Document:

Exhibit 10.6

 

 

EMPLOYMENT
AND NON-COMPETE AGREEMENT

 

DOVER
DOWNS GAMING & ENTERTAINMENT, INC.

 

AND

 

EDWARD J. SUTOR

 

 

THIS AGREEMENT, is by and between Dover Downs Gaming
& Entertainment, Inc. (the “Company”) and Edward J. Sutor (the “Executive”)
and is effective as of this 16th day of June, 2004 (the “Effective Date”).

 

W I
T N E S S E T H:

 

WHEREAS, the Executive is currently employed by the
Company or an affiliate thereof in an executive position; and

 

WHEREAS, the Executive has, in the course of his employment,
developed relationships with employees and customers of the Company, and
learned valuable and sensitive information concerning the Company’s operations,
policies and procedures; and

 

WHEREAS, the Executive has, in the course of his
employment, been exposed to valuable and sensitive Company reports, files,
memoranda, records, software, and other property; and

 

WHEREAS, the Company recognizes that the solicitation
of its employees and customers, and the use or disclosure of the policies,
procedures, information, documents, and property of the Company would be
damaging to the Company’s interests; and

 

WHEREAS, the Company has determined that it is in the
best interests of the Company to protect its interests through the use of
Employment and Non-Compete Agreements; and

 

WHEREAS, the Company has determined that it is in the
best interests of the Company and its shareholders for the Company to agree to
provide benefits under the circumstances described below to the Executive and
other executives who agree to such an agreement.

 

NOW, THEREFORE, in consideration of the premises and
the mutual covenants contained herein, the parties hereto agree as follows:

 

 

Section
1

Definitions

 

“Announcement” shall mean a press release issued by
the Company announcing the signing of an agreement whereby the Company will be
acquired by or merge with any other entity or a tender offer for the shares of
the Company stock will be initiated.

 

“Board” shall mean the Board of Directors of the
Company or the ultimate corporate parent entity which owns the Company if the
Company is not public.

 

“Cause” shall mean a unanimous determination by the
Board that the Executive has been convicted of a felony, has embezzled from, or
committed fraud against, the Company which embezzlement or fraud has a material
adverse financial impact on the Company or gross insubordination which has
continued after written notice of such from the Board which determination is
upheld by a final, non-appealable arbitration award pursuant to Section 6.

 

“Change in Control” shall mean the earlier to occur of
(a) ten (10) days following the closing of a tender offer for the Company’s
stock following the Announcement or (b) the closing of a merger or similar
transaction (“Transaction”) of the Company and any other entity; provided,
however, a Transaction the result of which is the shareholders of the Company’s
voting securities immediately prior to the Transaction own, directly or
indirectly in substantially the same proportion, at least 60% of the voting
securities of the survivor of such Transaction immediately following such
Transaction shall not be a Change in Control.

 

“Change in Control Fee” shall mean $200, 000.

 

“Code” shall mean the Internal Revenue Code of 1986,
as amended.

 

“Company Information” shall mean (i) confidential
information including, without limitation, information received from third
parties under confidential conditions, (ii) information subject to the
Company’s and its affiliates’ attorney-client or work-product privilege; and
(iii) other technical, business, legal or financial information (including,
without limitation, customer lists), the use or disclosure of which might
reasonably be construed to be contrary to the Company’s and its affiliates’
interests.

 

“Date of Termination” shall mean the date on which the
Executive’s employment is terminated.

 

“Employment Period” shall mean the period of time
during the Extension Period the Executive is an employee of the Company.

 

“Extension Period” shall mean the 24 month period
following the Change in Control.

 

 “Good Reason”
shall mean a (i) reduction in title, responsibilities, administrative support
or support services, (ii) relocation of Executive’s office, (iii) travel at a
level that exceeds the travel requirements before the Change in Control, (iv)
any breach by the Company of its obligations hereunder, (v) any breach by the
purchaser under a merger or acquisition agreement pursuant to which the Change
in Control takes place relating to employee benefits or directors’

 

2

 

and officers’ insurance or indemnification provisions, or (vi) any
reason whatsoever two months after the Change in Control.

 

“Monthly
Amount” shall be an amount equal to one-twelfth of the sum of (a) the
Executive’s then current annual base salary (excluding any incentive or bonus),
and (b) the amount of any cash bonus awarded to the Executive for the then most
recently concluded fiscal year of the Company.

 

“Non-Compete Monthly Amount” shall mean the portion of
the Monthly Amount which is paid in consideration of the Executive’s agreement
to the restrictions and other provisions of Section 7, with the remainder of
the Monthly Amount and other benefits under this Agreement paid after the
Employment Period to be treated as severance. 
Executive’s Non-Compete Monthly Amount shall be calculated by
multiplying the Monthly Amount by fifty percent.

