Exhibit
10.1


EMPLOYMENT
AGREEMENT


THIS EMPLOYMENT
AGREEMENT is made and entered into as of September 27, 2007 (“Employment
Agreement”), between CHURCHILL DOWNS INCORPORATED, a Kentucky corporation (“Company”)
and William E. Mudd (“Mudd”).


1.             Employment.   Pursuant
to this Employment Agreement, the Company shall employ Mudd, and Mudd shall
accept employment, in the capacity of Executive Vice President and Chief
Financial Officer of the Company, reporting to the President and Chief
Executive Officer of the Company, except, where applicable, reporting to the
Board of Directors or a committee thereof. Mudd and the Company hereby agree
that October 15, 2007 is the date on which Mudd’s employment shall begin (the “Effective
Date”). Mudd shall exert his best efforts and devote his full time and
attention to the business and affairs of the Company. Mudd shall have all
powers and responsibilities attendant to the position of Chief Financial
Officer assigned to him or delegated to him by the Company’s President and CEO
(the “CEO”). The duties and responsibilities of said position may be described
in a position description mutually acceptable to him and the CEO; provided that
said position shall, in any case, include (i) those normal and customary duties
associated with a position of Chief Financial Officer (managing the day to day
activities of the finance department to include SEC filings, regulatory
reporting, external audit, financial compliance, risk management, capital
structure management, strategic planning, business planning, business
forecasting and budgeting, management reporting, treasury management,
shareholder value management, investor relations, tax management, capital
investment analysis and advising the Board of Directors on governance issues)
and (ii) serving on the Executive Leadership team.


2.             Compensation and Perquisites.


A.            Salary.   As compensation
for the services rendered by Mudd hereunder, the Company shall pay to Mudd a
base salary (“base salary”) of $290,000 a year, payable in accordance with the
Company’s standard payroll procedures. The base salary shall be prorated in
2007 based upon the proportion of the year remaining as of the Effective Date.
Salary adjustments, if any, shall be made, in the discretion of the
Compensation Committee of the Board of Directors, at any time but will normally
occur in April of each year in accordance with standard Company policy and in
no event may Mudd’s base salary be reduced below the annualized base salary
paid in the preceding year, unless such reductions are made for other senior
executive officers and the chief executive officer of the Company.


B.            Expenses.   The Company
will reimburse Mudd for all reasonable and necessary travel and other
out-of-pocket expenses incurred by him in the performance of his duties. The
Company will pay Mudd’s reasonable travel and entertainment expenses and other
reasonable expenses incurred on behalf of the Company’s business. Mudd shall
present to the Company on a timely basis from time to time an itemized account
of such expenses in such form as may be required by the Company. The
reimbursement of such expenses shall be subject to the customary policies of
the Company.



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C.            Automobile.   The Company
will provide Mudd with an automobile allowance of $900 per month so long as
similar benefits are provided to other members of the Executive Leadership
team. The Company may terminate such benefits at its discretion.


D.            Dues.   The Company will
pay for Mudd’s dues (excluding any initiation fee) for any one country club so
long as similar benefits are provided to other members of the Executive
Leadership team. The Company may terminate such benefits at its discretion.


E.             Moving Expenses.   The
Company will pay to Mudd his reasonable moving expenses actually incurred (the “Relocation
Expenses”) which include but are not limited to, transportation costs, cost of
relocating household goods, temporary housing, sales expenses relating to home
(including any commissions due to any real estate agent in connection with the
sale or purchase of a house), living allowances and the gross up of such
expenses to cover tax liability incurred by him in connection with his
relocation to Louisville, Kentucky. Mudd shall present to the Company an
itemized account of such expenses. The Company and Mudd each agrees to use all
reasonable efforts to keep such Relocation Expenses at or below $150,000;
provided that the Company remains responsible for all Relocation Expenses in
excess of $150,000 in accordance with the first sentence of this Paragraph.
Mudd represents to the Company that he intends to place his Pennsylvania home
for sale as soon as reasonably practicable and to relocate himself and his
family in a newly purchased home in the Louisville area as soon as reasonably
practicable. The Company represents that it intends to use the Buyer Value
Option “BVO” Program to assist in Mudd’s relocation. Relocation Today will
manage Mudd’s total relocation in conjunction with the Company’s Human
Resources Department. Mudd will be required to sign a relocation payback
agreement (attached hereto as Exhibit A).


