Exhibit 10.5
MANAGEMENT RETENTION AGREEMENT
     THIS MANAGEMENT RETENTION AGREEMENT (this “Agreement”) is entered into as
of February 10, 2006, by and among Youbet.com, Inc., a Delaware corporation
(“Youbet”), UT Group, LLC, a Delaware limited liability company (“Seller”), Joe
Tracy (“Tracy”) and Terry Woods (“Woods” and together with Tracy, the
“Executives”).
R E C I T A L S

A.   Youbet and Seller are parties to that certain Stock Purchase Agreement,
dated as of November 30, 2005 (as amended, modified or supplemented from time to
time, the “Purchase Agreement”), by and among Youbet, UT Gaming, Inc., a
Delaware corporation (“Purchaser”), Seller and United Tote Company (“United
Tote”), pursuant to which Purchaser, a wholly-owned subsidiary of Youbet, has
agreed to acquire from Seller, upon the terms and conditions set forth therein,
all of the capital stock of United Tote.

B.   Tracy serves as the Chief Executive Officer of United Tote pursuant to the
terms of that certain Employment Agreement, dated as of September 5, 2003, by
and between Tracy and United Tote, as amended by that certain First Amendment to
Employment Agreement, dated November 30, 2005 (the “Tracy Employment
Agreement”).

C.   Woods serves as the President and Chief Operating Officer of United Tote
pursuant to the terms of that certain Employment Agreement, dated as of
September 5, 2003, by and between Woods and United Tote, as amended by that
certain First Amendment to Employment Agreement, dated November 30, 2005 (the
“Woods Employment Agreement” and together with the Tracy Employment Agreement,
the “Employment Agreements”).

D.   Following the Closing of the transactions contemplated by the Purchase
Agreement, Tracy and Woods desire to continue to serve as Chief Executive
Officer and President and Chief Operating Officer of United Tote, respectively,
in accordance with the terms of the Employment Agreements.

E.   As a material inducement to cause Youbet and Purchaser to enter into the
Purchase Agreement, Tracy entered into that certain Restricted Stock Purchase
Agreement (the “Tracy Restricted Stock Purchase Agreement”), dated November 30,
2005, by and between Tracy and Youbet and that certain Lock-Up Agreement (the
“Tracy Lock-Up Agreement”) by and between Youbet and Tracy, and Woods entered
into that certain Restricted Stock Purchase Agreement (the “Woods Restricted
Stock Purchase Agreement” and, together with the Tracy Restricted Stock Purchase
Agreement, the “Restricted Stock Purchase Agreements”), dated November 30, 2005,
by and between Woods and Youbet and that certain Lock-Up Agreement (the “Woods
Lock-Up Agreement” and, together with the Tracy Lock-Up Agreement, the “Lock-Up
Agreements”) by and between Youbet and Woods.

 

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F.   Youbet, Purchaser and the Executives desire to terminate the Restricted
Stock Purchase Agreements and Lock-Up Agreements and replace the incentives for
the Executives to remain in the employ of United Tote after the Closing (as
defined in the Purchase Agreement) provided under such agreements with the
incentives contemplated hereby.

AGREEMENTS
     NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
     1. Termination of Certain Agreements. Upon the Closing (as defined in the
Purchase Agreement), the Restricted Stock Purchase Agreements and Lock-Up
Agreements shall terminate and become null and void, without any liability of
any party to any other party thereunder.
     2. Payments upon Termination of Employment.
          (a) In the event that any Executive ceases to be employed by United
Tote, Youbet or any other direct or indirect subsidiary of Youbet prior to the
first anniversary of the date hereof for any reason, (i) Youbet shall have the
right to set off $500,000 against any amounts due or outstanding under the $1.8
Million Note (as defined in the Purchase Agreement), or (ii) if the $1.8 Million
Note has been voluntarily prepaid, Youbet and Seller shall jointly direct the
escrow agent in writing to pay $500,000 to Youbet from the escrow account (the
“Retention Escrow Account”) established pursuant to Section 2(b) of the $1.8
Million Note, by delivery of written notice of such termination and Youbet’s
exercise of either such right to Seller; provided, that this Section 2(a) shall
not apply in the event (i) United Tote, Youbet or any other direct or indirect
subsidiary of Youbet terminates such Executive’s employment without “Cause”, as
defined in such Executive’s Employment Agreement, (ii) such Executive’s
employment is terminated as a result of such Executive suffering any mental or
physical impairment or disablement that prevents such Executive from performing
his duties as an employee of United Tote, Youbet or any other direct or indirect
subsidiary of Youbet for a period of 90 days (whether or not consecutive) in any
180 day period or (iii) such Executive’s employment is terminated as a result of
such Executive’s death, and after such termination described in clause (i) or
(ii) Executive ceases to be employed by United Tote, Youbet or any other direct
or indirect subsidiary of Youbet. For the avoidance of doubt, the foregoing
obligation is cumulative, such that if both Executives cease to be employed by
United Tote, Youbet or any other direct or indirect subsidiary of Youbet prior
to the first anniversary of the date hereof, an aggregate of $1,000,000 shall be
subject to set off by Youbet or payment from the Retention Escrow Account.
          (b) Seller and each Executive hereby agree that (i) with respect to
each Executive, if Youbet sets off $500,000 against amounts due and outstanding
under the $1.8 Million Note or is paid $500,000 from the Retention Escrow
Account as a result of such Executive ceasing to be employed by United Tote,
Youbet or any other direct or indirect subsidiary of Youbet as provided in
Section 2(a), then such $500,000 shall be deemed to be an advance to such
Executive on distributions to be made pursuant to Section 7.2 of Seller’s
Limited Liability Company Agreement, dated as of September 5, 2003, as amended
(the “Seller LLC Agreement”; and any such advance, a “Deemed Executive
Distribution”), and shall appropriately

