-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EGfcylQ7ORzrxKwOkkFsuuR48Zzr1G59wS9XwUDdlwCrLpycFV4wUE1E23ngWPAF wVpKBqgnJRMh2Pn/8coXpQ== 0001021408-02-000501.txt : 20020413 0001021408-02-000501.hdr.sgml : 20020413 ACCESSION NUMBER: 0001021408-02-000501 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020116 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOVER DOWNS ENTERTAINMENT INC CENTRAL INDEX KEY: 0001017673 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AMUSEMENT & RECREATION SERVICES [7900] IRS NUMBER: 510357525 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11929 FILM NUMBER: 2511050 BUSINESS ADDRESS: STREET 1: 1131 N DUPONT HIGHWAY CITY: DOVER STATE: DE ZIP: 19901 BUSINESS PHONE: 3027644600 MAIL ADDRESS: STREET 1: 2200 CONCORD PIKE CITY: WILMINGTON STATE: DE ZIP: 19803 8-K 1 d8k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 16, 2002 Dover Downs Entertainment, Inc. (Exact name of registrant as specified in its charter) Commission File Number 1-11929 Delaware 51-0357525 (State or other jurisdiction of incorporation) (IRS Employer Identification No.) 1131 N. DuPont Highway Dover, Delaware 19901 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (306) 674-4600 (Former name or former address, if changed since last report) N/A Item 5. Other Events. Introduction - ------------ Dover Downs Entertainment, Inc. ("DVD") is filing this Form 8-K concurrently with the filing of a Registration Statement on Form 10 by its wholly-owned subsidiary, Dover Downs Gaming & Entertainment, Inc. ("Gaming & Entertainment"), with the Securities and Exchange Commission ("SEC") in connection with DVD's previously announced intention to spin-off Dover Downs, Inc., the gaming business of DVD, to DVD stockholders by contributing 100 percent of the issued and outstanding common stock of Dover Downs, Inc. to Gaming & Entertainment, and then distributing all of the capital stock of Gaming & Entertainment to DVD stockholders. Yesterday evening, on January 15, 2002, the board of directors of DVD formally approved the spin-off, subject to the completion of certain conditions precedent discussed below. The record date and the effective date remain to be established. Background and Reasons For the Spin-Off - --------------------------------------- The DVD board of directors determined that the spin-off is in the best interests of DVD and its stockholders because following the spin-off the two independent companies will be better positioned to adopt strategies and pursue objectives appropriate to their respective needs. The gaming business and the motorsports business each have different operating objectives and growth opportunities. By separating the operations, DVD and Gaming & Entertainment can each focus its attention and financial resources on its own core business and on exploring and implementing the most appropriate business opportunities and strategies. The expected benefits of the spin-off include: . providing each company access to capital markets independently without the capital resource allocation issues present within the combined DVD; . providing stock-based acquisition currency particular to each of the companies; . providing each company's management the ability to focus their efforts and financial resources on their respective core business; . providing each company the ability to develop employee compensation and benefit programs more appropriate to its individual operations, including stock-based and other incentive programs that reward employees of each company based on the success of the individual company's operations; . enabling investors to make investment decisions based on the separate operations of the companies; and . maximizing stockholder value over the long-term for both companies. Mechanics of the Spin-Off - ------------------------- DVD will accomplish the spin-off by distributing 100 percent of the shares of Gaming & Entertainment common stock and Class A common stock to DVD's stockholders. On January 15, 2002, the DVD board of directors formally approved the distribution, subject to the completion of certain -2- conditions precedent. The record date and the effective date remain to be established. Each DVD stockholder as of the close of business on the record date will automatically participate in the spin-off. On the spin-off date, those DVD stockholders will each receive 0.7 shares of Gaming & Entertainment common stock for each share of DVD common stock held as of the record date and 0.7 shares of Gaming & Entertainment Class A common stock for each share of DVD Class A common stock held as of the record date. Each share of common stock or Class A common stock distributed will be accompanied by one stock purchase right. DVD and Gaming & Entertainment expect that the spin-off will take place in the first quarter of 2002, although completion of the spin-off is contingent upon the satisfaction of certain conditions described in the Agreement Regarding Distribution and Plan of Reorganization discussed below. No DVD stockholder will be required to pay cash or other consideration for any shares of Gaming & Entertainment common stock or Class A common stock received in the spin-off, or to surrender or exchange shares of DVD common stock or Class A common stock to receive Gaming & Entertainment common stock or Class A common stock. After the spin-off, Gaming & Entertainment will be an independent public company. The number and identity of stockholders of Gaming & Entertainment immediately after the spin-off generally will be the same as the number and identity of stockholders of DVD immediately prior to the spin-off. The actual number of shares of Gaming & Entertainment common stock and Class A common stock to be distributed will be determined as of the record date. The spin-off will not affect the number of outstanding shares of DVD common stock or Class A common stock or the rights of DVD stockholders. As of December 31, 2001, Dover Downs, Inc. had an approximately $8 million intercompany payable owed by it to DVD. In connection with the spin-off, DVD, as the 100% owner of Gaming & Entertainment, prior to the spin-off, will cancel this receivable. The amount of the receivable may fluctuate prior to the spin- off because DVD is the borrower under the credit facility which it maintains for the benefit of all of its subsidiaries, including Dover Downs, Inc., and centralized cash management and allocation of general and administrative expenses will continue until the spin-off. The receivable is being cancelled in connection with the spin-off because it will not be repaid. DVD has always recorded cash transfers to and from each of its subsidiaries as intercompany balances rather than recording them as dividends or cash contributions. Once Gaming & Entertainment is separated from DVD, DVD will no longer provide a treasury function to Gaming & Entertainment and there will be no further need for the intercompany account to monitor cash transfers. As described below, a separate credit facility will be established and maintained by Gaming & Entertainment. DVD's existing credit facility is guaranteed by Dover Downs, Inc. and all of its other subsidiaries. As of December 31, 2001, $110.6 million was outstanding. At the spin-off, DVD's existing credit facility will be replaced with a new facility which does not include Dover Downs, Inc. DVD is presently negotiating the terms of this new credit facility. Gaming & Entertainment has established a stand alone $55 million credit facility and, on the effective date of the spin-off, $39 million of the amount outstanding under the existing DVD credit facility will be paid down through this new Gaming & Entertainment credit facility. The balance of DVD's existing credit facility will remain a liability of DVD. Relationship Between DVD and Gaming & Entertainment After the Spin-Off - ----------------------------------------------------------------------- The relationship between DVD and Gaming & Entertainment after the spin-off will be governed by the Agreement Regarding Distribution and Plan of Reorganization and other agreements which have been entered into in connection with the spin-off. A description of the material provisions of each of these agreements is presented below. You should also refer to the actual agreements, copies of which are included as exhibits to this Form 8-K. These agreements are intended to facilitate the separation of -3- DVD's gaming business from its motorsports business and the operation of DVD and Gaming & Entertainment as separate companies following the spin-off. Agreement Regarding Distribution And Plan Of Reorganization. DVD has entered into an Agreement Regarding Distribution and Plan of Reorganization with Gaming & Entertainment. This agreement sets forth the principal corporate transactions required to effect the separation of the gaming business from the motorsports business, the continuation of the gaming business following such separation, including the allocation between DVD and Gaming & Entertainment of certain assets and liabilities, and the distribution of shares of Gaming & Entertainment common stock and Class A common stock. After the spin- off, all assets and liabilities relating to the gaming business shall be owned and assumed by Gaming & Entertainment or its subsidiaries, and all assets and liabilities relating to the motorsports business shall be owned and assumed by DVD or its subsidiaries. DVD and Gaming & Entertainment will complete the spin-off after the satisfaction or waiver of all of the conditions to the spin-off, as determined by DVD's board of directors in its sole discretion. The conditions include: . the continued effectiveness of the IRS letter ruling received by DVD to the effect that for federal income tax purposes the spin-off will be tax-free to DVD and its stockholders under Section 355 of the Internal Revenue Code such that the spin-off will not result in recognition of any income, gain or loss for federal income tax purposes to DVD or its stockholders, except for cash received in lieu of fractional shares; . the receipt of all necessary regulatory approvals; . the effectiveness of the Form 10 registration statement filed by Gaming & Entertainment; . the continued listing of DVD common stock on the NYSE or such other exchange or quotation system as the DVD board of directors deems appropriate; . the approval for listing of Gaming & Entertainment common stock on the NYSE, subject to official notice of issuance, or such other exchange or quotation system as the Gaming & Entertainment board of directors deems appropriate; . the absence of any order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the completion of the distribution; and . DVD shall have entered into an acceptable replacement credit facility which does not include Dover Downs, Inc. Although DVD may waive the conditions described above to the extent permitted by law, DVD's board of directors presently has no intention of proceeding with the spin-off unless each of these conditions is satisfied. Releases and Indemnification. The distribution agreement provides for indemnification against and a full and complete release and discharge of all liabilities arising from or due to a failure by either DVD, Gaming & Entertainment or any affiliated parties to pay, perform, or discharge any liabilities accepted by one party from the other party in connection with the separation, any untrue or misleading statement by a party in any Form 10 registration statement or information statement prepared in accordance with -4- Regulation 14C, or any litigation arising from the parties' corporate affiliation prior to the separation and not as a result of or attributable to the indemnified party's fault or participation. Expenses. Prior to the effective time of the spin-off, all fees, costs and expenses incurred by either party, or by all counsel, accountants, and financial and other advisors, in connection with the separation and distribution will be paid by DVD and all such costs incurred at or after the effective time shall be paid by the party incurring such costs. Also, DVD will pay all the fees, costs and expenses associated with obtaining the IRS letter ruling and the preparation, printing and filing of the Form 10 registration statement and accompanying information statement. Transition Support Services Agreement. In connection with the spin-off, DVD and Gaming & Entertainment have entered into a Transition Support Services Agreement. Under this agreement, each of DVD and Gaming & Entertainment will agree to provide the other with certain requested administrative and operational services. Each party will provide these services until terminated by the party receiving the service or by the party providing the service after the expiration of a one (1) year transition period. The party receiving the services will be required to pay for them within 30 business days after receipt of an invoice for such services at rates agreed upon by DVD and Gaming & Entertainment. Both DVD and Gaming & Entertainment shall indemnify each other for any liabilities to which they become subject as a result of furnishing or failing to furnish the services provided for in this agreement. Employee Benefits Agreement. In connection with the spin-off, Gaming & Entertainment and DVD have entered into an Employee Benefits Agreement that will provide for the transition from employee benefits under plans or programs sponsored by DVD for its employees to employee benefits under plans or programs sponsored by Gaming & Entertainment for those employees who will become employed by Gaming & Entertainment (or remain employed by Dover Downs, Inc.) following the completion of the spin-off. Under this agreement, each party is expected to establish and/or maintain separate welfare and retirement benefits, such as medical, life insurance and disability plans, a 401(k) plan, a defined benefit pension plan, and policies covering vacations, holidays and sick leave. In connection with the spin-off and pursuant to the terms of the Employee Benefits Agreement, DVD will transfer to Gaming & Entertainment the assets and liabilities associated with DVD's defined benefit pension plan and the 401(k) plan currently sponsored by DVD with respect to employees who become employees of Gaming & Entertainment (or remain employed by Dover Downs, Inc.) after the spin-off. Tax Sharing Agreement. After the spin-off, Gaming & Entertainment will no longer be included in DVD's consolidated group for U.S. federal income tax purposes. Gaming & Entertainment has entered into a Tax Sharing Agreement with DVD to reflect its separation from DVD with respect to tax matters. The primary purpose of such agreement is to reflect each party's rights and obligations relating to payments and refunds of taxes that are attributable to periods beginning before and including the date of the spin-off and any taxes resulting from transactions effected in connection with the spin-off. With respect to any period ending on or before the spin-off or any tax period in which the spin-off occurs, DVD will: . continue to be the sole and exclusive agent for Gaming & Entertainment in all matters relating to the income, franchise, property, sales and use tax liabilities of Gaming & Entertainment; -5- . subject to Gaming & Entertainment's obligation to pay for items relating to its gaming business, bear any costs relating to tax audits, including tax assessments and any related interest and penalties and any legal, litigation, accounting or consulting expenses; . continue to have the sole and exclusive responsibility for the preparation and filing of consolidated federal and combined state income tax returns; and . subject to the right and authority of Gaming & Entertainment to direct DVD in the defense or prosecution of the portion of a tax contest directly and exclusively related to any Gaming & Entertainment tax adjustment, generally have the powers, in DVD's sole discretion, to contest or compromise any claim or refund on Gaming & Entertainment's behalf. The agreement will provide for payments between the two companies to reflect tax liabilities that may arise before, after and because of the spin- off. It will also cover the handling of audits, settlements, elections, accounting methods and return filings in cases where both companies have an interest in the results of these activities. For periods during which Gaming & Entertainment is included in DVD's consolidated federal income tax return or state combined or unitary tax returns which will include the tax periods ending on or before the spin-off, Gaming & Entertainment will be required to pay an amount of income tax equal to the tax liability attributable to Gaming & Entertainment. Gaming & Entertainment will also be responsible for its own tax liabilities that are not determined on a combined basis with DVD. Gaming & Entertainment will cease to be a member of DVD's federal consolidated group on the date of the spin-off. Each corporation that is a member of a consolidated group during any portion of the group's tax year is jointly and severally liable for the federal income tax liability of the group for that year. While the agreement allocates tax liabilities between Gaming & Entertainment and DVD during the periods ending on or before the spin-off in which Gaming & Entertainment is included in DVD's consolidated group, Gaming & Entertainment could be liable in the event federal tax liability allocated to DVD is incurred, but not paid, by DVD or any other member of DVD's consolidated group for DVD's tax years that include such periods. In such event, Gaming & Entertainment may be entitled to seek indemnification from DVD in accordance with the agreement. Even if the spin-off qualifies as a tax-free distribution to DVD stockholders, a corporate tax could also be payable in accordance with Section 355(e) if one or more persons acquire 50 percent or more, by vote or value, of the capital stock of DVD or Gaming & Entertainment as part of a plan or series of related transactions that include the spin-off. There is a presumption that any stock acquisition or issuance that occurs within two years before or after the spin-off is part of a plan related to the spin-off. If this change-in- control occurs, and DVD or Gaming & Entertainment were unable to disprove or rebut the presumption, DVD would recognize a gain, if any, on the shares of Gaming & Entertainment's common stock that it distributes in the spin-off. To minimize this and other risks, Gaming & Entertainment will agree with DVD to refrain from engaging in specified transactions unless: . a ruling from the IRS is received to the effect that the proposed transaction will not result in the spin-off being taxable to DVD or its stockholders; or . an opinion of counsel recognized as an expert in federal income tax matters and designated by DVD is received to the same effect and is satisfactory to DVD in its sole and absolute discretion. -6- Transactions that may be affected by these restrictions relating to an acquisition of a 50 percent or greater interest and other restrictions required to preserve the tax-free nature of the spin-off include: . a liquidation; . a merger or consolidation with, or acquisition by, another company; . issuances and redemptions of shares of Gaming & Entertainment common stock; . the exercise of stock options; . the sale, distribution or other disposition of assets in a manner that would adversely affect the tax consequences of the spin-off; and . the discontinuation of material businesses. Other transactions could also jeopardize the tax-free nature of the spin- off. The agreement will allocate responsibility for the possible corporate-level income tax burden resulting from the spin-off, as well as other tax items. If the spin-off is taxable under Code Section 355(e) as a result of a 50 percent acquisition, then the resulting corporate-level income tax burden will be borne by that entity, either Gaming & Entertainment or DVD, with respect to which the 50 percent acquisition has occurred. Similarly, if the spin-off is taxable due to any other action taken by Gaming & Entertainment or DVD that is inconsistent with the factual representations on which the IRS letter ruling is based, the entity taking that action will be responsible for the resulting corporate-level income tax liability. Any corporate-level income tax liability that results from the spin-off, but which is not due to either a 50 percent acquisition or any action taken by either party that is inconsistent with the IRS letter ruling, will be shared equally by Gaming & Entertainment and DVD. Real Property Agreement. In connection with the spin-off, DVD and Gaming & Entertainment have entered into a Real Property Agreement which governs: . certain real property transfers to ensure that the real property holdings of DVD and Gaming & Entertainment are more closely aligned with their historical uses and business needs; . DVD's use of certain indoor grandstands office space and parking space owned by Gaming & Entertainment; . Gaming & Entertainment's use of certain harness track facilities; and . certain cross easements relative to access and utilities at DVD's Dover, Delaware facility. See also, "Business--Properties." Management - ---------- The only changes to the directors and officers of DVD as a result of the spin- off will be the resignation of Edward J. Sutor, Executive Vice President of DVD. After the spin-off, Mr. Sutor will work exclusively for Gaming & Entertainment as its Executive Vice President and Chief Operating Officer. After the spin- -7- off, Messrs. Denis McGlynn, Timothy R. Horne, Klaus M. Belohoubek and Robert M. Comollo, DVD's Chief Executive Officer, Chief Financial Officer, Chief Legal Officer and Treasurer, respectively, will become dual employees of both DVD and Gaming & Entertainment and split their time among the two companies. Henry B. Tippie will be Chairman of the Board of both companies. Additional Information - ---------------------- Additional information concerning Gaming & Entertainment and the spin-off is contained in Gaming & Entertainment's Registration Statement on Form 10 (Commission File No. 1-16791) filed with the Securities and Exchange Commission on January 16, 2002. The foregoing description of the terms of the spin-off is qualified in its entirety by reference to the agreements attached hereto and incorporated herein by reference. Forward-Looking Statements - -------------------------- Please carefully consider and evaluate all of the information provided in this information statement, including the risk factors described in more detail under "Risk Factors" above. In addition to historical information, this information statement includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to our financial condition, profitability, liquidity, resources, business outlook, proposed acquisitions, market forces, corporate strategies, consumer preferences, contractual commitments, legal matters, capital requirements and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor, we note that a variety of factors could cause our actual results and experience to differ substantially from the anticipated results or other expectations expressed in our forward-looking statements. When words and expressions such as: "believes," "expects," "anticipates," "estimates," "plans," "intends," "objectives," "goals," "aims," "projects," "forecasts," "possible," "seeks," "may," "could," "should," "might," "likely," "enable," or similar words or expressions are used in this document, as well as statements containing phrases such as "in our view," "there can be no assurance," "although no assurance can be given," or "there is no way to anticipate with certainty," forward-looking statements are being made. Various risks and uncertainties may affect the operation, performance, development and results of our business and could cause future outcomes to differ materially from those set forth in our forward-looking statements, including the following factors: . success of or changes in our growth strategies; . our ability to maintain successful relationships with NASCAR and other race event sanctioning bodies, advertisers and sponsors, the broadcast media, and the communities adjacent to our facilities; . our successful development and potential acquisition of new fixed facilities, such as Nashville Superspeedway, and new street venues, such as the Grand Prix of Denver; . anticipated trends in the motorsports industry; . patron demographics; . general market and economic conditions, including consumer and corporate spending sentiment; -8- . our ability to finance future business requirements; . our ability to effectively compete in the marketplace; . the availability of adequate levels of insurance for a potentially dangerous sport; . our ability to successfully integrate acquired companies and businesses; . management retention and development; . changes in Federal, state, and local laws and regulations; and . the effect of weather conditions or travel on attendance at our facilities; . military or other government actions; and . national or local catastrophic events. We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward- looking statements. Given these risks and uncertainties, stockholders should not overly rely or attach undue weight to our forward-looking statements as an indication of our actual future results. Item 7. Financial Statements and Exhibits (c) Exhibits Exhibit - ------- Number Description - ------ ----------- 2.1 Agreement Regarding Distribution and Plan of Reorganization, dated January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. 10.1 Employee Benefits Agreement, dated January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. 10.2 Transition Support Services Agreement, dated January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. 10.3 Tax Sharing Agreement, dated January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. 10.4 Real Property Agreement dated January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. 10.5 Credit Agreement between Dover Downs Gaming & Entertainment, Inc. and Wilmington Trust Company dated as of January 15, 2002. -9- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dover Downs Entertainment, Inc. /s/ Denis McGlynn ------------------------------------------ Denis McGlynn President and Chief Executive Officer Dated: January 16, 2002 INDEX TO EXHIBITS Exhibit - ------- Number Description - ------ ----------- 2.1 Agreement Regarding Distribution and Plan of Reorganization, dated January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. 10.1 Employee Benefits Agreement, dated January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. 10.2 Transition Support Services Agreement, dated January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. 10.3 Tax Sharing Agreement, dated January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. 10.4 Real Property Agreement dated January 15, 2002, by and between Dover Downs Entertainment, Inc. and Dover Downs Gaming & Entertainment, Inc. 10.5 Credit Agreement between Dover Downs Gaming & Entertainment, Inc. and Wilmington Trust Company dated as of January 15, 2002. -10- EX-2.1 3 dex21.txt AGREEMENT REGARDING DISTRIBUTION EXHIBIT 2.1 AGREEMENT REGARDING DISTRIBUTION AND PLAN OF REORGANIZATION THIS AGREEMENT REGARDING DISTRIBUTION AND PLAN OF REORGANIZATION (the "Agreement"), dated as of January 15, 2002, by and between DOVER DOWNS ENTERTAINMENT, INC., a Delaware corporation ("DVD"), and DOVER DOWNS GAMING & ENTERTAINMENT, INC., a Delaware corporation ("Gaming & Entertainment"). RECITALS A. DVD has formed Gaming & Entertainment as a wholly owned subsidiary for the purpose of taking title to the stock of Dover Downs, Inc. ("Slots"), a wholly owned subsidiary of DVD, the assets and liabilities of which constitute DVD's gaming operations (the "Gaming Business"). B. The Board of Directors of DVD has determined that it is in the best interests of DVD and its shareholders to transfer and assign to Gaming & Entertainment, effective prior to the Effective Time (as defined herein), the capital stock of Slots, as a capital contribution, and to receive in exchange therefore additional shares of Gaming & Entertainment Common Stock and Class A Common Stock (both as defined herein). C. The Board of Directors of DVD has further determined that it is in the best interests of DVD and its shareholders to make a distribution (the "Distribution") (i) to the holders of DVD Common Stock (as defined herein) of all of the outstanding shares of Gaming & Entertainment Common Stock at the rate of .7 shares of Gaming & Entertainment Common Stock for each share of DVD Common Stock outstanding as of the Record Date (as defined herein); and (ii) to the holders of DVD Class A Common Stock (as defined herein) of all of the outstanding shares of Gaming & Entertainment Common Stock at the rate of .7 shares of Gaming & Entertainment Common Stock for each share of DVD Class A Common Stock outstanding as of the Record Date. E. The parties have received a favorable ruling letter from the Internal Revenue Service (the "IRS") concerning the non-taxability of the Distribution to DVD or its shareholders pursuant to Section 355 of the Code (as defined herein), if consummated pursuant to the terms and conditions contained in the request therefor. F. The parties have determined that it is necessary and desirable to set forth the principal corporate transactions required to effect the Distribution and to set forth other agreements that will govern certain other matters following the Distribution. NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements and covenants contained in this Agreement and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS Section 1.01 Definitions. As used herein, the following terms have the following meaning: "Action" means any claim, suit, arbitration, inquiry, proceeding or investigation by or before any court, governmental or other regulatory or administrative agency or commission or any other tribunal. "Ancillary Agreements" means all of the written agreements, instruments, understandings, assignments and other arrangements entered into in connection with the transactions contemplated hereby, including, without limitation, the Employee Benefits Agreement, the Real Property Agreement, the Transition Support Services Agreement, and the Tax Sharing Agreement. "Assets" means all properties, rights, contracts, leases and claims, of every kind and description, wherever located, whether tangible or intangible, and whether real, personal or mixed. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission. "Distribution" has the meaning set forth in the Recitals to this Agreement. "Distribution Agent" means Mellon Investor Services LLC in its capacity as agent for DVD in connection with the Distribution. "Distribution Date" means the date upon which the Distribution shall be effective, as determined by the Board of Directors of DVD. "DVD Business" means the business conducted by DVD and its subsidiaries, joint ventures and partnerships, other than the Gaming & Entertainment Business. "DVD Class A Common Stock" means the outstanding shares of class A common stock, $.10 par value, of DVD. "DVD Common Stock" means the outstanding shares of common stock, $.10 par value, of DVD. "DVD Group" means DVD and its subsidiaries, joint ventures and partnerships, excluding any member of the Gaming & Entertainment Group. "DVD Liabilities" means (i) Liabilities of any member of the DVD Group under this Agreement or any Ancillary Agreement, and (ii) Liabilities, other than Gaming & Entertainment Liabilities, incurred in connection with the operation of the DVD Business, whether arising before, at or after the Effective Time. "Effective Time" means 5:00 p.m. New York time on the Distribution Date. "Employee Benefits Agreement" means the Employee Benefits Agreement entered into at or prior to the Effective Time between DVD, Gaming & Entertainment and Slots, as amended from time to time. "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2 "Form 10" means the Registration Statement on Form 10 filed by Gaming & Entertainment with the Commission pursuant to the Exchange Act. "Gaming & Entertainment Business" means the Gaming Business which will be conducted by the Gaming & Entertainment Group at and after the Effective Time. "Gaming & Entertainment Bylaws" means the bylaws of Gaming & Entertainment in the form filed as an exhibit to the Form 10 at the time they become effective. "Gaming & Entertainment Class A Common Stock" means the outstanding shares of common stock, no par value, of Gaming & Entertainment. "Gaming & Entertainment Common Stock" means the outstanding shares of common stock, no par value, of Gaming & Entertainment. "Gaming & Entertainment Group" means Gaming & Entertainment and any of its subsidiaries and any other subsidiary or division of any member of the DVD Group that, immediately prior to the Effective Time, is included in the operations of the Gaming & Entertainment Business. "Gaming & Entertainment Liabilities" means (a) Liabilities of any member of the Gaming & Entertainment Group under this Agreement or any Ancillary Agreement, and (b) except as otherwise expressly provided in this Agreement or any Ancillary Agreement, Liabilities incurred in connection with the conduct or operation of the Gaming & Entertainment Business or the ownership of the Slots Stock, whether arising before, at or after the Effective Time. "Gaming Business Assets" mean all Assets used or useful in the conduct of the Gaming Business. "Group" means the DVD Group or the Gaming & Entertainment Group, as the context so requires. "Indemnifiable Loss" means any and all damage, loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses) in connection with any and all Actions or threatened Actions indemnifiable pursuant to Article IV. "Information Statement" means that certain Information Statement filed by Gaming & Entertainment with the Securities and Exchange Commission and provided to DVD shareholders, pursuant to the Exchange Act. "Liabilities" means any and all claims, debts, liabilities and obligations, absolute or contingent, matured or not matured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses relating thereto, and including, without limitation, those debts, liabilities and obligations arising under this Agreement or any Ancillary Agreement, any law, rule, regulation, action, order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking. "Prime Rate" means the prime rate of interest as determined from time to time by PNC Bank, Delaware. 3 "Real Property Agreement" means the Real Property Agreement entered into at or prior to the Effective Time between certain Subsidiaries of DVD and Slots. "Record Date" means the date designated by DVD's Board of Directors as the record date for determining the shareholders of DVD entitled to receive the Distribution. "Securities Act" means the Securities Act of 1933, as amended. "Slots" has the meaning set forth in the Recitals to this Agreement. "Slots Stock" means the capital stock of Slots to be transferred at or prior to the Effective Time by DVD to Gaming & Entertainment. "Tax" shall have the meaning given to such term in the Tax Sharing Agreement. "Tax Sharing Agreement" means the Tax Sharing Agreement entered into at or before the Effective Time between DVD and Gaming & Entertainment, as amended from time to time. "Transition Support Services Agreement" means the Transition Support Services Agreement entered into at or prior to the Effective Time between DVD and Gaming & Entertainment, as amended from time to time. ARTICLE II REORGANIZATION; TRANSFER OF SLOTS STOCK; ASSETS AND LIABILITIES; AND TRANSITION ARRANGEMENTS Section 2.01 Reorganization. At or before the Effective Time the following transactions shall occur: (a) DVD shall contribute to Gaming & Entertainment all of the Slots Stock, in exchange for a number of shares of Gaming & Entertainment Common Stock and Gaming & Entertainment Class A Common Stock that when combined with the shares of Gaming & Entertainment Common Stock and Gaming & Entertainment Class A Common Stock then owned by DVD shall equal .7 multiplied by the then outstanding number of shares of DVD Common Stock in the case of Gaming & Entertainment Common Stock and DVD Class A Common Stock in the case of Gaming & Entertainment Class A Common Stock. (b) the DVD Intercompany Balance (as defined in Section 8.03 below) shall be adjusted as provided in Section 8.03 below. (c) certain real property transfers, leases and cross easements involving Slots and certain Subsidiaries of DVD shall be effected in accordance with the terms and conditions of the Real Property Agreement. (d) DVD shall contribute to its wholly-owned Subsidiary, Dover Downs International Speedway, Inc. ("Speedway") all of the capital stock of three of its wholly owned Subsidiaries: Grand Prix Association of Long Beach, Inc., Nashville Speedway, U.S.A., Inc., and Dover Downs Properties, Inc. (the "Non- Gaming Subsidiaries"). DVD shall also contribute to Speedway any intercompany receivables owed to DVD by the Non-Gaming Subsidiaries or any of their Subsidiaries. 