F.             Cash Signing Bonus:   Mudd
shall receive a cash signing bonus of $100,000, within thirty (30) days of the
Effective Date. Mudd agrees that that if he terminates employment within twelve
(12) months of the Effective Date he will repay the cash signing bonus on a
daily calendar pro-rated basis [(365 minus number of
days since the Effective Date) divided by 365 multiplied by $100,000)].


G.            Equity Signing Grant:   Mudd
shall receive, under the Company’s 2007 Omnibus Stock Incentive Plan, an
initial stock grant of 2,500 shares of restricted stock, which will vest in
three (3) years (measured from the Effective Date) and 4,500 stock options,
which will vest ratably over three (3) years (measured from the Effective
Date). These grants shall be subject to and on a basis consistent with the
terms and conditions and overall administration of such plan. The Company and
Mudd shall execute the standard restricted stock grant agreement and stock
option agreement in effect at the time of the grant.


All payments and
other compensation to Mudd shall be subject to applicable withholding.



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3.             Employee Benefits.


A.            Employee Stock Purchase Plan.   Mudd
shall be entitled to participate in the Churchill Downs Incorporated 2000
Employee Stock Purchase Plan, subject to and on a basis consistent with the
terms, conditions and overall administration of such plan.


B.            Long Term Incentive Plan.   Mudd
shall be entitled to participate in the Company’s 2007 Long Term Incentive Plan
(“LTI”) subject to and on a basis consistent with the terms and conditions and
overall administration of such plan. Mudd’s award shall be based on achievement
of certain performance goals and vesting criteria as approved by the
Compensation Committee of the Board of Directors. Mudd’s LTI target award will
be $3.0 million with terms similar to those at his level. LTI payments may be
in the form of cash or Company stock and may require Compensation Committee and
Board of Director approval.


C.            Medical, Dental, Vision and Life
Insurance.   Mudd will be eligible to participate in the Company’s
medical, dental, vision, disability and life insurance plans on the same basis
as generally offered to other executives of the Company from time to time. Mudd
acknowledges receipt of a summary of those benefits.


D.            Incentive Compensation Plan.   Mudd
shall be entitled to participate in the Company’s (1997) Incentive Compensation
Plan, as amended and restated effective March 1, 2005 (the “ICP”), subject to
and on a basis consistent with the terms, conditions and overall administration
of such plan. For purposes of participation in the ICP, Mudd’s Target Award (as
defined therein) for calendar year 2008 shall be set at sixty percent (60%) of
base salary. The bonus award for calendar year 2008 performance will be paid in
March 2009. Mudd shall not participate in, or be eligible for an award under,
the ICP for calendar year 2007. The ICP may be modified, adjusted and changed
from time to time at the discretion of the Company.


E.             Section 401(k) Retirement Plan.   Mudd
shall be entitled to participate in the Company’s Section 401(k) Retirement
Plan, subject to and on a basis consistent with the terms, conditions and
overall administration of such plan.


F.             Other Plans and Programs.   Mudd
will be eligible to participate in all other plans and programs offered to
executives of the Company, subject to and on a basis consistent with the terms,
conditions and overall administrative requirements of such plans, including,
without limitation, the Deferred Compensation Plan, the 125 Flex Plan,
Executive Supplemental Long Term Disability Insurance; provided that, in some
instances, Mudd will not be able to participate in such plans until he has
completed the required term of employment as required under the terms of such
plans.


