Document:

EXHIBIT 10.1

PURCHASE AGREEMENT 

        THIS
PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of the 19th day
of October, 2004, by and between Kelley Farms Racing, LLC, a Florida limited liability
company (“KFR LLC”) and Churchill Downs Incorporated, a Kentucky corporation
(“CDI”). 

        WHEREAS,
CDI is (i) the owner of twenty four (24) units of the membership interests of Kentucky
Downs, LLC, a Kentucky limited liability company formerly known as BC Racing Group, LLC
(“KD LLC”) which currently operates a racetrack at a facility located at
Interstate 65, Exit #2, Franklin, Kentucky (the “Facility”), (ii) a party to
that certain Management Agreement dated July 15, 1997 by and among CDI, Turfway Park
Racing Association, Inc. and BC Racing Group, LLC (the “Management Agreement”)
pursuant to which CDI has a right to receive the “Racetrack Management Fee” and,
if alternative forms of gaming are commenced at the Facility, the “Alternative Gaming
Management Fee” (both such terms are defined in Section 9 of the Management
Agreement), and (iii) the holder of that certain promissory note of BC Racing Group, LLC
dated July 11, 1997 in principal face amount of $1,822,916.67 plus several other notes
(and all interest accrued thereon) as are described on Exhibit A attached hereto (the
“KD Notes”); 

        WHEREAS,
KFR LLC desires to acquire nineteen (19) of CDI’s twenty four (24) units of KD LLC, a
proportionate amount of the KD Notes, and CDI’s rights and interest in the Management
Agreement (collectively the “CDI Member Interest”); 

        WHEREAS,
KFR LLC and CDI agree that the CDI Member Interest has a value of $3,200,000; 

        WHEREAS, Brad
Kelley, an individual (“Kelley”), is the sole member of Bison Capital, LLC and
Bison Capital, LLC is the sole member of KFR LLC; 

        WHEREAS,
CDI desires to acquire a number of shares of CDI common stock held by Kelley necessary to
reduce Kelley’s percentage ownership of CDI’s total issued and outstanding
shares from 8.77% to 4.9%; and 

        WHEREAS,
KFR LLC shall deliver 86,886 of Kelley’s shares of CDI common stock (the
“Kelley Shares”) to CDI at Closing (a number of shares equal to $3,200,000
divided by the average per share closing price on the Nasdaq national market of one share
of CDI’s common stock for the ten (10) trading days immediately prior to the
Closing). 

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

             1.       
          Sale of Shares. Subject to the terms and conditions of this Agreement, at the
          Closing (as defined below): (i) CDI will sell, transfer and convey the assets
          comprising the CDI Member Interest to KFR LLC and (ii) KFR LLC, on behalf of
          Kelley, will sell, transfer and convey the Kelley Shares to CDI and will assume
          all of CDI’s obligations under the Management Agreement. 

             2.       
          Additional Consideration. As additional consideration for the CDI Member
          Interest, if (i) Alternative Gaming Legislation (as defined below) is enacted by
          the Kentucky General Assembly and signed into law by the Governor of Kentucky or
          becomes law without the Governor’s signature (or, if Alternative Gaming is
          legalized via litigation, as of the date of a favorable, non-appealable judicial
          decision allowing Alternative Gaming) and, in any case, not earlier than the
          date the Facility has the immediate right to be issued a gaming license under
          such legislation or court order, without any legal impediment beyond the control
          of the Facility to initiate operations (the “Effective Date”) on or
          prior to the date which is five (5) years from the date of the Closing and (ii)
          other than the business then operated at the Facility, there is not another
          business eligible to host Alternative Gaming (as defined below) anywhere within
          an eighty (80) mile radius of the Facility, then, within ten (10) business days
          of the Effective Date, KFR LLC shall pay TWO MILLION DOLLARS ($2,000,000) in
          immediately available funds to CDI (the “Effective Date Payment”). 

        Further,
as additional consideration for the CDI Member Interest, if, within five (5) years of the
date of the Closing, any Alternative Gaming has commenced at the Facility (such
commencement to be the date on which the first patron wages money on an Alternative Gaming
activity, i.e., the first coin drop), then, within ten (10) business days after such date,
KFR LLC shall pay TWELVE MILLION DOLLARS ($12,000,000) to CDI in immediately available
funds (the “Commencement Date Payment”), provided, however, if: the Alternative
Gaming Legislation authorizes less than 750 electronic devices at the Facility, the
Commencement Date Payment will be equal to the number of authorized electronic devices
multiplied by $16,000. 

        “Alternative
Gaming” means any gaming activity other than bingo or pari-mutuel wagering on live
(or replays of live) or simulcast horse racing. 

        “Alternative
Gaming Legislation” means any legislation which authorizes Alternative Gaming at the
Facility. 