4 Section 2.02 Assets and Liabilities. Except as otherwise expressly provided in this Agreement or in any of the Ancillary Agreements, DVD and Gaming & Entertainment covenant and agree that: (a) Gaming & Entertainment shall at and after the Effective Time be responsible for timely payment and discharge of all of the Gaming & Entertainment Liabilities. (b) DVD shall at and after the Effective Time be responsible for timely payment and discharge of all of the DVD Liabilities. (c) It is the understanding of the parties hereto that as of the date hereof and immediately prior to the Effective Time, there are and will be no Gaming Business Assets that are not Assets of Slots, there are and will be no Gaming & Entertainment Liabilities that are not Liabilities of Slots, and there are and will be no Assets or Liabilities of Slots or Gaming & Entertainment other than the Gaming Business Assets and Gaming & Entertainment Liabilities; however, in the event that any conveyance of an Asset or assumption of a Liability is required to reflect this understanding and is not effected at or before the Effective Time, the obligation to transfer such Asset and assume such Liability shall continue past the Effective Time and shall be accomplished as soon thereafter as practicable. (d) If any Asset may not be transferred by reason of the requirement to obtain the consent of any third party and such consent has not been obtained by the Effective Time, then such Asset shall not be transferred until such consent has been obtained, and DVD and Gaming & Entertainment, as the case may be, shall cause the owner of such Asset to use all reasonable efforts to provide to the appropriate member of the other Group all the rights and benefits associated with such Asset. Both parties shall otherwise cooperate and use all reasonable efforts to provide the economic and operational equivalent of an assignment or transfer of the Asset. (e) From and after the Effective Time, each party shall promptly transfer or cause the members of its Group promptly to transfer to the other party or the appropriate member of the other party's Group, from time to time, any property received that is an Asset of the other party or a member of its Group. Without limiting the foregoing, funds received by a member of one Group upon the payment of accounts receivable that belong to a member of the other Group shall be transferred to the other Group by check or wire transfer not more than five business days after receipt of such payment. (f) Except as expressly set forth in this Agreement or any Ancillary Agreement, or in any instrument or document contemplated by this Agreement or any Ancillary Agreement, no member of the DVD Group nor any member of the Gaming & Entertainment Group has made or may be deemed to have made any representation or warranty as to (i) the Assets, business or Liabilities retained, transferred or assumed as contemplated hereby or thereby, (ii) any consents or approvals required in connection with the transfer or assumption by such party of any Asset or Liability contemplated hereby or thereby, (iii) the value or freedom from any lien, claim, equity or other encumbrance of, or any other matter concerning, any Assets of such party or (iv) the absence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other Asset of such party. EXCEPT AS MAY BE EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, ALL ASSETS WERE, OR ARE BEING, TRANSFERRED, OR ARE BEING RETAINED ON AN "AS IS", "WHERE IS" BASIS AND THE RESPECTIVE TRANSFEREES WILL BEAR THE ECONOMIC AND LEGAL RISKS THAT ANY CONVEYANCE SHALL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE A TITLE 5 TITLE THAT IS FREE AND CLEAR OF ANY LIEN, CLAIM, EQUITY OR OTHER ENCUMBRANCE. Section 2.03 Ancillary Agreements. At or before the Effective Time, DVD and Gaming & Entertainment will execute and deliver or cause to be executed and delivered: (a) A duly executed Employee Benefits Agreement; (b) A duly executed Tax Sharing Agreement; (c) A duly executed Transition Support Services Agreement; (d) A duly executed Real Property Agreement; and (e) Such other agreements, leases, documents or instruments as the parties may agree are necessary or desirable in order to achieve the purposes hereof. Section 2.04 Issuance of Gaming & Entertainment Common Stock. At the Effective Time and in exchange for the transfer by DVD to Gaming & Entertainment of the Slots Stock as provided in this Agreement, Gaming & Entertainment will issue and deliver to DVD certificates representing the number of shares of Gaming & Entertainment Common Stock and Gaming & Entertainment Class A Common Stock as are required by Section 2.01 (a) hereto. Section 2.05 Insurance. (a) If the Distribution occurs, Gaming & Entertainment will use its best efforts to procure and maintain directors' and officers' liability insurance coverage in commercially reasonable amounts consistent with industry practice with respect to directors and officers of DVD who will become directors and officers within the Gaming & Entertainment Group as of the Distribution Date for acts of such directors and officers as members within the Gaming & Entertainment Group for periods from and after the Distribution Date. (b) If the Distribution occurs, DVD will use its best efforts to maintain directors' and officers' liability insurance coverage in commercially reasonable amounts consistent with industry practice for a period of five years from the Distribution Date with respect to the directors and officers of DVD who will become directors and officers of members of the Gaming & Entertainment Group as of the Distribution Date for acts of such directors and officers as members of the DVD Group during periods prior to the Distribution Date. ARTICLE III THE DISTRIBUTION Section 3.01 Cooperation Prior to the Distribution. (a) DVD and Gaming & Entertainment shall prepare, and Gaming & Entertainment shall mail to the holders of DVD Common Stock, the Information Statement, which shall set forth appropriate disclosures concerning Gaming & Entertainment, the Distribution and any other appropriate matters. 6 (b) DVD shall, as the sole shareholder of Gaming & Entertainment, approve, and Gaming & Entertainment shall adopt, the Gaming & Entertainment employee benefit plans contemplated by the Employee Benefits Agreement and DVD and Gaming & Entertainment shall cooperate in preparing, filing with the Commission under the Securities Act or the Exchange Act and causing to become effective any registration statements or amendments thereto that are appropriate to reflect the establishment of or amendments to any employee benefit plan of Gaming & Entertainment contemplated by the Employee Benefits Agreement. (c) DVD and Gaming & Entertainment shall take all such action as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States in connection with the transactions contemplated by this Agreement or any Ancillary Agreement. (d) Gaming & Entertainment shall prepare, file and use its best efforts to cause to be approved prior to the Record Date, the application to permit listing, subject to official notice of issuance, of the Gaming & Entertainment Common Stock on the New York Stock Exchange or such other quotation system as the Gaming & Entertainment Board of Directors shall deem appropriate. (e) DVD shall use its best efforts to cause the DVD Common Stock to remain listed on the New York Stock Exchange. Section 3.02 DVD Board Action; Conditions Precedent to the Distribution. DVD's Board of Directors, or a duly appointed committee thereof, shall, in its sole discretion, establish the Record Date and the Distribution Date and any appropriate procedures in connection with the Distribution. In no event shall the Distribution occur unless the following conditions shall have been satisfied: (a) all necessary regulatory approvals shall have been received; (b) the Form 10 shall have become effective under the Exchange Act; (c) the Gaming & Entertainment Board of Directors, as named in the Form 10, shall have been elected by DVD as sole shareholder of Gaming & Entertainment, and the Gaming & Entertainment Bylaws shall have been adopted and be in effect; (d) the Gaming & Entertainment Common Stock shall have been approved for listing on the New York Stock Exchange, subject to official notice of issuance, or such other exchange or quotation system as the Gaming & Entertainment Board of Directors shall deem appropriate; (e) the DVD Common Stock shall remain listed on the New York Stock Exchange, or shall be listed on such other exchange or quotation system as the DVD Board of Directors shall deem appropriate; (f) the Information Statement forming part of the Form 10 referenced above shall have been mailed to all stockholders of DVD of record as of the Record Date; (g) no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Distribution shall be in effect; and (h) DVD shall have entered into an acceptable replacement credit facility with its lenders as contemplated by Section 8.03. Section 3.03 The Distribution. On or before the Distribution Date, subject to satisfaction or waiver of the conditions set forth in this Agreement, DVD shall deliver to the Distribution Agent 7 certificates representing all of the then outstanding shares of Gaming & Entertainment Common Stock and Gaming & Entertainment Class A Common Stock held by DVD, endorsed in blank, and shall instruct the Distribution Agent, except as otherwise provided in Section 3.04, to distribute to each holder of record of (a) DVD Common Stock on the Record Date .7 shares of Gaming & Entertainment Common Stock for each share of DVD Common Stock so held and (b) DVD Class A Common Stock on the Record Date .7 shares of Gaming & Entertainment Common Stock for each share of DVD Class A Common Stock so held, in each case either by crediting the holder's brokerage account or by delivering a certificate or certificates representing such shares. Gaming & Entertainment agrees to provide all certificates for shares of Gaming & Entertainment Common Stock and Gaming & Entertainment Class A Common Stock that the Distribution Agent shall require in order to effect the Distribution. Section 3.04 Fractional Shares. The Distribution Agent shall not distribute any fractional share of Gaming & Entertainment Common Stock or Gaming & Entertainment Class A Common Stock. The Distribution Agent shall aggregate all such fractional shares and sell them in an orderly manner after the Distribution Date in the open market and, after completion of such sales, distribute a pro rata portion of the proceeds from such sales, based upon the average gross selling price of all such Gaming & Entertainment Common Stock, less a pro rata portion of the aggregate brokerage commissions payable in connection with such sales, to each holder of DVD Common Stock or Gaming & Entertainment Class A Common Stock who would otherwise have received a fractional share of Gaming & Entertainment Common Stock or Gaming & Entertainment Class A Common Stock in the Distribution. ARTICLE IV INDEMNIFICATION Section 4.01 Gaming & Entertainment Indemnification of the DVD Group. If the Distribution occurs, on and after the Effective Time, Gaming & Entertainment shall indemnify, defend and hold harmless each member of the DVD Group, and each of their respective directors, officers, employees and agents (the "DVD Indemnitees") from and against any and all Indemnifiable Losses incurred or suffered by any of the DVD Indemnitees and arising out of, or due to, (a) the failure of Gaming & Entertainment or any member of the Gaming & Entertainment Group to pay, perform or otherwise discharge, any of the Gaming & Entertainment Liabilities and (b) any untrue statement or alleged untrue statement of any material fact contained in the preliminary or final Form 10, the preliminary or final Information Statement or any amendment or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (other than the information provided by DVD for use therein). Section 4.02 DVD Indemnification of Gaming & Entertainment Group. If the Distribution occurs, on and after the Effective Time, DVD shall indemnify, defend and hold harmless each member of the Gaming & Entertainment Group and each of their respective directors, officers, employees and agents (the "Gaming & Entertainment Indemnitees") from and against any and all Indemnifiable Losses incurred or suffered by any of the Gaming & Entertainment Indemnitees and arising out of, or due to, (a) the failure of DVD or any member of the DVD Group to pay, perform or otherwise discharge, any of the DVD Liabilities and (b) any untrue statement or alleged untrue statement of any material fact contained in the preliminary or final Form 10, the preliminary or final Information Statement or any amendment or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading based on information provided by DVD for use therein. 8 Section 4.03 General Mutual Indemnity. DVD and Gaming & Entertainment shall indemnify and hold each other harmless from and against any Indemnifiable Losses, which may be imposed or incurred as a result of litigation in which DVD or Gaming & Entertainment is a party by virtue of their prior corporate affiliation and not as a result of or attributable to the indemnified party's fault or participation. DVD and Gaming & Entertainment shall promptly notify each other, as the case may be, of the existence of any claim against the other as a result of the aforesaid circumstances and shall give the indemnifying party reasonable opportunity to defend such litigation at such party's expense and with counsel of its own selection; in which case the indemnifying party shall have the right reasonably to control the defense or settlement of such claim, provided that the indemnified party shall at all times have the right to fully participate in such defense at its own expense. If the indemnifying party shall, within a reasonable time after such notice, fail to defend, the indemnified party shall have the right (but not the obligation) at the expense (including reasonable legal fees and expenses) of the indemnifying party, to undertake the defense of and to compromise or settle, exercising reasonable business judgment, such litigation on behalf, for the account, and at the risk of the indemnifying party. In the event of such litigation, each party shall make available all information and assistance as the other party may reasonably request. Section 4.04 Insurance and Third Party Obligations. No insurer or any other third party shall be, by virtue of the foregoing indemnification provisions (a) entitled to a benefit it would not be entitled to receive in the absence of such provisions, (b) relieved of the responsibility to pay any claims to which it is obligated, or (c) entitled to any subrogation rights with respect to any obligation hereunder. ARTICLE V INDEMNIFICATION PROCEDURES Section 5.01 Notice and Payment of Claims. If any DVD Indemnitee or Gaming & Entertainment Indemnitee (the "Indemnified Party") determines that it is or may be entitled to indemnification by a party (the "Indemnifying Party") under Article IV (other than in connection with any Action or claim subject to Section 5.02), the Indemnified Party shall deliver to the Indemnifying Party a written notice specifying, to the extent reasonably practicable, the basis for its claim for indemnification and the amount for which the Indemnified Party reasonably believes it is entitled to be indemnified. After the Indemnifying Party shall have been so notified, the Indemnifying Party shall, within 30 days after receipt of such notice, pay the Indemnified Party such amount in cash or other immediately available funds (or reach agreement with the Indemnified Party as to a mutually agreeable alternative payment schedule) unless the Indemnifying Party objects to the claim for indemnification or the amount thereof. If the Indemnifying Party does not give the Indemnified Party written notice objecting to such claim and setting forth the grounds therefor within the same 30 day period, the Indemnifying Party shall be deemed to have acknowledged its liability for such claim and the Indemnified Party may exercise any and all of its rights under applicable law to collect such amount. Any amount owed under this Section 5.01 that is not paid within such 30 day period, or is otherwise past due, shall bear interest at a simple rate of interest per annum equal to the Prime Rate. Section 5.02 Notice and Defense of Third Party Claims. Promptly following the earlier of (a) receipt of notice of the commencement by a third party of any Action against or otherwise involving any Indemnified Party or (b) receipt of information from a third party alleging the existence of a claim against an Indemnified Party, in either case with respect to which indemnification may be sought pursuant to this Agreement (a "Third Party Claim"), the Indemnified Party shall give the Indemnifying 9 Party written notice thereof. The failure of the Indemnified Party to give notice as provided in this Section 5.02 shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent that the Indemnifying Party is prejudiced by such failure to give notice. Within 30 days after receipt of such notice, the Indemnifying Party shall by giving written notice thereof to the Indemnified Party (a) acknowledge, as between the parties hereto, liability for, and at its option assumption of the defense of such Third Party Claim at its sole cost and expense or (b) object to the claim of indemnification set forth in the notice delivered by the Indemnified Party pursuant to the first sentence of this Section 5.02 setting forth the grounds therefor; provided that if the Indemnifying Party does not within the same 30 day period give the Indemnified Party written notice acknowledging liability and electing to assume the defense or objecting to such claim and setting forth the grounds therefor, the Indemnifying Party shall be deemed to have acknowledged, as between the parties hereto, its liability to the Indemnified Party for such Third Party Claim. Any contest of a Third Party Claim as to which the Indemnifying Party has elected to assume the defense shall be conducted by attorneys employed by the Indemnifying Party and reasonably satisfactory to the Indemnified Party; provided that the Indemnified Party shall have the right to participate in such proceedings and to be represented by attorneys of its own choosing at the Indemnified Party's sole cost and expense. If the Indemnifying Party assumes the defense of a Third Party Claim, the Indemnifying Party may settle or compromise the claim without the prior written consent of the Indemnified Party; provided that the Indemnifying Party may not agree to any such settlement pursuant to which any remedy or relief, other than monetary damages for which the Indemnifying Party shall be responsible hereunder, shall be applied to or against the Indemnified Party, without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld. If the Indemnifying Party does not assume the defense of a Third Party Claim for which it has acknowledged liability for indemnification under Article IV, the Indemnified Party may require the Indemnifying Party to reimburse it on a current basis for its reasonable expenses of investigation, reasonable attorney's fees and reasonable out-of-pocket expenses incurred in defending against such Third Party Claim and the Indemnifying Party shall be bound by the result obtained with respect thereto by the Indemnified Party; provided that the Indemnifying Party shall not be liable for any settlement effected without its consent, which consent shall not be unreasonably withheld. The Indemnifying Party shall pay to the Indemnified Party in cash the amount for which the Indemnified Party is entitled to be indemnified (if any) within 15 days after the final resolution of such Third Party Claim (whether by the final nonappealable judgment of a court of competent jurisdiction or otherwise), or, in the case of any Third Party Claim as to which the Indemnifying Party has not acknowledged liability, within 15 days after such Indemnifying Party's objection has been resolved by settlement, compromise or the final nonappealable judgment of a court of competent jurisdiction. ARTICLE VI EMPLOYEE MATTERS Section 6.01 Employee Benefits Agreement. All matters relating to or arising out of any employee benefit, compensation or welfare arrangement in respect of any employee of Gaming & Entertainment or Slots shall be governed by the Employee Benefits Agreement. In the event of any inconsistency between the Employee Benefits Agreement, this Agreement or any other Ancillary Agreement, the Employee Benefits Agreement shall govern. Section 6.02 Dual Employees. Several current executive officers of DVD will be executive officers of both DVD and Gaming & Entertainment immediately after the Distribution Date. Each such executive officer's DVD options will be adjusted as provided in the Employee Benefits Agreement. 10 ARTICLE VII TAX MATTERS Section 7.01 Tax Sharing Agreement. All matters relating to Taxes shall be governed exclusively by the Tax Sharing Agreement. In the event of any inconsistency between the Tax Sharing Agreement, this Agreement or any other Ancillary Agreement, the Tax Sharing Agreement shall govern. ARTICLE VIII ACCOUNTING MATTERS Section 8.01 Allocation of Prepaid Items and Reserves. All prepaid items and reserves that have been maintained by DVD on a consolidated basis but that relate in part to Assets or Liabilities of Slots or the Gaming Business shall be allocated between DVD and Gaming & Entertainment as determined by DVD in its reasonable discretion. Section 8.02 Accounting Treatment. The transfer by DVD of Slots Stock and any other Gaming Business Assets to Gaming & Entertainment pursuant to this Agreement or the Real Property Agreement shall constitute a capital contribution by DVD to Gaming & Entertainment. Section 8.03 Cancellation of Intercompany Accounts and New Credit Facilities. As used herein, "DVD Intercompany Balance" means the net intercompany account receivable owed by Slots to DVD as of the Effective Time. On or before the Distribution Date, the DVD Intercompany Balance will be cancelled. In addition, DVD's existing credit facility will be replaced with two new facilities, one established by DVD and one established by Gaming & Entertainment. The existing credit facility is guaranteed by all of the subsidiaries of DVD, including Slots. $39 million of the amount outstanding will be paid off through the replacement credit facility established by Gaming & Entertainment and the balance will be paid off through the replacement credit facility established by DVD. ARTICLE IX REAL PROPERTY MATTERS Section 9.01 Real Property Agreement. All matters relating to real property transfers, leases and cross easements involving Slots and certain Subsidiaries of DVD relative to the facility located in Dover, Delaware shall be governed exclusively by the Real Property Agreement. In the event of any inconsistency between the Real Property Agreement, this Agreement or any other Ancillary Agreement, the Real Property Agreement shall govern. ARTICLE X TRANSITION SUPPORT Section 10.01 Transition Support Services Agreement. All matters relating to the provision of support services by the DVD Group to the Gaming & Entertainment Group after the Effective Time shall be governed exclusively by the Transition Support Services Agreement. In the event of any 11 inconsistency between the Transition Support Agreement, this Agreement or any other Ancillary Agreement, the Transition Support Services Agreement shall govern. ARTICLE XI INFORMATION Section 11.01 Provision of Corporate Records. As soon as practicable following the Effective Time, DVD and Gaming & Entertainment shall each arrange for the provision to the other of existing corporate documents (e.g. minute books, stock registers, stock certificates, documents of title, contracts, etc.) in its possession relating to the other or its business and affairs or to any other entity that is part of such other's respective Group or to the business and affairs of such other entity. Section 11.02 Access to Information. From and after the Effective Time, DVD and Gaming & Entertainment shall each afford the other and its accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information in its possession relating to the business and affairs of the other or a member of its Group (other than data and information subject to an attorney/client or other privilege), insofar as such access is reasonably required by the other including, without limitation, for audit, accounting and litigation purposes. Section 11.03 Litigation Cooperation. DVD and Gaming & Entertainment shall each use reasonable efforts to make available to the other, upon written request, its officers, directors, employees and agents, and the officers, directors, employees and agents of its subsidiaries, as witnesses to the extent that such persons may reasonably be required in connection with any legal, administrative or other proceedings arising out of the business of the other, or of any entity that is part of the others' respective Group, prior to the Effective Time in which the requesting party or one of its subsidiaries may from time to time be involved. Section 11.04 Retention of Records. Except as otherwise required by law or agreed to in writing, each party shall, and shall cause the members of its Group to, retain all information relating to the other's business in accordance with the past practice of such party. Notwithstanding the foregoing, either party may destroy or otherwise dispose of any information at any time in accordance with the corporate record retention policy maintained by such party with respect to its own records. Section 11.05 Confidentiality. Each party shall, and shall cause each member of its Group to, hold and cause its directors, officers, employees, agents, consultants and advisors to hold, in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all information concerning the other party (except to the extent that such information can be shown to have been (a) in the public domain through no fault of such disclosing party or (b) lawfully acquired after the Effective Time on a non-confidential basis from other sources by the disclosing party), and neither party shall release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors who shall be advised of the provisions of this Section 10.05 and be bound by them. Each party shall be deemed to have satisfied its obligation to hold confidential information concerning or supplied by the other party if it exercises the same care as it takes to preserve confidentiality for its own similar information. 12 ARTICLE XII INTEREST ON PAYMENTS Section 12.01 Interest. Except as otherwise expressly provided in this Agreement or an Ancillary Agreement, all payments by one party to the other under this Agreement or any Ancillary Agreement shall be paid, by check or wire transfer of immediately available funds to an account in the United States designated by the recipient, within 30 days after receipt of an invoice or other written request for payment setting forth the specific amount due and a description of the basis therefor in reasonable detail. Any amount remaining unpaid beyond its due date, including disputed amounts that are ultimately determined to be payable, shall bear interest at a rate of simple interest per annum equal to the Prime Rate. ARTICLE XIII MISCELLANEOUS Section 13.01 Expenses. Except as specifically provided in this Agreement or any Ancillary Agreement and except as to salaries of any persons who as of the Effective Time are employees of both DVD and Gaming & Entertainment, all costs and expenses incurred prior to the Effective Time in connection with the preparation, execution, delivery and implementation of this Agreement and the Ancillary Agreements and with the consummation of the transactions contemplated by this Agreement (including transfer taxes and the fees and expenses of the Distribution Agent and of all counsel, accountants and financial and other advisors) shall be paid by DVD and all such costs incurred at or after the Effective Time shall be paid by the party incurring such costs. Section 13.02 Notices. All notices and communications under this Agreement shall be deemed to have been given (a) when received, if such notice or communication is delivered by facsimile, hand delivery or overnight courier, and, (b) three (3) business days after mailing if such notice or communication is sent by United States registered or certified mail, return receipt requested, first class postage prepaid. All notices and communications, to be effective, must be properly addressed to the party to whom the same is directed at its address as set forth in the Information Statement. Either party may, by written notice delivered to the other party in accordance with this Section 13.02, change the address to which delivery of any notice shall thereafter be made. Section 13.03 Amendment and Waiver. This Agreement may not be altered or amended, nor may any rights hereunder be waived, except by an instrument in writing executed by the party or parties to be charged with such amendment or waiver. No waiver of any terms, provision or condition of or failure to exercise or delay in exercising any rights or remedies under this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, provision, condition, right or remedy or as a waiver of any other term, provision or condition of this Agreement. Section 13.04 Entire Agreement. This Agreement, together with the Ancillary Agreements, constitutes the entire understanding of the parties hereto with respect to the subject matter hereof, superseding all negotiations, prior discussions and prior agreements and understandings relating to such subject matter. To the extent that the provisions of this Agreement are inconsistent with the provisions of any Ancillary Agreement, the provisions of such Ancillary Agreement shall prevail with respect to the subject matter hereof. 13 Section 13.05 Parties in Interest. Neither of the parties hereto may assign its rights or delegate any of its duties under this Agreement without the prior written consent of the other party. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. Nothing contained in this Agreement, express or implied, is intended to confer any benefits, rights or remedies upon any person or entity other than members of the DVD Group and the Gaming & Entertainment Group and the DVD Indemnitees and Gaming & Entertainment Indemnitees under Articles IV and V hereof. Section 13.06 Further Assurances and Consents. In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto will use its reasonable efforts to (a) execute and deliver such further instruments and documents and take such other actions as any other party may reasonably request in order to effectuate the purposes of this Agreement and to carry out the terms hereof and (b) take, or cause to be taken, all actions, and do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements or otherwise to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, using its reasonable efforts to obtain any consents and approvals, make any filings and applications and remove any liens, claims, equity or other encumbrance on an Asset of the other party necessary or desirable in order to consummate the transactions contemplated by this Agreement; provided that no party hereto shall be obligated to pay any consideration therefor (except for filing fees and other similar charges) to any third party from whom such consents, approvals and amendments are requested or to take any action or omit to take any action if the taking of or the omission to take such action would be unreasonably burdensome to the party or its Group or the business thereof. Section 13.07 Severability. The provisions of this Agreement are severable and should any provision hereof be void, voidable or unenforceable under any applicable law, such provision shall not affect or invalidate any other provision of this Agreement, which shall continue to govern the relative rights and duties of the parties as though such void, voidable or unenforceable provision were not a part hereof. Section 13.08 Governing Law. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Delaware, without regard to the conflicts of law rules of such state. Section 13.09 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute but one and the same Agreement. Section 13.10 Disputes. (a) All disputes arising from or in connection with this Agreement including, without limitation, any arising from Articles IV or V hereof, whether based on contract, tort, statute or otherwise, including, but not limited to, disputes in connection with claims by third parties (collectively, "Disputes"), shall be resolved only in accordance with the provisions of this Section 12.10; provided, however, that nothing contained herein shall preclude either party from seeking or obtaining (i) injunctive relief to prevent an actual or threatened breach of any of the provisions of this Agreement, or (ii) equitable or other judicial relief to enforce the provisions of this Section 12.10 hereof or to preserve the status quo pending resolution of Disputes hereunder. 14 (b) Either party may give the other party written notice of any Dispute not resolved in the normal course of business. Within 10 days after delivery of the notice of a Dispute, the receiving party shall submit to the other a written response. The notice and the response shall include a statement of such party's position and a summary of arguments supporting that position and the name and title of the executive who will represent that party and of any other person who will accompany such executive in resolving the Dispute. Within twenty (20) days after delivery of the first notice, the executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, and shall negotiate in good faith to attempt to resolve the Dispute. All reasonable requests for information made by one party to the other will be honored. (c) If the Dispute has not been resolved by negotiation within sixty (60) days of the first party's notice, the Dispute shall be submitted, upon application of either party, for resolution by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "Rules"). Arbitration shall be by a single arbitrator experienced in the matters that are at issue in the Dispute, which arbitrator shall be selected by the parties in accordance with the Rules. The arbitration shall be conducted in Dover, Delaware. The decision of the arbitrator shall be final and binding as to all matters at issue in the Dispute; provided, however, if necessary such decision may be enforced by either party in any court of law having jurisdiction over the parties or the subject matter of the Dispute. Unless the arbitrator shall assess the costs and expenses of the arbitration proceeding and of the parties differently, each party shall pay its costs and expenses incurred in connection with the arbitration proceeding, and the costs and expenses of the arbitrator shall be shared equally by the parties. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. Dover Downs Entertainment, Inc. By: /s/ Denis McGlynn ------------------------------- Name: Denis McGlynn Its: President Dover Downs Gaming & Entertainment, Inc. By: /s/ Denis McGlynn ------------------------------- Name: Denis McGlynn Its: President 15 EX-10.1 4 dex101.txt EMPLOYEE BENEFITS AGREEMENT EXHIBIT 10.1 EMPLOYEE BENEFITS AGREEMENT THIS EMPLOYEE BENEFITS AGREEMENT ("Agreement") is made as of the 15th day of Janaury 2002 by and between Dover Downs Entertainment, Inc., a Delaware corporation ("DVD") and Dover Downs Gaming & Entertainment, Inc., a Delaware corporation ("Gaming & Entertainment"). RECITALS WHEREAS, Dover Downs, Inc., a Delaware corporation ("Slots") is a wholly-owned subsidiary of DVD and a member of a Controlled Group (as hereinafter defined) that includes DVD; WHEREAS, DVD has formed Gaming & Entertainment as a wholly-owned subsidiary of DVD and the board of directors of DVD has approved the transfer, as a capital contribution, of all of the issued and outstanding capital stock of Slots to Gaming & Entertainment, followed by the distribution of all of the issued and outstanding shares of capital stock of Gaming & Entertainment to the holders of the issued and outstanding shares of capital stock of DVD ("the Spinoff"); WHEREAS, the parties desire to set forth the terms and conditions pursuant to which Gaming & Entertainment and/or Slots shall provide various employee benefits to those Employees (as hereinafter defined) who remain employed by Slots on the Spinoff Date or who become employed by Gaming & Entertainment on the Spinoff Date or who thereafter become employed by Slots, Gaming & Entertainment or any subsidiary of Gaming & Entertainment; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE 1 DEFINITIONS 1.1 GENERAL. As used in this Agreement, capitalized terms defined immediately after their use shall have the respective meanings thereby provided, and the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): Action: any demand, action or cause of action, claim, suit, arbitration, inquiry, subpoena, discovery request, proceeding or investigation by or before any court or grand jury, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal related to, arising out of or resulting from any employee liability. Affiliate: with respect to any specified person, a person who, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified person; provided, that DVD and Gaming & Entertainment shall be deemed not to be Affiliates of each other for purposes of this Agreement. Code: the Internal Revenue Code of 1986, as it may be amended or recodified from time to time. Controlled Group: two or more business entities affiliated within the meaning of Code Sections 414(b), 414(c), 414(m) and/or 414(o). Dual Employee: An Employee of DVD immediately prior to the Spinoff Date who, on or after the Spinoff Date, becomes an Employee of Games and Entertainment while remaining an Employee of DVD or Slots. Employee Benefit Plans: (i) any severance, disability, cafeteria, bonus, stock option, stock appreciation, stock purchase, deferred compensation, or similar types of plans, agreements, policies or arrangements that currently are established, maintained or contributed to by DVD or Slots for the benefit of any former or present employees or their beneficiaries, dependents or spouses, and (ii) any employee welfare and employee pension benefit plans (as such terms are defined in Section 3(l) and 3(2), respectively, of ERISA) which are applicable to former or present Employees or their beneficiaries, dependents or spouses, and that currently are established, maintained or contributed to by DVD or Slots. Employee/labor Law: any federal, state, local or municipal law (including common law), statute, ordinance, regulation, order, decree, judgment, decision, ruling, permit or authorization (each as may be in effect, applicable and binding, from time to time) relating or applicable to the work place or to the employer/employee relationship including, without limitation, any of the foregoing relating or applicable to wage and hour claims, collective bargaining and labor laws, ERISA-governed employee benefit and welfare plans, federal, state and local tax withholding and payment rules and regulations, workers' compensation and similar laws, accrued vacation statutes, and sexual harassment and anti-discrimination laws. Employee Liability: any and all debts, charges, liabilities, warranties and obligations (of any nature or type whatsoever regardless of when arising), whether accrued, contingent or reflected on a balance sheet including, without limitation, liability for administrative, civil or criminal penalties or forfeitures, and attorneys' fees or other costs of defending an Action or a claim of Employee Liability under any Employee/Labor Law. Employees: Employees of Slots, Gaming & Entertainment or any of its subsidiaries on and after the Spinoff Date. ERISA: the Employee Retirement Income Security Act of 1974, as amended. Spinoff Date: The date the Spinoff is effective. 1.2 OTHER DEFINITIONS. Capitalized terms not specifically defined herein shall have the meanings ascribed thereto in the Agreement Regarding Distribution and 2 Plan of Reorganization of even date herewith by and between DVD and Gaming & Entertainment. ARTICLE 2 EMPLOYEES 2.1 CONDITIONS OF EMPLOYMENT. (a) Nothing in this Agreement shall require either Gaming & Entertainment or Slots to employ any person on or after the Spinoff Date; and (b) nothing in this Agreement shall be interpreted to prohibit or otherwise restrict Gaming & Entertainment or Slots from terminating the employment of any Employee, or from changing the salary or wage range, grade level or location of employment of any Employee, in accordance with their respective personnel policies and procedures following the Spinoff Date. Without limiting the generality of Section 5.9 hereof, no Employee or other person shall have any rights as a third party beneficiary under this Agreement. 