Document:

Reinvestment Agreement 9-23-05

    

     

    REINVESTMENT
      AGREEMENT

     

    dated
      as
      of

     

    September 23,
      2005

     

    among

     

    Bay
      Meadows Land Company, LLC,

     

    Stockbridge
      HP Holdings Company, LLC,

     

    Stockbridge
      Real Estate Fund II-A, LP,

     

    Stockbridge
      Real Estate Fund II-B, LP,

     

    Stockbridge
      Real Estate Fund II-T, LP,

     

    Stockbridge
      Hollywood Park Co-Investors, LP

     

    and

     

    Churchill
      Downs Investment Company

     

    

    

     

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    

     

    TABLE
      OF CONTENTS

    PAGE

     

    
      ARTICLE
        1
 Definitions 

      Section
        1.01 Definitions 

      

      ARTICLE
        2
 Option
        To
        Purchase; Purchase And Sale 

      Section
        2.01 Option
        to Purchase 

      Section
        2.02 Purchase
        and Sale 

      

      ARTICLE
        3
 Representations
        And Warranties Of Parent And The Company 

      Section
        3.01 Existence
        and Power 

      Section
        3.02 Authorization 

      Section
        3.03 Authorizations 

      Section
        3.04 Noncontravention 

      Section
        3.05 Capitalization 

      Section
        3.06 Compliance
        with Laws 

      

      ARTICLE
        4
 Representations
        And Warranties Of Investor 

      Section
        4.01 Existence
        and Power 

      Section
        4.02 Corporate
        Authorization 

      Section
        4.03 Authorizations 

      Section
        4.04 Noncontravention 

      Section 4.05. Compliance
        with Laws 

      

      ARTICLE
        5
 Transfers 

      Section
        5.01 Restrictive
        Legend 

      Section
        5.02 Restriction
        on Sale or Transfer of Option and Units 

      

      ARTICLE
        6
 Covenants
        Of Parent 

      Section
        6.01 Capital
        Structure 

      Section
        6.02 Amendment
        of Limited Liability Company Agreement 

      Section 6.03. Sale
        of Assets, Real Property and/or Racetrack Business 

      

      ARTICLE
        7
 Covenants
        Of Parent and the Company 

      Section
        7.01 Payment
        of Reinvestment Dividend 

      Section
        7.02. Affiliated
        Transactions 

      

      ARTICLE
        8
 Sale
        Of
        Interests Or Assets 

      Section
        8.01 Sale
        Notice 

      Section
        8.02 Procedure
        for Determining Fair Market Value of the Company 

      Section
        8.03 Sale;
        Payment of the Sale Price 

      Section
        8.04 Sale
        of Assets or the Units 

      

      ARTICLE
        9
 Covenants
        Of the Company, Parent and Investor; Closing Conditions 

      Section
        9.01 HSR
        Application 

      Section
        9.02. Other
        Consents 

      Section
        9.03. Closing
        Conditions 

      

      ARTICLE
        10 Termination 

      Section
        10.01 Grounds
        for Termination 

      Section
        10.02 Effect
        of Termination 

      Section
        10.03 Option
        Revival 

      

      ARTICLE
        11 Miscellaneous 

      Section
        11.01 Payment
        of Taxes 

      Section
        11.02 Notices 

      Section
        11.03 Amendments
        and Waivers 

      Section
        11.04 Successors
        and Assigns 

      Section
        11.05 Governing
        Law 

      Section
        11.06 Counterparts 

      Section
        11.07 Entire
        Agreement 

      Section
        11.08 Specific
        Performance 

      

      

     

    Exhibits
      and Schedules

     

    
      	
              Exhibit
                A

            	
              Form
                of Trigger Notice

            
	
              Exhibit
                B

            	
              Form
                of Option Exercise Notice

            
	
              Exhibit
                C

            	
              Limited
                Liability Company Agreement of Stockbridge HP Holdings
                LLC

            
	
              Exhibit
                D

            	
              Representations
                and Warranties

            
	
              Schedule
                A

            	
              Internal
                Rate of Return Illustration

            

    

     

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    

     

    REINVESTMENT
      AGREEMENT

     

    AGREEMENT
      dated as of September 23, 2005 among Bay Meadows Land Company, LLC,
      a
      Delaware limited liability company (“BMLC”),
      Stockbridge Real Estate Fund II-A, LP, a Delaware limited partnership, as such
      limited partnership may from time to time be constituted (“Fund
      A”),
      Stockbridge Real Estate Fund II-B, LP, a Delaware limited partnership, as such
      limited partnership may from time to time be constituted (“Fund
      B”),
      Stockbridge Real Estate Fund II-T, LP, a Delaware limited partnership, as such
      limited partnership may from time to time be constituted (“Fund
      T”),
      Stockbridge Hollywood Park Co-Investors, LP, a Delaware limited partnership,
      as
      such limited partnership may from time to time be constituted (“Co-Investors”
      and,
      together with Fund A, Fund B, Fund T and Co-Investors, “Parent”),
      Stockbridge HP Holdings Company, LLC, a Delaware limited liability company
      (the
“Company”),
      and
      Churchill Downs Investment Company, a Kentucky corporation (or an Affiliate
      (as
      defined below) of Churchill Downs Investment Company, collectively referred
      to
      as the “Investor”).

     

    WHEREAS,
      BMLC and Churchill Downs California Company, a Kentucky corporation, have
      entered into an asset purchase agreement dated July 6, 2005 (as amended
      and
      assigned, the “Asset
      Purchase Agreement”)
      for
      the purchase and sale of real property and certain assets related to the
      operation of the horse racing facility known as Hollywood Park Racetrack;

     

    WHEREAS,
      it is the intent of the parties hereto that the Investor be granted the right,
      subject to the terms and conditions set forth herein, to reinvest, directly
      or
      indirectly, in the Assets, including without limitation the Real Property,
      and
      the Racetrack Business being purchased by the Company pursuant to the Asset
      Purchase Agreement; and

     

    WHEREAS,
      it is a condition precedent with respect to the Closing (as defined in the
      Asset
      Purchase Agreement) under the Asset Purchase Agreement that the Company grant
      to
      Investor an option (the “Option”)
      to
      purchase the Option Units (as defined herein), upon
      the
      terms and subject to the conditions set forth herein.

     

    NOW,
      THEREFORE, in consideration of the mutual representations, warranties, covenants
      and undertakings contained herein, and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree as follows:

     

    ARTICLE
      1

    Definitions

     

    Section
      1.01 Definitions.
      The
      following terms, as used herein, have the following meanings:

     

    “AAA”
      is
      defined in Section 2.01(i).

     

    “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,
      either through the ownership of all or part of any Person or by means of
      contract or management rights or otherwise.

     

    “Alternative
      Structure”
      is
      defined in Section 6.01(b).

     

    “Arbitration
      Notice”
      is
      defined in Section 2.01(i)(A).

     

    “Asset
      Purchase Agreement”
      is
      defined in the recitals.

     

    “Assets”
      means
      the Assets described in Section 2.1 of the Asset Purchase
      Agreement.

     

    “Business
      Day”
      means a
      day other than Saturday, Sunday or any other day on which commercial banks
      in
      California are authorized or required by law to close.

     

    “Capital
      Contributions”
      means
      the following amounts, without duplication, to the extent supported by
      reasonably detailed documentation made available to Investor:

     

    (i) Net
      Equity; PLUS

     

    (ii)   (A) costs
      and expenses (including, but not limited to, the fees and expenses of attorneys,
      advisors, consultants and agents) actually incurred by Parent, the Company
      and
      any Affiliate of Parent or the Company:

     

    (1) to
      acquire the Real Property and other Assets, including any retention bonuses
      and
      the cost of any COBRA premiums paid by the Company pursuant to Section 11.2.1
      of
      the Asset Purchase Agreement and the cost to the Company of any bonds required
      to be posted by the Company pursuant to Section 11.2.3 of the Asset Purchase
      Agreement,

     

    (2) in
      connection with the sale of the Option Units, 

     

    (3) to
      seek or obtain
      the occurrence of a Trigger Event (but only to the extent that such costs and
      expenses are (a) appropriately allocable to Hollywood Park and not to
      Parent’s other racing properties, based upon the reasonably anticipated revenues
      to be generated at each such property as a result of gaming activities
      undertaken in response to a Trigger Event and (b) not otherwise reimbursed
      to the Company by Investor pursuant to Section 2.01(d) hereof);

     

    (B) the
      Entitlement Costs; 

     

    (C)
      costs
      of
      interest and commitment and other financing fees
      (including, but not limited to, the fees and expenses of attorneys, advisors,
      consultants and agents) actually incurred by Parent, the Company and any
      Affiliate of the Company for any debt to finance the purchase, operation or
      development of the Real Property or the Racetrack Business; and 

     

    (D) the
      amount of any capital expenditures made with respect to the Assets, the Real
      Property or the Racetrack Business from the Closing Date (as defined in the
      Asset Purchase Agreement) through and including the Reinvestment Date,

     

    provided,
      however,
      that in
      the case of clause (C), solely to the extent that the aggregate amount of such
      costs exceeds the net cash provided by the operation of the Racetrack Business
      (determined prior to the deduction of the items set forth in clause (C) above
      to
      the extent such items were deducted in the calculation of the net cash);
PLUS

     

    (iii) the
      amount of any additional contributions to the Company by Parent and any
      Affiliate of the Company to fund operating losses; LESS

     

    (iv) any
      net
      proceeds received by Parent and any Affiliate of the Company from debt
      financings or sales of assets by the Company (other than reimbursements for
      expenses incurred by Parent and any Affiliate of the Company on behalf of the
      Company) to the extent that such distributions exceed the cumulative net profit
      allocated to the capital accounts of Parent and any Affiliate of the
      Company.

     

    Notwithstanding
      the foregoing, any costs, expenses or other amounts purported to be included
      in
      the calculation of Capital Contribution above paid or payable to any Affiliate
      or Related Party of Parent or the Company may be included in such calculation
      only to the extent such amounts are reasonable. The extent to which any such
      costs, expenses or amounts are reasonable shall be determined in the reasonable
      discretion of Investor, based upon terms and conditions that could have been
      obtained in an arms’-length transaction with an unaffiliated third
      party.

     

    “Closing”
      means
      the consummation of the purchase and sale of the transactions described in
      the
      Asset Purchase Agreement.

     

    “Closing
      Date”
      means
      the date of the Closing.

     

    “Company”
      is
      defined in the recitals.

     

    “Company
      EBITDA”
      means
      the annual adjusted net income attributable to the Racetrack Business for the
      relevant 12 month period ending on December 31st of each calendar
      year
      during the term of this Agreement determined in accordance with GAAP plus,
      to
      the extent any of the following amounts were deducted in calculating such
      adjusted net income:

     

    (i) interest
      expense for such period;

     

    (ii) income
      taxes for such period;

     

    (iii) depreciation
      expense for such period;

     

    (iv) amortization
      expense for such period;

     

    (v) all
      other
      non-cash items reducing adjusted net income (excluding any such non-cash charge
      to the extent it represents an accrual of or reserve for cash charges in any
      future period);

     

    (vi) any
      non-capitalized transaction costs incurred in connection with actual, proposed
      or abandoned financings, acquisitions or divestitures; and

     

    (vii) any
      non-cash items for such period relating to severance and restructuring
      charges;

     

    minus
      any
      non-cash items that increased such adjusted net income (excluding any such
      non-cash items to the extent it represents the reversal of an accrual or reserve
      for anticipated cash charges in any prior period). In the event that a
      determination of Company EBITDA is required for the 12 month period ending
      on
      December 31, 2005, such amount will be calculated on a pro-forma basis giving
      effect to the purchase of the Assets and Racetrack Business (and related
      transactions) pursuant to the Asset Purchase Agreement as of January 1,
      2005.

     

    “Default
      Unit Purchase”
      is
      defined in Section 2.02(e)(i).

     

    “Diligence
      Notice”
      is
      defined in Section 2.01(c).

     

    “Diligence
      Period”
      is
      defined in Section 2.01(c).

     

    “Disputing
      Party”
      and
“Disputing
      Parties”
      is
      defined in Section 2.01(i).