             3.       
          Closing. The closing of the transactions contemplated by this Agreement (the
          “Closing”) shall take place at the offices of Wyatt, Tarrant &
          Combs, LLP, in Louisville, Kentucky commencing at 10:00 a.m. local time no later
          than five (5) days following the satisfaction or waiver of all conditions to the
          obligations of the parties to consummate the transactions contemplated hereby or
          such other date as the parties may mutually determine (the “Closing
          Date”); provided, however, that the Closing Date shall be no later than
          October 18, 2004. At the Closing, (i) KFR LLC shall deliver to CDI a certificate
          signed by Kelley, certifying that Kelley is the sole record and beneficial owner
          of the Kelley Shares and he has good, valid and marketable title to the Kelley
          Shares and that they are upon transfer to CDI free and clear of all claims,
          liens, pledges, restrictions and encumbrances whatsoever, in substantially the
          form attached hereto as Exhibit B; (ii) KFR LLC will execute and deliver to CDI
          a certificate certifying that the representations of KFR LLC set forth in
          Section 4 below are true, accurate and complete on and as of the Closing; (iii)
          CDI will execute and deliver to KFR, LLC a certificate certifying that the
          representations of CDI set forth in Section 5 below are true, accurate and
          complete on and as of the Closing; (iv) KFR LLC will deliver the Kelley Shares
          to CDI, including any certificate evidencing the shares, and also including the
          stock power attached hereto as Exhibit C executed by Kelley in favor of CDI; (v)
          CDI will deliver nineteen (19) units of the membership interests of KD LLC to
          KFR LLC, including any certificate evidencing such 

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membership  interests  and  the
transfer  of  membership  interests instrument attached hereto as Exhibit
D executed by CDI in favor of KFR LLC; (vi) CDI will deliver to KFR LLC resolutions of the
members and management committee of KD LLC amending the KD Operating Agreement and
approving the transaction contemplated by this Agreement substantially in the form as
attached hereto as Exhibit E; (vii) CDI will deliver to KFR LLC a new promissory note
issued by KD LLC and payable to KFR LLC in substantially the form attached hereto as
Exhibit F; (viii) KFR LLC will deliver to CDI a new promissory note issued by KD LLC and
payable to CDI in substantially the form attached hereto as Exhibit G; (ix) CDI will
deliver a fully executed amendment to the Management Agreement, in substantially the form
attached hereto as Exhibit H; and (x) KFR LLC will execute and deliver the Pledge
Agreement substantially in the form attached hereto as Exhibit I (the “Pledge
Agreement”). 

             4.       
         Representations and Warranties of KFR LLC. KFR LLC represents and warrants to
          CDI that the statements contained in this Section 4 are true and correct as of
          the date hereof. 

                     A.       
          Authority. Upon the execution and delivery hereof by KFR LLC, this Agreement
          will constitute the legal, valid, and binding obligation of KFR LLC, enforceable
          against KFR LLC in accordance with its terms. KFR LLC has the absolute and
          unrestricted right, power, authority, and capacity to execute and deliver this
          Agreement and to perform its obligations under this Agreement. Other than the
          consents (or waivers) of the other members of KD LLC which are required pursuant
          to the Operating Agreement of KD LLC prior to the transfer of the KD Units (the
          “KD Consents”), KFR LLC is not or will not be required to give any
          notice to or obtain any consent from any person in connection with the execution
          and delivery of this Agreement or the consummation or performance of any of the
          transactions contemplated by this Agreement. 

                     B.       
          No Conflict. Neither the execution and delivery of this Agreement nor the
          consummation or performance of any of the transactions contemplated hereby will
          violate or conflict with or constitute a default under any mortgage, indenture,
          contract, agreement, license, permit, instrument, or trust or any order or
          ruling of any governmental authority to which KFR LLC is a party or by which KFR
          LLC is bound. 

                     C.       
          Investment Experience. KFR LLC is organized in the State of Florida. Kelley is
          the sole member of Bison Capital, LLC and Bison Capital, LLC is the sole member
          of KFR LLC. KFR LLC acknowledges that it can bear the economic risk of this
          investment, and has such knowledge and experience in evaluating and investing in
          private placement transactions of securities and in financial or business
          matters that it is capable of evaluating the merits and risks of the investment
          in the Securities. 

                     D.       
          Accredited Investor. KFR LLC is an “accredited investor” within the
          meaning of SEC Rule 501 of Regulation D, as presently in effect. 

                     E.       
          Receipt of Information. KFR LLC believes it has received all the information it
          considers necessary or appropriate for deciding whether to purchase the CDI
          Member Interest. KFR LLC further represents that it has had an opportunity to
          ask questions and receive answers from the Company regarding the terms and
          conditions of the offering of the CDI Member Interest and the business,
          properties, and financial condition of KD LLC and the Company and to 

3

obtain additional information (to the
extent the Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished to KFR
LLC or to which KFR LLC had access. 

             5.       
          Representations and Warranties of CDI. CDI represents and warrants to KFR LLC
          that the statements contained in this Section 5 are true and correct as of the
          date hereof. 

                     A.       
          Corporate Standing. CDI is a corporation duly organized, validly existing, and
          in good standing under the laws of the Commonwealth of Kentucky. CDI has all
          requisite power and authority to own, lease and operate its properties and to
          carry on its business as now being conducted and as presently proposed to be
          conducted, to execute, deliver and perform this Agreement. 