2.2 CERTAIN PAYROLL DEDUCTIONS. Effective as of the Spinoff Date, to the extent (if any) required by applicable law, Gaming & Entertainment and/or Slots will assume DVD's obligation to comply with any garnishment order applicable to any Employee. Furthermore, if an Employee has any outstanding liability or obligation to DVD (for example, salary advances) which existed on the Spinoff Date, which has resulted in a special payroll deduction for such Employee, then, to the extent permitted under applicable law, Gaming & Entertainment and/or Slots will withhold such amounts for DVD's benefit from the Employee's compensation earned subsequent to the Spinoff Date. DVD will provide the special payroll deduction information or garnishment information at least fifteen (15) days prior to the date Gaming & Entertainment and/or Slots assumes payroll-processing responsibility for an Employee. ARTICLE 3 EMPLOYEE BENEFIT PLANS 3.1 WELFARE BENEFIT PLANS. DVD maintains various welfare benefits plans (as defined by Section 3(l) of ERISA). As of the date of the Spinoff, or as soon thereafter as is reasonably practicable, Gaming & Entertainment shall establish its own welfare benefits plans so that following the Spinoff, DVD and Gaming & Entertainment will each continue to sponsor their own separate welfare benefit plans, including medical and life insurance and disability benefits. With respect to Dual Employees, DVD and Gaming & Entertainment will determine which welfare benefit plans these employees will be permitted to participate in. 3.2 VACATION, HOLIDAY, SICK LEAVE AND SHORT-TERM DISABILITY POLICIES. Gaming & Entertainment shall credit all Employees (other than Dual Employees) for any accrued vacation, holiday and sick leave earned but not taken by such Employees with respect to their employment with DVD and/or Slots in the current year through the Spinoff Date; and Gaming & Entertainment shall be solely responsible for payment of such vacation, holiday and sick leave, and shall indemnify DVD and its Affiliates with respect to any 3 liability therefore. Any vacation, holiday or sick leave with respect to service on and after the Spinoff Date shall be credited in accordance with the vacation, holiday or sick leave policies adopted or maintained by Gaming & Entertainment effective on and after the Spinoff Date. If an Employee who transferred employment to Gaming & Entertainment is, on the Spinoff Date, on short-term disability or other approved leave of absence, Gaming & Entertainment shall assume responsibility for the payment of all benefits associated with such short-term disability or other approved leave of absence (including without limitation rights under the federal Family and Medical Leave Act) with respect to periods of time on and after the Spinoff Date and shall indemnify DVD and its Affiliates with respect to any liability therefore; provided that Gaming & Entertainment shall not provide lesser benefits than had been provided by DVD to such Employee with respect to any short-term disability or approved leave of absence existing at the Spinoff Date. 3.3 DVD PENSION PLAN. (a) Effective for service on and after the Spinoff Date, Gaming & Entertainment shall establish its own defined benefit Pension Plan (the "Gaming & Entertainment Pension Plan"), the benefit formula under which shall be substantially similar to that under the DVD Pension Plan. The foregoing sentence shall not be construed to limit the ability of Gaming & Entertainment in the future to amend or terminate its Pension Plan. Such Gaming & Entertainment Pension Plan shall afford credit for eligibility and vesting purposes for service prior to the Spinoff Date with DVD and/or Slots as if such service were service with Gaming & Entertainment. Gaming & Entertainment will promptly submit the Gaming & Entertainment Pension Plan to the Internal Revenue Service for a determination of its tax-exempt status. (b) As soon as practicable following the Spinoff Date and the establishment of the Gaming & Entertainment Pension Plan in such form as will, in the opinion of counsel to DVD, be qualified under section 401(a) of the Code, DVD and Gaming & Entertainment will provide for the transfer of plan assets and the transfer of liabilities, with respect to Former DVD or Slots employees (other than Dual Employees) who will, immediately after the Spinoff Date, become Gaming & Entertainment Employees, from the DVD Pension Plan to the Gaming & Entertainment Pension Plan. The amount of assets to be so transferred shall be determined as of the Spinoff Date by the actuary of the DVD Pension Plan consistent with the requirements of Section 414(l) of the Code and the regulations thereunder relating to spinoffs and mergers (the "Transfer Amount"). The Transfer Amount shall be adjusted by an agreed upon interest for the period from the Spinoff Date to the actual date of transfer. (c) No transfer of assets and liabilities from the DVD Pension Plan shall take place with respect to Dual Employees. Each such Dual Employee will retain his or her benefit under the DVD Pension Plan (and be able to accrue additional benefits thereunder after the Spinoff Date with respect to his or her continuing service and compensation as a DVD Employee), and be eligible to accrue benefits under the Gaming & Entertainment Pension Plan with respect to service and compensation as a Gaming & Entertainment Employee. (d) Any administrative, legal and actuarial work necessary for the transfer of assets and liabilities from the DVD Pension Plan shall be provided and paid for by DVD and any 4 administrative, legal and actuarial work necessary for the establishment of the Gaming & Entertainment Pension Plan, and the submission of the Gaming & Entertainment Pension Plan to the Internal Revenue Service for the determination of its tax-exempt status, shall be provided and paid for by Gaming & Entertainment. 3.4 DVD 401(K) PLAN. (a) Effective for service on and after the Spinoff Date, Gaming & Entertainment shall establish its own 401(k) Plan (the "Gaming and Entertainment 401(k) Plan), the contribution formula under which shall be substantially similar to that under the DVD 401(k) Plan. The foregoing sentence shall not be construed to limit the ability of Gaming & Entertainment in the future to amend or terminate its 401(k) Plan. Such Gaming & Entertainment 401(k) Plan shall afford credit for eligibility and vesting purposes for service prior to the Spinoff Date with DVD or Slots as if such service were service with Gaming & Entertainment. Gaming & Entertainment will promptly submit the Gaming & Entertainment 401(k) Plan to the Internal Revenue Service for a determination of its tax exempt status. (b) As soon as practicable following the Spinoff Date and the establishment of the Gaming & Entertainment 401(k) Plan in such form as will, in the opinion of counsel to DVD, be tax-qualified under sections 401(a) and 401(k) of the Code, DVD and Gaming & Entertainment will provide for the transfer of accounts of former DVD and Slots employees (but not Dual Employees) who will, immediately after the Spinoff Date, become employees of Gaming & Entertainment, from the DVD 401(k) Plan to the Gaming & Entertainment 401(k) Plan. The amounts so transferred shall equal the fair market value of each transferred participant's DVD 401(k) Plan account as of the valuation date immediately preceding the date of transfer ("transfer date"), which account shall be treated as fully vested as of the transfer date, and shall be adjusted to reflect any contributions, distributions, in-service withdrawals or participant loans contributed or received by the participant during the period between transfer date and the valuation date immediately preceding the transfer date. Assets shall be transferred entirely in (a) cash or other assets acceptable to the Gaming & Entertainment Plan's trustee and (b) notes which represent the participant loans of individuals whose DVD 401(k) Plan accounts are being transferred. (c) To the extent the investment options under the Gaming & Entertainment 401(k) Plan are the same as under the DVD 401(k) Plan, the accounts of participants described in subsection (b) will be transferred to and held in those same investment options under the Gaming & Entertainment 401(k) Plan. To the extent that investment options are different, participants' accounts will be either mapped into comparable investment options under the Gaming & Entertainment 401(k) Plan, or participants will be afforded the opportunity to choose the investment options into which their DVD 401(k) Plan account will be transferred, all as determined by the Plan administrator of the Gaming & Entertainment 401(k) Plan. (d) No transfer of account balances from the DVD 401(k) Plan shall take place with respect to Dual Employees. Each such Dual Employee will retain his or her account under the DVD 401(k) Plan and be able to continue to participate therein on and after the Spinoff Date with respect to his or her compensation as a DVD employee, and be eligible to participate, on 5 and after the Spinoff Date, in the Gaming & Entertainment 401(k) Plan with respect to compensation as a Gaming & Entertainment Employee. (e) Any administrative and legal work necessary for the transfer shall be provided by DVD and any administrative and legal work necessary for the establishment of the Gaming & Entertainment 401(K) Plan shall be provided by Gaming & Entertainment. 3.5 SEVERANCE LIABILITIES. Gaming & Entertainment acknowledges that the transactions contemplated by the Spinoff will not result in DVD being or becoming liable for any severance pay to any Employee and Gaming & Entertainment shall indemnify DVD in respect thereof. 3.6 2002 EMPLOYEE STOCK INCENTIVE PLAN. (a) On or before the Spinoff Date, Gaming & Entertainment shall adopt the Dover Downs Gaming & Entertainment, Inc. 2002 Employee Stock Incentive Plan in a form substantially similar to the DVD Employees Stock Incentive Plan (the "Gaming & Entertainment 2002 Plan"). (b) Following the completion of the Spinoff, Gaming & Entertainment Employees who are not also employees of DVD and have outstanding DVD options immediately prior to the effective date of the Spinoff will receive replacement options of Gaming & Entertainment under the Gaming & Entertainment 2002 Plan equivalent in value to the DVD stock options at such time as follows: Each Employee of Gaming & Entertainment with outstanding DVD options will be granted replacement Gaming & Entertainment options with the exercise price determined by multiplying the Average Percentage (as defined below) times the original exercise price, and the number of shares subject to such replacement grant determined by dividing the number of shares subject to options currently held by the Average Percentage. "Average Percentage" shall mean Gaming & Entertainment's opening stock price on the New York Stock Exchange ("NYSE") multiplied by .7, or if the Gaming & Entertainment common stock is not traded on the NYSE, such other exchange or quotation system on which it is traded, on the first trading day after the effective date of the Spinoff divided by the sum of (i) the stock price of DVD and (ii) the stock price of Gaming & Entertainment multiplied by .7, in each case on the first trading day after the effective date of the Spinoff. (c) Each Dual Employee who holds outstanding DVD options will receive replacement grants for a certain number of such outstanding options under the Gaming & Entertainment 2002 Plan equivalent in value to the options surrendered for cancellation to DVD pursuant to the terms set forth in a Cancellation Agreement entered into by such Dual Employee and DVD. The number of DVD options to be surrendered in exchange for Gaming & Entertainment options shall be calculated by multiplying the number of such employees' DVD options by the Average Percentage defined in Section 3.6 (b) above. 6 ARTICLE 4 INDEMNIFICATION 4.1 INDEMNIFICATION. In addition to the indemnity obligations set forth in Section 3.2 hereof, Gaming & Entertainment and/or Slots agree to indemnify, defend, reimburse and hold harmless DVD and its Affiliates, and the officers, directors, employees, agents and representatives of DVD and its Affiliates (each, a "DVD Indemnified Party"), from and against any and all Actions, assessments, losses, damages, liabilities, costs and reasonable expenses including, without limitation, interest, penalties, fines, excise taxes and reasonable attorneys' fees and expenses, asserted against or imposed upon or incurred by any DVD Indemnified Party which result from, arise out of or are related to any failure by Gaming & Entertainment and/or Slots to comply with the terms of this Employee Benefits Agreement. DVD agrees to indemnify, defend, reimburse and hold harmless Gaming & Entertainment and its Affiliates, and the officers, directors, employees, agents and representatives of said companies (each, a "Gaming & Entertainment Indemnified Party"), from and against any and all Actions, assessments, losses, damages, liabilities, costs and reasonable expenses including, without limitation, interest, penalties, fines, excise taxes and reasonable attorneys' fees and expenses, asserted against or imposed upon or incurred by any Gaming & Entertainment Indemnified Party which result from, arise out of or are related to any failure on the part of DVD to comply with the terms of this Employee Benefits Agreement. 4.2 PROCEDURE FOR INDEMNIFICATION. In the event any action, suit or proceeding is brought pursuant to this Article 4 or Section 3.2 hereof, the parties shall comply with and be subject to the indemnification procedures set forth in the Distribution Agreement. ARTICLE 5 MISCELLANEOUS 5.1 BINDING AGREEMENT. This Agreement is binding upon and is for the benefit of the Parties hereto and their respective successors and permitted assigns. 5.2 ASSIGNMENT. No party to this Agreement shall convey, assign or otherwise transfer any of its rights or obligations under this Agreement without the express written consent of the other party hereto in its sole and absolute discretion. No assignment of this Agreement shall relieve the assigning party of its obligations hereunder. 5.3 NOTICES. All notices or other communications required or permitted to be given hereunder shall be made pursuant to the notice provisions set forth in the Distribution Agreement. 5.4 NO WAIVER. No delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver, nor shall any waiver on the part of any party of any right, power or privilege operate as a waiver of any other right, power or 7 privilege hereunder, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies which the parties hereto may otherwise have at law or in equity. 5.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement, and the agreements and other documents referred to herein, shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all prior agreements, understandings, statements or representations, oral or in writing, of the parties relating thereto. This Agreement may be modified or amended only by written agreement of the parties. In addition to the foregoing, any amendment to this Agreement must, in the case of each of Gaming & Entertainment, DVD, and Slots, be approved by one of their respective elected officers, with their respective execution of such amendment to evidence conclusively such approval. 5.6 SHARING OF INFORMATION. DVD and Gaming & Entertainment recognize that each of them will require certain information regarding employees of the other company or its subsidiaries, including without limitation information regarding past service and compensation information used to determine accrued benefits. Each agrees to provide the information requested by the other in good faith, and on a reasonably prompt basis. 5.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute a single instrument. 5.8 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware (regardless of the laws that might otherwise govern under applicable principles of conflicts of laws) as to all matters including, without limitation, matters of validity, construction, effect, performance and remedies. 5.9 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit of the parties and is not intended to confer upon any other person any rights or remedies hereunder. 5.10 LEGAL ENFORCEABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 5.11 INTERPRETATION. The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement. The parties have made a good faith effort in this Agreement to provide for those issues involving employee benefits in the transaction which can be reasonably foreseen. The parties acknowledge that other 8 such issues may arise, and they agree to work in good faith to resolve any differences which may arise. 5.12 DISPUTES. Any disputes between the parties based upon, related to, or arising in connection with this Agreement shall be resolved in accordance with the dispute resolution procedure set forth in Section 13.10 of the Distribution Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the day and year first above written. Dover Downs Entertainment, Inc. By: /s/ Denis McGlynn ----------------------------------- Name: Denis McGlynn Its: President Dover Downs Gaming & Entertainment, Inc. By: /s/ Denis McGlynn ----------------------------------- Name: Denis McGlynn Its: President 9 EX-10.2 5 dex102.txt TRANSITION SUPPORT SERVICES AGREEMENT EXHIBIT 10.2 TRANSITION SUPPORT SERVICES AGREEMENT THIS AGREEMENT for the performance of certain corporate services is executed and made effective as of January 15, 2002, by and between DOVER DOWNS ENTERTAINMENT, INC., a Delaware corporation ("DVD"), and DOVER DOWN GAMING & ENTERTAINMENT, INC., a Delaware corporation ("Gaming & Entertainment"). WHEREAS, DVD, through its ownership of all of the issued and outstanding common stock (the "Stock") of Dover Downs, Inc. ("Slots"), participates in the business of gaming operations; and WHEREAS, the Board of Directors of DVD has determined that it would be advisable and in the best interests of DVD and its shareholders for DVD to contribute all of the Stock and any other related assets and liabilities relating to gaming operations (the "Business") to Gaming & Entertainment in exchange for Gaming & Entertainment common stock and Class A Common Stock and thereafter to distribute all of the outstanding shares of Gaming & Entertainment common stock and Class A Common Stock on a pro rata basis to the holders of DVD's common stock and Class A Common Stock (the "Distribution") pursuant to an Agreement Regarding Distribution and Plan of Reorganization, dated as of the date hereof, between DVD and Gaming & Entertainment (the "Distribution Agreement"); and WHEREAS, the parties intend that the transactions described herein will be effective at the Effective Time (as defined in the Distribution Agreement); and WHEREAS, the parties hereto deem it to be appropriate and in the best interests of the parties that they provide certain services to each other on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Description of Services. (a) Gaming & Entertainment shall, subject to the terms and provisions of this Agreement, provide DVD with certain services of a financial, administrative and/or advisory nature, on terms to be agreed upon by DVD and Gaming & Entertainment, and render such other specific services as DVD may from time to time reasonably request in writing, subject to Gaming & Entertainment's sole discretion and its being in a position to supply such services at the time of such request. (b) DVD shall, subject to the terms and provisions of this Agreement, provide DVD with such services as DVD may from time to time reasonably request in writing, subject to DVD's sole discretion and its being in a position to supply such services at the time of the request. Each of DVD and Gaming & Entertainment, as the case may be, shall use commercially reasonable efforts to transition from using the services provided by the other under this Agreement on or prior to the termination of the original term for the provision of such services (as provided in Section 7 below). 1 2. Consideration for Services. Gaming & Entertainment shall pay DVD for the services provided hereunder and DVD shall pay Gaming & Entertainment for all the services provided hereunder at rates agreed to by the parties hereunder. 3. Terms of Payment. Within ten (10) business days after the end of each month during the term of this Agreement, DVD will submit a written invoice to Gaming & Entertainment and Gaming & Entertainment will submit a written invoice to DVD for service fees for the immediately preceding month together with an accounting of the charges for the immediately preceding month's services. Within thirty (30) business days after the receipt of such invoices, DVD and Gaming & Entertainment, as the case may be, will remit payment of the full amount of such invoices to the other in the manner provided below. Interest shall accrue at the Prime Rate (as defined in the Distribution Agreement) on any amounts not received by the party providing the service hereunder within thirty (30) days after receipt by the other of the invoice. The amount of any monthly service fee shall be prorated to correspond with the portion of a given month for which services were actually rendered. 4. Method of Payment. All amounts payable by Gaming & Entertainment and DVD for the services rendered by the other pursuant to this Agreement shall be remitted to DVD or Gaming & Entertainment, as the case may be, in United States dollars in the form of a check or wire transfer. 5. WARRANTIES. THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, THERE ARE NO WARRANTIES OR GUARANTIES, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 6. Liability; Indemnification; Dispute Resolution. (a) In no event shall either DVD or Gaming & Entertainment have any liability, whether based on contract, tort (including, without limitation, negligence), warranty or any other legal or equitable grounds, for any punitive, consequential, special, indirect or incidental loss or damage suffered by the other arising from or related to this Agreement, including without limitation, loss of data, profits, interest or revenue, or interruption of business, even if the party providing the services hereunder is advised of the possibility of such losses or damages. (b) The limitations set forth in Section 6(a) above shall not apply to liabilities which may arise as the result of willful misconduct or gross negligence of the party providing the services hereunder. (c) Effective as of the date of this Agreement, Gaming & Entertainment shall indemnify, defend and hold harmless DVD and its affiliates and their respective directors, officers, employees and agents (the "DVD Indemnitees") from and against any and all damage, loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses in connection with any and all actions or threatened actions) ("Indemnifiable Losses") incurred or suffered by any of the DVD Indemnitees arising from, related to or associated with (i) DVD's furnishing or failure to furnish the services provided for in this Agreement, other than liabilities arising out of the willful misconduct or gross negligence of the DVD Indemnitees and (ii) the gross negligence or willful misconduct of Gaming & Entertainment 2 in furnishing or failing to furnish the services to be provided by Gaming & Entertainment in this Agreement, provided however, in no event shall Gaming & Entertainment be obligated to indemnify the DVD Indemnitees (taken together) under this Section 6(c) for Indemnifiable Losses arising out of Gaming & Entertainment's gross negligence in an amount in excess of three times the service fee charged for the category of service related to the Indemnifiable Loss in the month in which the act or failure to act by Gaming & Entertainment that gave rise to such Indemnifiable Loss occurs. (d) Effective as of the date of this Agreement, DVD shall indemnify, defend and hold harmless Gaming & Entertainment and its affiliates and their respective directors, officers, employees and agents (the "Gaming & Entertainment Indemnitees") from and against any and all Indemnifiable Losses incurred or suffered by any of the Gaming & Entertainment Indemnitees arising from, related to or associated with (i) Gaming & Entertainment's furnishing or failure to furnish the services provided for in this Agreement, other than liabilities arising out of the willful misconduct or gross negligence of the Gaming & Entertainment Indemnitees, and (ii) the gross negligence or willful misconduct of DVD in furnishing or failing to furnish the services to be provided by DVD to Gaming & Entertainment in this Agreement, provided however, in no event shall DVD be obligated to indemnify the Gaming & Entertainment Indemnitees (taken together) under this Section 6(d) for Indemnifiable Losses arising out of DVD's gross negligence in an amount in excess of three times the service fee charged for the category of service related to the Indemnifiable Loss in the month in which the act or failure to act by DVD that gave rise to such Indemnifiable Loss occurs. (e) To the extent any advisory services provided by one party to the other shall be deemed to constitute legal advice, the parties may enter into a separate agreement to preserve attorney-client privilege, waive conflicts and limit the liability of the party providing such services. (f) Any disputes arising under this Agreement shall be resolved in accordance with Section 13.10 (Disputes) of the Distribution Agreement. 7. Termination. (a) After the first anniversary date of this Agreement, each category of service provided under this Agreement shall terminate ninety (90) days after the request of the party receiving the service. (b) After the first anniversary date of this Agreement, each category of service provided under this Agreement shall terminate one hundred and eighty (180) days after the request of the party providing the service. (c) Notwithstanding Sections 7(a) and 7(b) above, this Agreement may be terminated in its entirety (or any particular category of service may be terminated) in accordance with the following: (i) Upon written agreement of the parties; (ii) By either party for material breach hereof by the other if the breach is not cured within thirty (30) calendar days after written notice of breach is delivered to the breaching party; or 3 (iii) By either party, upon written notice to the other if the other shall become insolvent or shall make an assignment of substantially all of its assets for the benefit of creditors, or shall be placed in receivership, reorganization, liquidation or bankruptcy. (iv) By either party upon a "change-in-control" of the other party. For these purposes "change-in-control" shall be defined as the earliest of the following to occur: (a) the acquisition by any person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of the then outstanding securities of a party entitled to vote generally in the election of directors ("Outstanding Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by a party or any corporation controlled by such party or (ii) any acquisition by any corporation pursuant to a transaction described in clauses (i), (ii) and (iii) of paragraph (b) below; or (b) the effective date of a reorganization, merger or consolidation of a party (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 75% of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns a party through one or more subsidiaries) in substantially the same proportion as their ownership, immediately prior to such Business Combination, of the Outstanding Voting Securities, (ii) no person (excluding any employee benefit plan or related trust of a party or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of the combined voting power of the then outstanding voting securities of such party except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the incumbent board of a party at the time of the initial action taken by such party to provide for such Business Combination. (d) Upon any termination pursuant to Sections 7(b) and 7(c) above, DVD and Gaming & Entertainment shall be compensated for all services performed to the date of termination in accordance with the provisions of this Agreement, and DVD and Gaming & Entertainment, as the case may be, will consider hiring certain employees of the other identified by the other prior to the termination to the extent that DVD or Gaming & Entertainment, as the case may be, does not contract with third parties to provide the services rendered by DVD or Gaming & Entertainment pursuant to this Agreement. 8. General. (a) Force Majeure. Any delays in or failure of performance by DVD or Gaming & Entertainment shall not constitute a default hereunder if and to the extent such delay or failure of performance is caused by occurrences beyond the reasonable control of DVD or Gaming & Entertainment, as the case may be, including, but not limited to: acts of God or the public enemy; compliance with any order or request of any governmental authority; acts of war; riots or strikes or other concerted acts of personnel; or any other causes beyond the reasonable control of DVD or Gaming & Entertainment, whether or not of the same class or kind as those specifically named above. 4 (b) Confidentiality. Each party shall hold and cause its directors, officers, employees, agents, consultants and advisors to hold, in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all information concerning the other party (except to the extent that such information can be shown to have been (a) in the public domain through no fault of such disclosing party or (b) lawfully acquired after the Effective Time (as defined in the Distribution Agreement) on a non-confidential basis from other sources by the disclosing party), and neither party shall release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors who shall be advised of the provisions of this Section and be bound by them. (c) Expenses. Except as specifically provided in this Agreement or in the Distribution Agreement, all costs and expenses incurred prior to the Effective Time in connection with the preparation, execution, delivery and implementation of this Agreement and with the consummation of the transactions contemplated by this Agreement (including, without limitation, all fees for counsel, accountants and financial and other advisors) shall be paid by DVD and all such costs incurred thereafter shall be paid by the party incurring such costs. (d) Notices. All notices and communications under this Agreement shall be deemed to have been given (a) when received, if such notice or communication is delivered by facsimile, hand delivery or overnight courier, and, (b) three (3) business days after mailing if such notice or communication is sent by United States registered or certified mail, return receipt requested, first class postage prepaid. All notices and communications, to be effective, must be properly addressed to the party to whom the same is directed at its address as set forth in the Distribution Agreement. Either party may, by written notice delivered to the other party in accordance with this Section 8(d), change the address to which delivery of any notice shall thereafter be made. (e) Amendment and Waiver. This Agreement may not be altered or amended, nor may any rights hereunder be waived, except by an instrument in writing executed by the party or parties to be charged with such amendment or waiver. No waiver of any terms, provision or condition of or failure to exercise or delay in exercising any rights or remedies under this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, provision, condition, right or remedy or as a waiver of any other term, provision or condition of this Agreement. (f) Entire Agreement. This Agreement together with the Distribution Agreement constitutes the entire understanding of the parties hereto with respect to the subject matter hereof, superseding all negotiations, prior discussions and prior agreements and understandings relating to such subject matter. To the extent that the provisions of this Agreement are inconsistent with the provisions of any Distribution Agreement, the provisions of this Agreement shall prevail with respect to the subject matter hereof. (g) Parties in Interest. Neither of the parties hereto may assign its rights or delegate any of its duties under this Agreement without the prior written consent of the other party. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. Nothing contained in this Agreement, express or implied, is intended to confer any benefits, rights or remedies upon any person or entity other than 5 the DVD Indemnitees and Gaming & Entertainment Indemnitees under Section 6 of this Agreement. (h) Further Assurances and Consents. In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto will use its reasonable efforts to (a) execute and deliver such further instruments and documents and take such other actions as any other party may reasonably request in order to effectuate the purposes of this Agreement and to carry out the terms hereof and (b) take, or cause to be taken, all actions, and do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements or otherwise to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, using its reasonable efforts to obtain any consents and approvals, make any filings and applications and remove any liens, claims, equity or other encumbrances on any asset of the other party necessary or desirable in order to consummate the transactions contemplated by this Agreement; provided that no party hereto shall be obligated to pay any consideration therefor (except for filing fees and other similar charges) to any third party from whom such consents, approvals and amendments are requested or to take any action or omit to take any action if the taking of or the omission to take such action would be unreasonably burdensome to the party or its business. (i) Severability. The provisions of this Agreement are severable and should any provision hereof be void, voidable or unenforceable under any applicable law, such provision shall not affect or invalidate any other provision of this Agreement, which shall continue to govern the relative rights and duties of the parties as though such void, voidable or unenforceable provision were not a part hereof. (j) Governing Law. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Delaware, without regard to the conflicts of law rules of such state. (k) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute but one and the same Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Dover Downs Entertainment, Inc. By: /s/ Denis McGlynn ------------------------------- Name: Denis McGlynn Its: President Dover Downs Gaming & Entertainment, Inc. By: /s/ Denis McGlynn ------------------------------- Name: Denis McGlynn Its: President 6 EX-10.3 6 dex103.txt TAX SHARING AGREEMENT EXHIBIT 10.3 TAX SHARING AGREEMENT THIS TAX SHARING AGREEMENT ("Agreement") is entered into as of the 15th day of January, 2002 by and between DOVER DOWNS ENTERTAINMENT, INC., a Delaware corporation ("Distributing Co."), and DOVER DOWNS GAMING & ENTERTAINMENT, INC., a Delaware corporation ("Controlled Co.") (Distributing Co. and Controlled Co. are sometimes collectively referred to herein as the "Companies"). Capitalized terms used in this Agreement are defined in Section 1 below. Unless otherwise indicated, all "Section" references in this Agreement are to sections of this Agreement. PRELIMINARY STATEMENTS A. As of the date hereof, Distributing Co. is the common parent of an affiliated group of corporations, including Controlled Co., which has elected to file consolidated Federal income tax returns. B. Incident to the distribution of Controlled Co. by Distributing Co., the Companies have entered into an Agreement Regarding Distribution and Plan of Reorganization (the "Distribution Agreement"). C. The Distribution Agreement sets forth corporate transactions pursuant to which Distributing Co., subject to the satisfaction of certain terms and conditions, will distribute all of the capital stock of Controlled Co. held by Distributing Co. to Distributing Co.'s shareholders in a transaction intended to qualify as a tax-free distribution to Distributing Co. and its shareholders under Section 355 of the Code and pursuant to a Private Letter Ruling issued by the Internal Revenue Service dated (the "Letter Ruling"). D. As a result of the Distribution, Controlled Co. and its subsidiaries will cease to be members of the affiliated group of which Distributing Co. is the common parent (the "Distribution Closing Date"). E. The Companies desire to provide for and agree upon the allocation between the parties of liabilities for Taxes arising prior to, as a result of, and subsequent to the transactions contemplated by the Distribution Agreement, and to provide for and agree upon other matters relating to Taxes. AGREEMENT NOW, THEREFORE, in consideration of the premises, the mutual covenants set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITION OF TERMS. For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings: 1 "Accounting Cutoff Date" means, with respect to Controlled Co., any date as of the end of which there is a closing of the financial accounting records for such entity. "Accounting Firm" shall have the meaning provided in Section 14. "Adjustment Request" means any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, refund, or credit of Taxes, including (a) the filing of a Tax Return for a Tax Period showing a Tax overpayment for such Tax Period and requesting a refund or credit of that Tax overpayment, (b) any amended Tax Return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, or (c) any claim for refund or credit of Taxes previously paid. "Affiliate" means any entity that directly or indirectly is "controlled" by the person or entity in question. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person or entity, whether through ownership of voting securities, by contract or otherwise. Except as otherwise provided herein, the term Affiliate shall refer to Affiliates of a person as determined immediately after the Distribution, provided that Distributing Co. and controlled Co. shall not be deemed Affiliates of each other. The term "Affiliate" includes a Subsidiary, partnership or limited liability company of an entity. "Agreement" shall mean this Tax Sharing Agreement. "Carryback" means any net operating loss, net capital loss, excess tax credit, or other similar Tax Item which may or must be carried from one Tax Period to an earlier Tax Period under the Code or other applicable Tax Law. "Code" means the U.S. Internal Revenue Code of 1986, as amended, or any provisions of succeeding law. "Companies" means Distributing Co. and Controlled Co., collectively, and "Company" means any one of Distributing Co. and Controlled Co. "Consolidated or Combined Income Tax" means any Income Tax computed by reference to the assets or activities of members of more than one Group. "Consolidated or Combined State Income Tax" means any State Income Tax computed by reference to the assets or activities of members of more than one Group. "Consolidated Tax Liability" means, with respect to any Distributing Co. Federal Consolidated Return, the Tax liability of the group as determined under Section 1502 of the Code and the Treasury Regulations thereunder. 2 "Controlled Adjustment" means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest or Adjustment Request to the extent Controlled Co. would be exclusively liable for any resulting Tax under this Agreement or exclusively entitled under Section 4.7(d) to receive any resulting Tax Benefit under this Agreement. "Controlled Group" means Controlled Co. and its Subsidiaries and partnerships, limited liability companies, or other entities that are Affiliates and in which Controlled Co. or its Subsidiaries own an interest as determined immediately after the Distribution Closing Date or entities that were previously Affiliates engaged in the Company Business. "Controlled Group Consolidated Tax Liability" or "Controlled Group Consolidated or Combined State Income Tax Liability" with respect to any Tax period means such Tax Liability allocated to the Controlled Group as if the relevant members of the Controlled Group were not and never were part of the Group which includes one or more members of the Distributing Group, but rather were a separate affiliated group of corporations filing a similar group return. This computation shall be made (a) by taking into account transactions with any member of the Distributing Group in the first Tax period such transactions are required to be taken into account for Tax purposes under applicable law; (b) without regard to the income, deductions (including net operating loss and capital loss deductions), credits or other Tax Items in any year of any member of the Distributing Group; (c) by not taking into account net operating loss or net capital loss carryovers and carrybacks, minimum Tax credits from earlier years or any other Tax Item of the Controlled Group from any Tax period other than the particular Tax period for which the Tax Liability is being computed; (d) by applying the maximum applicable statutory Tax rate in effect under applicable law during the relevant year; (e) reflecting the positions, elections and accounting methods used by the Group in preparing the relevant Return for the Group; and (f) for State Income Tax, without regard to the sales, property or other apportionment factors of any member of the Distributing Group. The Controlled Group Consolidated Tax Liability or Controlled Group Consolidated or Combined State Income Tax Liability may not exceed the actual Consolidated Tax Liability of the Group or actual Consolidated or Combined State Income Tax Liability of the relevant Group. "Distributing Adjustment" means any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest or Adjustment Request to the extent Distributing Co. would be exclusively liable for any resulting Tax under this Agreement and exclusively entitled to receive any resulting Tax Benefit under this Agreement. "Distributing Co. Federal Consolidated Return" means any United States Federal Tax Return for the affiliated group (as that term is defined in Code Section 1504) that includes Distributing Co. as the common parent and any member of the Controlled Group. "Distributing Group" means Distributing Co. and its Subsidiaries and partnerships, limited liability companies, or other entities that currently are or previously have been Affiliates, excluding any entity that is a member of the Controlled Group. 