4.             Vacation.   Mudd shall
be awarded paid time off (PTO) consistent with the Company’s established policy
as amended from time to time.



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5.             Termination of Employment.   The
Company may terminate Mudd’s employment at any time, for any reason.


A.            By Company (except for
termination for Cause), or Mudd for Good Reason.   In the event Mudd is
terminated by the Company, without Cause or in the event of Mudd’s termination
of employment for Good Reason, the Company shall pay or otherwise provide to
Mudd the following amounts and benefits (the “Termination Benefits”):


(i)            the Company shall pay Mudd a
severance benefit in accordance with the Company’s Executive Severance Policy
as it may exist from time to time and at the time he incurs an employment
termination eligible for payment under such plan; provided that if such
termination occurs within eighteen (18) months of the Effective Date, the
severance benefit shall equal twenty-four (24) months of base salary at the
base salary then in effect (unless a reduction in base salary is the basis for
Mudd’s termination of employment for Good Reason, in which case the base salary
in effect immediately prior to such reduction),


(ii)           the Company shall pay Mudd a pro
rated annual bonus for the year in which Mudd’s termination occurs based, at a
minimum, on the Target Award (as defined in the ICP), subject to the Company’s
accomplishment of the Threshold Company Goal under the ICP for such year. Such
amount shall be payable at the time and in the manner stipulated in the said
ICP,


(iii)          the Company shall pay Mudd the balance
of any annual or long-term incentive awards, if any, earned (but not yet paid)
as of the date of employment termination, subject to the terms of the
applicable plan or program,


(iv)          any equity based award shall be governed
by the applicable plan or program (except as set forth in item (v) below),


(v)           the Compensation Committee of the
Board of Directors shall terminate any restrictions applicable to the
restricted stock and stock options granted to Mudd pursuant to Paragraph 2G
above, to the effect that there shall be no “Restriction Period” applicable to
such shares as of the date of employment termination.


(vi)          the Company shall permit Mudd to
continue to participate in all other employee benefits programs in which Mudd
participated at the time of employment termination, in each case from the date
of employment termination until the six (6) month anniversary thereof, with the
exception of the Company’s Section 401(k) Retirement Plan, the 2005 Churchill
Downs Incorporated Deferred Compensation Plan, the Churchill Downs Incorporated
2000 Employee Stock Purchase Plan, the Company’s 125 Flex Plan and the Company’s
Life and Disability Insurance programs; provided however, that the Company’s
obligations under this subparagraph (vi) shall be reduced or eliminated
(including, without limitation, as required by the COBRA continuation coverage
provisions applicable to the Company health care plan) to the extent Mudd
receives similar coverage and benefits under plans and programs of a subsequent
employer.


In consideration
of the receipt of the payments and benefits of this Paragraph 5(A), and as a
condition thereto, Mudd specifically agrees to execute the Company’s standard
employee 



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release and waiver
agreement (as modified if necessary to be consistent with the terms of this
Employment Agreement) at the time of employment termination, whereby the
employee releases and waives any and all claims and causes of action of any
kind or nature whatsoever, whether known or unknown and whether or not
specifically mentioned, which may exist or might be claimed to exist at or
prior to the date of employment termination , including without limitation any
future injuries, losses or damages not known or anticipated at the time of
employment termination but which may later develop or become discovered
(including the effects or consequences thereof) and which are attributable to
such claims. This release and waiver agreement includes any claims which might
exist as of the date of execution of the agreement, and shall conform in all
respects to requirements for a valid and enforceable release and waiver of
claims under the Age Discrimination in Employment Act (“ADEA”).


B.            By Company — (for Cause). In
the event Mudd is terminated by the Company for Cause, the Company shall be
obligated to pay Mudd’s then base salary only through the end of the month
during which such termination occurs, plus such other sums as are payable under
this Employment Agreement and which shall have accrued through the end of such
month.