                     B.       
          Authority. Upon the execution and delivery hereof by CDI, this Agreement will
          constitute the legal, valid, and binding obligations of CDI, enforceable against
          CDI in accordance with its terms. CDI has the absolute and unrestricted right,
          power, and authority to execute and deliver this Agreement and to perform its
          obligations hereunder. Except for the approval of its Board of Directors, the
          consent of its primary lender, the KD Consents and any listing requirement of
          the Nasdaq national market, CDI is not and will not be required to obtain any
          consent from any person in connection with the execution and delivery of this
          Agreement or the consummation or performance of any of the transactions
          contemplated by this Agreement. 

                     C.       
          No Conflict. Neither the execution and delivery of this Agreement by CDI nor the
          consummation or performance of any of the transactions by CDI contemplated by
          this Agreement will give any person the right to prevent, delay, or otherwise
          interfere with any of the transactions pursuant to: (i) any provision of
          CDI’s Articles of Incorporation or Bylaws; (ii) any resolution adopted by
          the board of directors or the stockholders of CDI; (iii) any legal requirement
          or order of any court or other governmental body to which CDI may be subject; or
          (iv) any contract to which CDI is a party or by which CDI may be bound. 

                     D.       
          Good Title. CDI is the sole record owner of the CDI Member Interest and has good
          and valid title to the assets comprising the CDI Member Interest. The CDI Member
          Interest is, and upon transfer to KFR LLC pursuant to this Agreement will be,
          free and clear of all claims, liens, pledges, restrictions and encumbrances
          whatsoever, other than any transfer restrictions under the Operating Agreement
          of KD LLC or under applicable securities laws. 

             6.       
          Pre-Closing Covenants. The parties agree as follows with respect to the period
          between the date hereof and the Closing: 

                     A.       
          Each of the parties will use its reasonable best efforts to take all action and
          to do all things necessary in order to consummate and make effective the
          transactions contemplated by this Agreement (including satisfaction of the
          closing conditions set forth in Section 7 below). 

                     B.       
          Each of the parties will give any notices to, make any filings with, and use its
          reasonable best efforts to obtain any authorizations, consents, and approvals
          referred to in Section 4.A and Section 5.B above. 

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                     C.       
          Subject to the terms and conditions of this Agreement, each of the parties
          hereto shall use commercially reasonable efforts to take, or cause to be taken,
          all action, and to do, or cause to be done, all things reasonably necessary,
          proper or advisable under applicable laws and regulations to consummate and make
          effective the transaction contemplated by this Agreement, including using
          commercially reasonable efforts to ensure timely satisfaction of the conditions
          precedent to each party’s obligations hereunder. Neither party shall,
          without the prior written consent of the other party, take any action which
          would reasonably be expected to prevent or materially impede, interfere with or
          delay the transactions contemplated by this Agreement. 

             7.       
          Conditions to Obligation to Close. 

                     A.       
          Conditions to Obligation of CDI. The obligation of CDI to consummate the
          transactions to be performed by it in connection with the Closing is subject to
          satisfaction of the following conditions: 

 		    [1]       
                    CDI’s Board of Directors shall have approved this Agreement and the
                       transactions contemplated hereby;

               

          		    [2]       
               CDI shall have received the consents and/or approvals described in Section 5.B; 

               

          		    [3]       
               the qualification or exemption of the sale and redemption of the Kelley Shares,
               and the sale, transfer and assignment of the CDI Member Interest, under any
               applicable securities laws and regulations; 

               

          		    [4]       
               no injunction, judgment, order, decree or ruling in effect preventing
               consummation of any of the transactions contemplated by this Agreement shall be
               in existence; 

               

          		    [5]       
               the representations and warranties of KFR LLC set forth in Section 4 shall be
               true, accurate and complete as of the Closing Date; and 

               

          		    [6]       
               the transaction contemplated by that certain Stock Redemption Agreement dated as
               of the date hereof by and between CDI and Kelly shall close simultaneously with
               the Closing hereof. 

               

CDI may waive any condition specified
in this Section 7.A if it executes a writing so stating at or prior to the Closing. 

                     B.       
          Conditions to Obligation of KFR LLC. The obligation of KFR LLC to consummate the
          transactions to be performed by it in connection with the Closing is subject to
          satisfaction of the following conditions: 

          		    [1]       
               no injunction, judgment, order, decree or ruling in effect preventing
               consummation of any of the transactions contemplated by this Agreement shall be
               in existence; 

               

5

          		    [2]       
               the representations and warranties of CDI shall be true, accurate and complete
               as of the Closing Date; and 

               

          		    [3]       
               the KD Amendment shall have been adopted so as to be effective as of the date of
               the Closing. 

               

KFR LLC may waive any condition
specified in this Section 7.B if KFR LLC executes a writing so stating at or prior to the
Closing. 

             8.       
          Post-Closing Covenants. With respect to the period from and after the Closing,
          the parties agree as follows: 

                     A.       
          KFR LLC shall use its influence to cause KD LLC to actively pursue passage of
          Alternative Gaming Legislation. 

                     B.       
          KFR LLC agrees to not purposefully delay the commencement of Alternative Gaming
          to a date beyond the five (5) year anniversary of the date of the Closing in
          order to avoid paying the amounts described above to CDI, and KFR LLC agrees not
          to take any action to cause KD LLC or the business then operating on the grounds
          of the Facility, to purposefully delay the commencement of Alternative Gaming in
          order to avoid such payments. 