     

    “Entitlement
      Costs”
      means
      the aggregate amount of costs and expenses actually incurred by Parent, the
      Company and any Affiliate of the Company (including, but not limited to, the
      fees and expenses of attorneys, architects, consultants and other advisors
      and
      any overhead costs such as reasonable travel and entertainment) to seek or
      obtain approval by all appropriate Governmental Authorities of the Company’s
      intended overall development of the Real Property.

     

    “Final
      Buyer”
      is
      defined in Section 8.03(b).

     

    “Fully-Diluted
      Basis”
      means
the
      aggregate number of Units outstanding plus the number of Units issuable upon
      exercise or conversion of any rights, options, warrants or other convertible,
      exercisable or exchangeable securities then outstanding.

     

    “GAAP”
      means
      generally accepted accounting principles in the United States as in effect
      from
      time to time, applied on a consistent basis.

     

    “Governmental
      Authority”
      means
      any domestic or foreign court, commission, tribunal or any governmental agency
      or authority.

     

    “HSR
      Act”
      means
      the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
      amended.

     

    “Initial
      Diligence Period”
      is
      defined in Section 2.01(e).

     

    “Internal
      Rate of Return”
      means
      the rate of return (calculated as provided below, taking into account the time
      value of money), which (x) the Purchase Price for which the return is
      being
      calculated represents on (y) the aggregate Capital Contributions made
      by
      Parent and any Affiliate of the Company as of such date. In determining the
      Internal Rate of Return, the following shall apply:

     

    (i) all
      present value calculations are to be made as of the date Capital Contributions
      were contributed to the Company;

     

    (ii) the
      Internal Rate of Return shall be conclusively determined (absent manifest error)
      by using the XIRR function in Microsoft Excel 2003 (or any newer version of
      Microsoft Excel then broadly in use by Parent) and by inputting the dates and
      amounts of all Capital Contributions by Parent (any amounts contributed to
      the
      Company prior to the date hereof being deemed for this purpose to have been
      contributed on the date hereof). If the XIRR function shall no longer be
      available in any newer version of Microsoft Excel then broadly in use by Parent,
      or has been materially altered from the XIRR function in Microsoft Excel 2003,
      the Internal Rate of Return shall be conclusively determined (absent manifest
      error) by using the XIRR function in Microsoft Excel 2003 or by the comparable
      function in the newer version of Microsoft Excel then broadly in use by Parent
      or another comparable software program, as determined by Parent and reasonably
      accepted by Investor;

     

    (iii) the
      rates
      of return shall be per annum rates and all amounts shall be calculated on a
      monthly basis and compounded on an annual basis on the basis of a twelve month
      year;

     

    (iv) Parent
      shall in good faith prepare and deliver to Investor along with the Trigger
      Notice in accordance with Section 2.01(b) hereof a statement
      with
      reasonably detailed calculations of the Purchase Price payable as of the date
      of
      the Trigger Notice;

     

    (v) Solely
      for purposes of illustration, Schedule A
      attached
      to this Agreement sets forth an example of the calculation of the Purchase
      Price
      with respect to the aggregate Capital Contributions assumed in such illustration
      as of the dates set forth therein; and

     

    (vi) if,
      prior
      to the date upon which it is required to pay the Reinvestment Price, Investor
      disputes the calculation described in subparagraph (ii) above of the Purchase
      Price paid by Parent and any Affiliate of the Company then the Investor shall
      inform Parent of any questions or disputes within five days of its receipt
      of
      such calculation. If the parties are unable to agree upon the proposed Purchase
      Price, any disputes will be resolved a nationally recognized accounting firm
      that is mutually acceptable to the parties and such firm’s determination shall
      be deemed conclusive absent manifest error.

     

    “Investor”
      is
      defined in the recitals.

     

    “Lien”
      means
      with respect to any property or asset, any mortgage, claim, charge, lease,
      covenant, easement, encumbrance, security interest, lien, option, pledge, rights
      of others, restriction or other adverse claim of any kind (whether on voting,
      sale, transfer, disposition or otherwise) in respect of such property or asset,
      whether imposed by agreement, understanding, law, equity or
      otherwise.

     

    “Majority
      Member”
      is
      defined in Section 8.01(a).

     

    “Majority
      Member Notice”
      is
      defined in Section 8.03(b).

     

    “Majority
      Valuation Firm”
      is
      defined in Section 8.01(b).

     

    “Minority
      Member”
      is
      defined in Section 8.01(a).

     

    “Minority
      Valuation Firm”
      is
      defined in Section 8.01(b).

     

    “Net
      Equity”
      shall
      mean $260,000,000, as such Purchase Price (for purposes of this definition
      only,
      as defined in the Asset Purchase Agreement) may be adjusted pursuant to the
      Asset Purchase Agreement, less any portion of such amount that is financed
      with
      debt of the Company, the Parent or any Affiliate of the Company or the Parent
      (or, without duplication, debt that is secured by the assets or properties
      of
      the Parent, Company or any Affiliate thereof) on the Closing Date.

     

    “Option”
      is
      defined in the recitals.

     

    “Option
      Deposit”
      means
      the amount equal to five percent of the Reinvestment Payment.

     

    “Option
      Exercise Notice”
      is
      defined in Section 2.01(d).

     

    “Option
      Units”
      means
      the number of Units that Investor is permitted to purchase upon exercise of
      the
      Option, as set forth in Section 2.01(f).

     

    “Parent”
      is
      defined in the recitals.

     

    “Paying
      Agent”
      is
      defined in Section 8.03(c).

     

    “Percentage”
      means
      the percentage share of all Units of the Company (determined on a Fully-Diluted
      Basis) that Investor will own after exercise of the Option.

     

    “Person”
      means
      an individual, corporation, partnership, limited liability company, association,
      trust or other entity or organization, including a government or political
      subdivision or an agency or instrumentality thereof.

     

    “Purchase
      Agreement”
      is
      defined in Section 2.01(e).

     

    “Purchase
      Price”
      means
      the payment (expressed in U.S. dollars) that is required so that, if such
      Purchase Price were to be paid to Parent for 100% of the equity of the Company
      on the Reinvestment Date, Parent and any Affiliate of the Company would have
      received the Internal Rate of Return equal to 13% on its aggregate Capital
      Contributions as of such date; provided,
      that if
      Investor elects to extend the Diligence Period as permitted by Section 2.01(d)
      below, the rate of return shall be an Internal Rate of Return of 13% up to
      the
      date of the first such extension (that is, up to the date that is six months
      after the date of the Trigger Notice) and an Internal Rate of Return equal
      to
      18% thereafter through the Reinvestment Date.

     

    “Racetrack
      Business”
      means
      the operation of the Hollywood Park Racetrack on a portion of the Real
      Property.

     

    “Real
      Property”
      means
      that certain real property described in Section 2.1.1 of the Asset Purchase
      Agreement.

     

    “Redevelopment
      Date”
      means
      the date, which in any event shall not be any earlier than three years after
      the
      date of this Agreement, on which the following conditions are satisfied:
      (1) the Company has ceased to operate the Racetrack Business, (2) the
      City of Inglewood has approved a general plan amendment and a conforming zone
      change so as to provide the primary entitlements for the Company’s intended
      overall development of the Real Property and (3) the Company has commenced
      the redevelopment of the Real Property pursuant to the plan approved by the
      City
      of Inglewood and states in a certificate signed by its chief executive officer
      that such redevelopment has commenced.

     

    “Reinvestment
      Date”
      means
      the date on which the Company shall issue the Option Units to
      Investor.

     

    “Reinvestment
      Dividend”
      means a
      distribution in an amount equal to the Reinvestment Payment that shall be paid
      by the Company to Parent and certain Affiliates of the Company on the
      Reinvestment Date less any costs and expenses incurred by the Company and
      included in the calculation of Capital Contribution, but not yet paid as of
      the
      Reinvestment Date.

     

    “Reinvestment
      Payment”
      is
      defined in Section 2.02.

     

    “Related
      Party”
      means
      an executive officer, director or manager, 10% equityholder (including any
      executive officers, directors or members thereof) or Affiliate of the Company
      at
      such time, any present or former known spouse of any such executive officer,
      director, member, equityholder or Affiliate of the Company or any trust or
      other
      similar entity for the benefit of any of the foregoing Persons.

     

    “Sale
      Notice”
      is
      defined in Section 8.01(a).

     

    “Sale
      Price”
      is
      defined in Section 8.03(a).

     

    “Second
      Diligence Period”
      is
      defined in Section 2.01(c).

     

    “Securities
      Act”
      means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

    “Stockbridge
      Funds”
      is
      defined in Section 6.01(b).

     

    “Subsidies
      Agreement”
      is
      defined in Section 2.01(a).

     

    “Termination
      Date”
      shall
      have the meaning provided in Section 10.01.

     

    “Third
      Diligence Period”
      is
      defined in Section 2.01(c).

     

    “Third
      Party Sale”
      is
      defined in Section 8.04.

     

    “Trigger
      Event”
      is
      defined in Section 2.01(a).

     

    “Trigger
      Notice”
      is
      defined in Section 2.01(b).

     

    “Units”
      means
      the membership units of the Company.

     

    ARTICLE
      2

    Option
      To Purchase; Purchase And Sale

     

    Section
      2.01 Option
      to Purchase. 

     

    (a) Upon
      the
      terms and subject to the conditions set forth below, the Company agrees to
      sell
      to Investor, and Investor agrees to purchase from the Company, the Option
      Units.
      Investor
      shall be entitled to a one time right to purchase the Option Units upon the
      earliest to occur of the following (each a “Trigger
      Event”):

     

    (i) the
      date any federal or California state law becomes effective, including without
      limitation the effectiveness of any and all necessary governmental and/or
      regulatory actions related thereto, that authorizes Class II or Class III gaming
      (as defined in the federal Indian Gaming Regulatory Act), and permits the
      introduction of electronic gaming devices, in conjunction with the Racetrack
      Business or 

     

    (ii) the
      date any federal or California state law becomes effective (if not covered
      by
      (i) above), including without limitation the effectiveness of any and all
      necessary governmental and/or regulatory actions related thereto, that
      authorizes any other gaming not authorized under applicable laws as of the
      date
      hereof, in conjunction with the Racetrack Business, or 

     

    (iii)
      any
      agreement (the “Subsidies
      Agreement”)
      becomes effective between the Company and (A) the State of California
      or
      any agency, bureau or department thereof or (B) any Indian Tribe recognized
      by the United States Bureau of Indian Affairs, pursuant to which the Company
      will receive cash subsidies, 

     

    if
      in the
      case of (ii) or (iii), the revenues or subsidies therefrom, when added to the
      Company EBITDA from the Racetrack Business during the calendar year that ended
      immediately prior to the effective date of such new gaming authorization or
      Subsidies Agreement, would result in pro-forma Company EBITDA for such year
      that
      is greater than $40 million; provided,
      that
      any Subsidies Agreement shall be
      reasonably likely to provide an equal or greater level of subsidies to the
      Company for not less than three years. The determination as to the amount of
      projected incremental revenues or subsidies referenced in (ii) and (iii) above
      shall be made by (X) The Innovation Group, (Y) Christiansen Capital
      Advisors LLC, or (Z) such other consultant, as the Investor and Parent may
      mutually agree.

     

    (b) Upon
      the
      occurrence of a Trigger Event (provided,
      that
      this Agreement shall not have been earlier terminated pursuant to the terms
      of
      Section 10.01 herein), the Company shall within 15 days provide notice, in
      the
      form attached hereto as Exhibit
      A
      (a
“Trigger
      Notice”),
      to
      Investor of the occurrence of such event.

     

    (c) Delivery
      of Diligence Notice; Initial Diligence Period; Extensions of Diligence Period.
      Within
      30
      days following receipt of the Trigger Notice, the Investor may provide the
      Company with notice of its intention to commence its due diligence review of
      the
      Company (the “Diligence
      Notice”).
      Upon
      delivery of the Diligence Notice, the Investor shall have an initial period
      of
      six months to conduct its due diligence examination of the Company (such initial
      diligence period referred to herein as the “Initial Diligence
      Period”
      and, as
      may be extended pursuant to the remainder of this Section 2.02(c), the
“Diligence
      Period”).
      On or
      before the last day of the Initial Diligence Period, Investor may notify the
      Company and Parent in writing of its election to extend the Diligence Period
      for
      an additional six months (the “Second
      Diligence Period”),
      in
      which event the Diligence Period shall be so extended to the first anniversary
      of the date of the Diligence Notice. On or before the last day of the Second
      Diligence Period, Investor may notify the Company and Parent in writing of
      its
      election to extend the Diligence Period for an additional six months, in which
      event the Diligence Period shall be so extended to the date that is 18 months
      following the date of the Diligence Notice (the “Third
      Diligence Period”).
      In no
      event shall the Diligence Period be extended past the date that is 18 months
      following the date of the delivery or deemed delivery (as provided below) of
      the
      Diligence Notice.

