wagers of more than $57.0 million, making it the best
attended and highest wagered individual horse racing event in the United States.
The amount wagered was the highest in the 125 year history of the event. We have
expanded our portfolio of racetracks by developing Hoosier Park in 1994 and by
acquiring Ellis Park in April 1998 and Calder Race Course in April 1999. The
following chart details our live racing products and the amounts wagered on
those products both on-track and at simulcast facilities.

OUR LIVE RACING PRODUCTS

<TABLE>
<CAPTION>
1998
NUMBER 1998 TOTAL AMOUNT
OF 1998 LIVE RACING WAGERED
LOCATION RACING DATES SEASON (IN MILLIONS)
------------------ --------------- --------------------- ---------------
<S> <C> <C> <C> <C>
Churchill Downs Racetrack.......... Louisville, KY 71 April 25 - June 28; $ 549
November 1 - 28

Calder Race Course................. Miami, FL 173 May 23, 1998 - $ 634
January 2, 1999

Ellis Park......................... Henderson, KY 61 June 29 - September 7 $ 138

Hoosier Park....................... Anderson, IN 153 April 17 - November $ 79
28
</TABLE>

THE PARI-MUTUEL HORSE RACING INDUSTRY

In pari-mutuel wagering, all wagers are placed in a common pool. The pari-mutuel
operator retains as revenue a pre-determined percentage of the total amount
wagered, and the balance is distributed to the winning patrons. In 1997,
wagering on pari-mutuel horse racing totaled approximately $15.4 billion in the
United States and approximately $100.0 billion worldwide. Between 1993 and 1997,
the total amount wagered on horse racing in the United States grew at a compound
annual rate of 2.8%. The main driver of this growth has been simulcast wagering,
which allows the video signal of a live racing

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event to be transmitted to a remote location where patrons can wager in the same
pari-mutuel pool as patrons at the racetrack. Between 1993 and 1997, simulcast
wagering grew at a compound annual rate of 11.9%, from approximately $7.6
billion to approximately $11.9 billion. In 1997, simulcast wagering accounted
for approximately 77% of the total amount wagered on pari-mutuel horse racing in
the United States.

BUSINESS STRATEGY

We plan to grow our business by focusing on three related initiatives:

PROMOTE AND ENHANCE THE QUALITY OF OUR LIVE RACING PRODUCTS. Our key asset is
the quality of the races we conduct. For example, we believe that the Kentucky
Derby and other races at the Churchill Downs racetrack are among the premier
horse races in the United States. We intend to maintain and enhance the quality
of our races by offering high purse levels to attract the best available horses,
trainers and jockeys, providing superior customer service, adding amenities, and
making strategic capital improvements to our track properties.

SUPPORT AND EXPAND OUR PREMIER, BRANDED SIMULCAST RACING PRODUCT. We believe
that we provide horse racing's premier simulcast product. We currently offer 217
days of live racing programming through four separate signals. We plan to expand
our programming content to show live races year-round, during the day and
evening, through a single video signal marketed under the Churchill Downs brand
name. Because remote wagering locations import signals from multiple sources, a
single video signal offers convenience and reduced operating costs. As part of
our branding strategy, we intend to use enhanced supporting graphics and data
feeds to make our programs more appealing to consumers. We believe that the
combination of expanded programming, simulcast bundling and improved production
quality will allow us to increase our share of the growing simulcast wagering
market. We also believe that our branded simulcast product will be especially
well-suited for the in-home wagering market as this market develops.

LEAD THE CONSOLIDATION AND DEVELOPMENT OF THE THOROUGHBRED INDUSTRY. The
Thoroughbred racing industry is highly fragmented, with few pari-mutuel
operators controlling more than two racetracks. We have strategically
accumulated a portfolio of four racetracks and plan to selectively acquire more.
Our acquisition strategy is to target racetracks whose races either are of
sufficient quality to enhance the value of our branded simulcast package or
provide critical racing dates or times to expand our simulcast programming
content. In addition, we may seek to acquire the rights to simulcast races
conducted at other tracks. We also intend to further develop the industry by
pursuing the integration of video lottery terminals or similar gaming devices at
our racetrack facilities. Currently, we are working with members of the Kentucky
horse racing industry to develop a plan to operate video lottery terminals
exclusively at Kentucky's racetracks. The integration of alternative gaming
devices will allow us to broaden our patron base and provide us with an
additional source of revenue and purse money.

LIVE RACING PRODUCTS

CHURCHILL DOWNS RACETRACK

- The Churchill Downs facility is one of the premier horse racetracks in the
nation and the internationally known home of the Kentucky Derby.
Attendance at the 1999 Kentucky Derby was approximately 151,000, making it
the best attended live horse racing event in the United States. Wagering
on the Kentucky Derby in 1999 totaled more than $57.0 million,
representing the largest amount ever wagered on an individual race in the
United States.

5
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- The Churchill Downs racetrack has hosted the Breeders' Cup, an annual day
of racing for determining Thoroughbred champions, an unprecedented four
times, in 1988, 1991, 1994 and 1998.

- In 1998, races at the Churchill Downs racetrack were simulcast to
approximately 900 sites throughout the United States and to nine other
countries. The Kentucky Derby was simulcast to over 1,000 sites worldwide.
The total amount wagered on races simulcast from the Churchill Downs
racetrack in 1998, excluding the Breeders' Cup, was $421.2 million.

- The average daily purse at the Churchill Downs racetrack in 1998 was
approximately $437,000, which we believe ranks our average daily purses
among the top five in the United States.

CALDER RACE COURSE

- Calder Race Course's racing season extends from late May to early January,
significantly expanding our simulcast programming schedule.

- Calder Race Course has a strong presence in the important south Florida
market and annually hosts "The Festival of the Sun," Florida's richest day
in racing.

- In 1998, Calder Race Course's races were simulcast to 525 sites. The total
amount wagered on races simulcast from Calder Race Course in 1998 was
$446.2 million.

ELLIS PARK RACE COURSE

- With its racing meet immediately following the spring meet at the
Churchill Downs racetrack, Ellis Park's racing dates complement Churchill
Downs' racing schedule.

- Ellis Park's races were simulcast to 485 sites, an increase of 37% since
we acquired the racetrack in April 1998. The total amount wagered on races
simulcast from Ellis Park in 1998 was $116.7 million.

HOOSIER PARK

- We own a 77% interest in Hoosier Park, Indiana's only horse racing
facility. Hoosier Park has entered into a management contract with us
under which we have day-to-day control of the racetrack and its related
simulcast operations.

- Hoosier Park's racing schedule consists primarily of evening races,
enabling us to expand the hours of our simulcast programming.

- In 1998, Hoosier Park's Thoroughbred races were simulcast to 220 sites.
The total amount wagered on all races simulcast from Hoosier Park in 1998
was $62.7 million.

SIMULCAST FACILITIES

In addition to conducting live horse races, we operate facilities for simulcast
wagering at our racetracks and at other locations. The Churchill Downs racetrack
and Calder Race Course offer simulcast wagering only during the days when they
conduct live races, while Ellis Park and Hoosier Park offer year-round simulcast
wagering. Our premier simulcast wagering facility, the Louisville Sports
Spectrum, uses state-of-the-art audio and video facilities to offer simulcast
wagering when the Churchill Downs racetrack is not conducting live races. We
also operate three simulcast wagering facilities in Indiana and have a 50%
interest in four small simulcast wagering facilities in Kentucky. These
facilities offer simulcast wagering year-round.

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IN-HOME WAGERING

In conjunction with ODS Entertainment, a subsidiary of AT&T, we are
participating in the development of the first in-home, interactive television
wagering system in the United States. The system is currently being tested in
Kentucky and is expected to be launched nationwide with the introduction of the
Television Games Network in the fourth quarter of 1999. We expect this new cable
television channel to eventually offer 24-hour-a-day programming primarily
consisting of live racing simulcasts, with in-home, interactive wagering offered
to residents of the states that permit account wagering. We have entered into an
agreement to include our Churchill Downs racetrack simulcast products as part of
the Television Games Network's programming content and expect to include our
other simulcast products in the future. As the originator of the live racing
signal, we will receive a simulcast fee on in-home wagers placed on our races.

OTHER RACING-RELATED INTERESTS

As part of our commitment to excellence in horse racing, we provide year-round
training facilities for trainers and horses at the Churchill Downs racetrack,
Louisville Sports Spectrum, Calder Race Course and Kentucky Horse Center in
Lexington, Kentucky. We also own a 24% interest in the Kentucky Downs racetrack
located in Franklin, Kentucky. In January 1999, we acquired a 60% stake in
Charlson Broadcast Technologies, which provides simulcast graphic software and
video services to racetracks and simulcast wagering facilities. We also have a
30% interest in NASRIN Services, a telecommunications provider for the
pari-mutuel and simulcasting industries. Our other racing-related interests
include a 35% stake in EquiSource, which assists in the group purchasing of
supplies and services for the horse racing industry.

RECENT DEVELOPMENTS

On May 5, 1999, we entered into a definitive purchase agreement to acquire the
Hollywood Park Race Track, the Hollywood Park Casino and a majority of their
surrounding acreage in Inglewood, California for $140.0 million. As part of the
transaction, we will lease the Hollywood Park Casino back to Hollywood Park,
Inc. under a long-term lease with annual rent of $3.0 million and subject to a
renewal option. This transaction is subject to several closing conditions,
including the satisfactory completion of our due diligence investigation and
approval by regulatory agencies. There is no assurance that the transaction will
be consummated.

------------------------

Churchill Downs was organized as a Kentucky corporation in 1928. Our principal
executive offices are located at Churchill Downs, 700 Central Avenue,
Louisville, Kentucky 40208. Our telephone number is (502) 636-4400. Our web site
address is www.kentuckyderby.com.

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THE OFFERING

<TABLE>
<S> <C>
Common stock to be offered by Churchill Downs.......... 2,000,000 shares(1)

Common Stock to be outstanding after this offering..... 9,525,041 shares(1)(2)

Use of proceeds........................................ To repay outstanding indebtedness.

Nasdaq Small Cap Market symbol......................... CHDN
</TABLE>

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(1) Excludes 300,000 shares of common stock that we will sell if the
underwriters exercise their over-allotment option in full.

(2) Based on 7,525,041 shares of common stock outstanding on May 20, 1999.

DIVIDEND POLICY

We have historically paid dividends on our common stock. In 1998, we paid an
annual dividend of $0.50 per share on our common stock. We cannot assure that we
will continue to pay dividends in the future.

8
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED THREE-MONTH PERIOD ENDED THREE-MONTH PERIOD ENDED
DECEMBER 31, 1998 MARCH 31, 1998 MARCH 31, 1999
----------------------------- ----------------------------- -----------------------------
PRO FORMA PRO FORMA PRO FORMA
PRO FORMA(1) AS ADJUSTED(2) PRO FORMA(1) AS ADJUSTED(2) PRO FORMA(3) AS ADJUSTED(4)
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net revenues.................. $ 220,602 $ 220,602 $ 18,725 $ 18,725 $ 19,459 $ 19,459
Operating income (loss)....... 27,000 27,000 (5,736) (5,736) (7,324) (7,324)
Net earnings (loss)
attributable to common
shareholders................ 11,779 14,573 (4,666) (3,957) (5,513) (4,804)
Earnings (loss) per common
share:
Basic....................... $ 1.57 $ 1.53 $ (0.62) $ (0.42) $ (0.73) $ (0.50)
------------- -------------- ------------- -------------- ------------- --------------
------------- -------------- ------------- -------------- ------------- --------------
Diluted..................... $ 1.55 $ 1.52 $ (0.62) $ (0.42) $ (0.73) $ (0.50)
------------- -------------- ------------- -------------- ------------- --------------
------------- -------------- ------------- -------------- ------------- --------------
Weighted average shares
outstanding:
Basic....................... 7,520 9,520 7,517 9,517 7,525 9,525
Diluted..................... 7,599 9,599 7,517 9,517 7,525 9,525
OTHER DATA:
Pari-mutuel wagering:
On-track(5)................. $ 352,878 $ 352,878 $ 2,991 $ 2,991 $ 3,105 $ 3,105
Import simulcasting(6)...... 311,405 311,405 90,521 90,521 87,027 87,027
Export simulcasting(7)...... 1,046,904 1,046,904 11,413 11,413 11,915 11,915
------------- -------------- ------------- -------------- ------------- --------------
Total pari-mutuel wagering.... $ 1,711,187 $ 1,711,187 $ 104,925 $ 104,925 $ 102,047 $ 102,047
------------- -------------- ------------- -------------- ------------- --------------
------------- -------------- ------------- -------------- ------------- --------------
Net pari-mutuel wagering
revenue(8).................. $ 67,367 $ 67,367 $ 5,832 $ 5,832 $ 5,936 $ 5,936
EBITDA(9)..................... 37,171 37,171 (3,081) (3,081) (4,505) (4,505)
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------------
PRO FORMA
PRO FORMA(10) AS ADJUSTED(11)
-------------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets..................................................................... $ 232,247 $ 232,247
Working capital (deficiency)..................................................... (2,869) (2,869)
Long-term debt................................................................... 113,356 48,006
Shareholders' equity............................................................. 62,250 127,600
</TABLE>

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(1) Amounts reflect the pro forma effects on our statement of earnings and other
data of the acquisition of Ellis Park and the acquisition of Calder Race
Course, assuming that these transactions occurred on January 1, 1998. The
data do not purport to represent what our results of operations would have
been had the transactions occurred on that date and are not necessarily
indicative of our future operating results. The data should be read in
conjunction with "Use of Proceeds" and "Unaudited Pro Forma Condensed
Consolidated Financial Statements" and the notes thereto included elsewhere
in this prospectus.

(2) Amounts reflect the pro forma effects on our statement of earnings and other
data of the acquisition of Ellis Park and the acquisition of Calder Race
Course, as adjusted for the application of net proceeds from the issuance of
2,000,000 shares of common stock of Churchill Downs from

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this offering at an assumed offering price of $35.00 per share, assuming
that these transactions occurred on January 1, 1998. The data do not purport
to represent what our results of operations would have been had the
transactions occurred on that date and are not necessarily indicative of our
future operating results. The data should be read in conjunction with "Use
of Proceeds" and "Unaudited Pro Forma Condensed Consolidated Financial
Statements" and the notes thereto included elsewhere in this prospectus.

(3) Amounts reflect the pro forma effects on our statement of earnings and other
data of the acquisition of Calder Race Course, assuming that this
transaction occurred on January 1, 1998. The data do not purport to
represent what our results of operations would have been had the transaction
occurred on that date and are not necessarily indicative of our future
operating results. The data should be read in conjunction with "Use of
Proceeds" and "Unaudited Pro Forma Condensed Consolidated Financial
Statements" and the notes thereto included elsewhere in this prospectus.

(4) Amounts reflect the pro forma effects on our statement of earnings and other
data of the acquisition of Calder Race Course, as adjusted for the
application of net proceeds from the issuance of 2,000,000 shares of common
stock of Churchill Downs from this offering at an assumed offering price of
$35.00 per share, assuming that these transactions occurred on January 1,
1998. The data do not purport to represent what our results of operations
would have been had the transactions occurred on that date and are not
necessarily indicative of our future operating results. The data should be
read in conjunction with "Use of Proceeds" and "Unaudited Pro Forma
Condensed Consolidated Financial Statements" and the notes thereto included
elsewhere in this prospectus.

(5) Wagers placed at (a) our tracks both on races at the tracks and on
simulcasts to our tracks when our tracks are hosting races and (b) the
Louisville Sports Spectrum on Kentucky Oaks Day, Kentucky Derby Day and the
day after Kentucky Derby Day.

(6) Wagers on simulcasts from other tracks placed at our facilities when our
facilities are not hosting races.

(7) Wagers placed at other facilities on simulcasts of our races.

(8) Net pari-mutuel wagering revenue equals total net revenues realized from
pari-mutuel wagering less pari-mutuel taxes, purses paid to owners and
simulcast fees paid to other racetracks.

(9) EBITDA represents earnings before provision for income taxes, depreciation,
amortization and interest expense less interest income. EBITDA is presented
because management believes that some investors use EBITDA as a measure of
an entity's ability to service its debt. EBITDA should not be considered as
an alternative to, or more meaningful than, net income (as determined in
accordance with GAAP) as a measure of our operating results or cash flows
(as determined in accordance with GAAP) or as a measure of our liquidity.

(10) Amounts reflect the pro forma effects on our balance sheet data of the
acquisition of Calder assuming that this transaction occurred on March 31,
1999. The data do not purport to represent what our financial position would
have been had the transaction occurred on that date and are not necessarily
indicative of our future financial position. The data should be read in
conjunction with "Unaudited Pro Forma Condensed Consolidated Financial
Statements" and the notes thereto included elsewhere in this prospectus.

(11) Amounts reflect the pro forma effects on our balance sheet data of the
acquisition of Calder Race Course as adjusted for the application of net
proceeds from the issuance of 2,000,000 shares of our common stock from this
offering at an assumed offering price of $35.00, assuming that these
transactions occurred on March 31, 1999. The data do not purport to
represent what our financial position would have been had the transactions
occurred on that date and are not necessarily indicative of our future
financial position. The data should be read in conjunction with "Use of
Proceeds" and "Unaudited Pro Forma Condensed Consolidated Financial
Statements" and the notes thereto included elsewhere in this prospectus.

10
<PAGE>
SUMMARY CONSOLIDATED SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ------------ ---------- ----------
(UNAUDITED)
STATEMENT OF EARNINGS DATA:
Net revenues....................... $ 66,419 $ 92,434 $ 107,859 $ 118,907 $ 147,300 $ 15,385 $ 17,663
Operating income (loss)............ 9,861 10,305 12,315 14,405 17,143 (2,770) (4,797)
Net earnings (loss) attributable to
common shareholders.............. 6,166 6,203 8,072 9,149 10,518 (1,569) (3,010)
Earnings (loss) per common share:
Basic............................ $ 0.82 $ 0.82 $ 1.08 $ 1.25 $ 1.41 $ (0.21) $ (0.40)
---------- ---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ---------- ------------ ---------- ----------
Diluted.......................... $ 0.82 $ 0.82 $ 1.08 $ 1.25 $ 1.40 $ (0.21) $ (0.40)
---------- ---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ---------- ------------ ---------- ----------
Weighted average shares
outstanding:
Basic............................ 7,557 7,568 7,446 7,312 7,460 7,317 7,525
Diluted.......................... 7,557 7,569 7,448 7,321 7,539 7,317 7,525
OTHER DATA:
Pari-mutuel wagering:
On-track(1)...................... $ 143,800 $ 148,519 $ 147,015 $ 149,227 $ 165,207 $ -- $ --
Import simulcasting(2)........... 108,875 212,316 252,638 262,451 296,809 79,773 87,027
Export simulcasting(3)........... 150,838 241,726 417,407 463,966 600,666 -- --
---------- ---------- ---------- ---------- ------------ ---------- ----------
Total pari-mutuel wagering......... $ 403,513 $ 602,561 $ 817,060 $ 875,644 $ 1,062,682 $ 79,773 $ 87,027
---------- ---------- ---------- ---------- ------------ ---------- ----------
---------- ---------- ---------- ---------- ------------ ---------- ----------
Net pari-mutuel wagering
revenue(4)....................... $ 21,095 $ 32,489 $ 36,508 $ 37,998 $ 46,433 4,862 5,369
EBITDA(5).......................... 13,363 15,100 17,802 19,289 23,230 (1,494) (2,850)
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31,
1999
-------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Total assets................................................................................. $ 126,978
Working capital (deficiency)................................................................. (8,353)
Long-term debt............................................................................... 21,807
Common shareholders' equity.................................................................. 62,250
</TABLE>

- --------------------------

(1) Wagers placed at (a) our tracks both on races at the tracks and on
simulcasts to our tracks when our tracks are hosting races and (b) the
Louisville Sports Spectrum on Kentucky Oaks Day, Kentucky Derby Day and the
day after Kentucky Derby Day.

(2) Wagers on simulcasts from other tracks placed at our facilities when our
facilities are not hosting races.

(3) Wagers placed at other facilities on simulcasts of our races.

(4) Net pari-mutuel wagering revenue equals total net revenues realized from
pari-mutuel wagering less pari-mutuel taxes, purses paid to owners and
simulcast fees paid to other racetracks.

(5) EBITDA represents earnings before provision for income taxes, depreciation,
amortization and interest expense less interest income. EBITDA is presented
because management believes that some investors use EBITDA as a measure of
an entity's ability to service its debt. EBITDA should not be considered as
an alternative to, or more meaningful than, net income (as determined in
accordance with GAAP) as a measure of our operating results or cash flows
(as determined in accordance with GAAP) or as a measure of our liquidity.

11
<PAGE>
RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING TO INVEST IN
OUR COMMON STOCK. THE MOST SIGNIFICANT RISKS AND UNCERTAINTIES WE FACE ARE
DESCRIBED BELOW, BUT THEY ARE NOT THE ONLY ONES. ADDITIONAL RISKS AND
UNCERTAINTIES THAT ARE NOT PRESENTLY KNOWN TO US, THAT WE CURRENTLY DEEM
IMMATERIAL OR THAT ARE SIMILAR TO THOSE FACED BY OTHER COMPANIES IN OUR INDUSTRY
OR BUSINESS IN GENERAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS.

IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION
AND RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. IN THIS
CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL
OR PART OF YOUR INVESTMENT. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS AS
A RESULT OF VARIOUS RISKS, INCLUDING THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS
PROSPECTUS. PLEASE REFER TO "FORWARD-LOOKING STATEMENTS" ON PAGE 3.

THE SIGNIFICANT COMPETITION WE FACE FROM OTHER GAMING AND ENTERTAINMENT
OPERATIONS COULD DECREASE OUR REVENUES AND PROFITS.

We operate in a highly competitive industry. We compete for patrons with other
sports, entertainment and gaming operations, including land-based, riverboat and
cruise ship casinos, and state lotteries. Competition in the gaming industry is
likely to increase due to limited opportunities for growth in new markets. If we
lose customers for any reason, including the factors discussed below, our
revenues and profits may decrease.

CHALLENGES FACING HORSE RACING. Nationally, fewer patrons are attending and
wagering at live horse races. We believe this decline has resulted primarily
from competing forms of entertainment and gaming and from an increasing
unwillingness of customers to travel a significant distance to racetracks, in
part due to the availability of off-track wagering. Because of the decline in
on-track attendance and wagering, racetracks increasingly rely on simulcasting
and off-track wagering. The industry-wide focus on simulcasting and off-track
wagering has increased competition among racetracks for outlets for their live
races. A decline in consumer interest in horse racing, a continued decrease in
on-track attendance and wagering or increased competition in the simulcast
wagering market could lower our revenues and profits.

RIVERBOAT AND CRUISE SHIP CASINOS. We directly compete with the riverboat
and cruise ship casinos that operate near our wagering facilities. There are
currently four Indiana-based and one Illinois-based riverboat casinos on the
Ohio River bordering Kentucky. Indiana has recently approved a license for an
additional riverboat casino to be located approximately 70 miles from our
facilities in Louisville. In November 1998, the world's largest riverboat
casino, RDI/Caesars, began operating approximately 10 miles from the Churchill
Downs racetrack and Louisville Sports Spectrum. Since the opening of
RDI/Caesars, the total amount wagered at Louisville Sports Spectrum has been
less than it was during the corresponding period the preceding year. The effect
of RDI/Caesars on attendance and wagers at the Churchill Downs racetrack is not
yet known because RDI/Caesars opened during the last week of our 1998 fall
racing meet, and our 1999 spring season has just begun. Independent industry and
academic studies suggest, however, that the Churchill Downs racetrack could
experience a material adverse impact on attendance and wagers when the
RDI/Caesars riverboat opens to full capacity and establishes itself in the
market. Our Merrillville Sports Spectrum has also been adversely affected by
casino riverboats operating in Indiana on Lake Michigan and in Illinois near
Chicago. Calder Race Course faces competition from Miami-area cruise ships that
permit off-shore gambling. Increased competition from casinos operating in our
markets could lower our revenues and profits.

LAND-BASED CASINOS. Several Native American tribes in Florida have
expressed interest in opening casinos in southern Florida which could compete
with Calder Race Course. Recently, the Pokagon

12
<PAGE>
Band of the Potawatomi Indian Tribe expressed interest in establishing a
land-based casino in northeastern Indiana or southwestern Michigan. The State of
Michigan has approved the Pokagon Band's proposal to develop a casino in New
Buffalo, Michigan, which is approximately 45 miles from our Merrillville
facility. In addition, in May 1999 the governor of Kentucky proposed that
consideration be given to passing enabling legislation and adopting a
constitutional amendment to authorize up to 14 land-based casinos in Kentucky.
Increased competition from these casinos could lower our revenues and profits.

STATE LOTTERIES. We face significant competition from state lotteries.
State lotteries benefit from numerous distribution channels, ranging from
supermarkets to convenience stores, and from frequent and extensive advertising
campaigns. We do not have the same access to the gaming public or the
advertising resources available to state lotteries.

ON-LINE AND INTERNET BETTING. We face significant competition from gaming
companies that operate on-line and Internet-based gaming services. These
services allow patrons to wager on a wide variety of sporting events from home.
Unlike most on-line and Internet-based gaming companies, our business requires
significant and ongoing capital expenditures for both its continued operation
and expansion. We cannot offer the same number of gaming options as on-line and
Internet-based gaming companies. We also face significantly greater costs in
operating our business compared to these gaming companies. The inability to
compete successfully with on-line and Internet-based gaming companies could
lower our revenues and profits.

OUR GAMING ACTIVITIES ARE EXTENSIVELY REGULATED.

LICENSING. The operation of gaming facilities is subject to extensive state
and local regulation. We depend on continued state approval of legalized gaming
in states where we operate. Our wagering and racing facilities must meet the
licensing requirements of various regulatory authorities, including the Kentucky
Racing Commission, the Indiana Horse Racing Commission and the Florida
Department of Business and Professional Regulation Division of Pari-Mutuel
Wagering. As part of this regulation, licenses to conduct live horse racing and
to participate in simulcast wagering are granted annually. The Churchill Downs
racetrack and Ellis Park compete with the other racetracks in Kentucky for
racing dates. Although state law requires that the Kentucky Racing Commission
consider and seek to preserve each racetrack's customary live race dates, there
can be no guarantee that the number of racing days each track receives, or the
dates in which racing can occur, will not vary from year to year.

In Florida, the Division of Pari-Mutuel Wagering approves annual licenses for
Thoroughbred, Standardbred and Quarter Horse races. Tax laws in Florida
currently discourage the three Miami-area racetracks in Florida from applying
for licenses for race dates outside of their traditional racing season, which
currently do not overlap. Effective July 1, 2001, a new tax structure will
eliminate this deterrent. Accordingly, Calder Race Course may face direct
competition from other Florida racetracks in the future. This competition could
lower our revenues and our profits.

Hoosier Park is currently the only facility licensed to conduct live horse
racing in Indiana. The Indiana Horse Racing Commission has the authority to
grant additional licenses to conduct live horse racing. If additional licenses
are granted, the number of live racing days allocated to Hoosier Park could be
reduced, or we could compete directly with the new tracks depending on their
location. Additional licensed facilities would also compete with our off-track
wagering facilities and would receive a portion of the subsidy we currently
receive from the admission fee charged on Indiana riverboats. Any reduction in
the number of live racing dates or the presence of a new track in Indiana could
significantly limit the number of races we conduct and could significantly lower
our revenues and profits.

13
<PAGE>
To date, we have obtained all governmental licenses, registrations, permits and
approvals necessary for the operation of our gaming facilities. However, we may
be unable to maintain our existing licenses. The loss of our licenses,
registrations, permits or approvals may materially limit the number of races we
conduct and could lower our revenues and profits.

EFFECT ON OUR BUSINESS STRATEGY. Any expansion of our gaming operations
will likely require various additional licenses, registrations, permits and
approvals. The approval process can be time-consuming and costly, and there is
no assurance of success. The high degree of regulation of the gaming industry is
a significant impediment to our growth strategy, especially in the areas of
interactive home wagering and wagering over the Internet. Interactive home
wagering may currently be conducted in only eight states. Unless more states
change their laws to permit wagering over the telephone, our expansion
opportunities in this market will be limited. Wagering over the Internet is also
subject to extensive legal restriction. The Internet Gambling Prohibition Act is
currently pending before the United States Senate Judiciary Committee. The Act
would impose criminal penalties for conducting wagering over the Internet.
Although the Act currently excludes some forms of interactive wagering on horse
racing, it does not permit Internet-based wagering. This restriction limits our
opportunities for growth in this market and allows us to pursue Internet-based
wagering only in foreign markets. The results from expansion in foreign markets
would be substantially less than if Internet-based wagering were permitted in
the United States. The opening of new wagering facilities may also depend on our
ability to secure the required state and local licenses, permits and approvals,
which in some jurisdictions may be limited in number or require legislative
relief from existing laws or voter approval.

NATIONAL GAMBLING IMPACT STUDY COMMISSION. Congress established a National
Gambling Impact Study Commission to study comprehensively the social and
economic impact of gambling in the United States. The National Commission is
required to report its findings and conclusions, together with recommendations
for legislation and administrative actions, by June 20, 1999. Any recommendation
of the National Commission could result in the enactment of new laws or the
adoption of new regulations which could adversely impact Churchill Downs and the
gaming industry in general. Although the National Commission has not yet issued
its final report, the draft report of the Commission recommends that Internet
gaming be prohibited. We are unable at this time to determine the ultimate
effect of this recommendation.

TAXATION. We believe that the prospect of raising significant additional
revenue is one of the primary reasons that jurisdictions permit legalized
gaming. As a result, gaming companies are subject to significant taxes and fees
in addition to normal federal, state and local income taxes. We currently pay a
significant amount of gaming related taxes and fees. These taxes and fees could
increase at any time. From time to time, legislators have proposed the
imposition of a federal tax on gross gaming revenues. Any additional taxes could
materially lower the profitability of the taxed operations.

HOOSIER PARK DEPENDS ON A SUBSIDY FROM RIVERBOAT CASINO ADMISSIONS IN INDIANA.

The Indiana horse racing industry currently receives a $0.65 subsidy from each
$3.00 admission ticket to Indiana riverboat casinos. Hoosier Park benefits from
this subsidy in a variety of different ways. Indiana law requires that this
subsidy be spent as follows: 40% for purse expenses; 30% for racetrack
operators; 20% for breed development; and 10% for approved advertising costs. As
the only racetrack in Indiana, Hoosier Park receives all of the subsidy
allocated to purse expenses, racetrack operators and advertising costs. In 1998,
the amount of the racetrack operator subsidy allocated to Hoosier Park was
approximately $6.7 million. If the Indiana Horse Racing Commission grants a
license for an additional racetrack, our portion of the direct subsidy would be
reduced. The Indiana legislature has considered reducing or eliminating the
subsidy. It is likely that additional legislation seeking to reduce or eliminate
the subsidy will be brought before the legislature in the future. Any reduction
in the subsidy or the approval of additional racetracks could significantly
reduce the funding from the subsidy for our

14
<PAGE>
operations at Hoosier Park and potentially reduce the number of live racing
dates that we could support or cause a complete and permanent shutdown of the
facility.

WE MAY NOT BE ABLE TO ATTRACT QUALITY HORSES AND TRAINERS.

To provide high quality horse racing, we must attract the country's top horses
and trainers by offering competitive purses. Our success in attracting the top
horses and trainers largely depends on our ability to offer competitive purses.
The number of top horses available for racing is affected by a range of factors,
including the market for race horses and the number of foals born each year. Any
decline in the number of suitable race horses could prevent us from attracting
top horses and trainers and may require us to reduce the number of live races we
present. A reduction in suitable race horses could force us to increase the size
of our purses or other benefits we offer, to conduct fewer races or to accept
horses of a lower quality.

WE MAY NOT BE ABLE TO EXECUTE OUR ACQUISITION STRATEGY.

We intend to pursue an aggressive growth strategy, largely through acquisitions.
The expansion of our operations through acquisitions depends on numerous
factors, including our ability to identify potential acquisition targets, to
negotiate acceptable acquisition terms and to obtain the necessary financing. In
pursuing our growth strategy, we will compete for acquisition targets with
gaming companies with significantly greater capital resources. We may be unable
to identify additional acquisition candidates, obtain the necessary financing or
successfully bid for any potential acquisition target. Any failure to
successfully execute our acquisition strategy could prevent us from achieving
our strategic business initiatives.

WE MAY EXPERIENCE DIFFICULTY INTEGRATING ACQUIRED BUSINESSES AND MANAGING OUR
OVERALL GROWTH.

The integration into our operations of acquired businesses will require a
significant dedication of management resources and an expansion of our
information systems. This dedication may distract us from day-to-day business.
These acquisitions have significantly expanded, and are expected to continue to
expand, our operations. We may not be able to manage effectively the larger
operations. We plan to continue pursuing expansion opportunities. We will face
continuing challenges in managing and integrating other gaming operations that
we may acquire in the future, particularly in identifying and recruiting
talented managers for our new facilities. These factors may result in less
efficient and more costly operations as well as a failure of management to focus
on important issues.

WE MAY NOT BE ABLE TO COMPLETE EXPANSION PROJECTS ON TIME, ON BUDGET OR AS
PLANNED.

We may seek to further develop our racetracks and possibly expand our other
gaming properties. Numerous factors, including regulatory and financial
constraints, could cause us to alter, delay or abandon our existing plans. We
may not successfully complete any currently contemplated or future expansion
projects. If we proceed to develop our facilities, we face numerous risks that
could require substantial changes to our plans, including time frames or
projected budgets. These risks include the ability to secure all required
permits and the resolution of potential land use issues, as well as risks
typically associated with any construction project, including possible shortages
of materials or skilled labor, unforseen engineering or environmental problems,
work stoppages, weather interference and unanticipated cost overruns. Even if
completed, our expansion projects may not be successful.

15
<PAGE>
WE EXPERIENCE SIGNIFICANT SEASONAL FLUCTUATIONS IN OPERATING RESULTS.

We experience significant fluctuations in quarterly and annual operating results
due to seasonality and other factors. We have a limited number of live racing
days at our racetracks, and the number of live racing days varies from year to
year. The number of live racing days we have directly affects our operating
results. A significant decrease in the number of live races could materially
lower our revenues and profits. Our live racing schedule also dictates that we
earn a substantial portion of our net earnings in the second quarter of each
year, when the Kentucky Derby and the Kentucky Oaks races usually are run on the
first weekend in May. In 1998, these races accounted for approximately 16% of
on-track pari-mutuel wagering at the Churchill Downs racetrack and 27% of total
on-track attendance at the Churchill Downs racetrack.

OUR BUSINESS DEPENDS ON PROVIDERS OF TOTALISATOR SERVICES.

In purchasing and selling our pari-mutuel wagering products, our customers
depend on information provided by United Tote Company and AmTote International.
These totalisator companies provide the computer systems that accumulate wagers,
record sales, calculate payoffs and display wagering data. United Tote and
AmTote are two of only three vendors that provide this service in North America.
The loss of United Tote or AmTote as a provider of this critical service would
decrease competition and could result in an increase in the cost to obtain these
services. Additionally, the failure of totalisator companies to keep their
technology current could limit our ability to serve patrons effectively or
develop new forms of wagering. Because of the highly specialized nature of these
services, replicating these totalisator services would be expensive.

WE MAY BE HELD RESPONSIBLE FOR CONTAMINATION, EVEN IF WE DID NOT CAUSE THE
CONTAMINATION.

Our business is subject to a variety of federal, state and local governmental
laws and regulations relating to the use, storage, discharge, emission and
disposal of hazardous materials. In addition, environmental laws and regulations
could hold us responsible for the cost of cleaning up hazardous materials
contaminating real property that we own or operate or properties at which we
have disposed of hazardous materials, even if we did not cause the
contamination. We believe that we are currently in compliance with the
applicable environmental laws and have no material cleanup obligations. However,
if we fail to comply with environmental laws or if contamination is discovered,
a court or government agency could impose severe penalties or restrictions on
our operations or assess us with the costs of taking remedial actions.

WE FACE YEAR 2000 ISSUES.

Many computer systems, software products and other business systems with
embedded chips or processors use only two digits to represent the year. As a
result, they may be unable to accurately process some data before, during or
after the year 2000. Business and governmental entities are at risk for possible
miscalculations or system failures causing disruptions in their operations. This
is commonly known as the "Year 2000" problem, and it can arise at any point in
our business and financial systems.

Our business operations depend on the Year 2000 readiness of outside parties,
including our simulcast customers and infrastructure suppliers. Our pari-mutuel
operations rely upon software systems provided by outside suppliers. We have no
alternative system to handle pari-mutuel wagering if these systems fail. Our
simulcast operations and in-home wagering systems depend upon telecommunication
service providers. The failure of these and other systems, which we did not
design, to be Year 2000 ready may significantly disrupt or even shut down our
operations.

16
<PAGE>
We have reviewed our business systems, including our computer systems, and are
querying our customers and vendors about their progress in identifying and
addressing problems that their computer systems may face in correctly
interrelating and processing date information as the year 2000 approaches and is
reached. However, we can give no assurance that we will identify all such Year
2000 problems in our computer systems or those of our customers and vendors in
advance of their occurrence or that we will be able to successfully remedy any
problems that are discovered. Our expenses in identifying and addressing such
problems, or the expenses or liabilities to which we may become subject as a
result of such problems, could be significant.

You should read "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for more information on Year 2000 issues.

WE DEPEND ON KEY PERSONNEL.

We are highly dependent on the services of Thomas H. Meeker, President and Chief
Executive Officer, and Robert L. Decker, Executive Vice President and Chief
Financial Officer. If we lose the services of either of these individuals, our
operations could be disrupted. We have entered into employment agreements with
Messrs. Meeker and Decker.

OUR STOCK PRICE IS VOLATILE.

The market price of our stock has been volatile and may continue to be volatile.
Fluctuations in our operating profits, our announcement of new wagering and
gaming opportunities, the passage of legislation affecting racing or gaming and
developments affecting the racing or gaming industries generally may have
significant effects on the market price of our stock. Moreover, the historical
daily volume of shares of our stock traded has been low, so relatively small
changes in daily trading volume may significantly affect our stock price. In
addition, publicly-held racing companies have experienced price and trading
volume fluctuations that are often unrelated to the particular company's
financial conditions or operating results. A shift in market valuations of
publicly-held racing or gaming companies could adversely affect the market price
of our common stock, regardless of our financial condition or operating results.

THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

Sales of a substantial number of shares of our common stock in the public market
following this offering could adversely affect the market price of our common
stock. The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities laws and under
lock-up agreements that our shareholders who are directors, officers or related
persons have entered into with the underwriters. These agreements restrict these
shareholders from selling, pledging or otherwise disposing of their shares for a
period of 180 days after the date of this prospectus without the prior written
consent of CIBC World Markets. CIBC World Markets may, however, in its sole
discretion, release all or any portion of the common stock from the restrictions
of these lock-up agreements.

17
<PAGE>
CERTAIN PROVISIONS OF OUR CHARTER, OUR BYLAWS AND OTHER FACTORS MAY INHIBIT
TAKEOVERS.

Several factors could inhibit an acquisition of Churchill Downs by a third
party. Our amended and restated articles of incorporation provide that the board
of directors is to consist of three approximately equal classes of directors, of
which one class is elected annually. Directors on our board each serve for a
term of three years. This staggered term structure hinders the ability to
acquire control through a proxy contest. Our bylaws limit a shareholder's right
to call special meetings. The bylaws also require advance notice of shareholder
nominations for directors and shareholder proposals to be considered at our
annual meeting. These provisions in the articles and bylaws limit the ability of
shareholders to take actions that would facilitate an acquisition of Churchill
Downs. We also have a shareholder rights plan. This plan is designed to
discourage third parties from trying to acquire Churchill Downs without the
consent of its board of directors. All of these factors may make it more
difficult for a third person to acquire, or may discourage a third party from
trying to acquire, our stock. This could limit the price that some investors
might be willing to pay for our common stock.

18
<PAGE>
USE OF PROCEEDS

The net proceeds to us from the sale of the 2,000,000 shares of common stock
that we are offering are estimated to be approximately $65.4 million ($75.3
million if the underwriters exercise their over-allotment option in full),
assuming a public offering price of $35.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us.

We intend to use the net proceeds of this offering to pay down our new $250.0
million revolving bank credit facility, which we drew on to acquire Calder in
April 1999. The new revolving bank facility accrues interest at LIBOR plus 75 to
225 basis points, depending on our leverage ratio, and matures in 2004.

The new bank credit facility may be used for the acquisition of businesses that
complement ours, for general corporate purposes or for working capital. As of
May 20, 1999, the total amount drawn on this facility was $100.0 million. After
allocating the net proceeds of this offering, our new bank facility will have
additional availability of up to $215.4 million.

19
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization:

- on an actual basis as of March 31, 1999;

- on a pro forma basis to reflect the acquisition of Calder and our new
credit agreement; and

- on a pro forma as adjusted basis to reflect the acquisition of Calder, our
new credit agreement, the issuance of 2,000,000 shares of common stock
offered by this prospectus and the application of the estimated net
proceeds of this offering, assuming a public offering price of $35.00 per
share and after deducting estimated underwriting discounts and commissions
and our estimated offering expenses.

This table should be read in conjunction with our consolidated financial
statements and the related notes thereto included elsewhere in this prospectus.
See "Unaudited Pro Forma Condensed Consolidated Financial Statements," "Use of
Proceeds" and "Description of Capital Stock."

<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- -----------
(IN THOUSANDS)
Long-term debt............................................................ $ 21,807 $ 113,356 $ 48,006
----------- ----------- -----------
----------- ----------- -----------
Shareholders' equity:
Preferred stock, no par value per share; 250,000 shares authorized; none
issued................................................................ -- -- --
Common stock, no par value per share; 20,000,000 shares authorized;
7,525,041 shares issued and outstanding; 9,525,041 shares issued and
outstanding, as adjusted.............................................. 8,927 8,927 74,277
Retained earnings......................................................... 53,589 53,589 53,589
Other..................................................................... (266) (266) (266)
----------- ----------- -----------
Total shareholders' equity.............................................. 62,250 62,250 127,600
----------- ----------- -----------
Total capitalization.................................................... $ 84,057 $ 175,606 $ 175,606
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

20
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma condensed balance sheet was derived from our
unaudited consolidated balance sheet and the unaudited balance sheets of Calder
Race Course, Inc. ("Calder") and Tropical Park, Inc. ("Tropical") (which
together comprise Calder Race Course) as of March 31, 1999. The unaudited pro
forma condensed statements of earnings for the three-month periods ended March
31, 1999 and 1998 were derived from our unaudited consolidated statements of
earnings and the unaudited statements of income of Calder and Tropical for the
three-month periods ended March 31, 1999 and 1998 and of Racing Corporation of
America (Ellis Park) for the three-month period ended March 31, 1998. The
unaudited pro forma condensed statements of earnings for the year ended December
31, 1998 were derived from our audited consolidated statement of earnings for
the year ended December 31, 1998, the audited statements of earnings of Calder
and Tropical for the year ended December 31, 1998 and the unaudited statement of
earnings of Ellis Park for the period from January 1, 1998 through April 21,
1998. The unaudited pro forma financial statements reflect the pro forma effects
of the acquisitions of Ellis Park and Calder and Tropical, and our new credit
agreement, as adjusted to reflect the effect of the offering of the shares in
this prospectus. These unaudited pro forma financial statements give effect to
the acquisitions, the new credit agreement and this offering as if they had
occurred on January 1, 1998 for the statements of earnings and as of March 31,
1999 for the balance sheet. The statements do not purport to represent what our
results of operations or financial position actually would have been if the
acquisitions, the new credit agreement and the offering had occurred on or as of
such dates and are not necessarily indicative of future operating results or
financial position. The unaudited pro forma consolidated financial statements
are based upon, and should be read in conjunction with, the audited annual
financial statements and the unaudited interim financial statements of Churchill
Downs, Calder and Tropical, and the notes thereto included elsewhere in this
prospectus and the audited financial statements of Ellis Park as incorporated by
reference on Form 8K/A.

The acquisitions of Ellis Park and Calder Race Course have been accounted for
using the purchase method of accounting. Under the purchase method of
accounting, the purchase price is allocated to the fair value of the tangible
and identifiable intangible assets acquired and liabilities assumed. The pro
forma adjustments related to the Calder Race Course acquisition are based on
preliminary assumptions of the allocation of the purchase price and are subject
to revision once appraisals, evaluations and other studies of the fair value of
the assets acquired and liabilities assumed are completed. Actual purchase
accounting adjustments related to the Calder Race Course acquisition may differ
from the pro forma adjustments presented in this prospectus.

21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
HISTORICAL CALDER RACE PRO FORMA
COURSE ADJUSTMENTS PRO FORMA
HISTORICAL ---------------------- AND CHURCHILL
CHURCHILL DOWNS CALDER TROPICAL ELIMINATIONS(1) DOWNS
--------------- ----------- -------- --------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 12,590 $ 1,832 $ 5,408 $ -- $ 19,830
Accounts receivable........................ 8,402 430 501 -- 9,333
Due from affiliate......................... -- -- 4,671 (4,671)(3) --
Other current assets....................... 3,325 734 -- -- 4,059
--------------- ----------- -------- ------- ----------
Total current assets..................... 24,317 2,996 10,580 (4,671) 33,222
Other assets............................... 5,427 1,585 245 -- 7,257
Plant and equipment, net................... 85,827 17,935 1,684 24,659(4) 130,105
Intangibles, net of amortization........... 11,407 -- -- 47,756(5)
2,500(6) 61,663
--------------- ----------- -------- ------- ----------
Total assets............................. $126,978 $ 22,516 $ 12,509 $70,244 $ 232,247
--------------- ----------- -------- ------- ----------
--------------- ----------- -------- ------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 11,330 $ 318 $ 133 $ -- $ 11,781
Accrued liabilities........................ 5,308 2,212 758 -- 8,278
Due to affiliate........................... -- 4,671 -- (4,671)(3) --
Dividends payable.......................... -- -- -- -- --
Income tax payable......................... -- -- -- -- --
Deferred revenue........................... 15,462 -- -- -- 15,462
Long-term debt, current portion............ 570 -- -- -- 570
--------------- ----------- -------- ------- ----------
Total current liabilities................ 32,670 7,201 891 (4,671) 36,091
Long term liabilities:
Due to parent.............................. -- 22,911 16,587 (39,498)(7) --
Long-term debt, due
after one year........................... 21,237 -- -- 91,549(8) 112,786
Other liabilities.......................... 3,810 1,154 -- -- 4,964
Deferred income taxes...................... 7,011 3,691 2,543 (6,460)(9) --
9,371(10) 16,156
--------------- ----------- -------- ------- ----------
Total liabilities........................ 64,728 34,957 20,021 50,291 169,997
--------------- ----------- -------- ------- ----------
Shareholders' equity:
Common stock............................... 8,927 167 6 (173)(11) 8,927
Retained earnings (accumulated deficit).... 53,589 (51,907) (26,563) 78,470(11) 53,589
Additional paid in capital................. -- 39,299 19,045 (58,344)(11) --
Deferred compensation costs................ (201) -- -- -- (201)
Notes receivable for common stock.......... (65) -- -- -- (65)
--------------- ----------- -------- ------- ----------
Total shareholders' equity............... 62,250 (12,441) (7,512) 19,953 62,250
--------------- ----------- -------- ------- ----------
Total liabilities and shareholders'
equity................................. $126,978 $(22,516) $ 12,509 $70,244 $ 232,247
--------------- ----------- -------- ------- ----------
--------------- ----------- -------- ------- ----------

PRO FORMA
AS ADJUSTED
CHURCHILL
DOWNS(2)
------------

<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 19,830
Accounts receivable........................ 9,333
Due from affiliate......................... --
Other current assets....................... 4,059
------------
Total current assets..................... 33,222
Other assets............................... 7,257
Plant and equipment, net................... 130,105
Intangibles, net of amortization...........
61,663
------------
Total assets............................. $ 232,247
------------
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 11,781
Accrued liabilities........................ 8,278
Due to affiliate........................... --
Dividends payable.......................... --
Income tax payable......................... --
Deferred revenue........................... 15,462
Long-term debt, current portion............ 570
------------
Total current liabilities................ 36,091
Long term liabilities:
Due to parent.............................. --
Long-term debt, due
after one year........................... 47,436
Other liabilities.......................... 4,964
Deferred income taxes...................... --
16,156
------------
Total liabilities........................ 104,647
------------
Shareholders' equity:
Common stock............................... 74,277
Retained earnings (accumulated deficit).... 53,589
Additional paid in capital................. --
Deferred compensation costs................ (201)
Notes receivable for common stock.......... (65)
------------
Total shareholders' equity............... 127,600
------------
Total liabilities and shareholders'
equity................................. $ 232,247
------------
------------
</TABLE>

- ------------------------

(1) Adjustments give pro forma effect to the Calder Race Course acquisition and
Churchill Downs' new credit agreement as if these transactions had occurred
on March 31, 1999 and the elimination of historical Calder and Tropical
intercompany balances and liabilities not assumed in the acquisition.

(2) Amounts reflect pro forma Churchill Downs' balances, as adjusted to record
the sale of the 2,000,000 shares of common stock at $35.00 per share and
the application of the estimated gross

22
<PAGE>
proceeds of $70.0 million, net of estimated commissions and offering
expenses payable by Churchill Downs of $4.7 million in the aggregate. See
"Use of Proceeds" and "Capitalization."

(3) To eliminate the intercompany balances between Calder and Tropical.

(4) To record the revaluation of plant and equipment acquired to its estimated
fair value.

(5) To record the excess of the purchase price over the fair value of tangible
and identifiable intangible net assets acquired.

(6) To record deferred financing costs associated with Churchill Downs' new
credit agreement.

(7) To eliminate liabilities of Calder and Tropical that were not assumed by
Churchill Downs in the transaction.

(8) To record the borrowings on Churchill Downs' line of credit necessary to
finance the purchase price of $86.0 million plus a working capital
adjustment of $2.4 million, related acquisition costs of $600,000 and
deferred financing costs of $2.5 million associated with Churchill Downs'
new credit agreement.

(9) To record the elimination of income taxes payable not assumed in the
acquisition.

(10) To record the revaluation of the deferred tax assets and liabilities based
on the revaluation of assets acquired and liabilities assumed.

(11) To eliminate the historical equity accounts of Calder and Tropical.

23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
HISTORICAL CALDER PRO FORMA
HISTORICAL RACE COURSE PRO FORMA PRO FORMA AS ADJUSTED
CHURCHILL ------------------------------ ADJUSTMENTS AND CHURCHILL CHURCHILL
DOWNS CALDER TROPICAL ELIMINATIONS(1) DOWNS DOWNS(2)
---------- ----------------- ---------- --------------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues.............................. $ 17,663 $ 612 $ 1,184 $ -- $ 19,459 $ 19,459
---------- ------- ---------- --------------- ---------- -----------
Operating expenses:
Purses.................................. 5,872 -- 499 -- 6,371 6,371
Other direct expenses................... 13,285 2,217 551 (54)(3)
58(4) 16,057 16,057
---------- ------- ---------- --------------- ---------- -----------
19,157 2,217 1,050 4 22,428 22,428
---------- ------- ---------- --------------- ---------- -----------
Gross profit (loss)................... (1,494) (1,605) 134 (4) (2,969) (2,969)
Selling, general and administrative
expenses................................ 3,130 569 185 -- 3,884 3,884
Amortization Expense...................... 173 -- -- 298(5) 471 471
---------- ------- ---------- --------------- ---------- -----------
Operating income (loss)............... (4,797) (2,174) (51) (302) (7,324) (7,324)
---------- ------- ---------- --------------- ---------- -----------
Other income (expense)
Interest income......................... 147 26 65 -- 238 238
Interest expense........................ (435) (387) (280) (991)(6)
(135)(7) (2,228) (1,046)
Rental income........................... -- 101 15 (54)(3) 62 62
Miscellaneous income.................... 44 -- -- -- 44 44
---------- ------- ---------- --------------- ---------- -----------
(244) (260) (200) (1,180) (1,884) (702)
Earnings (loss) before income tax
provision (benefit)..................... (5,041) (2,434) (251) (1,482) (9,208) (8,026)
Federal and state income tax provision
(benefit)............................... (2,031) (1,080) (110) (474)(8) (3,695) (3,222)
---------- ------- ---------- --------------- ---------- -----------
Net earnings (loss)....................... $ (3,010) $(1,354) $ (141) $ (1,008) $ (5,513) $ (4,804)
---------- ------- ---------- --------------- ---------- -----------
---------- ------- ---------- --------------- ---------- -----------
Earnings (loss) per common share
Basic................................... $ (0.40) $ (0.73) $ (0.50)
---------- ---------- -----------
---------- ---------- -----------
Diluted................................. $ (0.40) $ (0.73) $ (0.50)
---------- ---------- -----------
---------- ---------- -----------
Weighted average shares outstanding
Basic................................... 7,525 7,525 9,525
Diluted................................. 7,525 7,525 9,525
</TABLE>

- ------------------------

(1) Adjustments necessary to give pro forma effect to the Calder Race Course
acquisition and Churchill Downs' new credit agreement as if these
transactions had occurred on January 1, 1998 and the elimination of the
historical Calder and Tropical intercompany transactions.