             9.       
          Default. In the event that KFR LLC defaults in the prompt payment and
          performance of all liabilities, obligations, covenants and duties owing by KFR
          LLC to CDI under and pursuant to this Agreement (the “Obligations”),
          including without limitation, all costs and expenses (including, without
          limitation, reasonable attorneys’ fees and expenses) of CDI incurred in the
          enforcement or collection of the Obligations, then CDI’s exclusive remedy
          shall be as set forth in the Pledge Agreement. 

             10.       
          Indemnification. Each of CDI and KFR LLC shall indemnify, defend and hold
          harmless the other and such other party’s respective directors, officers,
          employees, agents, successors and assigns from and against all losses,
          liabilities, damages, deficiencies, demands, claims, suits, actions, causes of
          action, judgments, settlements, assessments, costs of investigation and other
          expenses (including but not limited to fees, disbursements and other reasonable
          charges of attorneys, accountants, consultants, experts and other professional
          advisers, interest and penalties) based upon, arising out of or otherwise in
          respect of any breach or failure or nonfulfillment of any representation,
          warranty, covenant, undertaking or agreement of such party contained in this
          Agreement. Without limiting the generality of the foregoing, KFR LLC shall
          indemnify and hold CDI harmless from any and all liability related to or arising
          from the Management Agreement. 

             11.       
          Public Announcements. Any public announcement or similar publicity with respect
          to this Agreement or the transaction contemplated hereby will be issued, if at
          all, at such time and in such manner as CDI and KFR LLC jointly determine,
          provided that CDI may make such disclosure, after consulting with KFR LLC, if
          such disclosure is required by applicable law or regulation, including the rules
          of the Nasdaq national market. 

6

             12.       
          Notices. All notices, consents, waivers, and other communications under this
          Agreement must be in writing and will be deemed to have been duly given when (a)
          delivered by hand or registered United States mail (with written confirmation of
          receipt), (b) sent by facsimile (with written confirmation of receipt), or (c)
          when received by the addressee, if sent by a nationally recognized overnight
          delivery service (receipt requested), in each case to the appropriate addresses
          and facsimile numbers set forth below (or to such other addresses and facsimile
          numbers as a party may designate by notice to the other parties): 

	 	 
	 	if to “CDI”

Churchill Downs Incorporated
700 Central Avenue

Louisville, Kentucky 40208
Attention: President

Facsimile No.: (502) 634-4456

	 	with a copy to:

Churchill Downs Incorporated
700 Central Avenue

Louisville, Kentucky 40208
Attention: General Counsel
Facsimile No.: (502) 636-4439

	 	if to “KFR LLC”

Kelley Farms Racing, LLC
c/o Greg Betterton
981 Ridgewood Avenue, #101

Venice, FL 34285
Facsimile No.:  (941) 483-4992

             13.       
          Confidentiality. Each party will maintain in confidence, and will cause the
          directors, officers, employees, agents, and advisors of such party to maintain
          in confidence, any written, oral, or other information obtained in confidence
          from another party in connection with this Agreement, unless (a) such
          information is already known to such party or to others not bound by a duty of
          confidentiality or such information becomes publicly available through no fault
          of such party, (b) the use of such information is necessary or appropriate in
          making any filing or obtaining any consent or approval required for the
          consummation of the transactions contemplated by this Agreement, or (c) the
          furnishing or use of such information is required by legal proceedings or law. 

             14.       
          Expenses. Except as otherwise expressly provided in this Agreement, each party
          to this Agreement will bear its respective expenses incurred in connection with
          the preparation, execution, and performance of this Agreement and the
          transactions contemplated by this Agreement, including all fees and expenses of
          agents, representatives, counsel, and accountants. 

7

             15.       
          Further Assurances. The parties agree (a) to furnish upon request to each other
          such further information, (b) to execute and deliver to each other such other
          documents, and (c) to do such other acts and things, all as the other party may
          reasonably request for the purpose of carrying out the intent of this Agreement
          and the documents referred to in this Agreement. 

             16.       
          Entire Agreement and Modification. This Agreement supersedes all prior
          agreements between the parties with respect to its subject matter and
          constitutes a complete and exclusive statement of the terms of the agreement
          between the parties with respect to its subject matter. This Agreement may not
          be amended except by a written agreement executed by CDI and KFR, LLC. 

             17.       
          Time of Essence. With regard to all dates and time periods set forth or referred
          to in this Agreement, time is of the essence. 

             18.       
          Governing Law. This Agreement will be governed by the laws of the Commonwealth
          of Kentucky without regard to conflicts of laws principles. 

             19.       
          Counterparts. This Agreement may be executed in one or more counterparts, each
          of which will be deemed to be an original copy of this Agreement and all of
          which, when taken together, will be deemed to constitute one and the same
          agreement. 

8

        IN
WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date
first written above. 