     

    During
      the Initial Diligence Period and until the end of any extended Diligence Period,
      the Company
      will:

     

    (i) during
      ordinary business hours and upon reasonable notice from the Investor, permit
      the
      Investor and its authorized representatives to have access to the personnel,
      offices, properties, books, records and all assets and properties of the
      Company, including without limitation the Racetrack Business, in order to make
      such inspections, tests, and investigations as the Investor shall deem
      appropriate (including without limitation, such Phase II or other intrusive
      environmental investigations as the Investor may reasonably deem appropriate),
      

     

    (ii) furnish,
      as soon as reasonably practicable, to the Investor or its authorized
      representatives such other information in the Company’s possession with respect
      to its assets and properties, including without limitation, the Racetrack
      Business as the Investor may from time to time reasonably request (including
      financial information of the Company) and 

     

    (iii) otherwise
      reasonably cooperate in the due diligence examination of the Company by the
      Investor.

     

    Subject
      to the provisions of this Section and Section 2.01(i) below, in the
      event
      the Company does not receive, or is not deemed to receive, a Diligence Notice
      from the Investor within the 30 day period specified above, the Option shall
      immediately terminate and no longer be exercisable and this Agreement shall
      terminate pursuant to Section 10.01. In
      the
      event the parties hereto commence arbitration proceedings pursuant to
      Section 2.01(i) the Arbitration Notice shall be deemed a Diligence Notice
      for all purposes hereunder and Investor shall have the right to conduct its
      due
      diligence examination of the Company for the Diligence Period in accordance
      with
      this Section 2.01(c); provided,
      however,
      that
      the Initial, Second and Third Diligence Periods shall be automatically extended
      during the pendency of any arbitration, but the Diligence Period shall not
      be
      extended past the date that is 18 months after the date of delivery or deemed
      delivery of a Diligence Notice as a result of such arbitration proceedings
      or
      any outcome of such arbitration proceedings.

     

    (d)   (i) Delivery
      of Option Exercise Notice. In
      the
      event the Investor intends to exercise the Option upon completion of its due
      diligence examination of the Company, on or prior to 5:00 p.m. (Pacific Time)
      on
      the last day of the Diligence Period (including for the avoidance of doubt
      any
      extensions of such Diligence Period as set forth in Section 2.02(c)) ,
      the
      Investor shall deliver a notice, in the form attached hereto as Exhibit
      B
      (an
“Option
      Exercise Notice”),
      to
      Parent and the Company of its intent to exercise the Option and the Percentage
      that it wishes to acquire (if it is less than the full number to which it is
      entitled pursuant to subsection (f) below).

     

    (ii) Sharing
      of Certain Expenses. If
      the
      Investor elects to extend the Diligence Period beyond the Initial Diligence
      Period pursuant to paragraph (c) above, then it shall promptly (upon the
      delivery from time to time of reasonably detailed documentation and invoices)
      reimburse the Company for 50% of the costs and expenses (including, but not
      limited to, the fees and expenses of attorneys, advisors, lobbyists, consultants
      and agents) actually incurred by the Parent, the Company and any Affiliate
      of
      the Company from and after the date that is 90 days following the date of the
      Trigger Event and to and including the Reinvestment Date related to the Trigger
      Event (but only to the extent that such costs and expenses are appropriately
      allocable to Hollywood Park and not to Parent’s other racing properties, based
      upon the reasonably anticipated revenues to be generated at each such property
      as a result of gaming activities undertaken in response to a Trigger Event),
      whether or not Investor elects to purchase the Option Units, provided,
      that
      Investor shall not be responsible for additional expenses incurred after the
      delivery of a notice to end the Diligence Period as permitted in (iii) below.
      The parties agree that the expenses to be shared are those set forth above
      that
      relate to securing the Company’s legal right (including necessary permits) to
      operate the additional gaming activities related to the Trigger Event, and
      not
      capital expenditures. To the extent Investor reimburses any costs and expenses
      pursuant to this paragraph, such amounts shall be treated as additional
      contributions to Investor’s capital account with the Company should Investor
      consummate the purchase of the Option Units, but Investor shall not receive
      any
      additional Units with respect to such amounts.

     

    (iii) Revocability
      of Diligence Notice. The
      Investor shall be entitled to end its Diligence Period at any time prior to
      the
      delivery of an Option Exercise Notice, for any reason or no reason, by
      delivering notice thereof to the Company and Parent, and the Diligence Period
      shall end on the date of such written notice.

     

    (iv) Termination
      of Option. In
      the
      event the Company and Parent do not receive an Option Exercise Notice within
      the
      Initial or any extended Diligence Period, the Option shall immediately terminate
      and no longer be exercisable and this Agreement shall terminate pursuant to
      Section 10.01.

     

    (e) As
      soon
      as practicable following the date of the Option Exercise Notice, but in no
      event
      later than the date that is six months after the delivery or deemed delivery
      of
      the Diligence Notice,
      the
      Company, Parent and the Investor shall use their commercially reasonable efforts
      to negotiate in good faith a Unit purchase and sale agreement (the “Purchase
      Agreement”),
      in
      form and substance reasonably satisfactory to the Investor and the Company,
      with
      customary representations, covenants, indemnification provisions and conditions
      precedent, including without limitation, the condition precedent of satisfaction
      or waiver of all governmental or third party registrations, filings,
      applications, notices, consents, approvals, orders, qualifications or waivers
      required under applicable law to be obtained by the Company, Parent and/or
      the
      Investor in order to consummate the exercise of the Option and the purchase
      of
      the Option Units. The parties agree that a Purchase Agreement with provisions
      generally similar to those set forth in the Asset Purchase Agreement shall
      be
      deemed a reasonably satisfactory agreement for purposes of this Section 2.01(e);
      provided,
      that
      the parties agree that the extent to which terms and conditions of the Purchase
      Agreement as set forth in the Asset Purchase Agreement are deemed to be
      reasonably satisfactory are to be viewed in light of the facts, circumstances
      and status of gaming regulation in effect at the time of such
      negotiations.

     

    (i) In
      the
      event the parties do not enter into a definitive Purchase Agreement prior to
      the
      completion of the Diligence Period, the Investor, in its sole and absolute
      discretion, shall nevertheless have the right to purchase the Option Units
      without any such Purchase Agreement by delivery of the Reinvestment Payment
      (or,
      if any filing is required pursuant to the HSR Act, the Option Deposit) in
      immediately available funds by wire transfer to an account designated by the
      Company on the date that is 10 days following the end of the Diligence Period
      (unless a different date is agreeable to the Parent and the Investor);
provided,
      however,
      that,
      if by such date the terms set forth in Section 2.01(e)(ii)(A) through
      (C)
      have not been satisfied (or waived by Investor), the Reinvestment Payment or
      the
      Option Deposit, as applicable, shall be delivered on such date immediately
      following the satisfaction of the terms set forth in Section 2.01(e)(ii)(A)
      through (C) (a “Default
      Unit Purchase”);
      provided
      further, however,
      that if
      any filing is required pursuant to the HSR Act, Investor shall remit an amount
      equal to the Reinvestment Payment less the Option Deposit within 10 Business
      Days following the expiration or termination of applicable waiting periods
      under
      the HSR Act.
      If the
      purchase and sale of the Option Units fails to occur for any reason (other
      than
      a result of a material breach of this Agreement by Investor), the Option Deposit
      shall be immediately returned to Investor. Notwithstanding any failure of the
      parties to enter into a Purchase Agreement, Parent, the Company and the Investor
      shall reasonably cooperate with each other in promptly making all necessary
      filings and obtaining all permits, licenses, approvals, authorizations and
      consents required in order to consummate the purchase and sale of the Option
      Units and the transactions related thereto, including without limitation, any
      filings required under the HSR Act.

     

    (ii) If
      the
      parties do not enter into a definitive Purchase Agreement and the Investor
      purchases the Option Units pursuant to a Default Unit Purchase, the Company,
      Parent and Investor hereby agree that,
      notwithstanding anything to the contrary set forth in this Agreement or the
      limited liability company agreement of the Company:

     

    (A) the
      representations and warranties of each of the Company and Parent set forth
      in
      Article 3 of this Agreement except as otherwise disclosed to Investor
      in
      writing, and as set forth on Exhibit D,
      shall be
      true and correct in all material respects as of the Reinvestment Date as
      though
      made
      at and as of that date and the Company and Parent shall in all material respects
      have performed and complied with all terms, agreements, covenants and conditions
      of this Agreement to be performed or complied with by such entity at the
      Reinvestment Date;

     

    (B) the
      conditions precedent to the closing of the sale and purchase of the Option
      Units
      set forth in Section 9.03 hereof shall have been satisfied in all material
      respects or waived by the Investor, in its sole discretion; and

     

    (C) the
      Company and Parent shall have delivered a certificate signed by their respective
      executive officers certifying that the provisions set forth in this
      Section 2.01(e)(ii)(A) and (B) have been satisfied.

     

    (f) Following
      payment of the full amount of the Reinvestment Payment, pursuant to the Purchase
      Agreement or Default Unit Purchase, the Company shall promptly issue to Investor
      a sufficient number of Units such that, following such issuance and the
      corresponding distribution of the Reinvestment Dividend to Parent, as of such
      relevant date, Investor’s percentage ownership of all Units determined on a
      Fully-Diluted Basis is equal to the percentage set forth in the table below
      (or
      any lesser number of Units that Investor has specified in its Option Exercise
      Notice):

     

    

    
      	
              If
                the Diligence Notice is Delivered 

              or
                Deemed Delivered 

            	
              Percentage

              (on
                a Fully-Diluted Basis)

            
	
              On
                or Before September 23, 2006

            	
              80%

            
	
              After
                September 23, 2006 and on or before September 23,
                2007

            	
              70%

            
	
              After
                September 23, 2007 and on or before September 23,
                2008

            	
              60%

            
	
              After
                September 23, 2008 and on or before September 23,
                2009

            	
              49%

            
	
              After
                September 23, 2009 and on or before September 23,
                2010

            	
              40%

            
	
              After
                September 23, 2010 and on or before September 23,
                2011

            	
              30%

            
	
              After
                September 23, 2011 and on or before September 23,
                2012

            	
              20%

            
	
              After
                September 23, 2012 and on or before September 23,
                2013

            	
              10%

            

    

     

    For
      avoidance of doubt, the maximum Percentage (on a Fully-Diluted Basis) subject
      to
      Investor’s Option hereunder shall be determined for all purposes as of the date
      of the delivery or deemed delivery of the Diligence Notice, delivered by
      Investor to Company and Parent, notwithstanding any extensions of the Diligence
      Period or any delays in consummating the Investor’s purchase of Units
      thereafter.

     

    (g) If
      Investor consummates the purchase of fewer than the full number of Units to
      which it is entitled, then the Option shall expire and be of no further effect
      with respect to the unexercised portion. In no event, however, may Investor
      elect to purchase or obtain exactly 50% of the Units.

     

    (h) In
      no
      case shall the Parent or Company be required to postpone or otherwise delay
      the
      planned development of the Real Property, or any sale or transfer of the Assets
      or Real Property or the Racetrack Business (except during the periods described
      in Sections 6.03 and 7.02) or have any duty or other obligation to take or
      omit
      to take any action, at any time after the date hereof, to facilitate Investor’s
      exercise of the Option or generally with respect to the Real Property, the
      Racetrack Business or the other Assets or the management thereof, other than
      as
      specifically set forth in this Agreement or the Transaction Documents (as
      defined in the Asset Purchase Agreement).