For purposes of
this Agreement, the term “Cause” means:


(i)            the continued failure of Mudd to
perform substantially his duties hereunder (other than any such failure
resulting from incapacity due to disability) after written demand for
substantial performance improvement is delivered by the Company that
specifically identifies the manner in which the Company believes Mudd has not
substantially performed his duties,


(ii)           Mudd’s conviction of, or plea of
guilty or no contest to (A) a felony or (B) a misdemeanor involving dishonesty
or moral turpitude; or


(iii)          the engaging by Mudd in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the business or reputation of the Company.


The Company shall
give written notice to Mudd of the termination for Cause. Such notice shall
state in detail the particular act or acts or the failure or failures to act
that constitute the ground on which the termination for Cause is based. Such
notice shall be given within six (6) months of the occurrence of, or, if later,
the Company’s actual knowledge of, the act or acts or the failure or failures
to act which constitute the grounds for Cause. Mudd shall have sixty (60) days
upon receipt of then notice in which to cure such conduct, to the extent such
cure is possible.


C.            Termination following a Change in
Control.   In the event Mudd is terminated by the Company within
twenty-four (24) months following a Change in Control other than for Cause,
disability or death, or if Mudd voluntarily resigns for Good Reason within such
twenty-four (24) month period, Mudd shall receive the benefits described in
Paragraph 5(A), provided that the severance benefit described in Paragraph
5(A)(i) shall equal twenty-four (24) months of base salary at the base salary
then in effect (unless a reduction in base salary is the basis for Mudd’s
termination of employment for Good Reason, in which case the base salary in
effect immediately prior to such reduction).



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For purposes of
this Agreement, the term “Change in Control” means the first to occur of the
following events:


(i)            the acquisition by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of more than 50% of either the
then-outstanding voting securities of the Company (the “Outstanding Company
Common Stock”) or the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”);


(ii)           individuals who, as of the Effective
Date of this Agreement, constitute the Board of Directors of the Company (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
Effective Date of this Agreement whose election, or nomination for election by
the Company’s shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board;


(iii)          consummation of a reorganization,
merger or consolidation or sale or other disposition of all or substantially
all of the assets of the Company or the acquisition of assets of another entity
(a “Corporate Transaction”), in each case, unless, immediately following such
Corporate Transaction, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Corporate Transaction beneficially own, directly or indirectly,
more than 50% of, respectively, the then-outstanding shares of Common Stock and
the combined voting power of the then-outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the Company
resulting from such Corporate Transaction (including, without limitation, an
entity which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Company or such entity resulting from such Corporate Transaction) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
Outstanding Company Common Stock resulting from such Corporate Transaction or
the Outstanding Company Voting Securities resulting from such Corporate Transaction,
except to the extent that such ownership existed prior to the Corporate
Transaction, and (iii) at least a majority of the members of the Board of
Directors of the Company resulting from the Corporate Transaction were members
of the Incumbent Board at the time of the execution of the initial plan or
action of the Board providing for such Corporate Transaction; or


(iv)          approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company.



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In addition and
anything to the contrary contained herein notwithstanding, if the Company
enters into an agreement or series of agreements or the Board of Directors
adopts a resolution that results in the occurrence of any of the foregoing
events, and the employment of Mudd is terminated after the entering into of
such agreement or series of agreements or the adoption of such resolution,
then, upon the termination of Mudd’s employment, a Change in Control shall be
deemed to have retroactively occurred on the date of entering into of the earliest
of such agreements or the adoption of such resolution.


Notwithstanding
the foregoing, actions taken in compliance with that certain Stockholder’s
Agreement dated as of September 8, 2000, among the Company, Duchossois
Industries, Inc. and subsequent signatories thereto, as amended from time to
time, shall not be deemed a Change in Control.