		
	 	“CSI”

        CHURCHILL DOWNS INCORPORATED

	 	By:/s/ Rebecca C. Reed                               

Its: Secretary                                                 
		

		
	 	“KFR LLC”

        KELLEY FARMS RACING, LLC

	 	By:/s/ Greg Betterton                                     

Its: Manager                                                    
		

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Exhibit A 

Schedule of KD Notes 

As of September 30, 2004 

					
	

	Note	Date	Principal	Accrued Interest (not
yet added to principal)	 
	

	Note #1	09/2002	$148,066.19	$1,458.35	 
	

	Note #2	09/2003	$103,252.23	$1,016.96	 
	

	Note #3	09/2000	$95,849.83	$944.06	 
	

	Note #4	09/2001	$81,103.68	$798.82	 
	

	Note #5	initial	$2,876,124.42	$28,327.86	 
	

	Note #6	09/2004	$48,000.00	$92.05	 
	

	Totals	 	$3,352,396.35	$32,638.10	 
	

        Total
amount of principal owed to CDI as of September 30, 2004 = $3,352,396.35 

        Total accrued
interest as of September 30, 2004 = $32,638.10 

        Total
principal and interest owed to CDI as of September 30, 2004 = $3,385,034.45 

        Daily interest
at 4.75% on $3,352,396.35 = $436.27 

Total amount of new Note payable to
KFR LLC is 19/24 of $3,385,034.45 which is $2,679,818.94 (add $345.38 for each day between
9/30/04 and the Closing, so if the Closing is October 18, 2004, the total would be
$2,679,818.94 plus (18 x $345.38) or $2,686,035.78). 

Total amount of new Note payable to
CDI is 5/24 of $3,385,034.45 which is $705,215.51 (add $90.89 for each day between 9/30/04
and the Closing, so if the Closing is October 18, 2004, the total would be $705,215.51
plus (18 x $90.89) or $706,851.53. 

10

Exhibits to the Purchase
Agreement have been intentionally omitted because they are not material.  The registrant agrees to
furnish such omitted exhibits supplementally to the Commission upon request.

11EXHIBIT 10.2

STOCK REDEMPTION
AGREEMENT 

          THIS
STOCK REDEMPTION AGREEMENT (this “Agreement”) is made and entered into as of the
19th day of October, 2004, by and between Brad M. Kelley, an individual
(“Stockholder”) and Churchill Downs Incorporated, a Kentucky corporation
(“CDI”). 

          WHEREAS,
Stockholder is the record and beneficial owner of 1,165,870 shares of the issued and
outstanding common stock of CDI, which constitutes approximately 8.77% of CDI’s total
issued and outstanding shares of common stock; 

          WHEREAS,
Stockholder is the sole member of Bison Capital, LLC, which is the sole member of Kelley
Farms Racing LLC (“KFR LLC”); 

          WHEREAS,
CDI desires to acquire that number of shares of CDI common stock held by Stockholder
necessary to reduce Stockholder’s percentage ownership of CDI’s total issued and
outstanding shares from 8.77% to 4.9% (after taking into account the shares received by
CDI in connection with that certain Purchase Agreement dated as of the date hereof by and
between KFR LLC and CDI (the “Purchase Agreement); and 

          WHEREAS,
Stockholder shall permit the redemption of the number of shares necessary to reduce
Stockholder’s percentage ownership of CDI’s issued and outstanding common stock
to 4.9% (after taking into account the shares received by CDI in connection with the
Purchase Agreement) in exchange for a convertible promissory note of CDI in substantially
the form attached hereto as Exhibit A (the “Note”). 

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

             1.     
          Redemption of Shares. Subject to the terms and conditions of this Agreement, at
          the Closing (as defined below) CDI shall redeem that number of shares of common
          stock of CDI held by Stockholder (the “Shares”) necessary to reduce
          Stockholder’s percentage ownership of CDI’s issued and outstanding
          common stock to 4.9% (after taking into account the shares received by CDI in
          connection with the Purchase Agreement) in exchange for the Note. 

             2.     
          Principal Amount of the Note; Conversion Price of Note. The Note delivered by
          CDI to Stockholder at the Closing shall be the Note attached hereto as Exhibit
          A, provided that (i) such Note will be dated as of the date of the Closing, (ii)
          the Conversion Price (as defined below) will be designated in the body of the
          Note, and (iii) the principal amount of the Note will be designated on the face
          of the Note after being calculated pursuant to the following equation: (A x B)
          — C = D, where: “A” is 539,489, “B” is the average per
          share closing price on the Nasdaq national market of one share of the
          Company’s common stock for the ten (10) trading days immediately prior to
          the date of Closing, “C” is $3,200,000.00 and “D” is the
          principal amount of the Note. The “Conversion Price” is equal to
          “B”. 

             3.     
          Closing. The closing of the transactions contemplated by this Agreement (the
          “Closing”) shall take place at the offices of Wyatt, Tarrant &
          Combs, LLP, in Louisville, 

Kentucky  commencing at 10:00 a.m.
local time no later than five (5) days following
the satisfaction or waiver of all conditions to the obligations of the parties to
consummate the transactions contemplated hereby or such other date as the parties may
mutually determine (the “Closing Date”); provided, however, that the Closing
Date shall be no later than October 18, 2004. At the Closing, (i) Stockholder will execute
and deliver to CDI a certificate certifying that the representations of Stockholder set
forth in Section 4 below are true, accurate and complete on and as of the Closing; (ii)
CDI will execute and deliver to Stockholder a certificate certifying that the
representations of CDI set forth in Section 5 below are true, accurate and complete on and
as of the Closing; (iii) Stockholder will deliver the Shares to CDI, including any
certificate evidencing the shares and the execution and delivery to CDI of the stock power
attached hereto as Exhibit B; and (iv) CDI will execute and deliver the Note to
Stockholder. 