     

    (i) Any
      dispute or difference between or among the parties (such parties being referred
      to individually as a “Disputing
      Party,”
      and,
      together, as the “Disputing
      Parties”)
      arising out of or with respect to the occurrence or non-occurrence of a Trigger
      Event, which the parties are unable to resolve themselves shall be submitted
      to
      and resolved by arbitration as herein provided. The parties intend this Section
      2.01(i) to be enforceable in accordance with the Federal Arbitration Act (9
      U.S.C. Section 1, et seq.), including any amendments to that Act which are
      subsequently adopted. In recognition of the fact that resolution of any disputes
      with respect to the occurrence or non-occurrence of a Trigger Event in the
      courts is rarely timely or cost effective for either party, the Disputing
      Parties enter this mutual agreement to arbitrate in order to gain the benefits
      of a speedy, impartial and cost-effective dispute resolution procedure. The
      arbitration will be conducted using “fast track” procedures designed to result
      in a decision no later than 180 days after the commencement of the arbitration
      and the parties hereto agree that they will attempt, and they intend that they
      and the arbitrator should use their best efforts in that attempt, to conclude
      the arbitration proceeding and obtain a final decision from the arbitrator
      no
      later than 180 days after the commencement of the arbitration.

     

                    (A)  Any Disputing
      Party
      may request the American Arbitration Association (the “AAA”)
      to
      designate one arbitrator, who shall be qualified as an arbitrator under the
      standards of the AAA, who shall be a retired judge or who shall have been
      engaged in the private practice of law for not less than fifteen (15) years
      immediately prior to appointment as arbitrator pursuant to this Agreement,
      and
      who is, in any such case, not affiliated with any party in interest to such
      arbitration (such request an “Arbitration
      Notice”).
      Such
      designation shall be pursuant to the rules and procedures of the AAA whereby
      the
      AAA will circulate a list of 12-15 proposed arbitrators to both Parties and
      such
      Parties will promptly reply to the AAA in accordance with the rules and
      regulations of the AAA.

     

    (B)  The
      arbitration hearings shall be held in Los Angeles, California or such other
      place as may be mutually agreed. Each Party shall submit its case to the
      arbitrator within 60 days of the selection of the arbitrator or within such
      longer period as may be agreed by the arbitrator. The arbitrator may resolve
      any
      and all disputes regarding discovery in connection with the arbitration. The
      arbitrator’s decision shall be in writing and need only set forth which of the
      Parties’ positions is correct. The arbitrator shall deliver a copy of the
      decision to each Party personally or by registered mail within 10 days after
      the
      arbitration hearing.

     

    (C)  Each
      Party shall bear its own costs in connection with any such arbitration,
      including, without limitation, (i) all legal, accounting, and any other
      professional fees and expenses and (ii) all other costs and expenses each Party
      incurs to prepare for such arbitration. Other than set forth above, each side
      shall pay (iii) one-half of the fee and expenses of the arbitrator and (iv)
      one-half of the other expenses that the Parties jointly incur directly related
      to the arbitration proceeding.

     

    (D)  Except
      as
      provided above, arbitration shall be based, insofar as applicable, upon the
      Rules of the AAA, but limited and conducted with regard to pre-hearing discovery
      as follows: (i) no later than 45 days prior to the arbitration hearing, each
      Party shall identify to the other any persons who may be called as an expert
      witness, describe the subject matter about which the expert is expected to
      testify, and opinions held by the expert and the facts known by the expert
      (regardless of when the factual information was acquired) which relate to or
      form the basis for the opinions held by the expert, and make available any
      reports produced by any such expert (or the bases upon which such expert formed
      an opinion if no such report was created), as well as similar information for
      any experts who have been used for consultation, but who are not expected to
      be
      called as an expert witness, if such consulting expert’s opinions have been
      reviewed by an expert witness who is expected to testify, (ii) as specified
      in
      more detail below, discovery shall be limited to the request for and production
      of documents, three factual depositions (that is, depositions of persons other
      than proposed expert witnesses), three depositions of expert witnesses and
      three
      sets of interrogatories; (iii) the duration of each deposition shall be limited
      to two days; (iv) interrogatories shall be allowed only as follows: a party
      may
      request the other party to identify (by name, last known address and telephone
      number) all persons having knowledge of facts relevant to the dispute and a
      brief description of that person’s knowledge, and may include so-called
“contention interrogatories”; and (v) document discovery conducted in the course
      of such an arbitration shall be limited so that neither Party shall be required
      to respond to more than two specific sets of requests for documents, not
      including the required expert disclosures set forth above.

     

    (E)  The
      Parties hereby waive any right of appeal to any court on the merits of the
      dispute.

     

    Section
      2.02 Purchase
      and Sale.
      The
      closing of the sale of the Option Units pursuant to a Purchase Agreement shall
      occur as soon as practicable following the expiration of the Diligence Period
      and the satisfaction or waiver of applicable closing conditions (unless a
      different date is chosen by mutual agreement of the Investor and the Company).
      The closing of the sale of the Option Units pursuant to a Default Unit Purchase
      shall occur on the date that is 10 days following the end of the Diligence
      Period (unless a different date is agreeable to the Parent and the Investor);
      provided,
      however,
      that,
      if by such date the terms set forth in Section 2.01(e)(ii)(A) through
      (C)
      have not been satisfied or waived by Investor, such closing date shall occur
      on
      such date immediately following the satisfaction (or waiver by Investor) of
      the
      terms set forth in Section 2.01(e)(ii)(A) through (C). The amount of
      cash
      payable by Investor for the Option Units shall be (a) the Purchase
      Price multiplied
      by
      (b) the Percentage, and shall be referred to herein as the “Reinvestment
      Payment”.

     

    ARTICLE
      3

    Representations
      And Warranties Of Parent And The Company

     

    Parent
      and the Company, jointly and severally, hereby represent and warrant to
      Investor, as of the date hereof, that:

     

    Section
      3.01 Existence
      and Power. Each
      of
      Parent and the Company is a limited liability company or limited partnership,
      as
      the case may be, duly organized, validly existing and in good standing under
      the
      laws of the State of Delaware, and has all powers required to carry on its
      business as now conducted. Each
      of
      Parent and the Company has all requisite power and authority required to execute
      and deliver this Agreement and to perform its respective obligations hereunder.
      The limited liability agreement of the Company and all amendments thereto as
      in
      effect on the date hereof (all of which are certified by an authorized officer
      of the Company as of the date hereof), have been made available to the Investor,
      and are complete and correct as of the date hereof.

     

    Section
      3.02 Authorization.
      The
      execution, delivery and performance by each of Parent and the Company of this
      Agreement, and the consummation of the transactions contemplated herein, have
      been duly authorized by each of Parent and the Company.
      This
      Agreement has been duly executed and delivered by each of Parent and the
      Company, and constitutes the legal, valid and binding obligation of each of
      Parent and the Company, enforceable against each such entity in accordance
      with
      its 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 (regardless of whether considered in a
      proceeding in equity or at law).

     

    Section
      3.03 Authorizations.
      Except
      as
      may be required by the HSR Act and the California racing authorities, neither
      Parent nor the Company is required to file, seek or obtain any approval,
      authorization, consent or order or action of or filing with any Governmental
      Authority or any other Person in connection with the execution and delivery
      by
      Parent or the Company, as applicable, of this Agreement or the consummation
      of
      the transactions
      contemplated herein.

     

    Section
      3.04 Noncontravention.
      The
      execution, delivery and performance by each of Parent and the Company of this
      Agreement (i) do not or will not violate (A) the limited liability
      company or limited partnership agreement (or such equivalent governing
      documents, as the case may be) of each of Parent and the Company or (B) any
      applicable law, rule, regulation, judgment, award or decree to which the Parent
      or the Company, as applicable, is a party, or by which Parent or the Company,
      as
      applicable, or their respective assets and properties are bound, or
      (ii) result in a breach of or constitute (with due notice or lapse of
      time
      or both) a default under, or give rise to any right of termination, cancellation
      or acceleration of any right or obligation of Parent or the Company, as
      applicable, or to a loss of any benefit relating to any of their respective
      assets or properties to which Parent or the Company, as applicable, is entitled
      under any provision of any indenture agreement or other instrument binding
      upon
      Parent or the Company, as applicable, or by which any of their respective assets
      or properties is or may be bound, or (iii) result in the creation or
      imposition of any Lien upon any of such assets or properties.

     

    Section
      3.05 Capitalization.
      As
      of the
      date hereof, there are 10,000 Units issued and outstanding to the members of
      the
      Company. All of such issued and outstanding Units have been validly authorized
      and issued and are validly outstanding, fully paid and nonassessable. There
      are
      not authorized, issued or outstanding any options, warrants, agreements,
      contracts, calls, commitments or demands of any character, preemptive or
      otherwise, relating to the sale, issuance or repurchase of, conversion into
      or
      exchange for any securities of the Company, other than pursuant to this
      Agreement. The Company has reserved for issuance and delivery upon exercise
      of
      the Option a number of Units sufficient to permit the exercise in full of the
      Option. Upon exercise of the Option, the outstanding Units will be duly
      authorized, validly issued and fully paid and non-assessable.

     

    Section
      3.06. Compliance
      with Laws.
      Each of
      the Company and Parent is in compliance with all material applicable federal,
      state and local statutes, ordinances and regulations, and all applicable
      decisions of all courts, administrative agencies and tribunals having
      jurisdiction over the Company or Parent, as applicable, and neither is subject
      to any liability or obligation as a result of any failure to so comply prior
      to
      the date of this Agreement. All Units heretofore issued by the Company have
      been
      issued in compliance with federal and state securities laws.

     

    ARTICLE
      4

    Representations
      And Warranties Of Investor

     

    Investor
      hereby represents and warrants to Parent and the Company, as of the date hereof,
      that:

     

    Section
      4.01 Existence
      and Power.
      Investor
      is a corporation duly organized, validly existing and in good standing under
      the
      laws of the Commonwealth of Kentucky, and has all powers required to carry
      on
      its business as now conducted. Investor
      has all requisite corporate power and authority required to execute and deliver
      this Agreement and to perform its obligations hereunder.

     

    Section
      4.02 Corporate
      Authorization. The
      execution, delivery and performance by Investor of this Agreement, and the
      consummation of the transactions contemplated herein, have been duly authorized
      by all necessary corporate action by Investor.
      This
      Agreement has been duly executed and delivered by Investor, and constitutes
      the
      legal, valid and binding obligation of Investor, enforceable against Investor
      in
      accordance with its 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 (regardless of whether
      considered in a proceeding in equity or at law).

     

    Section
      4.03 Authorizations.
      Except
      as may be required by HSR Act or California racing authorities, the
      Investor is not required to file, seek or obtain any approval, authorization,
      consent or order or action of or filing with any Governmental Authority or
      any
      other Person in connection with the execution and delivery by Investor of this
      Agreement or the consummation of the transactions
      contemplated herein.

     

    Section
      4.04 Noncontravention.
      The
      execution, delivery and performance of this Agreement by Investor do not or
      will
      not violate (i) the Articles of Incorporation or By-laws of Investor
      or
      (ii) any applicable law, rule, regulation, judgment, injunction, order
      or
      decree binding upon Investor.

     

    Section 4.05. Compliance
      with Laws.
      The
      Investor is in compliance with all material applicable federal, state and local
      statutes, ordinances and regulations, and all applicable decisions of all
      courts, administrative agencies and tribunals having jurisdiction over the
      Investor and it is not subject to any liability or obligation as a result of
      any
      failure to so comply prior to the date of this Agreement.

     

    ARTICLE
      5

    Transfers

     

    Section
      5.01 Restrictive
      Legend.  

     

    (a) Investor
      hereby agrees and acknowledges that the Units have not been registered under
      the
      Securities Act and may not be transferred to any Person in the absence of
      (i) an effective registration statement under the Securities Act with
      respect to the Units and registration or qualification of the Units under any
      United States federal or state securities laws then in effect or (ii) an
      opinion of counsel reasonably satisfactory to Parent and the Company that such
      registration and qualification are not required.

     

    (b) Each
      certificate for Units issued pursuant to this Agreement shall bear the following
      legend for so long as such securities constitute restricted securities (as
      such
      term is defined in the regulations under the Securities Act):

     

    “The
      securities represented hereby have not been registered under the Securities
      Act
      of 1933, as amended, and may not be offered, sold, transferred or otherwise
      disposed of except in compliance with such laws.”