 

 “Retirement
Plan” shall mean the Company’s qualified defined benefit retirement plan(s) in
which the Executive participates.

 

“SERP” shall mean any and all supplemental retirement
plans in which the Executive participates (including, but not limited to, any
benefit restoration plan(s) maintained by the Company from time to time).

 

Section
2

Term of Agreement

 

This Agreement shall be effective as of the Effective
Date but shall automatically terminate if no Announcement occurs within two (2)
years of the Effective Date or if the Executive’s employment is terminated
prior to an Announcement.  Renewal of
this Agreement for successive two (2) year terms shall require approval of the
Company’s Compensation and Stock Incentive Committee.

 

Section
3

Benefits

 

(a)   On the date of a Change in Control, the
Company shall pay to the Executive in cash the Change in Control Fee.

 

(b)   During the Extension Period, the Company
shall pay to the Executive the Monthly Amount, payable on the first day of each
month, prorated for partial months.

 

(c)   If the Executive’s employment is terminated
during the Extension Period, then,

 

(i)            within five business days after the
Date of Termination, the Company shall pay to the Executive (or if the
Executive dies, to the estate of the Executive) in cash all accrued but unpaid
salary, earned but unpaid bonuses, and accrued but unused vacation in
accordance with Company policies;

 

3

 

(ii)           the Company shall pay to the
Executive (or if the Executive dies, to the estate of the Executive) the
Monthly Amount on the first day of each month during the remainder of the
Extension Period;

 

(iii)          the Company shall pay to the Executive
(or if the Executive dies, to his beneficiary, if any, under the Retirement
Plan) a lump sum amount equal to the value of the monthly benefit under (x) the
Retirement Plan and (y) the SERP, that the Executive or his beneficiary, if
any, under the Retirement Plan would have received (1) for payments of the
Monthly Amount had Executive been an employee while receiving such payments,
and (2) for payment of the Change of Control Fee had such amount been treated as
a normal bonus for pension accrual purposes (giving credit for all purposes,
including, but not limited to, accrual of benefits, vesting, age and years of
service and making the determination without regard to compensation or benefit
limitations prescribed by federal law or regulation), which payment shall be
paid within 10 days of the Date of Termination and calculated by Buck
Consultants (or such other consultant as may be agreed upon) using the
actuarial assumptions under the Retirement Plan and the discount rate which
would be utilized for purposes of funding a Plan termination;

 

(iv)          on the Date of Termination the Company
shall transfer title and ownership to the Executive of his laptop computer, if
any, without any payment by the Executive to the Company.

 

(d)   During the Extension Period (whether or not
during the Employment Period) the Executive shall be entitled to the following
additional benefits:

 

(i)            The Executive and, as applicable,
the Executive’s covered dependents shall be entitled to all health, welfare,
and fringe benefits provided by the Company to its key employees generally or
to the Executive on an individual or group basis (including, but not limited
to, any life, accident, health, hospitalization or long-term disability
insurance, maintained from time to time by the Company), whether maintained
pursuant to a plan, policy or other arrangement (written or unwritten), as if
the Executive were still employed during such period, at the same level of
benefits and at the same dollar cost to the Executive as is available generally
to comparable employees of the Company (but in no instances shall such benefits
be at a level less than as in effect on the date of the Change in
Control).  If the Company reasonably
determines that the coverage required under this Section would cause a welfare
plan sponsored by the Company to violate any provision of the Code prohibiting
discrimination in favor of highly compensated employees or key employees, or if
any benefits described in this Section cannot be provided (or the Company
determines that it does not wish to provide such benefits) pursuant to the
appropriate plan or program maintained for employees of the Company, the
Company shall provide such benefits outside such plan or program at no
additional cost (on an after tax basis) to the Executive or, if the parties
shall so agree, the Company will pay to the Executive the cash equivalent
thereof.  The health benefits provided
in accordance with this Section shall be secondary to any comparable benefits
provided by another employer if and only if the Executive chooses to be covered
by such other employee plan.

 

(ii)           Executive shall receive continued
payment of professional and organizational dues and fees as in effect prior the
Change in Control.