(2) Amounts reflect pro forma Churchill Downs' balances, as adjusted to record
the effects of the assumed repayment of outstanding debt of $65.4 million
from the net proceeds of this offering and the reduction of the interest
rate from 6.70% to 5.95% and the reduction of the commitment fee rate from
0.375% to 0.25% due to this offering in accordance with provisions of the
credit agreement, including (i) the reduction in estimated annual interest
expense of $1.2 million, (ii) the reduction in the estimated annual
commitment fee expense of $6,000 and (iii) the related increase in the
income tax provision of $473,000 based on our estimated federal and state
income tax rate of 40%.

(3) To eliminate intercompany rental income and expense between Calder and
Tropical.

(4) To record the estimated increase in depreciation expense as a result of the
revaluation of the Calder and Tropical plant and equipment acquired to its
fair value and estimated useful lives.

(5) To record estimated amortization over 40 years of the excess of the Calder
Race Course purchase price over the fair value of net assets acquired of
$47.8 million.

24
<PAGE>
(6) To record the estimated incremental interest expense using an average 6.70%
interest rate on borrowings of $91.5 million necessary to finance the Calder
Race Course acquisition and fund deferred financing costs, including
amortization expense of $125,000 related to deferred financing costs of $2.5
million over 5 years.

(7) To record the estimated annual commitment fee expense under the new credit
agreement on the unused portion of the $250.0 million line of credit of
$150.5 million at 0.375%.

(8) To record the income tax effect of the estimated increase in depreciation
and incremental interest expense resulting from the Calder Race Course
acquisition at our estimated federal and state income tax rate of 40%.

25
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL CALDER RACE
HISTORICAL PRO FORMA COURSE
CHURCHILL HISTORICAL ELLIS PARK PRO FORMA -----------------------
DOWNS ELLIS PARK(1) ADJUSTMENTS(1) COMBINED CALDER TROPICAL
---------- ------------- -------------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............. $ 15,385 $1,556 $ -- $ 16,941 $ 565 $ 1,219
---------- ------ ----- ----------- ---------- ----------
Operating expenses:
Purses................. 5,374 396 -- 5,770 -- 502
Other direct
expenses............. 10,625 1,546 144(4) 12,315 2,018 449
---------- ------ ----- ----------- ---------- ----------
15,999 1,942 144 18,085 2,018 951
---------- ------ ----- ----------- ---------- ----------
Gross profit
(loss)............. (614) (386) (144) (1,144) (1,453) 268
Selling, general and
administrative
expenses............... 2,134 226 -- 2,360 483 171
Amortization Expense..... 22 -- 40(5) 62 -- --
---------- ------ ----- ----------- ---------- ----------
Operating income
(loss)............. (2,770) (612) (184) (3,566) (1,936) 97
---------- ------ ----- ----------- ---------- ----------
Other income (expense)
Interest income........ 189 -- -- 189 13 74
Interest expense....... (104) (12) (273)(6) (389) (480) (342)
Rental income.......... -- -- -- -- 76 15
Miscellaneous income... 117 -- -- 117 -- --
---------- ------ ----- ----------- ---------- ----------
202 (12) (273) (83) (391) (253)
Earnings (loss) before
income tax benefit..... (2,568) (624) (457) (3,649) (2,327) (156)
Federal and state income
tax benefit............ (999) (204) (212)(7) (1,415) (924) (61)
---------- ------ ----- ----------- ---------- ----------
Net earnings (loss)...... (1,569) (420) (245) (2,234) (1,403) (95)
Dividends on preferred
stock.................. -- -- -- -- 14 --
---------- ------ ----- ----------- ---------- ----------
Net earnings (loss)
attributable to common
shareholders........... $ (1,569) $ (420) $(245) $ (2,234) $(1,417) $ (95)
---------- ------ ----- ----------- ---------- ----------
---------- ------ ----- ----------- ---------- ----------
Earnings (loss) per
common share
Basic.................. $ (0.21) $ (0.30)
---------- -----------
---------- -----------
Diluted................ $ (0.21) $ (0.30)
---------- -----------
---------- -----------
Weighted average shares
outstanding
Basic.................. 7,317 200 7,517
Diluted................ 7,317 200 7,517

PRO FORMA
PRO FORMA PRO FORMA AS ADJUSTED
ADJUSTMENTS AND CHURCHILL CHURCHILL
ELIMINATIONS(2) DOWNS DOWNS(3)
--------------- --------- -----------

<S> <C> <C> <C>
Net revenues............. $ -- $ 18,725 $ 18,725
--------------- --------- -----------
Operating expenses:
Purses................. -- 6,272 6,272
Other direct
expenses............. (32)(8)
65(9) 14,815 14,815
--------------- --------- -----------
33 21,087 21,087
--------------- --------- -----------
Gross profit
(loss)............. (33) (2,362) (2,362)
Selling, general and
administrative
expenses............... -- 3,014 3,014
Amortization Expense..... 298(10) 360 360
--------------- --------- -----------
Operating income
(loss)............. (331) (5,736) (5,736)
--------------- --------- -----------
Other income (expense)
Interest income........ -- 276 276
Interest expense....... (836)(11)
(135)(12) (2,182) (1,000)
Rental income.......... (32)(8) 59 59
Miscellaneous income... -- 117 117
--------------- --------- -----------
(1,003) (1,730) (548)
Earnings (loss) before
income tax benefit..... (1,334) (7,466) (6,284)
Federal and state income
tax benefit............ (414)(13) (2,814) (2,341)
--------------- --------- -----------
Net earnings (loss)...... (920) (4,652) (3,943)
Dividends on preferred
stock.................. -- 14 14
--------------- --------- -----------
Net earnings (loss)
attributable to common
shareholders........... $ (920) $ (4,666) $ (3,957)
--------------- --------- -----------
--------------- --------- -----------
Earnings (loss) per
common share
Basic.................. $ (0.62) $ (0.42)
--------- -----------
--------- -----------
Diluted................ $ (0.62) $ (0.42)
--------- -----------
--------- -----------
Weighted average shares
outstanding
Basic.................. 7,517 9,517
Diluted................ 7,517 9,517
</TABLE>

- ------------------------

(1) Historical Ellis Park statement of earnings information is based on the
unaudited financial statements for the three-month period ended March 31,
1998. The pro forma Ellis Park adjustments give effect to the Ellis Park
acquisition as if it had occurred on January 1, 1998.

26
<PAGE>
(2) Adjustments necessary to give pro forma effect to the Calder Race Course
acquisition and Churchill Downs' new credit agreement as if these
transactions had occurred on January 1, 1998 and the elimination of the
historical Calder and Tropical intercompany transactions.

(3) Amounts reflect pro forma Churchill Downs' balances, as adjusted to record
the effects of the assumed repayment of outstanding debt of $65.4 million
from the net proceeds of this offering and the reduction in the interest
rate from 6.70% to 5.95% and the reduction of the commitment fee rate from
0.375% to 0.25% due to this offering in accordance with the provisions of
the credit agreement, including (i) the reduction in estimated annual
interest expense of $1.2 million, (ii) the reduction in the estimated
annual commitment fee expense of $6,000 and (iii) the related increase in
the income tax provision of $473,000 based on our estimated federal and
state income tax rate of 40%.

(4) To record additional depreciation expense for the three-month period ended
March 31, 1998 as a result of the revaluation of the Ellis Park plant and
equipment to its fair value and estimated useful lives.

(5) To record estimated amortization over 40 years for the three-month period
ended March 31, 1998 of the excess of the Ellis Park purchase price over
the fair value of net assets acquired of $6.4 million.

(6) To record the estimated incremental interest expense using an average of
6.75% interest rate on borrowings of $16.2 million necessary to finance the
Ellis Park acquisition.

(7) To adjust historical Ellis Park tax benefit and to record the income tax
effect of the estimated increase in depreciation and incremental interest
expense resulting from the Ellis Park acquisition at our estimated federal
and state income tax rate of 40%.

(8) To eliminate intercompany rental income and expense between Calder and
Tropical.

(9) To record the estimated increase in depreciation expense as a result of the
revaluation of the Calder and Tropical plant and equipment acquired to its
fair value and estimated useful lives.

(10) To record estimated amortization over 40 years of the excess of the Calder
Race Course purchase price over the fair value of net assets acquired of
$47.8 million.

(11) To record the estimated incremental interest expense using an average
6.70% interest rate on borrowings of $91.5 million necessary to finance
the Calder Race Course acquisition and fund deferred financing costs,
including amortization expense of $125,000 related to deferred financing
costs of $2.5 million over 5 years.

(12) To record the estimated annual commitment fee expense under the new credit
agreement on the unused portion of the $250.0 million line of credit of
$150.5 million at 0.375%.

(13) To record the income tax effect of the estimated increase in depreciation
and incremental interest expense resulting from the Calder Race Course
acquisition at our estimated federal and state income tax rates of 40%.

27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL CALDER RACE
HISTORICAL PRO FORMA COURSE
CHURCHILL HISTORICAL ELLIS PARK PRO FORMA -----------------------
DOWNS ELLIS PARK(1) ADJUSTMENTS(1) COMBINED CALDER TROPICAL
---------- ------------- -------------- ----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................. $147,300 $1,972 $ -- $149,272 $49,974 $21,356
---------- ------ ----- ----------- ---------- ----------
Operating expenses:
Purses...................... 50,193 491 -- 50,684 23,347 9,655
Other direct expenses....... 68,896 2,062 221(4) 71,179 16,858 6,535
---------- ------ ----- ----------- ---------- ----------
119,089 2,553 221 121,863 40,205 16,190
---------- ------ ----- ----------- ---------- ----------
Gross profit (loss)....... 28,211 (581) (221) 27,409 9,769 5,166
Selling, general and
administrative expenses..... 10,815 269 -- 11,084 2,424 930
Amortization Expense.......... 253 -- 28(5) 281 -- --
---------- ------ ----- ----------- ---------- ----------
Operating income (loss)... 17,143 (850) (249) 16,044 7,345 4,236
---------- ------ ----- ----------- ---------- ----------
Other income (expense)
Interest income............. 680 -- -- 680 165 174
Interest expense............ (896) (9) (333)(6) (1,238) (1,867) (1,347)
Rental income............... -- -- -- -- 1,011 70
Miscellaneous income........ 342 -- -- 342 -- --
---------- ------ ----- ----------- ---------- ----------
126 (9) (333) (216) (691) (1,103)
Earnings (loss) before income
tax provision............... 17,269 (859) (582) 15,828 6,654 3,133
Federal and state income tax
provision................... 6,751 -- (512)(7) 6,239 2,641 1,221
---------- ------ ----- ----------- ---------- ----------
Net earnings (loss)........... $ 10,518 $ (859) $ (70) $ 9,589 $ 4,013 $ 1,912
Dividends on preferred
stock....................... -- -- -- -- 38 --
---------- ------ ----- ----------- ---------- ----------
Net earnings (loss)
attributable to common
shareholders................ $ 10,518 $ (859) $ (70) $ 9,589 $ 3,975 $ 1,912
---------- ------ ----- ----------- ---------- ----------
---------- ------ ----- ----------- ---------- ----------
Earnings (loss) per common
share
Basic....................... $ 1.41 $ 1.28
---------- -----------
---------- -----------
Diluted..................... $ 1.40 $ 1.26
---------- -----------
---------- -----------
Weighted average shares
outstanding
Basic....................... 7,460 60 7,520
Diluted..................... 7,539 60 7,599

PRO FORMA
PRO FORMA PRO FORMA AS ADJUSTED
ADJUSTMENTS AND CHURCHILL CHURCHILL
ELIMINATIONS(2) DOWNS DOWNS(3)
--------------- --------- -----------

<S> <C> <C> <C>
Net revenues.................. $ -- $220,602 $220,602
--------------- --------- -----------
Operating expenses:
Purses...................... 83,686 83,686
Other direct expenses....... (803)(8)
234(9) 94,003 94,003
--------------- --------- -----------
(569) 177,689 177,689
--------------- --------- -----------
Gross profit (loss)....... 569 42,913 42,913
Selling, general and
administrative expenses..... -- 14,438 14,438
Amortization Expense.......... 1,194(10) 1,475 1,475
--------------- --------- -----------
Operating income (loss)... (625) 27,000 27,000
--------------- --------- -----------
Other income (expense)
Interest income............. -- 1,019 1,019
Interest expense............ (3,420)(11)
(518)(12) (8,390) (3,733)
Rental income............... (803)(8) 278 278
Miscellaneous income........ -- 342 342
--------------- --------- -----------
(4,741) (6,751) (2,094)
Earnings (loss) before income
tax provision............... (5,366) 20,249 24,906
Federal and state income tax
provision................... (1,669)(13) 8,432 10,295
--------------- --------- -----------
Net earnings (loss)........... $ (3,697) $ 11,817 $ 14,611
Dividends on preferred
stock....................... -- 38 38
--------------- --------- -----------
Net earnings (loss)
attributable to common
shareholders................ $ (3,697) $ 11,779 $ 14,573
--------------- --------- -----------
--------------- --------- -----------
Earnings (loss) per common
share
Basic....................... $ 1.57 $ 1.53
--------- -----------
--------- -----------
Diluted..................... $ 1.55 $ 1.52
--------- -----------
--------- -----------
Weighted average shares
outstanding
Basic....................... 7,520 9,520
Diluted..................... 7,599 9,599
</TABLE>

- ------------------------

(1) Historical Ellis Park statement of earnings information is based on the
unaudited financial statements for the period from January 1, 1998 to
April 21, 1998. The pro forma Ellis Park adjustments give effect to the
Ellis Park acquisition as if it had occurred on January 1, 1998.

28
<PAGE>
(2) Adjustments necessary to give pro forma effect to the Calder Race Course
acquisition and Churchill Downs' new credit agreement as if these
transactions had occurred on January 1, 1998 and the elimination of the
historical Calder and Tropical intercompany transactions.

(3) Amounts reflect pro forma Churchill Downs' balances, as adjusted to record
the effects of the assumed repayment of outstanding debt of $65.4 million
from the net proceeds of this offering and the reduction of the interest
rate from 6.70% to 5.95% and the reduction of the commitment fee rate from
0.375% to 0.25% due to this offering in accordance with provisions of the
credit agreement, including (i) the reduction in estimated annual interest
expense of $4.6 million, (ii) the reduction in the estimated annual
commitment fee expense of $25,000 and (iii) the related increase in the
income tax provision of $1.9 million based on our estimated federal and
state income tax rate of 40%.

(4) To record additional depreciation expense from January 1, 1998 through
April 21, 1998 as a result of the revaluation of the Ellis Park plant and
equipment to its fair value and estimated useful lives.

(5) To record estimated amortization over 40 years from January 1, 1998 through
April 21, 1998 of the excess of the Ellis Park purchase price over the fair
value of net assets acquired of $6.4 million.

(6) To record the estimated incremental interest expense using an average 6.75%
interest rate on borrowings of $16.2 million necessary to finance the Ellis
Park acquisition.

(8) To eliminate intercompany rental income and expense between Calder and
Tropical.

(9) To record the estimated increase in depreciation expense as a result of the
revaluation of the Calder and Tropical plant and equipment acquired to its
fair value and estimated useful lives.

(10) To record estimated amortization over 40 years of the excess of the Calder
Race Course purchase price over the fair value of net assets acquired of
$47.8 million.

(11) To record the estimated incremental interest expense using an average
6.70% interest rate on borrowings of $91.5 million necessary to finance
the Calder Race Course acquisition and fund deferred financing costs,
including amortization of $500,000 expense related to deferred financing
costs of $2.5 million over 5 years.

(12) To record the estimated annual commitment fee expense under the new credit
agreement on the unused portion of the $250.0 million line of credit of
$150.5 million at 0.375%.

29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION

This selected consolidated financial information as of December 31, 1994, 1995
and 1996 and for the years ended December 31, 1994 and 1995 was derived from our
audited consolidated financial statements not included in this prospectus.
Selected consolidated financial information as of December 31, 1997 and 1998 and
March 31, 1998 and 1999 and for the years ended December 31, 1996, 1997 and 1998
and the three-month period ended March 31, 1998 and 1999 was derived from our
consolidated financial statements and notes thereto included elsewhere in this
prospectus. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto, included elsewhere in
this prospectus.

<TABLE>
<CAPTION>
THREE-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
STATEMENT OF EARNINGS DATA:
Net revenues...................... $ 66,419 $ 92,434 $ 107,859 $ 118,907 $ 147,300 $ 15,385 $ 17,663
Operating income (loss)........... 9,861 10,305 12,315 14,405 17,143 (2,770) (4,797)
Net earnings (loss)............... 6,166 6,203 8,072 9,149 10,518 (1,569) (3,010)
Earning (loss) per common share:
Basic........................... $ 0.82 $ 0.82 $ 1.08 $ 1.25 $ 1.41 $ (0.21) $ (0.40)
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
Diluted......................... $ 0.82 $ 0.82 $ 1.08 $ 1.25 $ 1.40 $ (0.21) $ (0.40)
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
Dividends per common share...... $ 0.25 $ 0.25 $ 0.33 $ 0.50 $ 0.50 -- --
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
Weighted average shares
outstanding:
Basic........................... 7,557 7,568 7,446 7,312 7,460 7,317 7,525
Diluted......................... 7,557 7,569 7,448 7,321 7,539 7,317 7,525
OTHER DATA:
Pari-mutuel wagering:
On-track (1).................... $ 143,800 $ 148,519 $ 147,015 $ 149,227 $ 165,207 $ -- $ --
Import simulcasting (2)......... 108,875 212,316 252,638 262,451 296,809 79,773 87,027
Export simulcasting (3)......... 150,838 241,726 417,407 463,966 600,666 -- --
--------- --------- --------- --------- ----------- --------- ---------
Total pari-mutuel wagering........ $ 403,513 $ 602,561 $ 817,060 $ 875,644 $ 1,062,682 $ 79,773 $ 87,027
--------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- ----------- --------- ---------
Net pari-mutuel wagering revenue
(4)............................. $ 21,095 $ 32,489 $ 36,508 $ 37,998 $ 46,433 $ 4,862 $ 5,369
EBITDA (5)........................ 13,363 15,100 17,802 19,289 23,230 (1,494) (2,850)
BALANCE SHEET DATA (AT PERIOD
END):
Total assets...................... $ 70,176 $ 77,486 $ 80,729 $ 85,849 $ 114,651 $ 88,255 $ 126,978
Working capital (deficiency)...... (10,131) (10,434) (10,789) (8,032) (7,791) (9,214) (8,353)
Long-term debt.................... 8,683 6,421 2,953 2,713 13,665 2,713 21,807
Shareholders' equity.............. 42,003 46,653 47,781 53,392 65,231 51,823 62,250
</TABLE>

- ------------------------

(2) Wagers on simulcasts from other tracks placed at our facilities when our
facilities are not hosting races.

(3) Wagers placed at other facilities on simulcasts of our races.

(4) Net pari-mutuel wagering revenue equals total net revenues realized from
pari-mutuel wagering less pari-mutuel taxes, purses paid to owners and
simulcast fees paid to other racetracks.

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(5) EBITDA represents earnings before provision for income taxes, depreciation,
amortization and interest expense less interest income. EBITDA is presented
because management believes that some investors use EBITDA as a measure of
an entity's ability to service its debt. EBITDA should not be considered as
an alternative to, or more meaningful than, net income (as determined in
accordance with GAAP) as a measure of our operating results or cash flows
(as determined in accordance with GAAP) as a measure of our liquidity.

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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THIS DISCUSSION TOGETHER WITH THE FINANCIAL STATEMENTS AND OTHER
FINANCIAL INFORMATION INCLUDED IN THIS PROSPECTUS.

GENERAL INFORMATION ABOUT OUR BUSINESS

We conduct pari-mutuel wagering on live Thoroughbred, Standardbred and Quarter
Horse horse racing and simulcast signals of races. Additionally, we offer racing
services through our other interests.

We own and operate the Churchill Downs racetrack in Louisville, Kentucky, which
has conducted Thoroughbred racing since 1875 and is internationally known as the
home of the Kentucky Derby. We also own and operate Ellis Park Race Course, a
Thoroughbred racetrack, in Henderson, Kentucky, Calder Race Course, a
Thoroughbred racetrack in Miami, Florida, and Kentucky Horse Center, a
Thoroughbred training center, in Lexington, Kentucky. Additionally, we are the
majority owner and operator of Hoosier Park in Anderson, Indiana, which conducts
Thoroughbred, Quarter Horse and Standardbred horse racing. We conduct simulcast
wagering on horse racing at our four simulcast wagering facilities in
Louisville, Kentucky, and in Merrillville, Fort Wayne and Indianapolis, Indiana,
as well as at our four racetracks.

Because of the seasonal timing of racing meets, revenues and operating results
for any interim quarter are not indicative of the revenues and operating results
for the year and are not necessarily comparable with results for the
corresponding period of the previous year.

Our primary sources of revenue are commissions and fees earned from pari-mutuel
wagering on live and simulcast horse races. Other sources of revenue include
admissions and seating, riverboat admission tax subsidy, concession commissions
primarily for the sale of food and beverages, sponsorship revenues, licensing
rights and broadcast fees.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999, COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

NET REVENUES

Net revenues during the three months ended March 31, 1999 increased $2.3 million
(15%) from $15.4 million in 1998 to $17.7 million in 1999. Churchill Downs
racetrack revenues decreased $0.8 million (14%) due primarily to decreases in
the Louisville Sports Spectrum simulcast revenues. Hoosier Park revenues
increased $0.9 million (9%) primarily due to a $0.8 million increase in the
riverboat gross admissions subsidy of which a portion was required to be spent
on purses and marketing expenses. Ellis Park contributed $1.2 million to first
quarter 1999 net revenues as opposed to none in the prior year. Other
operations, including the 1998 acquisition of Kentucky Horse Center, comprised
the remaining $1.0 million of the increase.

OPERATING EXPENSES

Operating expenses increased $3.2 million (20%) from $16.0 million in 1998 to
$19.2 million in 1999. Hoosier Park operating expenses increased $1.2 million
(15%) due primarily to required increases in purses and marketing expenses
related to the riverboat admissions subsidy. Ellis Park incurred 1999 operating
expenses of $1.6 million versus none in the first quarter of 1998. Other
operations, including Kentucky Horse Center, accounted for the remaining $0.4
million of the increase in operating expenses.

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GROSS LOSS

Gross loss increased $0.9 million from $0.6 million loss in 1998 to $1.5 million
loss in 1999. Ellis Park accounted for $0.5 million and other operations
contributed $0.3 million of the increase in gross loss.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses increased by $1.1 million
(53%) from $2.2 million in 1998 to $3.3 million in 1999. SG&A expenses at
Churchill Downs increased $0.4 million (23%) due primarily to increased
corporate staffing and compensation expenses reflecting the Company's
strengthened corporate services to meet the needs of its new business units. The
acquisition of Ellis Park contributed $0.2 million and other operations,
including Kentucky Horse Center, accounted for $0.4 million of the increase in
SG&A expenses.

OTHER INCOME AND EXPENSE

Interest expense increased $0.3 million from $0.1 million in 1998 to $0.4
million in 1999 primarily as a result of borrowings to finance the acquisition
of Ellis Park.

INCOME TAX PROVISION

Our income tax benefit increased by $1.0 million from $1.0 million in 1998 to
$2.0 million in 1999 primarily as the result of an increase in pre-tax loss of
$2.5 million. The effective income tax rate increased from 38.9% in 1998 to
40.3% in 1999 due primarily to non-deductible amortization expense related to
the acquisitions of Ellis Park and Kentucky Horse Center in 1998 and Charlson
Broadcast Technologies in January 1999.

YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997

NET REVENUES

Net revenues increased $28.4 million (24%) from $118.9 million in 1997 to $147.3
million in 1998. The Churchill Downs racetrack revenues increased $3.5 million
(5%) due to increases in simulcast revenues, licensing rights, broadcast
revenues and increased corporate sponsorship of the Kentucky Derby. Hoosier Park
revenues increased $6.2 million (15%) primarily due to increased simulcasting
revenues and a $5.1 million increase in the riverboat gross admissions subsidy,
of which a portion was required to be spent on purses and marketing expenses.
Ellis Park contributed $17.4 million to 1998 net revenues after its acquisition
in the second quarter. Other operations, including Kentucky Horse Center which
we also acquired in the second quarter, comprised the remaining $1.3 million of
the increase.

OPERATING EXPENSES

Operating expenses increased $23.7 million (25%) from $95.4 million in 1997 to
$119.1 million in 1998. The Churchill Downs racetrack operating expenses
increased $1.9 million (3%) due mainly to increased marketing, simulcast,
totalisator and video expenses. Hoosier Park operating expenses increased $5.0
million (14%) due primarily to required increases in purses and marketing
expenses of $2.8 million and $0.8 million, respectively, related to the
riverboat admissions subsidy. Ellis Park increased 1998 operating expenses by
$15.4 million since its acquisition. Other operations, including Kentucky Horse
Center, accounted for the remaining $1.4 million of the increase in operating
expenses.

GROSS PROFIT

Gross profit increased $4.7 million (20%) from $23.5 million in 1997 to $28.2
million in 1998. The Churchill Downs racetrack and Hoosier Park gross profit
increased $1.5 million (9%) and $1.2 million (25%), respectively, for the
reasons described above. The Ellis Park acquisition contributed $2.0 million

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<PAGE>
to 1998 gross profit. The slight decrease in the gross profit percentage from
19.7% in 1997 to 19.2% in 1998 was due mainly to a lower gross profit percentage
at Ellis Park due to purse increases implemented to improve the quality of
racing at the track.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses increased by $2.0 million
(22%) from $9.1 million in 1997 to $11.1 million in 1998. SG&A expenses at the
Churchill Downs racetrack increased $1.3 million (19%) due primarily to
increased corporate staffing, compensation and business development expenses.
Hoosier Park SG&A expenses decreased by $0.2 million (9%) due to declines in
professional fees and wages. The acquisition of Ellis Park contributed $0.6
million to the increase in 1998 SG&A expenses. Other operations accounted for
the remaining $0.3 million of the increase. SG&A expenses as a percentage of net
revenues decreased slightly from 7.6% in 1997 to 7.5% in 1998.

OTHER INCOME AND EXPENSE

Interest expense increased $0.6 million from $0.3 million in 1997 to $0.9
million in 1998 as a result of borrowings to finance our second quarter
acquisition of Ellis Park and Kentucky Horse Center.

INCOME TAX PROVISION

Our income tax provision increased by $1.0 million from $5.8 million in 1997 to
$6.8 million in 1998 primarily as the result of an increase in pre-tax earnings
of $2.3 million. The effective income tax rate increased slightly from 38.9% in
1997 to 39.1% in 1998 due primarily to a non-deductible amortization expense
related to the acquisition of Ellis Park and Kentucky Horse Center and increases
in other permanent differences, partially offset by the reversal of the
valuation allowance on certain state income tax net operating loss
carry-forwards.

YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996

NET REVENUES

Net revenues increased $11.0 million (10%) from $107.9 million in 1996 to $118.9
million in 1997. The Churchill Downs racetrack revenues increased $2.8 million
(4%) due primarily to increases in simulcast revenues that were generated as a
result of the new Paddock Pavilion simulcast wagering facility used during live
racing at the Churchill Downs racetrack. Hoosier Park revenues increased $8.2
million (25%) primarily due to increased simulcasting revenues and a $7.9
million increase in the riverboat gross admissions subsidy, of which a portion
is required to be spent on purses and marketing expenses.

OPERATING EXPENSES

Operating expenses increased $8.5 million (10%) from $86.9 million in 1996 to
$95.4 million in 1997. The Churchill Downs racetrack's operating expenses
increased $3.2 million (6%) due mainly to increased purses and wages and also
increased marketing, simulcast and video expenses. Hoosier Park operating
expenses increased $5.3 million (18%) due primarily to increases in purses and
marketing expenses of $3.9 million and $1.0 million, respectively, related to
the riverboat admissions subsidy.

GROSS PROFIT

Gross profit increased $2.5 million (12%) from $21.0 million in 1996 to $23.5
million in 1997. The Churchill Downs racetrack's gross profit decreased $0.4
million (2%) and Hoosier Park gross profit increased $2.9 million (86%) for the
reasons described above. The gross profit percentage increased slightly from
19.5% in 1996 to 19.7% in 1998.

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<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

SG&A expenses increased by $0.4 million (5%) from $8.7 million in 1996 to $9.1
million in 1997. SG&A expenses at the Churchill Downs racetrack increased $0.4
million (11%) due primarily to increased corporate staffing, compensation and
business development expenses. Hoosier Park SG&A expenses decreased by $0.2
million (8%) while SG&A expenses at other operations were up by $0.2 million.

OTHER INCOME AND EXPENSE

Interest income increased $0.2 million from $0.4 million in 1996 to $0.6 million
in 1998 as a result of the additional earnings generated by our short-term cash
investments or cash equivalents. Miscellaneous income decreased $0.4 million
from $0.7 million in 1996 to $0.3 million in 1998 as the result of the gain
recognized on Conseco HPLP's acquisition of 10% of Hoosier Park in 1996.

INCOME TAX PROVISION

Our income tax provision increased by approximately $0.8 million from $5.0
million in 1996 to $5.8 million in 1997 primarily as the result of an increase
in pre-tax earnings of $1.9 million. The effective income tax rate increased
from 38.1% in 1996 to 38.9% in 1997 due primarily to increases in permanent
differences.

SIGNIFICANT CHANGES IN THE BALANCE SHEET MARCH 31, 1999 TO DECEMBER 31, 1998

Accounts receivable balances decreased by $3.6 million in 1999. Churchill Downs
decreased its live meet accounts receivable by $2.9 million through the
collection of 1998 Fall meet receivables.

Prepaid income taxes increased $2.4 million as a result of the estimated income
tax benefit (receivable) associated with the quarterly net loss.

Intangible assets increased $3.0 million as a result of the acquisition of
Charlson Broadcast Technologies during the first quarter of 1999.

The net plant and equipment increase of $2.7 million during 1999 was primarily
due to the acquisition of Charlson Broadcast Technologies and routine capital
spending at our operating units offset by current year depreciation expense.

Accounts payable increased $4.8 million at March 31, 1999 primarily due to
increases in purses payable and other expenses related to simulcast wagering.

Dividends payable decreased $3.8 million at March 31, 1999 due to the payment in
the first quarter of 1999 of dividends of $3.8 million which were declared in
1998.

Deferred revenue increased $7.0 million at March 31, 1999, primarily due to a
$6.5 million increase in corporate sponsor event ticket prices, season box and
membership sales, admissions and future wagering related to the 1999 Kentucky
Derby and Kentucky Oaks race days.

The long-term debt increase of $7.7 million was the result of additional
borrowings on our bank line of credit during the first quarter of 1999,
primarily to fund the acquisition of Charlson Broadcast Technologies.

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<PAGE>
SIGNIFICANT CHANGES IN THE BALANCE SHEET MARCH 31, 1999 TO MARCH 31, 1998

Intangible assets increased $9.5 million due to the addition of goodwill of $6.5
million recorded for the acquisition of Ellis Park and Kentucky Horse Center and
$3.0 million for the acquisition and formation of Charlson Broadcast
Technologies.

Net plant and equipment increased $22.7 million primarily due to the acquisition
of Ellis Park and the Kentucky Horse Center, Charlson Broadcast Technologies and
routine capital spending at our operating units offset by depreciation expense.

The long-term debt increase of $18.6 million was due to line of credit
borrowings used to fund the acquisitions of Ellis Park and Kentucky Horse Center
during the second quarter of 1998 and Charlson Broadcast Technologies during the
first quarter of 1999.

Deferred income taxes increased by $4.6 million as a result of the recognition
of deferred taxes with the Ellis Park and Kentucky Horse Center acquisition
during the second quarter of 1998.

SIGNIFICANT CHANGES IN THE BALANCE SHEET DECEMBER 31, 1998 TO DECEMBER 31, 1997

The cash and cash equivalent balances at December 31, 1998 of $6.4 million were
$2.9 million lower than December 31, 1997, primarily due to aggregate payments
on our line of credit which we used to fund the acquisition of Ellis Park and
Kentucky Horse Center.

Accounts receivable balances grew by $4.9 million in 1998 due to the increase of
$1.5 million in the Indiana riverboat admissions receivable, an increase of $1.1
million in receivables relating to advanced billing for the Kentucky Derby, a
$1.0 million increase in simulcast and other operating receivables relating to
the Churchill Downs racetrack's Fall race meet and an increase of $0.9 million
in receivables from the Commonwealth of Kentucky relating to purse expense
reimbursements. Additionally, Ellis Park and Kentucky Horse Center accounted for
$0.3 million of overall increases.

Intangible assets increased $6.5 million as a result of the acquisition of Ellis
Park and Kentucky Horse Center.

Plant and equipment increased $25.0 million during 1998, primarily due to the
acquisition of Ellis Park and Kentucky Horse Center which was $22.0 million.
Routine capital spending at our operating units made up the remainder of the
increase. Accumulated depreciation increased $5.5 million for current year
depreciation expense.

We borrowed on our bank line of credit during 1998 primarily for the acquisition
of Ellis Park and Kentucky Horse Center during the second quarter. We made
additional borrowings on the line of credit during the third and fourth quarters
to fund operating expenses.

Deferred income tax liabilities increased to $6.9 million in 1998, an increase
of $4.6 million from 1997 balances, primarily as a result of the acquisition of
Ellis Park and Kentucky Horse Center.

SIGNIFICANT CHANGES IN THE BALANCE SHEET DECEMBER 31, 1997 TO DECEMBER 31, 1996

The cash and cash equivalent balances at December 31, 1997 of $9.3 million were
$1.1 million higher than December 31, 1996, based primarily upon our increased
earnings.

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<PAGE>
Accounts receivable at December 31, 1997, increased by $1.9 million due
primarily to the increase in the Indiana riverboat admissions tax receivable
resulting from the additional Indiana riverboats being open for a longer period
of time in 1997 versus 1996.

Other assets at December 31, 1997, increased by $2.3 million due primarily to
our ownership investment in Kentucky Downs.

The cost of plant and equipment increased by $4.5 million due to the
construction of a new on-site simulcast facility at the Churchill Downs
racetrack as well as other routine capital spending. This was offset by
approximately $4.2 million in depreciation expense.

Income taxes payable decreased by $2.3 million in 1997 due primarily to the
timing of estimated tax payments made throughout the year.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital deficiency was $8.4 million and $9.2 million for the
quarters ended March 31, 1999 and March 31, 1998, respectively, and $7.8
million, $8.0 million and $10.8 million for the years ended December 31, 1998,
1997 and 1996, respectively. Our working capital deficiency results from the
nature and seasonality of our business. Cash flows provided by operations were
$7.8 million and $7.3 million for the three months ended March 31, 1999 and
March 31, 1998, respectively. Cash flows provided by operations were $10.8
million, $10.5 million and $15.1 million for the years ended December 31, 1998,
1997 and 1996, respectively. The net increase of $0.3 million in 1998 resulted
from a $1.4 million increase in net earnings and $1.2 million increase in
depreciation and amortization coupled with the timing of accounts receivable,
accounts payable, income taxes payable and deferred revenue balances. Management
believes cash flows from operations and available borrowings during 1999 will be
sufficient to fund our cash requirements for the year, including capital
improvements and the acquisition of Calder Race Course.

Cash flows used in investing activities were $5.5 million and $1.1 million for
the three months ended March 31, 1999 and March 31, 1998, respectively. The $5.5
million in 1999 is comprised of the $2.9 million acquisition of a majority
interest in Charlson Broadcast Technologies during the first quarter and $2.6
million in capital spending at our facilities.

Cash flows used in investing activities were $20.8 million, $6.9 million and
$2.6 million for the years ended December 31, 1998, 1997 and 1996, respectively.
The $20.8 million in 1998 is primarily comprised of the cash portion of our
purchase of Ellis Park and Kentucky Horse Center during the second quarter of
1998. The $6.9 million in 1997 primarily represents the acquisition of 24% of
Kentucky Downs during the third quarter of 1997 and additional capital spending
for the construction of a new on-site simulcast facility in Kentucky. Routine
capital spending accounted for a portion of the cash used in investing for 1998
and 1997. The capital additions for all locations, including construction of a
$2.4 million stable area dormitory at the Churchill Downs racetrack, are not
expected to exceed $10.0 million for 1999.

Cash flows provided by (used in) financing activities were $3.9 million and
$(3.7) million for the three months ended March 31, 1999 and March 31, 1998,
respectively. We borrowed $8.0 million and repaid $1.0 million on our line of
credit during 1999 primarily to finance the purchase of Charlson Broadcast
Technologies. In addition, we received a $1.5 million contribution by a minority
interest in our Charlson Broadcast Technologies subsidiary.

Cash flows provided by (used in) financing activities were $7.0 million, $(2.5)
million and $(10.2) million for the years ended December 31, 1998, 1997 and
1996, respectively. We borrowed $22.0 million

37
<PAGE>
and repaid $11.0 million on our line of credit during 1998 primarily to finance
the purchase of Ellis Park and Kentucky Horse Center. Cash dividends of $3.7
million declared in 1997 were paid to shareholders in 1998 versus $2.4 million
paid in 1997 and declared in 1996.

We had a $100.0 million line-of-credit, of which $89.0 million was available at
December 31, 1998. In connection with our development strategy, we increased our
line of credit under a new revolving loan facility to meet working capital and
other short-term requirements and to provide funding for acquisitions. The new
facility offers a line of credit of $250.0 million and matures in 2004. As of
May 20, 1999, $100.0 million of our new facility was outstanding and up to
$150.0 million remains available to us. Our new facility accrues interest at
LIBOR plus 75 to 225 basis points, depending on our leverage ratio. The credit
facility is secured by substantially all our assets. Under the terms of the
credit facility, we must observe certain financial ratios, and our ability to
incur additional debt is restricted.

IMPACT OF THE YEAR 2000 ISSUE

The "Year 2000 Issue" is the result of computer programs that were written using
two digits rather than four to define the applicable year in date-dependent
systems. If our computer programs with date-sensitive functions are not Year
2000 compliant, they may be unable to distinguish the year 2000 from the year
1900. This could result in system failure or miscalculations leading to a
disruption of business operations.

Some of our mission critical operations are dependent upon computer systems and
applications. These systems are either directly owned and controlled by us or
are provided under contract by third party technology service providers. To
address the Year 2000 issue, we have categorized the Year 2000 issue into four
principal areas.

SYSTEMS OWNED BY CHURCHILL DOWNS

The first area is related to systems that we own. These systems include
application software and dedicated hardware that run our core operations. In
addition, there are numerous applications that provide administrative support
and management reporting functions. We developed some of these applications
internally and purchased others.

To address Year 2000 compliance across this broad category of systems, we have
broken each system down into its most elemental pieces in order to study the
hardware including any embedded chip technology/firmware, the operating systems
and, finally, the applications themselves.

We have identified hardware, including any embedded chip technology/firmware,
that was not Year 2000 compliant and replaced it as part of the routine turnover
of technology capital. The remaining hardware requiring replacement is scheduled
to be upgraded during the first half of 1999. By the end of June 1999, all
hardware and embedded chip technology/firmware that we own is expected to be
Year 2000 compliant.

We have checked all operating systems supporting specific applications by
advancing the dates to determine if the date change impacts operating
system-level functionality. As new operating system upgrades are made available
and installed, periodic testing will continue to assure operating system-level
functionality is maintained. In addition, we have contacted the developers of
the operating systems we use and have received assurances as to their
compatibility with the Year 2000 transition.

Application software compliance with the Year 2000 has been certified through a
combination of technical consultation with the software developers and testing.
Applications developed with internal resources have been written with Year 2000
compliance in mind using development tools that are Year 2000 compliant. We have
received technical reports from third parties on Year 2000 compliance for

38
<PAGE>
financial reporting, payroll, operations control and reporting and internal
communications applications. We require Year 2000 compliance on any software
upgrades.

Based on the schedule outlined above, we expect our owned systems to be Year
2000 compliant prior to the year 2000. We will test the system by advancing
dates to include a majority of the Year 2000 critical dates by the fourth
quarter of 1999. However, even though our planned modifications to internally
owned hardware and software should adequately address Year 2000 issues, there
can be no assurance that unforeseen difficulties will not arise.

TECHNOLOGY SERVICES PROVIDED TO CHURCHILL DOWNS UNDER CONTRACT BY THIRD PARTIES

The second area is services provided to us by third parties. Many of these
services are mission critical and could have a material impact on us should the
systems upon which the services are dependent be unable to function.

The totalisator services provided by United Tote Company and AmTote
International are the most critical to our operations. Totalisator services
include the calculation of amounts wagered and owed to winning ticket holders.
United Tote developed a plan to bring all systems provided to us into Year 2000
compliance during 1998. United Tote and Churchill Downs initiated this plan
during the second quarter of 1998 by undertaking a comprehensive system hardware
and software upgrade that is Year 2000 compliant. We successfully installed the
systems in three phases with the last phase having been completed in October
1998. All on-track, intertrack wagering and hub operations are Year 2000
compliant. We will continue to work closely with United Tote to assure that
future releases and upgrades are Year 2000 compliant by including this provision
as a condition in contracts for future services. The Company is in the process
of determining if AmTote, which is utilized by Calder Race Course, is Year 2000
compliant and expects to complete this evaluation during the second quarter of
1999.

The video services provided by an outside vendor are also important to our
operations. Video services include the capture, production and distribution of
the television signal for distribution to customers located on our premises and
to customers located at remote wagering outlets throughout the nation. We are
working closely with the vendor to ensure the software applications that provide
the graphical enhancements and other distinguishing features to the televised
signal for the Churchill Downs racetrack and Hoosier Park are Year 2000
compliant. The existing software for the graphical enhancements to the
television signal is not Year 2000 compliant. We have contacted the developer of
the software package directly and have received assurances that an upgrade to
the software will be Year 2000 compliant.

We purchase data and statistical information from Equibase for resale to the
public. This information is an essential element of our product and is included
in printed material made available to our customers to assist in their wagering
decisions. Equibase has implemented a Year 2000 remediation plan, which is
expected to be completed by the end of the second quarter of 1999.

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A variety of other smaller and less critical technology service providers are
involved with our product. We have received assurance letters from a majority of
these suppliers and will continue to work to receive assurances from those
remaining.

Because of the nature of our business and its dependence upon key technology
services provided by third parties, we require that all new software and
technology services are Year 2000 compliant. This requirement includes patches,
upgrades and fixes to existing technology services.

In the event that any of our third party service providers do not successfully
and timely achieve Year 2000 compliance, and we are unable to replace them with
alternate service providers, it could result in a delay in providing our core
live racing and simulcasting products to our customers and have a material
adverse effect on our business, financial condition and results of operations.

INDUSTRY-WIDE ISSUES

Because we derive a significant portion of our revenues from customers at other
racing organizations that are confronted with the same technological issues,
including totalisator, video and statistical information services, we have been
actively participating in an industry-wide assessment and remedial efforts to
assure Year 2000 compliance.

FEEDBACK CONTROL SYSTEMS

A variety of the newer control and regulating systems are date sensitive.
Environmental control systems, elevator/escalator systems, fire control and
security systems utilize date-sensitive software/ embedded chip technology for
correct operation. We have systems that perform each of these functions, and we
are identifying if any of these systems employ technology that may not be Year
2000 compliant. We will work closely with manufacturers of these products to
develop a remedial plan to assure Year 2000 compliance if any problems are
identified.

COST AND CONTINGENCY PLANNING

To date, we have incurred costs of less than $25,000 to remediate Year 2000
compliance issues. Our management believes that any future costs to remediate
Year 2000 compliance issues will not be material to our financial position or
results of operations.

We are currently evaluating our most reasonably likely worst-case Year 2000
scenario and are also developing contingency plans as part of our efforts to
identify and correct Year 2000 issues affecting our owned systems as well as
issues involving third party service providers. We intend to complete both the
evaluation of a worst-case Year 2000 scenario and contingency planning by June
30, 1999.

Due to our recent acquisition of Calder Race Course, we will continue to assess
the status of the Company's Year 2000 compliance in regards to the factors
mentioned above and we expect to complete this evaluation in the second quarter.

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BUSINESS

HISTORY OF CHURCHILL DOWNS

We are a leading pari-mutuel horse racing company and a key provider of live
racing programming content for the growing simulcast wagering market. We operate
four racetracks and four off-track wagering facilities that accept wagers on our
races as well as on races import simulcast from other locations. We export
simulcast our races to over 1,000 locations in 41 states and 9 countries. Our
flagship operation, the Churchill Downs racetrack, has conducted Thoroughbred
racing since 1875 and is the internationally known home of the Kentucky Derby.
Churchill Downs was organized as a Kentucky corporation in 1928.

In 1994, we developed Hoosier Park, Indiana's only horse racing facility, in
Anderson, Indiana. Hoosier Park is owned by Hoosier Park, L.P. ("HPLP"), an
Indiana limited partnership formed in 1994, in which we currently own a 77%
interest as the general partner through Anderson Park, Inc. ("Anderson"), a
wholly owned subsidiary of Churchill Downs Management Company ("CDMC"), a wholly
owned subsidiary that oversees the properties we actively manage. The remaining
23% of HPLP is held by unrelated third parties, Pegasus Group, and Conseco HPLP
("Conseco"), which are both limited partners of HPLP. HPLP has entered into a
management agreement with CDMC under which CDMC has operational control of the
day-to-day affairs of Hoosier Park and its related simulcast operations. CDMC
also manages three Sports Spectrum facilities owned by Hoosier Park in Indiana.
The Sports Spectrum facilities conduct simulcast wagering on horse racing
year-round.

In April 1998, we acquired Racing Corporation of America for $22.0 million
including transaction costs. With the purchase of Racing Corporation of America,
we acquired Ellis Park Race Course, a Thoroughbred racetrack in Henderson,
Kentucky, and Kentucky Horse Center, located in Lexington, Kentucky. Both of
these facilities are now managed by CDMC.

In April 1999, we completed the acquisition of the outstanding shares of Calder
and Tropical for $86.0 million plus a $2.4 million net working capital
adjustment. Calder and Tropical each hold a license from the Florida Department
of Business and Professional Regulation Division of Pari-Mutuel Wagering to
conduct live horse races and simulcast wagering at Calder Race Course, located
in Miami, Florida.

OTHER INVESTMENTS. In November 1997, we formed Churchill Downs Investment
Company ("CDIC"), a wholly owned subsidiary, to oversee those investments in
which we participate as an equity investor but do not actively manage the
operations. Among those investments are TrackNet, a telecommunications service
provider for the pari-mutuel and simulcasting industries, and EquiSource, a
procurement business that assists in the group purchasing of supplies and
services for the horse racing industry. In March 1999, TrackNet and Autotote
Corporation formed NASRIN Services to provide telecommunications services to the
horse racing industry. Autotote owns 70% of the new organization, and CDIC owns
the remaining 30%. The new organization will operate under the NASRIN banner and
be managed on a day-to-day basis by Autotote. Currently, neither NASRIN Services
nor EquiSource is a material investment for us.

As a founding member racetrack, we own a 3% interest in ODS Entertainment, a
subsidiary of AT&T. In conjunction with ODS Entertainment, we are participating
in the development of the first in-home interactive television wagering system
in the United States.

We also hold a minority investment in Kentucky Downs, a Franklin, Kentucky,
racetrack that conducts a limited Thoroughbred race meet as well as year-round
simulcast wagering. Turfway Park, a Florence, Kentucky, racetrack, also holds a
minority interest in Kentucky Downs and manages its day-to-day

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operations. In April 1999, Keeneland Association, a Lexington, Kentucky,
racetrack. Dreamport, a wholly owned subsidiary of GTECH Corporation, and Dusty
Corporation, a wholly owned subsidiary of Harrah's Entertainment, completed
their acquisition of Turfway Park's racing-related assets. We do not believe
that this will have a material effect on the management of Kentucky Downs. Our
investment in Kentucky Downs is not material to our operations.

In January 1999, we completed the purchase of a 60% ownership interest in
Charlson Broadcast Technologies, a privately held company that provides
simulcast graphic software and video services to racetracks and simulcast
wagering facilities. The cost of the transaction included a purchase price of
$3.1 million and an equity contribution of $2.3 million. The new venture is
expected to be strategically significant to our development of a comprehensive
simulcast product.

BUSINESS STRATEGY

We plan to grow our business by focusing on three related initiatives:

PROMOTE AND ENHANCE THE QUALITY OF OUR LIVE RACING PRODUCTS. Our key asset
is the quality of the races we conduct. For example, we believe that the
Kentucky Derby and other races at the Churchill Downs racetrack are among
the premier horse races in the United States. We intend to maintain and
enhance the quality of our races by offering high purse levels to attract
the best available horses, trainers and jockeys, providing superior customer
service, adding amenities, and making strategic capital improvements to our
track properties.

SUPPORT AND EXPAND OUR PREMIER, BRANDED SIMULCAST RACING PRODUCT. We
believe that we provide horse racing's premier simulcast product. We
currently offer 217 days of live racing programming through four separate
signals. We plan to expand our programming content to show live races
year-round, during the day and evening, through a single video signal
marketed under the Churchill Downs brand name. Because remote wagering
locations import signals from multiple sources, a single video signal offers
convenience and reduced operating costs. As part of our branding strategy,
we intend to use enhanced supporting graphics and data feeds to make the
programs more appealing to consumers. We believe that the combination of
expanded programming, simulcast bundling and improved production quality
will allow us to increase our share of the growing simulcast wagering
market. We also believe that our branded simulcast product will be
especially well-suited for the in-home wagering market as this market
develops.

Our longer-term strategy is to integrate alternative gaming products at our
racetrack facilities. Alternative gaming in the form of video lottery terminals
or similar gaming devices should enable us to compete more effectively with
riverboat, cruise ship and land-based casinos, attract new patrons, and provide
us with an additional source of revenue and purse money. We continue to support
legislation to allow video lottery terminals at our racetrack facilities in
Kentucky. Currently, we are working with members of the Kentucky horse racing
industry to develop a plan to operate video lottery terminals exclusively at
Kentucky's racetracks.

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PARI-MUTUEL INDUSTRY OVERVIEW

Forty-one states permit pari-mutuel wagering, which is conducted on events
including horse racing, greyhound racing and jai alai. In 1997, wagering on
pari-mutuel horse racing totaled approximately $15.4 billion in the United
States and approximately $100.0 billion worldwide. Between 1993 and 1997, the
total amount wagered on horse racing in the United States grew at a compound
annual rate of 2.8%. The main driver of this growth has been simulcast wagering,
which allows the video signal of a live racing event to be transmitted to a
remote location where patrons can wager in the same pari-mutuel pool as patrons
at the racetrack. Between 1993 and 1997, simulcast wagering grew at an 11.9%
compound annual rate from approximately $7.6 billion to approximately $11.9
billion. In 1997, simulcast wagering accounted for approximately 77% of the
total amount wagered on pari-mutuel horse racing in the United States.

HORSE RACING PARI-MUTUEL WAGERING

<TABLE>
<CAPTION>
INCREASE (DECREASE)
1993-1997:
-------------------------
GROSS WAGERING COMPOUND
---------------------------------------------------------- ANNUAL
1993 1994 1995 1996 1997 DOLLARS PERCENT
---------- ---------- ---------- ---------- ---------- ---------- -------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
On-track................ $ 6,138.3 $ 5,640.6 $ 4,628.5 $ 3,838.1 $ 3,469.1 $ (2,669.2) (13.3)%
Simulcasting............ 7,582.7 8,523.0 10,141.8 11,045.8 11,888.1 4,305.4 11.9
---------- ---------- ---------- ---------- ---------- ---------- -----
Total................... $ 13,721.0 $ 14,163.6 $ 14,770.3 $ 14,883.9 $ 15,357.2 $ 1,636.2 2.8%
---------- ---------- ---------- ---------- ---------- ---------- -----
---------- ---------- ---------- ---------- ---------- ---------- -----
</TABLE>

Historically, the main source of revenue for horse racing operations was wagers
placed at a racetrack. In the late 1980s, new technology was introduced that
allowed simulcast signals to be sent to remote wagering locations, and
legislative changes were enacted permitting off-track wagering and simulcasting.
These changes substantially broadened the market for the distribution of live
racing products. Patrons can now place remote wagers at other racetracks,
off-track wagering facilities and casinos. We estimate that the number of
pari-mutuel wagering locations in the United States has grown from approximately
200 racetracks in the mid 1980s to more than 1,000 racetracks and simulcast
wagering facilities. Additionally, eight states now allow in-home wagering on
races through telephone and interactive account wagering systems.

IMPORT AND EXPORT SIMULCASTING

There are two basic types of simulcast wagering: import simulcasting and export
simulcasting. Import simulcasting involves receiving a video signal of a live
race at a remote wagering location. The operator of a remote wagering location
selects live racing signals from racetracks around the country to create a
program of wagering events designed to appeal to its local clientele. In
exchange for receiving the live racing signal, the operator of the remote
wagering location shares a portion of each wager with the originator of the live
racing signal. Generally, 2.0% to 3.5% of the amount wagered is paid to the
originator of the live racing signal as a simulcasting fee.