     

    (c) The
      Units
      shall also bear a legend stating that their transfer or sale is restricted
      by
      the terms of this Agreement (which legend shall be removed when such
      restrictions no longer apply).

     

    Section
      5.02 Restriction
      on Sale or Transfer of Option and Units. No
      party
      to this Agreement will sell, pledge, encumber or otherwise transfer, or agree
      to
      sell, pledge, encumber or otherwise transfer, directly or indirectly, the Units
      held by such party, the Option or any rights under this Agreement without the
      prior written consent of the other parties hereto, which may be provided or
      denied in such party’s sole discretion, except:

     

    (i)
      for
      transfers of such Units, Option or any rights under this Agreement to any
      Affiliate of any party hereto or any third party successor by merger or acquirer
      of more than 50% of the equity or all or substantially all of the assets of
      Churchill
      Downs Incorporated or all of the Stockbridge Funds, as applicable
      and

     

    (ii)
      that
      Parent may sell or transfer up to 25% of the aggregate of its Units to any
      person or entity that in its good faith judgment will be beneficial to the
      proposed redevelopment of the Real Property, provided,
      that
      such person or entity will not adversely affect the ability of the Company
      to
      satisfy the requirements of federal or state or other applicable gaming laws
      and
      regulations and provided,
      further,
      that
      such transferee agree in writing to be bound by the terms of this Agreement
      and
      that such transfer shall not adversely affect any of Investor’s rights under
      this Agreement, including without limitation, Investor’s ability to acquire the
      full Percentage to which it is entitled under Section 2.01(f).

     

    ARTICLE
      6

    Covenants
      Of Parent

     

    Section
      6.01 Capital
      Structure. 

     

    (a) Except
      with the prior written approval of the Investor, neither Parent nor the Company
      will, prior to the Reinvestment Date, amend in any manner the limited liability
      company agreement of the Company to create
      or
      authorize the creation of or issue (including, without limitation, by way of
      recapitalization), or obligate itself to authorize or issue any Units of any
      equity securities of the Company, or any other security exercisable for or
      convertible into any shares of equity securities of the Company, whether any
      such creation or authorization shall be by means of amendment of the limited
      liability company agreement of the Company, or by merger, consolidation or
      otherwise.

     

    (b) Alternative
      Structure.
      

     

    (i) It
      is
      understood and agreed that, subject to paragraph (b)(iii) below, the Company
      may
      implement various ownership and leasing arrangements with respect to the Assets
      that are designed to optimize the structure for investors in one or more
      investment funds that are Affiliates of Parent (the “Stockbridge
      Funds”)
      and to
      comply with certain requirements as to structuring investments contained in
      the
      operative agreements for the Stockbridge Funds (any such arrangement being
      referred to as an “Alternative
      Structure”).
      Subject to paragraph (iii) below, an Alternative Structure may include (without
      limitation) (x) causing one Affiliate to own certain of the Assets and
      to
      lease such Assets to a second Affiliate; and (y) causing one or more
      of the
      Stockbridge Funds or other Affiliates to own direct interests in one or more
      of
      the Affiliates described in clause (x).

     

    (ii) If
      an
      Alternative Structure is implemented, then

     

    (A) Investor’s
      Option to purchase the Option Units in the Company shall be automatically
      amended so that, to the extent necessary for Investor to acquire in the
      aggregate the same economic interest and governance interest in the Assets
      that
      the Option Units would have represented had there been no Alternative Structure,
      Investor will have the right to purchase interests in all such Affiliates of
      the
      Company that hold interests in the Assets and all relevant governance documents
      shall be amended as may be necessary or appropriate in order to effectuate
      the
      provisions of this Agreement;

     

    (B) the
      Reinvestment Payment shall be adjusted as appropriate to reflect amounts
      incurred by or contributed to such Affiliates in a manner consistent with the
      provisions of this Agreement; and

     

    (C) the
      parties shall cooperate in implementing such other adjustments as may be
      required to effectuate the intent of this Agreement.

     

    (iii) The
      parties acknowledge and agree that if an Alternative Structure is implemented,
      then any exercise of the Option pursuant to this Agreement shall be implemented
      in such a way as (1) to provide Investor
      with the same aggregate economic interest and governance interest that the
      Option Units would have represented had there been no Alternative Structure,
      and
      (2) to cause no material adverse effect to Investor or to the Investor’s rights
      under this Agreement
      to
      reinvest, directly or indirectly, in the Assets, including without limitation
      the Real Property, and the Racetrack Business.

     

    Section
      6.02 Amendment
      of Limited Liability Company Agreement. Concurrent
      with the issuance of the Option Units, Parent shall cause the limited liability
      company agreement of the Company, which shall be substantially in the form
      attached hereto as Exhibit C, to be amended effective as of the Reinvestment
      Date so that (i) the Majority Member has the right to appoint a majority
      of
      the members of the management board of the Company, (ii) the management
      board of the Company shall consist of at least one member appointed by each
      Stockbridge Fund and at least one member appointed by the Investor, and
      (iii) to add the following provisions:

     

    (a) For
      so
      long as each of Parent and Investor own 20% or more of the outstanding Units
      in
      the Company, the Company shall continue to conduct its business and maintain
      the
      Real Property and the other Assets in the ordinary course consistent with past
      practice or consistent with this Agreement. In addition, the Company shall
      maintain appropriate levels of indebtedness to reflect prevailing market
      practices for investments of this type by institutional investors, as determined
      in the good faith reasonable judgment of the Majority Member. Furthermore,
      except as expressly provided for in this Agreement or as consented to in writing
      by Parent and Investor, neither the Company nor any of the Affiliates that
      are
      formed for the purpose of implementing the Alternative Structure
      will:

     

    (i) amend
      its
      limited liability company agreement;

     

    (ii) split,
      combine or reclassify any Units or issue any additional Units;

     

    (iii) declare
      or pay any dividend or distribution of any kind (whether in cash, membership
      units or property) in respect of the Company’s Units, except the Reinvestment
      Dividend and dividends or distributions that are paid to each member of the
      Company in proportion to such member’s Percentage interest;

     

    (iv) amend
      any
      Alternative Structure that has been implemented;

     

    (v) merge
      or
      consolidate with any other Person;

     

    (vi) acquire
      any interest in any corporation, partnership or other business organization
      or
      any subsidiary thereof or any material amount of assets from any other
      Person;

     

    (vii) sell,
      lease, sublease, license or otherwise dispose of any Assets or portion of the
      Real Property or any other material assets or property of the Company or any
      Affiliate except (A) pursuant to existing contracts or commitments,
      (B) in the ordinary course consistent with past practice or (C) in
      accordance with Section 8.04 hereof; or

     

    (viii) enter
      into any agreement or commitment to do any of the foregoing.

     

    Section
      6.03. Sale
      of Assets, Real Property and/or Racetrack Business.
      Notwithstanding anything to the contrary set forth herein, Parent shall not,
      and
      shall cause the Company not to, sell, lease,
      convey, transfer or other otherwise dispose of,
      or
      enter into any agreement to sell, lease, convey, transfer or otherwise dispose
      of, any material parts of the Assets, Real Property and/or the Racetrack
      Business prior to September 23, 2008.

     

    ARTICLE
      7

    Covenants
      Of Parent and the Company

     

    Section
      7.01 Payment
      of Reinvestment Dividend. Immediately
      following the receipt by the Company of the Reinvestment Payment, the Company
      shall issue the Reinvestment Dividend to Parent in immediately available funds
      by wire transfer to an account designated by Parent.

     

    Section
      7.02. Affiliated
      Transactions.
      Subject
      to Section 6.01(b), promptly following the delivery of the Option Exercise
      Notice by the Investor, but in any event no later than immediately prior to
      the
      Reinvestment Date, Parent and the Company shall take such actions as are
      necessary to ensure that effective as of the Reinvestment Date (a) the
      operations of the Racetrack Business shall be conducted entirely by and through
      the Company or its wholly-owned subsidiaries, (b) the Company will conduct
      no business or incur or assume any liabilities other than those pertaining
      to
      the Racetrack Business and seeking entitlements for the development of the
      Real
      Property and (c) no Related Party of the Company except as otherwise
      set
      forth in this Agreement shall (i) have any interest in any of the Assets,
      including without limitation the Real Property, or any other property
(real
      or
      personal, tangible or intangible) that the Company then uses or has used in
      or
      pertaining to the Racetrack Business or
      (ii) have any business dealings or a financial interest in any transaction
      with the Company relating to the Racetrack Business or involving any of the
      Assets, including without limitation the Real Property, or any other property
      (real or personal, tangible or intangible) that the Company then uses or has
      used in or pertaining to the Racetrack Business, other than business dealings
      or
      transactions entered into, and effective as of, immediately following the
      Reinvestment Date that are conducted in the ordinary course of business at
      prevailing market prices and on prevailing market terms.

     

    ARTICLE
      8

    Sale
      Of Interests Or Assets

     

    Section
      8.01 Sale
      Notice.  

     

    (a) At
      any
      time following the date that is one year after the Reinvestment Date, any party
      holding less than 50% of the issued and outstanding Units on a Fully-Diluted
      Basis (the “Minority
      Member”)
      may
      deliver a notice (the “Sale
      Notice”)
      to the
      party (together with its Affiliates) holding more than 50% of the issued and
      outstanding Units on a Fully-Diluted Basis (the “Majority
      Member”)
      stating that the Minority Member desires to determine the Fair Market Value
      of
      the Company. The Fair Market Value of the Company shall be determined as
      described in Section 8.02.

     

    (b) The
      Sale
      Notice shall contain the name of an independent valuation firm (the
“Minority
      Valuation Firm”)
      and,
      within 10 days after receipt of the Sale Notice, the Majority Member shall
      also
      select an independent valuation firm (the “Majority
      Valuation Firm”)
      and
      shall notify the Minority Member of such selection.

     

    (c) Each
      of
      Parent and Investor shall pay the fees and expenses of the independent valuation
      firm it retains. In addition, the Company shall promptly supply all information
      reasonably requested by the independent valuation firms in performing their
      valuations.

     

    Section
      8.02 Procedure
      for Determining Fair Market Value of the Company. 

     

    (a) The
      Minority Valuation Firm and the Majority Valuation Firm shall each determine
      the
      Fair Market Value of the Company as promptly as possible, but in no event later
      than 30 days following the date upon which the Sale Notice was given. Such
      values shall be determined assuming the sale of the applicable assets of the
      Company at a price agreed between a willing seller and a willing buyer in an
      arms-length transaction with no deductions for lack of liquidity, forced sale
      or
      similar considerations.

     

    (b) If
      the
      values calculated by the Minority Valuation Firm and the Majority Valuation
      Firm
      do not vary by more than 10%, then the Fair Market Value of the Company shall
      be
      the average of the two valuations. If the values so calculated vary by more
      than
      10%, then the Minority Valuation Firm and Majority Valuation Firm shall, within
      five days of the date their valuations were first given, select a third
      valuation firm which will make its own determination of the Fair Market Value
      of
      the Company. The Company, the Minority Valuation Firm and Majority Valuation
      Firm shall supply all information required by the third firm so that it can
      complete its valuation not later than 20 days following its selection. Its
      valuation shall be delivered in a certificate to the Minority Member, the
      Majority Member, the Minority Valuation Firm and the Majority Valuation Firm.
      The Fair Market Value of the Company shall then be the average of (i) the
      value obtained by the third valuation firm and (ii) the value obtained
      by
      the other valuation firm whose valuation is closer to that obtained by the
      third
      valuation firm. Each of Parent and the Investor shall pay fifty percent of
      the
      fees and expenses of such third valuation firm.

     

    Section
      8.03 Sale;
      Payment of the Sale Price. 

     

    (a) The
      Fair
      Market Value of the Company determined pursuant to the procedures described
      above shall be binding upon the Company for a period of one year after its
      final
      determination, and the fair market value of the Units owned by the Minority
      Member shall be the product of the membership percentage interest held by the
      Minority Member and the Fair Market Value of the Company (such product, the
      “Sale
      Price”).