             4.     
          Representations and Warranties of Stockholder. Stockholder represents and
          warrants to CDI that the statements contained in this Section 4 are true and
          correct as of the date hereof. 

          
           A.     
          Authority. This Agreement constitutes the legal, valid, and binding obligation
          of Stockholder, enforceable against Stockholder in accordance with its terms.
          Upon the execution and delivery hereof by Stockholder this Agreement will
          constitute the legal, valid, and binding obligation of Stockholder, enforceable
          against Stockholder in accordance with its terms. Stockholder has the absolute
          and unrestricted right, power, authority, and capacity to execute and deliver
          this Agreement and to perform his obligations under this Agreement. 

     
                B.     
          No Conflict. Neither the execution and delivery of this Agreement nor the
          consummation or performance of any of the transactions contemplated hereby will
          violate or conflict with or constitute a default under any mortgage, indenture,
          contract, agreement, license, permit, instrument, or trust or any order or
          ruling of any governmental authority to which Stockholder is a party or by which
          Stockholder is bound. 

                     C.
     
          Good Title. Stockholder is the sole record and beneficial owner of the Shares
          and has good, valid and marketable title to the Shares. The Shares are, and upon
          transfer to CDI pursuant to this Agreement will be, free and clear of all
          claims, liens, pledges, restrictions and encumbrances whatsoever. 

                     D.
     
          Purchase Entirely for Own Account. Stockholder understands that the Note, at the
          time of issuance may not be registered under the Securities Act on the grounds
          that the redemption provided for in this Agreement and the issuance of the Note
          hereunder is exempt from registration under the Securities Act and that the
          Company’s reliance on such exemption is predicated on the
          Stockholders’ representations set forth herein. This Agreement is made with
          Stockholder in reliance upon Stockholder’s representations to Company,
          which by Stockholder’s execution of this Agreement, Stockholder hereby
          confirms, that the Note will be acquired for investment for Stockholder’s
          own account, not as a nominee or agent, and not with a view to the resale or
          distribution of any part thereof, and that Stockholder has no present intention
          of selling, granting any participation in, or otherwise distributing the same. 

                     E.
     
          Investment Experience. Stockholder is domiciled in the State of Florida and
          acknowledges that he is able to fend for himself, can bear the economic risk of
          his investment, 

2 

and has such knowledge and experience
in evaluating and investing
in private placement transactions of securities and in financial or business matters that he is
capable of evaluating the merits and risks of the investment in the Note. 

                     F.
     
          Accredited Investor. Stockholder is an “accredited investor” within
          the meaning of SEC Rule 501 of Regulation D, as presently in effect. 

                     G.
     
          Receipt of Information. Stockholder believes he has received all the information
          he considers necessary or appropriate for deciding whether to accept the Note. 

             5.     
          Representations and Warranties of CDI. CDI represents and warrants to
          Stockholder that the statements contained in this Section 5 are true and correct
          as of the date hereof. 

                     A.
     
          Corporate Standing. CDI is a corporation duly organized, validly existing, and
          in good standing under the laws of the Commonwealth of Kentucky. CDI has all
          requisite power and authority to own, lease and operate its properties and to
          carry on its business as now being conducted and as presently proposed to be
          conducted, to execute, deliver and perform this Agreement. 

                     B.
     
          Authority. This Agreement constitutes the legal, valid, and binding obligation
          of CDI, enforceable against CDI in accordance with its terms. Upon the execution
          and delivery hereof by CDI, this Agreement will constitute the legal, valid, and
          binding obligations of CDI, enforceable against CDI in accordance with its
          terms. CDI has the absolute and unrestricted right, power, and authority to
          execute and deliver this Agreement and to perform its obligations hereunder.
          Except for the approval of its Board of Directors, the consent of its primary
          lender, the KD Consents and any listing requirement of the Nasdaq national
          market, CDI is not and will not be required to obtain any consent from any
          person in connection with the execution and delivery of this Agreement or the
          consummation or performance of any of the transactions contemplated by this
          Agreement. 

                     C.
     
          No Conflict. Neither the execution and delivery of this Agreement by CDI nor the
          consummation or performance of any of the transactions by CDI contemplated by
          this Agreement will give any person the right to prevent, delay, or otherwise
          interfere with any of the transactions pursuant to: (i) any provision of
          CDI’s Articles of Incorporation or Bylaws; (ii) any resolution adopted by
          the board of directors or the stockholders of CDI; (iii) any legal requirement
          or order of any court or other governmental body to which CDI may be subject; or
          (iv) any contract to which CDI is a party or by which CDI may be bound. 

             6.     
          Pre-Closing Covenants. The parties agree as follows with respect to the period
          between the date hereof and the Closing: 

                     A.
     
          Each of the parties will use its reasonable best efforts to take all action and
          to do all things necessary in order to consummate and make effective the
          transactions contemplated by this Agreement (including satisfaction of the
          closing conditions set forth in Section 7 below). 