D.            Voluntary Termination by Mudd.   Mudd
may at any time resign from his position after giving the Company not less than
thirty (30) days prior written notice of the effective date of his resignation.
Any such resignation shall not be deemed to be a material breach by Mudd of
this Employment Agreement and, except as contemplated by Paragraph 5(E), Mudd
shall not be entitled to receive the severance payment contemplated by
Paragraph 5(A). Termination by Mudd within the first twelve (12) months of
employment under this Paragraph 5(D) (but not Paragraph 5(E)) will result in
the pro-rated repayment of the cash signing bonus, and within the first
twenty-four (24) months of employment the repayment of relocation expenses as
outlined in the relocation payback agreement referred to in Section 2.E above.
It is further agreed that upon such resignation, except for (i) obligations of
either party to the other which have accrued through the date of Mudd’s
resignation and (ii) the obligations of Paragraph 6, Mudd and the Company shall
be and remain fully and finally released from all further and future
obligations of performance under this Employment Agreement.


E.             Termination by Mudd for Good
Reason.   Mudd may, in his sole discretion, terminate his employment
with the Company for Good Reason, as defined herein; provided such termination
of employment must occur within two (2) years following the initial existence
of one or more of the following conditions (without the consent of Mudd), each
of which shall constitute and be defined as “Good Reason”: (i) a material
diminution of base compensation, (ii) a material diminution of authority,
duties or responsibilities, (iii) a material diminution in the authority,
duties, or responsibilities of the individual to whom he is required to report,
including a requirement that he report to the Chief Executive Officer of the
Company, (iv) a material diminution in the budget over which he retains
authority, (v) a material change in the geographic location at which he must
perform his services, or (vi) any other action or inaction that constitutes a
material breach of this Employment Agreement. Prior to exercising his right to
terminate employment for Good Reason, Mudd shall, within ninety (90) days of
the initial occurrence of the condition described in items (i) through (vi)
above which constitutes Good Reason, give written notice to the Company of the
existence of such condition. Upon receipt of such notice the Company shall have
thirty (30) days in which to remedy such condition and not be required to pay
the amount.


6.             Other Conditions of Employment.   Mudd
agrees that for a period of two (2) years from the date he ceases to be an
employee of the Company or any subsidiary of the Company, regardless of the
reason for no longer being an employee, he will not directly or indirectly:



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(i)            solicit any customers or prospective
customers of Company for the purpose of selling them products or services that
compete with those of Company,


(ii)           solicit any Company sponsors, media
rights holders, or any other entity that pays Company money in exchange for use
of its tangible or intangible assets,


(iii)          solicit or recruit in any form, as
employees, contractors, subcontractors, consultants or other capacity in which
such individuals provided services of material business value, any employees or
ex-employees of Company,


(iv)          disclose to any third parties or use
to his own benefit, directly or indirectly, any confidential or proprietary information
or knowledge of Company, or


(v)           work with or for a competitor of
Company, or for himself, in any manner which would potentially subject Company
trade secrets of confidential information to disclosure and/or misuse.


7.             Gross Up Payment.   In
the event the Company terminates Mudd without Cause or upon Mudd’s termination
of employment for Good Reason and, in either case, all Termination Benefits
paid or provided to Mudd pursuant to the Employment Agreement and under all
other plans and programs of the Company (the “Aggregate Payment”) is determined
to constitute a Parachute Payment, as such term is defined in Section
280G(b)(2) of the Internal Revenue Code, as amended, the Company shall pay to
Mudd, prior to the time of any excise tax imposed by Section 4999 of the
Internal Revenue Code (the “Excise Tax”) is payable with respect to such
Aggregate Payment, an additional amount which, after the imposition of all
federal, state and local income and excise taxes thereon, is equal to the
Excise Tax on the Aggregate Payment. The determination of whether the Aggregate
Payment constitutes a Parachute Payment and, if so, the amount to be paid to
Mudd and the time of payment shall be made by an independent auditor (the “Auditor”)
jointly selected by the Company and Mudd and paid for by the Company. The
Auditor shall be a nationally recognized United States public accounting firm
which has not acted in any way on behalf of the Company. If the Company and
Mudd cannot agree on the firm to serve as the Auditor, then Mudd and the
Company shall each select one accounting firm and those firms shall jointly
select the accounting firm to serve as the Auditor. Such payment shall be made
to Mudd as soon as practicable after the amount thereof has been determined,
but in no later than the end of the year following the year in which the
underlying taxes are paid.