Export simulcasting involves sending the video signal of a live race to a remote
wagering location. In exchange for exporting the live racing signal, the track
is able to participate in each wager placed at the remote wagering location.
Remote wagering locations are dependent upon importing a quality live racing
product that appeals to their patrons. As a result, the premier tracks have
experienced strong demand for export simulcasting of their live racing signal.
Each racetrack is able to negotiate its export

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simulcasting fee based upon the demand for its live racing signal. Generally,
the interstate export simulcasting fee ranges from 2.0% to 3.5% of the wagers
placed at the remote wagering location.

IN-HOME WAGERING

Technological innovations and legislative changes have further opened the
distribution channels for live racing products to include in-home wagering.
Currently, eight states--Connecticut, Kentucky, Maryland, Nevada, New York,
Ohio, Oregon, and Pennsylvania--permit account wagering which allows an
individual to create a wagering account with a licensed pari-mutuel operator,
for the purpose of placing wagers. In 1997, these eight states generated
approximately $6.5 billion, or 36%, of the total pari-mutuel handle in the
United States. ODS Entertainment, a subsidiary of AT&T, has developed an in-home
interactive television wagering system with Churchill Downs' participation. This
system is currently being tested in Kentucky. ODS Entertainment intends to
launch the Television Games Network in the fourth quarter of 1999. The
Television Games Network will offer high quality live racing video signals in
conjunction with its interactive television wagering system. The Television
Games Network signal will eventually be offered in all 50 states, and the
interactive television wagering system will be offered in the eight states that
permit account wagering. We have entered into an agreement to broadcast our
Churchill Downs racetrack simulcast products as part of the Television Games
Network's programming content and expect to also include our other simulcast
products. As the originator of the live racing signal, we will receive a
simulcast fee on in-home wagers placed on our races.

OTHER LEGISLATIVE CHANGES

There are currently six states that permit pari-mutuel operators to install
video lottery terminals or slot machines to augment their live racing and
simulcast wagering. Additionally, Indiana has legislation that permits
pari-mutuel operators to participate in the admission tax collected by riverboat
casino operations located within their state. Generally, these initiatives have
allowed pari-mutuel operators to participate in the economic benefits of the
expansion of alternative forms of gaming across the country in recent years.

NATIONAL THOROUGHBRED RACING ASSOCIATION

In 1997, the industry formed the National Thoroughbred Racing Association
("NTRA") to promote the horse racing industry. The NTRA brings together the
major participants in the horse racing industry under the leadership of an
experienced management team. The NTRA's board of directors is composed of
representatives from the Thoroughbred Racing Association, the Thoroughbred
Owners of California, the National Horsemen's Benevolent and Protective
Association, the Thoroughbred Horsemen's Association, The Jockey Club, and the
National Thoroughbred Association. NTRA membership includes 69 racetracks
located throughout the United States and in Canada and horsemen's associations
from 26 states. The NTRA has a broad base of financial support from all segments
of the horse racing industry. It has dedicated a budget of more than $22.5
million to increase public exposure to Thoroughbred racing through a variety of
programs, including the expansion of the national advertising campaign that
began in 1998.

LIVE RACING OPERATIONS

We conduct horse races at the Churchill Downs racetrack, Calder Race Course,
Ellis Park and Hoosier Park during each track's respective meets. Our races
produce revenues through pari-mutuel wagering, admissions and seating,
concession commissions, sponsorship revenues, licensing rights and broadcast
fees. The Kentucky Derby and the Kentucky Oaks, both held at the Churchill Downs
racetrack, continue to be our premier racing events.

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CHURCHILL DOWNS RACETRACK

Our Churchill Downs facility, located in Louisville, Kentucky, is one of the
premier horse racetracks in the nation and is the internationally known home of
the Kentucky Derby. The Churchill Downs facility consists of approximately 157
acres of land with a one mile oval dirt track, a seven-eighths ( 7/8) mile turf
track, permanent grandstands and a stabling area. The facility includes
clubhouse and grandstand seating for approximately 48,500 persons, a general
admission area, and food and beverage facilities ranging from fast food to
full-service restaurants. The Paddock Pavilion, a state-of-the-art simulcast-
wagering facility designed to accommodate 450 patrons, opened in May 1997. The
site also has a saddling paddock, infield accommodations for groups and special
events, parking areas for the public, and our corporate office facilities. The
backside stable area has barns sufficient to accommodate approximately 1,400
horses, and other facilities for backstretch personnel.

The Churchill Downs racetrack annually conducts two live Thoroughbred race
meets, a Spring Meet from late April through late June and a Fall Meet from late
October through late November. The Churchill Downs racetrack has hosted the
Breeders' Cup an unprecedented four times, in 1988, 1991, 1994 and 1998.
Breeders' Cup Day races, which feature $12.5 million in purses, are held
annually for the purpose of determining Thoroughbred champions in eight
different events. Racetracks across the United States compete for the privilege
of hosting the Breeders' Cup Day races each year.

In 1999, attendance of approximately 151,000 people at the Kentucky Derby made
it the best attended live horse racing event in the United States. The
approximately $57.3 million wagered on the Kentucky Derby in 1999 represented
the largest amount ever wagered on an individual race. The Kentucky Oaks, which
is run the day before the Kentucky Derby, was attended by over 101,000 people in
1999, making it the second best attended live horse racing event in the United
States. In 1998, the total amount wagered on races simulcast from the Churchill
Downs racetrack, excluding the Breeders' Cup, was $421.2 million. The average
daily purse at the Churchill Downs racetrack in 1998 was approximately $437,000,
which we believe ranks our average daily purses among the top five in the United
States. In 1998, races at the Churchill Downs racetrack were simulcast to
approximately 900 sites throughout the United States and nine countries; the
Kentucky Derby was simulcast to over 1,000 sites worldwide.

To supplement the facilities at the Churchill Downs racetrack, we developed
stabling facilities and a training track at the Louisville Sports Spectrum,
where a portion of the property is used as a Thoroughbred stabling and training
annex. We converted a former Standardbred track into a three-quarter ( 3/4) mile
dirt track, which is used for training Thoroughbreds. The existing barns on the
property were demolished, and we constructed new sprinklered barns sufficient to
accommodate approximately 500 horses. These facilities provide a year-round base
of operation for many horsemen and enable us to attract new horsemen who desire
to race at the Churchill Downs racetrack.

CALDER RACE COURSE

Calder Race Course, one of four Thoroughbred racetracks in Florida, is located
fifteen miles from downtown Miami adjacent to Pro Player Stadium, home to the
Miami Dolphins and the Florida Marlins. The Calder Race Course facility consists
of approximately 220 acres of land, with a one mile dirt track and a
seven-eighths ( 7/8) mile turf track, permanent grand stands, a training area
with a five-eighths ( 5/8) mile training track, a stabling area that
accommodates 1,800 horses and other facilities for backstretch personnel. The
facility includes clubhouse and grandstand seating for approximately 15,000
people, a general admissions area, and food and beverage facilities offering a
wide variety of items.

Calder Race Course conducts two live Thoroughbred race meets annually: the
Calder summer meet from late May through early November and the Tropical fall
meet from early November through early

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January. Each race meet is permitted through licenses owned respectively by
Calder and Tropical. Calder Race Course's racing season from late May to early
January, significantly expands our simulcast programming schedule into the fall
and winter months. Calder's signature event, "The Festival of the Sun," is
Florida's richest day in Thoroughbred racing offering approximately $1.5 million
in total purse money. In 1998, Calder Race Course's races were simulcast to 525
sites, and the total amount wagered on races export simulcast from Calder Race
Course was $446.2 million.

ELLIS PARK RACE COURSE

We own the Ellis Park racetrack and improvements located in Henderson, Kentucky.
The Ellis Park facility consists of 230 acres of land just north of the Ohio
River with a one-and-one-eighths (1 1/8) mile dirt track, a one mile turf
course, permanent grandstands and a stabling area for 1,290 horses. The facility
includes clubhouse and grandstand seating for 8,000 people, a general admission
area, and food and beverage facilities ranging from fast food to full-service
restaurants. The Ellis Park facility also features a saddling paddock, parking
areas for the public and office facilities.

Ellis Park conducts Thoroughbred racing from late June or early July through
Labor Day. These races immediately follow the spring meet at the Churchill Downs
racetrack complementing our racing and simulcast programming schedule. In 1998,
Ellis Park's races were simulcast to 485 sites, an increase of 37% since the
acquisition. The total amount wagered on all races export simulcast from Ellis
Park was $116.7 million.

HOOSIER PARK

Hoosier Park is located in Anderson, Indiana, about 40 miles northeast of
downtown Indianapolis. Hoosier Park leases the land under a long-term lease with
the city of Anderson and owns all of the improvements on the site. The racetrack
facility consists of approximately 110 acres of leased land with a seven-eighths
( 7/8) mile oval dirt track, permanent grandstands and stabling area. The
facility includes seating for approximately 2,400 persons, a general admission
area, and food and beverage facilities ranging from fast food to a full-service
restaurant. The site also has a saddling paddock, parking areas for the public
and office facilities. The stable area has barns sufficient to accommodate 780
horses and other facilities for backstretch personnel.

Hoosier Park conducts live Standardbred racing from mid-April to late August,
live Thoroughbred racing from mid-September to late November and Quarter Horse
racing in late October. Its live racing days consist primarily of evening races,
enabling us to expand the hours of our simulcast programming. In 1998, Hoosier
Park's Thoroughbred races were simulcast to 220 sites, and the total amount
wagered on all races export simulcast from Hoosier Park was $62.7 million.

SIMULCAST FACILITIES

We generate a significant portion of our revenues by sending signals of races
from our racetracks to other facilities and by receiving signals from other
tracks. These revenues are earned through pari-mutuel wagering on signals that
we both import and export.

The Churchill Downs racetrack and Calder Race Course conduct simulcast wagering
only during their race meets, while Ellis Park and Hoosier Park offer year-round
simulcast wagering. The Louisville Sports Spectrum conducts simulcast wagering
when the Churchill Downs racetrack is not conducting a race meet, except for
Kentucky Derby and Kentucky Oaks Days and the immediately following Sunday. The
Indiana Sports Spectrums and the Kentucky Off-Track Betting facilities conduct
simulcast wagering year-round.

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LOUISVILLE SPORTS SPECTRUM

We own the real property and improvements known as the Louisville Sports
Spectrum, located in Louisville, Kentucky. Formerly a Standardbred racetrack, we
acquired this property in 1992 and converted it into a simulcast wagering
facility and Thoroughbred training annex. The 100,000-square-foot Louisville
Sports Spectrum is located on approximately 88 acres of land, about seven miles
from the Churchill Downs racetrack.

The Louisville Sports Spectrum provides state-of-the-art audio and visual
technology, seating for approximately 3,000 persons, parking, offices and
related facilities for simulcasting races in Kentucky and throughout the United
States. Seven separate areas were created within the structure to accommodate
the needs of a variety of patrons, from the seasoned handicapper to the novice
player. As mentioned above, the Louisville Sports Spectrum also provides a
stabling and training annex for the Churchill Downs racetrack.

INDIANA SPORTS SPECTRUMS

Hoosier Park owns and operates three simulcast wagering facilities in Indiana,
which are branded with the Churchill Downs Sports Spectrum name. These simulcast
wagering facilities provide a statewide distribution system for Hoosier Park's
racing signal and additional simulcast markets for our other races. The Sports
Spectrum at Merrillville, located about 30 miles southeast of Chicago, consists
of approximately 27,300 square feet of space. The Sports Spectrum at Fort Wayne
consists of approximately 15,750 square feet of space. Hoosier Park also leases
space in the Claypool Courts Building in downtown Indianapolis where it operates
the Sports Spectrum at Indianapolis. In October 1998, the Indiana Horse Racing
Commission approved the expansion of this facility from approximately 17,500
square feet to 24,800 square feet. This project, completed in February 1999,
increased capacity by 180 patrons to 630.

Hoosier Park is continuing to evaluate sites for the location of a fourth Sports
Spectrum facility. The State of Indiana has enacted legislation that requires a
county fiscal body to adopt an ordinance permitting simulcast wagering
facilities before such a facility can be located in that county. The county
fiscal body may require in the ordinance that the voters of the county approve
the operation of a simulcast wagering facility in that county. The state
legislation may affect Hoosier Park's ability to locate its fourth facility in
some counties.

KENTUCKY OFF-TRACK BETTING, INC.

In 1992, Churchill Downs and the other Kentucky Thoroughbred racetracks formed
Kentucky Off-Track Betting ("KOTB"), of which we are a 50% shareholder. KOTB's
purpose is to own and operate facilities for simulcasting races and accepting
wagers on such races at locations other than a racetrack. Under Kentucky law, a
KOTB simulcast wagering facility may not be located within 75 miles of an
existing racetrack without the track's consent and in no event within 50 miles
of an existing track. Each KOTB simulcast wagering facility must first be
approved by the Kentucky Racing Commission. Once approved, the simulcast
wagering facility may then be established unless the local government where the
facility is to be located votes to disapprove its establishment. KOTB currently
owns or leases and operates simulcast wagering facilities in Corbin, Maysville,
Jamestown, and Pineville, Kentucky.

IN-HOME WAGERING

In conjunction with ODS Entertainment, a subsidiary of AT&T, Churchill Downs is
participating in the development of the first in-home, interactive television
wagering system in the United States. In-home patrons can wager on races at the
Churchill Downs racetrack and other tracks. We believe such

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in-home technology can be used as an efficient delivery system that could
increase revenues and attract new segments of the market to our racetracks.

The second phase of our relationship with ODS Entertainment will be the launch
of the Television Games Network, which is projected to begin in the fourth
quarter of 1999. We expect this new cable television channel to eventually offer
24-hour-a-day programming throughout the United States that will be primarily
devoted to developing new fans for racing. Once completed, this would include
interactive wagering from home where permitted by law. We have entered into an
agreement with ODS Entertainment to include our Churchill Downs racetrack
simulcast products as part of the Television Games Network's programming content
and expect to include our other simulcast products in the future. As the
originator of the live racing signal, we will receive a simulcast fee on in-home
wagers placed on our races.

OTHER SOURCES OF REVENUE

In addition to revenues from live racing and simulcasting, we generate revenues
from additional sources.

RIVERBOAT ADMISSIONS TAX

To compensate for the adverse impact of riverboat competition, the horse racing
industry in Indiana presently receives a $0.65 subsidy per $3.00 admission to
riverboats in the state of which 30% is allocated to Hoosier Park.

KENTUCKY HORSE CENTER

We own the real property and improvements known as the Kentucky Horse Center,
located in Lexington, Kentucky ("KHC"). The KHC is a Thoroughbred training and
boarding facility that we acquired with Ellis Park in April 1998. The facility,
which sits on 245 acres of land, offers a one mile dirt track, a five-eighths
( 5/8) mile training track and stabling for 1,000 horses. Additionally, the KHC
has facilities for meetings and larger special events, including a 920-seat
auditorium known as the Pavillion. The KHC also offers escorted tours of its
training facilities to the public. The KHC's revenues are not material to our
operations at this time.

LICENSING

Kentucky's racetracks, including the Churchill Downs racetrack and Ellis Park,
are subject to the licensing and regulation of the Kentucky Racing Commission
("KRC"), which consists of 11 members appointed by the governor of Kentucky.
Based upon applications submitted by the racetracks in Kentucky, the KRC
annually approves licenses to conduct live Thoroughbred race meets and to
participate in simulcasting. Although to some extent the Churchill Downs
racetrack and Ellis Park compete with other racetracks in Kentucky for the award
of racing dates, state law requires the KRC to consider and seek to preserve
each racetrack's usual and customary live racing dates. Generally, there is no
substantial change from year to year in the racing dates awarded to each
racetrack. The Churchill Downs racetrack conducted live racing from April 25
through June 28, 1998, and from November 1 through November 28, 1998, for a
total of 71 racing days compared to 77 racing days in 1997. Ellis Park conducted
live racing from June 29 through September 7, 1998, for a total of 61 racing
days compared to 55 days in 1997, which was prior to our acquisition of Ellis
Park. For 1999, we received approval from the KRC to conduct live racing at the
Churchill Downs racetrack from April 24 through June 27 and from October 31
through November 27 for a total of 71 days. The KRC granted Ellis Park a total
of 61 live racing days in 1999, running from June 28 through September 6.

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The Department of Business and Professional Regulation Division of Pari-Mutuel
Wagering ("DPW") regulates horse racing in Florida. The DPW is responsible for
overseeing the network of state offices located at every pari-mutuel wagering
facility, as well as issuing the permits necessary to operate a pari-mutuel
wagering facility. The DPW also approves annual licenses for Thoroughbred,
Standardbred and Quarter Horse races. In its 1998 racing season, Calder Race
Course conducted live racing from May 23, 1998 through January 2, 1999, for a
total of 173 racing days. The DPW awarded Calder Race Course a total of 170 live
racing dates in 1999.

In Indiana, licenses to conduct live Standardbred and Thoroughbred race
meetings, including Quarter Horse races, and to participate in simulcasting are
approved annually by the Indiana Horse Racing Commission ("IHRC"), which
consists of five members appointed by the Governor of Indiana. The IHRC approves
licenses annually based upon applications submitted by Hoosier Park. Currently,
Hoosier Park is the only facility in Indiana licensed to conduct Standardbred,
Quarter Horse or Thoroughbred racing and to participate in simulcasting. Quarter
Horse races are conducted during some Thoroughbred race days. Hoosier Park
conducted live racing from April 17, 1998 through November 28, 1998, for a total
of 153 racing days, including 95 days of Standardbred racing and 58 days of
Thoroughbred racing (which also includes Quarter Horse races). For 1999, Hoosier
Park received a license to conduct racing for a total of 168 racing days,
including 103 days of Standardbred racing and 65 days of Thoroughbred racing.
The IHRC has the authority to grant additional licenses to conduct horse racing.
If the IHRC grants additional licenses, the number of racing days allocated to
Hoosier Park could be reduced or we could compete directly with the new tracks
depending on their locations. Additional licensed facilities would also compete
with our simulcast product and would receive a portion of the subsidy we
currently receive.

COMPETITION

COMPETITION FOR HORSES

North American Thoroughbred sales climbed again in 1998, continuing a trend that
began in 1997. According to The Blood-Horse magazine, expenditures for
Thoroughbred weanlings, yearlings, two year olds and broodmares totaled $816.9
million in 1998 compared to $693.0 million in 1997, which was the previous
record. Since 1995, the number of Thoroughbred foals born each year increased.
These recent increases in Thoroughbred prices and the number of foals are
indicators of a resurgence of the Thoroughbred breeding industry, reversing a
trend of declines from 1986 to 1995. The increase in the number of Thoroughbreds
enables racetracks to increase the number of horses participating in live
racing.

The Churchill Downs racetrack, Ellis Park and Hoosier Park effectively competed
for horses and experienced a high quality of racing in 1998. The Churchill Downs
racetrack offered record average daily purses, which we believe ranks our
average daily purses among the top five in the nation. We believe these purses
attracted many of the country's top horses and trainers. During the Churchill
Downs racetrack's 1998 live race meets, average daily purses reached $436,725.
Purse increases at Hoosier Park in 1998 strengthened both its Thoroughbred and
Standardbred racing programs and created greater demand from horsemen to race at
the Indiana track. In 1998, average daily purses of $197,738 resulted in
competitive race fields for Hoosier Park's Thoroughbred meet, while average
daily purses of $141,535 during its Standardbred meet ranked Hoosier Park second
in the nation in Standardbred purse levels. This trend was also evident at Ellis
Park, where 1998 average daily purses reached $170,916, compared to $163,546 in
1997. Calder Race Course also successfully competed in attracting the top horses
and trainers in 1998, offering average daily purses of $173,000.

49
<PAGE>
COMPETITION FROM OTHER GAMING OPERATIONS

We generally do not directly compete with other racetracks or simulcast
facilities for local patrons due to the geographic separation of facilities or
differences in seasonal timing of meets. Calder Race Course, for example, is in
close proximity to two other racetracks, but the tracks currently do not
directly compete with each other because they offer live races and simulcasting
during different times of the year. However, we compete with other sports,
entertainment and gaming options for patrons for both live racing and
simulcasting. We attempt to attract patrons by providing high quality racing
products in attractive entertainment facilities with fairly priced, appealing
concession services.

The development of riverboat gaming facilities began in Indiana pursuant to
authorizing legislation passed by the State of Indiana in 1993. Illinois had
previously authorized riverboat gaming. There are currently five riverboat
casinos operating on the Ohio River along Kentucky's border--including two in
the southeastern Indiana cities of Lawrenceburg and Rising Sun, one in
southwestern Indiana in Evansville and one at Metropolis, Illinois. The fifth
riverboat casino, licensed to RDI/Caesars, opened in November 1998 in Harrison
County, Indiana, 10 miles from Louisville. Admission and handle figures at the
Churchill Downs racetrack during the RDI/Caesars' opening week in November 1998,
were not significantly different from the same period in 1997. However, from
December 1998 through April 1999, when the RDI/Caesars riverboat casino and the
Louisville Sports Spectrum were concurrently open, admission and handle numbers
at the Louisville Sports Spectrum decreased from those numbers for the same
period in 1997. At this time, we cannot determine the extent to which the
decrease was due to the new riverboat casino in the Louisville market or other
factors, such as inclement weather.

The Indiana Gaming Commission voted in September 1998 to grant a license to open
a sixth Indiana riverboat along the Ohio River in Switzerland County, about 70
miles from Louisville. The license holder, Hollywood Park-Boomtown, plans to
build a riverboat casino, hotel and resort complex near Vevay, Indiana.
Hollywood Park estimates the resort will open as early as the third quarter of
2000.

In addition to those riverboats operating along the Ohio River, five riverboat
casinos operate along the Indiana shore of Lake Michigan near our Sports
Spectrum in Merrillville, Indiana. The opening of these Lake Michigan riverboats
adversely impacted our pari-mutuel wagering activities at the Merrillville
facility. Given its proximity to Chicago, the Merrillville Sports Spectrum also
faces competition from off-track wagering facilities and riverboat casinos near
Chicago. We also compete with cruise ship casinos in Florida and state
lotteries.

Additionally, several Native American tribes in Florida have expressed interest
in opening casinos in southern Florida which could compete with Calder Race
Course. Recently, the Pokagon Band of the Potawatomi Indian Tribe has expressed
an interest in establishing a land-based casino in northeastern Indiana or
southwestern Michigan. The State of Michigan has approved the Pokagon Band's
proposal to develop a casino in New Buffalo, Michigan, which is approximately 45
miles from our Merrillville facility. The development of this casino may
negatively impact pari-mutuel wagering activities at Hoosier Park's Indiana
facilities.

SERVICE MARKS

We hold federal service mark registrations on the names "Kentucky Derby,"
"Churchill Downs," "Churchill Downs Sports Spectrum," "Kentucky Oaks,"
"Churchill Charlie" and the distinctive twin spires design in various categories
including entertainment business, apparel, paper goods, printed matter and
housewares and glass. We also have state registrations for "The Festival of the
Sun" and its distinctive design. We license the use of these marks and derive
revenue from such license agreements.

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<PAGE>
ENVIRONMENTAL MATTERS

In January 1992, we acquired certain assets of Louisville Downs Incorporated,
including the property that is now the Louisville Sports Spectrum, for $5.0
million. We withheld $1.0 million from this amount to offset costs related to
the remediation of environmental contamination associated with underground
storage tanks at the site of the Louisville Sports Spectrum. The $1.0 million
withheld was utilized by December 31, 1997, and additional costs of
investigation and remediation have not yet been conclusively determined. The
sellers have been reimbursed by the State of Kentucky for $985,000 of the cost
of the remediation. The full amount of this reimbursement is now being held in
escrow to pay any further costs of investigation and remediation. In addition to
the $1.0 million withheld, we have obtained an indemnity from the sellers to
cover the full cost of remediation at the property. We believe the cost of
further investigation and remediation should not exceed the amount of funds held
in escrow.

In January 1995, Hoosier Park opened the Churchill Downs Sports Spectrum in
Merrillville, Indiana. The land on which the Merrillville facility is located is
subject to contamination related to prior business operations adjacent to the
property. In conjunction with the purchase, Hoosier Park withheld $50,000 from
the amount due to the seller to offset costs related to remediation of the
contamination. The contamination on the property has been remediated under the
State of Indiana's voluntary remediation program. The State of Indiana issued a
certificate of completion in April of 1999. The cost of remediation did not
exceed $50,000. In addition to the amount withheld, Hoosier Park has obtained an
indemnity to cover the full cost of remediation from the prior owner of the
property.

The septic system at our Ellis Park facility located in Henderson, Kentucky is
in need of repair. The cost of the repairs is not yet known, but we believe it
will be less than $400,000.

It is not anticipated that we will have any material liability as a result of
compliance with environmental laws with respect to any of our properties.
Compliance with environmental laws has not materially affected the ability to
develop and operate our properties. We are not otherwise subject to any material
compliance costs in connection with federal or state environmental laws.

EMPLOYEES

We employ approximately 660 full-time employees. Due to the seasonal nature of
our live racing business, the number of seasonal and part-time persons employed
varies throughout the year. Peak employment occurs during Kentucky Derby week,
when we employ as many as 2,600 persons. During 1998, average employment per pay
period was approximately 1,000 individuals. Approximately 50% of our employees
are unionized. Union members include some of our pari-mutuel employees,
electricians, carpenters, maintenance workers and valets. The various collective
bargaining agreements covering these employees expire between 1999 and 2002.
Historically, management's relationships with these unions have been good.

OTHER PROPERTIES

The Kentucky Derby Museum Corporation, a tax-exempt organization under Section
501(c)(3) of the Internal Revenue Code of 1986, operates the Kentucky Derby
Museum on property adjacent to the Churchill Downs racetrack.

LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than ordinary routine
litigation incidental to our business, to which we are a party or of which any
of our property is the subject and no such proceedings are known to be
contemplated by governmental authorities.

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<PAGE>
MANAGEMENT

The following table provides information with respect to our executive officers
and directors as of May 20, 1999:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
William S. Farish.................................... 60 Chairman of the Board; Director(1)(2)
Thomas H. Meeker..................................... 55 President and Chief Executive Officer; Director(3)
Vicki L. Baumgardner................................. 47 Vice President, Finance and Treasurer
David E. Carrico..................................... 48 Senior Vice President, Sales
Robert L. Decker..................................... 51 Executive Vice President and Chief Financial Officer
Dan L. Parkerson..................................... 56 Senior Vice President, Property Management
Rebecca C. Reed...................................... 41 Senior Vice President, General Counsel and Secretary
Donald R. Richardson................................. 53 Senior Vice President, Racing
Jeffrey M. Smith..................................... 46 President, Churchill Downs Management Company
Karl F. Schmitt, Jr.................................. 46 Senior Vice President, Communications
Andrew G. Skehan..................................... 38 Senior Vice President, Corporate Marketing
Alexander M. Waldrop................................. 42 Senior Vice President and General Manager
G. Watts Humphrey, Jr................................ 54 Director(1)(5)(7)
Arthur B. Modell..................................... 73 Director(1)
Dennis D. Swanson.................................... 61 Director(1)(6)
J. David Grissom..................................... 60 Director(2)(4)
Seth W. Hancock...................................... 49 Director(4)(7)
Frank B. Hower, Jr................................... 70 Director(4)(6)
W. Bruce Lunsford.................................... 51 Director(4)(5)(6)
Charles W. Bidwill, Jr............................... 70 Director(2)(3)
Daniel P. Harrington................................. 43 Director(3)(5)(9)
Carl F. Pollard...................................... 60 Director(2)(3)(5)(7)
Darrell R. Wells..................................... 56 Director(3)(5)(6)

DIRECTORS EMERITI(8)
John W. Barr, III.................................... 78
Catesby W. Clay...................................... 75
Louis J. Herrmann, Jr................................ 79
Stanley F. Hugenberg................................. 81
William T. Young..................................... 81
</TABLE>

- ------------------------

(1) Member of Class I of the directors.

(2) Member of the Executive Committee.

(3) Member of Class III of the directors.

(4) Member of Class II of the directors.

(5) Member of the Audit Committee.

(6) Member of the Compensation Committee.

(7) Member of the Racing Committee.

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<PAGE>
(8) Directors emeriti are entitled to attend meetings of the Board of Directors
but do not have a vote on matters presented to the Board. Our bylaws provide
that a director who has turned 72 years of age may not stand for re-election
but assumes director emeritus status as of the annual meeting following the
current term as a director. Notwithstanding this provision, the chairman of
the board may continue to serve as a director past the age of 72.

(9) Under a stock purchase agreement dated March 28, 1998 between Churchill
Downs and TVI Corp., subject to applicable fiduciary duties, we agreed to
re-nominate Mr. Harrington for election as a director at the 1999
shareholders meeting.

WILLIAM S. FARISH has served as a director since 1985 and as our chairman of the
board since 1992. Mr. Farish is president of W.S. Farish & Company, a trust
management company, and is the owner and chief executive officer of Lane's End
Farm, a Thoroughbred breeding and racing operation. Mr. Farish has bred, either
himself or with partners, two horses that have won the Belmont Stakes and one
that has won the Preakness Stakes. Mr. Farish is a steward and vice chairman of
The Jockey Club, chairman of the American Horse Council and a director of
Breeders' Cup Limited and Keeneland Association.

THOMAS H. MEEKER has served as a director since 1995 and as our president and
chief executive officer since 1984. Mr. Meeker serves as a director of Anderson
Park, the Thoroughbred Racing Association of North America, National
Thoroughbred Racing Association, PNC Bank Kentucky, Norton Healthcare, and
Equibase.

VICKI L. BAUMGARDNER has served as our vice president, finance and treasurer
since 1993. Prior to 1993 she served as our controller.

DAVID E. CARRICO has served as our senior vice president, sales since 1996. From
1994 to 1996, he served as our senior vice president, administration. From 1990
to 1994, Mr. Carrico was our vice president of marketing.

ROBERT L. DECKER has served as our executive vice president and chief financial
officer since 1999. From 1997 to 1998, he served as our senior vice president,
finance and development and chief financial officer. From 1993 until 1997, Mr.
Decker was vice president of finance of The Americas Hilton International
Company, a subsidiary of Ladbroke Group, a full service hotel and gaming
enterprise.

DAN L. PARKERSON has served as our senior vice president, property management,
since 1999. From 1996 to 1998, he served as our senior vice president, live
racing. From 1991 to 1998, Mr. Parkerson was general manager of the Churchill
Downs racetrack.

REBECCA C. REED has served as our senior vice president, general counsel and
secretary since 1999. In 1998, she served as our associate general counsel and
assistant secretary. From 1994 to 1997, Ms. Reed was corporate counsel in our
legal department.

DONALD R. RICHARDSON has served as our senior vice president, racing since 1999.
From 1994 to 1998, he served as our vice president, racing.

JEFFREY M. SMITH has served as president of Churchill Downs Management Company
since 1993. From 1993 to 1996, he served as our senior vice president, planning
and development.

KARL F. SCHMITT, JR. has served as our senior vice president, communications
since 1998. From 1990 to 1998, he served as our vice president, corporate
communications.

53
<PAGE>
ANDREW G. SKEHAN has served as senior vice president, corporate marketing since
April 1999. From 1998 to 1999 he served with Nabisco Corporation as vice
president/regional director of marketing and new markets in Europe, the Middle
East and Africa. From 1993 to 1998, Mr. Skehan served as general manager of
PepsiCo Restaurants International.

ALEXANDER M. WALDROP has served as our senior vice president and general manager
of the Churchill Downs racetrack since 1999. From 1996 to 1998, he served as our
senior vice president, administration, general counsel and secretary. From 1994
to 1996, Mr. Waldrop was our senior vice president. Mr. Waldrop served as our
general counsel and secretary from 1992 to 1998.

G. WATTS HUMPHREY, JR. has served as a director since 1995. Mr. Humphrey is
president of G.W.H. Holdings, a private investment company. He is the chief
executive officer of The Conair Group, a plastics machinery equipment company,
Metal Tech, NexTech, and GalvTech, metals manufacturing and distribution
companies, and Centria, a manufacturer and erector of metal building systems.
Mr. Humphrey is Chairman--Fourth District, Federal Reserve Bank of Cleveland and
a director of Keeneland Association, and director and treasurer of Breeders' Cup
Limited.

ARTHUR B. MODELL has served as a director since 1985. Mr. Modell is the owner
and president of the Baltimore Ravens Football Company, a professional football
team.

DENNIS D. SWANSON has served as a director since 1996. Mr. Swanson is the
president and general manager of WNBC-TV, a television station, and co-chairman
of NBC Olympics. From January 1986 to May 1996, Mr. Swanson was president of ABC
Sports.

J. DAVID GRISSOM has served as a director since 1979. Mr. Grissom is the
chairman of Mayfair Capital, a private investment firm. He also serves as a
director of Providian Financial Corporation and LG&E Energy Corporation.

SETH W. HANCOCK has served as director since 1973. Mr. Hancock is a partner and
manager of Claiborne Farm, the birth place of nine horses that have won the
Kentucky Derby, and is president of Hancock Farms, a Thoroughbred breeding farm.
Mr. Hancock is also vice president and director of Clay Ward Agency, equine
insurance, and a director of Hopewell Company and Keeneland Association.

FRANK B. HOWER, JR. has served as a director since 1979. Mr. Hower is retired
and formerly was chairman and chief executive officer of Liberty National
Bancorp, and Liberty National Bank and Trust Company of Louisville. Mr. Hower is
a former director of Banc One Kentucky Corporation and Bank One, Kentucky, and
is currently a director of American Life and Accident Insurance Company and
Anthem.

W. BRUCE LUNSFORD has served as a director since 1995. Mr. Lunsford is chairman
of Ventas, a real estate investment trust, and formerly was the chairman,
president and chief executive officer of Vencor, which operates intensive care
hospitals and nursing homes. Mr. Lunsford serves as a director of ResCare,
National City Bank, Kentucky, National City Corporation and the Kentucky
Economic Development Corporation.

CHARLES W. BIDWILL, JR. has served as a director since 1982. Mr. Bidwill is
chairman of the board of National Jockey Club, the operator of Sportman's Park
Racetrack, and formerly was president and general manager of National Jockey
Club.

DANIEL P. HARRINGTON has served as a director since 1998. Mr. Harrington is
president and chief executive officer of HTV Industries, a private holding
company with diversified business interests, and formerly was chairman and
president of Ellis Park Race Course.

54
<PAGE>
CARL F. POLLARD has served as a director since 1985. Mr. Pollard is the owner of
Hermitage Farm, a Thoroughbred breeding farm operating in Oldham County,
Kentucky. He was formerly chairman of the board of Columbia Healthcare
Corporation and president and chief operating officer of Humana. Mr. Pollard
serves as a director of Kentucky Derby Museum Corporation, National City Bank,
Kentucky, and Breeders' Cup Limited. Mr. Pollard is a trustee of the
Thoroughbred Owners and Breeders Association.

DARRELL R. WELLS has served as a director since 1985. Mr. Wells is the general
partner of Security Management Company, a private investment management firm,
and serves as a director of First Security Trust Company, Commonwealth
Bankshares, Citizens Financial Corporation, Commonwealth Bank & Trust Company
and Jundt Growth Fund.

55
<PAGE>
PRINCIPAL SHAREHOLDERS

The following table sets forth information as of April 15, 1999 regarding the
beneficial ownership of our common stock by:

- each person who is known by us to own more than five percent of our common
stock;

- each named executive officer;

- each director and director emeritus who beneficially owns shares of our
common stock; and

- all of our executive officers and directors as a group.

The number of shares beneficially owned and the percentage of shares
beneficially owned are based on:

- 7,525,041 shares of common stock outstanding as of April 15, 1999; and

- 9,525,041 shares of common stock outstanding upon consummation of this
offering.

Beneficial ownership is determined in accordance with the rules and regulations
of the Securities and Exchange Commission. Shares subject to options that are
exercisable currently or within 60 days following April 15, 1999 are deemed to
be outstanding and beneficially owned by the optionee for the purpose of
computing share and percentage ownership of that optionee. They are not deemed
to be outstanding for the purpose of computing the percentage ownership of any
other person. Except as indicated in the footnotes of this table, and as
affected by applicable community property laws, all persons listed have sole
voting and investment power for all shares shown as beneficially owned by them.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF SHARES
BENEFICIALLY BENEFICIALLY OWNED
OWNED ----------------------------
BEFORE THE BEFORE THE AFTER THE
EXECUTIVE OFFICERS, DIRECTORS AND DIRECTORS EMERITI OFFERING OFFERING OFFERING
- ------------------------------------------------------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Darrell R. Wells(1)(2)...................................... 479,310 6.4% 5.1 %
Charles W. Bidwill, Jr. (3)................................. 440,680 5.9% 4.6 %
Seth W. Hancock(4).......................................... 285,650 3.8% 3.0 %
William T. Young............................................ 229,320 3.1% 2.4 %
W. Bruce Lunsford........................................... 200,060 2.7% 2.1 %
Daniel P. Harrington(5)..................................... 200,000 2.7% 2.1 %
Thomas H. Meeker(6)......................................... 172,313 2.3% 1.8 %
Carl F. Pollard............................................. 143,080 1.9% 1.5 %
William S. Farish........................................... 86,560 1.2% *
Louis J. Herrmann, Jr....................................... 80,130 1.1% *
Catesby W. Clay............................................. 60,580 * *
G. Watts Humphrey, Jr....................................... 36,000 * *
Jeffrey M. Smith(7)......................................... 28,576 * *
Alexander M. Waldrop(8)..................................... 28,382 * *
Dan L. Parkerson(9)......................................... 22,400 * *
J. David Grissom............................................ 20,100 * *
Stanley F. Hugenberg, Jr.................................... 7,340 * *
John W. Barr................................................ 4,000 * *
Frank B. Hower, Jr.......................................... 2,080 * *
Robert L. Decker............................................ 2,000 * *
Arthur B. Modell............................................ 2,000 * *
28 Directors and Executive Officers as a
Group(2)(4)(5)(6)(7)(8)(9)................................ 2,586,640 34.4% 27.2 %
</TABLE>

- ------------------------

* Less than 1% of the outstanding common stock.

(1) Address: 4350 Brownsboro Road, Suite 310, Louisville, Kentucky 40207.

56
<PAGE>
(2) Of the 479,310 shares, Mr. Wells disclaims beneficial ownership of 44,800
shares held by The Wells Foundation, of which he is a trustee, and of
284,880 shares held by The Wells Family Partnership, of which he is the
managing general partner. Mr. Wells shares voting and investment power with
respect to all shares attributed to him in the above table.

(3) Address: 911 Sunset Road, Winnetka, Illinois 60093.

(4) Of the 285,650 shares listed, Mr. Hancock specifically disclaims beneficial
ownership of 158,400 shares owned by the A.B. Hancock, Jr. Marital Trust, of
which he is the trustee, of 18,060 shares owned by the Waddell Walker
Hancock II Trust, of which he is trustee, of 18,060 shares owned by the
Nancy Clay Hancock Trust, of which he is trustee, and of 12,086.66 shares
held by ABC Partnership of which he is general partner.

(5) Mr. Harrington specifically disclaims beneficial ownership of 200,000 shares
held by TVI Corp., of which he is president and chief executive officer.

(6) Includes 144,400 shares issuable under currently exercisable options. Mr.
Meeker shares investment and voting power with respect to 26,908 shares.

(7) Includes 28,000 shares issuable under currently exercisable options.

(8) Includes 28,000 shares issuable under currently exercisable options.

(9) Includes 21,500 shares issuable under currently exercisable options.

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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the past fiscal year, we did not engage in any transactions in which any
director, officer or greater than five percent shareholder of Churchill Downs
had any material interest, except as described below.

Our directors may from time to time own or share ownership of horses racing at
our tracks. Our races are conducted under the applicable regulations of the
Kentucky Racing Commission, the Indiana Horse Racing Commission and the Florida
Department of Business and Professional Regulation Division of Pari-Mutuel
Wagering. No director receives any extra or special benefit in the selection of
his horses to run in races or in the running of races. Some of our directors
have interests in business entities which contract with us for the purpose of
simulcasting the Kentucky Derby and other races and in the acceptance of
intrastate or interstate wagers on such races. These directors and the entities
in which they have an interest do not receive any extra or special benefit not
shared by all others so contracting with us.

Mr. Charles W. Bidwill, Jr., a director and greater than five percent (5.9%)
shareholder of Churchill Downs, is the Chairman and a 1.42% owner of National
Jockey Club. In 1998, National Jockey Club and Churchill Downs were parties to a
simulcasting contract whereby National Jockey Club was granted the right to
simulcast races at the Churchill Downs racetrack, including the Kentucky Oaks
and the Kentucky Derby. In consideration of these rights, National Jockey Club
paid to us 5.0% of its gross handle on the Kentucky Oaks and the Kentucky Derby
and 3.25% of its gross handle on the other simulcast races. In 1998, National
Jockey Club and Hoosier Park were parties to a simulcasting contract whereby
National Jockey Club was granted the rights to simulcast Hoosier Park's
thoroughbred races. In consideration for these rights, National Jockey Club paid
to Hoosier Park 2.0% to 2.5% of its gross handle on the simulcast races.
National Jockey Club and Hoosier Park were also parties to a simulcasting
contract whereby Hoosier Park was granted the right to simulcast National Jockey
Club's thoroughbred races. In consideration for these rights, Hoosier Park paid
to National Jockey Club 3.0% of its gross handle on the simulcast races.
Similarly, in 1998, National Jockey Club and Calder Race Course were parties to
a simulcasting contract whereby National Jockey Club was granted the rights to
simulcast Calder Race Course's races. In consideration for these rights,
National Jockey Club paid to Calder Race Course 3.0% of the gross handle on the
simulcast races. National Jockey Club and Calder Race Course were also parties
to a simulcasting contract whereby Calder Race Course was granted the right to
simulcast National Jockey Club's Thoroughbred races. In consideration for these
rights, Calder Race Course paid to National Jockey Club 3.0% of its gross handle
on the simulcast races. For 1999, the same or similar contractual relationships
are in place at these facilities and at Ellis Park.

Simulcast contracts are uniform throughout the industry. The rates charged on
our contracts were substantially the same as rates charged to other parties who
contracted to simulcast the same races. National Jockey Club received no extra
or special benefit as a result of our relationship with Mr. Bidwill.

Thomas H. Meeker, President and Chief Executive Officer of Churchill Downs, is
currently indebted to us in the principal amount of $65,000. This amount is
represented by a demand note bearing interest at 8.0% per annum (payable
quarterly) and payable in full upon termination of Mr. Meeker's employment with
us for any reason. This indebtedness arose in connection with Mr. Meeker's
initial employment, pursuant to the terms of which he was granted a loan by us
for the purpose of purchasing our common stock.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

Our amended and restated articles of incorporation authorize us to issue up to
20,000,000 shares of common stock, no par value per share, and 250,000 shares of
preferred stock, no par value per share. At the 1999 annual meeting of our
shareholders, which is scheduled for June, 1999, we are proposing to increase
our authorized common stock to 50,000,000 shares. As of May 20, 1999, 7,525,041
shares of common stock were outstanding. The holders of our common stock have
the right to one vote per share on all matters which require their vote, except
that in the election of directors, each holder of common stock has as many votes
as results from multiplying the number of shares held by the shareholder by the
number of directors to be elected. Each common shareholder may divide the total
number of votes the shareholder is entitled to cast among the total number of
directors to be elected, or distribute the votes among any lesser number in any
proportions the holder determines. The board of directors is divided into three
approximately equal classes. Each class serves for a term of three years, with
one class up for election each year. Subject to rights of any preferred
shareholders, common shareholders have the right to receive any dividends that
the board of directors declares. If we liquidate, dissolve or wind up our
business, we will pay our preferred shareholders, if any, before we pay our
common shareholders, subject to the rights of creditors. We will distribute the
remaining available assets to our common shareholders, in proportion to the
number of shares that each common shareholder holds. Shares of common stock are
not redeemable and do not have subscription, conversion or preemptive rights.
There are no redemption or sinking fund provisions available to the common
stock. All outstanding shares of common stock are fully paid and non-assessable.

The board of directors may issue shares of the preferred stock from time to
time, in one or more series, without shareholder approval. The board of
directors determines the designation, relative rights, preferences and
limitations of each series of preferred stock. The issuance of preferred stock
may delay, defer or prevent a change in control of Churchill Downs without
further action by the shareholders. It may also decrease the voting power and
other rights of the holders of common stock and may have the effect of
decreasing the market price of the common stock. At present, there are no shares
of preferred stock outstanding.

Under our shareholder rights plan, which we adopted on March 19, 1998, we
declared a dividend of one preferred stock purchase right for each outstanding
share of common stock and each share of common stock issued after that date. The
rights are transferable with the common stock until they become exercisable. The
rights will not be exercisable until the distribution date described in the
plan. The rights expire on March 19, 2008 unless we redeem them earlier. When a
right becomes exercisable, it entitles the holder to purchase from us 1/1000th
of a share of preferred stock at a purchase price of $80, subject to adjustment
in certain circumstances. Under the rights plan, the plan distribution date will
not occur until any person or group acquires or makes a tender offer for 15% or
more of our outstanding common stock.

Until the plan distribution date, the rights will be evidenced by the
certificates for common stock registered in the names of holders. As soon as
practical following the plan distribution date, we will mail separate
certificates evidencing the rights to common shareholders of record. Until a
right is exercised, the holder has no rights as a shareholder of Churchill
Downs.

If any person or group acquires 15% or more of our common stock, rights holders
will be entitled to buy, for the purchase price, that number of 1/1000ths of a
preferred share equivalent to the number of shares of common stock that at the
time have a market value of twice the purchase price. If we are acquired in a
business combination, rights holders will be entitled to buy, for the purchase
price, that number of shares of the acquiring corporation that, at the time,
have a market value of twice the

59
<PAGE>
purchase price. The board has the right to redeem the rights in certain
circumstances for $0.01 per right, subject to adjustment.

The rights plan is designed to protect our shareholders in the event of
unsolicited offers to acquire Churchill Downs and other coercive takeover
tactics, which, in the board's opinion, would impair its ability to represent
shareholder interests. The rights plan may make an unsolicited takeover more
difficult or less likely to occur or may prevent a takeover, even though it may
offer our shareholders the opportunity to sell their stock at a price above the
prevailing market rate and may be favored by a majority of our shareholders.

The Kentucky Business Corporations Act contains a business combination statute
which prohibits Kentucky corporations from engaging in a business combination
with a 10% or greater shareholder for five years following the acquisition such
10% or greater stake, unless the board, by a majority vote of the continuing
directors, approved the combination prior to the 10% or greater acquisition. If
not previously approved by the board, the 10% or greater shareholder may effect
a business combination only after the expiration of a five year period and then
only with the approval of 80% of the outstanding shares and 66 2/3% of the
outstanding shares not owned by the 10% or greater shareholder, or if the
aggregate amount of the offer meets certain fair price requirements.

60
<PAGE>
UNDERWRITING

Churchill Downs has entered into an underwriting agreement with the underwriters
named below. CIBC World Markets Corp., Lehman Brothers Inc., J.C. Bradford & Co.
and J.J.B. Hilliard, W.L. Lyons, Inc. are acting as representatives of the
underwriters.

The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
CIBC World Markets Corp....................................................
Lehman Brothers Inc........................................................
J.C. Bradford & Co.........................................................
J.J.B. Hilliard, W.L. Lyons, Inc. .........................................
-----------------
Total.................................................................... 2,000,000
-----------------
</TABLE>

This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if any underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.

The representatives have advised Churchill Downs that the underwriters propose
to offer the shares directly to the public at the public offering price that
appears on the cover page of this prospectus. In addition, the representatives
may offer some of the shares to securities dealers at such price less a
concession of $ - per share. The underwriters may also allow, and these
dealers may reallow, a concession not in excess of $ - per share to other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.

Churchill Downs has granted the underwriters an over-allotment option. This
option, which is exercisable for up to 30 days after the date of this
prospectus, permits the underwriters to purchase a maximum of 300,000 additional
shares from Churchill Downs to cover over-allotments. If the underwriters
exercise all or part of this option, they will purchase shares covered by the
option at the initial public offering price that appears on the cover page of
this prospectus, less the underwriting discount. If this option is exercised in
full, the total price to public will be $ - and the total proceeds to
Churchill Downs will be $ - . The underwriters have severally agreed that, to
the extent the over-allotment option is exercised, they will each purchase a
number of additional shares proportionate to the underwriter's initial amount
reflected in the table above.

The following table provides information regarding the amount of the discount to
be paid to the underwriters by Churchill Downs:

<TABLE>
<CAPTION>
TOTAL WITH FULL EXERCISE
TOTAL WITHOUT EXERCISE OF OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
----------- ------------------------- -------------------------
<S> <C> <C> <C>
Churchill Downs Incorporated........................ $ - $ - $ -
</TABLE>

61
<PAGE>
Churchill Downs estimates that its total expenses of this offering, excluding
the underwriting discount, will be approximately $ - .

Churchill Downs has agreed to indemnify the underwriters against some
liabilities, including liabilities under the Securities Act of 1933.

Churchill Downs, its officers and directors and certain other shareholders have
agreed to a 180-day "lock-up" with respect to - shares of common stock and
other securities of Churchill Downs that they beneficially own, including
securities that are convertible into shares of common stock and securities that
are exchangeable or exercisable for shares of common stock. This means that, for
the period of 180 days following the date of this prospectus, Churchill Downs
and such persons may not offer, sell, pledge or otherwise dispose of these
securities without the prior written consent of CIBC World Markets Corp.

The underwriters have reserved for sale up to - shares for employees,
directors and other persons associated with Churchill Downs. These reserved
shares will be sold at the public offering price that appears on the cover page
of this prospectus. The number of shares available for sale to the general
public in the offering will be reduced to the extent reserved shares are
purchased by such persons. The underwriters will offer to the general public, on
the same terms as other shares offered by the prospectus, any reserved shares
that are not purchased by such persons.

CIBC World Markets Corp., one of the representatives, has provided and currently
provides financial advisory services to Churchill Downs in connection with its
acquisition program. Churchill Downs pays CIBC World Markets Corp. customary
fees for these advisory services.

CIBC World Markets Corp. is a lender under Churchill Downs' new $250.0 million
credit facility and will receive payments of principal and interest under such
facility from the proceeds of this offering. PNC Bank, N.A., the parent of
J.J.B. Hilliard, W.L. Lyons, Inc., acts as the agent and is a lender under
Churchill Downs' new $250.0 million credit facility. As agent under the credit
facility, PNC has received customary fees, and as a lender under the credit
facilty, PNC will receive payments of principal and interest under such facility
from the proceeds of the offering. Because more than 10% of the net proceeds of
the offering may be paid to members or affiliates of members of the National
Association of Securities Dealers, Inc. participating in this offering, the
offering will be conducted in accordance with NASD Conduct Rule 2710(c)(8).

Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:

- Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.

- Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market.
The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.

- Penalty bids--If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.

62
<PAGE>
- Passive market making--Market makers in the shares who are underwriters or
prospective underwriters may make bids for or purchases of shares, subject
to limitations, until the time, if ever, at which a stabilizing bid is
made.

Stabilization and syndicate covering transactions may cause the price of the
share to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.

Neither Churchill Downs nor the underwriters makes any representation or
prediction as to the effect that the transactions described above may have on
the price of the shares. These transactions may occur on the Nasdaq Small Cap
Market or otherwise. If such transactions are commenced, they may be
discontinued without notice at any time.

LEGAL MATTERS

The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for Churchill Downs by Wyatt, Tarrant & Combs,
Louisville, Kentucky. Other legal matters will be passed on for Churchill Downs
by Skadden, Arps, Slate, Meagher & Flom (Illinois). Some legal matters relating
to this offering will be passed upon for the underwriters by Morgan, Lewis &
Bockius LLP, New York, New York.

EXPERTS

The consolidated financial statements of Churchill Downs as of December 31,
1998, 1997 and 1996 and for each of the three years in the period ended December
31, 1998 included in this Prospectus and Registration Statement have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

The consolidated financial statements of Calder Race Course, Inc. and Tropical
Park, Inc. as of December 31, 1998, 1997 and 1996 and for each of the three
years in the period ended December 31, 1998 included in this Prospectus and
Registration Statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

Ernst & Young LLP, independent auditors, have audited Racing Corporation of
America's consolidated financial statements at December 31, 1997 and for the
year then ended included in our Current Report on Form 8-K/A dated December 21,
1998, as set forth in their report dated April 7, 1998, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Racing
Corporation of America's consolidated financial statements are incorporated by
reference in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.

63
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Regional Offices of the SEC at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60601. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The SEC maintains a site on the World
Wide Web at http://www.sec.gov that contains our SEC filings and reports, proxy
and information statements, and other information regarding registrants.

The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:

1. Annual Report on Form 10-K for the fiscal year ended December 31, 1998
and the portions of the Company's Proxy Statement for the 1999 Annual
Shareholders' Meeting that we incorporated by reference into the 10-K;

2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

3. Current report on Form 8-K dated April 23, 1999;

4. The description of the Company's Common Stock, no par value, contained
in the Current Report on Form 8-K dated December 14, 1998;

5. The description of the Company's Preferred Stock Purchase Rights
contained in the Company's Registration Statement on Form 8-A filed March
20, 1998 pursuant to Section 12(g) of the 1934 Act; and

6. Current Report on Form 8-K/A dated December 21, 1998.

You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:

Chantelle Kammerdiener

Director of Investor Relations

Churchill Downs Incorporated

700 Central Avenue

Louisville, Kentucky 40208

(502) 636-4400

This prospectus is part of a registration statement we filed with the SEC. You
should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
These securities are not offered in any state where the offer is not permitted.
You should not assume that the information in this prospectus is accurate as of
any date other than the date on the front of the document.