 

4

 

(e)    (i) 
If all, or any portion, of the payments and benefits provided under this
Agreement, if any, either alone or together with other payments and benefits
which the Executive receives or is entitled to receive from the Company, would
constitute an excess “parachute payment” within the meaning of Section 280G of
the Code (whether or not under an existing plan, arrangement, or other
agreement) (each such parachute payment, a “Parachute Payment”), and would
result in the imposition on the Executive of an excise tax under Section 4999
of the Code, then, in addition to any other benefits to which the Executive is
entitled under this Agreement or otherwise, the Executive shall be paid an
amount in cash equal to the sum of the excise taxes payable by the Executive by
reason of receiving Parachute Payments plus the amount necessary to place the
Executive in the same after-tax position (taking into account any and all
applicable federal, state and local excise, income or other taxes at the
highest possible applicable rates on such Parachute Payments (including,
without limitation, any payments under this Section) as if no excise taxes had
been imposed with respect to Parachute Payments (the “Parachute Gross-Up”).  Any Parachute Gross-Up otherwise required by
this Section shall not be made later than the time of the corresponding payment
or benefit hereunder giving rise to the underlying Section 4999 excise tax,
even if the payment of the excise tax is not required under the Code until a
later time.

 

(ii)           Subject to the provisions of Section
3(d) and except as may otherwise be agreed to by the Company and the Executive,
the amount or amounts (if any) payable under this Section 3 shall be as
conclusively determined by the KPMG LLP, or such other firm as mutually agreed
to by the Company and the Executive (“Independent Tax Counsel”), whose
determination or determinations shall be final and binding on all parties.  The Executive shall agree to utilize such
determination or determinations, as applicable, in filing all of the
Executive’s tax returns with respect to the excise tax imposed by Section 4999
of the Code, if any.  If such
Independent Tax Counsel fails or refuses to make the required determinations
for any reason, then such determinations shall be made by a comparable firm or
group of national reputation to which the parties reasonably mutually
agreed.  All fees and expenses of the
Independent Tax Counsel or its replacement shall be paid by the Company.

 

(iii)          As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Independent Tax Counsel hereunder, it is possible that
Parachute Gross-Up payments, if any, which will not have been made by the
Company, should have been made, together with any interest, penalties or taxes
of any kind thereon, consistent with the calculations required to be made
hereunder (an “Underpayment”).  The
Company shall pay all such Underpayments to or for the benefit of the
Executive.  The Executive shall notify
the Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up Payment
within ten (10) business days after the Executive is informed in writing of such
claim.  The Company shall notify the
Executive within ten (10) business days of receipt of the Executive notice that
the Company (x) will pay the Underpayment and do so on or before the date due,
or (y) that it desires to contest such claim. 
The Executive will cooperate with the Company in any such contest;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. 
Furthermore, the Company’s control of the

 

5

 

contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled, at
Executive’s expense, to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.

 

(iv)          References herein to Code sections
shall apply to comparable Code sections in the event of any amendment to the
Code.

 

(v)           The foregoing provisions of this
subsection (f) shall similarly apply to any benefit provided elsewhere in this
Agreement where it is expressly provided that the benefit is to be provided on
an after tax basis.

 

(f)    In the event of the Executive’s termination
of employment under this Agreement, the Executive shall be under no obligation
to seek other employment, and there shall be no offset against amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment.

 

In the event that Executive’s
employment is terminated by the Company for Cause (and Executive was not
capable of voluntarily terminating for Good Reason at or prior to such time) or
if Executive voluntarily terminates without Good Reason, the Company shall
remain obligated to pay the Non-Compete Monthly Amount but shall not be
obligated to pay the balance of the Monthly Amount.  Executive is free to terminate his employment for Good Reason.

 

Section
4

Employment

 

Following a Change in Control, the Executive will,
except as provided below, continue as an employee during the Extension
Period.  During the Employment Period:

 

(i)            The Executive shall perform services
consistent with his past practices,

 

(ii)           The Executive shall not be required
to relocate or travel in excess of past practices,

 

(iii)          The Executive shall enjoy the same
office, administrative support and support services as he enjoyed prior to the
Change in Control.

 

(iv)          The Executive shall not be required to
devote more time to Company business than he did prior to the Change in Control
and may continue director or officer positions with other private or public
entities that do not violate Section 7.

 

(v)           The Executive’s expenses shall be
reimbursed consistent with past practices, and

 

(vi)          The Executive shall receive at least
the same vacation as he currently enjoys, but not less than four weeks paid
vacation.

 

6

 

No breach or alleged breach of this Section 4 shall
constitute grounds for, or otherwise entitle, the Company to offset payments
otherwise owing to the Executive under this Agreement.