3 "Distribution" means the distribution to Distributing Co. shareholders on the Distribution Closing Date of all of the outstanding capital stock of Controlled Co. owned by Distributing Co. or any other distribution of the capital stock of a Subsidiary in connection with the Transactions that is intended to be tax-free under Section 355 of the Code. "Distribution Agreement" means the Agreement Regarding Distribution and Plan of Reorganization dated as of the date of this Agreement between the Distributing Co. and the Controlled Co. "Distribution Closing Date" means the Distribution Date as that term is defined in the Distribution Agreement. "Federal Income Tax" means any Tax imposed by Subtitle A or F of the Code. "Federal Tax Adjustment" shall have the meaning provided in Section 2.2(b). "Group" means the Distributing Co. Group, the Controlled Co. Group, or both of such Groups as the context requires. "Income Tax" means any Federal Income Tax, State Income Tax, or Foreign Income Tax. "Joint Adjustment" means any proposed adjustment resulting from a Tax Contest that is not a (i) Controlled Adjustment, (ii) a Distributing Adjustment, or (iii) any other type of adjustment that gives rise to an indemnification payment by one Company to the other Company pursuant to this Agreement. "Post-Distribution Period" means any Tax Period beginning after the Distribution Closing Date, and, in the case of any Straddle Period, the portion of such Straddle Period beginning the day after the Distribution Closing Date. "Pre-Distribution Period" means any Tax Period ending on or before the Distribution Closing Date, and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Distribution Closing Date. "Prime Rate" Shall have the meaning set forth in the Distribution Agreement. "Prohibited Action" shall have the meaning provided in Section 11(a). "Responsible Company" means, with respect to any Tax Return, the Company having responsibility for preparing and filing such Tax Return under this Agreement. "Ruling Request" means the letter dated July 30, 2001 filed by Distributing Co. with the Internal Revenue Service requesting a ruling from the Internal Revenue Service regarding certain tax consequences of the Distribution (including all attachments, exhibits, and other materials 4 submitted with such ruling request letter) and any amendment or supplement to such ruling request letter. "Separate Company Tax" means any Tax computed by reference to the assets and activities of a member or members of a single Group. "Straddle Period" means any Tax Period that begins on or before and ends after the Distribution Closing Date. "State Income Tax" means any Tax imposed by any state of the United States or by any political subdivision of any such state which is imposed on or measured by net income, including state and local franchise or similar Taxes measured by net income. "Subsidiary" shall have the meaning set forth in Treasury Regulations section 1.1502-1(c). "Tax" or "Taxes" means any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, export, value added, alternative minimum, estimated or other similar tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any governmental entity or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing. "Tax Attribute" means any item of deduction or credit, any net operating loss, consolidated net operating loss, capital loss, consolidated net capital loss or other similar Tax Item attributable during a Tax period to the Distributing Group or the Controlled Group. "Tax Authority" means, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision. "Tax Benefit" means the Tax effect of any refund, credit, or other reduction in otherwise required Tax payments (including any reduction in estimated tax payments) determined at the maximum applicable statutory Tax rate in effect under applicable law during the relevant year. "Tax Contest" means an audit, review, examination, or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes of any of the Companies or their Affiliates (including any administrative or judicial review of any claim for refund) for any Tax Period ending on or before the Distribution Closing Date or any Straddle Period. "Tax Detriment" means the Tax effect at the maximum applicable statutory Tax rate in effect under applicable law during the relevant year with respect to any increase in gain or income, reduction in deductions or loss or reduction of credit for Tax Items of the Controlled Group. 5 "Tax Item" means, with respect to any Income Tax, any item of income, gain, loss, deduction, and credit. "Tax Law" means the law of any governmental entity or political subdivision thereof relating to any Tax. "Tax Period" means, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law. "Tax Records" means Tax Returns, Tax Return workpapers, documentation relating to any Tax Contests, and any other books of account or records maintained or required to be maintained under the Code or other applicable Tax Laws or under any record retention agreement with any Tax Authority. "Tax Return" or "Return" means any report of Taxes due, any claims for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document required to be filed under the Code or other Tax Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing. "Transactions" means only those transactions described in the Letter Ruling. "Treasury Regulations" means the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period. 2. ALLOCATION OF TAX LIABILITIES. The provisions of this Section 2 are intended to determine each Company's liability for Taxes with respect to Pre- Distribution Periods. Once the liability has been determined under this Section 2, Section 5 determines the time when payment of the liability is to be made, and whether the payment is to be made to the Tax Authority directly or to the other Company. 2.1 General Rule. (a) Distributing Co. Liability. Distributing Co. shall be liable for Taxes for Pre-Distribution Periods not specifically allocated to the Controlled Co. under this Section 2. Distributing Co. shall indemnify and hold harmless the Controlled Group from and against any liability for Taxes for which Distributing Co. is liable under this Section 2.1(a). (b) Controlled Co. Liability. Controlled Co. shall be liable for, and shall indemnify and hold harmless the distributing Group from and against, any liability for Taxes which are allocated to Controlled Co. under this Agreement. 6 (c) Allocation of Tax Attributes. Tax Attributes shall be allocated to the appropriate entity which incurred such Tax Attributes, irrespective of the entity which may have reported them. 2.2 Allocation of United States Federal Income Tax. Except as provided in Section 2.5: (a) Allocation of Tax Relating to Federal Consolidated Returns. With respect to the Distributing Co. Federal Consolidated Tax returns to be filed for the Tax Period ended on December 31, 2000 and for the Tax Period ended in 2001, the Controlled Co. shall pay the Distributing Co. the amount set forth in Section 5.1(b). (b) Allocation of Federal Consolidated Return Tax Adjustments. If there is any adjustment with respect to any Distributing Co. Federal Consolidated Return, or to such Return as previously adjusted, Controlled Co. shall be liable to Distributing Co. for the amounts set forth in this Section 2.2(b) attributable to the net amount of the adjustments in such year for Tax Items of the Controlled Group. (i) The amount, if any, equal to the Controlled Group Consolidated Tax Liability computed with the net amount of the adjustments, minus the Controlled Group Consolidated Tax Liability as computed before such adjustments; (ii) If any adjustment results in a reduction in the amount of a Tax Benefit realized by the Distributing Group from a Tax Attribute of the Controlled Group, the amount of such reduction whether or not the Controlled Group was previously paid in respect of such Tax Attribute; and (iii) If not otherwise taken into account under subdivision (i) of this Section 2.2(b), the amount of the Tax Detriment to the Distributing Group from the use in the year of the adjustment of a Tax Attribute of the Distributing Group against a Tax Item of the Controlled Group even though such Tax Attribute would otherwise be carried to a future Tax period. Any amount due to Distributing Co. by Controlled Co. shall be computed initially by Distributing Co. and confirmed by a nationally recognized accounting firm selected by Distributing Co. 2.3 Allocation of State Income Taxes. Except as provided in Section 2.5, State Income Taxes shall be allocated as follows: (a) Separate Company Taxes. In the case of any State Income Tax which is a Separate Company Tax, Controlled Co. shall be liable for such Tax imposed on any members of the Controlled Group. 7 (b) Consolidated or Combined State Income Taxes. In the case of any Consolidated or Combined State Income Tax, the liability of Controlled Co. with respect to such Tax for any Tax Period shall be computed as follows: (i) Allocation of Tax Reported on Tax Returns. In the case of any Consolidated or Combined State Income Tax reported on any Tax Return to be filed after the Distribution Closing Date, Controlled Co. shall be liable to Distributing Co. for the State Income Tax liability in accordance with Section 5.3(b). (ii) Allocation of Combined or Consolidated State Income Tax Adjustments. If there is any adjustment with respect to a Consolidated or Combined State Income Tax Return (or as previously adjusted), Controlled Co. shall be liable to Distributing Co. for the amounts set forth in this Section 2.3(b)(ii) attributable to the net amount of the adjustments in such year for Tax Items of the Controlled Group. (A) The amount, if any, equal to the Controlled Group Consolidated or Combined State Income Tax Liability computed with the net amount of the adjustments, minus the Controlled Group Consolidated or Combined State Income Tax Liability as computed before such adjustments; (B) If any adjustment results in a reduction in the amount of a Tax Benefit realized by the Distributing Group from a Tax Attribute of the Controlled Group, the amount of such reduction whether or not the Controlled Group was previously paid in respect of such Tax Attribute; and (C) If not otherwise taken into account under subdivision (ii)(A) of this Section 2.3(b), the amount of the Tax Detriment to the Distributing Group from the use in the year of the adjustment of a Tax Attribute of the Distributing Group against a Tax Item of the Controlled Group even though such Tax Attribute would otherwise be carried to a future Tax period. Any amount due to Distributing Co. by Controlled Co. shall be computed initially by Distributing Co. and confirmed by a nationally recognized accounting firm selected by Distributing Co. and take into account the effective state and local Income Tax rate of the applicable Group. The corporations identified in Schedule "A" hereto shall be treated for purposes of this Section 2.3(b)(ii) as members of the Distributing Group even though they are members of the Controlled Group and the Tax Items of these corporations shall belong to the Distributing Group to the extent set forth in Schedule "A" hereto. 2.4 Allocation of Other Taxes. Except as provided in Section 2.5, all Taxes other than those specifically allocated pursuant to Sections 2.2 and 2.3 shall be allocated based on the legal entity on which the legal incidence of the Tax is imposed. As between the parties to this Agreement, Controlled Co. shall be liable for all Taxes imposed on any member of the Controlled Group including, for purposes of clarification, any Tax imposed by any foreign governmental authority or political subdivision thereof. The Companies believe that there is no 8 Tax not specifically allocated pursuant to Section 2.3 which is legally imposed on more than one legal entity (e.g., joint and several liability); however, if there is any such Tax, it shall be allocated in accordance with past practices as reasonably determined by the Distributing Co., or in the absence of such practices, in accordance with any reasonable allocation method determined by Distributing Co. 2.5 Transaction and Other Taxes. (a) Distributing Co. Liability. Except as otherwise provided in this Section 2.5, Distributing Co. shall be liable for, and shall indemnify and hold harmless the Controlled Group from and against, any liability for the following: (i) any sales and use, documentary, recording or stamp Tax imposed on the transfer of property to a member of the Distributing Group occurring solely pursuant to the Transactions; (ii) any Federal Income Tax or State Income Tax resulting from any income or gain recognized by Distributing Co. or a Subsidiary (as determined or identified on or before the Distribution Closing Date) as a result of a Distribution failing to qualify for tax-free treatment pursuant to Section 355 of the Code and related provisions; (iii) any Federal Income Tax or State Income Tax (other than a Tax described in subparagraph (ii) above) resulting from the Transactions; provided, however, that Distributing Co. shall not be liable for, and shall not be obligated to indemnify and hold harmless the Controlled Group from and against liability for any Tax described in clauses (ii) and (iii) above to the extent it arises as a result of Controlled Co.'s, or any member of the Controlled Group engaging in any Prohibited Action as defined in Section 11. Except as otherwise provided in this Section 2.5(a), any Tax resulting from, or arising by reason of, the Transactions shall be paid by the member of the Distributing Group or Controlled Group, as the case may be, on which the legal incidence of the Tax is imposed and which has the primary legal liability for such Tax. Notwithstanding anything in this Section 2.5 to the contrary, any Tax from item (vi) in the "Proposed Transaction" as contained in the Letter Ruling shall be paid by Distributing Co. (b) Indemnity for Certain Acts. Controlled Co. shall be liable for, and shall indemnify and hold harmless the Distributing Group from and against any liability for any Tax described in paragraph (a)(ii) or (a)(iii) above to the extent arising as a result after the Distribution Closing Date of Controlled Co.'s or any member of the Controlled Group engaging in any Prohibited Action as defined in Section 11, or a breach by Controlled Co. of its representations, warranties and covenants set forth in Section 11. In such case, Distributing Co. shall not be liable for such amounts. If Controlled Co. is liable to the Distributing Group by reason of this Section 2.5(b), the Tax described in paragraph (a)(ii) or (a)(iii) shall be computed in accordance with Section 2.2(b), Section 2.3(b)(ii) and Section 2.4, as applicable. (c) Shared Liability. Notwithstanding Section 2.5(a) to the contrary, the Distributing Group and the controlled Group shall share equally any Tax described in paragraph 9 (a)(ii) or (a)(iii) if such Tax did not arise as a result of a Prohibited Action or breach of any representation, warranty or covenant set forth in Section 11 by any member of the Distributing Group or the Controlled Group. 3. PRORATION OF TAXES FOR STRADDLE PERIODS. In the case of any Straddle Period, and in the case of a Tax Period of any member of the Controlled Group which ends on the Distribution Closing Date, Tax Items shall be apportioned between Pre-Distribution Periods and Post-Distribution Periods in accordance with the principles of Treasury Regulations under Section 1502 of the Code. 10 4. PREPARATION AND FILING OF TAX RETURNS. 4.1 General. Except as otherwise provided in this Section 4, Tax Returns shall be prepared and filed when due (including extensions) by the person obligated to file such Tax Returns under the Code or applicable Tax Law. The Companies shall provide, and shall cause their Affiliates to provide, assistance and cooperate with one another in accordance with Section 7 with respect to the preparation and filing of Tax Returns, including providing information required to be provided in Section 7. 4.2 Distributing Co.'s Responsibility. Distributing Co. has the exclusive obligation and right to prepare and file, or to cause to be prepared and filed the following: (a) Distributing Co. Federal Consolidated Returns for any Periods ending on, before or after the Distribution Closing Date, including the Pre-Distribution Period of any member of the Controlled Group. (b) Consolidated or Combined State Income Tax Returns for Tax Periods ending on or before the Distribution Closing Date or for any Straddle Period. (c) Tax Returns for State Income Taxes (including Tax Returns with respect to State Income Taxes that are Separate Company Taxes) for members of the Distributing Group. 4.3 Controlled Co.'s Responsibility. Controlled Co. shall prepare and file, or shall cause to be prepared and filed, all Tax Returns required to be filed by or with respect to the Controlled Co. or members of the Controlled Group other than those Tax Returns which Distributing Co. is required to prepare and file under Section 4.2. 4.4 Tax Accounting Practices. (a) General Rule. Except as otherwise provided in this Section 4.4, any Tax Return for any Pre-Distribution Period or any Straddle Period, and any Tax Return for any Post-Distribution Period to the extent items reported on such Tax Return might reasonably affect items reported on any Tax Return for any Pre-Distribution Period or any Straddle Period, shall be prepared in accordance with past Tax accounting practices used with respect to the Tax Returns in question (unless such past practices are no longer permissible under the Code or other applicable Tax Law); provided, however, the determination of depreciation, amortization, gain, and loss on vehicles for any Straddle Period shall be made by Distributing Co. and to the extent any items are not covered by past practices (or in the event such past practices are no longer permissible under the Code or other applicable Tax Law), in accordance with reasonable Tax accounting practices selected by the Responsible Company. (b) Reporting of Transaction Tax Items. The tax treatment reported by Controlled Co. on any Tax Return, whether for a Pre-Distribution or Post-Distribution Period, of Tax Items relating to the Transactions shall be consistent with the 11 treatment of such item on the Distributing Co. Federal Consolidated Return that includes the Distribution. 4.5 Consolidated or Combined Returns. The Companies will elect and join, and will cause their respective Affiliates to elect and join, in filing consolidated, unitary, combined, or other similar joint Tax Returns for Pre-Distribution and Straddle Periods, to the extent each entity is eligible to join in such Tax Returns, if the Distributing Co. reasonably determines that the filing of such Tax Returns is consistent with past reporting practices, or in the absence of applicable past practices, will result in the minimization of the net present value of the aggregate Tax to the entities eligible to join in such Tax Returns. In addition, the Controlled Co. shall be required to file a consolidated return for Federal Income Tax purposes for its first Tax Period in the Post-Distribution Period ending after the Distribution Closing Date, and the Controlled Co. shall make all necessary elections, and cause each member of the Controlled Group to file all necessary consents, in accordance with Treasury Regulations section 1.1502-75 required to file that consolidated return. 4.6 Right to Review Tax Returns. The Responsible Company with respect to any Tax Return shall make such Tax Return and related workpapers available for review by the other Company, if requested, to the extent (a) such Tax Return relates to Taxes for which the requesting party may be liable, (b) such Tax Return relates to Taxes for which the requesting party may be liable in whole or in part or for any additional Taxes owing as a result of adjustments to the amount of Taxes reported on such Tax Return, (c) such Tax Return relates to Taxes for which the requesting party may have a claim for Tax Benefits under this Agreement, or (d) the requesting party reasonably determines that it must inspect such Tax Return to confirm compliance with the terms of this Agreement. The Responsible Company shall make such Tax Return available for review as required under this paragraph at least thirty (30) days prior to the due date for filing such Tax Returns to provide the requesting party with a meaningful opportunity to analyze and comment on such Tax Returns and have such Tax Returns modified before filing. The Companies shall attempt in good faith to resolve any issues arising out of the review of such Tax Returns. Issues that cannot be resolved by the Companies shall be resolved in the manner set forth in Section 14; provided, however, that such Tax Return shall be timely filed in the manner prepared by the Responsible Company if the issues cannot be resolved prior to the time required by law (including extensions) for the filing of such Tax Return. 4.7 Claims for Refund, Carrybacks, and Self-Audit Adjustments ("Adjustment Requests"). (a) Consent Required for Adjustment Requests Related to Consolidated or Combined Income Taxes. Except as provided in paragraph (b) below, each of the Companies hereby agrees that (i) any decision to file an Adjustment Request with respect to any Consolidated or Combined Income Tax for a Pre-Distribution Period shall be made by Distributing Co., and (ii) any available elections to waive the right to claim in any Pre-Distribution Period with respect to any Consolidated or Combined Income Tax, any Carryback 12 arising in a Post-Distribution Period shall be made, and no affirmative election shall be made to claim any such Carryback. Any Adjustment Request shall be prepared and filed by the Responsible Company under Section 4.2 for the Tax Return to be adjusted. The Company requesting the Adjustment Request shall provide to the Responsible Company all information required for the preparation and filing of such Adjustment Request in such form and detail as reasonably requested by the Responsible Company. Notwithstanding anything to the contrary in this paragraph (a), the consent of the Controlled Co. shall not be necessary for any Carryback by Distributing Co. or any member of the Distributing Group provided such Carryback constitutes a Distributing Adjustment in the year (or years) such Carryback is absorbed. (b) Other Adjustment Requests Permitted. Nothing in this Section 4.7 shall prevent either Company or its Affiliates from filing any Adjustment Request with respect to Income Taxes which are not Consolidated or Combined Income Taxes or with respect to any Taxes other than Income Taxes. Any refund or credit obtained as a result of any such Adjustment Request (or otherwise) shall be for the account of the person liable for the Tax under this Agreement. (c) Payment of Refunds. Any refunds or other Tax Benefits received by the Controlled Group (or any of its Affiliates) as a result of any Adjustment Request which are for the account of a member of the Distributing Group shall be paid by the Controlled Co. to the Distributing Co. in accordance with Section 6. (d) Payment of Refunds and Tax Benefits by Distributing Co. to Controlled Co. The Distributing Co. shall pay the Controlled Co. the following amounts, with respect to Consolidated or Combined Income Tax for any Pre-Distribution Periods: (i) The amount of any refund of Consolidated or Combined Income Tax (including the amount of any interest received with respect to such Tax refund) attributable to an adjustment of the Tax Items of the Controlled Group received by the Distributing Co. as a result of an Adjustment Request, Tax Contest or other action of a Tax Authority. The amount of such Tax refund shall equal: (A) the Consolidated Tax Liability, or Consolidated or Combined State Income Tax Liability, after all adjustments for Tax Items of the Distributing Group but before any adjustment for Tax Items of the Controlled Group, minus (B) the Consolidated Tax Liability, or Consolidated or Combined State Income Tax Liability, after all adjustments for the Tax Items of both the Distributing Group and the Controlled Group; (ii) The amount payable by the Distributing Co. to the Controlled Co. under Section 4.7(d)(i) shall be paid with interest at the Prime Rate from the date such amount is received by Distributing Co. to the date of payment which shall be made no later than ninety (90) days after the receipt of such Tax refund by Distributing Co., and shall be reduced by 13 the amounts Controlled Co. owes, at that time, to the Distributing Co. under this Agreement or the Distribution Agreement. (iii) If, as a result of an adjustment in a particular Tax period, the Controlled Group makes a payment of Tax to the Distributing Group in accordance with Section 5.2(a) or Section 5.4(a), and such adjustment leads directly to a reduction of income or an increase in deductions relating to Tax Items of the Controlled Group in a later Tax period in the Pre-Distribution Period (a "Turnaround Adjustment"), the Distributing Co. shall pay the Controlled Group the Tax attributable to such Turnaround Adjustment. The amount of the Turnaround Adjustment shall be reduced by the net adjustments for other Tax Items of the Controlled Group arising in the Tax Period or in the Pre- Distribution Period in which the Turnaround Adjustment is allowed (the "Turnaround Tax Period"). The Tax attributable to the Turnaround Adjustment shall equal: (A) the Consolidated Tax Liability, or Consolidated or Combined State Income Tax Liability, after all adjustments for Tax Items of the Distributing Group and the net adjustments for Tax Items of the Controlled Group (other than the Turnaround Adjustment) which create Tax Attributes of the Controlled Group used by the Distributing Group, minus (B) the Consolidated Tax Liability, or Consolidated or Combined State Income Tax Liability, after all adjustments for Tax Items of the Distributing Group and the Controlled Group. The amount of the Tax attributable to the Turnaround Adjustment shall be paid by Distributing Co. to Controlled Co. within ninety (90) days of the date following the expiration of the applicable statute of limitations for the Turnaround Tax Period plus interest as determined under Section 6621 of the Code (or the corresponding provisions of state law) as if the amount of Tax attributable to the Turnaround Adjustment was an overpayment of Income Tax for the Turnaround Tax Period. No payment is required under this Section 4.7(d)(iii) if the Tax attributable to a Turnaround Adjustment is refunded and paid to the Controlled Group in accordance with Section 4.7(d)(i) and (ii). (iv) Notwithstanding Section 5.2(a) or Section 5.4(a) to the contrary, if the Controlled Group would otherwise be required to make a Tax payment for a Tax period ("Earlier Tax Period") with respect to a Tax Item giving rise to a Turnaround Adjustment in a Turnaround Tax Period, that Tax for the Earlier Tax Period will be netted with the Tax attributable to the Turnaround Adjustment (as determined under Section 4.7(d)(iii)) only if that Earlier Tax Period and the Turnaround Tax Period are in the same audit cycle and the statutes of limitation for such Tax Periods expire at the same time. (v) Except as required in Section 4.7(d)(i) and (iii), the Distributing Group shall not be obligated to pay the Controlled Group for the Tax Benefit arising to the Distributing Group from an adjustment to the Tax Items of the Controlled Group. Notwithstanding the preceding sentence to the contrary, the amount of such Tax Benefit used by 14 the Distributing Co. as a result of the adjustment to the Tax Items of the Controlled Group in a Tax period shall constitute a set-off upon the expiration of the statute of limitations for the Tax period in which the adjustment is made against the amount the Controlled Group owes to the Distributing Group under this Agreement for another Tax period. This Section 4.7(d)(v) does not apply to the extent the amount of the Tax Benefit is refunded to the Controlled Group in accordance with Section 4.7(d)(i) or paid (or offset) to such Controlled Group in accordance with Section 4.7(d)(iii) or (iv). 5. TAX PAYMENTS AND INTERCOMPANY BILLINGS. 5.1 Payment of Taxes With Respect to Distributing Co. Federal Consolidated Returns Filed After the Distribution Closing Date. In the case of any Distributing Co. Federal Consolidated Return filed after the Distribution Closing Date: (a) Computation and Payment of Tax Due. On or prior to the filing of such Return, Distributing Co. shall compute the amount of Tax required to be paid to the Internal Revenue Service (taking into account the requirements of Section 4.4 relating to consistent accounting practices) with respect to such Tax Return and shall pay such amount to the Internal Revenue Service on or before the Payment Date. (b) Amount Due for Prior Periods. Subject to adjustments as set forth in Section 2.2(b), no amounts are currently due and owing by the Controlled Co. with respect to any Consolidated Tax Liability for periods ending on or prior to the year ended on December 31, 2000 or for Tax periods ended in 2001. 5.2 Payment of Federal Income Tax Related to Adjustments. (a) Adjustments Resulting in Underpayments. Distributing Co. shall pay to the Internal Revenue Service when due any additional Federal Income Tax required to be paid as a result of adjustment to the Tax liability with respect to any Distributing Co. Federal Consolidated Return. The Controlled Co. in accordance with Section 2.2(b) shall pay to Distributing Co. any amount due Distributing Co. under Section 2.2(b) within ninety (90) days from the date of receipt by Controlled Co. of a written notice and demand from Distributing Co. for payment of the amount due, accompanied by a statement describing in reasonable detail the particulars relating thereto. When the adjustments for a Tax period create additional Federal Income Tax with respect to a Distributing Co. Federal Consolidated Return, the Controlled Co. shall pay the Distributing Co. any amount due to the Distributing Co. under Section 2.2(b) no earlier than when such additional Federal Income Tax is due. In any other case where the Controlled Co. owes an amount to Distributing Co. under Section 2.2(b) (where, for example, the adjustments do not create any additional Federal Income Tax because the Controlled Group uses a Tax Attribute of the Distributing Group), the Controlled Co. shall pay the Distributing Co. any amount due to the Distributing Co. under Section 2.2(b) no earlier than after the expiration of the applicable statute of limitations for the Tax period in which the adjustments are made. Any payments required under this Section 5.2(a) shall include interest computed at the Prime Rate based on the number of days from the date any additional Tax was paid by Distributing Co. to 15 the date of the payment under this Section 5.2(a), or in the case the amount due Distributing Co. under Section 2.2(b) does not involve any additional Federal Income Tax (for example, the use by Controlled Group of a Tax Attribute of the Distributing Group), from the date any additional Tax would have been required to be paid by Distributing Co. to the date of payment under this Section 5.2(a). (b) Adjustments Resulting in Overpayments. Except as provided in Section 4.7 (d), Distributing Co. shall retain any Tax refund or other Tax Benefit resulting from any adjustment to the Consolidated Tax Liability or to any Distributing Co. Federal Consolidated Return. 5.3 Payment of State Income Tax With Respect to Returns Filed After the Distribution Closing Date. In the case of any Consolidated or Combined State Income Tax Return filed after the Distribution Closing Date: (a) Computation and Payment of Tax Due. On or prior to any Payment Date for any Tax Return with respect to any State Income Tax, the Responsible Company shall compute the amount of Tax required to be paid to the applicable Tax Authority (taking into account the requirements of Section 4.4 relating to consistent accounting practices) with respect to such Tax Return on such Payment Date and the Responsible Company shall, if it is not the Company liable for the Tax reported on such Tax Return, notify the Company liable for such Tax in writing of the amount of Tax required to be paid on such Payment Date. The Company liable for such Tax will pay such amount to such Tax Authority on or before such Payment Date. (b) Amount Due for Prior Periods. Subject to adjustments as set forth in Section 2.3(b)(ii), no amounts are currently due and owing by the Controlled Co. with respect to any Consolidated or Combined State Income Tax for periods ending on or prior to the year ended on December 31, 2001 or for Tax periods ended in 2002. 5.4 Payment of State Income Taxes Related to Adjustments. (a) Adjustments Resulting in Underpayments. Distributing Co. shall pay to the applicable Tax Authority when due any additional State Income Tax required to be paid as a result of any adjustment to the Tax liability with respect to any Tax Return for any Consolidated or Combined State Income Tax for any Pre-Distribution Period. Controlled Co. in accordance with Section 2.3(b)(ii) shall pay to Distributing Co. any amount due Distributing Co. under Section 2.3(b)(ii) within ninety (90) days from the date of receipt by Controlled Co. of a written notice and demand from Distributing Co. for payment of the amount due, accompanied by a statement describing in reasonable detail the particulars relating thereto. When the adjustments for a Tax Period create additional State Income Tax with respect to a Consolidated or Combined State Income Tax Return, the Controlled Co. shall pay the Distributing Co. any amount due to the Distributing Co. under Section 2.3(b)(ii) no earlier than when such additional State Income Tax is due. In any other case where the Controlled Co. owes an amount to Distributing Co. under Section 2.3(b)(ii) (where, for example, the adjustments do not create any 16 additional State Income Tax because the Controlled Group uses a Tax Attribute of the Distributing Group), the Controlled Co. shall pay the Distributing Co. any amount due to the Distributing Co. no earlier than after the expiration of the applicable statute of limitations for the Tax period in which the adjustments are made. Controlled Co. shall also pay to Distributing Co. interest on its respective share of any additional Tax computed at the Prime Rate based on the number of days from the date the additional Tax was paid by Distributing Co. to the date of its payment to Distributing Co. under this Section 5.4(a), or in the case the amount due Distributing Co. under Section 2.3(b)(ii) does not involve any additional State Income Tax (because, for example, of the use by Controlled Group of a Tax Attribute of the Distributing Group), from the date any additional Tax would have been required to be paid by Distributing Co. to the date of payment under this Section 5.2(a). (b) Adjustments Resulting in Overpayments. Except as provided in Section 4.7 (d), Distributing Co. shall retain any Tax refund or other Tax Benefit resulting from any adjustment to the Tax liability with respect to any Tax Return for any Consolidated or Combined State Income Tax for any Pre-Distribution Period. 5.5 Payment of Separate Company Taxes. Each Company shall pay, or shall cause to be paid, to the applicable Tax Authority when due all Separate Company Taxes owed by such Company or a member of such Company's Group. 5.6 Indemnification Payments. If any Company (the "payor") is required to pay to a Tax Authority a Tax that is properly allocated to another Company (the "responsible party") under this Agreement, the responsible party shall reimburse the payor within ninety (90) days of delivery by the payor to the responsible party of an invoice for the amount due, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. The reimbursement shall include interest on the Tax payment computed at the Prime Rate based on the number of days from the date of the payment to the Tax Authority to the date of reimbursement under this Section 5.6. 6. TAX BENEFITS. If a member of the Controlled Group receives any Tax Benefit with respect to any Taxes for which a member of the Distributing Group is liable hereunder, the Controlled Co. shall make a payment to the Distributing Co. within ninety (90) days following receipt of the Tax Benefit in an amount equal to the Tax Benefit (including any Tax Benefit realized as a result of the payment) plus interest on such amount computed at the Prime Rate based on the number of days from the date of receipt of the Tax Benefit to the date of the payment of such amount under this Section 6. 7. ASSISTANCE AND COOPERATION. 7.1 General. After the Distribution Closing Date, each of the Companies shall cooperate (and cause their respective Affiliates to cooperate) with each other and with each other's agents, including accounting firms and legal counsel, in connection with Tax matters relating to the Companies and their Affiliates including (i) preparation and filing of Tax Returns, (ii) the liability for and amount of any Taxes due (including estimated Taxes) or the right to and 17 amount of any refund of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or judicial proceeding in respect of Taxes assessed or proposed to be assessed. Such cooperation shall include making all information and documents in their possession relating to the other Company and their Affiliates available to such other Company as provided in Section 8. Each of the Companies shall also make available to each other, as reasonably requested and available, personnel (including officers, directors, employees and agents of the Companies or their respective Affiliates) responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes, and personnel reasonably required as witnesses or for purposes of providing information or documents in connection with any administrative or judicial proceedings relating to Taxes. For purposes of clarification, the Distributing Co. and its employees, agents or accountants shall be given direct access to employees and agents of the Controlled Group engaged in operations in order to prepare and file Tax Returns. Any information or documents provided under this Section 7 shall be kept confidential by the Company receiving the information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any administrative or judicial proceedings relating to Taxes. 