     

    (b) If,
      following determination of the Sale Price, the Minority Member determines to
      sell its Units, it shall first offer such Units to the Majority Member at the
      Sale Price and the Majority Member shall have 60 days in which to either
      (i) determine whether to accept such offer or (ii) accept such
      offer
      and assign such right to purchase such Units at the Sale Price to a third party
      selected in the sole and absolute discretion of the Majority Member. If the
      Majority Member chooses to accept the offer or accept the offer and assign
      such
      right to purchase or declines such offer, it shall notify the Minority Member
      in
      writing (the “Majority
      Member Notice”).
      If
      the Majority Member determines not to purchase such Units or accept the offer
      and assign such right to purchase such Units from the Minority Member, the
      Minority Member may offer such Units to any other Person for a price and on
      other terms as it shall deem appropriate in its sole discretion provided,
      however,
      that in
      the event that the Minority Member has not sold its Units within one year
      following the final determination of Fair Market Value, then its Units shall
      continue to be subject to the terms and conditions set forth in this
      Article 8. Within 10 days of any agreement to sell such Units, the Minority
      Member shall notify the Majority Member of such agreement (the Majority Member,
      its assignee or such other buyer, as the case may be, the “Final
      Buyer”).

     

    (c) Within
      10
      days (or such other period as is acceptable to the Minority Member) after any
      agreement to sell the Units held by the Minority Member at the Sale Price,
      the
      Final Buyer shall deposit the Sale Price in cash with a paying agent chosen
      by
      the Company (the “Paying
      Agent”)
      and
      the Minority Member shall transfer all of its Units to the Paying Agent and
      the
      closing of the sale of such Units shall take place within two Business Days
      thereafter.

     

    Section
      8.04 Sale
      of Assets or the Units.
      At any
      time following the Reinvestment Date, the Majority Member may deliver a notice
      to the Minority Member that it intends to initiate a transaction or series
      of
      related transactions involving a sale of all of the Assets and Real Property
      comprising the business of the Company and its Affiliates or all of the
      outstanding Units of the Company. Any such sale must be to a third party that
      is
      not affiliated with either the Majority Member or the Minority Member at a
      market price to be determined through a competitive sales process, and on terms
      and conditions reasonably determined by the Majority Member (a “Third
      Party Sale”).
      The
      parties shall engage the services of appropriate professionals, selected by
      the
      Majority Member, to solicit offers to purchase the Real Property and Assets
      or
      all of the outstanding Units of the Company from unaffiliated third parties.
      The
      Majority Member and Minority Member shall use their respective commercially
      reasonable efforts to enter into a purchase and sale agreement to sell the
      Real
      Property and Assets or all of the outstanding Units to the bidder as reasonably
      selected by the Majority Member. The proceeds from such Third Party Sale, after
      payment of the appropriate pro-rata portion of the costs and expenses of such
      Third Party Sale attributable to the Company and any other amounts owing with
      respect to the Real Property and Assets, shall be distributed according to
      the
      terms of the Company’s limited liability company agreement or to the members of
      the Company in the event of a sale of Units, as appropriate.

     

    ARTICLE
      9

    Covenants
      Of the Company, Parent and Investor;

    Closing
      Conditions

     

    Section
      9.01 HSR
      Application. Each
      of
      the Company and Investor shall make any appropriate filing of a Notification
      and
      Report Form and Investor shall pay all applicable filing fees pursuant to the
      HSR Act with respect to any issuance and/or transfer of Units at the
      Reinvestment Date if subject to the HSR Act hereby as promptly as practicable
      and in any event within 10 Business Days following the date of an Option
      Exercise Notice, and the Company and Investor shall supply as promptly as
      practicable any additional information and documentary material that may be
      requested pursuant to the HSR Act and take all other actions necessary to cause
      the expiration or termination of the applicable waiting periods under the HSR
      Act as soon as practicable.

     

    Section
      9.02. Other
      Consents.
      Each of
      Parent, the Company and Investor shall use commercially reasonable efforts
      to
      file, seek or obtain any approval, authorization, consent or order or action
      of
      or filing with any Governmental Authority or any other Person that may be
      required or deemed reasonably advisable in connection with the execution and
      delivery by such party, as applicable, of this Agreement or the consummation
      of
      the transactions contemplated herein.

     

    Section
      9.03. Closing
      Conditions.
      The
      closing conditions that would apply in the event of a Default Unit Purchase
      (subject to waiver by Investor) are: (i) diligence will be completed
      to the
      Investor’s satisfaction, in Investor’s sole and absolute discretion,
      (ii) all parties’ representations and warranties shall be true in all
      material respects, (iii) all parties’ covenants shall have been performed
      in all material respects, (iv) there shall have been no material adverse
      change in the business, operations, financial condition or results of operations
      of the Company prior to closing, (v) the delivery of customary closing
      certificates and payment for Option Units, (vi) there shall be no pending
      or threatened injunction or litigation relating to the consummation of the
      transactions contemplated herein or the validity of any purported Trigger Event,
      (vii) receipt of HSR approval and if needed, other governmental approvals,
      and (viii) there shall have been no contravention of material
      contracts.

     

    ARTICLE
      10

    Termination

     

    Section
      10.01 Grounds
      for Termination. Subject
      to Section 10.03 below, unless earlier terminated by mutual agreement of the
      parties, the Option and this Agreement shall terminate on September 23,
      2013 or, if prior to that date,

     

    (a) on
      the
      date provided for in Section 2.01(c) or (d), as the case may be, if
      applicable; or

     

    (b) on
      the
      Redevelopment Date if no Trigger Event shall have occurred prior thereto;
      or

     

    (c) on
      the
      date upon which Parent or the Company consummates the sale of the Assets, the
      Racetrack Business and the Real Property to a Person or Persons that are not
      Affiliates or Related Parties (if permitted by Section 6.03 hereof),
      or

     

    (d) on
      the
      date of a sale to the Majority Member (or its assignee) pursuant to Section
      8.03, or a Third Party Sale under Section 8.04.

     

    Notwithstanding
      anything to the contrary in this Agreement, the provisions in Sections 5.02,
      6.02, 8.01, 8.02, 8.03 and 8.04 shall be reflected in the limited liability
      agreement of the Company following the Reinvestment Date.

     

    Section
      10.02 Effect
      of Termination. If
      this
      Agreement is terminated as permitted by Section 10.01, such termination shall
      be
      without liability of any party (or any member, stockholder, director, officer,
      partner, employee, agent, consultant or representative of such party) to any
      other party to this Agreement.

     

    Section
      10.03 Option
      Revival.
      Notwithstanding
      the termination of this Agreement pursuant to Section 10.01(b) above due to
      the
      occurrence of a Redevelopment Date, if following the Redevelopment Date the
      Company and/or the Parent ceases the redevelopment of the Real Property or
      modifies its redevelopment plans, in either case to pursue gaming activities
      permitted by a Trigger Event, then this Agreement and the Option shall be
      automatically reinstated upon the receipt of written notice from either Investor
      or Parent to the other of the occurrence of such event. In such event, Investor
      shall have 90 days to deliver a Diligence Notice to the Company and Parent,
      at
      which time the provisions of Sections 2.01 and 2.02 shall be
      applicable.

     

     

    ARTICLE
      11

    Miscellaneous

     

    Section
      11.01 Payment
      of Taxes. All
      excise, sales, use, value added, registration stamp, recording, documentary,
      conveyancing, franchise, property, transfer, gains and similar taxes, levies,
      charges and fees incurred in connection with the purchase of Units on the
      Reinvestment Date by the Investor shall be borne by Investor. On the
      Reinvestment Date, the Company and its Affiliates will provide the Investor
      with
      such certificates as are reasonably requested by the Investor for purposes
      of
      establishing an exemption from withholding under Section 1445 of the
      United
      States Internal Revenue Code and the regulations thereunder.

     

    Section
      11.02 Notices.
      All
      notices, including without limitation the Trigger Notice, Diligence Notice,
      Option Exercise Notice, Sale Notice and Majority Member Notice, requests and
      other communications to any party hereunder shall be in writing and shall be
      deemed duly given, effective (i) three Business Days later, if sent
      by
      registered or certified mail, return receipt requested, postage prepaid,
      (ii) when sent if sent by fax, provided,
      that
      receipt of the fax is promptly confirmed by telephone, (iii) when served,
      if delivered personally to the intended recipient and (iv) one business
      day
      later, if sent by overnight delivery via a national courier service, and in
      each
      case, addressed,

     

    if
      to
      Parent or the Company, to:

     

    Stockbridge
      HP Holdings Company, LLC

    1200
      Park
      Place, Suite 200

    San
      Mateo, CA 94403

    Attn:
      Terrence E. Fancher

    Tel:
      (650) 524-1222

    Fax:
      (650) 524-1211

     

    with
      duplicate notice to:

     

    Stockbridge
      Real Estate Partners II, LLC

    712
      5th
      Avenue, 21st Floor

    New
      York,
      NY 1019

    Attn:
      Darren Drake

    Tel:
      (646) 253-1205

    Fax:
      (646) 253-1211

     

    Davis
      Polk & Wardwell

    1600
      El
      Camino Real

    Menlo
      Park, CA 94025

    Attention:
      Daniel G. Kelly, Jr.

    Fax:
      (650) 752-3601

     

          if
      to Investor, to:

     

    c/o
      Churchill Downs Incorporated

    700
      Central Avenue

    Louisville,
      KY 40208

    Attn:
      Rebecca C. Reed

    Tel:
      (502) 636-4429

    Fax:
      (502) 636-4439

     

    with
      duplicate notice to:

     

    Gibson,
      Dunn & Crutcher LLP

    333
      South
      Grand Avenue

    Los
      Angeles, CA 90071

    Attn:
      D.
      Eric Remensperger, Esq.

    Tel:
      (213) 229-7000

    Fax:
      (213) 229-7520

     

    Section
      11.03 Amendments
      and Waivers. Any
      provision of this Agreement may be amended or waived if, but only if, such
      amendment or waiver is in writing and is signed, in the case of an amendment,
      by
      each party to this Agreement, or in the case of a waiver, by the party against
      whom the waiver is to be effective. No failure or delay by any party in
      exercising any right, power or privilege hereunder shall operate as a waiver
      thereof nor shall any single or partial exercise thereof preclude any other
      or
      further exercise thereof or the exercise of any other right, power or privilege.
      The rights and remedies herein provided shall be cumulative.

     

    Section
      11.04 Successors
      and Assigns. The
      provisions of this Agreement shall be binding upon and inure to the benefit
      of
      the parties hereto and their respective successors and assigns; provided,
      that no
      party may assign, delegate or otherwise transfer any of its rights or
      obligations under this Agreement without the consent of each other party hereto,
      except as provided in Section 5.02 hereof; and provided,
      further,
      that
      any such permitted assignment shall not discharge the assignor from its
      obligations under this Agreement.

     

    Section
      11.05 Governing
      Law. This
      Agreement shall be governed by and construed in accordance with the law of
      the
      State of Delaware, without regard to the conflicts of law rules of such
      state.

     

    Section
      11.06 Counterparts.
      This
      Agreement may be signed in any number of counterparts, each of which shall
      be an
      original, with the same effect as if the signatures thereto and hereto were
      upon
      the same instrument.

     

    Section
      11.07 Entire
      Agreement. This
      Agreement (including the Schedules and Exhibits hereto and the Transaction
      Documents, as defined in the Asset Purchase Agreement) constitutes the entire
      agreement between the parties with respect to the subject matter of this
      Agreement and supersedes all prior agreements and understandings, both oral
      and
      written, between the parties with respect to the subject matter of this
      Agreement.

     

    Section
      11.08 Specific
      Performance. The
      parties hereto agree that the remedy at law for any breach of this Agreement
      will be inadequate and that any party by whom this Agreement is enforceable
      shall be entitled to specific performance in addition to, and not in lieu of,
      any other right or remedy available at law or equity. Such party may, in its
      sole discretion, apply to a court of competition jurisdiction for specific
      performance or injunctive or such other relief as such court may deem just
      and
      proper in order to enforce this Agreement or prevent any violation hereof and,
      to the extent permitted by applicable law, each party waives any objection
      to
      the imposition of such relief.

     

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

     

    

      IN
        WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
        executed by their respective authorized officers as of the day and year first
        above written.