64
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF CHURCHILL DOWNS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Earnings........................................................................ F-4
Consolidated Statements of Shareholders' Equity............................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7

INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF CHURCHILL DOWNS FOR THE THREE-MONTH PERIODS ENDED MARCH 31,
1999 AND 1998
Condensed Consolidated Balance Sheets...................................................................... F-22
Condensed Consolidated Statements of Earnings.............................................................. F-23
Condensed Consolidated Statements of Cash Flows............................................................ F-24
Condensed Notes to Consolidated Financial Statements....................................................... F-25

FINANCIAL STATEMENTS OF CALDER RACE COURSE, INC. FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Report of Independent Certified Public Accountants......................................................... F-30
Balance Sheets............................................................................................. F-31
Statements of Income....................................................................................... F-32
Statements of Changes in Shareholder's Deficit............................................................. F-33
Statements of Cash Flows................................................................................... F-34
Notes to Financial Statements.............................................................................. F-35

INTERIM FINANCIAL STATEMENTS OF CALDER RACE COURSE, INC. FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999
AND 1998
Balance Sheet.............................................................................................. F-41
Statements of Income....................................................................................... F-42
Statements of Cash Flows................................................................................... F-43
Notes to Financial Statements.............................................................................. F-44

FINANCIAL STATEMENTS OF TROPICAL PARK, INC. FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Report of Independent Certified Public Accountants......................................................... F-45
Balance Sheets............................................................................................. F-46
Statements of Income....................................................................................... F-47
Statements of Changes in Shareholder's Deficit............................................................. F-48
Statements of Cash Flows................................................................................... F-49
Notes to Financial Statements.............................................................................. F-50

INTERIM FINANCIAL STATEMENTS OF TROPICAL PARK, INC. FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND
1998
Balance Sheet.............................................................................................. F-55
Statements of Income....................................................................................... F-56
Statements of Cash Flows................................................................................... F-57
Notes to Financial Statements.............................................................................. F-58
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors
Churchill Downs Incorporated

In our opinion, the accompanying consolidated balance sheets and consolidated
statements of earnings, shareholders' equity and cash flows present fairly, in
all material respects, the consolidated financial position of Churchill Downs
Incorporated and its subsidiaries as of December 31, 1998, 1997 and 1996, 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. These financial statements are the responsibility of
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICEWATERHOUSECOOPERS LLP

Louisville, Kentucky
February 24, 1999

F-2
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
-------------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 6,379,686 $ 9,280,233 $ 8,209,414
Accounts receivable.............................................. 11,968,114 7,086,889 5,218,236
Other current assets............................................. 1,049,084 540,489 679,221
-------------- ------------- -------------
Total current assets........................................... 19,396,884 16,907,611 14,106,871

Other assets....................................................... 3,796,292 3,884,080 1,574,714
Plant and equipment, net........................................... 83,088,204 63,162,767 62,882,189
Intangible assets, net............................................. 8,369,395 1,894,350 2,165,192
-------------- ------------- -------------
$ 114,650,775 $ 85,848,808 $ 80,728,966
-------------- ------------- -------------
-------------- ------------- -------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable................................................. $ 6,530,502 $ 5,732,783 $ 5,403,000
Accrued expenses................................................. 8,098,228 7,937,575 8,021,487
Dividends payable................................................ 3,762,521 3,658,468 2,375,271
Income taxes payable............................................. 257,588 186,642 2,510,508
Deferred revenue................................................. 8,412,552 7,344,830 6,511,902
Long-term debt, current portion.................................. 126,812 79,805 73,893
-------------- ------------- -------------
Total current liabilities...................................... 27,188,203 24,940,103 24,896,061

Long-term debt, due after one year................................. 13,538,027 2,633,164 2,878,714
Outstanding mutuel tickets (payable after one year)................ 806,573 1,625,846 2,031,500
Deferred compensation.............................................. 949,187 880,098 825,211
Deferred income taxes.............................................. 6,937,797 2,377,100 2,316,600
Shareholders' equity:
Preferred stock, no par value; authorized, 250,000 shares;
issued, none................................................... -- -- --
Common stock, no par value; authorized, 20,000,000 shares, issued
7,525,041 shares, 1998, 7,316,934 shares, 1997 and 7,308,524
shares, 1996................................................... 8,926,975 3,614,567 3,493,042
Retained earnings................................................ 56,598,957 49,842,930 44,352,838
Deferred compensation costs...................................... (229,944) -- --
Note receivable for common stock................................. (65,000) (65,000) (65,000)
-------------- ------------- -------------
65,230,988 53,392,497 47,780,880
-------------- ------------- -------------
$ 114,650,775 $ 85,848,808 $ 80,728,966
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-3
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
-------------- -------------- --------------
Net revenues $ 147,300,299 $ 118,907,367 $ 107,858,818
-------------- -------------- --------------

Operating expenses:
Purses........................................................ 50,192,973 39,718,374 34,439,143
Other direct expenses......................................... 68,895,654 55,705,722 52,438,836
-------------- -------------- --------------
119,088,627 95,424,096 86,877,979
-------------- -------------- --------------

Gross profit.................................................. 28,211,672 23,483,271 20,980,839

Selling, general and administrative............................. 11,068,262 9,077,983 8,665,942
-------------- -------------- --------------

Operating income.............................................. 17,143,410 14,405,288 12,314,897
-------------- -------------- --------------

Other income (expense):
Interest income............................................... 679,782 575,084 390,669
Interest expense.............................................. (896,067) (332,117) (337,438)
Miscellaneous income.......................................... 342,423 325,087 673,398
-------------- -------------- --------------
126,138 568,054 726,629
-------------- -------------- --------------

Earnings before provision for income taxes...................... 17,269,548 14,973,342 13,041,526

Provision for income taxes...................................... 6,751,000 5,824,782 4,970,000
-------------- -------------- --------------
Net earnings.................................................... $ 10,518,548 $ 9,148,560 $ 8,071,526
-------------- -------------- --------------
-------------- -------------- --------------

Earnings per common share data:
Basic......................................................... $ 1.41 $ 1.25 $ 1.08
Diluted....................................................... $ 1.40 $ 1.25 $ 1.08

Weighted average shares outstanding:
Basic......................................................... 7,460,058 7,312,052 7,445,542
Diluted....................................................... 7,539,482 7,320,670 7,447,706
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-----------------------------------------------------
DEFERRED
COMMON STOCK RETAINED NOTE RECEIVABLE COMPENSATION
SHARES AMOUNT EARNINGS COMMON STOCK COSTS TOTAL
--------- --------- ---------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances December 31, 1995........ 7,569,206 $3,504,388 $43,486,460 $ (65,000) $(272,691) $46,653,157
Net earnings...................... 8,071,526 8,071,526
Deferred compensation
amortization.................... 272,691 272,691
Issuance of common stock at $14.45
per share....................... 7,818 112,970 112,970
Repurchase of common stock........ (268,500) (124,316) (4,829,877) (4,954,193)
Cash dividends, $.33 per share.... (2,375,271) (2,375,271)
--------- --------- ---------- --------------- ------------- ----------
Balances December 31, 1996........ 7,308,524 3,493,042 44,352,838 (65,000) -- 47,780,880
Net earnings...................... 9,148,560 9,148,560
Issuance of common stock at $14.45
per share....................... 8,410 121,525 121,525
Cash dividends, $.50 per share.... (3,658,468) (3,658,468)
--------- --------- ---------- --------------- ------------- ----------
Balances December 31, 1997........ 7,316,934 3,614,567 49,842,930 (65,000) -- 53,392,497
Net earnings...................... 10,518,548 10,518,548
Deferred compensation............. 344,046 (344,046) --
Deferred compensation
amortization.................... 114,102 114,102
Issuance of common stock at $24.25
per share in conjunction with
RCA acquisition................. 200,000 4,850,000 4,850,000
Issuance of common stock at $14.60
per share....................... 8,107 118,362 118,362
Cash dividends, $.50 per share.... (3,762,521) (3,762,521)
--------- --------- ---------- --------------- ------------- ----------
Balances December 31, 1998........ 7,525,041 $8,926,975 $56,598,957 $ (65,000) $(229,944) $65,230,988
--------- --------- ---------- --------------- ------------- ----------
--------- --------- ---------- --------------- ------------- ----------
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------ -------------
Cash flows from operating activities:
Net earnings........................................................ $ 10,518,548 $ 9,148,560 $ 8,071,526
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization....................................... 5,743,932 4,558,761 4,814,114
Deferred income taxes............................................... (121,000) 352,100 (461,000)
Deferred compensation............................................... 183,191 54,887 226,690
Increase (decrease) in cash resulting from changes in operating
assets and liabilities:
Accounts receivable............................................... (2,972,985) (2,053,211) (2,943,932)
Other current assets.............................................. (292,994) (152,868) 232,699
Accounts payable.................................................. (1,245,550) 329,783 (1,114,508)
Accrued expenses.................................................. (579,904) (83,912) 4,710,605
Income taxes payable (refundable)................................. 70,946 (2,323,866) 1,461,000
Deferred revenue.................................................. 757,889 1,017,486 237,958
Other assets and liabilities...................................... (1,245,808) (377,523) (109,037)
------------- ------------ -------------
Net cash provided by operating activities....................... 10,816,265 10,470,197 15,126,115
------------- ------------ -------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired of $517,151........... (17,232,849) -- --
Additions to plant and equipment, net............................... (3,524,032) (4,568,494) (2,570,795)
Purchase of minority-owned investment............................... -- (2,337,500) --
------------- ------------ -------------
Net cash used in investing activities............................. (20,756,881) (6,905,994) (2,570,795)
------------- ------------ -------------
Cash flows from financing activities:
Decrease in long-term debt, net..................................... (140,164) (239,638) (3,468,569)
Borrowings on bank line of credit................................... 22,000,000
Repayments of bank line of credit................................... (11,000,000)
Dividends paid...................................................... (3,658,468) (2,375,271) (1,892,302)
Common stock issued................................................. 118,362 121,525 112,970
Common stock repurchased............................................ -- -- (4,954,193)
Loan origination costs.............................................. (279,661) -- --
------------- ------------ -------------
Net cash provided by (used in) financing activities............... 7,040,069 (2,493,384) (10,202,094)
------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents.................. (2,900,547) 1,070,819 2,353,226
Cash and cash equivalents, beginning of period........................ 9,280,233 8,209,414 5,856,188
------------- ------------ -------------
Cash and cash equivalents, end of period.............................. $ 6,379,686 $ 9,280,233 $ 8,209,414
------------- ------------ -------------
------------- ------------ -------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................................ $ 497,307 $ 151,397 $ 277,149
Income taxes........................................................ $ 7,129,540 $ 7,914,974 $ 3,970,000
Schedule of non-cash activities:
Issuance of common stock related to the acquisition of RCA.......... $ 4,850,000 -- --
Invoicing for future Kentucky Derby and Oaks........................ $ 677,733 $ 402,328 $ 586,886
Plant and equipment additions included in accounts payable.......... $ 95,055 -- --
Compensation expense................................................ $ 344,406 -- --
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
<PAGE>
Churchill Downs Incorporated
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION:

Churchill Downs Incorporated (the "Company") conducts Spring, Summer and Fall
live race meetings for Thoroughbred horses and participates in intrastate and
interstate simulcast wagering at its racetracks in Kentucky. In Indiana, the
Company, through its subsidiary, Hoosier Park L.P. (Hoosier Park), conducts live
Thoroughbred, Quarter Horse and Standardbred horse races and participates in
interstate simulcast wagering. Both its Kentucky and Indiana operations are
subject to regulation by the racing commissions of the respective states.

The accompanying consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries, Ellis Park Race Course (Ellis Park),
Churchill Downs Management Company (CDMC), Churchill Downs Investment Company
(CDIC), the Kentucky Horse Center and Anderson Park Inc. (Anderson) and its
majority-owned subsidiary, Hoosier Park. All significant intercompany balances
and transactions have been eliminated.

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 dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.

A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOLLOWS:

CASH EQUIVALENTS:

The Company considers investments with original maturities of three months or
less to be cash equivalents. The Company has, from time to time, cash in the
bank in excess of federally insured limits.

PLANT AND EQUIPMENT:

Plant and equipment are recorded at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets.

INTANGIBLE ASSETS:

Amortization of the cost of acquisition in excess of fair value of assets
acquired and the Indiana racing license is provided over 40 years using the
straight-line method. Organizational costs were amortized using the
straight-line method over 24 months to 60 months. Loan origination costs on the
Company's line of credit are being amortized under the effective interest method
over 36 months, the term of the loan.

F-7
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)

LONG-LIVED ASSETS:

In the event that facts and circumstances indicate that the carrying amount of
tangible or intangible long-lived assets or groups of assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the assets would be
compared to the assets' carrying amount to determine if a write-down to market
value or discounted cash flow value is required.

DEFERRED REVENUE:

Deferred revenue includes primarily advance sales related to the Kentucky Derby
and Oaks races in Kentucky.

STOCK-BASED COMPENSATION:

The Company accounts for stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees". In
accordance with Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock-based Compensation" proforma disclosure of net earnings
and earnings per share are presented in Note 10 as if SFAS No. 123 had been
applied.

RECLASSIFICATION:

Certain financial statement amounts have been reclassified in the prior years to
conform to current year presentation.

2. ACQUISITIONS:

On April 21, 1998, the Company acquired from TVI Corp., ("TVI") all of the
outstanding stock of Racing Corporation of America ("RCA") for a purchase price
of $22.6 million, including transaction costs. RCA owns and operates Ellis Park
Race Course in Henderson, Kentucky, and the Kentucky Horse Center, a training
facility located in Lexington, Kentucky. The purchase price was paid as 200,000
shares of the Company's common stock valued at $4.9 million with the remainder
paid in cash. The purchase price was allocated to the acquired assets and
liabilities based on their fair values on the acquisition date with the excess
of $6.4 being amortized over 40 years. The acquisition was accounted for by the
Company under the purchase method of accounting and, accordingly, the results of
operations of RCA subsequent to April 20, 1998, are included in the Company's
consolidated results of operations.

Pursuant to the terms of the purchase agreement between the Company and TVI, if
alternative gaming (whether full casino, slot machine or video lottery) is
legalized in the Commonwealth of Kentucky by December 31, 2015, TVI will receive
royalty payments equal to 50% of annual earnings before interest and taxes of
the gaming operations at Ellis Park Race Course and at the Kentucky Horse
Center. Should gaming be legalized before December 31, 2006, such royalties will
be payable for ten years from

F-8
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

2. ACQUISITIONS: (CONTINUED)

the date that such gaming becomes fully operational. The royalty period will be
reduced by one year for each year from 2006 through 2015 in which gaming is
legalized.

Following are the unaudited pro forma results of operations as if the April 21,
1998 transaction had occurred on January 1, 1997 (in thousands, except per share
and share amounts):

<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net revenues...................................................... $ 149,272 $ 137,316
Net earnings...................................................... $ 9,589 $ 8,845
Earnings per common share:
Basic........................................................... $ 1.28 $ 1.18
Diluted......................................................... $ 1.26 $ 1.18
Weighted average shares outstanding:
Basic........................................................... 7,520,332 7,512,052
Diluted......................................................... 7,599,756 7,520,670
</TABLE>

This unaudited pro forma financial information is not necessarily indicative of
the operating results that would have occurred had the transaction been
consummated as of January 1, 1997, nor is it necessarily indicative of future
operating results.

In July 1997, the Company purchased a 24% interest in the Kentucky Downs
racecourse in Franklin, Kentucky. The Company's investment of $2.2 million is
accounted for under the equity method of accounting.

3. PLANT AND EQUIPMENT:

Plant and equipment is comprised of the following:

<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Land........................................ $ 7,631,657 $ 5,999,036 $ 5,879,994
Grandstands and buildings................... 73,376,961 57,579,747 56,154,054
Equipment................................... 4,979,383 3,416,306 2,936,129
Furniture and fixtures...................... 5,341,119 4,327,797 3,603,276
Tracks and other improvements............... 37,997,696 33,118,100 31,377,753
Construction in process..................... 249,438 113,210 74,206
-------------- -------------- --------------
129,576,254 104,554,196 100,025,412
Accumulated depreciation.................... (46,488,050) (41,391,429) (37,143,223)
-------------- -------------- --------------
$ 83,088,204 $ 63,162,767 $ 62,882,189
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

Depreciation expense was $5,490,450, $4,287,916, and $4,038,135 for the years
ended December 31, 1998, 1997 and 1996.

F-9
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

4. INTANGIBLES ASSETS:

The Company's intangible assets are comprised of the following:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cost of acquisition in excess of fair value of net
assets acquired................................... $ 6,448,867 -- --
Indiana racing license.............................. 2,085,428 $ 2,085,428 $ 2,085,428
Loan origination costs.............................. 279,661 -- --
Organizational and preopening costs................. -- -- 932,738
------------ ------------ ------------
8,813,956 2,085,428 3,018,166
Accumulated amortization.......................... (444,561) (191,078) (852,974)
------------ ------------ ------------
$ 8,369,395 $ 1,894,350 $ 2,165,192
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

Amortization expense was $253,482, $270,845 and $775,979 for the years ended
December 31, 1998, 1997 and 1996.

5. INCOME TAXES:

Components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Currently payable:
Federal........................................... $ 6,110,000 $ 4,616,800 $ 4,538,000
State & local..................................... 762,000 856,100 893,000
------------ ------------ ------------
6,872,000 5,472,900 5,431,000
------------ ------------ ------------
Deferred:
Federal........................................... 45,500 308,100 (382,000)
State & local..................................... 6,500 44,000 (79,000)
------------ ------------ ------------
52,000 352,100 (461,000)
------------ ------------ ------------
Reversal of valuation allowance..................... (173,000) -- --
------------ ------------ ------------
$ 6,751,000 $ 5,825,000 $ 4,970,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-10
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

5. INCOME TAXES: (CONTINUED)

The Company's income tax expense is different from the amount computed by
applying the statutory federal income tax rate to income before taxes as
follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory tax on earnings before income
tax............................................... $ 5,942,000 $ 5,141,000 $ 4,464,000
State income taxes, net of federal income tax
benefit........................................... 747,000 612,000 537,000
Permanent differences and other..................... 235,000 72,000 (31,000)
Reversal of valuation allowance..................... (173,000) -- --
------------ ------------ ------------
$ 6,751,000 $ 5,825,000 $ 4,970,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

At December 31, 1998, the Company has net operating loss carryforwards of
approximately $3,885,000 for Indiana state income tax purposes expiring from
2009 through 2011 and approximately $8,786,000 for Kentucky state income tax
purposes expiring from 2002 through 2011. Management has determined that its
ability to realize future benefits of the state net operating loss carryforwards
meets the "more likely than not" criteria of SFAS No. 109, "Accounting for
Income Taxes"; therefore, no valuation allowance has been recorded at December
31, 1998.

F-11
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

5. INCOME TAXES: (CONTINUED)

Components of the Company's deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Property & equipment in excess of tax basis......... $ 7,804,600 $ 2,415,000 $ 2,284,000
Racing license in excess of tax basis............... 650,000 636,000 657,000
------------ ------------ ------------
Deferred tax liabilities........................ 8,454,600 3,051,000 2,941,000
------------ ------------ ------------
Deferred tax assets:
Supplemental benefit plan........................... 315,400 295,000 273,000
State net operating loss carryforwards.............. 856,700 173,000 176,000
Allowance for uncollectible receivables............. 87,100 71,000 66,000
Other assets........................................ 191,300 250,000 136,000
Other accruals...................................... 246,100 128,400 511,500
------------ ------------ ------------
Deferred tax assets............................. 1,696,600 917,400 1,162,500
------------ ------------ ------------

Valuation allowance for state net operating loss
carryforwards......................................... -- 173,000 176,000
------------ ------------ ------------
Net deferred tax liability.......................... $ 6,758,000 $ 2,306,600 $ 1,954,500
------------ ------------ ------------
------------ ------------ ------------

Income taxes are classified in the balance sheet as
follows:
Net non-current deferred tax liability.............. $ 6,937,800 $ 2,377,100 $ 2,316,600
Net current deferred tax asset...................... (179,800) (70,500) (362,100)
------------ ------------ ------------
$ 6,758,000 $ 2,306,600 $ 1,954,500
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

F-12
<PAGE>
Churchill Downs Incorporated
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

6. SHAREHOLDERS' EQUITY:

On March 19, 1998, the Company's Board of Directors authorized a 2-for-1 stock
split of its common stock effective March 30, 1998. All share and per share
amounts in the accompanying consolidated financial statements have been restated
to give effect to the stock split.

Additionally, the Company's Board of Directors approved a shareholder "Rights
Plan" (the "Plan") on March 19, 1998, which grants each shareholder the right to
purchase a fraction of a share of Series 1998 Preferred Stock at the rate of one
right for each share of the Company's common stock. The rights will become
exercisable 10 business days (or such later date as determined by the Board of
Directors) after any person or group acquires, obtains a right to acquire or
announces a tender offer for 15% or more of the Company's outstanding common
stock. The rights would allow the holder to purchase preferred stock of the
Company at a 50% discount. The Plan is intended to protect stockholders from
takeover tactics that may be used by an acquirer that the Board believes are not
in the best interests of the shareholders. The Plan expires on March 19, 2008.

7. EMPLOYEE BENEFIT PLANS:

The Company has a profit-sharing plan that covers all full-time employees with
one year or more of service. The Company will match contributions made by the
employee up to 2% of the employee's annual compensation and contribute a
discretionary amount determined annually by the Board of Directors. The
Company's contributions to the plan for the years ended December 31, 1998, 1997
and 1996 was $806,000, $535,000, and $402,000 respectively.

The Company is a member of a noncontributory defined benefit multi-employer
retirement plan for all members of the Pari-mutuel Clerk's Union of Kentucky.
Contributions are made in accordance with negotiated labor contracts. Retirement
plan expense for the year ended December 31, 1998, 1997 and 1996 was $258,000,
$205,000, and $183,000, respectively. The Company's policy is to fund this
expense as accrued.

The estimated present value of future payments under a supplemental benefit plan
is charged to expense over the period of active employment of the employees
covered under the plan. Supplemental benefit plan expense for the years ended
December 31, 1998, 1997 and 1996 was $55,200, $51,000, and $51,000 respectively.

8. LONG-TERM DEBT:

On September 15, 1998, the Company obtained a $100 million line of credit, which
expires in September 2001, through a syndicate of banks headed by its principal
lender. The new credit facility replaces a $50 million line of credit obtained
during the second quarter of 1998. The interest rate on borrowings is based upon
LIBOR plus 50 to 112.5 additional basis points which is determined by certain
Company financial ratios. There was $11.0 million outstanding on the line of
credit at December 31, 1998, and no borrowings outstanding at December 31, 1997
and 1996 under previous lines of credit. Provisions contained in the line of
credit agreement require the Company to maintain specified levels of net worth,
a specific ratio of consolidated funded debt to consolidated earnings

F-13
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

8. LONG-TERM DEBT: (CONTINUED)

before interest, taxes, depreciation and amortization and a specific ratio of
consolidated earnings before interest and taxes to the sum of consolidated
interest expense and consolidated dividends.

The Company also has two non-interest bearing notes payable in the aggregate
face amount of $900,000 relating to the purchase of an intrastate wagering
license from the former owners of the Louisville Sports Spectrum property.
Interest has been imputed at 8%. The balance of these notes net of unamortized
discount was $196,000, $276,000, and $350,000 at December 31, 1998, 1997 and
1996, respectively. The notes require aggregate annual payments of $110,000.

On May 31, 1996, the Company entered into a Partnership Interest Purchase
Agreement with Conseco, L.L.C. ("Conseco") for the sale of 10% of the Company's
partnership interest in Hoosier Park to Conseco. The transaction also included
assumption by Conseco of a loan to the Company of approximately $2,600,000, of
which the balance is $2,395,092 at December 31, 1998. The loan requires interest
of prime plus 2% (9.75% at December 31, 1998) payable monthly with principal due
November 2004. The note is collateralized by 10% of the assets of Hoosier Park.
Conseco had an option to purchase an additional 47% interest in Hoosier Park
which expired unexercised on December 31, 1998.

Future aggregate maturities of long-term debt are as follows:

<TABLE>
<S> <C>
1999-.......................................................... $ 127,000
2000-.......................................................... 126,000
2001-.......................................................... 11,008,000
2002-.......................................................... 9,000
2003-.......................................................... --
Thereafter-.................................................... 2,395,000
----------
$13,665,000
----------
----------
</TABLE>

9. OPERATING LEASES:

The Company has a long-term operating lease for the land in Anderson, Indiana on
which its Hoosier Park facility is located, as well as operating leases for the
Indianapolis off-track betting facility and certain totalisator and audio/visual
and other equipment and services. The Anderson lease expires in 2003, with an
option to extend the lease for three additional ten year terms. The Indianapolis
lease expires in 2009, with an option to extend the lease for two additional
five year terms. The leases include provisions for minimum lease payments as
well as contingent lease payments based on handle or revenues. Total rent
expense for all operating leases was $4,022,000, $3,803,000 and $3,465,000 for
the years ended December 31, 1998, 1997 and 1996.

F-14
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

9. OPERATING LEASES: (CONTINUED)

Future minimum operating lease payments are as follows:

<TABLE>
<CAPTION>
MINIMUM LEASE
PAYMENT
---------------
<S> <C>
1999......................................................................... $ 725,604
2000......................................................................... 704,625
2001......................................................................... 556,214
2002......................................................................... 462,045
2003......................................................................... 372,840
Thereafter................................................................... 1,694,301
---------------
$ 4,515,629
---------------
---------------
</TABLE>

10. STOCK-BASED COMPENSATION PLANS:

The Company sponsors both the "Churchill Downs Incorporated 1997 Stock Option
Plan" (the "97 Plan") and the "Churchill Downs Incorporated 1993 Stock Option
Plan" (the "93 Plan"), stock-based incentive compensation plans, which are
described below. The Company applies APB Opinion 25 and related interpretations
in accounting for both the plans. However, pro forma disclosures as if the
Company adopted the cost recognition provisions of SFAS 123 are presented below.

The Company is authorized to issue up to 300,000 shares and 400,000 shares of
common stock (as adjusted for the stock split) under the 97 Plan and 93 Plan,
respectively, pursuant to "Awards" granted in the form of incentive stock
options (intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended) and non-qualified stock options. Awards may be granted to
selected employees of the Company or any subsidiary.

EMPLOYEE STOCK OPTIONS:

Both the 97 Plan and the 93 Plan provide that the exercise price of any
incentive stock option may not be less than the fair market value of the common
stock on the date of grant. The exercise price of any nonqualified stock option
is not so limited by the plans. The Company granted stock options in 1998, 1997
and 1996. The stock options granted in those years have contractual terms of 10
years and varying vesting dates, ranging from one to three years following the
date of grant. In accordance with APB 25, the Company has not recognized any
compensation cost for these stock options.

F-15
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

10. STOCK-BASED COMPENSATION PLANS: (CONTINUED)

A summary of the status of the Company's stock options as of December 31, 1998,
1997 and 1996 and the changes during the year ended on those dates is presented
below:

<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
# OF SHARES AVERAGE # OF SHARES AVERAGE # OF SHARES AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
the year................. 426,532 $ 19.45 337,000 $ 19.08 248,000 $ 22.34
Granted.................... 51,766 $ 32.50 89,532 $ 20.83 274,400 $ 18.97
Exercised.................. -- -- -- -- -- --
Canceled................... -- -- -- -- 185,400 $ 23.27
Forfeited.................. -- -- -- -- -- --
Expired.................... -- -- -- -- -- --
Outstanding at end of
year..................... 478,298 $ 20.86 426,532 $ 19.45 337,000 $ 19.08
Exercisable at end of
year..................... 248,000 $ 21.02 207,400 $ 19.67 -- --
Weighted-average fair value
per share of options
granted during the
year..................... $ 10.42 $ 6.34 $ 5.55
</TABLE>

The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1998, 1997 and 1996, respectively: dividend yields
ranging from 1.20% to 1.54%; risk-free interest rates are different for each
grant and range from 5.75% to 6.63%; and the expected lives of options are
different for each grant and range from approximately 5.83 to 6.5 years,and
expected volatility rates of 24.86%, 19.38% and 18.75% for years ending December
31, 1998, 1997 and 1996.

The following table summarizes information about stock options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED
NUMBER WEIGHTED AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/98 CONTRIBUTING LIFE PRICE AT 12/31/98 PRICE
- ---------------------------------------------- ----------- ----------------- ------------- ----------- -------------
$15.75 to $19.25 315,900 6.05 $ 18.72 211,000 $ 20.89
$21.25 to $32.50 162,398 8.20 $ 25.02 37,000 $ 21.71
----------- -----------
TOTAL......................................... 478,298 6.77 $ 20.86 248,000 $ 21.02
----------- -----------
----------- -----------
</TABLE>

EMPLOYEE STOCK PURCHASE PLAN:

Under the Company's Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan"), the Company is authorized to sell, pursuant to short-term stock options,
shares of its common stock to its full-time (or part-time for at least 20 hours
per week and at least five months per year) employees at a discount from the
common stock's fair market value. The Employee Stock Purchase Plan operates on

F-16
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

10. STOCK-BASED COMPENSATION PLANS: (CONTINUED)

the basis of recurring, consecutive one-year periods. Each period commences on
August 1 and ends on the next following July 31.

On the first day of each 12-month period, August 1, the Company offers to each
eligible employee the opportunity to purchase common stock. Employees elect to
participate for each period to have a designated percentage of their
compensation withheld (after-tax) and applied to the purchase of shares of
common stock on the last day of the period, July 31. The Employee Stock Purchase
Plan allows withdrawals, terminations and reductions on the amounts being
deducted. The purchase price for the common stock is 85% of the lesser of the
fair market value of the common stock on (i) the first day of the period, or
(ii) the last day of the period. No employee may purchase common stock under the
Employee Stock Purchase Plan valued at more than $25,000 for each calendar year.

Under the Employee Stock Purchase Plan, the Company sold 8,107 shares of common
stock to 102 employees pursuant to options granted on August 1, 1997, and
exercised on July 31, 1998. Because the plan year overlaps the Company's fiscal
year, the number of shares to be sold pursuant to options granted on August 1,
1998, can only be estimated because the 1998 plan year is not yet complete. The
Company's estimate of options granted in 1998 under the Plan is based on the
number of shares sold to employees under the Plan for the 1997 plan year,
adjusted to reflect the change in the number of employees participating in the
Plan in 1998.

A summary of the status of the Company's stock options under the Employee Stock
Purchase Plan as of December 31, 1998, 1997 and 1996 and the changes during the
year ended on those dates is presented below:

<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
# OF SHARES WEIGHTED # OF SHARES WEIGHTED # OF SHARES WEIGHTED
UNDERLYING AVERAGE UNDERLYING AVERAGE UNDERLYING AVERAGE
OPTIONS EXERCISE PRICES OPTIONS EXERCISE PRICES OPTIONS EXERCISE PRICES
----------- --------------- ------------- --------------- ------------- ---------------
Outstanding at beginning of the
year............................ 8,030 $ 14.60 8,000 $ 14.45 7,818 $ 14.45
Adjustment to prior year estimated
grants.......................... 77 $ 14.60 410 $ 14.45 -- --
Granted........................... 5,238 $ 31.45 8,030 $ 18.94 8,000 $ 17.22
Exercised......................... 8,107 $ 14.60 8,410 $ 14.95 7,818 $ 14.45
Forfeited......................... -- -- -- -- -- --
Expired........................... -- -- -- -- -- --
Outstanding at end of year........ 5,238 $ 31.45 8,030 $ 18.94 8,000 $ 17.22
Exercisable at end of year........ -- -- -- -- -- --
Weighted-average
Fair value per share of options
granted during the year....... $ 12.16 $ 5.36 $ 5.35
</TABLE>

F-17
<PAGE>
Churchill Downs Incorporated
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------

10. STOCK-BASED COMPENSATION PLANS: (CONTINUED)

Had the compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS 123, the Company's net earnings and earnings per
common share for 1998, 1997 and 1996 would approximate the pro forma amounts
presented below:

<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net earnings:
As reported......................................................... $ 10,518,548 $ 9,148,560 $ 8,071,526
Pro-forma........................................................... $ 10,086,914 $ 8,605,000 7,530,000
Earnings per common share:
As reported
Basic............................................................. $ 1.41 $ 1.25 $ 1.08
Diluted........................................................... $ 1.40 $ 1.25 $ 1.08
Pro-forma
Basic............................................................. $ 1.35 $ 1.18 $ 1.01
Diluted........................................................... $ 1.34 $ 1.18 $ 1.01
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. The Company anticipates making awards in the future under its
stock-based compensation plans.

11. FAIR VALUES OF FINANCIAL INSTRUMENTS:

Financial Accounting Standards Board ("FASB") Statement No. 107, "Disclosure
about Fair Value of Financial Instruments," is a part of a continuing process by
the FASB to improve information on financial instruments. The following methods
and assumptions were used by the Company in estimating its fair value
disclosures for such financial instruments as defined by the Statement:

Cash and Cash Equivalents--The carrying amount reported in the balance sheet for
cash and cash equivalents approximates its fair value.

Long-Term Debt--The carrying amounts of the Company's borrowings under its line
of credit agreements and other long-term debt approximates fair value, based
upon current interest rates.

12. CONTINGENCIES:

On January 22, 1992, the Company acquired certain assets of Louisville Downs,
Incorporated for $5,000,000 including the site of the Louisville Sports
Spectrum. In conjunction with this purchase, the Company withheld $1,000,000
from the amount due to the sellers to offset certain costs related to the
remediation of environmental contamination associated with underground storage
tanks at the site. All of the $1,000,000 hold back had been utilized as of
December 31, 1998 and additional costs of remediation have not yet been
conclusively determined. The sellers have now received a reimbursement from the
State of Kentucky of $995,000 for remediation costs and that amount is now being
held in an escrow account to pay further costs of remediation. Approximately
$985,000 remains in the account. In

F-18
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

12. CONTINGENCIES: (CONTINUED)

addition to the hold back, the Company has obtained an indemnity to cover the
full cost of remediation from the prior owner of the property.

It is not anticipated that the Company will have any liability as a result of
compliance with environmental laws with respect to any of the Company's
property. Except as discussed herein, compliance with environmental laws has not
affected the ability to develop and operate the Company's properties and the
Company is not otherwise subject to any material compliance costs in connection
with federal or state environmental laws.

13. EARNINGS PER COMMON SHARE COMPUTATIONS:

The following is a reconciliation of the numerator and denominator of the
earnings per common share computations:

<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net earnings (numerator) amounts used for basic and diluted per share
computations:....................................................... $ 10,518,548 $ 9,148,560 $ 8,071,526
------------- ------------ ------------
------------- ------------ ------------
Weighted average shares (denominator) of common stock outstanding per
share computations:
Basic............................................................... 7,460,058 7,312,052 7,445,542
Plus dilutive effect of stock options............................... 79,424 8,618 2,164
------------- ------------ ------------
Diluted............................................................. 7,539,482 7,320,670 7,447,706
------------- ------------ ------------
------------- ------------ ------------
Earnings per common share:
Basic............................................................... $ 1.41 $ 1.25 $ 1.08
Diluted............................................................. $ 1.40 $ 1.25 $ 1.08
</TABLE>

Options to purchase 51,766, 9,800 and 135,250 shares for the years ended
December 31, 1998, 1997 and 1996, respectively, were not included in the
computation of earnings per common share-assuming dilution because the options'
exercise prices were greater than the average market price of the common shares.

14. SEGMENT INFORMATION

In 1998 the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company has determined that it
currently operates in the following four segments: (1) Churchill Downs racetrack
and the Louisville Sports Spectrum simulcast facility, (2) Ellis Park racetrack
and its on-site simulcast facility, (3) Hoosier Park racetrack and its on-site
simulcast facility and the other three Indiana simulcast facilities and (4)
Other operations.

F-19
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

14. SEGMENT INFORMATION (CONTINUED)

Company's investments in various other business enterprises. The Company's
equity in the net income of equity method investees is not significant.
Eliminations include the elimination of management fees and other intersegment
transactions.

The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies." The Company evaluates the
performance of its segments and allocates resources to them based on earnings
before interest, taxes, depreciation and amortization ("EBITDA") and operating
income.

The table below presents information about reported segments for the years
ending December 31, 1998, 1997 and 1996:

SEGMENT INFORMATION (IN THOUSANDS)

<TABLE>
<CAPTION>
OTHER
CHURCHILL DOWNS HOOSIER PARK ELLIS PARK OPERATIONS ELIMINATIONS TOTAL
--------------- ------------ ----------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
1998............................. $ 80,925 $ 47,744 $ 17,386 $ 2,497 $ (1,252) $ 147,300
1997............................. 77,404 41,503 -- 1,299 (1,299) 118,907
1996............................. 74,540 33,319 -- 1,334 (1,334) 107,859
EBITDA:
1998............................. $ 14,417 $ 5,599 $ 2,305 $ 909 -- $ 23,230
1997............................. 14,205 4,282 -- 802 -- 19,289
1996............................. 15,390 1,565 -- 847 -- 17,802
Operating income:
1998............................. $ 10,700 $ 4,499 $ 1,422 $ 522 -- $ 17,143
1997............................. 10,557 3,088 -- 760 -- 14,405
1996............................. 11,482 6 -- 827 -- 12,315
Total assets:
1998............................. $ 89,427 $ 31,732 $ 23,038 $ 71,109 $ (100,655) $ 114,651
1997............................. 72,490 29,689 -- 31,180 (47,510) 85,849
1996............................. 71,047 28,626 -- 26,062 (45,006) 80,729
</TABLE>

Following is a reconciliation of total EBITDA to income before provision for
income taxes:

<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
- ------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Total EBITDA................................................. $ 23,230 $ 19,289 $ 17,802
Depreciation and amortization................................ (5,744) (4,559) (4,814)
Interest income (expense).................................... (216) 243 53
--------- --------- ---------
Earnings before provision for income taxes................... $ 17,270 $ 14,973 $ 13,041
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-20
<PAGE>
CHURCHILL DOWNS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

15. SUBSEQUENT EVENTS:

On January 13, 1999, the Company acquired a 60% interest in Charlson Broadcast
Technologies, LLC ("CBT") for a purchase price of $5.4 million. CBT provides
simulcast graphic software video services to racetracks and simulcast wagering
facilities throughout the United States. The purchase agreement includes
provisions for an additional contingent purchase price to be paid by the Company
to the former owners of the 60% interest based upon the achievement of certain
operating targets.

On January 21,1999, the Company entered into an agreement to acquire all of the
outstanding shares of Calder Race Course, Inc., and Tropical Park, Inc.
("Calder"), from KE Acquisition Corp., a private holding company. Terms of the
agreement include a purchase price of $86 million subject to certain
adjustments. Closing of the acquisition is expected in early April 1999.

F-21
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1999 1998 1998
-------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 12,590,422 $ 6,379,686 $ 11,803,389
Accounts receivable............................................... 8,401,845 11,968,114 5,925,377
Prepaid income taxes.............................................. 2,374,781 -- 969,185
Other current assets.............................................. 950,089 1,049,084 847,493
-------------- -------------- ------------
Total current assets............................................ 24,317,137 19,396,884 19,545,444

Other assets........................................................ 5,427,113 3,796,292 3,691,108
Plant and equipment, net............................................ 85,826,688 83,088,204 63,145,872
Intangible assets, net.............................................. 11,406,833 8,369,395 1,872,449
-------------- -------------- ------------
$ 126,977,771 $ 114,650,775 $ 88,254,873
-------------- -------------- ------------
-------------- -------------- ------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 11,329,628 $ 6,530,502 $ 9,960,311
Accrued expenses.................................................. 5,307,925 8,098,228 5,000,182
Dividends payable................................................. -- 3,762,521 --
Income taxes payable.............................................. -- 257,588 --
Deferred revenue.................................................. 15,461,793 8,412,552 13,718,956
Long-term debt, current portion................................... 570,526 126,812 79,805
-------------- -------------- ------------
Total current liabilities....................................... 32,669,872 27,188,203 28,759,254

Long-term debt, due after one year.................................. 21,236,525 13,538,027 2,633,164
Other liabilities................................................... 3,810,159 1,755,760 2,661,889
Deferred income taxes............................................... 7,011,619 6,937,797 2,377,100
Shareholders' equity:
Preferred stock, no par value; authorized, 250,000 shares, issued,
none............................................................ -- -- --
Common stock, no par value; authorized, 20,000,000 shares, issued
7,525,041 shares, March 31, 1999 and December 31, 1998 and
7,316,934 shares, March 31, 1998................................ 8,926,975 8,926,975 3,614,567
Retained earnings................................................. 53,588,822 56,598,957 48,273,899
Deferred compensation costs....................................... (201,201) (229,944) --
Note receivable for common stock.................................. (65,000) (65,000) (65,000)
-------------- -------------- ------------
62,249,596 65,230,988 51,823,466
-------------- -------------- ------------
$ 126,977,771 $ 114,650,775 $ 88,254,873
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-22
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

(UNAUDITED)

<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Net revenues...................................................................... $ 17,662,926 $ 15,385,151
Operating expenses................................................................ 19,157,153 15,999,128
-------------- --------------
Gross loss...................................................................... (1,494,227) (613,977)

Selling, general and administrative expenses...................................... 3,303,115 2,155,754
-------------- --------------

Operating loss.................................................................. (4,797,342) (2,769,731)
-------------- --------------

Other income (expense):
Interest income................................................................. 147,431 189,270
Interest expense................................................................ (435,465) (104,524)
Miscellaneous, net.............................................................. 44,117 117,054
-------------- --------------

(243,917) 201,800
-------------- --------------

Loss before income tax benefit.................................................. (5,041,259) (2,567,931)
-------------- --------------
Federal and state income tax benefit.............................................. 2,031,123 998,900
-------------- --------------
Net loss........................................................................ $ (3,010,136) $ (1,569,031)
-------------- --------------
-------------- --------------
Basic and diluted net loss per share.............................................. $ (.40) $ (.21)
Basic and diluted weighted average shares outstanding............................. 7,525,041 7,316,934
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-23
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

(UNAUDITED)

<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................................... $ (3,010,136) $ (1,569,031)
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization................................................... 1,903,255 1,159,106
Deferred income taxes........................................................... 73,822 --
Deferred compensation........................................................... 98,591 13,800
Increase (decrease) in cash resulting from changes in operating assets and
liabilities:
Accounts receivable........................................................... 4,405,301 1,161,512
Prepaid income taxes.......................................................... (2,374,781) (969,185)
Other current assets.......................................................... 112,733 (307,004)
Accounts payable.............................................................. 4,713,229 4,227,528
Accrued expenses.............................................................. (2,868,898) (2,937,393)
Income taxes payable.......................................................... (257,588) (186,642)
Deferred revenue.............................................................. 6,258,985 6,374,126
Other assets and liabilities.................................................. (1,205,204) 335,118
-------------- --------------
Net cash provided by operating activities................................... 7,849,309 7,301,935
-------------- --------------
Cash flows from investing activities:
Additions to plant and equipment, net........................................... (2,563,687) (1,120,311)
Acquisition of business, net of cash acquired of $25,767........................ (2,925,648) --
-------------- --------------
Net cash used in investing activities......................................... (5,489,335) (1,120,311)
Cash flows from financing activities:
Increase (decrease) in long-term debt, net...................................... (938,133) --
Borrowings on bank line of credit............................................... 8,000,000 --
Repayments of bank line of credit............................................... (1,000,000) --
Dividends paid.................................................................. (3,762,521) (3,658,468)
Contribution by minority interest in subsidiary................................. 1,551,416 --
-------------- --------------
Net cash provided by (used in) financing activities........................... 3,850,762 (3,658,468)
-------------- --------------
Net increase in cash and cash equivalents......................................... 6,210,736 2,523,156
Cash and cash equivalents, beginning of period.................................... 6,379,686 9,280,233
-------------- --------------
Cash and cash equivalents, end of period.......................................... $ 12,590,422 $ 11,803,389
-------------- --------------
-------------- --------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................................................ $ 526,322 $ 250,000
Income taxes.................................................................... -- $ 18,000
Noncash transactions:
Invoicing for 1999 and 1998 Kentucky Derby and Oaks............................. $ 790,256 $ 371,252
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-24
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally made in Churchill Downs Incorporated's (the
"Company") annual report on Form 10-K. The year end condensed consolidated
balance sheet data was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
Accordingly, the reader of this Form 10-Q may wish to refer to the Company's
Form 10-K for the period ended December 31, 1998 for further information. The
accompanying condensed consolidated financial statements have been prepared in
accordance with the registrant's customary accounting practices and have not
been audited. In the opinion of management, all adjustments necessary for a fair
presentation of this information have been made and all such adjustments are of
a normal recurring nature.

Because of the seasonal nature of the Company's business, revenues and operating
results for any interim quarter are not indicative of the revenues and operating
results for the year and are not necessarily comparable with results for the
corresponding period of the previous year. The accompanying condensed
consolidated financial statements reflect a disproportionate share of annual net
earnings (loss) as the Company normally earns a substantial portion of its net
earnings in the second quarter of each year during which the Kentucky Derby and
Kentucky Oaks are run. The Kentucky Derby and Kentucky Oaks are run on the first
weekend in May.

2. LONG-TERM DEBT

On September 15, 1998, the Company obtained a $100 million line of credit
through a syndicate of banks headed by its principal lender, which expires in
September 2001. This credit facility replaced a $50 million line of credit
obtained during the second quarter of 1998. The interest rate on borrowings was
based upon LIBOR plus 50 to 112.5 additional basis points, which was determined
by certain Company financial ratios. There was $18.0 million outstanding on the
line of credit at March 31, 1999, $11.0 million outstanding at December 31, 1998
and no borrowings outstanding at March 31, 1998, under previous lines of credit.
In connection with our acquisition strategy, the Company increased the line of
credit during the second quarter of 1999 to $250 million (See Note 7).

3. RECLASSIFICATION

Certain prior period financial statement amounts have been reclassified to
conform to the current period presentation.

4. ACQUISITIONS

On January 13, 1999, the Company acquired a 60% interest in Charlson Broadcast
Technologies, LLC ("CBT") for $3.1 million and made an additional equity
contribution to CBT in the amount of $2.3 million. CBT's total assets and
liabilities were $2.1 million and $2.2 million, respectively on the

F-25
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

(UNAUDITED)

4. ACQUISITIONS (CONTINUED)

date of acquisition. The purchase price was allocated to the fair value of net
assets acquired, with the excess of $3.2 million being amortized over periods of
5 and 15 years based on the nature of the intangibles acquired. CBT's financial
position and results of operations have been included in the Company's
consolidated financial statements since the date of acquisition.

On April 21, 1998, the Company acquired from TVI Corp., ("TVI") all of the
outstanding stock of Racing Corporation of America ("RCA") for a purchase price
of $22.6 million, which includes transaction costs of $.6 million. RCA owns and
operates Ellis Park Race Course in Henderson, Kentucky, and the Kentucky Horse
Center, a training facility located in Lexington, Kentucky. As part of the
transaction, TVI received 200,000 shares of the Company's common stock valued at
$4.9 million with the remaining balance of $17.1 million paid from cash on hand
and a draw on the Company's bank line of credit. The purchase price of $22.6
million was allocated to the acquired assets and liabilities based on their fair
values on the acquisition date with the excess of $6.4 million being recorded as
goodwill, which is being amortized over 40 years. The acquisition was accounted
for by the Company under the purchase method of accounting and, accordingly, the
results of operations of RCA subsequent to April 20, 1998, are included in the
Company's consolidated results of operations.

Following are the unaudited pro forma results of operations as if the April 21,
1998, acquisition had occurred on January 1, 1998 (in thousands, except per
share and share amounts):

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
-------------------
<S> <C>
Net revenues............................................................. $ 16,942
Net loss................................................................. $ (2,234)
Basic and diluted net loss per share..................................... $ (.30)
Basic and diluted weighted average shares outstanding outstanding........ 7,516,934
</TABLE>

This unaudited proforma financial information is not necessarily indicative of
the operating results that would have occurred had the transaction been
consummated as of January 1, 1998, nor is it necessarily indicative of future
operating results.

F-26
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

(UNAUDITED)

5. EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominator of the basic
and diluted per share computations:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Loss (numerator) amounts used for basic and diluted per share
computations.................................................. $ (3,010,136) $ (1,569,031)
Basic and diluted weighted average shares (denominator) of
common stock outstanding per share............................ 7,525,041 7,316,934
Basic and diluted net loss per share............................ $ (.40) $ (.21)
</TABLE>

Options to purchase 478,298 and 426,532 shares for the three months ended March
31, 1999 and 1998 are excluded from the computation of earnings (loss) per
common share-assuming dilution since their effect is antidilutive because of the
net loss for the period.

6. SEGMENT INFORMATION

The Company has adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." The Company has determined that it
currently operates in the following four segments: (1) Churchill Downs
racetrack, the Louisville Sports Spectrum simulcast facility and Churchill Downs
corporate expenses (2) Ellis Park racetrack and its on-site simulcast facility,
(3) Hoosier Park racetrack and its on-site simulcast facility and the other
three Indiana simulcast facilities and (4) Other operations.

Most of the Company's revenues are generated from commissions on pari-mutuel
wagering at the Company's racetracks and simulcast wagering facilities, as well
as simulcast fees, admissions and concessions revenue and other sources. Other
operations include Kentucky Horse Center and the Company's investments in
various other business enterprises. The Company's equity interest in the net
income of equity method investees is not significant. Eliminations include the
elimination of management fees and other intersegment transactions.

The accounting policies of the segments are the same as those described in the
"Summary of Significant Accounting Policies" in the Company's annual report to
stockholders for the year ended December 31, 1998.

F-27
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

(UNAUDITED)

6. SEGMENT INFORMATION (CONTINUED)

The table below presents information about reported segments for the three
months ending March 31, 1999 and 1998:

SEGMENT INFORMATION (IN THOUSANDS)

<TABLE>
<CAPTION>
CHURCHILL HOOSIER ELLIS OTHER
DOWNS PARK PARK OPERATIONS ELIMINATIONS TOTAL
----------- --------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
1999 $ 4,643 $ 10,948 $ 1,166 $ 1,214 $ (308) $ 17,663
1998 5,367 10,018 -- 334 (334) 15,385
EBITDA:
1999 $ (4,475) $ 1,678 $ (382) $ 329 -- $ (2,850)
1998 (3,351) 1,686 -- 171 -- (1,494)
Operating income (loss):
1999 $ (5,390) $ 1,377 $ (702) $ (82) -- $ (4,797)
1998 (4,343) 1,713 -- (140) -- (2,770)
Total assets:
1999 $ 98,429 $ 32,835 $ 22,788 $ 83,277 $ (110,351) $ 126,978
1998 71,024 31,410 -- 29,504 (43,683) 88,255
</TABLE>

Following is a reconciliation of total EBITDA to income before provision for
income taxes:

<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Total EBITDA........................................................... $ (2,850) $ (1,494)
Depreciation and amortization.......................................... (1,903) (1,159)
Interest income (expense), net......................................... (288) 85
--------- ---------
Earnings before provision for income taxes............................. $ (5,041) $ (2,568)
--------- ---------
--------- ---------
</TABLE>

7. SUBSEQUENT EVENTS

On April 23, 1999, the Company acquired all of the outstanding stock of Calder
Race Course, Inc. and Tropical Park, Inc. from KE Acquisition Corporation for a
purchase price of $86 million cash plus a closing net working capital adjustment
of approximately $2.4 million cash and $0.6 million in transaction costs. The
purchase included Calder Race Course in Miami and the licenses held by Calder
Race Course, Inc. and Tropical Park, Inc. to conduct horse racing at Calder Race
Course. Calder Race Course, one of four Thoroughbred tracks in Florida, offers
live racing and simulcast-only days during two consecutive race meets, which run
from late May through early January. The results of operations of Calder Race
Course, Inc. and Tropical Park, Inc. will be included in the Company's
consolidated financial statements from the date of acquisition during the second
quarter of 1999.

F-28
<PAGE>
CHURCHILL DOWNS INCORPORATED

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998

(UNAUDITED)

7. SUBSEQUENT EVENTS (CONTINUED)

Also on April 23, 1999, the Company increased its line of credit under a new
revolving loan facility through a syndicate of banks headed by its principal
lender to meet working capital and other short-term requirements and to provide
funding for acquisitions, including the pending acquisition of Hollywood Park
Race Track. The line of credit is secured by substantially all of the assets of
the Company and its wholly owned subsidiaries. The new facility offers a line of
credit of $250 million and matures in 2004.

On May 6, 1999, the Company signed a definitive agreement whereby the Company
would purchase the Hollywood Park Race Track, the Hollywood Park Casino and
approximately 240 acres located at the racetrack site in Inglewood, California.
The racetrack offers live Thoroughbred racing and simulcast wagering. Terms of
the agreement includes a purchase price of $140 million subject to certain
adjustments and a provision under which either party can terminate the agreement
during the due diligence period. If not so terminated, closing of the
transaction is expected in the third quarter of 1999.