7.2 Income Tax Return Information. Each Company will provide to the other Company information and documents relating to their respective Groups required by the other Company to prepare Tax Returns. The Responsible Company shall determine a reasonable compliance schedule for such purpose in accordance with Distributing Co.'s past practices. Any additional information or documents the Responsible Company requires to prepare such Tax Returns will be provided in accordance with past practices, if any, or as the Responsible Company reasonably requests and in sufficient time for the Responsible Company to file such Tax Returns on a timely basis. 8. TAX RECORDS. 8.1 Retention of Tax Records. Except as provided in Section 8.2, each Company shall preserve and keep all Tax Records exclusively relating to the assets and activities of its respective Group for Pre-Distribution Tax Periods, and Distributing Co. shall preserve and keep all other Tax Records relating to Taxes of the Groups for Pre-Distribution Tax Periods, for so long as the contents thereof may become material in the administration of any matter under the Code or other applicable Tax Law, but in any event until the later of (a) ninety (90) days after the expiration of any applicable statutes of limitation, and (b) seven (7) years after the Distribution Closing Date. If, prior to the expiration of the applicable statute of limitation and such seven-year period, a Company reasonably determines that any Tax Records which it is required to preserve and keep under this Section 8 are no longer material in the administration of any matter under the Code or other applicable Tax Law, such Company may dispose of such records upon ninety (90) days prior notice to the other Company. Such notice shall include a list of the records to be disposed of describing in reasonable detail each file, book, or other records being disposed. The notified Company shall have the opportunity, at its cost and expense, to copy or remove, within such 90-day period, all or any part of such Tax Records. 8.2 State Income Tax Returns. Tax Returns with respect to State Income Taxes 18 and workpapers prepared in connection with preparing such Tax Returns shall be preserved and kept, in accordance with the terms of Section 8.1, by the Company having liability for the Tax. 8.3 Access to Tax Records. The Companies and their respective Affiliates shall make available to each other for inspection and copying during normal business hours upon reasonable notice all Tax Records in their possession to the extent reasonably required by the other Company in connection with the preparation of Tax Returns, audits, litigation, or the resolution of items under this Agreement. 9. TAX CONTESTS. 9.1 Notice. Each of the Companies shall provide prompt notice to the other Company of any proposed assessment, actual assessment or proceeding or other Tax Contest on or before ninety (90) days after the date it becomes aware of such pending or threatened event related to Taxes for Tax Periods for which it is indemnified by the other Company hereunder. Such notice shall contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice and other documents received from any Tax Authority in respect of any such matters. If an indemnified party has knowledge of an asserted Tax liability with respect to a matter for which it is to be indemnified hereunder and such party fails to give the indemnifying party prompt notice of such asserted Tax liability, then (i) if the indemnifying party is precluded from contesting the asserted Tax liability in any forum as a result of the failure to give prompt notice, the indemnifying party shall have no obligation to indemnify the indemnified party for any Taxes arising out of such asserted Tax liability, and (ii) if the indemnifying party is not precluded from contesting the asserted Tax liability in any forum, but such failure to give prompt notice results in a monetary detriment to the indemnifying party, then any amount which the indemnifying party is otherwise required to pay the indemnified party pursuant to this Agreement shall be reduced by the amount of such detriment. 9.2 Control of Tax Contests. (a) Separate Company Taxes. In the case of any Tax Contest with respect to any Separate Company Tax, the Company having liability for the Tax shall have exclusive control over the Tax Contest, including exclusive authority with respect to any settlement of such Tax liability. (b) Consolidated or Combined Income Taxes. In the case of any Tax Contest with respect to any Consolidated or Combined Income Tax, (i) Distributing Co. shall control and decide on the defense or prosecution of the portion of the Tax Contest directly and exclusively related to any Distributing Adjustment, including settlement of any such Distributing Adjustment and (ii) Controlled Co. shall have the right and authority to direct Distributing Co. in the defense or prosecution of the portion of the Tax Contest directly and exclusively related to any Controlled Adjustment, including settlement of any such Controlled Adjustment, and (iii) Distributing Co. shall control the defense or prosecution of Joint Adjustments, including settlement of any such Joint Adjustment, and any and all administrative matters not directly and 19 exclusively related to any Distributing Adjustment or Controlled Adjustment. A Company shall not agree to any Tax liability for which another Company may be liable under this Agreement, or compromise any claim for any Tax Benefit which another Company may be entitled under this Agreement, without such other Company's written consent (which consent may be given or withheld at the sole discretion of the Company from which the consent would be required), except that this sentence shall not limit Distributing Co.'s authority and rights under clause (iii) of the preceding sentence. The Distributing Co., in the case of any examination or audit of a Distributing Co. Federal Consolidated Return, and the Responsible Company in the case of any examination or audit of a Consolidated or Combined State Income Tax Return, shall be the only parties representing the members of the Group before, or meeting with, any Federal or State Tax Authority in connection with the examination or audit. Notwithstanding the representation by the Distributing Co. or Responsible Company before such Tax Authority, the Distributing Co. or Responsible Company shall (A) provide the Controlled Co. with all information reasonably requested relating to any Controlled Adjustment or Joint Adjustment; (B) submit to such Tax Authority any facts, legal arguments or other matters deemed advisable by Controlled Co. and provided by it to Distributing Co. or the Responsible Company; and (C) not have the authority to settle or otherwise compromise a Controlled Adjustment. 10. EFFECTIVE DATE. This Agreement shall be effective on the Distribution Closing Date. 11. NO INCONSISTENT ACTIONS. 11.1 Prohibited Actions. Controlled Co. covenants and agrees that it will not take any Prohibited Action (as defined below), and it will cause its Affiliates to refrain from taking any Prohibited Action, unless it has obtained the prior written consent of Distributing Co. With respect to any Prohibited Action proposed by Controlled Co., Distributing Co. shall grant its consent to such Prohibited Action if, subject to Section 11.3, the Controlled Co. obtains a ruling with respect to the Prohibited Action from the Internal Revenue Service or other applicable Tax Authority that is reasonably satisfactory to the Distributing Co., or the Controlled Co. obtains a tax opinion addressed to Distributing Co. from one or more qualified firms designated by Distributing Co. and such tax opinion is satisfactory to the Distributing Co. in its absolute discretion. A Prohibited Action is any action which is inconsistent with the Tax treatment of the Transactions and Distribution as contemplated in the Ruling Request and Letter Ruling, and includes, but is not limited to, the following actions: (a) any acquisition, directly or indirectly, of the shares of capital stock of the Controlled Co. which has the effect of disqualifying a Distribution, or any part thereof, from tax-free treatment under Section 355 of the Code, including stock redemptions and stock issuances (whether in public offerings, private placements or otherwise) and whether or not any such acquisition is the result of direct actions, or within the control, of the Controlled Co.; (b) a liquidation of the Controlled Co.; (c) a merger or consolidation with, or acquisition of Controlled Co. by, 20 another company or person; (d) the sale, distribution or other disposition of the assets of the Controlled Co. in a manner that would adversely affect the Income Tax consequences of the Transactions; (e) the discontinuance of any material active businesses conducted by Controlled Co. as of the Distribution Closing Date; (f) any event or fact relating to the Controlled Co. which is inconsistent with a representation made by the Controlled Co. or Distributing Co. in the Ruling Request, a representation, condition or factual assumption contained in the Letter Ruling or otherwise in connection with any distribution under Code Section 355; (g) any issuance of stock of Controlled Co. by Controlled Co. (whether in public offerings, private placements or otherwise) or redemption or acquisition of stock of Controlled Co. by Controlled Co., after the Distribution (including stock of Controlled Co. issued to a person or group of persons which becomes a five percent (5%) or greater shareholder of Controlled Co. as defined in Section 355(e) of the Code and actively participates in the management or operations of Controlled Co. by reason of that acquisition or at any point thereafter and before the end of the two-year period beginning on the Distribution Closing Date) which, by itself or together with transactions with respect to Controlled Co. after the Distribution Closing Date and together with other transactions with respect to Distributing Co. or Controlled Co. stock within two years prior to the Distribution Closing Date, would cause the Distribution to be presumed under Section 355(e)(2)(B) of the Code or Treasury Regulations thereunder to be a distribution which is under Section 355(e)(2)(A)(ii) of the Code part of a plan or series of related transactions pursuant to which one or more persons acquire directly or indirectly stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock of Controlled or stock possessing fifty (50%) percent or more of the total value of all classes of stock of Controlled. In applying this section (g) with respect to other transactions with respect to Distributing Co. or Controlled Co. stock within two years prior to the Distribution Closing Date, the Distribution, Distributing Co.'s stock repurchase plan, all outstanding Distributing Co. stock options and warrants, and stock issued on the exercise of options or as consideration in acquisitions shall be taken into account. Unless otherwise provided in proposed, final or temporary Treasury Regulations under Section 355(e) of the Code or other clear authority within the meaning of Treasury Regulations section 1.6662-4(d)(3)(iii) and (iv), the exercise of options shall be considered an issuance or acquisition of stock. For purposes of this Section 11.1, any reference to Controlled Co. includes a reference to any member of the Controlled Group, and any reference to Distributing Co. includes a reference to any member of the Distributing Group. Except for a longer period as may be required by Treasury Regulations under Section 355(e) of the Code, clauses (a), (b), (c), (d), (e) and (f) of this Section 11.1 cease to have effect three (3) years after the Distribution Closing Date; clause (g) shall cease to have effect one year thereafter; and clause (e) shall cease to have effect after December 31, 2002. 11.2 No Inconsistent Plan or Intent. Controlled Co. and Distributing Co. each represents and warrants that neither it nor any of its Affiliates has any plan or intent to take any 21 action which is inconsistent with any factual statements or representations in the Letter Ruling or Ruling Request. Regardless of any change in circumstances, Controlled Co. and Distributing Co. each covenant and agree that it will not take, and it will cause its Affiliates to refrain from taking, any such inconsistent action on or before the expiration of the applicable statute of limitation period for the assessment of Tax for the Tax period in which the Distribution Closing Date occurs other than as permitted in this Section 11. 11.3 Amended or Supplemental Rulings. No party other than Distributing Co. shall have the authority to file with the IRS a ruling request relating to the Transactions or Distribution. At the expense of Controlled Co., Controlled Co. may prepare, or cause to be prepared, an amended or supplemental ruling request to be filed by Distributing Co. and relating to the Transactions or Distribution and provide a copy of such request to Distributing Co. provided, however, that any decision whether to file any such request with the IRS, the form and content of such request and the precise rulings requested shall be made exclusively by Distributing Co . 11.4 Waiver. Notwithstanding Section 11.1(a) or (g) to the contrary, the limitations in Section 11.1(g) shall not apply if (i) there is no excess of the fair market value of all of the shares of Controlled Co. distributed in the Distribution on the Distribution Closing Date over the adjusted tax basis of those shares and (ii) the Controlled Co. obtains a tax opinion addressed to Distributing Co. from a qualified firm designated by Controlled Co. and such tax opinion is satisfactory to Distributing Co. in its reasonable discretion. The adjusted basis of the shares in this Section 11.4(a) shall be estimated by Distributing Co. within one hundred twenty (120) days after the Distribution Closing Date and that amount shall be provided in writing to Controlled Co. The initial estimate of the adjusted tax basis of the shares shall be adjusted based upon the Consolidated Tax Return as filed by the Distributing Group for the Tax period ended on December 31, 2001, or as later adjusted by a Tax Authority, but any such adjustment (whether by such Tax Return or a Tax Authority) shall not affect the application of clauses (i) and (ii), or stock issuances or other actions limited by Section 11.1(a) or (g), before the particular adjustment. 11.5 Effect of Waiver. The Distributing Co.'s granting of consent to a Prohibited Action, whether in accordance with Section 11.1, Section 11.4 or otherwise, does not make a Prohibited Action a non-Prohibited Action for purposes of this Agreement. Thus, the Controlled Co. may be liable to the Distributing Group for such Prohibited Action despite such consent in accordance with Section 2.5(b) or Section 11.6. 11.6 Additional Indemnification by Controlled Co. In addition to the Controlled Co. being responsible under Section 2.5(a)(ii), 2.5(a)(iii) and 2.5(b) for Taxes as a result of the Controlled Co. engaging in any Prohibited Action or breaching its representations, warranties or covenants in Section 11.2, the Controlled Co. and each member of the Controlled Group indemnifies, defends and holds harmless the Distributing Co. and each member of the Distributing Group, and each of their respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing, from and against any and all liabilities, obligations, damages, costs, expenses or fees relating to, arising out of or 22 resulting from the Controlled Co. or any member of the Controlled Group engaging in any Prohibited Action or breaching its representations, warranties or covenants in Section 11.2 including, but not limited to, any and all liabilities, obligations, damages, costs, expenses or fees relating to any lawsuit by the shareholders of Distributing Co. against the Distributing Co., which may be filed if the Distribution fails to qualify for tax-free treatment for such shareholders under Section 355 of the Code. 11.7 Additional Indemnification by Distributing Co. For purposes of this Section 11.7, a Prohibited Action of Distributing Co. has the meaning it has in Section 11.1 by substituting "Distributing Co." for "Controlled Co." The Distributing Co. and each member of the Distributing Group indemnifies, defends and holds harmless the Controlled Co. and each member of the Controlled Group, and each of their respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing, from and against any and all liabilities, obligations, damages, costs, expenses or fees relating to, arising out of or resulting from the Distributing Co. or any member of the Distributing Group engaging in any Prohibited Action or breaching its representations, warranties or covenants in Section 11.2 including, but not limited to, any and all liabilities, obligations, damages, costs, expenses or fees relating to any lawsuit by the shareholders of Distributing Co. against the Controlled Co. which may be filed if the Distribution fails to qualify for tax- free treatment for such shareholders under Section 355 of the Code. 11.8 Additional Taxes. Controlled Co. shall also be liable for any Income Taxes of the Distributing Group for its Tax Period ending on December 31, 2000 relating to income arising by reason of Treasury Regulations section 1.1502-19, if Controlled Co. does not contribute before the Distribution Closing Date funds to its subsidiaries as directed by Distributing Co. and, as a result of such failure, income arises in the Distributing Group by reason of Treasury Regulations section 1.1502-19. 11.9 Standard. Any opinion issued to Distributing Co. in accordance with Section 11(a) or 11(d)(i) shall be issued under a "should" standard rather than under a "more likely than not" or lesser standard of certainty. 12. SURVIVAL OF OBLIGATIONS. Unless otherwise stated to the contrary in this Agreement, the representations, warranties, covenants and agreements set forth in this Agreement shall be unconditional and absolute and shall remain in effect without limitation as to time. 13. TREATMENT OF PAYMENTS; TAX GROSS UP. 13.1 Treatment of Tax Indemnity and Tax Benefit Payments. n the absence of any change in tax treatment under the Code or other applicable Tax Law, (a) any Tax indemnity payments made by a Company under Section 5 shall be reported for Tax purposes by the payor and the recipient as distributions or capital contributions, as appropriate, occurring immediately before the Distribution Closing Date, but 23 only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Treasury Regulation Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws); and (b) any Tax Benefit payments made by a Company under Section 6, shall be reported for Tax purposes by the payor and the recipient as distributions or capital contributions, as appropriate, occurring immediately before the Distribution Closing Date, but only to the extent the payment does not relate to a Tax allocated to the payor in accordance with Treasury Regulation Section 1.1502-33(d) (or under corresponding principles of other applicable Tax Laws). 13.2 Tax Gross Up. If notwithstanding the manner in which Tax indemnity payments and Tax Benefit payments were reported, there is an adjustment to the Tax liability of a Company as a result of its receipt of a payment pursuant to this Agreement, such payment shall be appropriately adjusted so that the amount of such payment, reduced by the amount of all Income Taxes payable with respect to the receipt thereof (but taking into account all correlative Tax Benefits resulting from the payment of such Income Taxes), shall equal the amount of the payment which the Company receiving such payment would otherwise be entitled to receive pursuant to this Agreement. 13.3 Interest Under This Agreement. Anything herein to the contrary notwithstanding, to the extent one Company ("indemnitor") makes a payment of interest to another Company ("indemnitee") under this Agreement with respect to the period from the date that the indemnitee made a payment of Tax to a Tax Authority to the date that the indemnitor reimbursed the indemnitee for such Tax payment, or with respect to the period from the date that the indemnitor received a Tax Benefit to the date indemnitor paid the Tax Benefit to the indemnitee, the interest payment shall be treated as interest expense to the indemnitor (deductible to the extent provided by law) and as interest income by the indemnitee (includible in income to the extent provided by law). The amount of the interest payment shall not be adjusted under Section 13.2 to take into account any associated Tax Benefit to the indemnitor or increase in Tax to the indemnitee. 14. DISAGREEMENTS. If after good faith negotiations the parties cannot agree on the application of this Agreement to any Tax matter, then the Tax matter will be referred to a nationally recognized accounting firm selected by Distributing Co. (the "Accounting Firm") provided, however, that the firm so selected may not be the firm regularly used by Distributing Co. or Controlled Co. The Accounting Firm shall furnish written notice to the parties of its resolution of any such disagreement as soon as practical, but in any event no later than forty-five (45) days after its acceptance of the matter for resolution. Any such resolution by the Accounting Firm will be conclusive and binding on all parties to this Agreement. In accordance with Section 15, each party shall pay its own fees and expenses (including the fees and expenses of its representatives) incurred in connection with the referral of the matter to the Accounting Firm. All fees and expenses of the Accounting Firm in connection with such referral shall be shared equally by the parties affected by the matter. 24 15. LATE PAYMENTS. Any amount owed by one party to another party under this Agreement which is not paid when due shall bear interest at the Prime Rate, compounded semiannually, from the due date of the payment to the date paid. To the extent interest required to be paid under this Section 15 duplicates interest required to be paid under any other provision of this Agreement, interest shall be computed at the higher of the interest rate provided under this Section 15 or the interest rate provided under such other provision. 16. EXPENSES. 16.1 Except as otherwise provided in this Agreement, each party and its Affiliates shall bear their own expenses incurred in connection with the preparation of Tax Returns, Tax Contests, and other matters related to Taxes under the provisions of this Agreement. 16.2 Fees, costs and expenses incurred by the Distributing Group to unaffiliated third parties ("Third-Party Costs") shall be paid by the Controlled Group to the extent set forth in this Section 16.2. (a) Fifty percent (50%) of the Third-Party Costs relating to the following Costs: (i) Costs to the Accounting Firm as provided in Section 14; (ii) Costs relating to a Tax Contest which involves a Joint Adjustment or shared liability under Section 2.5(c); and (iii) relating to confirmation by an accounting firm of the Controlled Group's determinations under Sections 5.1(c)(ii) and 5.3(c)(ii). (b) One hundred percent (100%) of the Third-Party Costs relating to the following Costs: (i) Costs relating to the preparation and filing of Consolidated or Combined Income Tax Returns specified in Section 5.1(c) and Section 5.3(c), which are allocated by the third party providing the services to members of the Controlled Group; (ii) Costs relating to the preparation and filing of Tax Returns described in Section 4.2(d); (iii) Costs relating to a Tax Contest which involves a Controlled Adjustment; and (iv) Costs incurred by the Distributing Group in connection with an action, or proposed action, of a member of the Controlled Group which constitutes, or might constitute, a Prohibited Action under Section 11, including any Costs incurred by the Distributing Group in making a decision to waive the restriction on an action of a member of the 25 Controlled Group which constitutes, or might constitute, a Prohibited Action. 17. GENERAL PROVISIONS. 17.1 Addresses and Notices. Any notice, demand, request or report required or permitted to be given or made to any party under this Agreement shall be in writing and shall be deemed given or made when delivered in party or when sent by first class mail or by other commercially reasonable means of written communication (including delivery by an internationally recognized courier service or by facsimile transmission) to the party at the party's principal business address. A party may change the address for receiving notices under this Agreement by providing written notice of the change of address to the other parties. 17.2 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. 17.3 Waiver. No failure by any party to insist upon the strict performance of any obligation under this Agreement or to exercise any right or remedy under this Agreement shall constitute waiver of any such obligation, right, or remedy or any other obligation, rights, or remedies under this Agreement. 17.4 Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained herein shall not be affected thereby. 17.5 Further Action. The parties shall execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement, including the execution and delivery to the other parties and their Affiliates and representatives of such powers of attorney or other authorizing documentation as is reasonably necessary or appropriate in connection with Tax Contests (or portions thereof) under the control of such other parties in accordance with Section 9. 17.6 Integration. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter of this Agreement and supersedes all prior agreements and understandings pertaining thereto. In the event of any inconsistency between this Agreement and the Distribution Agreement or any other agreements relating to the transactions contemplated by the Distribution Agreement, the provisions of this Agreement shall control. 17.7 Construction. The language in all parts of this Agreement shall in all cases be construed according to its fair meaning and shall not be strictly construed for or against any party. 17.8 No Double Recovery; Subrogation. No provision of this Agreement shall be construed to provide an indemnity or other recovery for any costs, damages, or other amounts for which the damaged party has been fully compensated under any other provision of this Agreement 26 or under any other agreement or action at law or equity. Unless expressly required in this Agreement, a party shall not be required to exhaust all remedies available under other agreements or at law or equity before recovering under the remedies provided in this Agreement. Subject to any limitations provided in this Agreement (for example, the limitation on filing claims for refund in Section 4.7), the indemnifying party shall be subrogated to all rights of the indemnified party for recovery from any third party. 17.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. 17.10 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts executed in and to be performed in that State. 17.11 Joint and Several Liability. Whenever the Distributing Co. is liable to the Controlled Co. under this Agreement (a "Distributing Co. Liability") or the Controlled Co. is liable to the Distributing Co. hereunder (a "Controlled Co. Liability"), each member of the Distributing Group shall be jointly and severally liable for a Distributing Co. Liability and each member of the Controlled Group shall be jointly and severally liable for a Controlled Co. Liability. This Section 17.11 shall be binding upon the successors, assigns or transferees of any member of the applicable Group, and upon any entity which becomes affiliated with the applicable Group after the date hereof and which would have been a member of the Distributing Group or Controlled Group if the affiliation existed immediately after the Distribution Closing Date (a "New Member"). Each of the Distributing Co. and the Controlled Co. shall cause each existing member and New Member of the Distributing Group and Controlled Group, as applicable, to execute a counterpart to this Agreement and agree to the provisions hereof including this Section 17.11. 17.12 General Provision. The Distributing Co. shall be responsible for preparing and mailing to the shareholders of Distributing Co. the statement required by Treasury Regulation Section 1.355-5(b). IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers as of the date first written above. Dover Downs Entertainment, Inc. By: ___________________________________ Name:___________________________________ Its: ___________________________________ Dover Downs Gaming & Entertainment, Inc. 27 By: ___________________________________ Name:___________________________________ Its: ___________________________________ 28 EX-10.4 7 dex104.txt REAL PROPERTY AGREEMENT EXHIBIT 10.4 REAL PROPERTY AGREEMENT THIS AGREEMENT is executed and made effective as of January 15, 2002, by and between DOVER DOWNS ENTERTAINMENT, INC., a Delaware corporation ("DVD"), DOVER DOWN GAMING & ENTERTAINMENT, INC., a Delaware corporation ("Gaming & Entertainment"), DOVER DOWNS, INC. ("Slots") and DOVER DOWNS INTERNATIONAL SPEEDWAY, INC. ("Speedway"). WHEREAS, DVD, through its ownership of all of the issued and outstanding common stock (the "Stock") of Slots, participates in the business of gaming operations; and WHEREAS, the Board of Directors of DVD has determined that it would be advisable and in the best interests of DVD and its shareholders for DVD to contribute all of the Stock and any other related assets and liabilities relating to gaming operations (the "Business") to Gaming & Entertainment in exchange for Gaming & Entertainment common stock and Class A Common Stock and thereafter to distribute all of the outstanding shares of Gaming & Entertainment common stock and Class A Common Stock on a pro rata basis to the holders of DVD's common stock and Class A Common Stock (the "Distribution") pursuant to an Agreement Regarding Distribution and Plan of Reorganization, dated as of the date hereof, between DVD and Gaming & Entertainment (the "Distribution Agreement"); and WHEREAS, the parties intend that the transactions described herein will be effective at the Effective Time (as defined in the Distribution Agreement); and WHEREAS, the parties hereto deem it to be appropriate and in the best interests of the parties that they enter into certain agreements relative to the real property at DVD's Dover, Delaware facility on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Real Property Transfers. At or prior to the Effective Time, or as soon thereafter as is reasonably practical, the following real property transfers shall take place, in each case without the payment of any monetary consideration (the "Real Property Transfers"): (a) DVD shall cause the transfer to Slots of a 9.3 plus or minus acre parcel of land with all improvements thereon owned by Dover Downs Properties, Inc. ("Properties") and previously acquired by Properties from Lowe's Home Centers (the "Lowe's Parcel"); (b) DVD shall cause the subdivision (the "Subdivision") of the lot upon which the casino, hotel and auto superspeedway facilities are located into two lots: the first lot shall consist of a 77 plus or minus acre parcel of land with all improvements thereon, including the casino, hotel, access roads, parking facilities and the Lowe's Parcel ("Lot 1"); and the second lot shall consist of a 142 plus or minus acre parcel of land with all improvements thereon, including the auto superspeedway ("Lot 2"), with the boundary line between Lot 1 and Lot 2 to be as set forth in that certain plan dated October 25, 2001 by Becker Morgan Group prepared in connection with a variance request relative to the waiver of all building line restrictions between Lot 1 and Lot 2 (the "Becker Morgan Plan"); and -1- (c) DVD shall, subsequent to the Subdivision, cause the transfer to Speedway, of Lot 2 and all other parcels of land, with any improvements thereon, owned by Slots or Properties within Kent County, in the State of Delaware, other than Lot 1. 2. Liabilities Associated with Real Property Transfers. With respect to the Real Property Transfers: (a) All real property shall be conveyed in fee simple by special warranty deed and the conveyances are made AS IS, WHERE IS, with no representation or warranty and as further disclaimed in Section 2.01(f) to the Distribution Agreement, except that the transferor shall discharge any mortgages, mechanics liens or other liens dischargeable by the payment of money prior to the transfer; (b) All liabilities associated with claims arising after the Effective Time which relate to the condition of any real property at the time of transfer, including the environmental condition thereof, shall be borne by the transferee with indemnification afforded to the transferor by the transferee and the ultimate corporate parent of the transferee which is a party hereto for all Indemnifiable Loss as defined in and pursuant to the indemnification provisions set forth in Articles IV and V to the Distribution Agreement; and (c) All liabilities associated with the use and occupancy of any real property prior to the Effective Time, other than as set forth in Section 2(b) above, shall constitute DVD Liabilities or Gaming & Entertainment Liabilities, as the case may be, in accordance with the Distribution Agreement. 3. Expenses and Prorations Associated with Real Property Transfers. With respect to the Real Property Transfers: (a) The transferee shall pay for recording the deed and for all searches, title insurance and other conveyancing and closing expenses; (b) The parties anticipate an exemption from transfer taxes but agree that any transfer taxes or title company settlement charges will be divided equally among transferor and transferee; and (c) Real estate taxes and utility charges previously paid or due and owing shall not be prorated as of the Effective Time. 4. Future Uses of Property. (a) The deed or deeds required for the Real Property Transfers to Speedway shall contain certain use restrictions prohibiting Speedway from using the property for a casino, hotel, and certain other uses to be agreed upon, but shall not in any way restrict the continued operation of the auto superspeedway. (b) Notwithstanding the approval of the variance request for a waiver of all building line restrictions referred to in Section 1(b) above, DVD and Gaming & Entertainment shall ensure that -2- the owner of Lot 1 or the owner of Lot 2, as the case may be, shall not construct any improvements, other than those depicted on the Becker Morgan Plan, within fifty (50) feet of the boundary line between Lot 1 and Lot 2 without obtaining the prior written approval of the other property owner, provided that either party shall be entitled to construct any improvements within fifty (50) feet of the boundary line which would not otherwise require regulatory approval without the prior written approval of the other party. 5. Real Property Easements. At or prior to the Effective Time, or as soon thereafter as is reasonably practical, the following real property easements shall be entered into, in each case without the payment of any monetary consideration (the "Real Property Easements"): (a) Speedway shall enter into one or more easement agreements with Slots pursuant to which Speedway shall grant to Slots, at no charge to Slots, certain use and occupancy rights relative to the horse track on Lot 2 for horse racing purposes. The easement shall remain in effect as long as Slots shall maintain a license to conduct horse racing at the horse track, but shall be limited to exclusive use during the period beginning November 1 of each year and ending April 30 of the following year, together with setup and tear down rights for the two weeks before and after such period. During each exclusive use period, Slots shall also be permitted use and occupancy of (1) the western portion of the Winston Cup garage parking area located on the inside of the Superspeedway and (2) certain outdoor viewing areas, including the winner's circle. Slots shall be required to maintain the harness track in at least as good a condition as exists at the Effective Time and shall be responsible for maintaining the inside and outside fences, all exterior lighting, the toteboard, the winner's circle, and the horse racing camera tower and judging stands; and (b) Slots shall enter into one or more easement or cross-easement agreements relative to access, electric lines, phone lines, water lines, and sewer discharge; and (c) Slots and Speedway shall enter into a cross-easement relative to stormwater management for Lot 1 and Lot 2 substantially consistent with past practices. 6. Real Property Leases. At or prior to the Effective Time, or as soon thereafter as is reasonably practical, the following real estate agreements shall be entered into (the "Real Property Leases"): (a) Slots shall enter into a long-term lease with Speedway under which will be afforded to Speedway, at no charge to Speedway, certain use and occupancy rights relative to: (1) the enclosed grandstand on Lot 1, such use to be for the third floor seating area and dining room of the grandstand, with access substantially consistent with past practices; and (2) certain parking facilities on Lot 1, such use to include an area for Speedway to erect temporary credential facilities and to be substantially consistent with past practices, but subject to the parking and access needs of the casino, hotel and other facilities of Slots on Lot 1 and modification due to future development plans of Slots. The term of the lease shall be for the shorter of 99 years or as long as Speedway continues to operate the auto superspeedway on Lot 2, but shall be limited to exclusive use during two (2) extended motorsports event weekends each calendar year, on dates as are chosen by Speedway during the period from May 1 to October 30, each such extended weekend not to exceed four (4) days of motorsports and other -3- entertainment events, together with setup and tear down rights for the two weeks before and after such extended weekend; (b) Slots and Speedway shall enter into a short-term lease with respect to certain office space to be used by Speedway employees. 7. Liabilities Associated Real Property Easements and Real Property Leases. With respect to the Real Property Easements and Real Property Leases:: (a) Gaming & Entertainment shall indemnify, defend and hold harmless DVD and its affiliates and their respective directors, officers, employees and agents (the "DVD Indemnitees") from and against any and all damage, loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses in connection with any and all actions or threatened actions) ("Indemnifiable Losses") incurred or suffered by any of the DVD Indemnitees arising from, related to or associated with (i) the condition of, the furnishing of, or the failure to furnish any real property or other rights to Gaming & Entertainment or its subsidiaries as provided for in such agreements, other than liabilities arising out of the willful misconduct or gross negligence of the DVD Indemnitees and (ii) the gross negligence or willful misconduct of the Gaming & Entertainment Indemnitees (as defined below) relative to the furnishing of, or the failure to furnish any real property or other rights to DVD or its subsidiaries as provided for in such agreements; and (b) DVD shall indemnify, defend and hold harmless Gaming & Entertainment and its affiliates and their respective directors, officers, employees and agents (the "Gaming & Entertainment Indemnitees") from and against any and all Indemnifiable Losses incurred or suffered by any of the Gaming & Entertainment Indemnitees arising from, related to or associated with (i) the condition of, the furnishing of, or the failure to furnish any real property or other rights to DVD or its subsidiaries as provided for in such agreements, other than liabilities arising out of the willful misconduct or gross negligence of the Gaming & Entertainment Indemnitees, and (ii) the gross negligence or willful misconduct of the DVD Indemnities relative to the furnishing of, or the failure to furnish any real property or other rights to Gaming & entertainment or its subsidiaries as provided for in such agreements. 