 

Section
5

Source
of Payments

 

All payments provided for in this Agreement shall be
paid in cash from the general funds of the Company; provided, however, that
such payments shall be reduced by the amount of any payments made to the
Executive or his dependents, beneficiaries or estate from any trust or special
or separate fund established by the Company to assure such payments.  The Company shall not be required to
establish a special or separate fund or other segregation of assets to assure
such payments.

 

Section
6

Litigation
Expenses and Arbitration

 

In addition to the Company’s other obligations under
this Agreement, the Company shall pay all legal fees and expenses incurred in a
legal proceeding (including arbitration) by the Executive in seeking to obtain
or enforce any right or benefit provided by this Agreement (including, without
limitation, any rights to a tax gross-up). 
Such payments are to be made within five days after the Executive’s
request for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require; provided, however, that if the
Executive institutes a proceeding and the judge or other decision-maker
presiding over the proceeding affirmatively finds that the Executive has failed
to prevail substantially, he shall pay his own costs and expenses (and, if
applicable, return any amounts theretofore paid on his behalf under this
Section 6.

 

All disputes with respect to the subject matter of
this Agreement and the enforcement of rights hereunder shall be submitted to
binding arbitration in accordance with the rules of the American Arbitration
Association (the “AAA”).  Each party
hereto shall designate one arbitrator (who need not be impartial) within
fifteen (15) days after notice of the dispute. The two arbitrators so
designated shall endeavor to designate promptly a third, neutral arbitrator. If
the two arbitrators have not designated the third arbitrator by the fifteenth (15th)
day following the designation of the second arbitrator, or if a second
arbitrator has not been designated by the (15th) day following the
designation of the first, either Party may request the AAA to designate the
remaining arbitrator(s). The third arbitrator shall take an oath of neutrality.
The arbitrators shall not be bound by judicial formalities and may abstain from
following the strict rules of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation. The arbitrators
shall have the power to render equitable relief as may be available in
accordance with applicable law.  Unless
otherwise agreed by the parties, any such arbitration shall take place in such
City within the United States as Executive may designate, and shall be
conducted in accordance with the Rules of the AAA.  The determination reached in such arbitration shall be final and
binding on both parties without any right of appeal or further dispute. The
arbitrators’ award may be confirmed in, and judgment upon the award entered by,
any federal or state court having jurisdiction over the parties.

 

7

 

Section
7

Restrictive Covenants

 

(a)   Within a reasonable period of time following
his termination of employment, the Executive shall return to the Company all
Company Information, reports, files, memoranda, records, credit cards, cardkey
passes, door and file keys, computer access codes, and other property which the
Executive has received, prepared, or helped to prepare in connection with his
employment with the Company, except as provided in Section 3.  The Executive acknowledges that in the
course of employment with the Company, he has acquired Company Information and
that such Company Information has been disclosed to him in confidence and for
the Company’s use only.  The Executive
agrees that, during the Extension Period, he (i) will keep such Company
Information confidential at all times, (ii) will not disclose or communicate
Company Information to any third party, and (iii) will not make use of Company
Information on his own behalf or on behalf of any third party.  The Executive further acknowledges and
agrees that the Company’s remedy in the form of monetary damages for any breach
by him of any of the provisions of this Section may be inadequate and that, in
addition to any monetary damages for such breach, the Company shall be entitled
to institute and maintain any appropriate proceeding or proceedings, including
an action for specific performance and/or injunction.

 

(b)   Executive agrees not to, during the Extension
Period, within the Territory, directly or indirectly, individually or on behalf
of persons not now parties to this Agreement, or as a director, officer,
principal, agent, executive, or in any other capacity or relationship, engage
in the casino business (except as a passive investor holding not more than 3%
of the equity of such business), or aid or endeavor to assist any business or
legal entity, that is in the casino business and that competes with the Company
anywhere in the Territory.  The
Territory shall consist of both the entire State of Delaware and a 50-mile
radius around the Company’s facility in Dover, Delaware.  The Company and Executive acknowledge the
reasonableness of this covenant not to compete and the reasonableness of the
geographic area and duration of time which are a part of said covenant.

 

(c)   Unless waived in writing by the Company,
Executive further agrees that he will not, directly or indirectly, during the
Extension Period, solicit the trade or patronage of any of the customers of the
Company, regardless of the location of such customers of the Company with
respect to any services, products, or other matters in which the Company is
active.

 

(d)   Unless waived in writing by the Company,
Executive further agrees that he will not, directly or indirectly, during the
Extension Period, solicit or attempt to entice away from the Company any
director, agent or employee of the Company.