F-29
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
Calder Race Course, Inc.

In our opinion, the accompanying balance sheets and the related statements of
income, of changes in shareholder's deficit and of cash flows present fairly, in
all material respects, the financial position of Calder Race Course, Inc. (a
wholly-owned subsidiary of K.E. Acquisition Corporation) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. 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 audit. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 19, 1999

F-30
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
BALANCE SHEETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
<S> <C> <C>
1998 1997
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 3,672,783 $ 311,519
Accounts receivable, net of allowance of $289,000 and $35,000 at December 31,
1998 and 1997, respectively................................................... 620,863 598,501
Restricted cash and investments................................................. 545,941 545,466
Prepaid expenses................................................................ 113,867 47,082
-------------- --------------
Total current assets.......................................................... 4,953,454 1,502,568
-------------- --------------
Property, plant and equipment:
Land and improvements........................................................... 1,054,637 1,054,637
Buildings and improvements...................................................... 47,341,792 46,580,447
Furniture, fixtures, and equipment.............................................. 1,857,808 5,290,502
-------------- --------------
50,254,237 52,925,586
Less accumulated depreciation................................................... 32,161,187 33,868,502
-------------- --------------
Property, plant and equipment, net............................................ 18,093,050 19,057,084
-------------- --------------
Restricted cash and investments--noncurrent....................................... 905,590 895,590
Other assets...................................................................... 203,287 89,137
-------------- --------------
1,108,877 984,727
-------------- --------------
Total assets.................................................................. $ 24,155,381 $ 21,544,379
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable................................................................ $ 322,783 $ 103,991
Funds held for stake racing--current............................................ 570,117 545,517
Mutuel tickets outstanding...................................................... 538,309 485,990
Accrued liabilities............................................................. 762,854 679,114
Redeemable preferred stock payable.............................................. -- 200,000
Due to affiliate and parent..................................................... 4,548,380 3,121,717
-------------- --------------
Total current liabilities..................................................... 6,742,443 5,136,329
Funds held for stake racing--noncurrent........................................... 817,401 817,108
Long-term debt.................................................................... 22,910,647 28,342,941
Deferred tax liability............................................................ 4,771,119 1,608,983
-------------- --------------
Total liabilities............................................................. 35,241,610 35,905,361
-------------- --------------
Mandatorily redeemable preferred stock, 7% cumulative, $1 par value. Authorized
190 shares; issued and outstanding -0- and 70 shares at December 31, 1998 and
1997, respectively; redemption amount of $10,000 per share...................... -- 700,000
Shareholder's deficit:
Common stock, $.25 par value. Authorized 800,000 shares; issued and outstanding
667,440 shares at December 31, 1998 and 1997.................................. 166,860 166,860
Additional paid-in capital...................................................... 39,299,247 39,299,247
Accumulated deficit............................................................. (50,552,336) (54,527,089)
-------------- --------------
Total shareholder's deficit................................................... (11,086,229) (15,060,982)
-------------- --------------
Total liabilities and shareholder's deficit................................... $ 24,155,381 $ 21,544,379
-------------- --------------
-------------- --------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-31
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
Revenues:
Pari-mutuel commissions........................................... $ 37,157,767 $ 33,700,053 $ 29,583,341
Interstate simulcast commissions.................................. 6,170,547 5,485,302 4,131,141
Stake fees for purses............................................. 1,595,950 1,531,608 1,273,970
Admissions........................................................ 575,153 608,177 698,693
Parking, programs and concessions................................. 1,122,232 1,199,114 1,311,421
Breakage.......................................................... 1,467,305 1,358,981 1,057,300
Sundry............................................................ 1,885,156 1,236,825 1,339,278
------------- ------------- -------------
Total revenues.................................................. 49,974,110 45,120,060 39,395,144
------------- ------------- -------------
Expenses:
Purses and owners' awards......................................... 23,347,422 21,152,506 18,575,516
Advertising and promotion......................................... 1,480,848 1,647,781 1,334,982
Depreciation...................................................... 1,682,188 1,611,697 1,578,500
Insurance......................................................... 1,332,754 1,331,234 1,372,077
Maintenance and repairs........................................... 690,787 740,835 705,202
Payroll and other compensation.................................... 5,671,542 5,366,527 5,008,421
Taxes............................................................. 1,770,203 1,747,056 1,655,176
Services purchased................................................ 2,035,327 1,873,546 1,662,633
Totalisator rental................................................ 492,992 504,973 469,222
Utilities......................................................... 1,257,996 1,232,486 1,221,159
Other............................................................. 2,867,096 2,585,572 2,332,479
------------- ------------- -------------
Total expenses.................................................. 42,629,155 39,794,213 35,915,367
------------- ------------- -------------
Operating income................................................ 7,344,955 5,325,847 3,479,777
------------- ------------- -------------
Other income (expense):
Rental income..................................................... 1,010,807 1,067,848 871,676
Interest income................................................... 164,861 123,818 108,752
Interest expense.................................................. (1,866,600) (2,312,932) (2,453,517)
------------- ------------- -------------
(690,932) (1,121,266) (1,473,089)
------------- ------------- -------------
Income before income taxes...................................... 6,654,023 4,204,581 2,006,688
Provision for income taxes.......................................... 2,641,046 1,645,873 616,000
------------- ------------- -------------
Net income.......................................................... 4,012,977 2,558,708 1,390,688
Dividends on preferred stock........................................ 38,224 67,822 91,000
------------- ------------- -------------
Net income attributable to common shareholders...................... $ 3,974,753 $ 2,490,886 $ 1,299,688
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-32
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL TOTAL
NUMBER PAR PAID-IN (ACCUMULATED SHAREHOLDER'S
OF SHARES VALUE CAPITAL DEFICIT) DEFICIT
----------- ---------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996................ 667,400 $ 166,860 $ 39,299,247 $ (58,317,663) $ (18,851,556)
Net income.............................. -- -- -- 1,390,688 1,390,688
Dividends on preferred stock............ -- -- -- (91,000) (91,000)
----------- ---------- ------------- -------------- --------------
Balance at December 31, 1996.............. 667,400 166,860 39,299,247 (57,017,975) (17,551,868)
Net income.............................. -- -- -- 2,558,708 2,558,708
Dividends on preferred stock............ -- -- -- (67,822) (67,822)
----------- ---------- ------------- -------------- --------------
Balance at December 31, 1997.............. 667,400 166,860 39,299,247 (54,527,089) (15,060,982)
Net income.............................. -- -- -- 4,012,977 4,012,977
Dividends on preferred stock............ -- -- -- (38,224) (38,224)
----------- ---------- ------------- -------------- --------------
Balance at December 31, 1998.............. 667,400 $ 166,860 $ 39,299,247 $ (50,552,336) $ (11,086,229)
----------- ---------- ------------- -------------- --------------
----------- ---------- ------------- -------------- --------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-33
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
Cash flows from operating activities:
Net income......................................................... $ 4,012,977 $ 2,558,708 $ 1,390,688
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation....................................................... 1,682,188 1,611,697 1,578,500
Provision for deferred taxes....................................... 2,641,046 1,094,983 514,000
Provision for bad debts............................................ 254,000 -- --
Adjustment in carrying value of captive insurance company.......... -- 152,123 --
Changes in assets and liabilities:
(Increase) decrease in:
Restricted cash and investments................................ (10,475) (60,811) 16,172
Accounts receivable............................................ (276,362) (184,634) 66,300
Prepaid expenses............................................... (66,785) 147,171 (5,486)
Other assets................................................... (114,150) 30,812 (14,960)
Increase (decrease) in:
Accounts payable............................................... 218,792 (15,073) (62,825)
Funds held for stake racing.................................... 24,893 48,686 309,259
Mutuel tickets outstanding..................................... 52,319 35,749 (33,708)
Accrued liabilities............................................ 83,740 239,556 (188,885)
------------- ------------- -------------
Net cash provided by operating activities...................... 8,502,183 5,658,967 3,569,055
------------- ------------- -------------
Cash flows from investing activities:
Payments for purchases of property and equipment................... (718,154) (629,471) (303,320)
------------- ------------- -------------
Net cash used in investing activities.......................... (718,154) (629,471) (303,320)
------------- ------------- -------------
Cash flows from financing activities:
Advances to affiliate and parent, net.............................. 1,947,753 1,054,069 733,286
Redemption of mandatorily redeemable preferred stock............... (900,000) (400,000) --
Loan payments...................................................... (5,432,294) (5,900,000) (3,899,728)
Dividends paid on preferred stock.................................. (38,224) (67,822) (91,000)
------------- ------------- -------------
Net cash used in financing activities.......................... (4,422,765) (5,313,753) (3,257,442)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents........... 3,361,264 (284,257) 8,293
Cash and cash equivalents, beginning of period....................... 311,519 595,776 587,483
------------- ------------- -------------
Cash and cash equivalents, end of period............................. $ 3,672,783 $ 311,519 $ 595,776
------------- ------------- -------------
------------- ------------- -------------
Supplemental cash flow information:
Interest paid........................................................ $ 1,915,779 $ 2,316,208 $ 2,485,840
------------- ------------- -------------
------------- ------------- -------------
Supplemental schedule of noncash financing activities:
Purchase of mandatorily redeemable preferred stock................... $ -- $ -- $ 200,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-34
<PAGE>
Calder Race Course, Inc.
(A Wholly-owned subsidiary of K.E. Acquisition Corporation)
Notes to Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Calder Race Course, Inc. (the "Company"), holds a pari-mutuel racing permit from
the State of Florida and conducts live race meetings for thoroughbred horses and
participates in simulcast wagering as a host track and as a receiving track in
Dade County, Florida. The Company's operations are classified under one business
segment. As provided in the Florida statutes, the Company was authorized to
operate a 122-day race meet during the years ended December 31, 1998, 1997 and
1996.

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 highly liquid investments with original maturities of
three months or less to be cash equivalents.

RESTRICTED CASH

Restricted cash consists of a surety bond made payable to the State of Florida,
which is required by the State of Florida in order for Calder to be granted a
license to race, and fines collected from horsemen, trainers and jockeys during
meets, which are used to subsidize medical and funeral expenses of backside
personnel, who are otherwise uninsured or in need. In addition, included in
restricted cash at December 31, 1998 and 1997, respectively, are approximately
$1,371,000 and $76,000 of amounts to be invested relating to the future Florida
Stallion Stakes.

INVESTMENTS

Investments consist of interest-bearing Bankers acceptances and money market
accounts held for the future Florida Stallion Stakes races. These securities are
carried at accreted cost and are held to maturity. Interest income is accrued as
earned.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the respective assets,
between 5 and 50 years. During 1998, the Company retired approximately $3.4
million of fully depreciated furniture, fixtures and equipment which are no
longer being used in operations.

F-35
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long-term assets for impairment and writes these down to
fair value whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.

FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the Company reports that the carrying amount of cash
and cash equivalents, trade receivables, accounts payable, long-term debt
payable and accrued liabilities approximates fair value due to the short
maturity of these instruments, and that the carrying amount of marketable
securities is stated at fair value.

INCOME TAXES

The Company files a consolidated U.S. Federal income tax return with its parent,
K.E. Acquisition Corporation (Parent). Under the terms of a tax sharing
arrangement with its parent, the provision for income taxes is computed as if
the Company filed a separate tax return, on a year to year, stand-alone basis,
with the current tax balances determined based on a consolidated filing
position. All current income tax related balances are included as due to parent
in the accompanying financial statements.

The Company accounts for income taxes using the asset and liability approach.
The asset and liability approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of other assets and
liabilities. The differences in 1998 and 1997 related primarily to accelerated
tax depreciation.

PURSES

In accordance with Florida statutes, the Company is required to distribute a
specific amount of purses and owners' awards based on a percentage of the
pari-mutuel handle plus additional amounts based on contractual agreements with
the Florida Horsemen's Benevolent Protective Association. The Company underpaid
approximately $160,000 and $308,000 of purses and owners' awards during December
31, 1998 and 1997, respectively. Such amounts are included in accrued
liabilities. The obligation at December 31, 1997 was fulfilled in 1998, and the
obligation at December 31, 1998 is expected to be fulfilled in 1999.

HORSEMEN ACCOUNT

F-36
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

administered on behalf of the Horsemen amounted to $109,000 and $37,000 at
December 31, 1998 and 1997, respectively. Such funds have been excluded from the
financial statements.

RECLASSIFICATIONS

Certain reclassifications have been made to prior period financial statements to
conform with current period presentation.

2. ACCOUNTS RECEIVABLE

Accounts receivable consist primarily of amounts due from simulcasting, rent,
and from concession activities. The Company maintains an allowance for doubtful
accounts at a level which management believes is sufficient to cover potential
losses.

3. DEBT

The Company and its affiliate, Tropical Park, Inc. (Tropical), assumed debt of
its former owner, of which the Company's allocable share at December 31, 1998
and 1997 amounted to $22,910,647 and $28,342,941, respectively. The debt, which
is payable to its Parent, was allocated by agreement between the Company and
Tropical. The debt is collateralized by substantially all of the Company's
assets. The loan bears interest at adjusted LIBOR plus .75% (6.75% at December
31, 1998). In February 1999, the maturity date was extended to January 1, 2000.
Interest payments are payable quarterly. The Company, and its affiliate,
Tropical, are jointly and severally liable to their Parent for the total debt
assumed which approximates $39,498,000 and $49,000,000 at December 31, 1998 and
1997, respectively.

4. MANDATORILY REDEEMABLE PREFERRED STOCK

On August 5, 1988, the Company entered into a preferred stock exchange agreement
whereby 190 shares of $1.00 par value, nonvoting, 7% cumulative preferred stock
were authorized and issued. The preferred stock has a liquidation value of
$10,000 per share. On August 28, 1998, the Company exercised an option to redeem
all the remaining outstanding shares of preferred stock. The Company paid
preferred stock dividends of $38,224, $67,822 and $91,000 during 1998, 1997 and
1996, respectively.

5. COMMITMENTS AND CONTINGENCIES

LEASES AND CONTRACTS

The Company entered into a lease with Tropical, an affiliate, for the rental of
the Company's racing plant and facilities through March 2004. Rent is calculated
at 1.5% of Tropical's on-site pari-mutuel handle. Total rental income under this
lease was $803,199, $810,618 and $707,206 for 1998, 1997 and 1996, respectively.
The rent, real estate taxes, and maintenance costs are reviewed annually to

F-37
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

determine whether an adjustment should be made based on increases or decreases
in various costs and expenses.

The Company has also agreed to furnish Tropical with personnel necessary for its
racing meets. For this service, Tropical is charged with the actual payroll cost
plus a fringe benefit charge of 40% of this amount. The Company pays all related
payroll costs. Fringe benefit fees for the year ended December 31, 1998, 1997
and 1996 totaled $896,410, $869,248 and $746,162, respectively. Payroll expenses
have been reduced by this amount in the accompanying financial statements.

LEGAL MATTERS

The Company is involved in various matters of litigation which arise in the
normal course of business. Management believes that liability, if any, arising
from such litigation will not have a material adverse effect on the financial
position of the Company.

CONCESSION CONTRACT

The Company has two years remaining on its three-year contract with its food and
beverage concessionaire. Under the terms of the agreement, the Company is
entitled to receive a percentage of the net concession sales, by location. In
addition, the contract provides for the concessionaire to reimburse the Company
for certain electricity costs in the main building. Amounts owed to the Company
at December 31, 1998 and 1997 amounted to $196,278 and $34,300, respectively.

LAND LEASE

The Company has leased a portion of its land, through February 2025, to an
operator of a national hotel franchise. As provided by the terms of the lease,
the annual base rent is $63,000 plus a percentage of the rent based on the gross
receipts of the hotel.

SERVICE AGREEMENTS

The Company has entered into a totalisator service agreement through 1999. The
totalisator service charge is based on a tiered percentage of the daily handle,
subject to a minimum fee of $2,000 for each racing day. Total charges amounted
to $492,992, $504,973 and $469,222 for 1998, 1997 and 1996, respectively.

In 1994, the Company entered into a five-year service agreement with a third
party who provides on-track video and support operations. The charge for this
service amounted to $468,793, $468,629 and $409,760 for 1998, 1997 and 1996,
respectively.

F-38
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

EMPLOYMENT AGREEMENTS

The Company entered into three employment agreements with key employees for
which the contract periods and termination dates vary from one year to three
years. The agreements provide, in part, for combined compensation to be
allocated between the Company and its affiliate, Tropical, of approximately
$376,000, $350,000 and $314,000 in 1998, 1997 and 1996, respectively. The
Company's portion was approximately $325,000, $296,000 and $255,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. Total remaining
annual commitments under these agreements amount to approximately $238,700,
$183,000 and $42,000 for the years ending 1999, 2000 and 2001, respectively, of
which the Company's allocated portion for 1999, 2000 and 2001 will be
approximately $202,900, $155,600 and $35,700, respectively.

FUNDS HELD FOR STAKE RACING

Funds held for stake racing represent funds relating to nominating fees from
horsemen for the Florida Stallion Stakes to be held in future years. These funds
are included as investments and restricted cash in the accompanying financial
statements. These funds consist primarily of interest bearing Bankers
acceptances and money market accounts carried at accreted cost, maturing during
the three years mentioned above. Market value approximates accreted cost.

401(K) PLAN

All employees who have completed at least 1,000 hours of service, not covered by
any other qualified pension or profit-sharing plan and are 21 years or older are
eligible to participate in the Calder Race Course, Inc. 401(k) Plan. The
Company's plan contributions, which are in the form of matching contributions
equal to a percentage of the employees' contributions to the plan, totaled
$13,281 and $8,948 for the years ended December 31, 1998 and 1997, respectively.

6. INCOME TAXES

The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income primarily as a result of certain expenses where the deductions are
accelerated for tax purposes.

The Company's results are included in the consolidated U.S. federal income tax
return with its parent. Under the terms of the agreed-upon tax sharing
arrangement with its parent, the provision for income taxes is computed as if
the Company filed a separate tax return, on a year to year, stand-alone basis.
The consolidated current income tax liability of the Company's parent is
allocated to the Company based on its pro-rata percentage of taxable income of
the consolidated group and is included as Due to affiliate and parent in the
accompanying financial statements. Other income tax related balances including
those arising from temporary differences which generate deferred taxes and the
difference in the current liability for income taxes computed as if the Company
filed a separate tax return and the

F-39
<PAGE>
CALDER RACE COURSE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

6. INCOME TAXES (CONTINUED)

parent's allocated amount, are included as Deferred tax liability in the
accompanying financial statements.

The aggregate amount of current and deferred tax expense, and the net amount of
any tax-related balances due to parent was $2,641,046 and $4,771,119,
respectively, for 1998 and $1,645,873 and $2,161,873, respectively, for 1997.
The current and deferred tax expense was $616,000 for 1996.

7. DUE TO AFFILIATE AND PARENT

Intercompany accounts with affiliate and parent consists of the following:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Due to affiliate, net........................................... $ (4,548,380) $ (2,568,827)
Current taxes payable........................................... -- (552,890)
------------- -------------
Total due to affiliate and parent--current.................... $ (4,548,380) $ (3,121,717)
------------- -------------
------------- -------------
Deferred tax liability--noncurrent.............................. $ (956,633) $ (1,030,720)
Deferred tax sharing agreement liability--noncurrent............ (3,814,486) (578,263)
------------- -------------
Deferred tax liability (Due to parent--noncurrent)............ $ (4,771,119) $ (1,608,983)
------------- -------------
------------- -------------
</TABLE>

8. SUBSEQUENT EVENT

On January 21, 1999, K.E. Acquisition Corporation entered into a definitive
agreement to sell all of the outstanding shares of the Company and its
affiliate, Tropical, to Churchill Downs, Inc. for cash consideration of
$86,000,000 subject to certain adjustments at closing. The transaction remains
subject to customary closing conditions, including the expiration of the waiting
period under the Hard-Scott-Rodino Act and approval of the Florida Department of
Business and Professional Regulation. Closing of the transaction is anticipated
during the first quarter of 1999.

* * *

F-40
<PAGE>
CALDER RACE COURSE, INC.

(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)

BALANCE SHEET

<TABLE>
<CAPTION>
MARCH 31,
1999
-------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................................ $ 1,831,507
Accounts receivable, net of allowance of $294,000................................................ 430,288
Restricted cash and investments.................................................................. 696,289
Prepaid expenses................................................................................. 38,192
-------------
Total current assets........................................................................... 2,996,276
-------------
Property, plant and equipment:
Land and improvements............................................................................ 1,054,637
Buildings and improvements....................................................................... 47,349,817
Furniture, fixtures, and equipment............................................................... 2,102,563
-------------
50,507,017
Less accumulated depreciation.................................................................... 32,572,024
-------------
Property, plant and equipment, net............................................................. 17,934,993
-------------
Restricted cash and investments - noncurrent....................................................... 778,991
Other assets....................................................................................... 806,240
-------------
1,585,231
-------------
Total assets................................................................................... $ 22,516,500
-------------
-------------

LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable................................................................................. $ 318,209
Funds held for stake racing--current............................................................. 696,288
Mutuel tickets outstanding....................................................................... 835,488
Accrued liabilities.............................................................................. 680,487
Due to affiliate and parent...................................................................... 4,670,751
-------------
Total current liabilities...................................................................... 7,201,223

Funds held for stake racing - noncurrent........................................................... 1,153,901
Long-term debt..................................................................................... 22,910,647
Deferred tax liability............................................................................. 3,691,519
-------------
Total liabilities.............................................................................. 34,957,290
-------------
Shareholder's deficit:
Common stock, $.25 par value. Authorized 800,000 shares; issued and outstanding 667,440 shares... 166,860
Additional paid-in capital....................................................................... 39,299,247
Accumulated deficit.............................................................................. (51,906,897)
-------------
Total shareholder's deficit.................................................................... (12,440,790)
-------------
Total liabilities and shareholder's deficit.................................................... $ 22,516,500
-------------
-------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-41
<PAGE>
CALDER RACE COURSE, INC.

(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Admissions................................................................... $ 2,280 $ --
Parking, programs and concessions............................................ 1,861 3,602
Sundry....................................................................... 608,271 561,625
--------------- ---------------
Total revenues............................................................. 612,412 565,227
--------------- ---------------
Expenses:
Advertising and promotion.................................................... 68,318 35,970
Depreciation................................................................. 420,000 412,500
Insurance.................................................................... 350,372 335,217
Maintenance and repairs...................................................... 231,064 179,545
Payroll and other compensation............................................... 726,214 665,127
Taxes........................................................................ 332,388 311,660
Services purchased........................................................... 85,504 87,823
Utilities.................................................................... 169,462 169,096
Other........................................................................ 402,845 304,616
--------------- ---------------
Total expenses............................................................. 2,786,167 2,501,554
--------------- ---------------
Operating loss............................................................. (2,173,755) (1,936,327)
--------------- ---------------
Other income (expense):
Rental income................................................................ 100,696 75,680
Interest income.............................................................. 25,844 13,349
Interest expense............................................................. (386,946) (479,937)
--------------- ---------------
(260,406) (390,908)
--------------- ---------------
Loss before benefit for income taxes....................................... (2,434,161) (2,327,235)
Benefit for income taxes....................................................... 1,079,600 924,000
--------------- ---------------
Net loss....................................................................... (1,354,561) (1,403,235)
Dividends on preferred stock................................................... -- (13,728)
--------------- ---------------
Net loss attributable to common shareholders................................... $ (1,354,561) $ (1,416,963)
--------------- ---------------
--------------- ---------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-42
<PAGE>
CALDER RACE COURSE, INC.

(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (1,354,561) $ (1,403,235)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation................................................................. 420,000 412,500
Benefit for deferred taxes................................................... (1,079,600) (924,000)
Provision for bad debts...................................................... 5,000 --
Changes in assets and liabilities:
(Increase) decrease in:
Restricted cash and investments.......................................... (23,749) (141,864)
Accounts receivable...................................................... 185,575 64,959
Prepaid expenses......................................................... 75,675 47,082
Other assets............................................................. (602,953) (460,175)
Increase (decrease) in:
Accounts payable......................................................... (4,574) 355,951
Funds held for stake racing.............................................. 462,671 479,623
Mutuel tickets outstanding............................................... 297,179 167,632
Accrued liabilities...................................................... (82,367) 626,725
--------------- ---------------
Net cash used in operating activities.................................... (1,701,704) (774,802)
--------------- ---------------
Cash flows from investing activities:
Payments for purchases of property and equipment............................. (261,943) (464,170)
--------------- ---------------
Net cash used in investing activities...................................... (261,943) (464,170)
--------------- ---------------
Cash flows from financing activities:
Advances from affiliate and parent, net...................................... 122,371 3,479,165
Redemption of mandatorily redeemable preferred stock......................... -- (200,000)
Loan payments................................................................ -- (440,000)
Dividends paid on preferred stock............................................ -- (13,726)
--------------- ---------------
Net cash provided by financing activities................................ 122,371 2,825,439
--------------- ---------------
Net (decrease) increase in cash and cash equivalents..................... (1,841,276) 1,586,467
Cash and cash equivalents, beginning of period................................. 3,672,783 311,519
--------------- ---------------
Cash and cash equivalents, end of period....................................... $ 1,831,507 $ 1,897,986
--------------- ---------------
--------------- ---------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-43
<PAGE>
CALDER RACE COURSE, INC.

(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 1999 (UNAUDITED)

1. UNAUDITED FINANCIAL STATEMENTS

The interim financial data is unaudited; however, in the opinion of Calder Race
Course, Inc. (the "Company"), the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and the results of operations for the
interim periods.

2. SUBSEQUENT EVENTS

On April 23, 1999, Churchill Downs Incorporated acquired all of the outstanding
stock of the Company and its affiliate, Tropical Park, Inc. from K.E.
Acquisition Corporation for a purchase price of $86 million cash plus a closing
net working capital adjustment of approximately $2.4 million cash and $0.6
million in transaction costs. The purchase included the licenses held by the
Company and its affiliate, Tropical Park, Inc. to conduct horse racing at Calder
Race Course. The results of operations of the Company and its affiliate,
Tropical Park, Inc. will be included in Churchill Downs Incorporated's
consolidated financial statements since the date of acquisition during the
second quarter of 1999.

F-44
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors of
Tropical Park, Inc.

In our opinion, the accompanying balance sheets and the related statements of
income, of changes in shareholder's deficit and of cash flows present fairly, in
all material respects, the financial position of Tropical Park, Inc. (a
wholly-owned subsidiary of K.E. Acquisition Corporation) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. 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 audit. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP

Fort Lauderdale, Florida

February 19, 1998

F-45
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
BALANCE SHEETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 4,734,157 $ 7,302,918
Accounts receivable, net of allowance of $156,000 and $30,000 at December 31,
1998 and 1997, respectively.................................................... 5,330,266 3,758,584
Due from affiliate............................................................... 4,548,380 2,568,827
Prepaid expenses................................................................. 83,628 47,160
------------- -------------
Total current assets......................................................... 14,696,431 13,677,489
------------- -------------
Property and equipment:
Building and equipment........................................................... 7,241,887 7,241,887
Racetrack improvements........................................................... 2,846,785 2,919,974
------------- -------------
10,088,672 10,161,861
Less accumulated depreciation.................................................... 8,371,902 8,317,543
------------- -------------
Property and equipment, net.................................................. 1,716,770 1,844,318
------------- -------------
Restricted cash.................................................................... 88,352 86,138
Other assets....................................................................... 149,013 149,013
------------- -------------
237,365 235,151
------------- -------------
Total assets................................................................. $ 16,650,566 $ 15,756,958
------------- -------------
------------- -------------

LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable................................................................. $ 2,324,037 $ 1,135,343
Mutuel tickets outstanding....................................................... 382,696 392,120
Accrued and other liabilities.................................................... 2,074,835 1,792,651
Due to parent.................................................................... -- 280,522
------------- -------------
Total current liabilities.................................................... 4,781,568 3,600,636
Long-term debt..................................................................... 16,587,174 20,311,000
Deferred tax liability............................................................. 2,652,934 1,127,965
------------- -------------
Total liabilities............................................................ 24,021,676 25,039,601
------------- -------------
Shareholder's deficit:
Common stock, $31.25 stated value. Authorized 1,000 shares; issued and
outstanding 195 shares at December 31, 1998 and 1997........................... 6,094 6,094
Additional paid-in capital....................................................... 19,044,657 19,044,657
Accumulated deficit.............................................................. (26,421,861) (28,333,394)
------------- -------------
Total shareholder's deficit.................................................. (7,371,110) (9,282,643)
------------- -------------
Total liabilities and shareholder's deficit.................................. $ 16,650,566 $ 15,756,958
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-46
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------- -------------
Revenues:
Pari-mutuel commissions........................................... $ 14,583,809 $ 13,909,779 $ 12,361,514
Interstate simulcast commissions.................................. 4,445,505 4,207,286 3,496,869
Stake fees for purses............................................. 331,450 217,100 176,605
Admissions........................................................ 268,786 263,522 262,796
Parking, programs, and concessions................................ 487,481 500,113 420,560
Breakage.......................................................... 547,440 527,701 391,798
Sundry............................................................ 691,616 485,484 402,490
------------- ------------- -------------
Total revenues.................................................. 21,356,087 20,110,985 17,512,632
------------- ------------- -------------
Expenses:
Purses and owners' awards......................................... 9,655,499 9,612,064 8,442,959
Advertising and promotion......................................... 752,163 638,339 616,728
Depreciation...................................................... 127,547 127,694 127,900
Insurance......................................................... 237,201 234,318 268,468
Rent.............................................................. 817,637 819,195 714,659
Personnel and related costs....................................... 2,945,426 2,862,383 2,449,635
Services purchased................................................ 858,590 830,216 732,691
Totalisator rental................................................ 217,448 209,666 191,337
Utilities......................................................... 472,112 453,827 560,537
Other............................................................. 1,036,245 860,225 930,222
------------- ------------- -------------
Total expenses.................................................. 17,119,868 16,647,927 15,035,136
------------- ------------- -------------
Operating income................................................ 4,236,219 3,463,058 2,477,496
------------- ------------- -------------
Other income (expense):
Rental income..................................................... 69,863 70,920 68,994
Interest income................................................... 173,846 138,206 110,841
Interest expense.................................................. (1,347,042) (1,155,340) (1,226,759)
------------- ------------- -------------
(1,103,333) (946,214) (1,046,924)
------------- ------------- -------------
Income before income taxes...................................... 3,132,886 2,516,844 1,430,572
Provision for income taxes.......................................... 1,221,353 933,487 585,000
------------- ------------- -------------
Net income...................................................... $ 1,911,533 $ 1,583,357 $ 845,572
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-47
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------
<S> <C> <C> <C> <C> <C>
ADDITIONAL TOTAL
NUMBER PAR PAID-IN ACCUMULATED SHAREHOLDER'S
OF SHARES VALUE CAPITAL DEFICIT DEFICIT
------------- --------- ------------- -------------- --------------
Balance at January 1, 1996................... 195 $ 6,094 $ 19,044,657 $ (30,762,323) $ (11,711,572)
Net income................................. -- -- -- 845,572 845,572
--- --------- ------------- -------------- --------------
Balance at December 31, 1996................. 195 6,094 19,044,657 (29,916,751) (10,866,000)
Net income................................. -- -- -- 1,583,357 1,583,357
--- --------- ------------- -------------- --------------
Balance at December 31, 1997................. 195 6,094 19,044,657 (28,333,394) (9,282,643)
Net income................................. -- -- -- 1,911,533 1,911,533
--- --------- ------------- -------------- --------------
Balance at December 31, 1998................. 195 $ 6,094 $ 19,044,657 $ (26,421,861) $ (7,371,110)
--- --------- ------------- -------------- --------------
--- --------- ------------- -------------- --------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-48
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
------------- ------------ -------------
Cash flows from operating activities:
Net income.......................................................... $ 1,911,533 $ 1,583,357 $ 845,572
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation........................................................ 127,548 127,694 127,900
Provision for deferred taxes........................................ 1,221,353 617,965 510,000
Provision for bad debts............................................. 126,000 -- --
Adjustment in carrying value of captive insurance company........... -- 76,031 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable............................................. (1,697,682) (175,367) --
Restricted cash................................................. (2,214) (12,376) (514)
Prepaid expenses................................................ (36,468) 127,671 (124,624)
Other assets.................................................... -- 55,280 199,962
Increase (decrease) in:
Accounts payable.................................................. 1,188,694 114,002 (2,058,317)
Mutuel tickets outstanding........................................ (9,424) 81,538 (133,361)
Accrued liabilities............................................... 282,184 (571,609) 729,521
------------- ------------ -------------
Net cash provided by operating activities......................... 3,111,524 2,024,186 96,139
------------- ------------ -------------
Cash flows from investing activities:
Payments for purchases of property and equipment.................... -- -- (4,800)
------------- ------------ -------------
Net cash used in investing activities............................. -- -- (4,800)
------------- ------------ -------------
Cash flows from financing activities:
Advances from affiliate and parent.................................. (1,956,459) (397,656) (597,559)
Loan payments....................................................... (3,723,826) -- (299,000)
------------- ------------ -------------
Net cash used in financing activities............................. (5,680,285) (397,656) (896,559)
------------- ------------ -------------
Net (decrease) increase in cash and cash equivalents.............. (2,568,761) 1,626,530 (805,220)
Cash and cash equivalents, beginning of period........................ 7,302,918 5,676,388 6,481,608
------------- ------------ -------------
Cash and cash equivalents, end of period.............................. $ 4,734,157 $ 7,302,918 $ 5,676,388
------------- ------------ -------------
------------- ------------ -------------
Supplemental cash flow information:
Interest paid......................................................... $ 1,341,720 $ 1,158,104 $ 1,242,920
------------- ------------ -------------
------------- ------------ -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-49
<PAGE>
Tropical Park, Inc.
(A Wholly-owned subsidiary of K.E. Acquisition Corporation)
Notes to Financial Statements
December 31, 1998
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Tropical Park, Inc. (the "Company"), holds a pari-mutuel racing permit from the
State of Florida and conducts live race meetings for thoroughbred horses and
participates in simulcast wagering as a host track and as a receiving track. The
Company's operations are classified under one business segment. The Company
currently operates its meets at Calder Race Course, Inc. (Calder), an affiliate.
As provided in Florida statutes, the Company was authorized to operate one race
meet during the period from November 1998 to January 1999, for a period of 51
days. During 1997 and 1996 the race meets were authorized from November 1997 to
January 1998 and from November 1996 to January 1997 for 51 days and 50 days,
respectively.

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 highly liquid investments with original maturities of
three months or less to be cash equivalents.

RESTRICTED CASH

Restricted cash consists of a surety bond made payable to the State of Florida.
Such bond is required by the State of Florida in order for Tropical to be
granted a license to race. Such amounts include fines collected from horsemen,
trainers and jockeys during meets which are used to subsidize medical and
funeral expenses of backside personnel, who are otherwise uninsured or in need.

PROPERTY AND EQUIPMENT

The Company has made various improvements to the racing plant which it leases
from Calder. Property and equipment are stated at cost and depreciated on the
straight-line basis over the lesser of their estimated useful lives or the
remaining term of the lease, between 5 and 31 years. During 1998, the Company
retired approximately $73,000 of fully depreciated racetrack improvements which
are no longer used in operations.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long-term assets for impairment and writes these down to
fair value whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.

F-50
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the Company reports that the carrying amount of cash
and cash equivalents, trade receivables, accounts payable, long term debt
payable and accrued liabilities approximates fair value due to the short
maturity of these instruments, and that the carrying amount of marketable
securities is stated at fair value.

INCOME TAXES

The Company files a consolidated U.S. Federal income tax return with its parent
K.E. Acquisition Corporation (Parent). Under the terms of a tax sharing
arrangement with its parent, the provision for income taxes is computed as if
the Company filed a separate tax return, on a year to year, stand-alone basis,
with the current tax balances determined based on a consolidated filing
position. All current income tax related balances are included as due to parent
in the accompanying financial statements.

PURSES

In accordance with Florida statutes, the Company is required to distribute a
specific amount of purses and owners' awards based on a percentage of the
pari-mutuel handle plus additional amounts based on contractual agreements with
the Florida Horsemen's Benevolent Protective Association. At December 31, 1998
and 1997, the Company underpaid approximately $968,000 and $779,000,
respectively, of purses and owners' awards. Such amounts are included in accrued
liabilities. In January 1999 and 1998, the majority of these obligations were
fulfilled.

HORSEMEN ACCOUNT

During the track meet the Company administers the Horsemen's bank account on
their behalf. In addition to the opening balance, these funds include purses
which have been paid by the Company to the Horsemen during the track meet but
not yet withdrawn by the Horsemen. The funds held and administered on behalf of
the Horsemen amounted to $5,531,000 and $7,234,000 as of December 31, 1998 and
1997, respectively. Such funds have been excluded from the financial statements.

RECLASSIFICATIONS

Certain reclassifications have been made to prior period financial statements to
conform with current period presentation.

F-51
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

2. ACCOUNTS RECEIVABLE

Accounts receivable consist primarily of amounts due from simulcasting and from
concession activities. The Company maintains an allowance for doubtful accounts
at a level which management believes is sufficient to cover potential losses.

3. ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities is comprised of:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
<S> <C> <C>
1998 1997
------------ ------------
Purses liability.................................................. $ 625,756 $ 840,306
Breeders awards liability......................................... 403,707 529,358
Other liabilities................................................. 1,045,372 422,987
------------ ------------
$ 2,074,835 $ 1,792,651
------------ ------------
------------ ------------
</TABLE>

4. DEBT

The Company and its affiliate, Calder, assumed debt of its former owner, of
which the Company's allocable share at December 31, 1998 and 1997 amounted to
$16,587,174 and $20,311,000, respectively. The debt which is payable to its
Parent, was allocated by agreement between the Company and Calder. The debt is
collateralized by substantially all of the Company's assets. The loan bears
interest at adjusted LIBOR plus .75% (6.75% at December 31, 1998). In February
1999, the maturity date was extended to January 1, 2000. Interest payments are
payable quarterly. The Company and its affiliate, Calder, are jointly and
severally liable to their Parent for the total debt assumed which approximates
$39,498,000 and $49,000,000 at December 31, 1998 and 1997, respectively.

5. COMMITMENTS AND CONTINGENCIES

LEASES AND CONTRACTS

The Company entered into a lease with Calder, an affiliate, for the rental of
Calder's racing plant and facilities through March 2004. Rent is calculated at
1.5% of the Company's on-site pari-mutuel handle. Rent expense was $803,199,
$810,618 and $707,406 during 1998, 1997 and 1996, respectively. The rent, real
estate taxes, and maintenance costs are reviewed annually to determine whether
an adjustment should be made based on increases or decreases in various costs
and expenses.

Calder has also agreed to furnish the Company with personnel necessary for its
racing meets. For this service, the Company is charged with the actual payroll
costs and expenses, plus a fringe benefit charge of 40% of this amount. Fringe
benefit expense for the years ended December 31, 1998, 1997 and 1996 totaled
$896,410, $869,248 and $746,162, respectively.

F-52
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

5. COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEGAL MATTERS

CONCESSION CONTRACT

The Company has two years remaining on its three-year contract with its food and
beverage concessionaire. Under the terms of the agreement, the Company is
entitled to receive a percentage of the net concession sales. In addition, the
contract provides for the concessionaire to reimburse the Company for certain
electricity costs in the main building. Amounts owed to the Company at December
31, 1998 and 1997 amounted to $146,589 and $109,713, respectively.

SERVICE AGREEMENTS

The Company entered into a totalisator service agreement through 1999. The
totalisator service charge is based on a tiered percentage of the daily handle,
subject to a minimum fee of $2,000 for each racing day. Total charges for 1998,
1997 and 1996 amounted to $217,448, $209,666 and $191,337, respectively.

In 1994, the Company entered into a five year service agreement with a third
party who provides on-track video and support operations. The charge for this
service for 1998, 1997 and 1996 amounted to $197,444, $188,844 and $197,844,
respectively.

EMPLOYMENT AGREEMENTS

An affiliate of the Company entered into three employment agreements with key
employees for which the contract periods and termination dates vary from one
year to three years. The agreements provide, in part, for combined compensation
to be allocated between the Company and its affiliate, Calder, of approximately
$376,000, $350,000 and $314,000 in 1998, 1997 and 1996, respectively. The
Company's portion was approximately $51,000, $54,000 and $59,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Total remaining annual
commitments under these agreements amount to approximately $238,700, $183,000
and $42,000 for the years ending 1999, 2000 and 2001, respectively of which the
Company's allocated portion for 1999, 2000 and 2001 will be approximately
$35,800, $27,400 and $6,300, respectively.

6. INCOME TAXES

F-53
<PAGE>
TROPICAL PARK, INC.
(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------

6. INCOME TAXES (CONTINUED)

The Company's results are included in the consolidated U.S. federal income tax
return with its parent. Under the terms of the agreed-upon tax sharing
arrangement with its parent, the provision for income taxes is computed as if
the Company filed a separate tax return, on a year to year, stand-alone basis.
The consolidated current income tax liability of the Company's parent is
allocated to the Company based on its pro-rata percentage of taxable income of
the consolidated group and is included as Due to parent in the accompanying
financial statements. Other income tax related balances including those arising
from temporary differences which generate deferred taxes and the difference in
the current liability for income taxes computed as if the Company filed a
separate tax return and the parent's allocated amount are included as Deferred
tax liability in the accompanying financial statements.

The aggregate amount of current and deferred tax expense, and the net amount of
any tax-related balances due to parent was $1,221,353 and $2,652,934,
respectively, for 1998 and $933,487 and $1,408,487, respectively, for 1997. The
current and deferred tax expense was $585,000 for 1996.

7. DUE TO/FROM AFFILIATE AND PARENT

As of December 31, 1998 and 1997, the Company had a due from its affiliate,
Calder, in the amount of $4,548,380 and $2,568,827, respectively, and the
amounts due to parent consisted of the following:

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Due to parent for income taxes--current......................... $ -- $ (280,522)
------------- -------------
------------- -------------

Deferred tax asset--noncurrent.................................. $ 1,046,279 $ 1,102,078
Deferred tax sharing agreement liability--noncurrent............ (3,699,213) (2,230,043)
------------- -------------
Net deferred tax liability (Due to parent--noncurrent).......... $ (2,652,934) $ (1,127,965)
------------- -------------
------------- -------------
</TABLE>

8. SUBSEQUENT EVENTS

On January 21, 1999, K.E. Acquisition Corporation entered into a definitive
agreement to sell all of the outstanding shares of the Company and its
affiliate, Calder, to Churchill Downs Inc. for cash consideration of
$86,000,000, subject to certain adjustments at closing. The transaction remains
subject to customary closing conditions, including the expiration of the waiting
period under the Hart-Scott-Rodino Act and approval of the Florida Department of
Business and Professional Regulation. Closing of the transaction is anticipated
during the first quarter of 1999.

* * *

F-54
<PAGE>
TROPICAL PARK, INC.

(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)

BALANCE SHEET

<TABLE>
<CAPTION>
MARCH 31,
1999
--------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................................... $ 5,407,966
Accounts receivable, net of allowance of $140,000............................................... 500,900
Due from affiliate.............................................................................. 4,670,751
--------------
Total current assets.......................................................................... 10,579,617
--------------
Property and equipment:
Building and equipment.......................................................................... 7,241,887
Racetrack improvements.......................................................................... 2,846,785
--------------
10,088,672
Less accumulated depreciation................................................................... 8,404,901
--------------
Property and equipment, net................................................................... 1,683,771
--------------
Restricted cash................................................................................... 96,136
Other assets...................................................................................... 149,013
--------------
245,149
--------------
Total assets.................................................................................. $ 12,508,537
--------------
--------------

LIABILITIES AND SHAREHOLDER'S DEFICIT

Current liabilities:
Accounts payable................................................................................ $ 133,424
Mutuel tickets outstanding...................................................................... 243,002
Accrued and other liabilities................................................................... 514,236
--------------
Total current liabilities..................................................................... 890,662

Long-term debt.................................................................................... 16,587,174
Deferred tax liability............................................................................ 2,542,534
--------------
Total liabilities............................................................................. 20,020,370
--------------
Shareholder's deficit:
Common stock, $31.25 stated value. Authorized 1,000 shares; issued and outstanding 195 shares... 6,094
Additional paid-in capital...................................................................... 19,044,657
Accumulated deficit............................................................................. (26,562,584)
--------------
Total shareholder's deficit................................................................... (7,511,833)
--------------
Total liabilities and shareholder's deficit................................................... $ 12,508,537
--------------
--------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-55
<PAGE>
TROPICAL PARK, INC.

(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Pari-mutuel commissions...................................................... $ 705,146 $ 683,297
Interstate simulcast commissions............................................. 325,136 318,242
Admissions................................................................... 12,708 14,330
Parking, programs, and concessions........................................... 21,894 27,235
Breakage..................................................................... 20,343 19,668
Sundry....................................................................... 99,106 156,207
--------------- ---------------
Total revenues............................................................. 1,184,333 1,218,979
--------------- ---------------
Expenses:
Purses and owners' awards.................................................... 499,330 501,694
Advertising and promotion.................................................... 41,803 60,469
Depreciation................................................................. 33,000 33,000
Insurance.................................................................... 53,000 49,000
Rent......................................................................... 53,917 31,861
Personnel and related costs.................................................. 225,887 187,185
Services purchased........................................................... 40,615 47,565
Totalisator rental........................................................... 7,656 8,557
Utilities.................................................................... 129,158 94,130
Other........................................................................ 150,643 108,156
--------------- ---------------
Total expenses............................................................. 1,235,009 1,121,617
--------------- ---------------
Operating (loss) income.................................................... (50,676) 97,362
--------------- ---------------
Other income (expense):
Rental income................................................................ 15,000 15,000
Interest income.............................................................. 64,638 74,335
Interest expense............................................................. (280,085) (342,045)
--------------- ---------------
(200,447) (252,710)
--------------- ---------------
Loss before benefit for income taxes....................................... (251,123) (155,348)
Benefit for income taxes....................................................... 110,400 60,600
--------------- ---------------
Net loss................................................................... $ (140,723) $ (94,748)
--------------- ---------------
--------------- ---------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-56
<PAGE>
TROPICAL PARK, INC.

(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1999 1998
--------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (140,723) $ (94,748)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation................................................................. 33,000 33,000
Benefit for deferred taxes................................................... (110,400) (60,600)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable...................................................... 4,829,366 3,465,641
Restricted cash.......................................................... (7,784) (933)
Prepaid expenses......................................................... 83,628 33,554
Increase (decrease) in:
Accounts payable......................................................... 2,190,614 (982,400)
Mutuel tickets outstanding............................................... (139,694) (85,690)
Accrued liabilities...................................................... (1,560,599) (1,015,321)
--------------- ---------------
Net cash provided by operating activities................................ 796,180 1,292,503
--------------- ---------------
Cash flows from financing activities:
Advances to affiliate and parent............................................. (122,371) (4,351,580)
--------------- ---------------
Net cash used in financing activities...................................... (122,371) (4,351,580)
Net increase (decrease) in cash and cash equivalents....................... 673,809 (3,059,077)
Cash and cash equivalents, beginning of period................................. 4,734,157 7,302,918
--------------- ---------------
Cash and cash equivalents, end of period....................................... $ 5,407,966 $ 4,243,841
--------------- ---------------
--------------- ---------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-57
<PAGE>
TROPICAL PARK, INC.

(A WHOLLY-OWNED SUBSIDIARY OF K.E. ACQUISITION CORPORATION)

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 1999 (UNAUDITED)

1. UNAUDITED FINANCIAL STATEMENTS

The interim financial data is unaudited; however, in the opinion of Tropical
Park, Inc. (the "Company"), the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and the results of operations for the
interim periods.

2. SUBSEQUENT EVENTS

On April 23, 1999, Churchill Downs Incorporated acquired all of the outstanding
stock of the Company and its affiliate, Calder Race Course, Inc. from K.E.
Acquisition Corporation for a purchase price of $86 million cash plus a closing
net working capital adjustment of approximately $2.4 million cash and $0.6
million in transaction costs. The purchase included the licenses held by the
Company and its affiliate, Calder Race Course, Inc. to conduct horse racing at
Calder Race Course. The results of operations of the Company and its affiliate,
Calder Race Course, Inc. will be included in Churchill Downs Incorporated's
consolidated financial statements since the date of acquisition during the
second quarter of 1999.

F-58
<PAGE>
[Color photos and graphics related to Churchill Downs, including the logos of
Churchill Downs, Ellis Park, Hoosier Park, Calder Race Course, and the Sports
Spectrum and the grounds and racetracks at Churchill Downs racetrack, Calder,
Hoosier Park, the Paddock Pavillion and the Indianapolis Sports Spectrum.]
<PAGE>
- --------------------------------------------------------------------------------

[LOGO]
Churchill Downs Incorporated
2,000,000 Shares
Common Stock
----------------
PROSPECTUS
-------------------
, 1999

CIBC WORLD MARKETS
LEHMAN BROTHERS
J.C. BRADFORD & CO.

J.J.B. HILLIARD, W.L. LYONS, INC.

----------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENT OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth an itemized statement of all costs and expenses,
other than underwriting discounts and commissions, to be borne by the Company in
its sale and distribution of the shares registered hereunder. All amounts are
estimated, except for the SEC registration fee and the NASD listing fee.

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 22,258
NASD fee.......................................................... $ 15,000
National Market Application and Listing Fee....................... $ 69,000
Blue sky fees and expenses........................................ $ 2,000
Printing and engraving expenses................................... $ 185,000
Legal fees and expenses........................................... $ 350,000
Accounting fees and expenses...................................... $ 150,000
Miscellaneous..................................................... $ 6,742
---------
---------

Total........................................................... $ 800,000
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article XI of the Registrant's Amended and Restated Articles of Incorporation
limits the liability of directors of the Registrant pursuant to the Kentucky
Business Corporation Act. Under this article, directors generally are personally
liable to the Registrant or its shareholders for monetary damages only in
transactions involving conflicts of interest or improper personal benefit for a
director, intentional misconduct, violations of law, or unlawful distributions.

The Restated Bylaws of the Registrant require the Registrant to indemnify, and
permit the advancement of expenses to, each director, officer, employee or agent
of the Registrant, and his executors, administrators or heirs, who was or is
made, or is threatened to be made a defendant or respondent to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative ("Proceeding"), by reason of the fact that he is
or was a director, officer, employee or agent of the Registrant, for the costs
of such Proceeding to the fullest extent expressly permitted or required by the
statutes of the Commonwealth of Kentucky and all other applicable law.

The Restated Bylaws of the Registrant further provide for indemnification and
advancement of expenses to the aforementioned persons by action of the Board of
Directors in such amounts, on such terms and conditions, and based upon such
standards of conduct as the Board of Directors may deem to be in the best
interests of the Registrant.

The circumstances under which Kentucky law requires or permits a corporation to
indemnify its directors, officers, employees and/or agents are set forth at KRS
271B.8-500, et seq.

Generally, under KRS 271B.8-500 et seq., a corporation may indemnify an
individual made a party to a proceeding because he is or was a director against
liability incurred in the proceeding if:

(1) he conducted himself in good faith; and

(2) he reasonably believed

II-1
<PAGE>
(a) in the case of conduct in his official capacity with the corporation
that his conduct was in its best interests; and

(b) in all other cases, that his conduct was at least not opposed to its
best interests.

(3) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.

A corporation may not indemnify a director:

(1) in connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable to the corporation; or

(2) in connection with any other proceeding charging improper personal
benefit to him, whether or not involving action in his official capacity,
in which he was adjudged liable on the basis that personal benefit was
improperly received by him.

Indemnification permitted in connection with a proceeding by or in the right of
the corporation is limited to reasonable expenses incurred in connection with
the proceeding.

In addition, the Registrant maintains directors' and officers' liability
insurance covering certain liabilities which may be incurred by the directors
and officers of the Registrant in connection with the performance of their
duties.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement, dated as of -, 1999 between the Company and the
Underwriters.*

2.1 Asset Purchase Agreement dated as of May 5, 1999 between Hollywood Park,
Inc. and Churchill Downs Incorporated.

4.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3(e) to the Company's Report on
Form 10-Q for the fiscal quarter ended June 30, 1998).

4.2 Restated Bylaws of the Company (incorporated by reference to Exhibit 3(i)
of the Company's Report on Form 10-Q for the fiscal quarter ended June
30, 1998).

4.3 Specimen Stock Certificate (incorporated by reference to Exhibit 4(d) to
the Company's Registration Statement on Form S-8, File No. 33-85012).

4.4 Rights Agreement dated as of March 19, 1998, between the Company and Bank
of Louisville (incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on March 20, 1998).

5 Opinion and Consent of Wyatt, Tarrant & Combs as to the legality of the
shares being registered.*

23.1 Consent of PricewaterhouseCoopers LLP.

23.2 Consent of PricewaterhouseCoopers LLP.

23.3 Consent of Ernst & Young LLP

23.4 Consent of Wyatt, Tarrant & Combs (included in Exhibit 5).*
</TABLE>

- ------------------------

* To be filed by amendment.

II-2
<PAGE>
ITEM 17. UNDERTAKINGS.