8. Limitation of Liability. In no event shall either DVD, Gaming & Entertainment or any of their respective subsidiaries have any liability, whether based on contract, tort (including, without limitation, negligence), warranty or any other legal or equitable grounds, for any punitive, consequential, special, indirect or incidental loss or damage suffered by the other arising from or related to this Agreement, the Real Property Transfers, the Real Property Easements, or the Real Property Leases including without limitation, loss of data, profits, interest or revenue, or interruption of business, even if the other party is advised of the possibility of such losses or damages. 9. Insurance. As long as any Real Property Easement or Real Property Lease is in effect, each party hereunder shall obtain and maintain the following insurance: -4- (a) Statutory workers compensation including employers liability insurance with a limit of liability of not less than Five Hundred Thousand Dollars ($500,000) and a waiver of subrogation to the other party, its affiliates, and their respective directors, agents, employees and officers. (b) Commercial general liability and umbrella/excess liability insurance covering claims for injuries to members of the public or damage to property of others arising out of any negligent act or omission of such party or any of its employees or agents. The policy shall be an occurrence form and at least as broad as a standard ISO form with the following minimum limits: $100,000,000 Each Occurrence $100,000,000 Products and Completed Operations/Aggregate $100,000,000 Personal and Advertising Injury $100,000,000 General Aggregate The policy shall include the following endorsements: Severability of Interest Primary, not Contributing Coverage Blanket Contractual Broad form Proprty Damage Liquor Liability (c) Commercial automobile liability insurance covering claims for injuries to members of the public and/or damages to property of others arising from the use of motor vehicles, with a minimum $1,000,000 combined single limit for bodily injury and property damage liability together with not less than $50,000,000 in umbrella/excess coverage. Coverage must be at least as broad as a standard ISO form. Coverage must apply to any auto, including hired and non- owned autos. (d) The insurance required by clauses (b) and (c) above shall be endorsed to name the other party, its affiliates, and their respective directors, agents, employees and officers as an additional insured. (e) All risk property insurance, including business interruption insurance, covering such party's property, including a waiver of subrogation against the other party, its affiliates, and their respective directors, agents, employees and officers. (f) All insurance shall be in a form and with insurers reasonably acceptable to counsel for the other party. Each party shall be required to give the other party at least thirty (30) days written notice of any modification, cancellation or exhaustion of limits. (g) Each party may require that the limits set forth in this Section be increased if the amount being maintained is reasonably deemed inadequate by the requesting party or may require that additional coverages be obtained if reasonably deemed necessary by the requesting party, provided that (1) no such request may be made until the five (5) year anniversary of the Effective Time, (2) no subsequent request shall be made within five (5) years of a prior request, (3) the insurance must be available at commercially reasonable rates, and (4) disputes under this Section shall be handled in accordance with Section 10 hereto. (h) Notwithstanding the minimum limits set forth above, should a party carry higher limits, it shall afford the benefits of coverage required under this Section in all of its policies to the other party, its affiliates, and their respective directors, agents, employees and officers. -5- 10. Dispute Resolution. Any disputes arising under this Agreement shall be resolved in accordance with Section 13.10 (Disputes) of the Distribution Agreement. 11. General. (a) Force Majeure. Any delays in or failure of performance by DVD or Gaming & Entertainment under this Agreement or any Real Property Easements or Real Property Leases (the "Ancillary Agreements") shall not constitute a default hereunder or thereunder if and to the extent such delay or failure of performance is caused by occurrences beyond the reasonable control of DVD or Gaming & Entertainment, as the case may be, including, but not limited to: acts of God or the public enemy; compliance with any order or request of any governmental authority; acts of war; riots or strikes or other concerted acts of personnel; or any other causes beyond the reasonable control of DVD or Gaming & Entertainment, whether or not of the same class or kind as those specifically named above. (b) Confidentiality. Each party shall hold and cause its directors, officers, employees, agents, consultants and advisors to hold, in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all information concerning the other party (except to the extent that such information can be shown to have been (a) in the public domain through no fault of such disclosing party or (b) lawfully acquired after the Effective Time on a non-confidential basis from other sources by the disclosing party), and neither party shall release or disclose such information to any other person, except its auditors, attorneys, financial advisors, bankers and other consultants and advisors who shall be advised of the provisions of this Section and be bound by them. (c) Expenses. Except as specifically provided in this Agreement or in the Distribution Agreement, all costs and expenses incurred prior to the Effective Time in connection with the preparation, execution, delivery and implementation of this Agreement and with the consummation of the transactions contemplated by this Agreement (including, without limitation, all fees for counsel, accountants and financial and other advisors) shall be paid by DVD and all such costs incurred thereafter shall be paid by the party incurring such costs. (d) Notices. All notices and communications under this Agreement shall be deemed to have been given (a) when received, if such notice or communication is delivered by facsimile, hand delivery or overnight courier, and, (b) three (3) business days after mailing if such notice or communication is sent by United States registered or certified mail, return receipt requested, first class postage prepaid. All notices and communications, to be effective, must be properly addressed to the party to whom the same is directed at its address as set forth in the Distribution Agreement. Either party may, by written notice delivered to the other party in accordance with this Section, change the address to which delivery of any notice shall thereafter be made. (e) Amendment and Waiver. This Agreement may not be altered or amended, nor may any rights hereunder be waived, except by an instrument in writing executed by the party or parties to be charged with such amendment or waiver. No waiver of any terms, provision or condition of or failure to exercise or delay in exercising any rights or remedies under this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, provision, condition, right or remedy or as a waiver of any other term, provision or condition of this Agreement. -6- (f) Entire Agreement. This Agreement together with the Ancillary Agreements shall constitute the entire understanding of the parties hereto with respect to the subject matter hereof, superseding all negotiations, prior discussions and prior agreements and understandings relating to such subject matter. To the extent that the provisions of this Agreement are inconsistent with the provisions of the Distribution Agreement or any Ancillary Agreement, the provisions of the more specific agreement shall prevail in the following order: Distribution Agreement, this Agreement, Ancillary Agreement. (g) Parties in Interest. Neither of the parties hereto may assign its rights or delegate any of its duties under this Agreement without the prior written consent of the other party. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. Should a party which owns any real property governed by this Agreement sell or otherwise transfer the real property to a third party, it shall be obligated to require that such party agree to be bound by the provisions of this Agreement. Nothing contained in this Agreement or any Ancillary Agreement, express or implied, is intended to confer any benefits, rights or remedies upon any person or entity other than the DVD Indemnitees and Gaming & Entertainment Indemnitees. (h) Further Assurances and Consents. In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto will use its reasonable efforts to (a) execute and deliver such further instruments and documents and take such other actions as any other party may reasonably request in order to effectuate the purposes of this Agreement and to carry out the terms hereof and (b) take, or cause to be taken, all actions, and do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements or otherwise to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, using its reasonable efforts to obtain any consents and approvals, make any filings and applications and remove any liens, claims, equity or other encumbrances on any asset of the other party necessary or desirable in order to consummate the transactions contemplated by this Agreement; provided that no party hereto shall be obligated to pay any consideration therefor (except for filing fees and other similar charges) to any third party from whom such consents, approvals and amendments are requested or to take any action or omit to take any action if the taking of or the omission to take such action would be unreasonably burdensome to the party or its business. (i) Severability. The provisions of this Agreement are severable and should any provision hereof be void, voidable or unenforceable under any applicable law, such provision shall not affect or invalidate any other provision of this Agreement, which shall continue to govern the relative rights and duties of the parties as though such void, voidable or unenforceable provision were not a part hereof. (j) Survival. The indemnification and insurance provisions of this Agreement shall survive until five (5) years after the expiration of all Ancillary Agreements. (k) Governing Law. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Delaware, without regard to the conflicts of law rules of such state. (l) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute but one and the same Agreement. -7- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Dover Downs Entertainment, Inc. By: /s/ Denis McGlynn -------------------------------- Name: Denis McGlynn Its: President Dover Downs Gaming & Entertainment, Inc. By: /s/ Denis McGlynn -------------------------------- Name: Denis McGlynn Its: President Dover Downs, Inc. By: /s/ Denis McGlynn -------------------------------- Name: Denis McGlynn Its: President Dover Downs International Speedway, Inc. By: /s/ Denis McGlynn -------------------------------- Name: Denis McGlynn Its: President -8- EX-10.5 8 dex105.txt CREDIT AGREEMENT EXHIBIT 10.5 ================================================================================ CREDIT AGREEMENT among DOVER DOWNS GAMING & ENTERTAINMENT, INC. and WILMINGTON TRUST COMPANY DATED AS OF JANUARY__, 2002 $55,000,000 ================================================================================ TABLE OF CONTENTS
Page ---- SECTION 1. DEFINITIONS........................................................................................... 1 1.1 Defined Terms.................................................................................. 1 1.2 Other Definitional Provisions.................................................................. 13 SECTION 2. THE CREDITS........................................................................................... 14 2.1 Revolving Credit Loans......................................................................... 14 2.2 Revolving Credit Loan Procedures............................................................... 14 2.3 [Intentionally Left Blank]..................................................................... .. 2.4 General Provisions Regarding Loans............................................................. 15 2.5 Letters of Credit.............................................................................. 15 2.6 Fees........................................................................................... 18 2.7 Note; Repayment of Revolving Credit Loans...................................................... 18 2.8 Interest on Revolving Credit Loans............................................................. 18 2.9 Default Rate; Inability to Determine Interest Rate............................................. 19 2.10 Termination, Reduction and Extension of Commitment............................................. 20 2.11 Optional and Mandatory Prepayments of Revolving Credit Loans................................... 20 2.12 Illegality..................................................................................... 21 2.13 Requirements of Law............................................................................ 21 2.14 Taxes.......................................................................................... 22 2.15 Indemnity...................................................................................... 23 2.16 [Intentionally Left Blank]..................................................................... .. 2.17 Payments....................................................................................... 23 2.18 Conversion and Continuation Options............................................................ 24 2.19 Use of Proceeds................................................................................ 24 SECTION 3. REPRESENTATIONS AND WARRANTIES........................................................................ 24 3.1 Financial Condition............................................................................ 25 3.2 No Adverse Change.............................................................................. 25 3.3 Corporate Existence; Compliance with Law....................................................... 25 3.4 Corporate Power; Authorization; Enforceable Obligations........................................ 25 3.5 No Legal Bar................................................................................... 26 3.6 No Material Litigation......................................................................... 26 3.7 No Default..................................................................................... 26 3.8 Taxes.......................................................................................... 26 3.9 Federal Regulations............................................................................ 26 3.10 ERISA.......................................................................................... 27 3.11 Investment Company Act; Public Utility Holding Company Act..................................... 28 3.12 Purpose of Loans; Letters of Credit............................................................ 28 3.13 Environmental Matters.......................................................................... 28 3.14 No Burdensome Restrictions..................................................................... 29 3.15 Ownership of Borrower and Subsidiaries......................................................... 29 3.16 Patents, Trademarks, etc....................................................................... 29 3.17 Ownership of Property.......................................................................... 29
3.18 Licenses, etc.................................................................................. 29 3.19 Labor Matters.................................................................................. 29 3.20 Material Contracts............................................................................. 29 3.21 Insurance...................................................................................... 30 3.22 Senior Debt Status............................................................................. 30 3.23 No Material Misstatements...................................................................... 30 SECTION 4. CONDITIONS PRECEDENT.................................................................................. 30 4.1 Conditions to Effectiveness.................................................................... 30 4.2 Conditions to Each Extension of Credit......................................................... 32 SECTION 5. AFFIRMATIVE COVENANTS................................................................................. 33 5.1 Financial Statements........................................................................... 33 5.2 Certificates; Other Information................................................................ 33 5.3 Payment of Obligations......................................................................... 34 5.4 Conduct of Business and Maintenance of Existence............................................... 34 5.5 Maintenance of Property; Insurance............................................................. 34 5.6 Inspection of Property; Books and Records; Discussions......................................... 35 5.7 Notices........................................................................................ 35 5.8 Environmental Laws............................................................................. 36 5.9 Management Changes............................................................................. 36 SECTION 6. NEGATIVE COVENANTS.................................................................................... 36 6.1 Financial Condition Covenants.................................................................. 36 6.2 Limitation on Debt............................................................................. 37 6.3 Limitation on Liens............................................................................ 37 6.4 Limitations on Fundamental Changes............................................................. 37 6.5 Limitation on Sale of Assets................................................................... 38 6.6 Limitations on Acquisitions, Investments, Loans and Advances................................... 38 6.7 Limitation on Distributions.................................................................... 39 6.8 Transactions with Affiliates................................................................... 39 6.9 Fiscal Year.................................................................................... 39 6.10 Change in Business............................................................................. 39 6.11 Sale and Leaseback............................................................................. 39 6.12 Limitation on Negative Pledge Clauses.......................................................... 39 6.13 Interest Hedge Agreements...................................................................... 39 SECTION 7. EVENTS OF DEFAULT..................................................................................... 40 7.1 Events of Default.............................................................................. 40 SECTION 8. MISCELLANEOUS......................................................................................... 42 8.1 Amendments and Waivers......................................................................... 42 8.2 Notices........................................................................................ 43 8.3 No Waiver; Cumulative Remedies................................................................. 43 8.4 Survival of Representations and Warranties..................................................... 44 8.5 Payment of Expenses and Taxes.................................................................. 44
ii 8.6 Successors and Assigns......................................................................... 44 8.7 Disclosure of Information...................................................................... 45 8.8 Adjustments; Set-off........................................................................... 46 8.9 Counterparts................................................................................... 46 8.10 Severability................................................................................... 46 8.11 Integration.................................................................................... 46 8.12 Governing Law.................................................................................. 46 8.13 Submission To Jurisdiction; Waivers............................................................ 46 8.14 Acknowledgements............................................................................... 47 8.15 WAIVERS OF JURY TRIAL.......................................................................... 47
iii SCHEDULES SCHEDULE I Bank and Commitment Information SCHEDULE II Letter of Credit Fees EXHIBITS EXHIBIT A Form of Revolving Credit Borrowing Request EXHIBIT B Form of Note EXHIBIT C Form of Guaranty Agreement EXHIBIT D Form of Opinion of Counsel to Borrower and Guarantor EXHIBIT E Form of Compliance Certificate iv CREDIT AGREEMENT CREDIT AGREEMENT, dated as of January __, 2002, between DOVER DOWNS GAMING & ENTERTAINMENT, INC. (the "Borrower"), and WILMINGTON TRUST COMPANY, a -------- Delaware banking corporation (the "Bank"). ---- BACKGROUND ---------- In consideration of the mutual covenants and agreements herein set forth and for other consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby covenant and agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms ------------- shall have the following meanings: "Affiliate": as to any Person, any other Person which, directly or --------- indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person and any member, director, officer or employee of any such Person. For purposes of this definition, "control" shall mean the power, directly or indirectly, either to (a) vote 10% or more of the ordinary voting power for the election of directors of such Person or (b) direct or in effect cause the direction of the management and policies of such Person whether by contract or otherwise. "Agreement": this Credit Agreement, as amended, supplemented or --------- otherwise modified from time to time. "Application": an application in such form as the Bank may specify ----------- from time to time, requesting the Bank to issue a Letter of Credit. "Base Rate": for any day, a rate per annum (rounded upwards, if --------- necessary, to the next 1/100th of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2%. If for any reason the Bank shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability of the Bank to obtain sufficient quotations in accordance with the terms thereof, the Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Base Rate Borrowing": a Borrowing comprised of a Base Rate Loan. ------------------- "Base Rate Loans": Revolving Credit Loans bearing interest at any time --------------- under the Base Rate Option. -1- "Base Rate Option": as defined in Section 2.8(a). ---------------- "Borrowing": a Loan made by the Bank on a particular date and, in the --------- case of Eurodollar Loans, as to which a single Interest Period is in effect. "Business Day": a day other than a Saturday, Sunday or other day on ------------ which commercial banks in Wilmington, Delaware are authorized or required by law to close; provided, however, that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in the London interbank market. "Capital Lease": at any time, a lease with respect to which the ------------- lessee is required to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Capital Lease Obligations": at any time, the amount of the ------------------------- obligations of the Borrower and its Subsidiaries under Capital Leases which would be shown at such time as a liability on a consolidated balance sheet of the Borrower and its consolidated Subsidiaries prepared in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or ------------- other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "Code": the Internal Revenue Code of 1986, as amended from time to ---- time. "Commitment": the obligation of the Bank to make Loans to and to ---------- issue Letters of Credit on behalf of the Borrower hereunder in an aggregate principal amount at any one time outstanding not to exceed the amount set forth on Schedule I under the caption "Commitment", as the same may be permanently terminated, reduced and extended from time to time pursuant to the provisions of Section 2.10. "Commitment Fee": as defined in Section 2.6(a). -------------- "Commitment Period": the period from and including the Effective Date ----------------- to but not including the Termination Date, or such earlier date on which the Commitment shall terminate as provided herein. "Commonly Controlled Entity": an entity, whether or not incorporated, -------------------------- which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "Consolidated EBIT": for any period of four consecutive fiscal ----------------- quarters, Consolidated Net Income for such period, plus the amount of income taxes (if any) and interest expense deducted from earnings in determining such Consolidated Net Income, in each case determined on a consolidated basis for the Borrower and its Subsidiaries in accordance with -2- GAAP; provided, that there shall be excluded therefrom (a) any addition for non- operating gains (including, without limitation, extraordinary or unusual gains, gains from discontinuance of operations or gains arising from the sale of capital assets) and (b) any subtraction for non-operating losses during such period (including, without limitation, extraordinary or unusual losses, losses from the discontinuance of operations or losses arising from the sale of capital assets). "Consolidated EBITDA": for any period of four consecutive fiscal ------------------- quarters, Consolidated EBIT for such period, plus the amount of depreciation and amortization expense deducted from earnings in determining such Consolidated EBIT, in each case determined on a consolidated basis for the Borrower and its Subsidiaries in accordance with GAAP. "Consolidated Funded Debt": at any time, without duplication, the ------------------------ aggregate of all indebtedness of the Borrower and its Subsidiaries for borrowed money, determined on a consolidated basis in accordance with GAAP as of such date. "Consolidated Interest Expense": for any period of four consecutive ----------------------------- fiscal quarters, the amount of cash interest expense deducted from earnings of the Borrower and its Subsidiaries in determining Consolidated Net Income for such period in accordance with GAAP. "Consolidated Net Income": for any fiscal period of four consecutive ----------------------- fiscal quarters, net earnings (or loss) after income taxes (if any) for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Tangible Net Worth": as of any date of determination, ------------------------------- (a) the aggregate amount of all assets of the Borrower and its Subsidiaries on a consolidated basis at such date as may be properly classified as such in accordance with GAAP, excluding such other assets as are properly classified as intangible assets under GAAP, minus (b) the aggregate amount of all liabilities of the Borrower and its Subsidiaries on a consolidated basis at such date, determined in accordance with GAAP. "Contingent Obligation": as to any Person, any guarantee of payment --------------------- or performance by such Person of any Debt or other obligation of any other Person, or any agreement to provide financial assurance with respect to the financial condition, or the payment of the obligations of, such other Person (including, without limitation, purchase or repurchase agreements, reimbursement agreements with respect to letters of credit or acceptances, indemnity arrangements, grants of security interests to support the obligations of another Person, keepwell agreements and take-or-pay or through-put arrangements) which has the effect of assuring or holding harmless any third Person against loss with respect to one or more obligations of such third Person; provided, however, the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation of any Person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made and (b) the maximum amount for which such contingently liable Person may be liable pursuant to the terms of the instrument embodying such Contingent Obligation, unless such primary obligation and the maximum amount for which such contingently liable Person -3- may be liable are not stated or determinable, in which case the amount of such Contingent Obligation shall be such contingently liable Person's maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. "Contractual Obligation": as to any Person, any provision of any ---------------------- security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Cross-Default Indebtedness": as defined in Section 7.1(f). -------------------------- "Debt": of any Person at any date means (without duplication): ---- (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices); (b) any other indebtedness which is evidenced by a note, bond, debenture or similar instrument; (c) all Capital Lease Obligations of such Person; (d) all liabilities secured by any Lien on any property owned by such Person whether or not such Person has assumed or otherwise become liable for the payment thereof; (e) all obligations of such Person with respect to Interest Hedge Agreements (calculated on a basis satisfactory to the Bank and in accordance with accepted practice); (f) all Contingent Obligations of such Person, including all obligations of such Person in respect of outstanding letters of credit, acceptances and similar obligations created for the account of such Person; (g) all obligations of such Person under "synthetic" or similar leases; and (h) withdrawal liabilities of such Person or any Commonly Controlled Entity under a Plan. The Debt of any Person shall include any Debt of any partnership in which such person is a general partner, unless such Debt is nonrecourse to such Person. "Default": any of the events specified in Section 7, whether or not ------- any requirement for the giving of notice, the lapse of time, or both, or any other condition precedent therein set forth, has been satisfied. -4- "Distribution": in respect of any corporation, (a) dividends or other ------------ distributions on Capital Stock of the corporation (except distributions in common stock of such corporation); (b) the redemption or acquisition of Capital Stock of the corporation or of warrants, rights or other options to purchase such stock (except when solely in exchange for common stock of such corporation); and (c) any payment on account of, or the setting apart of any assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of any share of any class of Capital Stock of such corporation or any warrants or options to purchase any such stock. "Dollars" and "$": dollars in lawful currency of the United States of ------- - America. "Effective Date": the date that all of the conditions of Section 4.1 -------------- have been met to the satisfaction of the Bank. "Environmental Laws": any and all applicable foreign, Federal, state, ------------------ local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees or binding requirements of any Governmental Authority, or binding Requirement of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of the environment, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "Euro-Rate Reserve Percentage": the maximum effective percentage in ---------------------------- effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency liabilities"). The Eurodollar Rate shall be adjusted with respect - ------------------------- to any Eurodollar Loan that is outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The Bank shall give prompt notice to the Borrower of the Eurodollar Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error. "Eurodollar Borrowing": a Borrowing comprised of a Eurodollar Loan. -------------------- "Eurodollar Loan": any Revolving Credit Loan bearing interest at any --------------- time under a Eurodollar Rate Option. "Eurodollar Rate": with respect to any Eurodollar Loan for any --------------- Interest Period, the interest rate per annum determined by the Bank by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Bank in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the average of the London interbank offered rates for U.S. Dollars quoted by the British Bankers' Association as set forth on Dow Jones Markets Service (formerly known as Telerate) (or appropriate successor or, if British Bankers' Association or its successor ceases to provide such quotes, a comparable replacement determined by the Bank) display page 3750 (or such other display page on the Dow Jones Markets Service system as may replace -5- display page 3750) two (2) Business Days prior to the first day of such Interest Period for an amount comparable to the principal amount of such Eurodollar Loan and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Eurodollar Rate may also be expressed by the following formula: Average of London interbank offered rates quoted by BBA as shown Eurodollar Rate = on Dow Jones Markets Service display page 3750 or ------------------------------------------------- appropriate successor --------------------- 1.00- Euro-Rate Reserve Percentage "Eurodollar Rate Option": as defined in Section 2.8(b). ---------------------- "Event of Default": any of the events specified in Section 7, ---------------- provided, that any requirement for the giving of notice, the lapse of time, or - -------- both, or any other condition, has been satisfied. "Exposure": at any time, an amount equal to the sum of (a) the -------- aggregate principal amount of all Loans then outstanding, and (b) the L/C Obligations then outstanding. "Extensions of Credit": the collective reference to Loans made and -------------------- Letters of Credit issued under this Agreement. "Federal Funds Effective Rate": for any day, the weighted average of ---------------------------- the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Bank from three Federal funds brokers of recognized standing selected by it. "GAAP": at any time with respect to the determination of the ---- character or amount of any asset or liability or item of income or expense, or any consolidation or other accounting computation, generally accepted accounting principles as in effect on the date of, or at the end of the period covered by, the financial statements from which such asset, liability, item of income, or item of expense, is derived, or, in the case of any such computation, as in effect on the date when such computation is required to be determined; provided, -------- however, that in the event of any change in GAAP which would affect the - ------- calculation of the Borrower's compliance with any of the covenants contained in Section 6.1, either favorably or unfavorably, the Bank and the Borrower will make appropriate adjustments to such covenants. "Governmental Authority": any nation or government, any state or ---------------------- other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantor": Dover Downs, Inc., a Delaware corporation. --------- -6- "Guaranty Agreement": the Guaranty and Suretyship Agreement ------------------ substantially in the form of Exhibit C hereto, executed by the Guarantor in --------- favor of the Bank. "Insolvency": with respect to any Multiemployer Plan, the condition ---------- that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. --------- "Interest Coverage Ratio": at any date of determination, the ratio of ----------------------- Consolidated EBITDA to Consolidated Interest Expense. "Interest Hedge Agreement": any interest rate swap agreement, ------------------------ interest rate cap agreement, interest rate collar agreement, interest rate insurance or any other agreement with all extensions, renewals, amendments, substitutions and replacements to and any of the foregoing, documentation of all of which shall conform to International Swap Dealers Association, Inc. standards. "Interest Payment Date": (a) as to any Base Rate Loan, the last day --------------------- of each March, June, September and December, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, and (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period. "Interest Period": with respect to any Eurodollar Loan: --------------- (a) initially the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three, six or nine months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three, six, nine or twelve months thereafter, as selected by the Borrower by irrevocable notice to the Bank not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, the foregoing provisions relating to Interest Periods are subject - -------- ---- to the following: (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, with respect to Eurodollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; (ii) with respect to Eurodollar Loans, any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no -7- numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (iii) an Interest Period that otherwise would extend beyond the Termination Date shall end on the Termination Date; and (iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "ISP98": the International Standby Practices 1998 (ISP98) published ----- by the Institute of International Banking Law & Practice, Inc., as the same may be amended, supplemented or otherwise modified from time to time. "L/C Commitment": the lower of (a) $1,000,000 and (b) the Commitment -------------- at such time. "L/C Coverage Requirement": with respect to each Letter of Credit at ------------------------ any time, 100% of the maximum amount available to be drawn thereunder at such time (determined without regard to whether any conditions to drawing could be met at such time). "L/C Obligations": at any time, an amount equal to the sum of (a) --------------- 100% of the maximum amount available to be drawn under all Letters of Credit outstanding at such time (determined without regard to whether any conditions to drawing could be met at such time) and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 2.5(e). "L/C Payment Date": the last day of each March, June, September and ---------------- December. "Letters of Credit": as defined in Section 2.5(a). ----------------- "Leverage Ratio": at any date of determination, the ratio of -------------- Consolidated Funded Debt on such date to Consolidated EBITDA for the four consecutive fiscal quarters