 

(e)   Executive acknowledges that the Company has
no adequate remedy at law and would be irreparably harmed if Executive breaches
or threatens to breach any of the provisions of this Section and, therefore,
agrees that the Company shall be entitled to injunctive relief to prevent any
such breach or threatened breach thereof and to specific performance of the
terms of this Section  (in addition to
any other legal or equitable remedy the Company may have, including if so
determined by arbitration, that the Company is not obligated to pay to the
Executive (or the Executive is required to repay to the Company) a portion or
all of the Non-Compete Monthly Amount; provided, however, in all instances the
Company shall continue to pay to Executive the

 

8

 

Non-Compete Monthly Amount unless and until all appeals have been
exhausted or the time for such has expired). 
Executive further agrees that Executive shall not, in any equity
proceeding relating to the enforcement of this Section, raise the defense that
the Company has an adequate remedy at law. 
Nothing in this Agreement shall be construed as prohibiting the Company
from pursuing any other remedies at law or in equity that it may have under and
in respect of this Agreement or any other agreement.

 

(f)    The Executive agrees to pay to the Company
any outstanding amounts owed to the Company; provided, however, that no breach
or alleged breach of this subsection (f) or any other provision of this Section
shall constitute grounds for, or otherwise entitle, the Company to offset
payments otherwise owed to the Executive under this Agreement.

 

Section
8

Severability

 

If, for any reason, any one or more of the provisions
or part of a provision contained in this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement not held so invalid, illegal or unenforceable, and each other
provision or part of a provision shall to the fullest extent consistent with
law continue in full force and effect.

 

Section
9

Amendment, Termination, or Modification

 

Except as provided below, this Agreement may not be
terminated, modified or amended other than by an instrument in writing signed
by the parties hereto.  No term or
condition of this Agreement shall be deemed to have been waived, nor shall
there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument signed by the party charged with such
waiver or estoppel.  No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.

 

Section
10

Consolidation, Merger, or Sale of Assets; Assignability

 

The Company shall require (a) any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business or assets of the Company and (b) the parent
entity owning or controlling such successor expressly to assume and agree to
perform under the terms of this Agreement in the same manner and to the same extent
that the Company and its affiliates would be required to perform it if no such
succession had taken place (provided that such a requirement to perform which
arises by operation of law shall be deemed to satisfy the requirements for such
an express assumption and agreement). 
Except as provided herein, the Executive’s rights hereunder shall not be
assignable.

 

9

 

Section
11

Tax
Withholding

 

The Company may withhold from any payments made under
this Agreement all federal, state or other taxes as shall be required pursuant
to any law or governmental regulation or ruling.

 

Section
12

Entire Understanding

 

This Agreement contains the entire understanding
between the Company and the Executive with respect to the subject matter hereof
and supersedes any prior agreement between the Company and the Executive
regarding non-compete provisions, except that this Agreement shall not affect
or operate to reduce any benefit or compensation inuring to the Executive of any
kind elsewhere provided and not expressly dealt with in this Agreement.

 

Section
13

Binding Agreement

 

This Agreement shall be binding upon, and shall inure
to the benefit of, the Executive and the Company and their respective permitted
successors and assigns.

 

Section
14

Employment
Status

 

Nothing herein contained shall
be deemed to create an employment agreement between the Company and the
Executive providing for the employment of the Executive by the Company for any
fixed period of time prior to a Change in Control.  The Executive’s employment with the Company is terminable at will
by the Company or Executive and each shall have the right to terminate
Executive’s employment with the Company at any time, with or without Cause,
subject to the Company’s obligation to provide any benefits required
hereunder.   There are no other
agreements or understandings between the Company and the Executive which
guarantee continued employment to the Executive or guarantee any level of
compensation, including incentive or bonus payments, to the Executive.

 

Section
15

No
Attachment

 

Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or
to execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.

 

10

 

Section
16

Notices

 

All notices, requests, demands and other
communications required or permitted hereunder shall be given in writing and
shall be deemed to have been duly given if delivered or mailed, postage
prepaid, first class as follows:

 

(a)   to the Company, at its Dover, Delaware
address

 

(b)   to the Executive, at the address maintained
by the Company for the Executive for payroll purposes;

 

or to such address as either party shall have
previously specified in writing to the other.

 

Section
17

Revocation and Executive Acknowledgments

 

The Executive acknowledges that he has read and
understands the provisions of this Agreement. 
The Executive further acknowledges that he has been given an opportunity
for his legal counsel to review this Agreement and that the provisions of this
Agreement are reasonable and that he has received a copy of this Agreement.

 

Section
18

Headings of No Effect

 

The section headings contained in this Agreement are
included solely for convenience of reference and shall not in any way affect
the meaning or interpretation of any of the provisions of this Agreement.