      

      

      
        	 	
                CHURHILL
                  DOWNS INVESTMENT COMPANY, a Kentucky Corporation

              
	 	 
	 	 
	 	
                By:   /s/Michael
                  E.
                  Miller

              
	 	
                    Name:  
                  Michael E. Miller

              
	 	
                    Title:    
                  President

              

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      
        	 	
                BAY
                  MEADOWS LAND COMPANY, LLC, a Delaware limited liability
                  company

              
	 	 
	 	 
	 	
                By:  
 /s/Terrence
                  E.
                  Fancher

              
	 	
                    
                  Name:   Terrence
                  E.
                  Fancher

              
	 	
                    
                  Title:    
                  President

              

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      
        	 	
                STOCKBRIDGE
                  HP HOLDINGS COMPANY, LLC, a Delaware limited liability
                  company

              
	 	
                By:
                  Stockbridge Real Estate Partners II, LLC, a Delaware limited liability
                  company, its general partner

              
	 	 
	 	 
	 	
                By:   /s/Terrence
                  E.
                  Fancher

              
	 	
                    Name:  
                  Terrence E. Fancher

              
	 	
                    Title:    
                  President

              

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      
        	 	
                STOCKBRIDGE
                  REAL ESTATE FUND II-A, LP, a Delaware limited
                  partnership

              
	 	
                By:
                  Stockbridge Real Estate Partners II, LLC, a Delaware limited liability
                  company, its general partner

              
	 	 
	 	 
	 	
                By:   /s/Terrence
                  E.
                  Fancher

              
	 	
                    Name:   Terrence
                  E. Fancher

              
	 	
                    Title:    
                  President

              

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      
        	 	
                STOCKBRIDGE
                  REAL ESTATE FUND II-B, LP, a Delaware limited
                  partnership

              
	 	
                By:
                  Stockbridge Real Estate Partners II, LLC, a Delaware limited liability
                  company, its general partner

              
	 	 
	 	 
	 	
                By:   /s/Terrence
                  E.
                  Fancher

              
	 	
                    Name:  
                  Terrence E. Fancher

              
	 	
                    Title:    
                  President

              

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      
        	 	
                STOCKBRIDGE
                  REAL ESTATE FUND II-T, LP, a Delaware limited
                  partnership

              
	 	
                By:
                  Stockbridge Real Estate Partners II, LLC, a Delaware limited liability
                  company, its general partner

              
	 	 
	 	 
	 	
                By:   /s/Terrence
                  E.
                  Fancher

              
	 	
                    Name:   
                  Terrence E. Fancher

              
	 	
                    Title:     
                  President

              

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      
        	 	
                STOCKBRIDGE
                  HOLLYWOOD PARK CO-INVESTORS, LP, a Delaware limited
                  partnership

              
	 	
                By:
                  Stockbridge Real Estate Partners II, LLC

              
	 	 
	 	 
	 	
                By:   /s/Terrence
                  E.
                  Fancher

              
	 	
                    Name:   
                  Terrence E. Fancher

              
	 	
                    Title:     
                  President and Executive Managing
                  Director

              

      

      

      

    

     

    
      
        

      

    

     

     

    

    Exhibits
      and schedules to Exhibit 10.3 have been intentionally omitted because they
      are
      not material. The registrant agrees to furnish such omitted exhibits and
      schedules supplementally to the Commission upon request.Letter Agreements with Bay Meadows Land Co.

    
      

      BAY
        MEADOWS

      LAND
        COMPANY

      

      1200
        Park
        Place

      San
        Mateo, CA 94403

      TEL:
        650.524.1201

      Fax:
        650.524.1211

      www.bmlc.com

       

      August
        1,
        2005

      

      

      Churchill
        Downs California Company

      c/o
        Churchill Downs Incorporated

      700
        Central Avenue

      Louisville,
        KY 40208

      Attn:
        Rebecca C. Reed

      

      Re: Extension
        of Phase II Period

      

      Ladies
        and Gentlemen:

      

      Reference
        is made to the Asset Purchase Agreement, dated as of July 6, 2005,
        (the
        "APA"),
        between Bay Meadows Land Company, LLC ("Buyer")
        and
        Churchill Downs California Company ("Seller").
        Capitalized terms not defined herein shall have the meanings ascribed thereto
        in
        the APA.

      

      Pursuant
        to Section 13.4 of the APA, Buyer and Seller agree to amend
        Section 12.1(a) of the APA to extend the Phase II Period. The
        Phase II
        Period shall end on August 8, 2005.

      

      This
        letter agreement, once Buyer and Seller shall have executed and delivered
        a
        counterpart hereof, shall become effective and binding as of August 1,
        2005. Except as expressly provided above, the APA shall remain in full force
        and
        effect and nothing contained in this letter agreement shall be deemed to
        waive,
        alter or otherwise amend any provision of the APA. This letter agreement
        and the
        APA constitute the entire agreement between the parties with respect to the
        subject matter of this letter agreement and supersedes all prior agreements
        and
        understandings, both oral and written, between the parties with respect to
        the
        subject matter of this letter agreement. This letter agreement shall be governed
        by and construed in accordance with the law of the State of
        California.

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      
        	 	
                BAY
                  MEADOWS LAND COMPANY, LLC

              
	 	 
	 	 
	 	
                By: 
                  /s/ Terrence E. Fancher

              
	 	
                Name:
                  Terrence E. Fancher

              
	 	
                Title:
                  President

              

      

      

      

      
        	
                Agreed:

              	 
	 	 
	
                CHURCHILL
                  DOWNS CALIFORNIA

              	 
	
                COMPANY

              	 
	 	 
	 	 
	
                By: 
                  /s/ Michael E. Miller

              	 
	
                Name:
                  Michael E. Miller

              	 
	
                Title:
                  Vice President

              	 

      

      

       

      [Signature
        page to Letter Agreement dated August 1, 2005]

       

      

       

      

       

      

       

      

      
        
          2

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        

        BAY
          MEADOWS

        LAND
          COMPANY

        

        1200
          Park
          Place

        San
          Mateo, CA 94403

        TEL:
          650.524.1201

        Fax:
          650.524.1211

        www.bmlc.com

       

      August
        8,
        2005

      

      

      Churchill
        Downs California Company

      c/o
        Churchill Downs Incorporated

      700
        Central Avenue

      Louisville,
        KY 40208

      Attn:
        Rebecca C. Reed

      

      Re: Extension
        of Phase II Period

      

      Ladies
        and Gentlemen:

      

      Reference
        is made to the Asset Purchase Agreement, dated as of July 6, 2005,
        (the
        "APA"),
        between Bay Meadows Land Company, LLC ("Buyer")
        and
        Churchill Downs California Company ("Seller").
        Capitalized terms not defined herein shall have the meanings ascribed thereto
        in
        the APA.

      

      Pursuant
        to Section 13.4 of the APA, Buyer and Seller agree to amend
        Section 12.1(a) of the APA to extend the Phase II Period. The
        Phase II
        Period shall end on August 11, 2005.

      

      This
        letter agreement, once Buyer and Seller shall have executed and delivered
        a
        counterpart hereof, shall become effective and binding as of August 8,
        2005. Except as expressly provided above, the APA shall remain in full force
        and
        effect and nothing contained in this letter agreement shall be deemed to
        waive,
        alter or otherwise amend any provision of the APA. This letter agreement
        and the
        APA constitute the entire agreement between the parties with respect to the
        subject matter of this letter agreement and supersedes all prior agreements
        and
        understandings, both oral and written, between the parties with respect to
        the
        subject matter of this letter agreement. This letter agreement shall be governed
        by and construed in accordance with the law of the State of
        California.

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      
        	 	
                BAY
                  MEADOWS LAND COMPANY, LLC

              
	 	 
	 	 
	 	
                By: 
                  /s/ Terrence E. Fancher

              
	 	
                Name:
                  Terrence E. Fancher

              
	 	
                Title:
                  President

              

      

      

      

      
        	
                Agreed:

              	 
	 	 
	
                CHURCHILL
                  DOWNS CALIFORNIA

              	 
	
                COMPANY

              	 
	 	 
	 	 
	
                By: 
                  /s/ Michael E. Miller

              	 
	
                Name:
                  Michael E. Miller

              	 
	
                Title:
                  Vice President

              	 

      

      

      

       

      [Signature
        page to Letter Agreement dated August 1, 2005]

       

      

      
        
          2

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      

      BAY
        MEADOWS

      LAND
        COMPANY

      

      1200
        Park
        Place

      San
        Mateo, CA 94403

      TEL:
        650.524.1201

      Fax:
        650.524.1211

      www.bmlc.com

      

      August
        12, 2005

      

      Churchill
        Downs California Company 

      c/o
        Churchill Downs Incorporated 

      700
        Central Avenue

      Louisville,
        KY 40208 

      Attn:
        Rebecca C. Reed

       

      Re:
        Certain Waste Disposal Matters and Extension of Phase II Period

      

      Ladies
        and Gentlemen:

      

      Reference
        is made to that certain Asset Purchase Agreement dated as of July 6, 2005
        (as
        amended and in effect on the date hereof, the "APA"), between Bay Meadows
        Land
        Company, LLC ("Buyer") and Churchill Downs California Company ("Seller").
        Capitalized terms not defined herein shall have the meanings ascribed thereto
        in
        the APA.

      

      Pursuant
        to Section 13.4 of the APA, Buyer and Seller agree to amend the APA as
        follows:

      

      1. Section
        3.4.10 of the APA is hereby deleted and replaced in its entirety with the
        following:

      

      3.4.10
        Certain Environmental Liabilities. Any and all liabilities, claims, demands,
        losses, costs, damages, injuries, obligations, judgments, actions, causes
        of
        action, fines, assessments, penalties or expenses, including consultants'
        and
        attorneys' fees resulting from (a) the direct or indirect disposal or
        arrangement for the disposal of Hazardous Substances from the Real Property
        to,
        at or onto a location other than the Real Property from September 10, 1999
        through the Closing Date, including without limitation to the Dominguez Channel
        Watershed/Consolidated Slip, (b) any property owned, leased or operated by
        Seller (other than the Real Property) or (c) the disposal, depositing, placing,
        presence, storage, dumping or other release of any material or substance
        in, to,
        at, onto, from or under any waste pits located at the northeast corner of
        the
        training track on the Real Property prior to the Closing Date including,
        without
        limitation, any related investigation, remediation, clean-up, removal, disposal,
        transportation of waste and closure activities ("Remedial
        Activities")
        relating to the contamination identified in the sampling conducted of the
        waste
        pits in July 2005.

      

      2. A
        new
        Section 9.3.6 is hereby added to the APA as follows:

      

      9.3.6. Control
        of Certain Environmental Liabilities:
        (a)
        Seller shall have the right to control the Remedial Activities relating to
        those
        matters for which it has accepted responsibility pursuant to Section 3.4.10(c),
        provided that all such Remedial Activities shall (i) comply with all applicable
        Environmental Laws, (ii) be performed at a time and in a manner that does
        not
        unreasonably interfere with the operation or future redevelopment of the
        Real
        Property and (iii) be undertaken promptly and concluded as expeditiously
        as
        practicable using commercially reasonable efforts, subject to the schedules
        and
        approvals of the applicable Governmental Authorities. The obligations of
        Seller
        in respect thereof shall survive the Closing Date, and the completion of
        such
        Remedial Activities shall not be a condition to the Closing. Seller shall
        have
        the exclusive right in its sole discretion to challenge, appeal or seek
        amendment, modification, repeal or termination of any order issued by a
        Governmental Authority in connection with the Remedial Activities, including
        a
        suspension or stay of any required work while such action is
        pending.