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reduce distributions to be made thereafter by Seller to such Executive under
Section 7.2 of the Seller LLC Agreement, when and as made by Seller, and
(ii) that appropriate adjustments, as determined by Seller’s board of directors,
will be made to the allocations of “Profits” and “Losses”, as applicable, to
take into account any such Deemed Executive Distribution.
     3. Management Retention Agreement not a Service Contract. This Agreement is
not an employment or service contract, this Agreement shall not be deemed to
create (nor shall it be interpreted or construed as creating) any service
contract or an employment or service relationship and nothing herein shall be
deemed to create in any way whatsoever any obligation on either Executive’s part
to continue in the employ of United Tote or its affiliates, or of United Tote or
its affiliates to continue either Executive’s employment.
     4. Governing Law; Consent To Jurisdiction. THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER AND THE INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW) APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED IN SUCH
STATE. EACH PARTY HERETO CONSENTS TO THE PERSONAL JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK IN CONNECTION WITH ANY CLAIM OR DISPUTE ARISING IN
CONNECTION WITH THIS AGREEMENT. ANY ACTION OR PROCEEDING SEEKING TO ENFORCE ANY
PROVISION OF, OR ANY RIGHT ARISING OUT OF THIS AGREEMENT MAY BE BROUGHT AGAINST
EACH PARTY HERETO IN THE COURTS OF THE STATE OF NEW YORK.
     5. Notices. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or mailed by first class mail, return
receipt requested, to the recipient at the address indicated below:
     Executives:
Joe Tracy
3320 Nicholson road
Westminster, MD 21151
Terry Woods
12529 Falls Road
Cockeysville, MD 12030
     Youbet:
Youbet.com, Inc.
5901 DeSoto Avenue
Woodland Hills, California 91367
Attention: Scott Solomon

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     with a copy (which shall not constitute notice) to:
Katten Muchin Rosenman LLP
525 West Monroe Street
Chicago, Illinois 60661
Attention: Kenneth W. Miller
     Seller:
UT Group, LLC
c/o Kinderhook Industries, LLC
888 Seventh Avenue
16th Floor
New York, NY 10106
Attention: Robert E. Michalik
     with a copy to (which copy shall not constitute notice hereunder):
Kirkland & Ellis LLP
153 East 53rd Street
New York, NY 10022
Attention: W. Brian Raftery
or such other address or to the attention of such other Person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
     6. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement or the application of any such provision
to any person or circumstance shall be held to be prohibited by or invalid,
illegal or unenforceable under applicable law in any respect by a court of
competent jurisdiction, such provision shall be ineffective only to the extent
of such prohibition or invalidity, illegality or unenforceability, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
     7. Entire Agreement. This Agreement and the agreements and documents
referred to herein contain the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, whether written or oral, relating to such subject
matter in any way.
     8. No Strict Construction. The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.
     9. Counterparts. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement, the
agreements referred to herein, and each other agreement or instrument entered
into in connection herewith or therewith or contemplated hereby or thereby, and
any amendments hereto or thereto, to the extent signed and delivered by means of
a facsimile machine, e-mail of a PDF file or other electronic transmission,
shall be treated in all

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manner and respects as an original agreement or instrument and shall be
considered to have the same binding legal effect as if it were the original
signed version thereof delivered in person. At the reasonable request of any
party hereto or to any such agreement or instrument, each other party hereto or
thereto shall re-execute original forms thereof and deliver them to all other
parties. No party hereto or to any such agreement or instrument shall raise the
use of a facsimile machine, e-mail of a PDF file or other electronic
transmission to deliver a signature or the fact that any signature or agreement
or instrument was transmitted or communicated through the use of a facsimile
machine, e-mail of a PDF file or other electronic transmission as a defense to
the formation or enforceability of a contract and each such party forever waives
any such defense.
     10. Successors and Assigns. This Agreement is intended to bind and inure to
the benefit of and be enforceable by the parties hereto and each of their
respective successors and assigns, except that no party hereto may assign its or
his rights or delegate its or his obligations hereunder.
     11. Amendment and Waiver. The provisions of this Agreement may be amended
or waived only with the prior written consent of each of the parties hereto, and
no course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.
     12. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY KNOWINGLY,
VOLUNTARILY, UNCONDITIONALLY, IRREVOCABLY AND INTENTIONALLY FOREVER WAIVES ANY
RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION (WHETHER ARISING
IN TORT OR CONTRACT) BASED ON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH,
THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (VERBAL
OR WRITTEN) OR ACTION OF ANY PERSON OR ANY EXERCISE BY ANY PARTY OF THEIR
RESPECTIVE RIGHTS UNDER THIS AGREEMENT (INCLUDING WITHOUT LIMITATION ANY ACTION
TO RESCIND OR CANCEL THIS AGREEMENT OR ANY CLAIMS OR DEFENSES ASSERTING THAT
THIS AGREEMENT WAS FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS
PROVISION IS A MATERIAL INDUCEMENT TO ENTER INTO THIS AGREEMENT.
[Remainder of Page Intentionally Blank]

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     In witness whereof, the parties hereto have entered into this Management
Retention Agreement on the date first above written.

            YOUBET.COM, INC.
      By:   /s/ Gary W. Sproule       Name:   Gary W. Sproule      Title:  
Chief Financial Officer        UT GROUP, LLC
      By:   /s/ Robert E. Michalik       Name:   Robert E. Michalik     
Title:   Vice President        EXECUTIVES
      /s/ Joe Tracy       Joe Tracy                    /s/ Terry Woods      
Terry Woods