3 

                     B.
     
          Neither Stockholder nor any affiliate of Stockholder shall purchase any
          additional shares of CDI’s common stock without first receiving the express
          written consent of CDI. 

                     C.
     
          Each of the parties will give any notices to, make any filings with, and use its
          reasonable best efforts to obtain any authorizations, consents, and approvals
          required by this Agreement. 

                     D.
     
          Subject to the terms and conditions of this Agreement, each of the parties
          hereto shall use commercially reasonable efforts to take, or cause to be taken,
          all action, and to do, or cause to be done, all things reasonably necessary,
          proper or advisable under applicable laws and regulations to consummate and make
          effective the transaction contemplated by this Agreement, including using
          commercially reasonable efforts to ensure timely satisfaction of the conditions
          precedent to each party’s obligations hereunder. Neither party shall,
          without the prior written consent of the other party, take any action which
          would reasonably be expected to prevent or materially impede, interfere with or
          delay the transactions contemplated by this Agreement. 

             7.     
          Conditions to Obligation to Close. 

                     A.
     
          Conditions to Obligation of CDI. The obligation of CDI to consummate the
          transactions to be performed by it in connection with the Closing is subject to
          satisfaction of the following conditions: 

   		    [1]       
                CDI’s Board of Directors shall have approved this Agreement and the
          transactions contemplated hereby;

               

          		    [2]       
               CDI shall have received the consents and/or approvals described in Section 5.B; 

               

          		    [3]       
               the qualification or exemption of the sale and redemption of the Shares, and the
               issuance of the Note, under any applicable securities laws and regulations; 

               

          		    [4]       
               no injunction, judgment, order, decree or ruling in effect preventing
               consummation of any of the transactions contemplated by this Agreement shall be
               in existence; 

               

          		    [5]       
               the representations and warranties of Stockholder set forth in Section 4 shall
               be true, accurate and complete as of the Closing Date; and 

               

          		    [6]       
               the transactions contemplated by the Purchase Agreement shall have been
               consummated simultaneously with the Closing. 

               

CDI may waive any condition specified
in this Section 7.A if it executes a writing so stating at or prior to the Closing. 

4 

                     B.
     
          Conditions to Obligation of Stockholder. The obligation of Stockholder to
          consummate the transactions to be performed by him in connection with the
          Closing is subject to satisfaction of the following conditions: 

          		    [1]        no
               injunction, judgment, order, decree or ruling in effect preventing consummation
               of any of the transactions contemplated by this Agreement shall be in existence; 

               

          		    [2]       
               the representations, warranties of CDI shall be true, accurate and complete as
               of the Closing Date; and 

               

          		    [3]       
               the transactions contemplated by the Purchase Agreement shall have been
               consummated simultaneously with the Closing. 

               

Stockholder may waive any condition
specified in this Section 7.B if Stockholder executes a writing so stating at or prior to
the Closing. 

             8.     
          Post-Closing Covenants. With respect to the period from and after the Closing,
          the parties agree as follows: 

                     A.
     
          Neither Stockholder nor any affiliate of Stockholder shall purchase any
          additional shares of CDI’s common stock unless (i) Stockholder’s total
          beneficial ownership of the Company’s common stock immediately after such
          purchase would be less than 4.9% of the Company’s then total number of
          issued and outstanding shares of common stock, or (ii) prior to such purchase,
          Holder has fully disclosed any and all information, has executed any documents,
          and has taken all other steps, required by any applicable gaming agency or
          regulatory authority for holders of 5.0% or more of the Company’s common
          stock, and agrees to make all such information available in the future and to
          comply with any request of the Company or any applicable gaming agency or
          regulatory authority or otherwise fully complies with (on a timely basis) the
          requirements of such applicable gaming agency or regulatory authority. 

                     B.
     
          Stockholder shall use his influence to cause KFR LLC to actively pursue passage
          of Alternative Gaming Legislation (as such term is defined in the Purchase
          Agreement). 

                     C.
     
          Stockholder agrees to not purposefully delay the commencement of Alternative
          Gaming (as such term is defined in the Purchase Agreement) to a date beyond the
          five (5) year anniversary of the date of the Closing in order to avoid paying
          the Effective Date Payment and/or the Commencement Date Payment (each as defined
          in the Purchase Agreement) to CDI, and Stockholder agrees not to take any action
          to cause Kentucky Downs LLC or the business then operating on the grounds of the
          Facility (as defined in the Purchase Agreement), to purposefully delay the
          commencement of Alternative Gaming. 

                     D.
     
          Within sixty (60) days of the date hereof, CDI agrees to cause the Shares into
          which the Note is convertible to be registered for secondary offering purposes
          with the Securities and Exchange Commission (“SEC”) on a Form S-3
          Registration Statement. Stockholder acknowledges that Stockholder’s ability
          to sell the Shares under such registration statement may thereafter be subject
          to trading halts or blackout periods imposed by CDI which CDI or its 

5 

counsel
may deem necessary or appropriate to comply with applicable securities laws. CDI
acknowledges and agrees that CDI’s commitment to deliver Shares upon conversion of
the Note which are immediately transferable (subject only to compliance with all
applicable securities laws and regulations) is a material condition of Stockholder
entering into this Agreement. CDI further acknowledges that its failure to deliver
immediately transferable Shares will trigger the Redemption Option (as defined in the
Note). If CDI fails to exercise the Redemption Option, Stockholder could suffer a
substantial financial loss or gain during the Interim Period (as defined in the Note). As
set forth in the Note, in such an event, CDI will hold Stockholder harmless from a loss
and Stockholder will pay CDI the amount of any gain. 