      

      (b) Seller
        shall promptly provide to Buyer copies of all work plans, laboratory and
        other
        reports, analytical results and final data and shall engage in reasonable
        consultation with Buyer, including considering in good faith any comments
        of
        Buyer relating to any requirements of Environmental Laws and relating to
        any
        submissions to Governmental Authorities. Buyer may observe and be present
        during
        the performance of any Remedial Activities and may participate in meetings
        or
        discussions with Governmental Authorities. Neither Buyer nor its authorized
        representatives shall, nor shall Buyer or its representatives attempt to,
        lobby,
        demand, or interfere with, Seller's discussions with Governmental Authorities
        regarding the Remedial Activities in an effort to influence those Governmental
        Authorities with regard to what Seller is required to do in completing the
        Remedial Activities. Buyer may contact Governmental Authorities as appropriate
        in Buyer's reasonable discretion to obtain permits and approvals, including
        those related to future site use. Buyer may contact other Governmental
        Authorities as appropriate in Buyer's reasonable discretion to obtain permits
        and approvals, including those related to future site use (e.g., the planning
        department, building department), without prior notice or consent if the
        subject
        of the Remedial Activities is not expected to be discussed. In the event
        that
        the subject is addressed, Buyer shall use reasonable efforts to avoid any
        substantive discussions with the relevant Governmental Authority and will
        instead refer the Governmental Authority to Seller; provided that, with respect
        to any discussions Seller may have with the Governmental Authorities, Buyer
        may
        be present at or during such discussions.

      

      3. Section
        12.1(a) of the APA is hereby deleted and replaced in its entirety with the
        following:

      

      (a)
        After
        approval by Seller of the Work Plan (which shall occur prior to the date
        hereof), Buyer or Buyer's agents shall be given access to the Real Property
        to
        undertake and complete its Phase II Testing (described in the Work Plan)
        and its
        Phase II Report (as defined below). The Phase II Testing and Phase II Report
        shall be completed by August 22, 2005 (the period commencing on the date
        hereof
        and ending on August 22, 2005 shall be referred to herein as the "Phase
        II Period");
        provided, however, that with respect to all items other than the Open Phase
        II
        Items (as defined below), any Environmental Remediation Cost Estimate as
        defined
        in Section 12.1(e) shall be submitted to Seller on August 15, 2005, together
        with all supporting documentation relating to such Environmental Remediation
        Cost Estimates. As used herein, the term "Open
        Phase II Items"
        means
        (i) the "Former Impoundment Area" listed as Item #4 in the Draft Table 1,
        Identified Environmental Issues, Remedial Actions, and Estimated Costs, prepared
        by EKI and dated August 1, 2005 ("Draft Table"), and (ii) the "Methane
        Investigation, Remediation, and Mitigation in Former Oil Field Area", listed
        as
        Item #8 in the Draft Table.

      

      4. Section
        12.1(e) of the APA is hereby deleted and replaced in its entirety with the
        following:

      

      (e) Upon
        the
        expiration of the Phase II Period, Buyer may elect to (i) waive its rights
        under
        this Article 12 to seek a purchase price reduction; or (ii) deliver to Seller
        a
        Phase II Report (as defined below); or (iii) terminate this Agreement and
        receive the full amount of the Deposit from Seller, provided that Buyer shall
        not be permitted to terminate this Agreement pursuant to this Section 12.1(e)
        unless the Final Environmental Remediation Cost Estimate exceeds $20 million
        as
        determined either by Buyer and Seller together or by LLF. An "Environmental
        Remediation Cost Estimate"
        shall
        mean a written estimate of the anticipated costs, if any, to investigate
        or
        remediate environmental or Hazardous Substance conditions (in air, soil,
        soil
        gas or groundwater) on, at, under, in or from the Real Property in order
        to
        complete Buyer's planned redevelopment of the Real Property provided that
        those
        costs for redevelopment activities shall not include costs for redevelopment
        activities unrelated to environmental contamination, including, but not limited
        to, grading, compliance with the California Environmental Quality Act,
        demolition, removal of any subsurface structures (e.g. pipelines or tanks)
        or
        special handling for contaminated demolition debris (e.g. asbestos, lead-based
        paint or contaminated concrete). In connection with the written submission
        of
        any Environmental Remediation Cost Estimate to Seller, Buyer shall provide
        to
        Seller copies of all final data, laboratory reports or analytical results
        of its
        sampling (unless already provided pursuant to Section 12.1(b)) and an
        explanation of how Buyer arrived at the estimate and why such costs are
        necessary to bring the Real Property into compliance with all Environmental
        Laws
        applicable to investigation and remediation of the ' Real Property if it
        were
        redeveloped consistent with Buyer's redevelopment plans. Buyer may, but is
        not
        obligated to, provide to Seller on or prior to the end of the Phase II Period
        a
        submission (the "Phase
        II Report")
        which
        may consist of (A) as to any items which are not Open Phase II items, an
        Environmental Remediation Cost Estimate, which shall be in the same form
        delivered to Seller on August 15, 2005, (B) additional Environmental Remediation
        Cost Estimates relating to the Open Phase II Items (together with the
        Environmental Remediation Cost Estimates referred to in clause (A), the
        "Buyer
        Environmental Remediation Cost Estimate")
        and
        (C) all supporting documentation relating to such Environmental Remediation
        Cost
        Estimates and otherwise required by this Agreement. If, within six business
        days
        following Seller's receipt of the Phase II Report by Buyer, Seller does not
        approve the Buyer Environmental Remediation Cost Estimate, Seller shall so
        notify Buyer in writing and either, at Seller's option, (i) Seller shall
        terminate this Agreement, in which case Buyer shall receive the full amount
        of
        the Deposit from Seller, or (ii) the dispute resolution provisions of Section
        12.3 below will be used to reach an agreed upon Final Environmental Remediation
        Cost Estimate. If Seller does approve the Buyer Environmental Remediation
        Cost
        Estimate, Seller shall, within six business days following receipt of such
        estimate, so notify Buyer in writing, such estimate shall be deemed a final
        Environmental Remediation Cost Estimate (the "Final
        Remediation Cost Estimate")
        and
        Buyer and Seller shall allocate the Final Remediation Cost Estimate as provided
        in Section 12.2 below, subject to Buyer's right to terminate pursuant to
        Section
        12.1(e). Seller shall exercise its rights pursuant to this subsection no
        later
        than August 30, 2005, six business days following the end of the Phase 11
        Period.

      

      5. While
        this letter agreement does not amend Section 12.3 of the APA, Buyer and Seller
        agree that, pursuant to Section 12.3, the time period for Buyer and Seller
        to
        either agree on the Final Remediation Cost Estimate or submit their respective
        cost estimates to LLF ends on September 7, 2005 and the time period for LLF
        to
        review both submissions and prepare a brief summary of its analysis of the
        cost
        estimates and its conclusion regarding the correct cost estimate to both
        Buyer
        and Seller ends on September 14, 2005.

      

      6. A
        new
        Section 12.4 is hereby added to the APA as follows:

      

      12.4 All
        time
        periods in Article 12 shall end at 5:00 PM (PST) on the dates referenced
        therein.

      

      Nothing
        in this Amendment shall prevent Buyer or its authorized representatives from
        complying with any independent obligation to which they may be subject under
        any
        Law.

      

      Neither
        this letter 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; provided, however, that any such permitted assignment shall
        not
        discharge the assignor from its obligations under this letter agreement or
        the
        APA.

      

      This
        letter agreement, once Buyer and Seller shall have executed and delivered
        a
        counterpart hereof, shall become effective and binding. Except as expressly
        provided above, the APA is hereby ratified and confirmed and shall remain
        in
        full force and effect and nothing contained in this letter agreement shall
        be
        deemed to waive, alter or otherwise amend any provision of the APA. This
        letter
        agreement and the APA constitute the entire agreement between the parties
        with
        respect to the subject matter of this letter agreement and supersedes all
        prior
        agreements and understandings, both oral and written, between the parties
        with
        respect to the subject matter of this letter agreement. This letter agreement
        shall be governed by and construed in accordance with the law of the State
        of
        California.

       

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

      
        	 	
                BAY
                  MEADOWS LAND COMPANY, LLC

              
	 	 
	 	 
	 	
                By:
                  /s/
                  Terrence E. Fancher

              
	 	
                Name:
                  Terrence E. Fancher

              
	 	
                Title:
                  President

              

      

      

      

      
        	
                Agreed
                  to this 12th
                  day of August, 2005:

              	 
	 	 
	
                CHURCHILL
                  DOWNS CALIFORNIA

              	 
	
                COMPANY

              	 
	 	 
	 	 
	
                By:
                  /s/
                  Rick Baedeker

              	 
	
                Name:
                  Rick Baedeker

              	 
	
                Title:
                  President

              	 

      

      

      cc:    Darren
        Drake

          Stockbridge
        Capital
        Partners, LLC

      712
        5th
        Avenue, 21st Floor

      New
        York,
        NY 10019

      

      Thomas
        Patrick Dore, Jr., Esq.

      Davis
        Polk & Wardwell

      450
        Lexington Avenue

      New
        York,
        NY 10017

      

      D.
        Eric
        Remensperger, Esq. 

      Gibson,
        Dunn & Crutcher, LLP

      333
        So.
        Grand Avenue

      Los
        Angeles, CA 90071

       

      

       

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      

      BAY
        MEADOWS

      LAND
        COMPANY

      

      1200
        Park
        Place

      San
        Mateo, CA 94403

      TEL:
        650.524.1201

      Fax:
        650.524.1211

      www.bmlc.com

       

      

       

      September 7,
        2005

      

      

      Churchill
        Downs California Company

      c/o
        Churchill Downs Incorporated

      700
        Central Avenue

      Louisville,
        KY 40208

      Attn:
        Rebecca C. Reed

      

      Re Extension
        of Section 12.3 Time Periods 

      

      Ladies
        and Gentlemen:

      

      Reference
        is made to that certain Asset Purchase Agreement dated as of July 6,
        2005,
        as modified by those certain letter agreements dated August 1, 2005,
        August 8, 2005 and August 12, 2005 (as so amended and as in
        effect on
        the date hereof, the "APA"),
        between Bay Meadows Land Company, LLC ("Buyer")
        and
        Churchill Downs California Company ("Seller").
        Capitalized terms not defined herein shall have the meanings ascribed thereto
        in
        the APA.

      

      Pursuant
        to Section 13.4 of the APA, Buyer and Seller agree to amend the APA
        as
        follows:

      

      Notwithstanding
        anything to the contrary set forth therein, Buyer and Seller agree that,
        pursuant to Section 12.3 of the APA, the time period for Buyer and
        Seller
        to either agree on the Final Remediation Cost Estimate or submit their
        respective cost estimates to LLF ends on September 8, 2005 and the
        time
        period for LLF to review both submissions and prepare a brief summary of
        its
        analysis of the cost estimates and its conclusion regarding the correct cost
        estimate to both Buyer and Seller ends on September 15, 2005.

      

      The
        foregoing supersedes and replaces paragraph 5 of the letter agreement
        amending the APA dated August 12, 2005.

      

      Except
        as
        expressly provided above, the APA is hereby ratified and confirmed and shall
        remain in full force and effect and nothing contained in this letter agreement
        shall be deemed to waive, alter or otherwise amend any provision of the APA
        (other than to the extent expressly provided herein).

      

      This
        letter agreement and the APA constitute the entire agreement between the
        parties
        with respect to the subject matter of this letter agreement and supersedes
        all
        prior agreements and understandings, both oral and written, between the parties
        with respect to the subject matter of this letter agreement.

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      This
        letter agreement shall be governed by and construed in accordance with the
        law
        of the State of California.

       

      
        	 	
                BAY
                  MEADOWS LAND COMPANY, LLC

              
	 	 
	 	 
	 	
                By:
                  /s/
                  Charlene Kiley

              
	 	
                Name:
                  Charlene Kiley

              
	 	
                Title:
                  Secretary

              

      

      

      

      
        	
                Agreed
                  to this 8th day
                  of September, 2005:

              	 
	 	 
	
                CHURCHILL
                  DOWNS CALIFORNIA

              	 
	
                COMPANY

              	 
	 	 
	 	 
	
                By:
                  /s/
                  Michael E. Miller

              	 
	
                Name:
                  Michael E. Miller

              	 
	
                Title: 
                  Vice President

              	 

      

      

      

       cc:   Darren
        Drake

      Stockbridge
        Capital Partners, LLC

      712
        5th
        Avenue, 21st Floor

      New
        York,
        NY 10019

      

      Thomas
        Patrick Dore, Jr., Esq.

      Davis
        Polk & Wardwell

      450
        Lexington Avenue

      New
        York,
        NY 10017

      

      D.
        Eric
        Remensperger, Esq. 

      Gibson,
        Dunn & Crutcher, LLP

      333
        So.
        Grand Avenue

      Los
        Angeles, CA 90071

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