The undersigned Company hereby undertakes:

(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and

(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement; provided, however, that paragraphs (1)(i) and (1)(ii) do
not apply if the registration statement is on Form S-3 or Form S-8
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the Company pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.

(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.

The undersigned Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-3
<PAGE>
The undersigned Company hereby undertakes that:

(1) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Company pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.

(2) for the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Louisville, Commonwealth of Kentucky, on May 19,
1999.

<TABLE>
<S> <C> <C>
CHURCHILL DOWNS INCORPORATED

By: /s/ THOMAS H. MEEKER
-----------------------------------------
Thomas H. Meeker
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas H. Meeker and Rebecca C. Reed, and each of them,
with the power to act without the other, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her, and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or her substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-3 has been signed below by the following persons on the 19th
day of May, 1999 in the capacities indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<C> <S> <C>
/s/ THOMAS H. MEEKER
- ------------------------------ President, Chief Executive
Thomas H. Meeker Officer and Director

/s/ ROBERT L. DECKER Executive Vice President
- ------------------------------ and Chief Financial
Robert L. Decker Officer

/s/ VICKI L. BAUMGARDNER
- ------------------------------ Vice President, Finance
Vicki L. Baumgardner and Treasurer

/s/ CHARLES W. BIDWILL, JR.
- ------------------------------ Director
Charles W. Bidwill, Jr.
</TABLE>

II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------

<C> <S> <C>
/s/ WILLIAM S. FARISH
- ------------------------------ Director
William S. Farish

/s/ J. DAVID GRISSOM
- ------------------------------ Director
J. David Grissom

/s/ SETH W. HANCOCK
- ------------------------------ Director
Seth W. Hancock

/s/ DANIEL P. HARRINGTON
- ------------------------------ Director
Daniel P. Harrington

/s/ G. WATTS HUMPHREY, JR.
- ------------------------------ Director
G. Watts Humphrey, Jr.

/s/ FRANK B. HOWER, JR.
- ------------------------------ Director
Frank B. Hower, Jr.

/s/ W. BRUCE LUNSFORD
- ------------------------------ Director
W. Bruce Lunsford

/s/ CARL F. POLLARD
- ------------------------------ Director
Carl F. Pollard

/s/ DENNIS D. SWANSON
- ------------------------------ Director
Dennis D. Swanson

/s/ DARRELL R. WELLS
- ------------------------------ Director
Darrell R. Wells
</TABLE>

II-6

<PAGE>

---------------------------------------------------

ASSET PURCHASE AGREEMENT

BETWEEN

HOLLYWOOD PARK, INC.,
A DELAWARE CORPORATION,

AND

CHURCHILL DOWNS INCORPORATED,
A KENTUCKY CORPORATION

DATED AS OF MAY 5, 1999

---------------------------------------------------

<PAGE>

TABLE OF CONTENTS

PAGE
<S> <C>
1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

2. TRANSFER OF ASSETS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

2.1 Transfer of Assets . . . . . . . . . . . . . . . . . . . . . . . . .7

2.1.1 Real Property. . . . . . . . . . . . . . . . . . . . . . . .7

2.1.2 Personal Property. . . . . . . . . . . . . . . . . . . . . .8

2.1.3 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . .8

2.1.4 Intellectual Property Rights . . . . . . . . . . . . . . . .8

2.1.5 Intentionally Deleted. . . . . . . . . . . . . . . . . . . .8

2.1.6 Books and Records. . . . . . . . . . . . . . . . . . . . . .8

2.1.7 Assigned Contracts . . . . . . . . . . . . . . . . . . . . .9

2.1.8 Permits and Licenses . . . . . . . . . . . . . . . . . . . .9

2.1.9 Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . .9

2.1.10 Readerboard Signs. . . . . . . . . . . . . . . . . . . . . .9

2.2 Assets Not Transferred . . . . . . . . . . . . . . . . . . . . . . .9

2.2.1 Cash and Cash Equivalents. . . . . . . . . . . . . . . . . 10

2.2.2 Accounts Receivable. . . . . . . . . . . . . . . . . . . . 10

2.2.3 Refund Claims. . . . . . . . . . . . . . . . . . . . . . . 10

2.2.4 Third Party Claims . . . . . . . . . . . . . . . . . . . . 10

2.2.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 10

2.2.6 Unrelated Information. . . . . . . . . . . . . . . . . . . 10

2.2.7 Adjacent Real Property . . . . . . . . . . . . . . . . . . 10

2.2.8 Unrelated and Corporate Assets . . . . . . . . . . . . . . 10

2.2.9 Certain Contracts and Licenses . . . . . . . . . . . . . . 10

2.2.10 Casino Building Signage. . . . . . . . . . . . . . . . . . 11

-i-

<PAGE>

3. CLOSING, PURCHASE PRICES, ASSUMPTION OF LIABILITIES. . . . . . . . . . . . 11

3.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

3.2 Simultaneous Delivery; Conditions Concurrent . . . . . . . . . . . 11

3.3 Purchase Prices. . . . . . . . . . . . . . . . . . . . . . . . . . 11

3.3.1 Purchase Prices. . . . . . . . . . . . . . . . . . . . . . 11

3.3.2 Assumed Liabilities. . . . . . . . . . . . . . . . . . . . 11

3.4 Non-Assumption of Certain Liabilities. . . . . . . . . . . . . . . 12

3.4.1 Tax Liabilities. . . . . . . . . . . . . . . . . . . . . . 12

3.4.2 Indemnification Obligations. . . . . . . . . . . . . . . . 12

3.4.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . 12

3.4.4 Workers' Compensation Claims . . . . . . . . . . . . . . . 12

3.4.5 Employee Claims. . . . . . . . . . . . . . . . . . . . . . 12

3.4.6 Liabilities Relating to the Excluded Assets. . . . . . . . 12

3.4.7 Brokers, etc.. . . . . . . . . . . . . . . . . . . . . . . 12

3.4.8 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

3.4.9 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 13

3.4.10 Environmental. . . . . . . . . . . . . . . . . . . . . . . 13

3.5 Deliveries at Closing. . . . . . . . . . . . . . . . . . . . . . . 13

3.6 Tax Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3.7 Costs and Prorations.. . . . . . . . . . . . . . . . . . . . . . . 15

3.7.1 Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3.7.2 Prorations . . . . . . . . . . . . . . . . . . . . . . . . 16

3.7.3 Closing Statement. . . . . . . . . . . . . . . . . . . . . 17

4. REPRESENTATIONS AND WARRANTIES OF SELLER.. . . . . . . . . . . . . . . . . 18

4.1 Organization, Corporate Power, and Authority . . . . . . . . . . . 18

-ii-

<PAGE>

4.2 Authorization of Agreements. . . . . . . . . . . . . . . . . . . . 18

4.3 Effect of Agreement. . . . . . . . . . . . . . . . . . . . . . . . 18

4.4 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . 18

4.5 Condition of Property and Assets . . . . . . . . . . . . . . . . . 19

4.6 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . 19

4.7 Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

4.8 Improvement Contracts. . . . . . . . . . . . . . . . . . . . . . . 19

4.9 Reports; Financial Statements; Transaction Financial Statements
and Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . 19

4.10 Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . 20

4.11 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

4.12 "Foreign Person" Status. . . . . . . . . . . . . . . . . . . . . . 20

4.13 Eminent Domain; Zoning; Street Changes; Other Litigation . . . . . 20

4.14 Absence of Certain Changes or Events . . . . . . . . . . . . . . . 21

4.14.1 Material Obligations . . . . . . . . . . . . . . . . . . . 21

4.14.2 Discharge or Satisfaction of Liens . . . . . . . . . . . . 21

4.14.3 Additional Liens . . . . . . . . . . . . . . . . . . . . . 21

4.14.4 Acquisition or Disposition of Assets . . . . . . . . . . . 21

4.14.5 Compromise of Debts or Claims. . . . . . . . . . . . . . . 21

4.14.6 Waiver of Material Rights. . . . . . . . . . . . . . . . . 21

4.14.7 Rights in Licenses, Trademarks, Patents. . . . . . . . . . 21

4.14.8 Employee Compensation. . . . . . . . . . . . . . . . . . . 21

4.14.9 Material Contracts.. . . . . . . . . . . . . . . . . . . . 21

4.14.10 Casualty Loss. . . . . . . . . . . . . . . . . . . . . . . 21

4.14.11 Material Adverse Change. . . . . . . . . . . . . . . . . . 21

-iii-

<PAGE>

4.14.12 Accounting . . . . . . . . . . . . . . . . . . . . . . . . 22

4.14.13 Capital Expenditures . . . . . . . . . . . . . . . . . . . 22

4.15 Title to Assets, Absence of Liens and Encumbrances . . . . . . . . 22

4.16 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . 22

4.17 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

4.18 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

4.19 Commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4.20 Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . . . 23

4.21 Severance Obligations. . . . . . . . . . . . . . . . . . . . . . . 23

4.22 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . 23

4.23 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.24 Foreign Corrupt Practices Act. . . . . . . . . . . . . . . . . . . 24

4.25 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . 24

4.26 Year 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.27 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . 24

5. REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . . . . . . 26

5.1 Organization, Corporate Power and Authority. . . . . . . . . . . . 26

5.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . 26

5.3 Effect of Agreement. . . . . . . . . . . . . . . . . . . . . . . . 26

5.4 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

5.5 Commissions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

5.6 Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

5.7 Buyer's Investigation. . . . . . . . . . . . . . . . . . . . . . . 27

6. COVENANTS OF SELLER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

6.1 Real Property Matters. . . . . . . . . . . . . . . . . . . . . . . 27

-iv-

<PAGE>

6.1.1 Resubdivision. . . . . . . . . . . . . . . . . . . . . . . 27

6.1.2 Survey . . . . . . . . . . . . . . . . . . . . . . . . . . 27

6.1.3 Preliminary Title Report.. . . . . . . . . . . . . . . . . 28

6.2 Conduct of Racetrack Business. . . . . . . . . . . . . . . . . . . 29

6.2.1 Ordinary Course. . . . . . . . . . . . . . . . . . . . . . 29

6.2.2 Preservation of Goodwill . . . . . . . . . . . . . . . . . 29

6.2.3 Maintain Insurance . . . . . . . . . . . . . . . . . . . . 29

6.2.4 Sale of Assets . . . . . . . . . . . . . . . . . . . . . . 29

6.2.5 Maintenance of Assets. . . . . . . . . . . . . . . . . . . 29

6.2.6 Assigned Contracts . . . . . . . . . . . . . . . . . . . . 29

6.2.7 Employment Contracts . . . . . . . . . . . . . . . . . . . 29

6.2.8 Collective Bargaining Agreements . . . . . . . . . . . . . 29

6.3 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

6.4 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . 30

6.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

6.6 Collective Bargaining Agreements . . . . . . . . . . . . . . . . . 31

7. COVENANTS OF BUYER.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

7.1 Permits and Consents . . . . . . . . . . . . . . . . . . . . . . . 31

7.2 Access to Books and Records. . . . . . . . . . . . . . . . . . . . 31

7.3 Cooperation in Third-Party Litigation. . . . . . . . . . . . . . . 31

7.4 Cooperation Regarding Resubdivision and Future Development . . . . 32

8. CONDITIONS PRECEDENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . 33

8.1 Conditions Precedent to Obligations of Buyer . . . . . . . . . . . 33

8.1.1 Resubdivision. . . . . . . . . . . . . . . . . . . . . . . 33

8.1.2 Title to Real Property . . . . . . . . . . . . . . . . . . 33

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8.1.3 HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . 33

8.1.4 Accuracy of Representations and Warranties . . . . . . . . 33

8.1.5 Financial Statements . . . . . . . . . . . . . . . . . . . 33

8.1.6 Compliance with Covenants. . . . . . . . . . . . . . . . . 33

8.1.7 Buyer's Inspections. . . . . . . . . . . . . . . . . . . . 34

8.1.8 Opinion of Counsel for Seller. . . . . . . . . . . . . . . 34

8.1.9 Legal Actions or Proceedings . . . . . . . . . . . . . . . 34

8.1.10 Consents Obtained. . . . . . . . . . . . . . . . . . . . . 34

8.1.11 Other Transaction Documents. . . . . . . . . . . . . . . . 34

8.1.12 Casino License . . . . . . . . . . . . . . . . . . . . . . 34

8.1.13 Casino Operator. . . . . . . . . . . . . . . . . . . . . . 34

8.1.14 Liquor License . . . . . . . . . . . . . . . . . . . . . . 34

8.1.15 Non-Competition Agreement. . . . . . . . . . . . . . . . . 35

8.1.16 Buyer's Financing. . . . . . . . . . . . . . . . . . . . . 35

8.1.17 Easement Agreement Approval. . . . . . . . . . . . . . . . 35

8.1.18 Information Technology . . . . . . . . . . . . . . . . . . 35

8.2 Conditions Precedent to Obligations of Seller. . . . . . . . . . . 35

8.2.1 Resubdivision. . . . . . . . . . . . . . . . . . . . . . . 35

8.2.2 HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . 35

8.2.3 Accuracy of Representations and Warranties . . . . . . . . 35

8.2.4 Compliance with Covenants. . . . . . . . . . . . . . . . . 35

8.2.5 Opinion of Counsel for Buyer . . . . . . . . . . . . . . . 35

8.2.6 Legal Actions or Proceedings . . . . . . . . . . . . . . . 35

8.2.7 Consents Obtained. . . . . . . . . . . . . . . . . . . . . 36

8.2.8 Purchase Prices. . . . . . . . . . . . . . . . . . . . . . 36

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8.2.9 Other Transaction Documents. . . . . . . . . . . . . . . . 36

8.2.10 Bank of America Lien . . . . . . . . . . . . . . . . . . . 36

8.2.11 Casino Sublease. . . . . . . . . . . . . . . . . . . . . . 36

8.2.12 Casino Operator. . . . . . . . . . . . . . . . . . . . . . 36

8.2.13 Easement Agreement Approval. . . . . . . . . . . . . . . . 36

8.2.14 Non-Disturbance, Subordination and Attornment
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 36

9. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATIONS. . . . . . . . . . . . . . . 36

9.1 Survival of Representations. . . . . . . . . . . . . . . . . . . . 36

9.2 Agreements to Indemnify. . . . . . . . . . . . . . . . . . . . . . 37

9.2.1 General Indemnity. . . . . . . . . . . . . . . . . . . . . 37

9.2.2 Environmental Indemnity. . . . . . . . . . . . . . . . . . 38

9.2.3 Conflict . . . . . . . . . . . . . . . . . . . . . . . . . 40

9.2.4 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . 40

9.2.5 Other Indemnification Provisions.. . . . . . . . . . . . . 41

9.3 Conditions of Indemnification. . . . . . . . . . . . . . . . . . . 41

9.3.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 41

9.3.2 Assumption of Defense. . . . . . . . . . . . . . . . . . . 42

9.3.3 Claim Adverse to Indemnifying Party. . . . . . . . . . . 43

9.3.4 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . 44

9.4 Remedies Exclusive . . . . . . . . . . . . . . . . . . . . . . . . 44

9.5 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

10. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

10.1 Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

10.2 Mutual Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 44

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10.3 Review Period. . . . . . . . . . . . . . . . . . . . . . . . . . . 44

10.4 Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . 45

10.5 Material Breach. . . . . . . . . . . . . . . . . . . . . . . . . . 45

10.6 Uncured Asset Loss . . . . . . . . . . . . . . . . . . . . . . . . 45

10.7 Effects of Termination . . . . . . . . . . . . . . . . . . . . . . 45

11. OTHER COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

11.1 Announcements. . . . . . . . . . . . . . . . . . . . . . . . . . . 45

11.2 Employment Matters.. . . . . . . . . . . . . . . . . . . . . . . . 46

11.2.1 Offers of Employment . . . . . . . . . . . . . . . . . . . 46

11.2.2 Retention of Liabilities . . . . . . . . . . . . . . . . . 47

11.3 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

11.4 Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 47

11.5 Tax Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . 47

11.6 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

11.7 Non-Parimutuel Gaming. . . . . . . . . . . . . . . . . . . . . . . 48

11.7.1 Buyer's Covenant . . . . . . . . . . . . . . . . . . . . . 48

11.7.2 Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 48

11.7.3 Records. . . . . . . . . . . . . . . . . . . . . . . . . . 49

11.7.4 Audited Financial Statements . . . . . . . . . . . . . . . 49

11.7.5 Lobbying Expenses. . . . . . . . . . . . . . . . . . . . . 49

11.7.6 Net Revenue and Expense Items. . . . . . . . . . . . . . . 50

11.8 Non-Compete. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

11.8.1 Recitals.. . . . . . . . . . . . . . . . . . . . . . . . . 50

11.8.2 Covenant Not to Compete. . . . . . . . . . . . . . . . . . 50

11.8.3 Savings Clause . . . . . . . . . . . . . . . . . . . . . . 50

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11.8.4 Injunctive Relief. . . . . . . . . . . . . . . . . . . . . 51

11.8.5 Non-Competition Agreement of R.D. Hubbard. . . . . . . . . 51

11.9 Access Easements . . . . . . . . . . . . . . . . . . . . . . . . . 51

11.10 Audit of Financial Statements of Racetrack Business. . . . . . . . 51

11.11 TVG Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 51

11.12 Common Area Charges Under Casino Lease . . . . . . . . . . . . . . 52

11.13 Ticket Prices. . . . . . . . . . . . . . . . . . . . . . . . . . . 52

12. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

12.1 Bulk Transfer Laws . . . . . . . . . . . . . . . . . . . . . . . . 52

12.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

12.3 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

12.4 Amendments, Supplements. . . . . . . . . . . . . . . . . . . . . . 52

12.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 52

12.6 Binding Effect, Benefits . . . . . . . . . . . . . . . . . . . . . 53

12.7 Assignability. . . . . . . . . . . . . . . . . . . . . . . . . . . 53

12.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

12.9 Governing Law; Jurisdiction. . . . . . . . . . . . . . . . . . . . 54

12.10 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 54

12.11 Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . 54

12.12 Representations and Warranties . . . . . . . . . . . . . . . . . . 54

12.13 Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . 54

12.13.1 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 54

12.13.2 Tense and Case . . . . . . . . . . . . . . . . . . . . . . 55

12.13.3 Severability . . . . . . . . . . . . . . . . . . . . . . . 55

12.13.4 Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . 55

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12.13.5 Agreement Negotiated . . . . . . . . . . . . . . . . . . . 55

12.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

12.15 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . 55

12.16 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

12.17 Cooperation in Exchange. . . . . . . . . . . . . . . . . . . . . . 55

12.18 No Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

</TABLE>

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This ASSET PURCHASE AGREEMENT (together with the exhibits and schedules
hereto, the "AGREEMENT") is entered into as of May 5, 1999 by and between
CHURCHILL DOWNS INCORPORATED, a Kentucky corporation ("BUYER") and, HOLLYWOOD
PARK, INC., a Delaware corporation ("SELLER") with reference to the following
facts:

RECITALS

A. Seller or certain of its subsidiaries are the owners of certain
assets more particularly described in this Agreement, including both real and
personal property, tangible and intangible, used by it in the operation of a
horse racing facility known as the Hollywood Park Racetrack and a card club
casino known as the Hollywood Park-Casino in Inglewood, California.

B. Seller desires to sell, and Buyer desires to purchase those
assets, as more particularly described in this Agreement and assume certain of
the liabilities as more particularly described in this Agreement, on the terms
and conditions set forth herein.

C. Prior to the Closing, as hereinafter defined, Seller shall cause
its subsidiaries to transfer certain assets to Seller.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties agree as follows:

1. DEFINITIONS. The following terms shall have the following meanings when
used in this Agreement:

"ACCOUNTS RECEIVABLE" shall have the meaning set forth in Section 2.2.2.

"AFFILIATE" shall mean, with respect to any Person, any Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with such other Person, through the ownership of all or part of any
Person.

"ASSET LOSS" shall have the meaning set forth in Section 12.16.

"ASSETS" shall have the meaning set forth in Section 2.1.

"ASSIGNED CONTRACTS" shall have the meaning set forth in Section 2.1.7.

"ASSUMED LIABILITIES" shall have the meaning set forth in Section 3.3.2.

"BANK OF AMERICA LOAN AGREEMENT" shall have the meaning set forth in
Section 4.3.

"BILL OF SALE" shall mean a Bill of Sale substantially in the form of
EXHIBIT B hereto, pursuant to which Buyer shall assume and agree to pay, perform
and discharge when due the Assumed Liabilities.

"BUSINESS" shall mean, collectively, the Casino Business and the
Racetrack Business.

<PAGE>

"CAPITAL BUDGET" shall have the meaning set forth in Section 4.8.

"CASINO BUILDING" shall mean that certain building, including the
"pavilion" portion thereof, as delineated on Exhibit A, commonly known as
3883 W. Century Boulevard, Inglewood, California 90303, in which the
Hollywood Park-Casino is operated, and all fixtures, built-in apparatus,
built-in equipment, built-in appliances and fittings of every kind located on
the Casino Building or used in the operation of the Casino Business, halls,
dining rooms, lounges, offices, lobbies and all other public spaces,
lavatories, basements, cellars, vaults and other portions of the Casino
Building, such as heating and air conditioning systems and facilities used to
provide any utility services, parking services, refrigeration, ventilation,
garbage disposal, recreation or other services thereto, and all leasehold
improvements of tenants, if any.

"CASINO BUSINESS" shall mean the operation of the Hollywood Park-Casino
in and about the Casino Building.

"CASINO LEASE" shall mean a lease pursuant to which Buyer shall lease to
Seller the Casino Building in substantially the form of EXHIBIT C hereto.

"CASINO OPERATOR" shall mean a person or entity who has obtained all
requisite licenses and permits to operate the Casino Business, has been approved
by Seller and by Buyer (which approval shall not be unreasonably withheld) and
has agreed to the terms and conditions of the Casino Sublease.

"CASINO SUBLEASE" shall mean a sublease between Seller and the Casino
Operator pursuant to which the Casino Operator will sublease the assets of the
Casino Business and operate the Casino Business.

"CLOSING" and "CLOSING DATE" shall have the respective meanings set
forth in Section 3.1.

"CLOSING STATEMENT" shall have the meaning set forth in Section 3.7.3.

"COMMISSION" shall mean the Securities and Exchange Commission.

"CONTRACT" shall mean any contract, agreement, option, lease, license,
sales order, purchase order or other legally binding commitment, whether written
or oral pertaining to the operation of the Racetrack Business.

"DEBT" shall mean any indebtedness of Seller, whether or not contingent,
in respect of borrowed money or evidenced by bonds, notes, debentures or other
similar instruments or letters of credit (or reimbursement agreements in respect
thereof) or banker's acceptances or the balance deferred and unpaid of the
purchase price of any Asset, if and to the extent any of the foregoing
indebtedness (other than letters of credit) would appear as a liability upon a
balance sheet of Seller prepared in accordance with generally accepted
accounting principles, as well as all indebtedness of others secured by a lien
on any Asset (whether or not such indebtedness is assumed by Seller) and, to the
extent not otherwise included, any guaranty by Seller of any indebtedness of any
other Person.

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<PAGE>

"DISCLOSURE SCHEDULE" shall mean the schedules delivered to Buyer by or
on behalf of the Seller, containing all lists, descriptions, exceptions and
other information and materials as included therein in connection with the
representations and warranties made by Seller in this Agreement.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.

"EASEMENT AGREEMENT" shall have the meaning set forth in Section 11.9.

"EMPLOYEE BENEFIT PLANS" shall have the meaning set forth in
Section 4.22.

"ENVIRONMENTAL CLAIM OR CLAIMS" shall mean any administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation asserted by a third party or governmental agency alleging potential
liability arising out of, based on, or resulting from the presence or release
into the environment of any Hazardous Substances, including, without
limitation, any claim related to storm water runoff, water quality or the
discharge of waste water resulting from the operation of horse stables on the
Real Property.

"ENVIRONMENTAL LAWS" shall mean all laws, statutes, regulations,
rules, ordinances, by-laws, orders or determinations of any governmental or
judicial authority at the federal, state or local level, in effect as of the
date of this Agreement, which regulate or relate to the protection or
clean-up of the environment, the use, treatment, storage, transportation,
generation, manufacture, processing, distribution, handling or disposal of,
or emission, discharge or other release or threatened release of Hazardous
Substances, the preservation or protection of waterways, groundwater,
drinking water, air, wildlife, plants or other natural resources, or the
health and safety of persons or property, including, without limitation,
protection of the health and safety of employees, other than laws, statutes,
regulations, rules, ordinances, by-laws, orders or determinations pertaining
to land use planning, zoning matters, and development entitlements.

"EXCLUDED ASSETS" shall have the meaning set forth in Section 2.2.

"EXCLUDED LIABILITIES" shall have the meaning set forth in Section 3.4.

"GRANT DEED" shall have the meaning set forth in Section 3.5.

"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (15 U.S.C. Section 18a), and any amendments thereto.

"HAZARDOUS SUBSTANCES" shall mean any pollutant, contaminant, chemical,
waste and any toxic, infectious, carcinogenic, reactive, corrosive, ignitable,
or flammable chemical or chemical compound or hazardous substance, material or
waste, whether solid, liquid or gas, including, without limitation, any quantity
of asbestos in any form, urea formaldehyde, PCB's, radon gas, crude oil or any
fraction thereof, all forms of natural gas, petroleum products or by-products or
derivatives, radioactive substance or material, pesticide waste waters, sludges,
slag and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Laws.

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<PAGE>

"HIRED EMPLOYEE" shall have the meaning set forth in Section 11.2.1.

"IMPROVEMENTS" shall mean, collectively, all buildings, structures and
improvements of any kind and nature located on the Land, other than the Casino
Building, and all fixtures and built-in equipment located on such buildings,
structures and improvements, including all built-in apparatus, built-in
equipment, built-in appliances and fittings of every kind located on or used in
the operation of the Racetrack Business, horse stalls, stables, tack rooms,
fencing, halls, dining rooms, lounges, offices, lobbies and all other public
spaces, lavatories, basements, cellars, vaults and other portions of such
buildings, structures and improvements, such as heating and air conditioning
systems and facilities used to provide any utility services, parking services,
refrigeration, ventilation, garbage disposal, recreation or other services
thereto, and all landscaping and leasehold improvements of tenants, if any.

"INDEMNIFIED PARTY" shall mean, with respect to any Losses, the party
seeking indemnity hereunder.

"INDEMNIFYING PARTY" shall mean, with respect to any Losses, the party
from whom indemnity is being sought hereunder.

"INTELLECTUAL PROPERTY ASSETS" shall have the meaning set forth in
Section 2.1.4.

"INTELLECTUAL PROPERTY RIGHTS" shall mean all patent rights, copyrights,
moral rights, trademark, service mark, and trade name rights (including all
goodwill associated therewith), rights under unfair competition law, trade
secret rights (including customer lists and customer databases), privacy rights,
publicity rights, and all similar intellectual and industrial property rights
now known or hereafter existing under the laws of the United States or any other
jurisdiction (including all rights under common law and in applications and
registrations pertaining to the foregoing).

"INTERNAL REVENUE CODE" shall have the meaning set forth in
Section 4.12.

"INVENTORIES" shall mean collectively, all feed supplies, hay, stock,
food and beverage items, provisions in storerooms, other merchandise intended
for sale or resale, fuel, mechanical supplies, stationery and other expensed
supplies, and all goods, materials and supplies used or intended for use at, or
held for sale (whether on or off-site) in connection with, the Racetrack
Business, to the extent owned or held by Seller, including, without limitation,
(i) food and liquor in unbroken packages, (ii) raw and uncooked food, unopened
beverages and other salable merchandise, (iii) reserve stocks of operating
supplies not in use, and (iv) engineering and maintenance supplies.

"LAND" shall mean that certain real property more particularly described
in EXHIBIT "A."

"LEASES" shall mean the leases or subleases to which Seller or an
Affiliate of Seller is lessor or sublessor and affecting any portion of the
Assets which constitute Assigned Contracts.

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<PAGE>

"LICENSE AGREEMENT" shall mean an agreement pursuant to which Buyer
shall license to Seller certain of the Hollywood Park trademarks, tradenames,
logos and marks in substantially the form of EXHIBIT D hereto.

"LICENSES" shall mean, collectively, all governmental permits,
franchises, licenses and approvals relating to the Assets or the use, occupancy
and operations of the Racetrack Business or any other portion of the Assets,
including all gaming permits and licenses, racing licenses, certificates of
occupancy, certificates of compliance, food handlers permits, liquor licenses,
any certificates of unofficial bodies, such as the National Fire Prevention
Association and such other certificates as may be required or customary in the
jurisdiction where the Assets are located or which pertain thereto, including,
without limitation, those licenses listed on SCHEDULE 2.1.8 hereto.

"LOSSES" shall mean all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, encumbrances, liens,
expenses of investigation and defense of any claim, judgments, awards, fines,
sanctions, penalties, charges and amounts paid in settlement (net of insurance
proceeds actually received), including reasonable costs, fees and expenses of
attorneys, accountants and other agents of such Person.

"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
financial condition, business, results of operations or properties or assets of
the Racetrack Business or on the Assets in each case taken as a whole.

"NON-COMPETITION AGREEMENT" shall have the meaning set forth in
Section 11.8.5.

"OFFICE LEASE" shall mean a lease between Buyer and Seller pursuant to
which a Seller or its Affiliate shall lease office space from Buyer
substantially on the terms set forth on EXHIBIT E hereto, covering the premises
outlined on EXHIBIT E-1 hereto.

"PARKING LICENSE" shall mean a license agreement to be executed on the
Closing Date pursuant to which Seller (or its Affiliate) shall allow Buyer's
patrons to park on the Remainder Parcels, substantially on the terms set forth
on EXHIBIT G hereto.

"PERSON" means an individual, corporation, partnership, limited
liability company, association, trust, estate or other entity or organization.

"PRELIMINARY TITLE REPORT" shall have the meaning set forth in
Section 6.1.3.

"PURCHASE PRICES" shall mean the purchase price for the Real Property
and the purchase price for the Casino Building as specified in Section 3.3.1.

"RACETRACK BUSINESS" shall mean the operation of the Hollywood Park
Racetrack on a portion of the Real Property.

"RACETRACK EMPLOYEES" shall mean employees employed by Seller
exclusively in connection with the Racetrack Business.

"REAL PROPERTY" shall have the meaning set forth in Section 2.1.1.

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<PAGE>

"READERBOARD LEASES" shall have the meaning set forth in Section 2.1.10.

"REMAINDER PARCELS" shall have the meaning set forth in Section 2.2.7.

"REPRESENTATIVES" shall have the meaning set forth in Section 6.4.

"RESUBDIVISION" shall have the meaning set forth in Section 6.1.1

"REVIEW PERIOD" shall have the meaning given that term in Section 8.1.7
hereof.

"SEC REPORTS" shall have the meaning set forth in Section 4.9.

"SURVEY" shall have the meaning set forth in Section 6.1.2.

"TITLE COMPANY" shall have the meaning set forth in Section 6.1.3.

"TITLE POLICY" shall have the meaning set forth in Section 8.1.2

"TRANSACTIONS" shall mean the transactions contemplated by the
Transaction Documents.

"TRANSACTION FINANCIAL STATEMENTS AND BALANCE SHEET" shall mean the
unaudited income statement and balance sheet of the Racetrack Business, as of
March 31, 1999, prepared by Seller and attached hereto as EXHIBIT F.

"TRANSACTION DOCUMENTS" shall mean this Agreement, the Grant Deed, the
Casino Building Grant Deed, the Bill of Sale, the Office Lease, the Casino
Lease, the License Agreement, the Parking License, the Easement Agreement, the
Non-Competition Agreement and such other documents as the parties shall mutually
agree are necessary to complete the Transactions.

"TVG FOUNDERS AGREEMENT" shall mean that certain Founders Agreement,
dated July 30, 1997, between ODS Technologies, L.P. and Seller, as amended by
that certain Amendment Agreement No. 1 (Founders Agreement), dated December 31,
1998.

"TVG INVESTMENT AGREEMENT" shall have the meaning set forth in
Section 2.2.8.

2. TRANSFER OF ASSETS.

2.1 TRANSFER OF ASSETS. Subject to the terms and conditions of this
Agreement, on the Closing Date, Seller will sell, convey, transfer, assign and
deliver to Buyer, and Buyer will purchase from Seller those certain assets of
Seller described below including, without limitation, all of the assets of
Seller necessary to conduct and operate the Racetrack Business substantially
consistent with past operation, (the "ASSETS") as the same shall exist on the
Closing Date (except the Excluded Assets, as defined in Section 2.2):

2.1.1 REAL PROPERTY.

(a) THE RACETRACK PROPERTY. That certain real property
in the City of Inglewood, County of Los Angeles, State of
California, consisting of

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approximately 239.4 acres, as delineated on EXHIBIT A, including
the Land, Improvements thereon and all rights, privileges and
easements which are appurtenant to such real property (the "REAL
PROPERTY").

(b) THE CASINO BUILDING. The Casino Building, as that
term is defined in Section 1 hereof.

2.1.2 PERSONAL PROPERTY.

(a) All tangible personal property, including, but
not limited to, machinery and equipment including computer
equipment (but not licensed software installed therein except
to the extent assigned as Intellectual Property Assets under
Section 2.1.4 of this Agreement) and communications
equipment, furniture, supplies, inventory and trade fixtures
reflected on the Transaction Financial Statements and Balance
Sheet or otherwise located on the Real Property on the
Closing Date and used in the Racetrack Business (other than
the office furniture, software, computer and other equipment
set forth on Schedule 2.1.2(a)) and including the televisions
located in the Casino Building.

(b) Any leases relating to tangible personal
property, including, but not limited to, machinery and
equipment, furniture and tools, inventory, trade fixtures and
supplies, located on the Real Property and used in the
Racetrack Business, including those personal property leases
and service agreements listed on SCHEDULE 2.1.2(b).

2.1.3 INVENTORY. All Inventory reflected on the Transaction
Financial Statements and Balance Sheet or otherwise located on the Real Property
on the Closing Date.

2.1.4 INTELLECTUAL PROPERTY RIGHTS. Except as identified on
Schedule 2.2.9, (i) the Internet domain name registration for
"hollywoodpark.com", (ii) all Intellectual Property Rights owned by or licensed
to Seller which are used or held for use principally in connection with the
Racetrack Business and (iii) all of the items identified on Sections (a), (b),
(c), (d), (e) and (f) of Schedule 4.27 ((i), (ii) and (iii) collectively, the
"Intellectual Property Assets"), all subject to (a) all of the terms and
conditions of the licenses or other agreements by which Seller holds, uses, or
exploits those Intellectual Property Assets, (b) any existing licenses granted
by Seller and other obligations related to the Intellectual Property Assets as
of the Closing Date, and (c) the royalty obligations, contracts, claims and
other restrictions on the exercise of such Intellectual Property Assets, actual
and potential, identified on Schedule 4.27.

2.1.5 INTENTIONALLY DELETED.

2.1.6 BOOKS AND RECORDS. All books and records (other than
personnel records relating to or containing performance reviews and similar
evaluations unless the transfer is consented to by such personnel) and all
files, documents, papers, customer lists, architectural plans, drawings and
specifications, advertising and promotional materials and management and
accounting procedures and guidelines relating to the Racetrack Business,

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pertaining to the Assets, the Assumed Liabilities or otherwise to the Racetrack
Business that are related to continuing the operation of the Racetrack Business
as a going concern, subject to the Seller retaining copies of the same, if and
as it so chooses.

2.1.7 ASSIGNED CONTRACTS. The rights of Seller under all
Contracts relating to the Racetrack Business relating to periods after the
Closing Date, including but not limited to (i) the Contracts listed on any of
the schedules hereto (including all Material Contracts listed in Schedule 4.16
but not including: (a) the employment contracts listed on Buyer's notice to
Seller pursuant to Section 11.2.1; and (b) the contracts listed on
Schedule 2.2.9), (ii) all collective bargaining agreements, (iii) all unfilled
orders outstanding as of the Closing Date for the purchase of raw materials,
goods or services by Seller and all unfilled orders outstanding as of the
Closing Date for the sale of goods or services by Seller, and (iv) those entered
into in the ordinary course of business of the Racetrack Business through the
Closing Date, except for any Contract that requires the consent to assignment of
a party thereto and for which such consent has not been obtained pursuant to
Section 6.5 prior to the Closing (the "ASSIGNED CONTRACTS").

2.1.8 PERMITS AND LICENSES. All transferable Licenses,
including without limitation those listed on Schedule 2.1.8, except for those
permits and licenses excluded pursuant to Section 2.2.9, including without
limitation, those listed on Schedule 2.2.9.

2.1.9 VEHICLES. All vehicles reflected on the Transaction
Financial Statements and Balance Sheet and supporting schedules thereto.

2.1.10 READERBOARD SIGNS. The readerboard signs located
adjacent to the 405 and 105 freeways (the "READERBOARD SIGNS").

The Assets shall include all assets described above that are acquired by Seller
for use in connection with the Racetrack Business between the date hereof and
the Closing Date (except to the extent such assets would constitute Excluded
Assets), but shall exclude assets of the type described above that are disposed
of, sold or consumed after the date hereof in the ordinary course of business on
a basis consistent with past practice. If, for any reason, any Excluded Assets
are physically transferred to Buyer, or Buyer otherwise gains access to any such
Seller property as a result of the transactions contemplated herein, no
assignment or license of such property to Buyer shall be implied and, as between
Buyer and Seller, all ownership interests and other rights of any kind in such
property shall remain with Seller. If Buyer does come to possess or gain access
to any Seller information or property other than the Assets, Buyer shall
(a) treat any such information as the confidential information of Seller,
(b) promptly notify Seller that Buyer possesses or has access to such
information or property, and (c) cooperate fully with Seller to return to Seller
or destroy such property promptly, as Seller may direct at its option.
Specifically, but without limitation, any information stored on the computers
transferred to Buyer hereunder, but not otherwise expressly transferred by this
Section 2.1 shall, as between Buyer and Seller, remain the sole and exclusive
property of Seller.

2.2 ASSETS NOT TRANSFERRED. Notwithstanding anything to the
contrary contained herein, the following assets and properties of Seller are
specifically excluded from the Assets and shall be retained by it (the "EXCLUDED
ASSETS"):

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2.2.1 CASH AND CASH EQUIVALENTS. All working capital, cash
on hand and cash equivalents of Seller (whether or not relating to the
Racetrack Business), including, but not limited to, bank accounts and
temporary cash investments;

2.2.2 ACCOUNTS RECEIVABLE. All accounts receivable and
notes receivable of Seller whether or not relating to the Racetrack Business
(the "ACCOUNTS RECEIVABLE");

2.2.3 REFUND CLAIMS. Rights to or claims for refunds of
taxes and other governmental charges to the extent attributable to any time
or periods ending on or prior to the Closing Date and the benefit of net
operating loss carry-forwards or other credits of Seller, whether or not
attributable to the Racetrack Business;

2.2.4 THIRD PARTY CLAIMS. Claims or rights against third
parties, except those arising with respect to events or breaches occurring
after the Closing Date under the Assigned Contracts; provided, however, that
any rights of indemnification, contribution or reimbursement that may exist
under the Assigned Contracts in respect of liabilities or obligations
retained by the Seller hereunder shall be Excluded Assets;

2.2.5 INSURANCE. Subject to insurance policies covered
under the Assigned Contracts, all insurance policies and rights thereunder,
including but not limited to rights to any cancellation value as of the
Closing Date;

2.2.6 UNRELATED INFORMATION. Proprietary business
information, records and policies that relate generally to Seller, or any
Affiliate, and are not used principally in the Racetrack Business, including,
but not limited to, management procedures and guidelines, proprietary
financial reporting formats, accounting procedures, personnel records
relating to or containing performance reviews or similar evaluations,
instructions, organization manuals and strategic plans;

2.2.7 ADJACENT REAL PROPERTY. All real property and all
rights appurtenant thereto, and real property improvements, owned by Seller
other than the Real Property (the "REMAINDER PARCELS");

2.2.8 UNRELATED AND CORPORATE ASSETS. All other assets of
Seller not specifically included in the Assets to be sold hereunder,
including, but not limited to, all assets used or held for use in connection
with Seller's various gaming operations or the operations or Seller's Turf
Paradise racetrack, assets used or held for use other than principally in
connection with the Racetrack Business (including without limitation (i) the
J.D. Edwards accounting software and any other software or computer programs
used by Seller on a company wide basis and not solely for the Racetrack
Business as identified on Schedule 2.2.8; and (ii) all of Seller's right,
title and interest in and to that certain Investment Agreement, dated July
30, 1997, between ODS Technologies and Seller, as amended (the "TVG
INVESTMENT AGREEMENT")), all assets of the Casino Business other than the
Casino Building, Seller's corporate charter, taxpayer and other
identification numbers, seals, minute books and stock transfer books and
Seller's ownership of stock in its various subsidiaries;

2.2.9 CERTAIN CONTRACTS AND LICENSES. All non-transferable
licenses and permits including, without limitation, those set forth on
Schedule 2.2.8 and the rights of any Seller under any Contract regarding any
(i) non-transferable licenses and permits, and

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(ii) any Contract that requires the consent to assignment of a party thereto
and for which such consent has not been obtained pursuant to Section 6.5
prior to the Closing; provided that any such Contract shall be assigned upon
receipt of any necessary consents, and (iii) any Contract or license set
forth on Schedule 2.2.9 hereof; and

2.2.10 CASINO BUILDING SIGNAGE. All signage located in or
on the Casino Building.

3. CLOSING, PURCHASE PRICES, ASSUMPTION OF LIABILITIES.

3.1 CLOSING. The consummation of the purchase and sale of the
Assets (the "CLOSING") shall occur on August 31, 1999, unless extended by the
mutual written consent of Buyer and Seller. The date upon which the Closing
shall occur is sometimes referred to in this Agreement as the "CLOSING DATE."
Subject to the terms and conditions of this Agreement, Seller shall deliver
possession of the Assets to Buyer on the Closing Date, free and clear of all
Liens (except as permitted in Section 8.1.2). The parties agree that time is
of the essence.

3.2 SIMULTANEOUS DELIVERY; CONDITIONS CONCURRENT. All documents
and other items to be delivered at the Closing shall be deemed to have been
delivered simultaneously, and no delivery shall be effective until all such
items have been delivered.

3.3 PURCHASE PRICES.

3.3.1 PURCHASE PRICES. Prior to the Closing, the parties
shall agree upon the purchase price for the Real Property and the purchase
price for the Casino Building which amounts shall total: (a) $140,000,000 in
cash; plus (b) the assumption of the Assumed Liabilities. In the absence of
agreement prior to the Closing Date, the determination of the cash purchase
price for the Casino Building shall be determined by appraisal to be
performed by a "Big-Five" accounting firm mutually acceptable to the Buyer
and Seller.

3.3.2 ASSUMED LIABILITIES. On the terms and subject to the
conditions set forth in this Agreement, at the Closing, Buyer shall assume
and become responsible for all of the following liabilities and obligations
whether absolute, contingent, accrued or otherwise (collectively, the
"ASSUMED LIABILITIES"):

(a) ASSIGNED CONTRACTS. Any and all liabilities,
obligations and commitments arising or occurring after the
Closing Date under the Assigned Contracts;

(b) POST-CLOSING OPERATIONS. All liabilities and
obligations arising out of events or transactions after the
Closing in connection with the operation of the Racetrack
Business by Buyer;

(c) SPECIFIC UNDERTAKINGS. Any and all liabilities,
obligations and commitments of Seller specifically undertaken
by Buyer pursuant to any other provision of this Agreement;
and

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(d) CONDITION OF THE ASSETS. All liabilities
arising as a consequence of the physical, structural or
seismic condition of the Assets on and after the Closing
Date, except to the extent that Seller is obligated to
indemnify Buyer therefor or otherwise is liable with respect
thereto under Section 9 of this Agreement.

3.4 NON-ASSUMPTION OF CERTAIN LIABILITIES. Buyer is not
assuming, and shall not be deemed to have assumed any liabilities,
obligations or commitments of Seller, whether contingent or non-contingent,
liquidated or unliquidated, asserted or unasserted, other than the Assumed
Liabilities set forth above (the "EXCLUDED LIABILITIES"), all of which shall
remain the liabilities, obligations and commitments of Seller. The Excluded
Liabilities shall include, but shall not be limited to, the following:

3.4.1 TAX LIABILITIES. Liabilities for taxes relating to
the operation of the Racetrack Business and the Casino Business and the
ownership of the Real Property and other Assets through the Closing;

3.4.2 INDEMNIFICATION OBLIGATIONS. Seller's obligations to
indemnify Buyer as provided in Section 9;

3.4.3 LITIGATION. Except as otherwise provided in Section
9, all liabilities with respect to litigation, actions, proceedings or
arbitrations pending on the Closing Date, and those which, if asserted after
the Closing Date, exclusively relate to or which arise exclusively from
events which occurred prior to the Closing including, without limitation, the
actions described on Schedule 3.4.3;

3.4.4 WORKERS' COMPENSATION CLAIMS. All liabilities for
workers' compensation claims brought by Seller's employees and which
exclusively relate to or which arise exclusively from events which occurred
prior to the Closing other than relating to any obligation to rehire any such
employee after the Closing Date;

3.4.5 EMPLOYEE CLAIMS. All liabilities arising before the
Closing Date from claims (other than workers' compensation claims) brought by
employees or other present or former employees of the Seller who are not
employees or which relate to any collective bargaining agreement(s) to which
Seller is a party;

3.4.6 LIABILITIES RELATING TO THE EXCLUDED ASSETS. All
liabilities or obligations arising prior to, on or after the Closing Date
with respect to or in connection with the Excluded Assets;

3.4.7 BROKERS, ETC. Any liability whether currently in
existence or arising hereafter relating to fees, commissions or expenses owed
to any broker, finder, investment banker, attorney or other intermediary or
advisor employed by Seller or any of its Affiliates in connection with the
transactions contemplated hereby or otherwise; it being expressly
acknowledged that CIBC Oppenheimer has been engaged solely by Buyer;

3.4.8 DEBT. All Debt;

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3.4.9 AFFILIATES. Any liability, whether currently in
existence or arising hereafter, owed by Seller to any of its Affiliates,
other than compensation and benefits for employees of the Racetrack Business
to the extent such persons are employed by Buyer or its Affiliates after the
Closing; and

3.4.10 ENVIRONMENTAL. Except as otherwise provided in
Section 9, all liabilities arising from the environmental condition of the
Real Property or the Casino Building prior to Closing.

Notwithstanding the provisions of Sections 3.4.3 and 3.4.5 hereof, in the
event a court orders equitable relief with respect to such Excluded
Liabilities which equitable relief Seller could no longer comply with due to
its sale of the Assets which would be affected by such equitable relief,
Buyer shall be responsible for complying with such order and Seller shall
reimburse Buyer for the actual out-of-pocket cost thereof; provided, however,
that Buyer shall not voluntarily agree to any such equitable relief (if it
intends to seek reimbursement from Seller) unless it shall first have advised
Seller as to the proposed equitable relief and Seller shall have consented
thereto.

3.5 DELIVERIES AT CLOSING. At Closing, Seller and Buyer shall
each deliver to the other such instruments and funds as are necessary to
consummate the purchase and sale of the Assets and the assignment and
assumption of the Assumed Liabilities, including the following:

(a) SELLER SHALL DELIVER TO BUYER:

1. A duly executed and acknowledged grant deed
("GRANT DEED"), sufficient to convey to Buyer
fee title to the Real Property.

2. A duly executed and acknowledged grant deed
("CASINO BUILDING GRANT DEED"), sufficient to
convey to Buyer fee title to the Casino
Building.

3. The Bill of Sale and Assignment and Assumption
Agreement, duly executed by Seller.

4. The Easement Agreement, duly executed by
Seller and acknowledged.

5. The License Agreement, duly executed by Seller.

6. The Casino Lease, duly executed by Seller.

7. The Office Lease, duly executed by Seller.

8. The Parking License, duly executed by Seller.

9. An affidavit directed to Buyer giving Seller's
taxpayer identification number and confirming
that Seller is not a

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"foreign person," which affidavit shall be
sufficient to relieve Buyer of any
withholding obligation under Section 1445 of
the Internal Revenue Code (provided, however,
that if Seller fails to deliver such
affidavit, Buyer's remedy shall be to
withhold from the Purchase Prices in
accordance with law).

10. A California Real Estate Withholding Exemption
Certificate (Form 590-RE), which shall be
sufficient to relieve Buyer of any
withholding obligation under Section 18805
and/or Section 26131 of the California
Revenue and Taxation Code (provided however
that if Seller fails to deliver such
Certificate, Buyer's remedy shall be to
withhold from the Purchase Prices in
accordance with law).

11. Originals or copies of any warranties and
guaranties received by Seller and to be
assigned to Buyer, to the extent in Sellers
possession or readily available to Seller,
from any contractors, subcontractors,
suppliers or materialmen in connection with
any construction, repairs or alterations of
the Improvements, the Casino Building or any
tenant improvements.

12. Originals or copies of all Assigned Contracts
and all transferable Licenses, if any, to be
assigned to Buyer pursuant to this Agreement.

13. All existing as-built plans and specifications
for the Improvements and the Casino Building
in the possession or under the control of
Seller.

14. The Closing Statement, duly executed by Seller.

15. The certificates referred to in Section 8.1.4
and 8.1.6 hereof.

16. The Opinion of counsel to Seller referred to
in Section 8.1.8.

17. The Non-Competition Agreement referred to in
Section 11.8.5.

18. Such other instruments and documents as may
be reasonably required for Seller to perform
its obligations hereunder or as may be
reasonably required by the Title Company.

(b) BUYER SHALL DELIVER TO SELLER:

1. The Purchase Prices, in cash or immediately
available funds.

2. The Bill of Sale and Assignment and Assumption
Agreement, duly executed by Buyer.

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3. The Easement Agreement, duly executed by Buyer
and acknowledged.

4. The License Agreement, duly executed by Buyer.

5. The Casino Lease, duly executed by Buyer.

6. The Office Lease, duly executed by Buyer.

7. The Parking License, duly executed by Buyer.

8. The Closing Statement, duly executed by Buyer.

9. The certificates referred to in Section 8.2.3
and 8.2.4 hereof.

10. The Opinion of counsel to Buyer referred to
in Section 8.2.5.

11. Such other instruments and documents as may
be reasonably required for Buyer to perform
its obligations hereunder or as may be
reasonably required by the Title Company.

3.6 TAX ALLOCATION. Buyer and Seller shall mutually agree upon
the allocation of the Purchase Prices to broad categories constituting
components of the Assets, including an allocation for the Casino Building,
the Real Property and the Personal Property for purposes of Internal Revenue
Service Form 8594. In the absence of agreement prior to the Closing Date, the
allocation of the Purchase Prices shall be determined by appraisal to be
performed by a "Big-Five" accounting firm mutually acceptable to Buyer and
Seller. The costs of the appraisal shall be borne equally by Buyer and
Seller. Each party will report timely the purchase and sale of the Assets in
accordance with the agreed upon allocation among such broad categories for
all federal, state, local and other tax purposes. Buyer shall also furnish
Seller with a form of reseller certificate that complies with the
requirements of the California Taxation and Revenue Code and other applicable
state taxation laws.

3.7 COSTS AND PRORATIONS.

3.7.1 COSTS. Costs of the Closing shall be allocated as
follows:

SELLER SHALL PAY:

(a) the costs of preparing and recording the Grant
Deed, the Casino Building Grant Deed, the Easement Agreement
and all other documents (other than those relating to Buyer's
financing, if any) to be recorded at the Closing,

(b) all state and local documentary transfer, stamp,
or similar taxes, if any, imposed in connection with the
transfer of the Casino Building and the Real Property,

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(d) the cost of preparing the Preliminary Title
Report and the premiums for a CLTA Owner's Title Policy in
the amount of the portion of the Purchase Prices allocated to
the Casino Building and the Real Property,

(e) the cost of the Survey, and any supplemental
survey,

(f) one-half of the actual costs incurred by Buyer
to obtain a liquor license for the Racetrack Business, not to
exceed $25,000, and

(g) one-half of the HSR filing fee.

BUYER SHALL PAY:

(a) all state and local sales or use taxes imposed
in connection with the transfer of the Personal Property,

(b) the cost of preparation and recordation of its
mortgage, deed of trust, or other applicable financing
instruments, if any,

(c) the portion of the premium for the Title Policy
not chargeable to Seller as provided above, including the
incremental cost of the ALTA Title Policy and all
endorsements thereto specified by Buyer, and

(d) one-half of the HSR filing fee.

All other costs, if any, shall be apportioned in the customary manner for
real estate transactions in Los Angeles County.

3.7.2 PRORATIONS. At Closing, the parties shall prorate as
of the Closing Date, the following with respect to the Racetrack Business and
the Assets:

(a) TAXES: Real estate taxes, assessments, personal
property taxes and rent tax, if any, on all or any portion of
the Casino Building and the Real Property, based on the
regular and supplemental tax bills for the calendar year in
which the Closing occurs. In the event that the actual
property taxes payable in respect of the Assets are not
ascertainable as of the Closing Date, then the parties will
prorate such taxes on the basis of the latest available tax
bill and will make such post-Closing adjustment as may be
necessary when the actual taxes are determined. All taxes
and assessments relating to periods prior to and through the
Closing shall be paid by Seller and Buyer shall be
responsible for all taxes and assessments relating to periods
after the Closing. Seller shall pay any supplemental tax
bills or taxes or assessments levied by the taxing
authorities or received subsequent to the Closing Date to the
extent applicable to periods prior to the Closing Date. If
any supplemental real estate taxes are levied for the taxable
period up to and including the Closing Date, the parties
will, immediately after the Closing or the issuance of the

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supplemental real estate tax bill (whichever last occurs),
prorate between themselves, in cash, without interest and to the
date of the Closing Date, the supplemental real estate taxes
shown by such bill.