             9.
     
          Indemnification. Each of CDI and Stockholder shall indemnify, defend and hold
          harmless the other and such other party’s respective directors, officers,
          employees, agents, successors and assigns from and against all losses,
          liabilities, damages, deficiencies, demands, claims, suits, actions, causes of
          action, judgments, settlements, assessments, costs of investigation and other
          expenses (including but not limited to fees, disbursements and other reasonable
          charges of attorneys, accountants, consultants, experts and other professional
          advisers, interest and penalties) based upon, arising out of or otherwise in
          respect of any breach or failure or nonfulfillment of any representation,
          warranty, covenant, undertaking or agreement of such party contained in this
          Agreement. 

             10.
     
          Public Announcements. Any public announcement or similar publicity with respect
          to this Agreement or the transaction contemplated hereby will be issued, if at
          all, at such time and in such manner as CDI and Stockholder jointly determine,
          provided that CDI may make such disclosure, after consulting with Stockholder,
          if such disclosure is required by applicable law or regulation, including the
          rules of the Nasdaq national market. 

             11.
     
          Notices. All notices, consents, waivers, and other communications under this
          Agreement must be in writing and will be deemed to have been duly given when (a)
          delivered by hand or registered United States mail (with written confirmation of
          receipt), (b) sent by facsimile (with written confirmation of receipt), or (c)
          when received by the addressee, if sent by a nationally recognized overnight
          delivery service (receipt requested), in each case to the appropriate addresses
          and facsimile numbers set forth below (or to such other addresses and facsimile
          numbers as a party may designate by notice to the other parties): 

	 	 
	 	if to “CDI”

Churchill Downs Incorporated
700 Central Avenue

Louisville, Kentucky 40208
Attention: President

Facsimile No.: (502) 634-4456

	 	with a copy to:

Churchill Downs Incorporated
700 Central Avenue

Louisville, Kentucky 40208

6

	 	 
	 	Attention: General Counsel

Facsimile No.: (502) 636-4439

	 	 
	 	if to “Stockholder”

Brad Kelley
c/o Greg Betterton, Esq.
981 Ridgewood Avenue, #101

Venice, FL 34285
Facsimile No.:  (941) 483-4992

             12.     
          Confidentiality. Each party will maintain in confidence, and will cause the
          directors, officers, employees, agents, and advisors of such party to maintain
          in confidence, any written, oral, or other information obtained in confidence
          from another party in connection with this Agreement, unless (a) such
          information is already known to such party or to others not bound by a duty of
          confidentiality or such information becomes publicly available through no fault
          of such party, (b) the use of such information is necessary or appropriate in
          making any filing or obtaining any consent or approval required for the
          consummation of the transactions contemplated by this Agreement, or (c) the
          furnishing or use of such information is required by legal proceedings or law. 

             13.
     
          Expenses. Except as otherwise expressly provided in this Agreement, each party
          to this Agreement will bear its respective expenses incurred in connection with
          the preparation, execution, and performance of this Agreement and the
          transactions contemplated by this Agreement, including all fees and expenses of
          agents, representatives, counsel, and accountants. 

             14.
     
          Further Assurances. The parties agree (a) to furnish upon request to each other
          such further information, (b) to execute and deliver to each other such other
          documents, and (c) to do such other acts and things, all as the other party may
          reasonably request for the purpose of carrying out the intent of this Agreement
          and the documents referred to in this Agreement. 

             15.
     
          Entire Agreement and Modification. This Agreement supersedes all prior
          agreements between the parties with respect to its subject matter and
          constitutes a complete and exclusive statement of the terms of the agreement
          between the parties with respect to its subject matter. This Agreement may not
          be amended except by a written agreement executed by CDI and Stockholder. 

             16.
     
          Time of Essence. With regard to all dates and time periods set forth or referred
          to in this Agreement, time is of the essence. 

             17.
     
          Governing Law. This Agreement will be governed by the laws of the Commonwealth
          of Kentucky without regard to conflicts of laws principles. 

             18.
     
          Counterparts. This Agreement may be executed in one or more counterparts, each
          of which will be deemed to be an original copy of this Agreement and all of
          which, when taken together, will be deemed to constitute one and the same
          agreement. 

7 

        IN
WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date
first written above. 

		
	 	“CDI”

        CHURCHILL DOWNS INCORPORATED

	 	By: Rebecca C. Reed                                   

Its: Secretary                                                 
		

		
	 	“STOCKHOLDER”

	 	 
		/s/ Brad M. Kelley                                         

Brad M. Kelley

8

Exhibits to the Stock
Redemption Agreement have been intentionally omitted because they are not material.  The
registrant agrees to furnish such omitted exhibits supplementally to the Commission upon request.

9

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