of the Borrower most recently ended prior to such date. "Lien": any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Capital Lease having substantially the same economic effect as any of the foregoing). "Loans": the collective reference to the Revolving Credit Loans. ----- "Loan Documents": this Agreement, the Applications, the Note and the -------------- Guaranty Agreement. -8- "Material Adverse Effect": a material adverse effect on (a) the ----------------------- validity or enforceability of this Agreement or any other Loan Document or the rights or remedies of the Bank hereunder or thereunder, (b) the business, property, assets, financial condition, credit position, results of operations or prospects of the Borrower and its Subsidiaries taken as a whole or (c) the ability of the Borrower to duly and punctually pay its Debts and perform its obligations under the Loan Documents. "Materials of Environmental Concern": any gasoline or petroleum ---------------------------------- (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls, and ureaformaldehyde insulation. "Moody's": Moody's Investors Services, Inc. ------- "Multiemployer Plan": a Plan which is a multiemployer plan as defined ------------------ in Section 4001(a)(3) of ERISA. "Note": a promissory note of the Borrower in the form of Exhibit B, ---- --------- as the same may be amended, supplemented or otherwise modified from time to time. "Participant" as defined in Section 8.6(b). ----------- "PBGC": the Pension Benefit Guaranty Corporation established pursuant ---- to Subtitle A of Title IV of ERISA. "Permitted Acquisition": an acquisition by the Borrower of the --------------------- Capital Stock or assets of a Person (or of any segment or division of a Person) (a) that is in the gaming industry, if the gross purchase price for such acquisition is less than $35,000,000, (b) that is in an industry other than gaming, if the gross purchase price for such acquisition is less than $10,000,000 or (c) which is otherwise approved by the Bank; provided, that at -------- the time that any definitive agreement is entered into in respect of any such acquisition, no Default or Event of Default shall exist or would exist if such acquisition were consummated on such date (assuming for purposes of the covenants contained in Section 6.1 that pro forma adjustments are made to the --- ----- financial statements of the Borrower giving effect to such acquisition as if it had occurred on the last day of the Borrower's most recently completed fiscal quarter); provided further, that the prior approval of the Bank shall be -------- ------- required for any acquisition proposed to be made by the Borrower during a fiscal year in which (i) the aggregate gross purchase price of Permitted Acquisitions previously made by the Borrower during such fiscal year equals or exceeds $35,000,000 or (ii) the portion of the aggregate gross purchase price of Permitted Acquisition previously made by Borrower during such fiscal year financed with Loans exceeds $25,000,000. "Permitted Investments": --------------------- (a) direct obligations of the United States of America or any agency thereof or obligations guaranteed by the United States of America or any agency thereof, provided that such obligations mature within one (1) year from the date of acquisition thereof; -9- (b) certificates of deposit, time deposits or banker's acceptances, maturing within one (1) year from the date of acquisition, with (i) the Bank or (ii) any other bank or trust company organized under the laws of the United States, the unsecured long-term debt obligations of which are rated "A3" or higher by Moody's or "A-" or higher by S&P, and issued, or in the case of banker's acceptance, accepted, by a bank or trust company having capital, surplus and undivided profits aggregating at least Two Hundred Fifty Million Dollars ($250,000,000); (c) commercial paper given the highest rating by either S&P or Moody's maturing not more than two hundred seventy (270) days from the date of creation thereof; (d) mutual funds registered with the Securities and Exchange Commission under the Investment Company Act of 1940 that hold themselves out as "money market funds;" (e) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition, having one of the two highest ratings generally obtainable from either S&P or Moody's; (f) commercial paper maturing no more than six months from the date of acquisition thereof and issued by the holding company of (i) the Bank or (ii) any other bank that has (A) combined capital, surplus and undivided profits (less any undivided losses) of not less than $250 million, (B) a Keefe Bank Watch Rating of C or better and (C) commercial paper having a rating of A-2 (or the equivalent) or higher from S&P or P-2 (or the equivalent) or higher from Moody's; and (g) fully collateralized repurchase agreements with a term of not more than ninety days for underlying securities of the type described in paragraphs (a) and (e) of this definition. "Permitted Liens" shall mean: --------------- (a) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable; (b) Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation, or to participate in any fund in connection with workmen's compensation, unemployment insurance, old-age pensions or other social security programs; (c) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default; -10- (d) Good faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (e) Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use; (f) Purchase Money Security Interests or Liens created pursuant to Capital Leases; provided, that (x) such Liens shall be created simultaneously -------- with the acquisition of the property which is subject to such Lien, (y) such Liens do not at any time encumber any property other than such property and (z) the Liens are not modified to secure any Debt other than that used to acquire such property; (g) The following, if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed: (i) claims or Liens for taxes, assessments or charges due and payable and subject to interest or penalty, provided that the Borrower establishes and maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien; and (ii) claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens; and (h) Liens relating to judgments which do not constitute an Event of Default under Section 7.1(e). "Person": an individual, partnership, corporation, business trust, joint ------ stock company, limited liability company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is covered by ---- ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prime Rate": the rate of interest per annum announced from time to time by ---------- the Bank as its "National Commercial Rate" in effect at its principal office in Wilmington, Delaware, each change in the Prime Rate shall be effective on the date such change is announced as effective. The Bank's "National Commercial Rate" is used by the Bank as a reference rate with respect to different interest rates charged to borrowers. The Bank's determination and -11- designation from time to time of the reference rate shall not in any way preclude the Bank from making loans to other borrowers at a rate that is higher or lower than or different from the reference rate. "Properties": the collective reference to the facilities and ---------- properties owned, leased or operated by the Borrower or any of its Subsidiaries. "Purchase Money Security Interest": shall mean Liens upon tangible -------------------------------- personal property securing loans to the Borrower or any Subsidiary thereof or deferred payments by the Borrower or any Subsidiary thereof for the purchase of such tangible personal property. "Register": as defined in Section 8.6(d). -------- "Regulation U": Regulation U of the Board of Governors of the Federal ------------ Reserve System as from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation X": Regulation X of the Board of Governors of the Federal ------------ Reserve System as from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Reimbursement Obligation": in respect of each Letter of Credit, the ------------------------ obligation of the Borrower to reimburse the Bank for all drawings made thereunder in accordance with Section 2.5(e) and the Application related to such Letter of Credit for amounts drawn under such Letter of Credit. "Reorganization": with respect to any Multiemployer Plan, the -------------- condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Sections ---------------- 4043(c)(1), (2), (4), (5), (6), (10) and (13) of ERISA. "Requirement of Law": as to any Person, the certificate of ------------------ incorporation, by-laws, operating agreement or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": the chief executive officer, president or ------------------- chief financial officer of the Borrower. "Revolving Credit Borrowing": a Borrowing consisting of a Revolving -------------------------- Credit Loan from the Bank. "Revolving Credit Borrowing Request": a request by the Borrower for ---------------------------------- the making of a Revolving Credit Loan pursuant to Section 2.2 in the form of Exhibit A hereto. - --------- -12- "Revolving Credit Loans": as defined in Section 2.1. Each Revolving ---------------------- Credit Loan shall be a Eurodollar Loan or a Base Rate Loan. "S&P": Standard & Poor's Rating Group, a division of McGraw-Hill --- Corporation. "Single Employer Plan": any Plan which is covered by Title IV of -------------------- ERISA, but which is not a Multiemployer Plan. "Subsidiary": as to any Person, (i) any corporation, company or trust ---------- of which 50% or more (by number of shares or number of votes) of the outstanding Capital Stock, interests, shares or similar items of beneficial interest normally entitled to vote for the election of one or more directors, members or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such person or one or more of such Person's Subsidiaries, or any partnership of which such Person is a general partner or of which 50% or more of the partnership interests is at the time directly or indirectly owned by such Person or one or more of such Person's Subsidiaries, and (ii) any corporation, company, trust, partnership or other entity which is controlled or capable of being controlled by such Person or one or more of such Person's subsidiaries. Unless otherwise indicated, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary of the Borrower. "Taxes": as defined in Section 2.14. ----- "Termination Date": the earlier of (a) December 31, 2004, or such ---------------- later date to which the Termination Date shall have been extended pursuant to Section 2.10(d) and (b) the date the Commitment is terminated as provided herein. "Tranche": the collective reference to (a) Loans, other than Base ------- Rate Loans, of the same type whose Interest Periods begin on the same date and end on the same later date (whether or not such Loans originally were made on the same date) and (b) Base Rate Loans, which shall constitute one Tranche. "Type": when used in respect of any Loan or Borrowing, shall refer to ---- the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, "Rate" shall include the Eurodollar Rate and the Base Rate. 1.2 Other Definitional Provisions (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Note or any certificate or other document made or delivered pursuant hereto. (b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. -13- (c) As used herein and in the Note, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (d) The meanings given to terms defined in this Agreement shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. THE CREDITS 2.1 Revolving Credit Loans ---------------------- (a) Subject to the terms and conditions hereof, the Bank agrees to make revolving credit loans in Dollars (the "Revolving Credit Loans") to the ---------------------- Borrower from time to time during the Commitment Period, in an aggregate principal amount at any time outstanding which, when added to the L/C Obligations then outstanding, does not exceed such the Commitment; provided, -------- that at no time shall the sum of (x) the aggregate principal amount of all Loans made by the Bank then outstanding plus (y) the L/C Obligations then outstanding exceed the Commitment. The Commitment may be terminated or reduced from time to time pursuant to Section 2.10. Within the foregoing limits, the Borrower may during the Commitment Period borrow, repay and reborrow under the Commitment, subject to the terms, provisions and limitations set forth herein. (b) The Revolving Credit Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the Borrower and notified to the Bank in accordance with Sections 2.2 and 2.18; provided, that no Loan shall be made as a Eurodollar Loan after -------- the date that is one month prior to the Termination Date. (c) The Loan comprising any Revolving Credit Borrowing shall be (i) with respect to a Base Rate Borrowing, in a minimum aggregate principal amount of $100,000 or a whole multiple thereof or (ii) with respect to a Eurodollar Borrowing, in a minimum aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof (or, in either case, an aggregate principal amount equal to the remaining balance of the available Commitment). 2.2 Revolving Credit Loan Procedures. In order to request a Revolving -------------------------------- Credit Borrowing, the Borrower shall hand deliver or telecopy (or notify by telephone and promptly confirm by hand delivery or telecopy) to the Bank the information requested by the form of Revolving Credit Borrowing Request attached as Exhibit A hereto (a) in the case of a Eurodollar Borrowing, not later than --------- 12:00 noon, Wilmington time, three Business Days before a proposed Borrowing and (b) in the case of a Base Rate Borrowing, not later than 12:00 noon, Wilmington time, on the day of a proposed Borrowing. Such notice shall be irrevocable and shall in each case specify (i) whether the Borrowing then being requested is to be a Eurodollar Borrowing or a Base Rate Borrowing; (ii) the date of such Revolving Credit Borrowing (which shall be a -14- Business Day); (iii) the principal amount of such Borrowing; and (iv) if such Borrowing is to be a Eurodollar Borrowing, the Interest Period with respect thereto. If no election as to the Type of Revolving Credit Borrowing is specified in any such notice, then the requested Revolving Credit Borrowing shall be a Base Rate Borrowing. If no Interest Period with respect to any Eurodollar Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Notwithstanding the foregoing, in the event Borrower and Bank enter into a separate cash management loan sweep arrangements, Base Rate Borrowings may be made in accordance with such separate arrangements. 2.3 [Intentionally Left Blank.] ------------------------ 2.4 General Provisions Regarding Loans. ---------------------------------- (a) Subject to Section 2.4(b), the Bank shall make each Revolving Credit Loan hereunder on the proposed date by credit of the amount so lent to the general deposit account of the Borrower with the Bank. (b) The Borrower may refinance all or any part of any Borrowing with any other Borrowing subject to the conditions and limitations set forth herein and elsewhere in this Agreement. Any Borrowing or part thereof so refinanced shall be deemed to be repaid in accordance with Section 2.7 with the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing, to the extent they do not exceed the principal amount of the Borrowing being refinanced, shall not be paid by the Bank to the Borrower. (c) The Bank may at its option fulfill its Commitment hereunder with respect to any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of the Bank to make such Loan; provided, however, that any exercise of -------- ------- such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of the Agreement and the Note. (d) All Borrowings, conversions and continuations of Revolving Credit Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections that, after giving effect thereto, (A) the aggregate principal amount of the Loans comprising each Tranche of Eurodollar Loans shall be equal to $500,000 or a whole multiple of $100,000 in excess thereof and (B) the Borrower shall not have outstanding at any one time more than in the aggregate eight (8) separate Tranches of Loans (including the Base Rate Tranche). (e) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request any Borrowing if the Interest Period requested with respect thereto would end after the Termination Date. 2.5 Letters of Credit. ----------------- (a) L/C Commitment. (i) Subject to the terms and conditions -------------- hereof, the Bank agrees to issue letters of credit (collectively referred to as the "Letters of Credit") for the account of the Borrower on any Business Day ----------------- during the Commitment Period in such form as -15- may be approved from time to time by the Bank; provided, that no Letter of -------- Credit shall be issued if, after giving effect thereto (A) the amount of the Exposure would exceed the amount of the Commitment in effect at such time or (B) the aggregate amount of the L/C Obligations at such time would exceed the L/C Commitment in effect at such time. (i) Each Letter of Credit: (A) shall be denominated in Dollars and shall be a standby letter of credit; and (B) shall be for the account of the Borrower and for the benefit of the Borrower and/or the Guarantor; (C) shall have an expiration date no later than the Termination Date; and (D) may during the Commitment Period be extended at the sole discretion of the Bank for additional periods of up to one year each (but in no event to expire later than the Termination Date) upon written request from the Borrower to the Bank at least 20 days (or such other time period as agreed by the Borrower and the Bank) before the date upon which notice of extension is otherwise required by the terms thereof. (ii) Each Letter of Credit shall be subject to ISP98 and, to the extent not inconsistent therewith, the laws of the State of Delaware. (b) Procedure for Issuance of Letters of Credit. The Borrower may ------------------------------------------- from time to time request that the Bank issue a Letter of Credit by delivering to the Bank at its office for notices specified herein an Application therefor, completed to the satisfaction of the Bank, and such other certificates, documents and other papers and information as the Bank may reasonably request. Upon receipt by the Bank of any Application, the Bank will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall, after determining that issuance of the Letter of Credit requested thereby will be within the limits imposed by Section 2.5(a)(i), issue such Letter of Credit not later than ten (10) Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto (but in no event shall the Bank be required to issue any Letter of Credit earlier than five (5) Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Bank and the Borrower. The shall promptly after issuing a Letter of Credit furnish copies thereof to the Borrower. (c) L/C Fees, Commissions and Other Charges. (ii) The Borrower shall --------------------------------------- pay to the Bank a letter of credit fee with respect to the aggregate face amount of all Letters of Credit outstanding, computed at the rate of three quarters of one percent (.75%) (computed on the basis of the actual number of days each Letter of Credit is outstanding in a year of 360 days). The Borrower shall also pay to the Bank, in respect of each Letter of Credit issued by the Bank, a -16- fronting fee in an amount equal to exceed $300. The fees described in the preceding sentences shall be due and payable quarterly in arrears on each L/C Payment Date and on the Termination Date or such earlier date as the Commitment is terminated, and shall be nonrefundable. (i) In addition to the foregoing fees, the Borrower shall pay or reimburse the Bank for such normal and customary costs and expenses as are incurred or charged by the Bank in issuing, effecting payment under, amending or otherwise administering any Letter of Credit, in accordance with the schedule of such costs attached hereto as Schedule II. ----------- (d) [Intentionally Left Blank.] ------------------------ (e) Reimbursement Obligation of the Borrower. (iii) The Borrower ---------------------------------------- agrees to reimburse the Bank in respect of a Letter of Credit on each date on which the Bank notifies the Borrower of the date and amount of a draft presented under such Letter of Credit and paid or to be paid by the Bank for the amount of (A) such draft so paid and (B) any taxes, fees, charges or other direct out of pocket costs or expenses incurred by the Bank in connection with such payment. Each such payment shall be made to the Bank at its office listed in Section 8.2 in Dollars and in immediately available funds. (i) Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this subsection from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the per annum rate of the Base Rate Option plus 2.0% and shall be payable on demand by the Bank. (f) Obligations Absolute. (iv) The obligations of the Borrower under -------------------- this Section 2.5 shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the Bank or any beneficiary of a Letter of Credit or any other Person. (i) The Borrower agrees with the Bank that the Bank shall not be responsible for, and the Borrower's Reimbursement Obligations under Section 2.5(e) shall not be affected by, among other things, (A) the validity or genuineness of any documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, provided, -------- that reliance upon such documents by the Bank shall not have constituted gross negligence or willful misconduct by the Bank or (B) any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other Person to which such Letter of Credit may be transferred or (C) any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. (ii) The Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Bank's gross negligence or willful misconduct. (iii) The Borrower agrees that any action taken or omitted by the Bank under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct, shall be binding on the Borrower -17- and shall neither result in any liability of the Bank to the Borrower nor constitute a defense to the Borrower's obligation to reimburse the Bank. (g) Letter of Credit Payments. If any draft shall be presented for ------------------------- payment to the Bank under any Letter of Credit, the Bank shall promptly notify the Borrower of the date and amount thereof. The responsibility of the Bank to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. (h) Application. To the extent that any provision of any Application ----------- related to any Letter of Credit is inconsistent with the provisions of this Agreement, the provisions of this Agreement shall apply. 2.6 Fees. ---- (a) The Borrower agrees to pay to the Bank a commitment fee (a "Commitment Fee") for the period from and including the first day of the -------------- Commitment Period to the Termination Date, computed at a rate per annum equal to 1/4%, calculated on the basis of a 360 day year for the actual days elapsed, on the average daily amount of the difference between the Commitment of the Bank and the Exposure during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Termination Date or such earlier date as the Commitment shall be permanently reduced or terminated as provided herein, commencing on the first of such dates to occur after the Effective Date. (b) The Borrower agrees to pay to the Bank a closing fee in the amount of $137,500, payable on the Effective Date. (c) All fees shall be paid on the dates due, in immediately available funds, to the Bank. Once paid, none of the fees shall be refundable under any circumstances. 2.7 Note; Repayment of Revolving Credit Loans. The Revolving Credit Loans ----------------------------------------- made by the Bank shall be evidenced by a single Note duly executed on behalf of the Borrower, dated the Effective Date, in substantially the form attached hereto as Exhibit B with the blanks appropriately filled, payable to the Bank in --------- a principal amount equal to the Commitment. The Note shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in Section 2.8. The outstanding principal balance of each Revolving Credit Loan, as evidenced by the Note, shall be payable on the Termination Date. The Borrower hereby authorizes the Bank to charge any deposit account of the Borrower maintained with the Bank for any payment when due hereunder or under the Note. 2.8 Interest on Revolving Credit Loans. ---------------------------------- (a) Subject to the provisions of Section 2.9, each Base Rate Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 -18- or 366 days, as the case may be) at a rate per annum equal to the Base Rate minus 1% (the "Base Rate Option"). - ----- ---------------- (b) Subject to the provisions of Section 2.9, each Eurodollar Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Eurodollar Rate for the Interest Period in effect for such Loan plus 0.75% (the "Eurodollar Rate ---- --------------- Option"). - ------ (c) Interest on each Revolving Credit Loan shall be payable on each Interest Payment Date applicable to such Loan; provided, that interest accruing -------- on overdue amounts pursuant to Section 2.9 shall be payable on demand. The Bank's calculation of the Eurodollar Rate and the Base Rate shall be conclusive absent manifest error. 2.9 Default Rate; Inability to Determine Interest Rate. -------------------------------------------------- (a) Upon the occurrence of and during the continuance of an Event of Default under Section 7.1(a) or (g), the outstanding principal amount of the Loans and, to the extent permitted by law, accrued and unpaid interest thereon and any other amount payable hereunder shall bear interest from the date of such occurrence until paid in full (after as well as before judgment) at a rate per annum which is equal to two percent (2%) in excess of the Base Rate Option. Upon the occurrence of and during the continuance of an Event of Default other than under Section 7.1(a) or (g), the outstanding principal amount of the Loans and, to the extent permitted by law, accrued and unpaid interest thereon and any other amount payable hereunder shall bear interest from the date that the Bank shall send notice to the Borrower of the application of the default rate until paid in full (after as well as before judgment) at a rate per annum which is equal to two percent (2%) in excess of the Base Rate Option. The Borrower acknowledges that such increased interest rate reflects, among other things, the fact that such loans or other amounts have become a substantially greater risk given its default status and that the Bank is entitled to additional compensation for such risk. (b) In the event, and on each occasion, that prior to the commencement of any Interest Period for a Eurodollar Loan, the Bank shall have determined (which determination shall be conclusive and binding upon the Borrower) that dollar deposits in the principal amount of such Eurodollar Loan are not generally available in the London interbank market, or that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Bank of making or maintaining the principal amount of such Eurodollar Loan during such Interest Period, or that reasonable means do not exist for ascertaining the Eurodollar Rate, the Bank shall, as soon as practicable thereafter, give written, telegraphic or telephonic notice of such determination to the Borrower. After such notice shall have been given and until the circumstances giving rise to such notice no longer exist, each request for a Eurodollar Loan or for conversion to or maintenance of a Eurodollar Loan pursuant to the terms of this Agreement shall be deemed to be a request for a Base Rate Loan. -19- 2.10 Termination, Reduction and Extension of Commitment. -------------------------------------------------- (a) The Commitment shall be automatically terminated on the Termination Date. (b) Subject to the last sentence of this paragraph, upon at least five Business Days' prior irrevocable written or telecopy notice to the Bank, the Borrower may at any time in whole permanently terminate, or from time to time permanently reduce, the Commitment. Each partial reduction of the Commitment shall be in a minimum principal amount of $5,000,000 or in whole multiples thereof, and no such termination or reduction shall be made which would, after giving effect to any prepayments of Revolving Credit Loans on such date reduce the Commitment to an amount less than the amount of the Exposure. (c) In connection with any reduction of the Commitment, the Borrower shall make any prepayment required under Section 2.11(b). (d) During the period beginning ninety (90) days prior to the then effective Termination Date and ending sixty (60) days prior to such Termination Date, the Borrower may deliver to the Bank a notice requesting that the Commitment be extended for an additional nine months beyond the Termination Date then in effect. If the Bank agrees to extend the Commitment, the Bank shall so notify the Borrower, whereupon (i) the Commitment shall without further act by any party hereto, be extended to the date nine months after the Termination Date then in effect and (ii) the term "Termination Date" shall thereafter mean such date. Any such extension shall be evidenced by a written agreement between the Bank and the Borrower, such agreement to be in form and substance acceptable to the Bank. 2.11 Optional and Mandatory Prepayments of Revolving Credit Loans. ------------------------------------------------------------ (a) The Borrower shall have the right at any time and from time to time to prepay any Revolving Credit Borrowing, in whole or in part, without premium or penalty (but in any event subject to Section 2.15), upon prior written, telecopy or telephonic notice to the Bank given no later than 10:30 a.m., Wilmington time, one Business Day before any proposed prepayment; provided, however, that each such partial prepayment shall be in the principal - -------- ------- amount of at least (x) with respect to Base Rate Loans, $100,000 or in whole multiples thereof and (y) with respect to Eurodollar Loans, $500,000 or in whole multiples of $100,000 in excess thereof or, in either case, the entire amount outstanding, whether or not divisible by $100,000. (b) On the date of any reduction of the Commitment pursuant to Section 2.10, the Borrower shall pay or prepay so much of the Revolving Credit Borrowings as shall be necessary in order that, after giving effect to such reduction and any such payments, the Exposure at such time will not exceed the Commitment. (c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing of Revolving Credit Loans to be prepaid, shall be irrevocable and shall commit the Borrower to prepay such Borrowing (or portion thereof) by the amount stated therein. All prepayments on Eurodollar Loans under this Section shall be -20- accompanied by accrued interest on the principal amount being prepaid to the date of prepayment. 2.12 Illegality. Notwithstanding any other provision herein, if ---------- any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for the Bank to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of the Bank hereunder to make or refinance Eurodollar Loans, continue Eurodollar Loans as such and convert or refinance Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and (b) the Bank's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to the Bank such amounts, if any, as may be required pursuant to Section 2.15. 2.13 Requirements of Law. ------------------- (a) In the event that any change in any Requirement of Law or in the interpretation, or application thereof or compliance by the Bank with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject the Bank to any tax of any kind whatsoever with respect to this Agreement, the Note, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to the Bank in respect thereof (except for taxes covered by Section 2.14 and changes in the rate of tax on the overall net income, gross receipts or revenue of the Bank); (ii) shall impose, modify or hold applicable any reserve, special deposit or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of the Bank which is not otherwise included in the determination of the interest rate on such Eurodollar Loan hereunder; or (iii) shall impose on the Bank any other condition; and the result of any of the foregoing is to increase the cost to the Bank, by an amount which the Bank deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit or to reduce any amount receivable hereunder in respect thereof then, in any such case, the Borrower shall as promptly as practicable pay the Bank, upon its demand, any additional amounts necessary to compensate the Bank for such increased cost or reduced amount receivable; provided, that -------- the Borrower shall not be liable for any such amounts incurred by the Bank more than 90 days prior to the date of the Bank's notification to the Borrower. If the Bank becomes entitled to claim any additional amounts pursuant to this subsection, it shall as promptly as practicable notify the Borrower of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable -21- pursuant to this subsection submitted by the Bank to the Borrower shall be reasonably detailed and include supporting documentation, and shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Note and all other amounts payable hereunder. (b) In the event that the Bank shall have determined that any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by the Bank or any corporation controlling the Bank with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on the Bank's or such corporation's capital as a consequence of its obligations hereunder or under any Letter of Credit to a level below that which the Bank or such corporation could have achieved but for such change or compliance (taking into consideration the Bank's or such corporation's policies with respect to capital adequacy) by an amount deemed by the Bank to be material, then from time to time, after submission by the Bank to the Borrower of a written request therefor, which shall be reasonably detailed and include supporting documentation, the Borrower shall pay to the Bank such additional amount or amounts as will compensate the Bank for such reduction; provided, that the -------- Borrower shall not be liable for any such amounts incurred by the Bank more than 90 days prior to the date of the Bank's notification to the Borrower. (c) The Bank agrees that it will use reasonable efforts in order to avoid or to minimize, as the case may be, the payment by the Borrower of any additional amount under Section 2.13(b); provided, however, that the Bank shall -------- ------- be obligated to incur any expense, cost or other amount in connection with utilizing such reasonable efforts. (d) Notwithstanding the foregoing Section 2.13(a), (b) and (c), the Borrower shall not be required to pay any additional amounts to the Bank that is not incorporated under the laws of the United States or a state thereof as a result of any change in any Requirement of Law or compliance by the Bank with any request or directive from any central bank or Governmental Authority to the extent that such additional amounts exceed the amounts that would have been payable by the Borrower under Section 2.13(a), (b) or (c) to the Bank. 2.14 Taxes. All payments made by the Borrower under this Agreement and the ----- Note shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority (excluding, net income taxes and franchise or gross receipts taxes imposed in lieu of net income taxes imposed on the Bank as a result of a present or former connection between the jurisdiction of the government or taxing authority imposing such tax and the Bank (excluding a connection arising solely from the Bank having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or the Note)) (all such non-excluded taxes, levies, imposts, duties, charges, fees, deductions and withholdings being hereinafter called "Taxes"). If any Taxes are required to be withheld from any ----- amounts payable to the Bank hereunder or under the Note, the amounts so payable to the Bank shall be increased to the extent necessary to yield to the Bank (after payment of all Taxes) interest or any -22- such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Note. Whenever any Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Bank for its own account or for the account of the Bank, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Bank the required receipts or other required documentary evidence, the Borrower shall indemnify the Bank for any incremental taxes, interest or penalties that may become payable by the Bank as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Note and all other amounts payable hereunder. 2.15 Indemnity. --------- (a) The Borrower agrees to indemnify the Bank and to hold the Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of (i) default by the Borrower in payment when due of the principal amount of or interest on any Eurodollar Loan, (ii) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (iii) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (iv) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto, except any such loss as may result from the partial prepayment of Eurodollar Loans pursuant to Section 4.1(k). This covenant shall survive the termination of this Agreement and the payment of the Note and all other amounts payable hereunder. (b) For the purpose of calculation of all amounts payable to the Bank under this subsection, the Bank shall be deemed to have actually funded its relevant Eurodollar Loan through the purchase of a deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of that Eurodollar Loan and having a maturity comparable to the relevant Interest Period; provided, however, that the Bank may fund each of its Eurodollar Loans -------- ------- in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant shall survive the termination of this Agreement and the payment of the Note and all other amounts payable hereunder. 2.16 [Intentionally Left Blank.] ------------------------ 2.17 Payments. -------- (a) The Borrower shall make each payment (including principal of or interest on any Loan or any fees or other amounts) hereunder not later than 12:00 (noon), Wilmington time, on the date when due in Dollars to the Bank at its offices specified in Section 8.2 or at such other place as may be designated by the Bank, in immediately available funds. (b) Whenever any payment (including principal of or interest on any Loan or any fees or other amounts) hereunder shall become due, or otherwise would occur, on a -23- day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, if applicable. 