(b) PREPAID ITEMS, DEPOSITS AND UTILITIES: All
prepaid items and deposits applicable to the ownership of the
Assets or operation of the Racetrack Business covering
periods prior to and after the Closing Date, including
without limitation, the items listed on Schedule 3.7.2(b) and
all utilities including gas, water, sewer, electricity,
telephone and other utilities supplied to the Casino Building
and the Real Property. Seller shall pay, prior to the
Closing Date, all such amounts for which a bill has been
received or for which payments are otherwise due prior to the
Closing Date, and Buyer shall be credited, and Seller shall
be debited, with an amount equal to all utility charges for
the period from the date such bills were issued or such
payments were due until the Closing Date. All meters shall
be read as of the Closing Date.

(c) ACCOUNTS RECEIVABLE. Buyer agrees to use its
best efforts to collect all Accounts Receivable, including
advertising, income, rents and other revenues derived from
the operation of the Racetrack Business, for the benefit of
Seller by using substantially the same efforts as the
Racetrack Business has historically used in the collection of
its accounts; provided however, that Buyer shall not be
required to resort to litigation. Seller shall designate an
account to which Buyer shall deposit monies it collects with
respect to such receivables and Buyer agrees to promptly
deposit to such account any monies it collects. Seller
agrees to reimburse Buyer for the reasonable, documented
out-of-pocket costs (which costs shall not include employee
salaries or overhead) Buyer incurs in connection with
assisting Seller in the collection of the Accounts
Receivable. Any monies received by Buyer from the account
debtors that owe Accounts Receivable shall be applied against
the invoice to which the payment relates and shall be
delivered to Seller or retained by Buyer accordingly. Buyer
and Seller shall cooperate to identify the proper recipient
of monies received without sufficient identifying information.

(d) ASSIGNED CONTRACTS. Amounts payable under
Assigned Contracts shall be prorated on an accrual basis.
Seller shall pay when due all amounts for which a bill has
been received prior to the Closing Date. For bills received
after the Closing Date, Seller agrees to pay its prorated
share when due or to promptly reimburse Buyer if paid by
Buyer.

3.7.3 CLOSING STATEMENT. Buyer and Seller shall mutually
agree upon a closing statement (the "CLOSING STATEMENT") consistent with the
foregoing and otherwise consistent with this Agreement. Seller shall prepare
a preliminary Closing Statement and will deliver it to Buyer at least ten
(10) days prior to the Closing. Buyer shall inform Seller of any questions
or disputes within five (5) days of its receipt of the Statement. If the
parties are unable to agree upon the concepts embodied in the proposed
Closing Statement, any disputes will be resolved by a "Big-Five" accounting
firm mutually acceptable to the parties.

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As soon as practicable after the Closing, Seller shall deliver a final
Closing Statement to Buyer. Any disputes will be resolved as aforesaid.

4. REPRESENTATIONS AND WARRANTIES OF SELLER.

As an inducement for Buyer to enter into this Agreement, Seller
represents and warrants to Buyer that except as set forth on any Disclosure
Schedule, each of the following statements is true and correct as of the date
hereof, and shall be true and correct as of the Closing Date (as such
representations and warranties may be modified or amended pursuant to Section
12.12 hereof):

4.1 ORGANIZATION, CORPORATE POWER, AND AUTHORITY. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Seller has all requisite corporate power and
authority to own, operate and lease the Assets, to conduct the Racetrack
Business and the Casino Business, to execute and deliver the Transaction
Documents to which it is a party and to perform its respective obligations
thereunder.

4.2 AUTHORIZATION OF AGREEMENTS. The execution, delivery and
performance by Seller of the Transaction Documents to which it is a party,
and the consummation by it of the Transactions, have been duly authorized by
all necessary corporate action by the Seller. This Agreement has been, and
each other Transaction Document to which Seller is a party will be at the
Closing, duly executed and delivered by Seller, and constitute, or will, when
delivered, constitute, the legal, valid and binding obligations of Seller,
enforceable against Seller in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium, and
other similar laws and equitable principles relating to or limiting
creditors' rights generally.

4.3 EFFECT OF AGREEMENT. The execution, delivery and performance
by Seller of the Transaction Documents, and the consummation by it of the
Transactions, will not violate the Certificate of Incorporation or By-laws of
Seller or any judgment, award or decree to which it is a party, or by which
Seller or the Assets are bound, or result in a breach of or constitute (with
due notice or lapse of time or both) a default under, any indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge, security interest or encumbrance of any nature whatsoever upon
any of the Assets, except to the extent that (a) the effect thereof is not
reasonably likely to have a Material Adverse Effect, (b) consents may be
required under Seller's loan agreements, including, without limitation, that
certain Amended and Restated Reducing Revolving Loan Agreement, dated as of
October 14, 1998, by and among Seller on the one hand and Bank of America
National Trust and Savings Association as Administrative Agent and the other
Banks who are parties thereto on the other hand (the "BANK OF AMERICA LOAN
AGREEMENT"), or (c) consents may be required for assignment of certain of the
Contracts.

4.4 GOVERNMENTAL APPROVALS. Except as set forth in Schedule 4.4
and except for filings pursuant to the HSR Act, no material approval,
authorization, consent or order or action of or filing with any court,
administrative agency or other governmental authority is required to be
obtained by Seller for the execution and delivery by Seller of the
Transaction Documents or the consummation by it of the Transactions. To the
knowledge of Seller,

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there are no facts relating to the identity or circumstances of Seller that
would prevent or materially delay obtaining any of the required consents.

4.5 CONDITION OF PROPERTY AND ASSETS. Except as set forth in
Schedule 4.5, 4.6 or 4.10, to Seller's knowledge, there are no material
physical or mechanical defects in the Casino Building or Improvements on the
Land, or in the other Assets, in each case except ordinary wear and tear and
obsolescence.

4.6 COMPLIANCE WITH LAWS. Except as set forth in Schedule 4.5,
4.6 or 4.10, to Seller's knowledge, the construction of the Improvements and
the Casino Building and the use and operation of the Racetrack Business is
(or in the case of construction was, at the time of such construction) in
material compliance with applicable statutes, codes, ordinances, rules,
regulations, requirements, orders, writs, directives, judgments and decrees
(collectively, "LAWS") of any court, commission, tribunal or any governmental
agency or authority, (collectively, "GOVERNMENTAL AUTHORITY"), including
without limitation, the regulations and requirements of the Racing Board, the
California Department of Health, the Department of Commerce and Consumer
Affairs, the California Department of Toxic Substances Control, the
California Regional Water Control Board - Los Angeles Region, the California
State Water Resources Control Board and the United States Environmental
Protection Agency, the City of Inglewood Building Department and any other
county commission or agency, and, to Seller's knowledge, Seller has received
no notice of material non-compliance with any Laws.

4.7 UTILITIES. To Seller's knowledge, all material water, sewer,
gas, electric, telephone and all other utilities for the present use and
operation of the Racetrack Business and the Casino Business are installed to
the property lines thereof, are all connected and operating, are adequate to
service such property as presently configured and to permit present usage of
such property.

4.8 IMPROVEMENT CONTRACTS. Except as set forth in Seller's
capital budget for the 1999 calendar year attached hereto as Schedule 4.8
(the "CAPITAL BUDGET") at Closing, there will be no outstanding Material
Contracts made by Seller for any improvements to the Real Property or the
Casino Building, or for professional services rendered in furnishing plans
for, the development of the Real Property or the Casino Building, which have
not been fully paid for, and Seller shall have discharged all material
mechanics' or materialmens, liens arising from any labor or materials
furnished to the Real Property and the Casino Building prior to Closing. To
Seller's knowledge, except as set forth in the Title Report, no outstanding
special assessment or special taxes are due or pending, which, when imposed,
would create a lien on the Real Property or the Casino Building.

4.9 REPORTS; FINANCIAL STATEMENTS; TRANSACTION FINANCIAL
STATEMENTS AND BALANCE SHEET. Seller has previously furnished or made
available to Buyer true and complete copies of each effective registration
statement, report, proxy statement or information statement prepared and
filed with Commission by it since December 31, 1997, including (i) the
Company's Annual Reports on Form 10-K for the years ended December 31, 1997
and December 31, 1998, (ii) the Company's Proxy Statements for its 1998 and
1999 annual meetings of stockholders, and (iii) the Company's Registration
Statement on Form S-4 dated March 26, 1999 and any amendments thereto filed
prior to the date hereof (collectively,

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including any such reports and documents filed subsequent to the date hereof,
the "SEC REPORTS"), as filed with the Commission. As of their respective
dates, the SEC Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading with respect to the Racetrack
Business or the Assets. The audited consolidated financial statements and
unaudited interim financial statements of Seller included in the SEC Reports
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be indicated therein
or in the notes thereto) and fairly present the financial position of Seller
as at the dates thereof and the results of its operations and changes in
financial position for the periods then ended, subject, in the case of the
unaudited interim financial statements, to normal year-end audit adjustments
and any other adjustments described therein. The Transaction Financial
Statements and Balance Sheet has been, and the monthly financial information
to be delivered pursuant to Section 6.3 will be, prepared in accordance with
generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto), and present
fairly the financial position of Seller as of the date thereof and the
results of its operations for the period covered by such financial statement
and balance sheet, subject to normal year-end audit adjustments and any other
adjustments described therein.

4.10 HAZARDOUS SUBSTANCES. Except as set forth on Schedule 4.5,
4.6, 4.10 or 4.17, (a) to Seller's knowledge, neither the Real Property nor
the Casino Building (including, without limitation, the subsurface soil and
the ground water thereunder) contain any material amount of any Hazardous
Substance, or any active or abandoned underground storage tank, (b) Seller
has no knowledge of any past generation, transportation, storage, treatment
or disposal of any material amount of any Hazardous Substance on the Real
Property or the Casino Building; (c) Seller has no knowledge of any actual or
threatened claims or demands by any third party or employee with regard to
releases of, or exposures to, Hazardous Substances, (d) Seller has no
knowledge of any off-site disposal of any material amount of any Hazardous
Substance, and (e) to Seller's knowledge, Seller has delivered to Buyer
copies of all environmental reports in its possession relating to the Real
Property and the Casino Building.

4.11 LEASES. Except as set forth on Schedule 4.11, there are no
Leases or other agreements relating to the possession or occupancy of any
portion of the Real Property or the Casino Building.

4.12 "FOREIGN PERSON" STATUS. Seller is not a "foreign person"
within the meaning of Section 1445 of the Internal Revenue Code of 1986, as
amended (the "INTERNAL REVENUE CODE").

4.13 EMINENT DOMAIN; ZONING; STREET CHANGES; OTHER LITIGATION.
Except as set forth in Schedule 4.13, to Seller's knowledge, there are no
actions, litigation or proceedings pending, contemplated or threatened to
take all or any portion of the Real Property or the Casino Building, or any
interest therein, by eminent domain or to modify the zoning of, the Real
Property or the Casino Building.

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4.14 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except in the ordinary
course of business, consistent with past practice, or as disclosed on the
Transaction Financial Statements and Balance Sheet, or as contemplated
hereunder, since December 31, 1998, Seller has not with respect to the
Racetrack Business or the Assets:

4.14.1 MATERIAL OBLIGATIONS. Incurred any material
obligation or liability (fixed or contingent), except normal trade or
business obligations and liabilities incurred in the ordinary course of
business and obligations and liabilities in connection with the Transactions;

4.14.2 DISCHARGE OR SATISFACTION OF LIENS. Discharged or
satisfied any material lien, security interest or encumbrance or paid any
material obligation or liability (fixed or contingent), other than pursuant
to the terms of such obligation;

4.14.3 ADDITIONAL LIENS. Mortgaged, pledged or subjected to
any material lien, security interest or other encumbrance any of the Assets;

4.14.4 ACQUISITION OR DISPOSITION OF ASSETS. Transferred,
leased or otherwise disposed of any portion of the Assets;

4.14.5 COMPROMISE OF DEBTS OR CLAIMS. Canceled or
compromised any debt or claim;

4.14.6 WAIVER OF MATERIAL RIGHTS. Waived or released in
writing any rights of value to the Racetrack Business or the Assets;

4.14.7 RIGHTS IN LICENSES, TRADEMARKS, PATENTS. Transferred
or granted any rights under any Intellectual Property Rights;

4.14.8 EMPLOYEE COMPENSATION. Made or granted any material
wage or salary increase to any Racetrack Employees, entered into any written
employment contract with any officer of Seller working exclusively for the
Racetrack Business or Racetrack Employee or made any material loan to, or
entered into any material transaction of any other nature with, any officer
of Seller working exclusively for the Racetrack Business or Racetrack
Employee. Seller has made available to Buyer the salary and benefits
information relative to the employees of Seller relating to the Racetrack
Business;

4.14.9 MATERIAL CONTRACTS. Entered into any Material
Contract, except for (i) Contracts listed in Schedule 4.16, (ii) the
Transaction Documents, and (iii) sales or purchases in the ordinary course of
business;

4.14.10 CASUALTY LOSS. Experienced any material damage,
destruction or loss (whether or not covered by insurance) to the Assets;

4.14.11 MATERIAL ADVERSE CHANGE. Experienced any adverse
change in the financial condition, business, results of operations,
properties or assets of the Racetrack Business or the Assets that would
reasonably be likely to result in a Material Adverse Effect other than any
such adverse change which results from economic conditions which generally
affect the industry in which the Company operates or from economic conditions
generally;

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4.14.12 ACCOUNTING. Changed its accounting principles,
methods or practices or in the manner it keeps its books and records or
changed its current practices with regards to sales, receivables, payables or
accrued expenses; or

4.14.13 CAPITAL EXPENDITURES. Incurred any single capital
expenditure or commitment materially inconsistent with the Capital Budget.

4.15 TITLE TO ASSETS, ABSENCE OF LIENS AND ENCUMBRANCES. Seller
has, or at the time of the Closing will have, good and valid title to all of
the Assets (except for leased Assets), in each case free and clear of all
mortgages, liens, charges, security interests or other encumbrances of any
nature whatsoever, other than (a) liens for taxes not yet due, (b) liens in
the ordinary course of business consistent with past practice, (c) matters
disclosed by the Title Report, Survey and any supplements thereto or
otherwise of record, and (d) matters which would be disclosed by a physical
inspection of the Assets.

4.16 MATERIAL CONTRACTS. Schedule 4.16 sets forth each executory
Contract (collectively, the "MATERIAL CONTRACTS") (a) that obligates Seller
to pay an amount of $100,000 or more and which cannot be terminated at any
time without material penalty, (b) that has an unexpired term as of the date
hereof of one (1) year or more and which cannot be terminated prior to each
expiration without material penalty; (c) by which any material portion of the
Assets are bound; or (d) is a written employment agreement or collective
bargaining agreement. Seller has made available to Buyer true and complete
copies of all written Contracts, together with all amendments thereto, and
accurate descriptions of all oral Contracts, listed, or required to be
listed, on Schedule 4.16. To Seller's knowledge, neither Seller nor the
other parties thereto is in material breach of any such Material Contract,
each Material Contract is valid and enforceable in accordance with its terms
for the periods stated therein, and there is not under any such Material
Contract any existing material default (including, but not limited to, any
payment default) or event of material default or event that, with notice or
lapse of time or both, would constitute such a material default. Seller has
paid or accrued for, or will pay or accrue for prior to the Closing, all
amounts due and owing prior to the Closing under the Assigned Contracts
requiring the payment of a specific sum(s) of money on a specific date(s) or
as the result of a specific occurrence(s). In addition, Seller has received
all amounts due and owing it from the other parties to the Assigned Contracts
requiring the payment of a specific sum(s) of money on a specific date(s) or
as the result of a specific occurrence(s) (except to the extent such amounts
are reflected as Accounts Receivable).

4.17 LITIGATION. To Seller's knowledge, except as disclosed in
Schedule 3.4.3, 4.5, 4.6, 4.10 or 4.17, there is no material legal,
administrative, arbitration or other proceeding, claim, action, or
governmental or regulatory investigation of any nature pending or, to the
knowledge of Seller, threatened against or affecting the Assets.

4.18 ASSETS. To Seller's knowledge, the Assets constitute all of
the assets and properties used by, and materially necessary for the operation
of, the Racetrack Business and the Casino Business as of the date of the
Transaction Financial Statements and Balance Sheet, except as to Assets sold,
disposed of or consumed in the ordinary course of business since such date
and the Excluded Assets.

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4.19 COMMISSIONS. Neither the Seller nor any of its directors,
officers, employees or agents have employed or incurred any liability to, any
broker, finder or agent for any brokerage fees, finder's fees, commissions or
other amounts with respect to the Transactions.

4.20 LABOR RELATIONS. To Seller's knowledge, except as set forth
in Schedule 4.20, (a) there is no material unfair labor practice charge or
complaint or union or employee grievance or arbitration against Seller
pending, or, to Seller's knowledge, threatened in writing against Seller; (b)
there is no labor strike, dispute, slowdown or stoppage threatened or, to
Seller's knowledge, pending against Seller; (c) there is no representation
claim or petition pending before the National Labor Relations Board; (d)
there are no collective bargaining agreements applicable to the Racetrack
Employees of Seller; and (e) there has been no material work stoppage during
the past five (5) years.

4.21 SEVERANCE OBLIGATIONS. The consummation of the Transactions
will not entitle any current or former Racetrack Employee to severance
payment by Buyer, provided that Buyer complies with the provisions of Section
11.2.1 hereof.

4.22 EMPLOYEE BENEFIT PLANS. To Seller's knowledge, there are no
liens against the Assets under Section 412(n) of the Code or Sections 302(f)
or 4068 of ERISA. To Seller's knowledge, except as set forth on Schedule
4.16, neither Seller nor any corporation, trade, business or other entity
under common control with Seller, within the meaning of Sections 414(b), (c),
(m) or (o) of the Code, or under Section 4001 of ERISA (an "ERISA AFFILIATE")
is or was obligated to contribute to any multi-employer plan within the
meaning of Section 3(37) of ERISA or any plan subject to Title IV of ERISA.
From and after Closing, except pursuant to applicable collective bargaining
agreements, pursuant to an agreement with, or membership in, the California
Racetrack Federation Association or as provided in this Agreement, Buyer will
have no obligation to contribute to, or any liability in respect of, any
"Employee Benefit Plan" (as such term is defined below) sponsored or
maintained by Seller or any ERISA Affiliate, or to which Seller or any ERISA
Affiliate was obligated to contribute. Neither any applicable collective
bargaining agreement nor any agreement with, or membership in, the California
Racetrack Federation Association, would require Buyer to contribute after the
Closing to any employee benefit plan as defined in Section 3(3) of ERISA to
which only one employer contributes directly or indirectly (with the number
of contributing employers being determined under Sections 414(b), (c), (m),
(n) and (o) of the Code). The Seller and its ERISA Affiliates will not, in
connection with the transactions contemplated by this Agreement, cease to
provide any group health plan coverage to their employees in a manner which
would cause Buyer to be deemed a successor employer of such Seller or its
ERISA Affiliates within the meaning of Proposed Treasury Regulations Section
54.4980B-9 Q&A8(c). For purposes of this Agreement, the term "EMPLOYEE
BENEFIT PLAN" means (i) any employee benefit plan within the meaning of
Section 3(3) of ERISA, or (ii) any similar employment, severance or other
arrangement or policy (whether written or oral) providing for insurance
coverage (including self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
fringe benefits, or retirement benefits, or for profit sharing, deferred
compensation, bonuses, stock options, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits.

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4.23 GUARANTIES. Except as set forth on Schedule 4.23, there are
no guaranties, letters of credit or performance bonds with respect to any
obligations or liabilities of the Racetrack Business.

4.24 FOREIGN CORRUPT PRACTICES ACT. To Seller's knowledge, Seller
has not, directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns from corporate funds, violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff,
influence payment, kickback or other similar unlawful payment.

4.25 AFFILIATE TRANSACTIONS. Except as disclosed in the SEC
Reports or as disclosed in Schedule 4.25, there are no Contracts,
liabilities, transactions or relationships that would be required to be
disclosed by the Seller by Item 404 of Regulation S-K.

4.26 YEAR 2000. Except as set forth in the SEC Reports, Seller,
to its knowledge, has taken all actions necessary and appropriate to confirm
that there shall be no material adverse change to the Racetrack Business's
business or electronic systems or material interruptions in the Racetrack
Business by reason of the advent of the year 2000; provided, however, no
representation or warranty is being made with respect to Seller's systems
suppliers.

4.27 INTELLECTUAL PROPERTY RIGHTS. To Seller's knowledge:

(a) Section (a) of Schedule 4.27 contains a complete and
correct list of all: (i) U.S., state, and foreign trademark, service mark,
and trade name registrations and applications owned by--or, for applications,
filed on behalf of--Seller that are material to the Racetrack Business, or
that contain the phrase HOLLYWOOD PARK or a substantially similar phrase,
including an identification of the mark at issue, the registration or
application number, the registration date (if applicable), and the class and
description of the related goods or services; and (ii) all other trademarks,
service marks, or trade names that are owned by Seller and material to the
Racetrack Business.

(b) Section (b) of Schedule 4.27 contains a complete and
correct list of all: (i) U.S. and foreign copyright registrations and
applications owned by--or, for applications, filed on behalf of--Seller that
are used or held for use principally in connection with the Racetrack
Business, including an identification of the title and nature of the work at
issue and its registration number (if applicable); and (ii) major categories
of materials, other than computer programs, that are likely to be protected
by copyright laws, owned by Seller and material to the Racetrack Business.

(c) Section (c) of Schedule 4.27 contains a complete and
correct list of all U.S. and foreign patent registrations and applications
owned by--or, for applications, filed on behalf of--Seller that are material
to the Racetrack Business, including an identification of the title and
nature of the work and its registration or application number.

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(d) Section (d) of Schedule 4.27 contains a complete and
correct list of all trade secrets and confidential or other proprietary
information (including customer lists and customer databases) that are owned
by Seller and material to the Racetrack Business.

(e) Section (e) of Schedule 4.27 contains a complete and
correct list of all computer programs owned by, or licensed to, Seller that
are material to the Racetrack Business.

(f) Except as set forth on Schedules 2.2.9 and 2.2.10,
Section (f) of Schedule 4.27 contains a complete and correct list of all: (i)
agreements granting Seller the right to use any Intellectual Property Rights
material to the Racetrack Business; (ii) all agreements by which Seller has
licensed third parties any of the Intellectual Property Rights assigned to
Buyer hereunder; and (iii) all other agreements or obligations of any sort
limiting the use of or otherwise impacting any of the Intellectual Property
Rights assigned to Buyer hereunder. Except as identified on Schedule 4.27,
the agreements identified in Section (f) of Schedule 4.27 are valid and
binding obligations of Seller, enforceable in accordance with their terms,
and neither Seller nor any other Person party thereto is in default
thereunder.

(g) Except as set forth in Section (g) or elsewhere in
Schedule 4.27: (i) no claim is pending or threatened to the effect that the
present or past use of the Intellectual Property Assets by Seller infringes
upon, or conflicts with, the rights of another Person; (ii) Seller's current
use, sale, or licensing of the Intellectual Property Assets does not infringe
upon or violate any rights of another Person; (iii) no Person is infringing
upon Seller's rights in and to the Intellectual Property Assets; (iv) none of
the Intellectual Property Assets are subject to any outstanding order,
judgment, decree, or stipulation restricting the use thereof by Seller, or
restricting the licensing thereof by Seller; and (v) the consummation of the
transactions contemplated hereby will not result in the loss or impairment of
any Intellectual Property Asset, except as may be provided in any licenses or
other agreements by which Seller holds any third-party Intellectual Property
Rights.

(h) Except as set forth in Section (h) of Schedule 4.27,
Seller is not currently obligated to make royalty or other payments to any
owner of, licensor of, other claimant to, or any other Person regarding any
Intellectual Property Assets.

(i) Except as set forth on Schedules 2.2.9 and 2.2.10,
the Intellectual Property Assets include all Intellectual Property Rights
which are owned or used by Seller and material to the conduct of the
Racetrack Business in the manner that the Racetrack Business has heretofore
been conducted.

(j) Except as identified otherwise on Schedule 4.27, (i)
the registrations listed on Schedule 4.27 are valid and subsisting in full
force and effect and have not expired or been canceled or abandoned; (ii)
there is no pending or threatened, opposition, interference, cancellation, or
other legal or governmental action or proceeding before any court or
registration authority with respect to the registrations listed on Schedule
4.27; and (iii) Seller is the sole and exclusive owner of all the
Intellectual Property Assets identified on Schedule 4.27 other than those
third-party Intellectual Property Rights licensed to Seller and identified in
Section (f) of Schedule 4.27.

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5. REPRESENTATIONS AND WARRANTIES OF BUYER.

As an inducement for Seller to enter into this Agreement, Buyer
represents and warrants to Seller that each of the following statements is true
and correct as of the date hereof, and shall be true and correct as of the
Closing Date (as such representations and warranties may be modified or amended
pursuant to Section 12.12 hereof):

5.1 ORGANIZATION, CORPORATE POWER AND AUTHORITY. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Kentucky and is duly qualified to do business as a foreign
corporation in the jurisdictions in which Buyer conducts its business, except
where the failure so to qualify will not have a material adverse effect on
Buyer's ability to perform its obligations under the Transaction Documents and,
after the Closing, to use the Assets and operate the Racetrack Business. Buyer
has all requisite corporate power and authority to acquire, own, lease and
operate the Assets, to conduct the Racetrack Business and to execute and deliver
the Transaction Documents to which it is a party and to perform its obligations
thereunder.

5.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and
performance by Buyer of the Transaction Documents to which it is a party, and
the consummation by it of the Transactions, have been duly authorized by all
necessary corporate action by Buyer. This Agreement has been, and each other
Transaction Document to which Buyer is a party will be at the Closing, duly
executed and delivered by Buyer and constitute, or will, when delivered,
constitute, the legal, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws and equitable principles relating to or limiting creditors' rights
generally.

5.3 EFFECT OF AGREEMENT. The execution, delivery and performance by
Buyer of the Transaction Documents to which it is a party, and the consummation
by it of the Transactions, will not violate the Certificate of Incorporation or
By-laws of Buyer or any judgment, award or decree or any material indenture,
material agreement or other material instrument to which Buyer is a party, or by
which Buyer or its properties or assets are bound, or conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under, any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, security interest or encumbrance of
any nature whatsoever upon any of the properties or assets of Buyer, except to
the extent the effect thereof will not be materially adverse to Buyer's ability
to fulfill its obligations under the Transaction Documents to which it is a
party and, after the Closing, to use the Assets and operate the Racetrack
Business.

5.4 APPROVALS. Except as set forth in Schedule 5.4 and except for
filings pursuant to the HSR Act, no approval, authorization, consent or order or
action of or filing with any court, administrative agency or other governmental
authority is required to be obtained by Buyer for the execution and delivery by
Buyer of the Transaction Documents to which it is a party or the consummation by
it of the Transactions. Buyer has received all required consents from its
lender(s) necessary for Buyer to execute this Agreement and consummate the
Transactions. To the knowledge of Buyer, there are no facts relating to the

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identity or circumstances of Buyer that would prevent or materially delay
obtaining any of the required consents.

5.5 COMMISSIONS. Except for CIBC Oppenheimer, whose fees shall be
Buyer's sole responsibility, neither Buyer nor any of its directors, officers,
employees or agents have employed, or incurred any liability to, any broker,
finder or agent for any brokerage fees, finder's fees, commissions or other
amounts with respect to the Transactions.

5.6 FINANCING. Buyer has sufficient funds available (through
existing credit arrangements) to consummate the Transactions. To the extent
Buyer's internal financing sources become unavailable, Buyer will promptly
arrange for alternate financing for the Transactions, which financing will be in
place in time to permit the Closing to occur on August 31, 1999.

5.7 BUYER'S INVESTIGATION. Buyer is an experienced investor in real
estate and a sophisticated operator of racing tracks and will make its own
investigation and analysis of the Real Property and Assets as Buyer deems
necessary with respect to the condition, suitability, compliance with law, and
prospects for future development of the Real Property and Assets for Buyer's use
and all other aspects of this Transaction. Buyer will rely upon its own (and
its consultants') inspections, investigations and analyses of the Real Property
and other Assets, and, with the exception of only those express representations
and warranties of Seller (as modified by the results of Buyer's inspections and
investigations) set forth herein, upon which Buyer shall be entitled to rely,
Buyer will not rely in any way upon any representations, statements, agreements,
warranties, studies, reports, descriptions, guidelines or other information or
material furnished by Sellers or its representatives, whether oral or written,
express or implied, of any nature whatsoever regarding any such matters it being
expressly acknowledged that Seller has not verified the accuracy or completeness
of any such information or the qualification of the persons preparing such
information. Buyer acknowledges that Seller has not made any representations or
warranties regarding the condition or suitability of the Assets, except as
expressly set forth in this Agreement.

6. COVENANTS OF SELLER.

6.1 REAL PROPERTY MATTERS.

6.1.1 RESUBDIVISION. Seller shall promptly and diligently
process the approval of such lot line adjustments, parcel maps and/or tentative
maps and related approvals and conditions as may be approved or required by the
City of Inglewood, and the finalization and/or recordation thereof, pursuant to
which the Casino Building and the Real Property, on the one hand, and the
"Remainder Parcels" on the other hand, will be legally subdivided into separate
legal parcels substantially as outlined on Exhibit A hereto (the
"RESUBDIVISION"). All costs associated with the preparation, processing and
recordation of the Resubdivision shall be borne by Seller.

6.1.2 SURVEY. Buyer acknowledges that Seller has heretofore
delivered to Buyer a copy of that certain ALTA ACSM Land Title Survey of the
Casino Building, the Real Property and the Remainder Parcels, prepared by Psomas
& Associates and dated February 14, 1997 (the "SURVEY"). Seller shall promptly
cause the Survey to be

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supplemented at such time as the Preliminary Title Report is issued and when
the Resubdivision is in final form to reflect the subdivision of subject real
property. All costs of preparation of the Survey and supplements thereto
shall be borne by Seller.

6.1.3 PRELIMINARY TITLE REPORT.

(a) Within ten (10) days following mutual execution
of this Agreement, Seller shall request First American Title
Insurance Company (the "TITLE COMPANY"), to prepare a
preliminary title report with respect to the Casino Building,
the Real Property and the Remainder Parcels setting forth the
legal description of the Casino Building and Real Property
together with the Remainder Parcels and containing such
exceptions as the Title Company would specify in an American
Land Title Association ("ALTA") form of owner's policy of
title insurance and to deliver said preliminary title report
to Buyer and Seller and, in addition, to deliver to Buyer and
Seller legible copies of all documents of record or in its
possession identified as exceptions in said preliminary title
report (such preliminary title report and legible copies of
documents are hereinafter collectively referred to as the
"PRELIMINARY TITLE REPORT").

(b) Buyer may, not later than fifteen (15) days
following the date of its receipt of the Preliminary Title
Report (and also not later than fifteen (15) days following
the date of Buyer's receipt of any supplemental Survey or
Preliminary Title Report modifying the legal description of
the Casino Building or Real Property or containing exceptions
not contained on the original Preliminary Title Report and
not caused by Buyer, together with legible copies of all
documents identified as additional exceptions in Schedule B
of the Preliminary Title Report), give written notice to
Seller disapproving any items shown in the Survey or
specified or identified in said Preliminary Title Report or
supplemental Survey or Preliminary Title Report, and
identifying the items disapproved. If Buyer does not timely
give notice of disapproval as aforesaid, then Buyer shall be
deemed to have approved all items on the Survey, Preliminary
Title Report and any supplementals thereto, as the case may
be.

(c) If Buyer shall timely give notice of disapproval
as aforesaid, Seller shall, within ten (10) days after the
receipt of such notice, advise Buyer of (i) those matters
which Seller agrees to use reasonable efforts to remove at
Seller's cost and expense, and (ii) those matters which
Seller is unable or unwilling to remove. If Seller is unable
or unwilling to remove any such exception, Seller shall not
be in default hereunder as a result hereof, and Buyer's sole
remedy shall be to terminate this Agreement by written notice
delivered to Seller within ten (10) business days after
Seller has notified Buyer in writing of Seller's inability or
unwillingness to remove such exception.

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6.2 CONDUCT OF RACETRACK BUSINESS. During the period from the date
hereof to the Closing Date, unless Buyer consents otherwise in writing (which
consent shall not be unreasonably withheld), Seller shall:

6.2.1 ORDINARY COURSE. Conduct the Racetrack Business only in
the ordinary course consistent with past practice, except as contemplated by
this Agreement;

6.2.2 PRESERVATION OF GOODWILL. Use reasonable efforts to
preserve the goodwill of those of its suppliers, customers and distributors
having business relations with the Racetrack Business;

6.2.3 MAINTAIN INSURANCE. Maintain any insurance coverage
existing as of the date hereof against loss or damage to the Assets;

6.2.4 SALE OF ASSETS. Not transfer or encumber any of the
Assets except for any transfer or encumbrance in the ordinary course of
business;

6.2.5 MAINTENANCE OF ASSETS. Maintain the Assets, in the
aggregate, in a condition comparable to their current condition, reasonable
wear, tear and depreciation excepted, and except for Assets disposed of, sold or
consumed in the ordinary course of business;

6.2.6 ASSIGNED CONTRACTS. Not materially amend any Assigned
Contract or be in default under any Material Contract (other than to the extent
that the execution of this Agreement and the consummation of the Transactions
may or may be alleged to constitute a default under any Material Contract);

6.2.7 EMPLOYMENT CONTRACTS. Except for "stay bonuses" or
special severance agreements to be paid by Seller, not materially increase the
compensation or other remuneration of any of Seller's current officers working
exclusively in the Racetrack Business or key Racetrack Employees; and

6.2.8 COLLECTIVE BARGAINING AGREEMENTS. Not enter into new or
amend any existing collective bargaining agreements unless the terms of such
agreement or amendment as an entirety are not materially less favorable to the
Racetrack Business than the previous applicable agreement.

6.3 ACCESS. Seller will (a) during ordinary business hours and upon
reasonable notice from Buyer, permit Buyer and its authorized representatives to
have access to all Assets in order to make such inspections, tests, and
investigations as Buyer shall deem appropriate, (b) furnish, as soon as
reasonably practicable, to Buyer or its authorized representatives such other
information in Seller's possession with respect to the Assets as Buyer may from
time to time reasonably request (including monthly financial information
relating to the Racetrack Business as soon as practicable after the end of each
calendar month), and (c) otherwise reasonably cooperate in the examination or
audit of the Racetrack Business by Buyer. Without prior notice to Seller, Buyer
shall not be entitled or permitted to perform or cause to be performed any
invasive actions or any drilling. Buyer shall not initiate any inquiry or
request (including any inquiry or request relating to any zoning variance,
zoning change or conditional use permit) directed at any governmental official

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with respect to the Real Property; provided, however, that nothing in this
clause shall be deemed to prevent Buyer from inspecting or reviewing any or all
records of any federal, state, or local governmental authority. Buyer shall
immediately repair any and all damage resulting from the acts or omissions of
Buyer or Buyer's agents, employees, contractors, representatives or
subcontractors relating to the whole or any part of the Real Property. Buyer
shall indemnify, defend and hold Seller harmless from and against any and all
claims and liens arising out of the respective activities of Buyer and its
authorized representatives in and about the Real Property prior to the Closing
or earlier termination of this Agreement.

6.4 NO SOLICITATION. Except as provided in this Section 6.4, Seller
shall not, and Seller shall cause its Affiliates and the respective officers,
directors, employees, investment bankers, attorneys, accountants and other
representatives and agents (collectively, "REPRESENTATIVES") of Seller and its
Affiliates not to, directly or indirectly, initiate, solicit, encourage or
participate in negotiations or discussions relating to, or provide any
information to any person concerning, or take any action to facilitate the
making of, any offer or proposal which constitutes or is reasonably likely to
lead to any Subject Business Transaction Proposal (as defined below), or any
inquiry with respect thereto, or agree to approve or recommend any Subject
Business Transaction Proposal. For purposes of this Agreement, "SUBJECT
BUSINESS TRANSACTION PROPOSAL" shall mean any proposal (other than any proposal
by Buyer or its Affiliates) regarding any sale, lease, exchange, transfer or
other disposition of all or a substantial portion of the Racetrack Business or
the Assets.

6.5 CONSENTS. As promptly as practicable after the date hereof,
Seller shall make all required filings with governmental bodies and other
regulatory authorities, and use all reasonable efforts to obtain all permits,
approvals, authorizations and consents of all third parties, required for Seller
to consummate the Transactions. Seller shall furnish promptly to Buyer all
information that is in Seller's possession and not otherwise available to Buyer
that Buyer may reasonably request in connection with any such filing to be made
by Buyer. Seller and Buyer shall use reasonable efforts to obtain such consents
to the assignment of the Contracts as may be required. Notwithstanding anything
herein to the contrary, the parties hereto acknowledge and agree that at the
Closing, Seller will not assign to Buyer any Contract that by its terms
requires, prior to such assignment, the consent of any other contracting party
thereto unless such consent has been obtained prior to the Closing Date. With
respect to each such Contract not assigned on the Closing Date, after the
Closing Date, Seller shall continue to deal with the other contracting
party(ies) to such Contract as the prime contracting party, and Buyer and Seller
shall use reasonable efforts to obtain the consent of all required parties to
the assignment of such Contract. Such Contract shall be promptly assigned by
Seller to Buyer after receipt of such consent after the Closing Date, and
thereafter shall be deemed to be an Assigned Contract for all purposes
hereunder. If (i) such consent, waiver or confirmation is not obtained with
respect to any such Contract and (ii) notwithstanding the provisions of
Section 8.1.10, Buyer shall elect to consummate the Closing, Seller and Buyer
shall cooperate in an arrangement reasonably satisfactory to Buyer and Seller
under which Buyer would obtain, to the extent practicable, the claims, rights
and benefits and assume the corresponding obligations thereunder in accordance
with this agreement, including subcontracting, sub-licensing or sub-leasing to
Buyer, or under which Seller would enforce for the benefit of Buyer, with Buyer
assuming Seller's obligations, any and all claims, rights and benefits of Seller
against a third party thereto. Seller will promptly pay to Buyer when received
all monies received by Seller under any

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Asset or any claim, right or benefit arising thereunder not transferred to
Buyer pursuant to this Section 6.5.

6.6 COLLECTIVE BARGAINING AGREEMENTS. Seller has four collective
bargaining agreements which either have expired or will expire prior to the
Closing Date and are or will be subject to negotiations with the following
respective unions (the "UNIONS") for a new agreement: (a) Hotel Employees &
Restaurant Employees, Local 11 (expired September 30, 1998), (b) International
Brotherhood of Electrical Workers, Local 45 (expired April 23, 1999),
(c) Graphic Communications International Union, Local 404 (expired April 30,
1999) and (d) Teamsters, Local 495 (expires June 30, 1999). If the negotiation
of a new collective bargaining agreement with any of the above Unions results in
any retroactive pay increase, benefit contribution increase, or any other
retroactive adjustments for the period prior to the Closing Date or if any lump
sum bonus or other similar payment is agreed to in lieu of such retroactive
increase, then Seller will be responsible for paying the cost of any such
retroactive increase or adjustment for the period prior to the Closing Date and
for any such lump sum bonus or other similar payment agreed to in lieu of such
retroactive increase applicable to the period prior to the Closing. Seller
shall keep Buyer informed promptly of the status of negotiations with respect to
new collective bargaining agreements with the Unions and, at Buyer's option, a
representative of Buyer may participate in such negotiations.

7. COVENANTS OF BUYER.

7.1 PERMITS AND CONSENTS. As promptly as practicable after the date
hereof, Buyer will make all filings with governmental bodies and other
regulatory authorities necessary in connection with the Transactions, and use
all reasonable efforts to obtain all permits, licenses, approvals,
authorizations and consents of all third parties, required for Buyer to
consummate the Transactions. Buyer shall promptly furnish to Seller all
information that is in Buyer's possession and not otherwise available to Seller
which Seller may reasonably request in connection with any such filing to be
made by Seller.

7.2 ACCESS TO BOOKS AND RECORDS. Except as otherwise provided
herein, Buyer shall maintain for at least seven (7) years all original books,
records, files, documents, papers and agreements pertaining to the Assets, the
Assumed Liabilities or to the Racetrack Business before the Closing. After the
Closing, Buyer shall provide Seller and its representatives, during ordinary
business hours and upon reasonable notice from Seller, with reasonable access to
such original documents. If, at any time, Buyer proposes to dispose of any of
such original documents, Buyer shall first provide Seller with 60 days written
notice of such proposal and shall offer to deliver the original documents it
wishes to dispose of to Seller at the expense of Seller. At the end of such 60
day period, Buyer may, without liability to Seller, dispose of any such original
documents which Seller has not informed Buyer in writing that it desires to
recover.

7.3 COOPERATION IN THIRD-PARTY LITIGATION. After the Closing, Buyer
shall provide such cooperation as Seller or its counsel may reasonably request
in connection with (a) any proceedings for which Buyer may be entitled to
indemnification from Seller under Section 9.2 hereof; and (b) the Excluded
Liabilities. Such cooperation shall include, but not be limited to: (i) making
available at the reasonable request of Seller or its counsel and

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permitting Seller and its counsel, to make and retain copies of, any and all
documents in the possession of or otherwise available to Buyer and allowing
Seller to make inspections of the Real Property and the Casino Building; (ii)
making available upon the reasonable request of Seller or its counsel,
employees and other persons within the control of or available to Buyer to
consult with and assist Seller and its counsel and to prepare for and testify
in connection with any proceedings, including depositions, trials and
arbitration proceedings; and (iii) making available at the reasonable request
of Seller or its counsel such other resources as may be within the control of
or available to Buyer. Seller shall reimburse Buyer for Buyer's reasonable,
documented out-of-pocket expenses incurred (including such items as travel
costs, and reasonable attorneys' fees but not including any employee salaries
or overhead) in connection with fulfilling its obligations under this
Section 7.3.

7.4 COOPERATION REGARDING RESUBDIVISION AND FUTURE DEVELOPMENT.

(a) Buyer shall provide such cooperation as Seller
or its counsel may reasonably request in connection with the
processing and recordation of the Resubdivision. Seller
shall provide Buyer with copies of any maps, applications,
reports, data and filings provided by Seller to the City of
Inglewood in connection therewith and shall reimburse Buyer
for its out of pocket costs, reasonably incurred.

(b) Seller hereby covenants and agrees to and for
the benefit of Buyer that Seller shall use commercially
reasonable efforts to cause any blasting or major earth
moving (not to include surface grading or landscaping),
conducted on the Remainder Parcels in connection with any
improvements or development thereon, to be conducted at such
times and in such a manner so as to mitigate the impact on
the business operations of the Buyer on the Land. In the
event of any future development on the Land, Buyer hereby
covenants and agrees to and for the benefit of Seller, that
Buyer shall use commercially reasonable efforts to cause any
blasting or major earth moving (not to include surface
grading or landscaping) conducted by Buyer on the Land in
connection therewith, to be conducted at such times and in
such a manner so as to mitigate the impact or the business
operations of Seller on the Remainder Parcels.

(c) Buyer shall provide cooperation to Seller in
connection with Seller's development of the Remainder Parcels
provided that the action, if any, requested of Buyer by
Seller shall be at no cost or expense to Buyer and provided
further that nothing herein contained shall require Buyer to
take any action (nor shall Buyer be precluded from taking any
such action) if and to the extent Buyer reasonably believes
that the proposed development could have a material adverse
effect on the use, value or utility of the Assets.

(d) Seller shall provide cooperation to Buyer in
connection with any future development by Buyer on the Land
provided that the action, if any, requested of Seller by
Buyer shall be at no cost or expense to Seller and provided
further that nothing herein contained shall require Seller to
take any action (nor shall Seller be precluded from taking
any such action) if and to

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the extent that the proposed development could have a material
adverse effect on the use, value or utility of the Remainder
Parcels.

8. CONDITIONS PRECEDENT.

8.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations
of Buyer under this Agreement are subject, at the option of Buyer, to the
satisfaction or waiver of each of the following conditions on or prior to the
Closing Date:

8.1.1 RESUBDIVISION. The Resubdivision shall have been
effectuated as required by law through recordation or otherwise, which
Resubdivision and all conditions, if any, affecting the Assets shall be in form
and substance reasonably acceptable to Buyer.

8.1.2 TITLE TO REAL PROPERTY. Buyer shall have obtained the
unconditional commitment of the Title Company to issue its ALTA form of owner's
policy of title insurance (the "TITLE POLICY") in favor of Buyer insuring Buyer
as the fee owner of the Real Property and the Casino Building in the amount of
the portion of the Purchase Prices allocated to each of the Real Property and
the Casino Building, subject to no exceptions except: (a) the exceptions
approved by Buyer pursuant to Section 6.1.3; (b) property taxes for the current
fiscal year not yet payable; (c) the Casino Lease, the Casino Sublease and the
Office Lease; and (d) such other exceptions as may have been approved in writing
by Buyer or imposed upon the Real Property or the Casino Building by Buyer, with
endorsements, reinsurance and direct access agreements as reasonably required by
Buyer.

8.1.3 HSR ACT. All waiting periods under the HSR Act shall
have expired or terminated.

8.1.4 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Seller contained in this Agreement or in any
certificate delivered to Buyer pursuant hereto shall be true and correct on and
as of the Closing Date as though made at and as of that date (except where such
representation and warranty is made as of a date specifically set forth therein)
and Seller shall have delivered to Buyer a certificate to that effect. If
Seller has amended any representation or warranty as contemplated by
Section 12.12, such representation or warranty, as so amended, shall not
constitute a Material Adverse Effect (which for purposes of this Section only
shall mean $250,000 individually or in the aggregate).

8.1.5 FINANCIAL STATEMENTS. Buyer's receipt of December 31,
1998 audited financial statements of Seller which reflect that the Racetrack
Business generated 1998 earnings before interest, taxes, depreciation and
amortization of at least $13,000,000. The monthly financial statements provided
to Seller with respect to the Racetrack Business as provided in Section 6.3
hereof shall not reflect in the aggregate a material negative variance from
calendar year 1998.

8.1.6 COMPLIANCE WITH COVENANTS. Seller shall in all material
respects have performed and complied with all material terms, agreements,
covenants and conditions of this Agreement to be performed or complied with by
it at the Closing Date, and Seller shall have delivered to Buyer a certificate
to that effect.

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8.1.7 BUYER'S INSPECTIONS. Buyer shall have approved the
results of its inspections and investigations in connection with Buyer's
purchase of the Assets and the Transactions contemplated under this Agreement
not later than June 10, 1999 (the "REVIEW PERIOD"). Buyer shall, prior to
11:59 P.M. (Pacific Daylight Savings Time) on the last day of the Review
Period, notify Seller of any objections Buyer has to the physical, seismic,
structural, environmental or other condition of the Assets, other than the
state of title, which shall be subject to the review periods set forth in
Section 6.1.3 hereof. If Buyer does not give written notice to Seller of its
objections on or prior to the end of the Review Period, Buyer shall be deemed
to have had no objections thereto. If Buyer shall object as provided herein,
Buyer shall have the option, which must be exercised at any time but no later
than five (5) business days after the last day of the Review Period, (i) to
waive its objections and proceed with the purchase of the Assets as
contemplated hereby notwithstanding such objections, and Seller shall convey
the Assets to Buyer, subject thereto, or (ii) to terminate this Agreement.
If Buyer shall fail to give Seller notice of Buyer's elections pursuant to
(i) or (ii) of this clause (a) within such 5-day period, Buyer shall be
deemed to have elected option (ii) hereof.

8.1.8 OPINION OF COUNSEL FOR SELLER. Buyer shall have
received the favorable opinion of counsel to Seller, dated the Closing Date
to the effect set forth in Schedule 8.1.8.

8.1.9 LEGAL ACTIONS OR PROCEEDINGS. No legal action or
proceeding shall have been instituted or overtly threatened by any
governmental agency seeking to restrain, prohibit, invalidate or otherwise
affect the consummation of the Transactions.

8.1.10 CONSENTS OBTAINED. Each party hereto shall have
obtained all material consents and approvals required to be obtained from
(a) any governmental authority (including if applicable under the California
Gambling Control Act and the California Horseracing Board), or (b) other
parties to those contracts set forth on Schedule 8.1.10, except where the
failure to obtain such consents or approvals is a result of a breach by Buyer.

8.1.11 OTHER TRANSACTION DOCUMENTS. Seller shall have
executed and delivered to Buyer a short-form trademark assignment of U.S.
Registration 1,850,076 for HOLLYWOOD PARK and original counterparts of each
Transaction Document (other than this Agreement) to which it is a party.

8.1.12 CASINO LICENSE. Buyer shall be licensed to own and
be the lessor of the Casino.

8.1.13 CASINO OPERATOR. Buyer shall have approved (or
deemed approved if no written notice of objection is given) California Casino
Management, Inc. as the Casino Operator no later than May 20, 1999, which
approval shall not be unreasonably withheld.

8.1.14 LIQUOR LICENSE. Buyer shall have obtained an
"on-premises liquor license" sufficient to enable Buyer to sell alcoholic
beverages consistent with the past practice of the Racetrack Business.

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8.1.15 NON-COMPETITION AGREEMENT. Seller shall have delivered
to Buyer an original of the Non-Competition Agreement, executed by R.D. Hubbard.

8.1.16 BUYER'S FINANCING. Not later than June 10, 1999, Buyer
shall have obtained the consents or approvals, if any, of its lender in respect
of any financing for the Transactions.

8.1.17 EASEMENT AGREEMENT APPROVAL. The easements contemplated
by the Easement Agreement shall be in place and Buyer shall have approved all
conditions, if any, imposed on the Land by governmental authorities with respect
to the construction of the access drive.

8.1.18 INFORMATION TECHNOLOGY. Not later than May 20, 1999,
Buyer shall have completed its investigation of the information technology
systems and licenses related to Intellectual Property necessary for Buyer's
operation of the Racetrack Business after the Closing Date.

8.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations
of Seller under this Agreement are subject, at the option of Seller, to the
satisfaction or waiver of each of the following conditions at or prior to the
Closing Date:

8.2.1 RESUBDIVISION. The Resubdivision shall have been
effectuated as required by law through recordation or otherwise, which
Resubdivision and all conditions, if any, affecting the Remainder Parcels in
form and substance reasonably acceptable to Seller.

8.2.2 HSR ACT. All waiting periods under the HSR Act shall
have expired or terminated.

8.2.3 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Buyer contained in this Agreement (as amended
or supplemented through the Closing Date pursuant to Section 12.12 hereof) or in
any certificate delivered to Seller pursuant hereto shall be true and correct in
all material respects on and as of the Closing Date as though made at and as of
that date (except where such representation and warranty is made as of a date
specifically set forth therein), and Buyer shall have delivered to Seller a
certificate to that effect.

8.2.4 COMPLIANCE WITH COVENANTS. Buyer shall in all material
respects have performed and complied with all material terms, agreements,
covenants and conditions of this Agreement to be performed or complied with by
it at the Closing Date, and Buyer shall have delivered to Seller a certificate
to that effect.

8.2.5 OPINION OF COUNSEL FOR BUYER. Seller shall have
received the favorable opinion of counsel to Buyer, dated the Closing Date, as
to the due authorization, execution and binding effect of the Agreement and each
of the other Transaction Documents.

8.2.6 LEGAL ACTIONS OR PROCEEDINGS. No legal action or
proceeding shall have been instituted or overtly threatened by any governmental
agency seeking to restrain, prohibit, invalidate or otherwise affect the
consummation of the Transactions.

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8.2.7 CONSENTS OBTAINED. Each party hereto shall have
obtained all material consents and approvals required to be obtained from any
governmental authority or other parties to those contracts set forth in Section
8.1.10, except where the failure to obtain such consents or approvals is a
result of a breach by Seller.

8.2.8 PURCHASE PRICES. Buyer shall have delivered the
Purchase Prices in accordance with Section 3.3.

8.2.9 OTHER TRANSACTION DOCUMENTS. Buyer shall have executed
and delivered to Seller original counterparts of each Transaction Document to
which it is a party.

8.2.10 BANK OF AMERICA LIEN. Not later than June 10, 1999,
Seller shall have obtained any consents required under the Bank of America Loan
Agreement, including, without limitation, the agreement of Bank of America to
the release of any liens on the Assets on or before the Closing Date.

8.2.11 CASINO SUBLEASE. Seller and the Casino Operator shall
have entered into the Casino Sublease.

8.2.12 CASINO OPERATOR. Buyer shall have approved California
Casino Management Inc. as the Casino Operator not later than May 20, 1999.

8.2.13 EASEMENT AGREEMENT APPROVAL. Seller shall have approved
all conditions imposed by governmental authorities with respect to the
construction of the access drive described in Section 11.9.