 

Section
19

Applicable Law

 

This Agreement and its validity, interpretation,
performance, and enforcement shall be governed by the laws of the State of
Delaware.

 

Section
20

Counterparts

 

This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall be
deemed to constitute one and the same instrument.

 

IN WITNESS WHEREOF, the Company through its officer
duly authorized, and the

 

11

 

Executive both intending to be legally bound have duly
executed and delivered this Agreement, to be effective as of the Effective
Date.

 

	
   

  	
  Dover Downs Gaming
  & Entertainment,

  Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
    /S/  Denis
  McGlynn

  
	
   

  	
  Its

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  	
   

  
	
   

  	
    /S/  Edward
  J. Sutor

  

 

12Exhibit 10.7

 

 

NON-COMPETE
AGREEMENT

 

DOVER
DOWNS GAMING & ENTERTAINMENT, INC.

 

AND

 

HENRY B. TIPPIE

 

 

THIS AGREEMENT, is by and between Dover Downs Gaming
& Entertainment, Inc. (the “Company”) and Henry B. Tippie (the “Director”)
and is effective as of this 16th day of June 2004 (the “Effective Date”).

 

W I
T N E S S E T H:

 

WHEREAS, the Director is currently Chairman of the
Board of the Company; and

 

WHEREAS, the Director has, in the course of his tenure
as a Director, developed relationships with employees and customers of the
Company, and learned valuable and sensitive information concerning the
Company’s operations, policies and procedures; and

 

WHEREAS, the Director has, in the course of his tenure
as a Director, been exposed to valuable and sensitive Company reports, files,
memoranda, records, software, and other property; and

 

WHEREAS, the Company recognizes that the solicitation
of its employees and customers, and the use or disclosure of the policies,
procedures, information, documents, and property of the Company would be
damaging to the Company’s interests; and

 

WHEREAS, the Company has determined that it is in the
best interests of the Company to protect its interests through the use of
Employment and Non-Compete Agreements; and

 

WHEREAS, the Company has determined that it is in the
best interests of the Company and its shareholders for the Company to agree to
provide benefits under the circumstances described below to the Director and
other executives and directors who agree to such an agreement.

 

NOW, THEREFORE, in consideration of the premises and
the mutual covenants contained herein, the parties hereto agree as follows:

 

 

Section
1

Definitions

 

“Announcement” shall mean a press release issued by
the Company announcing the signing of an agreement whereby the Company will be
acquired by or merge with any other entity or a tender offer for the shares of
the Company stock will be initiated.

 

“Change in Control” shall mean the earlier to occur of
(a) ten (10) days following the closing of a tender offer for the Company’s
stock following the Announcement or (b) the closing of a merger or similar
transaction (“Transaction”) of the Company and any other entity; provided,
however, a Transaction the result of which is the shareholders of the Company’s
voting securities immediately prior to the Transaction own, directly or
indirectly in substantially the same proportion, at least 60% of the voting
securities of the survivor of such Transaction immediately following such
Transaction shall not be a Change in Control.

 

“Change in Control Fee” shall mean $750,000.

 

“Code” shall mean the Internal Revenue Code of 1986,
as amended.

 

Section
2

Term of Agreement

 

This Agreement shall be effective as of the Effective
Date but shall automatically terminate at such time as Director no longer
serves as a director of the Company.

 

Section
3

Benefits

 

On the date of a Change in Control, the Company shall
pay to the Director in cash the Change in Control Fee.  Such amount shall be deemed earned on the
date of the Change in Control and not forfeitable.

 

 If all, or any
portion, of the payment provided under this Agreement, if any, either alone or
together with other payments and benefits which the Director receives or is
entitled to receive from the Company, would constitute an excess “parachute
payment” within the meaning of Section 280G of the Code (whether or not under
an existing plan, arrangement, or other agreement) (each such parachute
payment, a “Parachute Payment”), and would result in the imposition on the
Director of an excise tax under Section 4999 of the Code, then, in addition to
any other benefits to which the Director is entitled under this Agreement or
otherwise, the Director shall be paid an amount in cash equal to the sum of the
excise taxes payable by the Director by reason of receiving Parachute Payments
plus the amount necessary to place the Director in the same after-tax position
(taking into account any and all applicable federal, state and local excise,
income or other taxes at the highest possible applicable rates on such
Parachute Payments (including, without limitation, any payments under this
Section) as if no excise taxes had been imposed with respect to Parachute
Payments (the “Parachute Gross-Up”). 
Any Parachute Gross-Up otherwise required by this Section shall not be
made later than the time of the corresponding payment or benefit hereunder
giving rise to the underlying Section 4999 excise tax, even if the payment of
the excise tax is not required under the Code until a later time.