8.             Notices.   All notices,
requests, demands and other communications provided for by this Employment
Agreement shall be in writing and shall be sufficiently given if and when
mailed in the continental United States by registered or certified mail or
personally delivered to the party entitled thereto at the address stated below
or to such changed address as the addressee may have given by a similar notice:


	
  

  	
  To the Company:

  	
  Churchill Downs Incorporated

  Attn: Vice President Human Resources

  700 Central Avenue

  Louisville, Kentucky 40208

  



 



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  To Mudd:

  	
  William E. Mudd

  2520 Lockleigh Road

  Jamison, PA 18929

  



 


9.             Amendment or Modification;
Waiver.   No provision of this Employment Agreement may be amended,
modified or waived unless such amendment, modification or waiver shall be
authorized by the Board of Directors and shall be agreed to in writing, signed
by Mudd and by the Chief Executive Officer. Except as otherwise specifically
provided in this Employment Agreement, no waiver by either party hereto of any
breach by the other party thereto of any condition or provision of this
Employment Agreement to be performed by such other party shall be deemed a
waiver of a subsequent breach of such condition or provision or a waiver of a
similar or dissimilar provision or condition at the same or at any prior or
subsequent time.


10.           Severability.   In the
event that any provision or portion of this Employment Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions and portions of this Employment Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.


11.           Applicable Law.   This
Employment Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Kentucky.


12.           Obligation to Mitigate; No Right
of Offset.   In the event of any termination of employment, Mudd shall
be under no obligation to seek other employment and, except as specifically
provided herein, there shall be no offset against amounts due to Mudd under
this Employment Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain or for claims the Company may have
against him.


13.           Expenses.   In the event
the Company does not comply with its obligations under this Employment
Agreement or causes or attempts to cause litigation seeking to have this
Employment Agreement declared unenforceable, then, in such event, the Company
irrevocably authorizes Mudd to retain counsel of his choice at the sole expense
of the Company to represent Mudd in connection with the initiation or defense
of any litigation or other legal action in connection with the enforcement of
the terms of this Employment Agreement. All expenses shall be fully paid by the
Company if Mudd prevails in the final, binding, non-appealable outcome of the
litigation or other legal action. The Company agrees to reimburse Mudd for his
expenses under this Paragraph 13 on a monthly basis upon presentation by Mudd
of a statement prepared by such counsel up to a maximum aggregate amount of
$250,000. Mudd agrees to repay all reimbursed expenses and the Company’s legal
costs under this Paragraph 13 in the event the Company prevails in the final,
binding, non-appealable outcome of the litigation or other legal action, such
amount to be repaid in full within ninety (90) days thereafter.


14.           Background Check.   Mudd
agrees that this Employment Agreement is contingent upon a successful
background check and submission of satisfactory proof to work in the United
States. Failure to submit this proof prohibits Company from hiring Mudd. This
Employment Agreement is also subject to the approval of the Company’s Board of
Directors.



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


	
  

  	
  CHURCHILL DOWNS INCORPORATED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert L. Evans

  
	
   

  	
   

  	
  Robert L. Evans,

  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ William E. Mudd

  
	
   

  	
   

  	
  William E. Mudd

  



 



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EMPLOYMENT
AGREEMENT

(William E. Mudd)

(Effective October 15, 2007)


Exhibit A


[Relocation Payback Agreement]



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