8.2.14 NON-DISTURBANCE, SUBORDINATION AND ATTORNMENT AGREEMENT.
Buyer and its lender, if any, shall have executed a Non-Disturbance,
Subordination and Attornment Agreement with respect to the Casino Lease in form
and substance reasonably satisfactory to Seller; provided however that Seller
shall waive this condition if, on the Closing Date, the Casino Lease is senior
in priority to the lien of any mortgage, deed of trust or other security device
obtained by Buyer in connection with the Transaction.

9. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATIONS.

9.1 SURVIVAL OF REPRESENTATIONS. The representations and warranties
set forth in Sections 4.1, 4.2 and 4.3 shall survive indefinitely. All other
representations or warranties contained herein shall survive until the date
which is eighteen (18) months after the Closing Date and shall then expire.
Upon the expiration of a representation or warranty pursuant to this
Section 9.1, unless written notice of a claim based on such representation or
warranty specifying in reasonable detail the facts on which the claim is based
shall have been delivered to the Indemnifying Party prior to the expiration of
such representation or warranty, such representation or warranty shall be deemed
to be of no further force or effect, as if never made, and no action may be
brought based on the same, whether for breach of contract, tort or under any
other legal theory.

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9.2 AGREEMENTS TO INDEMNIFY.

9.2.1 GENERAL INDEMNITY.

(a) SELLER'S GENERAL INDEMNITY. Subject to the terms
and conditions of this Section 9, Seller hereby agrees to
indemnify, defend and hold Buyer harmless from and against
all Losses incurred by Buyer and Buyer's employees,
directors, officers, shareholders and agents resulting from
(i) a breach of any representation, warranty or covenant of
Seller made in this Agreement, or (ii) any liabilities or
obligations of Seller other than the Assumed Liabilities, or
(iii) the conduct of the Racetrack Business on or prior to
the Closing (except for the Assumed Liabilities).
Notwithstanding anything to the contrary contained herein,
Seller shall not be in breach of any representation or
warranty made in this Agreement, if prior to the Closing,
Buyer had knowledge that such representation or warranty was
incorrect or untrue.

(b) BUYER'S GENERAL INDEMNITY. Subject to the terms
and conditions of this Section 9, Buyer hereby agrees to
indemnify, defend and hold Seller harmless from and against
all Losses incurred by Seller and Seller's employees,
directors, officers, shareholders and agents resulting from
(i) a breach of any representation, warranty or covenant of
Buyer made in this Agreement, (ii) the failure of Buyer to
pay, perform and discharge when due the Assumed Liabilities,
or (iii) the conduct of the Racetrack Business after the
Closing. Notwithstanding anything to the contrary contained
herein, Buyer shall not be in breach of any representation or
warranty made in this Agreement, if prior to the Closing,
Seller had knowledge that such representation or warranty was
incorrect or untrue.

(c) GENERAL INDEMNIFICATION THRESHOLD. No claim for
indemnification will be made by either party under Section
9.2.1(a)(i) or (b)(i) unless the aggregate of all Losses
incurred by such party otherwise indemnified against under
clauses (i) of Sections 9.2.1(a) or 9.2.1(b), as the case may
be, exceeds $1,000,000, at which time a claim may be asserted
for the entire amount of Losses incurred.

(d) ENVIRONMENTAL CLAIMS. The provisions of this
Section 9.2.1 shall be inapplicable to Environmental Claims
or to Losses related to or associated with Environmental Laws
or Hazardous Substances, which shall be governed exclusively
by Section 9.2.2.

(e) PHYSICAL CONDITION. Except as set forth in
Sections 9.2.1(a)(i) and 9.2.2, no indemnification or other
claim may be made by Buyer against Seller relating to the
physical condition of the Real Property or the Casino
Building, including without limitation, the structural or
seismic condition thereof.

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9.2.2 ENVIRONMENTAL INDEMNITY.

(a) SELLER'S INDEMNIFICATION OF BUYER FOR ENVIRONMENTAL
LIABILITIES ARISING OUT OF PRE-CLOSING CONDITIONS AND EVENTS.

Subject to the terms and conditions of this Section 9,
Seller hereby agrees to indemnify, defend and hold harmless
Buyer from and against any and all Losses incurred by Buyer as a
result of Environmental Claims to the extent arising from:

(1) The presence of any Hazardous Substance
upon or beneath the Real Property or the Casino Building
including in the soil or groundwater on, or prior to,
the Closing, including to the extent such Hazardous
Substance passively remains or migrates after Closing
(except to the extent indemnified by Buyer in
Section 9.2.2(b)(1));

(2) Any act, event or omission that occurred
at the Real Property or the Casino Building on, or prior
to, the Closing;

(3) Any actual or alleged violation of any
Environmental Law that occurred on, or prior to, the
Closing; or

(4) Any offsite disposal of a Hazardous
Substance generated on or at the Real Property or the
Casino Building on, or prior to, the Closing.

PROVIDED, HOWEVER, that Seller's indemnification of
Buyer under items (1) and (2) above shall expire and be of no
force or effect as to a specific Loss if such Loss is the result
of actions taken by the Buyer or any successor in interest or
subsequent owner of the Real Property in furtherance of a
discontinuance of horse racing operations or a material
construction project or material change in the nature of the use
of the Real Property or the Casino Building or the addition of a
material new or different use of the Real Property or the Casino
Building.

(b) BUYER'S INDEMNIFICATION OF SELLER FOR ENVIRONMENTAL
LIABILITIES ARISING OUT OF POST-CLOSING CONDITIONS AND EVENTS.

Subject to the terms and conditions of this Section 9,
Buyer hereby agrees to indemnify, defend and hold harmless
Seller from and against any and all Losses incurred by Seller as
a result of Environmental Claims to the extent arising from:

(1) Any Hazardous Substance that is released
or becomes present (including without limitation new or
additional releases of the same Hazardous Substance
already present upon or beneath the Casino Building or
the Real Property on, or prior to, the Closing) upon or
beneath the Casino Building or the Real Property
including in

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the soil or groundwater after Closing (except to the
extent indemnified by Seller in Section 9.2.2(a)(1)),
and any movement after Closing of any Hazardous
Substance present on, or prior to, Closing that
results from Buyer or Buyer's agents' conduct or the
exacerbation of any environmental condition that
results from Buyer or Buyer's agents' conduct;

(2) Any act, event or omission that occurs
at the Real Property or the Casino Building after
Closing;

(3) Any actual or alleged violation of any
Environmental Law that occurs after Closing or any
actual, alleged or proposed requirement or necessity
that building or construction materials or equipment
lawfully present at the Real Property or the Casino
Building as of Closing (including without limitation
asbestos-containing building materials and lead-based
paint) be removed, abated or mitigated; or

(4) Any offsite disposal of a Hazardous
Substance generated on or at the Real Property or the
Casino Building after Closing.

(c) Notwithstanding the foregoing or any other provision
of this Agreement, the indemnification obligations in this
Section 9.2.2 shall not extend to any Losses that result from
any voluntary act, omission, transaction or agreement on or on
behalf of the party seeking indemnification hereunder.

(d) INDEMNIFICATION THRESHOLD

No indemnification will be made by either party under
Section 9.2.2(a) or (b) unless the aggregate of all Losses
incurred by such party otherwise indemnified against under
Section 9.2.2(a) or (b) exceeds $250,000 at which time a claim
may be asserted for the entire amount of the Losses incurred.
Notwithstanding the foregoing, the provisions of Section 9.3
shall apply irrespective of whether the aggregate of all Losses
incurred by a party has exceeded $250,000.

(e) INDEMNIFICATION FOR COSTS TO COMPLY WITH THE
REQUIREMENTS OF THE REGIONAL WATER QUALITY CONTROL BOARD.

(1) In December 1998, the Regional Water
Quality Control Board, Los Angeles Region ("REGIONAL
BOARD"), issued tentative Waste Discharge Requirements
("WDRS") and Time Schedule Orders ("TSOS") to Seller
which identified certain potential obligations of the
Seller with respect to storm water runoff, water
quality, and the discharge of waste water resulting from
the operation of horse stables on the Real Property
(hereafter, all of these obligations or requirements, to
the extent they become applicable,

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final, valid and enforceable requirements upon Buyer,
are referred to as the "REGIONAL BOARD REQUIREMENTS").

(2) Seller has engaged attorneys and
consultants to assist it in evaluating the Regional
Board Requirements and to assist it in negotiations with
the Regional Board over the applicability of the
Regional Board Requirements to the Real Property and
Seller's operations thereon.

(3) From and after Closing, Seller shall
indemnify, defend and hold harmless Buyer from any and
all Losses as a result of the Regional Board
Requirements. This indemnification of the Buyer by the
Seller includes without limitation any and all costs
associated with: (i) modification of barns or stables;
(ii) installation of basins or reservoirs to contain
process and stormwater; (iii) pipe construction and
facility modifications necessary to transport waste
water and stormwater to the sewer, so long as such
modifications are necessary to meet the Regional Board
Requirements; and (iv) necessary operation and
maintenance, for a period not to exceed ten (10) years.
This indemnification of the Buyer by the Seller also
includes without limitation any costs to challenge or
appeal any decision of the Regional Board regarding the
applicability of the Regional Board Requirements to the
Real Property or Buyer's operations thereon, including
without limitation reasonable attorneys' fees and
consultants' fees associated with the evaluation of, and
negotiations with the Regional Board.

(4) Notwithstanding any other provision of
this Agreement, including without limitation
Section 9.2.2(a), Seller's obligations under the
indemnity provisions set forth in this Section 9.2.2(e)
shall in no event exceed $5,000,000. It is the
intention of the parties that Five Million Dollars
($5,000,000) shall be the maximum amount of Seller's
liability with respect to the Regional Board
Requirements. Accordingly, Buyer hereby agrees to
indemnify, defend and hold harmless Seller from and
against any and all Losses incurred by Seller as a
result of Environmental Claims related to the Regional
Board Requirements including without limitation those
matters set forth in Section 9.2.2(e)(3) in excess of
Five Million Dollars ($5,000,000).

9.2.3 CONFLICT. If a matter arises which is subject to the
indemnification provisions of both 9.2.1 and 9.2.2, the provisions of 9.2.2
shall apply exclusively.

9.2.4 SUBROGATION. If the Indemnifying Party makes any
payment under this Section 9 in respect of any Losses, the Indemnifying Party
shall be subrogated, to the extent of such payment, to the rights of the
Indemnified Party against any insurer or third party with respect to such
Losses; provided, however, that the Indemnifying Party shall not

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have any rights of subrogation with respect to the other party hereto or any
of its Affiliates or any of its or its Affiliates' officers, directors, agents
or employees.

9.2.5 OTHER INDEMNIFICATION PROVISIONS.

(a) Without limiting the generality of any provision
of this Agreement, Seller shall indemnify, defend and hold
Buyer harmless from and against all Losses incurred by Buyer
and Buyer's employees, directors, officers, shareholders and
agents resulting from: (a) any taxes imposed with respect to
the operation of the Racetrack Business for periods prior to
and through the Closing Date, (b) Seller's obligation to
contribute to or sponsorship of or participation in any
Employee Benefit Plan or (c) any withdrawal liability under
Section 4201 of ERISA with respect to any Employee Benefit
Plan which has arisen or may arise in connection with the
consummation of the Transactions, or otherwise caused by a
withdrawal by Seller or any of its ERISA Affiliates from an
Employee Benefit Plan. The indemnification provided in this
paragraph 9.2.5(a) shall (x) not be subject to the provisions
of Section 9.2.1(c) and (y) survive the expiration provision
of this Agreement and any applicable statute of limitations.

(b) Without limiting the generality of any provision
of this Agreement, Buyer shall indemnify, defend and hold
Seller harmless from and against all Losses incurred by
Seller and Seller's employees, directors, officers,
shareholders and agents resulting from: (a) any taxes
imposed with respect to the operation of the Racetrack
Business for periods after the Closing Date, (b) Buyer's
obligation to contribute to or sponsorship of or
participation in any Employee Benefit Plan after the Closing
Date or (c) any withdrawal liability arising after the
Closing Date under Section 4201 of ERISA with respect to a
withdrawal by Buyer or any of its ERISA Affiliates from any
Employee Benefit Plan. The indemnification provided in this
paragraph 9.2.5(b) shall (x) not be subject to the provisions
of Section 9.2.1(c) and (y) survive the expiration provision
of this Agreement and any applicable statute of limitations.

(c) Notwithstanding anything to the contrary
contained in this Agreement, Seller shall reimburse Buyer for
the out of pocket costs and expenses incurred by Buyer after
the Closing Date to complete the alterations of the Assets
required by the Confidential Settlement Agreement, dated
November 10, 1998, with respect to the settlement of
litigation between Seller and Laura Marie Scotlan.

9.3 CONDITIONS OF INDEMNIFICATION. The respective obligations and
liabilities of the Indemnifying Party to the Indemnified Party under Section 9.2
shall be subject to the following terms and conditions:

9.3.1 NOTICE. Within thirty (30) days after receipt of notice
of commencement of any action or the assertion of any claim by a third party or
governmental agency (but in any event at least ten days preceding the date on
which an answer or other

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pleading must be served in order to prevent a judgment by default in favor of
the party asserting the claim), or notice of any other matter for which
indemnification may be sought, the Indemnified Party shall give the
Indemnifying Party written notice thereof together with a copy of any claim,
process or other legal pleading and, in the event the notice relates to any
other matter, a reasonably detailed description of the nature of such other
matter, and the Indemnifying Party shall have the right to undertake the
defense thereof by representatives of its own choosing that are reasonably
satisfactory to the Indemnified Party. Notwithstanding the Indemnifying
Party's undertaking of such defense, the Indemnified Party shall have the
right to engage its own counsel, at its own expense, and participate in the
defense of the claim; provided, however, that the Indemnifying Party shall
retain the right in its sole and absolute discretion to make all decisions
with respect to the defense, settlement or compromise of such claim, except
as otherwise provided herein, provided that the Indemnifying Party remains
liable for any payments due under any such settlement or compromise. The
failure of the Indemnified Party to give notice of any claim or other matter
within the time period specified herein shall not adversely affect the
Indemnified Party's right to indemnification hereunder except to the extent
that such failure adversely affects the right of the Indemnifying Party to
assert any reasonable defense to such claim or otherwise results in
prejudice's the Indemnifying Party.

9.3.2 ASSUMPTION OF DEFENSE. If the Indemnifying Party, by
the fifteenth day after receipt of notice of any claim or matter (or,
pursuant to the parenthetical in Section 9.3.1, by the fifth day preceding
the day on which an answer or other pleading must be served in order to
prevent judgment by default in favor of the person asserting such claim),
does not elect to defend against such claim, the Indemnified Party will (upon
further notice to the Indemnifying Party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the
account and risk of the Indemnifying Party (but only to the extent of the
indemnification obligation); provided, however, that the Indemnified Party
shall not settle or compromise such claim without the Indemnifying Party's
consent, which consent shall not be unreasonably withheld. If after electing
not to defend against such claim or proceeding, the Indemnifying Party seeks
to question the manner in which the Indemnified Party defended such claim or
proceeding or the amount of or nature of any such settlement, the
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that the Indemnified Party did not defend such claim or proceeding
in a reasonably prudent manner.

Notwithstanding the preceding paragraph, the Indemnifying
Party shall have the right to assume the defense of any claim or matter at
any time prior to settlement, compromise or final determination thereof if
the Indemnifying Party provides assurances, reasonably satisfactory to the
Indemnified Party, that the Indemnifying Party will be financially able to
satisfy such claim in full (to the extent of the indemnification obligation)
if such claim or proceeding is decided adversely. The Indemnifying Party
shall select counsel reasonably acceptable to the Indemnified Party to
conduct the defense of such claim or proceeding.

If the Indemnifying Party assumes the defense of any claim or
matter in accordance with this Section 9.3, the Indemnifying Party shall be
authorized to consent to a settlement of, or the entry of any judgment
arising from, any such claim or matter, without the prior written consent of
such Indemnified party; provided, however, that:

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(i) the Indemnifying Party shall pay or cause to be
paid all amounts arising out of such settlement or judgment,
except to the extent such settlement or judgement exceeds the
indemnification obligation or as otherwise provided under
9.2.2(d) concurrently with the effectiveness thereof, or shall
obtain and deliver to such Indemnified Party prior to the
execution of a settlement a general release executed by the
claimant, which general release shall release such Indemnified
party from any liability in such matter;

(ii) the Indemnifying Party shall not be authorized
to encumber any of the assets of any Indemnified Party or to
agree to any restriction that would apply to any Indemnified
Party or to its conduct of business; and

(iii) a condition to any such settlement shall be a
complete release of such Indemnified Party with respect to such
claim.

If, in the reasonable opinion of counsel for the Indemnified
Party, there is a conflict of interest between the Indemnifying Party and the
Indemnified Party, the Indemnified party may direct the defense with respect to
those issues as to which a conflict exists or potentially exists at the
Indemnifying Party's sole cost and expense.

In the event both the Seller and the Buyer are potentially
liable under the terms and conditions of this Agreement, including Section
9.2.2, with respect to an Environmental Claim or other matter for which
indemnification may be sought, both Seller and Buyer shall participate in the
defense thereof only with separate counsel of their own choice and at their own
expense, subject to the rights of each party to seek indemnification under
Section 9.2 for such expenses including reasonable fees and costs of attorneys
and experts. The liability of Seller and Buyer with respect to such a claim or
other matter shall be apportioned in accordance with Section 9.2.2 or to the
extent that such provisions do not allocate responsibility entirely to one of
the parties, in accordance with the parties' respective contributions to the
facts and circumstances giving rise to the Environmental Claim or other matter.
To the extent there is no dispute between Seller and Buyer as to the appropriate
allocation of responsibility for a portion of an Environmental Claim or other
matter, Seller and Buyer, if feasible, shall each assume full responsibility for
their respective portion of the Environmental Claim or other matter, provided
that such assumption of responsibility does not prejudice such party's rights as
to the disputed portion of the Environmental Claim or other matter. In the
event the Indemnifying Party exercises its right to undertake the defense
against such Environmental Claim or other matter as provided above, the
Indemnified Party shall at its own expense reasonably cooperate with the
Indemnifying Party in such defense and timely make available to the Indemnifying
Party all witnesses, pertinent records, materials and information in its
possession or under its control reasonably relating thereto as requested by the
Indemnifying Party.

9.3.3 CLAIM ADVERSE TO INDEMNIFYING PARTY. Notwithstanding
anything to the contrary in this Section 9.3, if there is a reasonable
probability that a claim may materially adversely affect the Indemnifying Party
other than as a result of money damages or other money payments, the
Indemnifying Party shall have the right, at its own cost and expense, to
compromise or settle such claim, but the Indemnifying Party shall not, without

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the prior written consent of the Indemnified Party, settle or compromise any
claim or consent to the entry of any judgment which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnified Party a release from all liability in respect of such claim.

9.3.4 COOPERATION. In connection with any such
indemnification, the Indemnified Party will cooperate in all reasonable requests
of the Indemnifying Party.

9.4 REMEDIES EXCLUSIVE. Except as provided herein, the remedies
provided in this Section 9 shall be the exclusive remedy for monetary damages
and for any Environmental Claim (whether at law or in equity) between the
parties. With respect to any rights or obligations of Buyer or Seller
concerning any Environmental Claims or Losses related to or associated with
Environmental Laws or Hazardous Substances that are not subject to resolution
pursuant to Section 9.2.2, it is the intent of Buyer and Seller that their
respective rights and obligation be resolved in accordance with law. None of
Seller's officers, employees, agents, stockholders, consultants, investment
bankers, legal advisers or representatives shall have any liability or
obligation to Buyer in connection with the Transactions contemplated by this
Agreement or in respect of any statement, representation, warranty or assurance
of any kind made by Seller, its representatives or any other person. None of
Buyer's officers, employees, agents, stockholders, consultants, investment
bankers, legal advisors or representatives shall have any liability or
obligation to Seller in connection with the Transactions contemplated by this
Agreement or in respect of any statement, representation, warranty, or assurance
of any kind made by Buyer, its representatives or any other Person.

9.5 DAMAGES. Notwithstanding anything to the contrary elsewhere in
this Agreement or any other Transaction Document, no party (or its Affiliates)
shall, in any event, be liable to the other party (or its Affiliates) for any
consequential damages, including, but not limited to, loss of revenue or income,
cost of capital, or loss of business reputation or opportunity relating to the
breach or alleged breach of this Agreement.

10. TERMINATION.

This Agreement may be terminated at any time on or prior to the Closing
Date:

10.1 INJUNCTION. By either party if any court of competent
jurisdiction in the United States shall have issued an order (other than a
temporary restraining order), decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Transactions and such order,
decree, ruling or other action shall have become final and non-appealable.

10.2 MUTUAL AGREEMENT. By mutual written agreement of the parties.

10.3 REVIEW PERIOD. By Buyer (i) if Buyer shall exercise its right
of termination as set forth in Section 6.1.3(c) or 8.1.7 hereof, (ii) if Buyer
shall not approve California Casino Management as the Casino Operator in
accordance with Section 8.1.13 hereof, (iii) if Buyer shall not have obtained
the consent or approval of its lender in accordance with Section 8.1.16 hereof,
or (iv) if Buyer shall not have completed its investigation of information
systems technologies and licenses relating to Intellectual Property in
accordance

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with Section 8.1.18. By Seller (A) if Seller shall not have obtained
any consents required under the Bank of America Loan Agreement in accordance
with Section 8.2.10, (B) if Seller and the Casino Operator fail to enter into
the Casino Sublease in accordance with Section 8.2.11, or (C) if Buyer shall
fail to approve California Casino Management as the Casino Operator in
accordance with Section 8.1.13 hereof.

10.4 TERMINATION DATE. By either party if the Closing shall not have
occurred as provided in Section 3.1 hereof (provided that the right to terminate
this Agreement pursuant to this Section 10.4 shall not be available to any party
who has materially breached any representation, warranty or covenant of this
Agreement; and provided further that if as of September 15, 1999, (i) there is
an injunction or other order of any of the types described in Section 10.1 that
has not become final and non-appealable, such termination shall be three
(3) days after such injunction or other order is dissolved, but in no event
later than September 30, 1999); or (ii) the Closing has not occurred as provided
in Section 3.1 hereof due solely to the failure to satisfy or waive the
contingencies provided in Section 8.1.1 or 8.2.1, then the date for Closing
under Section 3.1 shall be automatically extended to September 30, 1999 to
enable the satisfaction or waiver of such contingencies.

10.5 MATERIAL BREACH. By either Buyer or Seller, if there has been a
material breach on the part of the other party in its representations,
warranties or covenants set forth herein; provided, however, that if such breach
is susceptible to cure the breaching party shall have twenty (20) business days
after receipt of notice from the other party of its intention to terminate this
Agreement pursuant to this Section 10.5 in which to cure such breach.
Termination for material breach shall not impair any party's rights to pursue
any available remedies at law or in equity.

10.6 UNCURED ASSET LOSS. By Buyer if an Asset Loss (as defined in
Section 12.16) occurs with respect to an asset material to the operation of the
Racetrack Business and such Asset Loss is not cured by Seller prior to the
Closing Date, it being acknowledged that Seller shall not have any obligation to
do so.

10.7 EFFECTS OF TERMINATION. If this Agreement is terminated
pursuant to this Section 10, all obligations of the parties hereunder (except
for those pursuant to Section 10 and Sections 6.3, 11.1, 12.2, 12.8, 12.9, 12.10
and 12.11) shall terminate without liability of any party to any other party;
provided, however, that no termination shall relieve any party from any
liability arising from or relating to a material breach prior to termination.

11. OTHER COVENANTS.

11.1 ANNOUNCEMENTS. Each party agrees not to make, nor cause to be
made, any news releases or other public announcements pertaining to the
Transactions without first consulting the other party and attempting to
formulate a mutually satisfactory arrangement for such disclosure, and in any
case will make an announcement thereafter without the consent of the other only
to the extent it believes in good faith that disclosure is required by
applicable law or by obligations pursuant to any rules of or listing agreement
with any national securities exchange or the Nasdaq National Market System. The
commencement of litigation relating to this Agreement or any proceedings in
connection therewith shall not be deemed a violation of this Section 11.1.

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11.2 EMPLOYMENT MATTERS.

11.2.1 OFFERS OF EMPLOYMENT. Buyer agrees that it will offer
employment to all of the Racetrack Employees effective on the Closing Date
(other than such non-union Employees Buyer has identified by written notice to
Seller on or before the expiration of the Review Period) ("HIRED EMPLOYEES"), it
being understood that Buyer shall thereafter be free to terminate such employees
as it wishes to based on its own evaluation of such employees' performance,
Buyer's business needs and such other factors as Buyer in its sole discretion
deems relevant. Each Hired Employee shall be eligible to receive benefits under
Employee Benefits Plans sponsored or maintained by Buyer or its Affiliates, or
to which Buyer or its Affiliates contribute (and for the costs of which Seller
shall not be responsible), which, in the aggregate, are at least as favorable to
such Hired Employee as the benefits for which such Employee would have been
eligible had such Hired Employee been employed by Buyer immediately before the
Closing Date under the Employee Benefit Plans maintained or sponsored by Buyer
or its Affiliates, or to which Buyer or its Affiliates contributed for its
employees. To the extent any Hired Employee has accrued but unpaid wages
(including vacation entitlements) as of the Closing Date, Buyer shall pay to
Hired Employee such amounts as Employee would have been entitled for such
amounts and at such times as Hired Employee would have been paid had Hired
Employee remained an Employee of Seller. On the Closing Date, Seller shall pay
to Buyer the collective amount of such accrued but unpaid wages (including
vacation entitlements). Each Hired Employee's period of service and
compensation history with Seller or its Affiliates shall be counted in
determining eligibility for, and to the extent applicable, the amount and/or
vesting of, vacation benefits or any benefits or practice as to which period of
service is a factor, including benefits under each Employee Benefit Plan
maintained or sponsored by Buyer or its Affiliates, or to which Buyer or its
Affiliates contribute. Each Hired Employee shall be covered as of his date of
hire under any Employee Benefit Plan maintained or sponsored by Buyer or its
Affiliates, or to which Buyer or its Affiliates contribute, providing health
care benefits (whether or not through insuance) without regard to any waiting
period or any condition or exclusion based on any pre-existing conditions,
medical history, claims experience, evidence of insurability, or genetic
factors, and shall receive full credit for any co-payments or deductible
payments made before the Closing Date.

Seller shall cause the interests of Employees in the Hollywood Park,
Inc. 401(k) Investment Plan (the "HP Plan") to become fully vested at the
Closing Date and distributable immediately thereafter unless it reasonably
concludes that causing vesting and distributability prejudices the tax
qualification of the HP Plan or creates severe administrative hardship for Buyer
in either of which case, upon the request of Seller made within two (2) years
after the Closing Date, Buyer shall cause a defined contribution plan qualified
under code Section 401(a) and maintained or sponsored by Buyer or its Affiliates
(the "Buyer Plan") to accept from the HP Plan a plan-to-plan transfer under Code
Section 414(l) of the assets allocated to accounts of Employees and liabilities
attributable thereto; provided that for purposes of the foregoing, Seller at its
own expense shall, if requested by Buyer, in order to demonstrate prejudice to
the tax qualification to the HP Plan, apply to the Internal Revenue Service
where appropriate for rulings that causing vesting and distributability do not
prejudice the tax qualification of the HP Plan and shall vigorously prosecute
such application, and if such application is filed and vigorously prosecuted the
determination of whether to cause full vesting and immediate distributability or
a plan-to-

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plan transfer shall be deferred until the conclusion of the IRS ruling
process, or, if earlier, two (2) years from the Closing Date; provided
further that Buyer or its counsel shall at its own expense have the right and
opportunity to review ruling application papers and consult with Seller
during the application process. In the event an Employee receives an
"eligible rollover distribution" (within the meaning of Section 402(c)(4) of
the Code) from the HP Plan, Buyer shall cause the Buyer Plan to accept a
direct rollover of such eligible rollover distribution (including, but not
limited to, any portion of such eligible rollover distribution comprised of
the outstanding balance of a loan from the HP Plan to such Employee).

11.2.2 RETENTION OF LIABILITIES. Seller shall be responsible
for all liabilities, if any, resulting from Seller's termination of any
Racetrack Employee, including, but not limited to, (i) hospitalization or
medical claims; (ii) any claim asserting the right to participate in any medical
insurance program on a "self-pay" basis under COBRA or any comparable state or
local law; and (iii) any claims or litigation resulting from such terminations
and/or the sale of the Assets, regardless of when such claims may be asserted;
provided, however, that Seller shall not be responsible for any such liabilities
to the extent such liabilities are caused or are exacerbated by Buyer's breach
of any of its covenants in Section 11.2.1 hereof.

11.3 COOPERATION. Each party hereto agrees, both before and after
the Closing, to execute any and all further documents and writings and to
perform such other reasonable actions which may be or become necessary or
expedient to effectuate and carry out the Transactions (which shall not include
any obligation to make payments).

11.4 EXCLUDED ASSETS. If, after the Closing Date, Excluded Assets,
including, but not limited to, proprietary information of Seller, shall remain
on the Real Property, then Buyer shall take reasonable efforts to deliver such
Excluded Assets to Seller at the expense of Seller and, so long as such
information shall remain on the Real Property, Buyer shall exercise the same
reasonable degree of care with respect thereto as it does with respect to its
own property.

11.5 TAX COOPERATION. After the Closing, the parties shall, and
shall cause their respective Affiliates to, cooperate with each other in the
preparation of all tax returns and shall provide, or cause to be provided, to
such other party any records and other information reasonably requested by such
party in connection therewith as well as access to, and the cooperation of, the
auditors of such other party and its Affiliates. After the Closing, the parties
shall, and shall cause their respective Affiliates to, cooperate with the other
party in connection with any tax investigation, tax audit or other tax
proceeding relating to the Racetrack Business or the Assets. Any information
obtained pursuant to this Section relating to taxes shall be kept confidential
by the other party.

11.6 BEST EFFORTS. Each party will use its best efforts (excluding
the institution of litigation) to cause all conditions to its obligations
hereunder to be timely satisfied and to perform and fulfill all obligations on
its part to be performed and fulfilled under this Agreement to the end that the
Transactions shall be effected substantially in accordance with the terms of
this Agreement as soon as reasonably practicable. In addition, each party will
use reasonable efforts to ensure that its representations and warranties remain
true and correct in all respects as of the Closing Date.

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11.7 NON-PARIMUTUEL GAMING.

11.7.1 BUYER'S COVENANT. If at any time within sixty (60)
months after the Closing Date, Buyer shall conduct or contract with a third
party to conduct or become legally able to conduct other forms of gaming not
presently legal under the laws of the State of California, including, without
limitation, video lottery terminal or slot machine gaming ("NON-PARIMUTUEL
GAMING"), on the Real Property, Seller (or at Seller's option, its designee)
shall be entitled to receive as additional purchase price hereunder an amount
equal to fifty percent (50%) of the "net revenue" (the "Additional Purchase
Price Payments") generated by such Non-Parimutuel Gaming. The parties
acknowledge that Non-Parimutuel Gaming does not include any wagering on
horseracing, including by means of the internet or telephone. The term "net
revenue" shall mean all receipts generated by Non-Parimutuel Gaming less the
expenses relating to such Non-Parimutuel Gaming, including indirect expenses
relating to capital employed with respect to such Non-Parimutuel Gaming,
including a pro rata allocation for the fair market rental value of the Real
Property used for the Non-Parimutuel Gaming and any horsemens' share, but
without any charge for corporate overhead or other similar allocations of
indirect expenses not directly related to the Non-Parimutuel Gaming, determined
in accordance with generally accepted accounting principles, consistently
applied. The Additional Purchase Price Payments constitute additional
consideration under this Agreement without which Seller would not agree to the
Transactions contemplated hereunder. In the event the parties are at any time
unable to agree on the categories of expenses to be included in the calculation
of "net revenue" as defined herein, such matter shall be resolved in accordance
with the provisions of Section 11.7.6 hereof.

11.7.2 TERMS. The terms of Buyer's obligation to make the
Additional Purchase Price Payments shall be as follows:

(a) The Additional Purchase Price Payments shall be
paid to Seller (or at Seller's option, its designee) monthly,
on or before the fifteenth (15th) day following the end of
each calendar month in which Non-Parimutuel Gaming is
conducted. If at the end of any calendar year, an adjustment
is appropriate pursuant to Section 11.7.4, Buyer or Seller
shall make the appropriate payment to the other party within
ten (10) days of completion of the final audit under Section
11.7.4. Each calendar year shall be considered an
independent accounting period for the purpose of computing
the amount of the Additional Purchase Price Payments.

(b) The Additional Purchase Price Payments shall be
paid to Seller (or, at Seller's option, its designee) for a
period of twenty (20) years if the Buyer is permitted to
operate Non-Parimutuel Gaming on the Real Property, and on or
before the expiration of the twenty-year term, Buyer
exercises the Purchase Option, as provided in subparagraph
(c) below. If such option is not exercised as therein
provided, the Additional Purchase Price Payments shall
continue in perpetuity. Notwithstanding the foregoing, the
Additional Purchase Price Payments shall be paid to Seller
(or, at Seller's option, its designee) for a period of only
ten (10) years if the Buyer shall be legally permitted to
operate Non-Parimutuel Gaming on the Real Property

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and card club casinos shall become legally permitted to conduct
Non-Parimutuel Gaming in the State of California.

(c) Buyer shall have a one-time option (the
"PURCHASE OPTION") to purchase all, but not less than all, of
Seller's interest in the revenue of the Non-Parimutuel Gaming
("SELLER'S INTEREST") subject to the following terms: (i)
Buyer may exercise this Purchase Option only by giving
written notice to Seller ("EXERCISE NOTICE") not more than
twelve (12) months and not less than three (3) months prior
to the expiration of the twentieth (20th) year of the
operation of Non-Parimutuel Gaming; (ii) the purchase price
for the Purchase Option ("Option Price") shall equal two (2)
times the EBITDA of Non-Parimutuel Gaming (i.e. four (4)
times Seller's share of the EBITDA of Non-Parimutuel Gaming)
for the twentieth (20th) year, determined on a consistent
basis with prior years and exclusive of extraordinary charges
incurred or paid during the twentieth (20th) year; (iii) the
Option Price shall be paid in cash within thirty (30) days of
its determination, subject to regulatory and other necessary
approvals. In the event of a dispute as to the EBITDA for
the twentieth (20th) year, such determination shall be made
in accordance with the same procedures specified in Section
11.7.4.

11.7.3 RECORDS. For the purposes of ascertaining compliance by
Buyer of its obligations under this Section 11.7, Buyer shall prepare and keep
or cause to be prepared and kept on the Real Property for a period of not less
than seven (7) years after each fiscal year, adequate records which shall show
all receipts as well as all expenses paid or required to be paid in connection
with the operation of the Non-Parimutuel Gaming, whether operated by Buyer or a
third party and shall make such records available for inspection by Seller as
herein provided. Monthly reports of receipts and expenses shall be provided to
Seller concurrently with each payment of Additional Purchase Price.

11.7.4 AUDITED FINANCIAL STATEMENTS. In connection with each
annual audit of its financial statements, Buyer shall prepare and shall have its
independent public accountant who shall at all times be a "Big-Five" accounting
firm, review a schedule of the "net revenues" derived from Non-Parimutuel Gaming
during the preceding calendar year and shall cause such schedule to be delivered
to Seller as soon as practicable and in any event within ninety (90) days of the
end of the calendar year. Seller shall have sixty (60) days after receipt of
each such schedule in which to raise questions with respect to the calculation
of net revenues for the period in question. If Buyer and Seller are not able to
resolve any questions raised by Seller within thirty (30) days of its
determination of whether adjustments to the calculation prepared by Buyer's
auditors is required, an audit shall be made by a "Big-Five" accounting firm
mutually acceptable to Buyer and Seller. The determination of such firm (whose
fees shall be paid equally by Buyer and Seller) shall be conclusively binding on
Buyer and Seller.

11.7.5 LOBBYING EXPENSES. Seller and other interested parties
have made commitments to lobby for the passage of laws which would permit Non-
Parimutuel Gaming on the Real Property. Buyer and Seller shall share equally in
the first $1,000,000 of such out of pocket expenses incurred between the Closing
Date and December 31, 2000. Seller acknowledges that, as of the date hereof,
Buyer has not made any commitment to contribute

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to the cost of marketing or seeking approval of any voter initiative related
to Non-Parimutuel Gaming.

11.7.6 NET REVENUE AND EXPENSE ITEMS. In the event of a
dispute between Seller and Buyer as to whether any items of expense are properly
deductible from the gross receipts generated by Non-Parimutuel Gaming for
purposes of determining "net revenues", Buyer's auditors and Seller's auditors
shall have 15 days after submission of a dispute to seek to mutually agree upon
whether one or more items is properly an item of expense for purpose of the net
revenue computation. If they are unable to agree, they shall mutually select
another "Big-Five" accounting firm which shall make the determination and whose
decision, in the absence of manifest error, shall be conclusive and binding on
the parties, each of whom shall be entitled to present evidence in support of
its position. The cost of the parties accounting firms shall be borne by the
respective parties and the costs of any third accounting firm selected shall be
borne equally by Buyer and Seller.

11.8 NON-COMPETE.

11.8.1 RECITALS.

(a) In substance, the transactions contemplated by this
Agreement effect, among other things, the sale by the Seller of
the Racetrack Business and Buyer's indirect purchase of the
goodwill of Seller in the Racetrack Business;

(b) Buyer and its Affiliates intend to engage in the
Racetrack Business in the Los Angeles, Orange, Ventura, or
San Diego California Counties (the "TERRITORY");

(c) If Seller were to compete with Buyer's or any of
its Affiliate's operation of the Racetrack Business in the
Territory, Buyer would be deprived of the full benefit of any
reputation or goodwill associated with the Racetrack Business,
as the Racetrack Business may exist on and after the Closing
Date; and

(d) The covenants provided in this Section 11.8 are
material, significant and essential to effecting the
transactions contemplated by the Agreement, and good and
valuable consideration under the Agreement has been transferred
from Buyer to Seller in exchange for such covenants.

11.8.2 COVENANT NOT TO COMPETE. From the Closing Date until
the fifth (5th) anniversary of the Closing Date, neither Seller nor its
Affiliates, will directly or indirectly, except on behalf of Buyer and its
respective Affiliates: (i) own, operate or manage (directly or indirectly with
others) a thoroughbred horse racetrack in the Territory; (ii) conduct off-track
wagering in the Territory or (iii) solicit any Hired Employee so long as such
employee remains employed by Buyer or within six months thereafter.

11.8.3 SAVINGS CLAUSE. It is the desire and intent of the
parties to this Agreement that this Section 11.8 be enforced to the fullest
extent permissible under the law and public policies of each jurisdiction in
which enforcement is sought. If this Section 11.8

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is determined to be illegal or unenforceable in any jurisdiction - because it
extends for too long a time, because its geographic scope is too great,
because the business it covers is too broad or for any other reason or
reasons - there shall be deemed to be made those changes, and only those
changes, necessary so that it is valid and enforceable in such jurisdiction
or jurisdictions.

11.8.4 INJUNCTIVE RELIEF. Buyer and Seller agree that the
remedies of Buyer and its respective Affiliates at law would be an inadequate
remedy in the event of breach or threatened breach of this Agreement and thus,
in any such event, Buyer and its Affiliates may, either with or without pursuing
any potential damage remedies (including, without limitation, remedies available
pursuant to Section 9 and Sections 12.10 and 12.11), immediately obtain and
enforce an injunction from a court of competent jurisdiction prohibiting Seller
from violating this Agreement. Notwithstanding Section 12.10, the prevailing
party in any action regarding this Section 11.8 will, in addition to any other
remedies the prevailing party may obtain, be entitled to recover from the other
party its reasonable legal fees and out of pocket costs incurred in enforcing or
defending its rights under this Section 11.8.

11.8.5 NON-COMPETITION AGREEMENT OF R.D. HUBBARD. On the
Closing Date, Seller shall deliver to Buyer the agreement of R.D. Hubbard to
refrain from participating in the day to day operations of a thoroughbred horse
racetrack in the territory for a period of two (2) years after the Closing nor
to solicit any Hired Employees during such two year period so long as they are
employed by Buyer or within six months thereafter.

11.9 ACCESS EASEMENTS. Promptly after the execution of this
Agreement, Seller shall cause its engineers to identify the exact location of
easements, to provide vehicular ingress, egress and access to and from the Real
Property. The easements shall be in the locations and dimensions shown on
Exhibit "A", subject to modification as necessary to account for existing
easements, other matters of record, physical conditions and to comply with
Applicable Laws. On the Closing Date, Buyer and Seller shall execute an
easement agreement ("EASEMENT AGREEMENT") which shall provide that (i) Seller
shall grant Buyer (and successive owners of the Real Property) an easement for
vehicular ingress, egress and access; (ii) Seller (or its Affiliate) shall
construct an access drive over the easement area at its sole cost and expense;
(iii) Buyer and successor owners of the Real Property shall maintain and repair
the access drive at their sole cost and expense, and (iv) the costs associated
with any continuation of the access drives onto or across the Land shall be
borne by Buyer. The Easement Agreement shall be a "covenant running with the
land" and shall be recorded in the Official Records of Los Angeles County on the
Closing Date.

11.10 AUDIT OF FINANCIAL STATEMENTS OF RACETRACK BUSINESS. Seller
shall direct its auditors to perform an audit of the financial statements of the
Racetrack Business as of the date designated by Buyer and otherwise pursuant to
the reasonable instructions of Buyer. Seller shall not have any other
obligations with respect to the preparation of such financial statements. Buyer
shall be responsible for all fees and expenses of the independent auditors in
connection with such audit.

11.11 TVG OPERATIONS. Neither Buyer (with respect to the TVG
Investment Agreement) nor Seller (with respect to the TVG Founders Agreement)
shall take any action

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to cause TVG to modify or amend the rights or obligations of the other party
under said agreements.

11.12 COMMON AREA CHARGES UNDER CASINO LEASE. The parties shall use
reasonable efforts to agree on the percentage allocation between Landlord and
Tenant of Common Area charges prior to the Closing Date, and if so agreed, to
modify the Casino Lease accordingly. Absent agreement, the provisions of
Section 3.02 of the Casino Lease shall remain unmodified.

11.13 TICKET PRICES. Seller shall not decrease ticket prices for the
Del Mar simulcast meet below 1998 prices for the comparable meet in 1998.

12. MISCELLANEOUS.

12.1 BULK TRANSFER LAWS. Buyer hereby waives compliance by Seller
with any applicable bulk transfer laws, including, without limitation, the bulk
transfer provisions of the Uniform Commercial Code of any state, or any similar
statute, with respect to the transaction contemplated by this Agreement.

12.2 EXPENSES. Whether or not the Transactions are consummated,
neither of the parties hereto shall have any obligation to pay any of the fees
and expenses of the other party incident to the negotiation, preparation and
execution of the Transaction Documents, or the closing of the Transactions,
including, but not limited to, the fees and expenses of legal counsel,
accountants, investment bankers, consultants and other experts.

12.3 WAIVERS. Either party may, by written notice to the other
party, (a) extend the time for the performance of any of the obligations or
other actions of the other party under this Agreement; (b) waive any
inaccuracies in the representations or warranties of the other party contained
in this Agreement or in any certificates delivered pursuant to this Agreement;
(c) waive compliance with any of the conditions or covenants of the other
contained in this Agreement; or (d) waive performance of any of the obligations
of the other under this Agreement. With regard to any power, remedy or right
provided herein or otherwise available to any party hereunder, (i) no waiver or
extension of time will be effective unless expressly contained in a writing
signed by the waiving party, and (ii) no alteration, modification or impairment
will be implied by reason of any previous waiver, extension of time, or delay or
omission in exercise of rights or other indulgence.

12.4 AMENDMENTS, SUPPLEMENTS. This Agreement may be amended or
supplemented at any time by the mutual written consent of the parties.

12.5 ENTIRE AGREEMENT. This Agreement, the documents incorporated by
reference and the Transaction Documents, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and supersede all
prior agreements and understandings, oral and written, between the parties
hereto with respect to the subject matter hereof. No representation, warranty,
promise, inducement or statement of intention has been made by either party that
is not embodied in this Agreement or the Transaction Documents and neither party
shall be bound by, or be liable for, any alleged representation, warranty,
promise, inducement or statement of intention not embodied herein or therein.

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12.6 BINDING EFFECT, BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns. Except as set forth in Article 9, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto or their respective permitted successors and
assigns, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.

12.7 ASSIGNABILITY. Neither this Agreement nor any of the parties'
rights hereunder shall be assignable by either party (other than to an
Affiliate), without the prior written consent of the other party, which
consent shall be within such party's sole discretion.

12.8 NOTICES. All notices under this Agreement shall be in writing
and shall be delivered by personal service or telegram, telecopy or certified
mail (if such service is not available, then by first class mail), postage
prepaid, or overnight courier to such address as may be designated from time
to time by the relevant party, and which will initially be as set forth
below. All notices shall be deemed given when received. No objection may be
made to the manner of delivery of any notice actually received in writing by
an authorized agent of a party. Notices shall be addressed as follows or to
such other address as the party to whom the same is directed will have
specified in conformity with the foregoing:

(a) If to Buyer:

Churchill Downs Incorporated
700 Central Avenue
Louisville, KY 40208
Attn: Robert L. Decker
Tel: (502) 636-4588
Fax: (502) 636-4456

With duplicate notice to:

Gibson, Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Jonathan K. Layne
Tel: (213) 229-7000
Fax: (213) 229-7520

(b) If to Seller:

Hollywood Park, Inc.
1050 S. Prairie Ave.
Inglewood, CA 90301
Attn: G. Michael Finnigan
Tel: (310)419-1500
Fax: (310) 672-0567

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With duplicate notice to:

Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067-4276
Attn: Sandra G. Kanengiser
Tel: (310) 277-1010
Fax: (310) 203-7199

12.9 GOVERNING LAW; JURISDICTION. This Agreement has been
negotiated and entered into in the State of California, and all questions
with respect to the Agreement and the rights and liabilities of the parties
will be governed by the laws of that state, regardless of the choice of laws
provisions of California or any other jurisdiction. Any and all disputes
between the parties which may arise pursuant to this Agreement will be heard.

12.10 ATTORNEYS' FEES. As to any litigation or arbitration
(including any proceedings in a bankruptcy court) between the parties hereto
or their representatives concerning any provision of this Agreement or the
rights and duties of any person or entity hereunder, solely as between the
parties hereto or their successors, each party shall bear its own attorneys'
fees and expenses.

12.11 EQUITABLE REMEDIES. Seller and Buyer acknowledge that the
remedy at law for any breach, or threatened breach, of their respective
covenants to consummate the Transactions will be inadequate and, accordingly,
each covenants and agrees that, with respect to any such breach or threatened
breach, the other will, in addition to any other rights or remedies that it
may have and regardless of whether such other rights or remedies have been
previously exercised, be entitled to such injunctive relief as may be
available from any appropriate court referred to in Section 12.9, but to no
other equitable relief, except as set forth in Sections 11.8.4 and 12.15
hereof. Notwithstanding the foregoing sentence, any monetary damages which
are all or a portion of any equitable relief granted hereunder shall be
subject to the limitations set forth in Section 9.

12.12 REPRESENTATIONS AND WARRANTIES. At any time and from time to
time prior to the Closing, Buyer or Seller may amend or supplement any of the
schedules delivered by them in connection with this Agreement to reflect any
matters arising between the date of this Agreement and the Closing Date not
inconsistent with the parties' obligations hereunder and any applicable
representation or warranty shall be deemed modified ab initio by such
amendment or supplement. Notwithstanding any materiality qualification in
any representation or warranty in this Agreement, certain items have been
included in the schedules attached hereto which are not considered by Seller
to be, and the inclusion of any item in a schedule is not an admission by
Seller that such item is, material to the operation of the Racetrack
Business, or condition of the Assets, taken as a whole.

12.13 RULES OF CONSTRUCTION.

12.13.1 HEADINGS. The section headings in this Agreement are
inserted only as a matter of convenience, and in no way define, limit, or
extend or interpret the scope of this Agreement or of any particular section.

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12.13.2 TENSE AND CASE. Throughout this Agreement, as the
context may require, references to any word used in one tense or case shall
include all other appropriate tenses or cases.

12.13.3 SEVERABILITY. The validity, legality or
enforceability of the remainder of this Agreement will not be affected even
if one or more of the provisions of this Agreement will be held to be
invalid, illegal or unenforceable in any respect.

12.13.4 KNOWLEDGE.

(a) Whenever a representation or warranty is stated to
be based on the knowledge of Seller, or words to that effect, such
phrase refers to whether any of R.D. Hubbard, G. Michael Finnigan,
Donald Robbins, Euall Wyatt, Cammie Morin, Steve Arnold or Clen Bounds
has actual present knowledge (without having made any investigation and
without any duty to investigate or inquire) of the matters involved.

(b) Whenever a representation or warranty is stated to
be based on the knowledge of Buyer, or words to that effect, such phrase
refers to whether any of Thomas H. Meeker, Robert L. Decker, Rebecca C.
Reed, Dan Parkerson or Jim Gates has actual present knowledge (without
having made any investigation and without any duty to investigate or
inquire) of the matters involved.

12.13.5 AGREEMENT NEGOTIATED. The parties hereto are
sophisticated and have been represented by lawyers throughout the
Transactions who have carefully negotiated the provisions hereof. As a
consequence, the parties do not believe the presumption of California Civil
Code Section 1654 and similar laws or rules relating to the interpretation of
contracts against the drafter of any particular clause should be applied in
this case and therefore waive its effects.

12.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

12.15 SPECIFIC PERFORMANCE. The parties understand and agree that
the Property is unique and for that reason, among others, Buyer will be
irreparably damaged in the event that this Agreement is not specifically
enforced. Accordingly, in the event of any breach or default in or of this
Agreement or any of the warranties, terms or provisions hereof by either
party , the other party shall have, in addition to a claim for damages for
such breach or default, and in addition and without prejudice to any right or
remedy available at law or in equity, the right to demand and have specific
performance of this Agreement.

12.16 RISK OF LOSS. The risk of any loss, damage, impairment,
confiscation or condemnation of the Assets, or any part thereof (an "Asset
Loss"), shall be upon the Seller at all times prior to the Closing.

12.17 COOPERATION IN EXCHANGE. Buyer acknowledges that Seller may
transfer the Real property and/or the Casino Building to Buyer as part of a
tax-deferred exchange by

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Seller pursuant to Section 1031 of the Internal Revenue Code of 1986
("Code"), and that Seller has the right to restructure all or a part of the
within transaction as provided in Internal Revenue Code Section 1031 as a
concurrent or delayed (non-simultaneous) tax deferred exchange for the
benefit of Seller. Buyer agrees to cooperate, and if requested by Seller, to
accommodate Seller in any such exchange, provided that (i) such cooperation
and/or accommodation shall be at no further cost or liability to Buyer and
Seller hereby indemnifies Buyer in connection therewith; and (ii) the
restructuring of the within transaction shall not prevent nor delay the
Closing beyond the Closing Date. Seller, in electing to structure the sale
as an exchange, shall have the right to substitute another entity or person,
who will be Seller's accommodator in Seller's place and stead. Buyer and
Seller acknowledge and agree that such substitution will not relieve the
herein named Seller of any liability or obligation hereunder, and Buyer shall
have the right to look solely to said herein named Seller with respect to the
obligations of Seller under this Agreement.

12.18 NO MERGER. The parties intend that the provisions of this
Agreement shall survive the delivery of the deeds and not merge therewith,
and, without limitation, Sections 9.2 and 11.7 shall survive the Closing.

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IN WITNESS WHEREOF, this Asset Purchase Agreement has been duly
executed and delivered by the duly authorized officers of the parties hereto
as of the date first above written.

"BUYER"

CHURCHILL DOWNS INCORPORATED,
a Kentucky corporation

By: _________________________
Its: ________________________

"SELLER"

HOLLYWOOD PARK, INC.,
a Delaware corporation

By: _________________________
Its: ________________________

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-3 of
Churchill Downs Incorporated of our reports dated February 19, 1999 relating
to the financial statements of Calder Race Course, Inc. and Tropical Park,
Inc. which appear in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.

PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
May 20, 1999

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the inclusion in this Registration Statement on Form S-3
of our report dated February 24, 1999 relating to the financial statements of
Churchil Downs Incorporated, which appears in this Registration Statement. We
also consent to the incorporation by reference in this Registration Statement
on Form S-3 of our report dated February 24, 1999 relating to the financial
statements and financial statement schedule, which appears in Churchill Downs
Incorporated's Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the reference to us under the heading "Experts"
in such Registration Statement.

PricewaterhouseCooprs LLP
Louisville, Kentucky
May 20, 1999

<PAGE>

EXHIBIT 23.3

Consent of Ernst & Young LLP, Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Registration Statement (Form S-3) and
related Prospectus of Churchill Downs Incorporated for the registration of
two million shares of common stock of our report dated April 7, 1998, with
respect to the consolidated financial statements of Racing Corporation of
America included in Churchill Downs Incorporated's Current Report (Form
8-K/A) dated December 21, 1998, filed with the Securities and Exchange
Commission.

/s/ Ernst & Young LLP

May 20, 1999
Louisville, Kentucky