 

2

 

Except as may otherwise be agreed to by the Company
and the Director, any gross up payable under this Section shall be as
conclusively determined by the KPMG LLP, or such other firm as mutually agreed
to by the Company and the Director (“Independent Tax Counsel”), whose
determination or determinations shall be final and binding on all parties.  The Director shall agree to utilize such
determination or determinations, as applicable, in filing all of the Director’s
tax returns with respect to the excise tax imposed by Section 4999 of the Code,
if any.  If such Independent Tax Counsel
fails or refuses to make the required determinations for any reason, then such
determinations shall be made by a comparable firm or group of national
reputation to which the parties reasonably mutually agreed.  All fees and expenses of the Independent Tax
Counsel or its replacement shall be paid by the Company.

 

As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Independent Tax Counsel hereunder, it is possible that Parachute Gross-Up
payments, if any, which will not have been made by the Company, should have
been made, together with any interest, penalties or taxes of any kind thereon,
consistent with the calculations required to be made hereunder (an
“Underpayment”).  The Company shall pay
all such Underpayments to or for the benefit of the Director.  The Director shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment within ten (10)
business days after the Director is informed in writing of such claim.  The Company shall notify the Director within
ten (10) business days of receipt of the Director notice that the Company (x)
will pay the Underpayment and do so on or before the date due, or (y) that it
desires to contest such claim.  The
Director will cooperate with the Company in any such contest; provided, however,
that the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold the Director harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses.  Furthermore, the Company’s
control of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Director shall be entitled, at
Director’s expense, to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.

 

References herein to Code sections shall apply to
comparable Code sections in the event of any amendment to the Code.

 

 

Section
4

Litigation
Expenses and Arbitration

 

In addition to the Company’s other obligations under
this Agreement, the Company shall pay all legal fees and expenses incurred in a
legal proceeding (including arbitration) by the Director in seeking to obtain
or enforce any right or benefit provided by this Agreement (including, without
limitation, any rights to a tax gross-up). 
Such payments are to be made within five days after the Director’s
request for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require; provided, however, that if the
Director institutes a proceeding and the judge or other decision-maker presiding
over the

 

3

 

proceeding affirmatively finds that the Director has failed to prevail
substantially, he shall pay his own costs and expenses (and, if applicable,
return any amounts theretofore paid on his behalf under this Section).

 

All disputes with respect to the subject matter of
this Agreement and the enforcement of rights hereunder shall be submitted to
binding arbitration in accordance with the rules of the American Arbitration
Association (the “AAA”).  Each party
hereto shall designate one arbitrator (who need not be impartial) within
fifteen (15) days after notice of the dispute. The two arbitrators so
designated shall endeavor to designate promptly a third, neutral arbitrator. If
the two arbitrators have not designated the third arbitrator by the fifteenth
(15th) day following the designation of the second arbitrator, or if
a second arbitrator has not been designated by the (15th) day
following the designation of the first, either Party may request the AAA to
designate the remaining arbitrator(s). The third arbitrator shall take an oath
of neutrality. The arbitrators shall not be bound by judicial formalities and
may abstain from following the strict rules of evidence and shall interpret
this Agreement as an honorable engagement and not merely as a legal obligation.
The arbitrators shall have the power to render equitable relief as may be
available in accordance with applicable law. 
Unless otherwise agreed by the parties, any such arbitration shall take
place in such City within the United States as Director may designate, and
shall be conducted in accordance with the Rules of the AAA.  The determination reached in such
arbitration shall be final and binding on both parties without any right of
appeal or further dispute. The arbitrators’ award may be confirmed in, and
judgment upon the award entered by, any federal or state court having
jurisdiction over the parties.

 

Section
5

Restrictive Covenants

 

(a)   For a period of one year following the Change
in Control, whether or not Director continues his engagement with the Company,
Director agrees not to, directly or indirectly, individually or on behalf of
persons not now parties to this Agreement, or as a director, officer,
principal, agent, executive, or in any other capacity or relationship, engage
in the casino business (except as a passive investor holding not more than 3%
of the equity of such business), or aid or endeavor to assist any business or
legal entity, that is in the casino business and that competes with the Company
anywhere in the Territory.  The
Territory shall consist of both the entire State of Delaware and a 50-mile
radius around the Company’s facility in Dover, Delaware.  The Company and Director acknowledge the
reasonableness of this covenant not to compete and the reasonableness of the
geographic area and duration of time which are a part of said covenant.

 

(b)   Unless waived in writing by the Company,
Director further agrees that he will not, directly or indirectly, during the
Extension Period, solicit the trade or patronage of any of the customers of the
Company, regardless of the location of such customers of the Company with
respect to any services, products, or other matters in which the Company is
active.

 

(c)   Unless waived in writing by the Company,
Director further agrees that he will not, directly or indirectly, during the
Extension Period, solicit or attempt to entice away from the Company any
director, agent or employee of the Company.

 

4

 

(d)   Director acknowledges that the Company has no
adequate remedy at law and would be irreparably harmed if Director breaches or
threatens to breach any of the provisions of this Section and, therefore,
agrees that the Company shall be entitled to injunctive relief to prevent any
such breach or threatened breach thereof and to specific performance of the
terms of this Section.  Director further
agrees that Director shall not, in any equity proceeding relating to the
enforcement of this Section, raise the defense that the Company has an adequate
remedy at law.  Nothing in this
Agreement shall be construed as prohibiting the Company from pursuing any other
remedies at law or in equity that it may have under and in respect of this
Agreement or any other agreement.

 

Section
6

Severability

 

If, for any reason, any one or more of the provisions
or part of a provision contained in this Agreement shall be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement not held so invalid, illegal or unenforceable, and each other
provision or part of a provision shall to the fullest extent consistent with
law continue in full force and effect.

 

Section
7

Amendment, Termination, or Modification

 

Except as provided below, this Agreement may not be
terminated, modified or amended other than by an instrument in writing signed
by the parties hereto.  No term or
condition of this Agreement shall be deemed to have been waived, nor shall
there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument signed by the party charged with such
waiver or estoppel.  No such written
waiver shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for the
future or as to any act other than that specifically waived.

 

Section
8

Tax
Withholding

 

The Company may withhold from any payments made under
this Agreement all federal, state or other taxes as shall be required pursuant
to any law or governmental regulation or ruling.

 

Section
9

Entire Understanding

 

This Agreement contains the entire understanding
between the Company and the Director with respect to the subject matter hereof
and supersedes any prior agreement between the Company and the Director
regarding non-compete provisions, except that this Agreement shall not affect
or operate to reduce any benefit or compensation inuring to the Director of any
kind elsewhere provided and not expressly dealt with in this Agreement.

 

5

 

Section
10

Binding Agreement

 

This Agreement shall be binding upon, and shall inure
to the benefit of, the Director and the Company and their respective permitted
successors and assigns.

 

Section
11

Director
Status

 

Nothing herein contained shall
be deemed to create an agreement between the Company and the Director providing
for the Director’s tenure with the Company to continue for any fixed period of
time prior to a Change in Control. There are no other agreements or
understandings between the Company and the Director which guarantee his continued
tenure with the Company or guarantee any level of compensation, including
incentive or bonus payments, to the Director.

 

Section
12

No
Attachment

 

Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or
to execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.

 

Section
13

Notices

 

All notices, requests, demands and other
communications required or permitted hereunder shall be given in writing and
shall be deemed to have been duly given if delivered or mailed, postage prepaid,
first class as follows:

 

(a)   to the Company, at its Dover, Delaware
address

 

(b)   to the Director, at the address maintained by
the Company for the Director;

 

or to such address as either party shall have
previously specified in writing to the other.

 

Section
14

Revocation and Director Acknowledgments

 

The Director acknowledges that he has read and
understands the provisions of this Agreement. 
The Director further acknowledges that he has been given an opportunity
for his legal counsel to review this Agreement and that the provisions of this
Agreement are reasonable and that he has received a copy of this Agreement.

 

6

 

Section
15

Headings of No Effect

 

The section headings contained in this Agreement are included
solely for convenience of reference and shall not in any way affect the meaning
or interpretation of any of the provisions of this Agreement.

 

Section
16

Applicable Law

 

This Agreement and its validity, interpretation,
performance, and enforcement shall be governed by the laws of the State of
Delaware.

 

Section
17

Counterparts

 

This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall be
deemed to constitute one and the same instrument.

 

 

IN WITNESS WHEREOF, the Company through its officer
duly authorized, and the

 

7

 

Director both intending to be legally bound have duly
executed and delivered this Agreement, to be effective as of the Effective
Date.

 

	
   

  	
  Dover Downs Gaming
  & Entertainment,

  Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
    /S/  Klaus
  M. Belohoubek

  
	
   

  	
  Its

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DIRECTOR

  
	
   

  	
   

  	
   

  
	
   

  	
    /S/  Henry
  B. Tippie

  

 

8

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