2.18 Conversion and Continuation Options. The Borrower shall ----------------------------------- have the right at any time upon prior irrevocable notice to the Bank (i) not later than 12:00 noon, Wilmington time, on the Business Day of conversion, to convert any Eurodollar Loan to a Base Rate Loan, (ii) not later than 12:00 noon, Wilmington time, three Business Days prior to conversion or continuation, to (y) convert any Base Rate Loan into a Eurodollar Loan, or (z) to continue any Eurodollar Loan as a Eurodollar Loan for any additional Interest Period and (iii) not later than 12:00 noon, Wilmington time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Loan to another permissible Interest Period, subject in each case to the following: ------- (a) a Eurodollar Loan may not be converted at a time other than the last day of the Interest Period applicable thereto; (b) any portion of a Loan maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Loan; (c) no Eurodollar Loan may be continued as such and no Base Rate Loan may be converted to a Eurodollar Loan when any Default or Event of Default has occurred and is continuing and the Bank has determined that such a continuation is not appropriate; (d) any portion of a Eurodollar Loan that cannot be converted into or continued as a Eurodollar Loan by reason of Section 2.18(b) or (c) automatically shall be converted at the end of the Interest Period in effect for such Loan to a Base Rate Loan; and (e) on the last day of any Interest Period for Eurodollar Loans if the Borrower shall have failed to give notice of conversion or continuation as described in this subsection or if such conversion or continuation is not permitted pursuant to this Section 2.18, such Loans shall be converted to Base Rate Loans on the last day of such then expiring Interest Period. Accrued interest on a Loan (or portion thereof) being converted shall be paid by the Borrower at the time of conversion. 2.19 Use of Proceeds. The Letters of Credit and the proceeds of --------------- the Loans shall be used by the Borrower for working capital and general corporate purposes in the ordinary course of business (including, but not limited to, refinancing existing working capital-related indebtedness and, subject to the other provisions of this Agreement, acquisition financing). SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Bank to enter into this Agreement, and to make the Loans and to issue the Letters of Credit, the Borrower hereby represents and warrants to the Bank that: -24- 3.1 Financial Condition. ------------------- (a) Audited Financials. The consolidated balance sheet of ------------------ the Borrower and its consolidated Subsidiaries as at December 31, 2000 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, copies of which have heretofore been furnished to the Bank, present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved. Neither the Borrower nor any of its consolidated Subsidiaries had, as of December 31, 2000, any material Contingent Obligation, liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any Interest Hedge Agreement, which is not reflected in the financial statements contained in the Borrower's Annual Report on Form 10-K for the period ended December 31, 2000 or the notes thereto. (b) No Sales. During the period from December 31, 2000, to -------- and including the date of this Agreement there has been no sale, transfer or other disposition by the Borrower or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any Capital Stock of any other Person) material in relation to the financial condition of the Borrower and its consolidated Subsidiaries at December 31, 2000. 3.2 No Adverse Change. Since December 31, 2000, there has been no ----------------- development or event nor any prospective development or event which has had or could reasonably be expected individually or in the aggregate to have a Material Adverse Effect. 3.3 Corporate Existence; Compliance with Law. Each of the ---------------------------------------- Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to be so qualified and/or in good standing could not, in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 3.4 Corporate Power; Authorization; Enforceable Obligations. The ------------------------------------------------------- Borrower has the corporate power, authority, and legal right, to make, deliver and perform this Agreement, the Note and the other Loan Documents to which it is a party and to borrow hereunder and has taken all necessary corporate action to authorize the borrowings on the terms and conditions of this Agreement and the Note and to authorize the execution, delivery and performance of this Agreement, the Note and the other Loan Documents to which it is a party. No consent or authorization of, filing with or other act by or in respect of, any Governmental Authority or any -25- other Person (including stockholders and creditors of the Borrower) is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement, the Note or the other Loan Documents. This Agreement has been, and the Note and other Loan Document will be, duly executed and delivered on behalf of the Borrower. This Agreement constitutes, and the Note and other Loan Document when executed and delivered will constitute, a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 3.5 No Legal Bar. The execution, delivery and performance of this ------------ Agreement, the Note and the other Loan Documents by the Borrower, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of the Borrower or of any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 3.6 No Material Litigation. No litigation, investigation or ---------------------- proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to this Agreement, the Note or the other Loan Documents or any of the transactions contemplated hereby, or (b) as to which there is a reasonable likelihood of an adverse determination and which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. 3.7 No Default. Neither the Borrower nor any of its Subsidiaries is ---------- in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 3.8 Taxes. Each of the Borrower and its Subsidiaries has filed or ----- caused to be filed all tax returns which, to its knowledge, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has been filed against the Borrower or any of its Subsidiaries, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such tax, fee or other charges. 3.9 Federal Regulations. No part of the proceeds of any Loans will ------------------- be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U or for any purpose which violates the provisions of Regulation U. If requested by the Bank, the Borrower will furnish to the Bank a statement to the -26- foregoing effect in conformity with the requirements of FR Form U-l referred to in said Regulation U. No part of the proceeds of the loans hereunder will be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation X. 3.10 ERISA. ----- (a) Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Single Employer Plan, and each Single Employer Plan has compiled in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred and no lien in favor of the PBGC or a Plan has arisen during the five-year period prior to the date as of which this representation is made or deemed made. No other event or condition has occurred or exists with respect to any Plan that could reasonably be expected individually or in the aggregate to have a Material Adverse Effect. (b) The present value of all accrued benefits under each Single Employer Plan in which the Borrower or any Commonly Controlled Entity is a participant (based on those assumptions used to fund the Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount in excess of ten percent (10%) of Consolidated Net Worth as of the end of the most recent fiscal year of the Borrower for which financial statements have been delivered to the Bank pursuant to this Agreement. (c) Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan, and neither the Borrower nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made, in any such case which could reasonably be expected individually or in the aggregate to have a Material Adverse Effect. (d) To the Borrower's knowledge, no such Multiemployer Plan is in "reorganization" or "insolvent," within the meaning of such terms as used in ERISA. (e) The present value (determined using actuarial and other assumptions which are reasonable in respect of the benefits provided and the employees participating) of the liability of the Borrower and each Commonly Controlled Entity for post retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all such Plans allocable to such benefits by an amount in excess of ten percent (10%) of the Borrower's consolidated net worth as of the end of the most recent fiscal year of the Borrower for which financial statements have been delivered to the Bank pursuant to this Agreement. -27- 3.11 Investment Company Act; Public Utility Holding Company Act. ---------------------------------------------------------- Neither the Borrower nor any of its Subsidiaries is (a) an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended; (b) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (c) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. 3.12 Purpose of Loans; Letters of Credit. The proceeds of the ----------------------------------- Loans and the Letters of Credit shall only be used by the Borrower for the purposes permitted under Section 2.19. 3.13 Environmental Matters. To the best knowledge of the --------------------- Borrower, each of the representations and warranties set forth in paragraphs (a) through (e) of this subsection is true and correct with respect to each parcel of real property owned or operated by the Borrower or any of its Subsidiaries (the "Properties"), except to the extent that the facts and circumstances giving ---------- rise to any such failure to be so true and correct could not reasonably be expected to have a Material Adverse Effect: (a) The Properties do not contain, and have not previously contained, in, on, or under, including, without limitation, the soil and groundwater thereunder, any Materials of Environmental Concern in concentrations which violate Environmental Laws. (b) The Properties and all operations and facilities at the Properties are in compliance with Environmental Laws, and there is no Materials of Environmental Concern contamination or violation of any Environmental Law which would materially interfere with the continued operation of any of the Properties or materially impair the fair saleable value of any thereof. (c) Neither the Borrower nor any of its Subsidiaries has received or is aware of any claim, notice of violation, alleged violation, non- compliance, investigation or advisory action or potential liability regarding environmental matters or compliance of Environmental Law with regard to the Properties which has not been satisfactorily resolved by the Borrower or such Subsidiary, nor is the Borrower or any of its Subsidiaries aware or have reason to believe that any such action is being contemplated, considered or threatened. (d) Materials of Environmental Concern have not been generated, treated, stored, disposed of, at, on or under any of the Properties in violation of Environmental Laws, nor have any Materials of Environmental Concern been transferred from the Properties to any other location except in either case in the ordinary course of business of the Borrower and its Subsidiaries and in material compliance with all Environmental Laws. (e) There are no governmental, administrative actions or judicial proceedings pending or, to the best knowledge of the Borrower, contemplated under any Environmental Laws to which the Borrower or any of its Subsidiaries is or will be named as a -28- party with respect to the Properties, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to any of the Properties. 3.14 No Burdensome Restrictions. No Requirement of Law or -------------------------- Contractual Obligation of the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 3.15 Ownership of Borrower and Subsidiaries. The beneficial -------------------------------------- ownership of the Capital Stock of the Borrower by its executive officers, directors and 5% shareholders has not changed materially from that set forth in the Borrower's most recent registration statement as filed with the Securities and Exchange Commission. The Borrower owns all of the issued and outstanding capital stock of each of the Guarantor and, as of the date of this Agreement, the Borrower owns all of the issued and outstanding Capital Stock of each of its Subsidiaries. 3.16 Patents, Trademarks, etc. Each of the Borrower and its ------------------------- Subsidiaries has obtained and holds in full force and effect or is licensed to use all patents, trademarks, servicemarks, trade names, copyrights and other such rights, free from burdensome restrictions, which are necessary for the operation of its business as presently conducted. To the Borrower's best knowledge, no material product, process, method, substance, part or other material presently sold by or employed by the Borrower or any Subsidiary in connection with such business infringes any patent, trademark, service mark, trade name, copyright, license or other right owned by any other Person. There is not pending or, to the Borrower's knowledge, overtly threatened any claim or litigation against or affecting the Borrower or any Subsidiary contesting its right to sell or use any such product, process, method, substance, part or other material which could reasonably be expected to have a Material Adverse Effect. 3.17 Ownership of Property. Each of the Borrower and its --------------------- Subsidiaries has good and marketable fee simple title to or valid leasehold interests in all real property owned or leased by it, and good title to all of its personal property subject to no Lien of any kind except Permitted Liens. 3.18 Licenses, etc. Each of the Borrower and its Subsidiaries -------------- has obtained and holds in full force and effect, all franchises, licenses, permits, certificates, authorizations, qualifications, easements, rights of way and other rights, consents and approvals which are necessary for the operation of its business as presently conducted. 3.19 Labor Matters. As of the Effective Date, there are no ------------- collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower or any of its Subsidiaries, and none of the Borrower nor any of its Subsidiaries has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years and to the best knowledge of the Borrower, there are none now threatened. 3.20 Material Contracts. All material contracts relating to the ------------------ business operations of the Borrower are valid, binding and enforceable upon the Borrower and, to the Borrower's knowledge, each of the parties thereto in accordance with their respective terms, and -29- there is no material default thereunder, to the Borrower's knowledge, with respect to parties other than the Borrower. 3.21 Insurance. The Borrower and its Subsidiaries currently --------- maintain insurance which meets or exceeds the requirements of Section 5.5 No notice has been given or claim made and no grounds exist to cancel or avoid any insurance policies or other bonds to which the Borrower or any of its Subsidiaries is a party or to reduce the coverage provided thereby or any replacements thereof. Such policies and bonds or any replacements thereof provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of the Borrower and its Subsidiaries in accordance with prudent business practice in the industry of the Borrower and its Subsidiaries. 3.22 Senior Debt Status. The obligations of the Borrower under ------------------ this Agreement and the Note do rank and will rank at least pari passu in ---- ----- priority of payment with all other indebtedness of the Borrower except indebtedness of the Borrower to the extent secured by Permitted Liens. There is no Lien upon or with respect to any of the properties or income of the Borrower which secures indebtedness or other obligations of any Person except for Permitted Liens. 3.23 No Material Misstatements. To the best of the Borrower's ------------------------- knowledge, no information furnished by or on behalf of the Borrower or any Subsidiary to the Bank in this Agreement or any Schedule or Exhibit attached hereto, or in the Borrower's financial projections delivered pursuant to Section 4.1(k) hereof, contains any misstatement of fact, or omitted or omits to state any fact necessary to make the statements therein not misleading, where such misstatement or omission would be material to the interests of the Bank with respect to the Borrower's performance of its obligations hereunder. Any projections, forecasts or budgets provided by the Borrower to the Bank (other than the financial projections delivered pursuant to Section 5.2(b) hereof) are expressly excluded from this Section and the Borrower makes no representation or warranty as to their accuracy or reliability. With regard to the financial projections delivered pursuant to Section 5.2(b), the Borrower shall be entitled to a cross-reference therein to the forward-looking statements disclaimers contained in its filings with the Securities and Exchange Commission and the benefits of the safe harbor afforded under the Private Securities Litigation Reform Act of 1995. SECTION 4. CONDITIONS PRECEDENT 4.1 Conditions to Effectiveness. The effectiveness of this --------------------------- Agreement and the agreement of the Bank to make the initial Extension of Credit is subject to the satisfaction of the following conditions precedent immediately prior to or concurrently with such Extension of Credit: (a) Loan Documents. The Bank shall have received (i) this -------------- Agreement, executed and delivered by a duly authorized officer of the Borrower, with a counterpart for the Bank, (ii) for the account of the Bank, a Note conforming to the requirements hereof and executed by a duly authorized officer of the Borrower, and (iii) the Guaranty Agreement, executed and delivered by a duly authorized officer of the Guarantor. -30- (b) Corporate Proceedings of the Borrower and the Guarantor. The Bank ------------------------------------------------------- shall have received a copy of the resolutions or other corporate proceedings or action, in form and substance satisfactory to the Bank, (i) taken on behalf of the Borrower authorizing (A) the execution, delivery and performance of this Agreement, the Note and the other Loan Documents to which it is a party, and (B) the borrowings contemplated hereunder, and (ii) taken on behalf of the Guarantor authorizing the execution, delivery and performance of the Guaranty Agreement, in each case certified by the secretary or assistant secretary of the Borrower or the Guarantor as of the Effective Date, which certificates shall state that such resolutions, or other corporate proceedings or action thereby certified have not been amended, modified, revoked or rescinded and shall be in form and substance satisfactory to the Bank. (c) Representations and Warranties True; No Default. The ----------------------------------------------- representations and warranties of the Borrower contained in Section 3 hereof shall be true and accurate on and as of the Effective Date with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein), and the Borrower shall have performed and complied with all covenants and conditions hereof; and no Event of Default or Default under this Agreement shall have occurred and be continuing or shall exist; and the Borrower shall have delivered to the Bank a certificate to that effect signed by a Responsible Officer. (d) Corporate Documents. The Bank shall have received true and ------------------- complete copies of the articles or certificate of incorporation and bylaws of the Borrower, certified as of the Effective Date as complete and correct copies thereof by the secretary or assistant secretary of the Borrower, or a certificate from the secretary or assistant secretary of the Borrower to the effect that there have been no changes in the articles or certificate of incorporation and bylaws of the Borrower from the copies most recently delivered to the Bank, and a good standing certificate recently issued by the Secretary of State (or the equivalent thereof) of the jurisdiction of incorporation of the Borrower and the Guarantor and of each state in which the Borrower is required to be qualified to transact business. (e) Incumbency. The Bank shall have received (i) a written ---------- certificate dated the Effective Date by the secretary or assistant secretary of the Borrower as to the names and signatures of the officers of the Borrower authorized to sign this Agreement and the other Loan Documents and (ii) a written certificate dated the Effective Date by the secretary or assistant secretary of the Guarantor as to the names and signatures of the officers of the Guarantor authorized to sign the Guaranty Agreement. The Bank may conclusively rely on such certificates until it shall receive a further certificate by the secretary or assistant secretary of the Borrower or the Guarantor amending such prior certificate. (f) Fees and Expenses. The Borrower shall pay or cause to be paid to ----------------- the Bank the fees to be received on the Effective Date referred to herein and the reasonable costs and expenses for which the Bank is entitled to be reimbursed. -31- (g) Legal Opinion. The Bank shall have received the executed --------- legal opinion of Klaus M. Belohoubek, Esquire, General Counsel to the Borrower and the Guarantor, substantially in the form of Exhibit D hereto. Such opinion --------- shall be addressed to the Bank and cover such other matters incident to the transactions contemplated by this Agreement as the Bank may reasonably require. (h) No Material Adverse Change. Since December 31, 2000 there -------------------------- shall have been no material adverse change in the financial condition or prospects of the Borrower and its Subsidiaries taken as a whole (including, without limitation, with respect to assets, net worth and credit position), and the Borrower shall have delivered to the Bank a certificate to that effect signed by a Responsible Officer. (i) UCC Filing and Other Searches. The Bank shall have received ----------------------------- the results of such additional Uniform Commercial Code searches made with respect to the Borrower and its Subsidiaries, if any, as the Bank shall require, together with copies of financing statements disclosed by such searches, and the foregoing searches shall disclose no Liens, except for Permitted Liens or, if unpermitted Liens are disclosed, the Bank shall have received satisfactory evidence of the release of such Liens. (j) Spin-Off. The spin-off of Dover Downs, Inc. as a wholly- -------- owned subsidiary of the Borrower, as described in the Registration Statement on Form 10 filed by the Borrower and bearing SEC File No. 001-16791, shall have been consummated, and the Borrower shall have delivered to the Bank a certificate to that effect signed by a Responsible Officer. 4.2 Conditions to Each Extension of Credit. The agreement of the -------------------------------------- Bank to make any Extension of Credit requested to be made by it on any date (including, without limitation, the first such Extension of Credit hereunder) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations ------------------------------ and warranties (i) made by the Borrower herein or (ii) which are contained in any certificate, document or financial or other statement furnished at any time under or in connection herewith or therewith shall be true and correct in all material respects on and as of such date as if made on and as of such date (except representations and warranties which expressly relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein and subject as to any representations or warranties referred to in subsection (ii) above to the exclusions and qualifications referred to in the last two sentences of Section 3.23). (b) No Default. No Default or Event of Default shall have ---------- occurred and be continuing on such date or after giving effect to the Extensions of Credit requested to be made on such date. (c) Additional Matters. All corporate and other proceedings, ------------------ and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to -32- the Bank, and the Bank shall have received such other documents in respect of any aspect or consequence of the transactions contemplated hereby or thereby as it shall reasonably request. Each borrowing by the Borrower hereunder or request for the issuance of a Letter of Credit shall constitute a representation and warranty by the Borrower as of the date of such Loan or issuance of such Letter of Credit that the conditions contained in this Section 4.2 have been satisfied. SECTION 5. AFFIRMATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitment remains in effect, the Note remains outstanding and unpaid, any Letter of Credit remains outstanding or any other amount is owing to the Bank hereunder, the Borrower shall and (except in the case of delivery of financial information, reports and notices) shall cause each of its Subsidiaries to: 5.1 Financial Statements. Furnish to the Bank: -------------------- (a) as soon as available, but in any event not later than 120 days after the close of each fiscal year of the Borrower, a copy of the annual audit report for such year for the Borrower and its consolidated Subsidiaries, including therein the consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such fiscal year, and related consolidated statement of income, retained earnings and cash flow of the Borrower and its consolidated Subsidiaries for such fiscal year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, all in reasonable detail, prepared in accordance with GAAP applied on a basis consistently maintained throughout the period involved and with the prior year with such changes therein as shall be approved by the Borrower's independent certified public accountants, such consolidated financial statements to be certified by independent certified public accountants selected by the Borrower from among the five largest accounting firms in the United States on the date of this Agreement or their successors, or otherwise acceptable to the Bank, without a "going concern" or like qualification or any exception or qualification arising out of the restricted or limited nature of the examination made by such accountants; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, a copy of its Report on Form 10-Q for such quarter filed with the Securities and Exchange Commission. 5.2 Certificates; Other Information. Furnish to the Bank: ------------------------------- (a) concurrently with the delivery of the financial statements referred to in Sections 5.1(a) and (b), a certificate of a Responsible Officer, in the form of Exhibit E hereto, showing in detail the calculations --------- demonstrating compliance with Section 6.1 and stating that, to the best of his or her knowledge, the Borrower during such period has kept, observed, performed and fulfilled each and every covenant and condition contained in this Agreement and in the Note and the other Loan Documents applicable to it and that he or she obtained no knowledge of any Default or Event of Default except as specifically indicated; -33- (b) as soon as available, but in any event not later than 90 days after the end of each fiscal year, (i) detailed capital expenditure budgets of the Borrower and each of its Subsidiaries by quarter and (ii) a forecasted consolidated balance sheet, statement of income and statement of cash flows for the Borrower and its Subsidiaries by quarter in each case for the following two fiscal years; (c) promptly upon their becoming available, but in any event not later than 120 days after the end of each fiscal year, any reports including management letters submitted to the Borrower or any Subsidiary by independent accountants in connection with any annual, interim or special audit; (d) financial statements, reports, notices or proxy statements distributed by the Borrower to its stockholders on a date no later than three Business Days after the date supplied to such stockholders; and (e) promptly, such additional financial and other information as the Bank may from time to time reasonably request. 5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at ---------------------- or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except (a) when the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower or a Subsidiary, as the case may be, and (b) where the failure so to pay such indebtedness could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.4 Conduct of Business and Maintenance of Existence. Continue to ------------------------------------------------ engage in business of the same general type as now conducted by it and preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges, trademarks, trade names, licenses, franchises and other authorizations necessary or desirable in the normal conduct of its business; comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not reasonably be expected to have, in the aggregate, a Material Adverse Effect. 5.5 Maintenance of Property; Insurance. ---------------------------------- (a) Maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties material or necessary to its business, and from time to time make or cause to be made all appropriate repairs, renewals or replacements thereof. (b) Insure its properties and assets against loss or damage by fire and such other insurable hazards as such assets are commonly insured (including fire, extended coverage, property damage, worker's compensation, public liability and business interruption insurance) and against other risks (including errors and omissions) in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers, including self-insurance to -34- the extent customary. The Borrower shall deliver at the request of the Bank from time to time a summary schedule indicating all insurance then in force with respect to the Borrower. 5.6 Inspection of Property; Books and Records; Discussions. ------------------------------------------------------ (a) Permit any of the officers or authorized employees or representatives of the Bank to visit and inspect during normal business hours any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts (including those of its Affiliates) with its officers, all in such detail and at such times and as often as the Bank may reasonably request, provided, that the Bank shall -------- provide the Borrower with reasonable notice prior to any visit or inspection. (b) Maintain and keep proper books of record and account which enable the Borrower and its Subsidiaries to issue financial statements in accordance with GAAP and as otherwise required by applicable Requirements of Law, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs. 5.7 Notices. Promptly give notice to the Bank of: ------- (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Borrower or any of the Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Borrower or any of the Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) commencement of any litigation or proceeding affecting the Borrower or any of the Subsidiaries in which the amount involved is $1,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought; (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, any Lien in favor of PBGC or any Plan, or any withdrawal from, or the termination, Reorganization or Insolvency of any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Single Employer Plan in a distress termination under Section 4041(c) of ERISA or Multiemployer Plan; (e) an event which has had or could reasonably be expected to have a Material Adverse Effect; and (f) any Permitted Acquisition, prior to the consummation thereof. -35- Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower proposes to take with respect thereto. 5.8 Environmental Laws. ------------------ (a) Comply with, and require compliance by all tenants and to the extent possible, all subtenants, if any, with, all Environmental Laws and obtain and comply with and maintain, and require that all tenants and to the extent possible, all subtenants obtain and comply with and maintain, any and all licenses, approvals, registrations or permits required by Environmental Laws except to the extent that failure to so comply or obtain or maintain such documents could not reasonably be expected to have a Material Adverse Effect. (b) Comply with all lawful and binding orders and directives of all Governmental Authorities respecting Environmental Laws except to the extent that failure to so comply could not reasonably be expected to have a Material Adverse Effect. (c) Defend, indemnify and hold harmless the Bank, and its respective employees, agents, officers, directors, successors and assigns from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to any violation of or noncompliance with or liability under any Environmental Laws, or any orders, requirements or demands of Governmental Authorities related thereto which in each case relate to or arise in connection with the Borrower or any Subsidiary, any property or assets thereof or any activities relating to any other property or business of a Borrower or any Subsidiary thereof or the enforcement of any rights provided herein or in the other Loan Documents, including, without limitation, attorneys' and consultants' fees, response costs, investigation and laboratory fees, court costs and litigation expenses, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of any of the foregoing enumerated parties. This indemnity shall continue in full force and effect regardless of the termination of this Agreement and the payment of the Note. 5.9 Management Changes. Notify the Bank in writing within thirty ------------------ (30) days after any change of its executive officers. SECTION 6. NEGATIVE COVENANTS The Borrower hereby agrees that, so long as the Commitment remains in effect, the Note remains outstanding and unpaid, any Letter of Credit remains outstanding or any other amount is owing to the Bank hereunder, the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, without the prior written consent of the Bank: 6.1 Financial Condition Covenants. ----------------------------- (a) Leverage Ratio. Permit as of the end of any fiscal quarter -------------- the Leverage Ratio to exceed 3.5 to 1. -36- (b) Interest Coverage Ratio. Permit as of the end of any fiscal ----------------------- quarter the Interest Coverage Ratio to be less than 5 to 1. (c) Maintenance of Tangible Net Worth. Permit Consolidated --------------------------------- Tangible Net Worth on any day to be less than (i) $70,000,000 plus (ii) an amount equal to 25% of the consolidated net income (if positive) of the Borrower and its Subsidiaries for each fiscal quarter ending after March 31, 2002, calculated on a cumulative basis. 6.2 Limitation on Debt. At any time incur, create, assume, or suffer ------------------ to exist any Debt except: (a) amounts outstanding hereunder or under the other Loan Documents; and (b) Debt under Capital Leases or secured by Purchase Money Security Interests (including those in existence on the date hereof), and other guarantees, loans or advances made in the ordinary course of business, in an aggregate principal amount not exceeding $5,000,000 in any fiscal year. 6.3 Limitation on Liens. Create, incur, assume or suffer to exist ------------------- any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for Permitted Liens. 6.4 Limitations on Fundamental Changes. Enter into any merger, ---------------------------------- consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets except: (a) any Subsidiary of the Borrower, may be merged or consolidated with or into the Borrower (provided, that the Borrower shall be the -------- continuing or surviving corporation) or with or into any one or more wholly- owned Subsidiaries of the Borrower (provided, that the wholly-owned Subsidiary -------- or Subsidiaries shall be the continuing or surviving corporation); (b) any wholly-owned Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any wholly-owned Subsidiary of the Borrower; and (c) the transactions described in the Registration Statement on Form 10, filed by the Borrower and bearing SEC File No. 001-16791; provided, that immediately after each such transaction and after giving effect - -------- thereto, the Borrower is in compliance with this Agreement and no Default or Event of Default shall be in existence or result from such transaction. -37- 6.5 Limitation on Sale of Assets. Convey, sell, lease, assign, ---------------------------- transfer or otherwise dispose of any of its property, business or assets (including, without limitation, accounts receivables and leasehold interests), whether now owned or hereafter acquired, except: (a) any sale, transfer or lease of assets in the ordinary course of business which are no longer necessary or required in the conduct of the Borrower's or any Subsidiary's business; (b) transactions involving the sale, license or lease of assets in the ordinary course of business; (c) the sale or discount without recourse of accounts receivable only in connection with the compromise thereof or the assignment of past-due accounts receivable for collection; (d) as permitted by Section 6.4; (e) transfers between the Borrower and its Subsidiaries or between one Subsidiary and another Subsidiary; and (f) in addition to the above Sections 6.5(a) through 6.5(e) inclusive, sales of assets of the Borrower and its Subsidiaries for fair market value, provided, that the aggregate amount of such sales, determined in -------- accordance with GAAP, in any fiscal year does not exceed ten percent (10%) of the Borrower's consolidated assets as at the end of the immediately preceding fiscal quarter. 6.6 Limitations on Acquisitions, Investments, Loans and Advances. ------------------------------------------------------------ Purchase, hold or acquire beneficially any stock, other securities or evidences of indebtedness of, make or permit to exist any loans or advances to, or make or permit to exist any investment or acquire any interest whatsoever in, any other Person, except: (a) extensions of trade credit to customers in the ordinary course of business; (b) Permitted Investments; (c) loans and advances to employees of the Borrower or its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business; (d) Capital Stock of any Subsidiary; (e) loans and advances by the Borrower to its wholly-owned Subsidiaries; and (f) Permitted Acquisitions. -38- 6.7 Limitation on Distributions. Declare or pay any Distribution --------------------------- (whether in cash or property or obligations of the Borrower or any Subsidiary thereof) in respect of the Borrower or any Subsidiary thereof except: (a) Any wholly-owned Subsidiary may declare and pay dividends or other distributions to the Borrower or any other wholly-owned Subsidiary; and (b) So long as no Default or Event of Default exists or would be caused thereby, the Borrower (i) may declare and pay dividends on its Capital Stock in the ordinary course of business consistent with past practice and (ii) may declare and pay dividends on its Capital Stock in excess of those paid historically; provided, that the amount of any such increase in dividends paid -------- during any fiscal year does not exceed, in the aggregate, 50% of Consolidated Net Income for the previous fiscal year. 6.8 Transactions with Affiliates. Except as expressly permitted in ---------------------------- this Agreement, directly or indirectly enter into any transaction or arrangement whatsoever or make any payment to or otherwise deal with any Affiliate, except, as to all of the foregoing in the ordinary course of and pursuant to the reasonable requirements of the Borrower's or its Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than would be obtained in a comparable arm's length transaction with a Person not an Affiliate of the Borrower. 6.9 Fiscal Year. Permit its fiscal year to end on a day other than ----------- December 31 unless prior written notice thereof has been given to the Bank. 6.10 Change in Business. Engage in any business either directly ------------------ or through any Subsidiary except for businesses in which the Borrower or any Subsidiary is engaged in on the date of this Agreement and any businesses related to such existing businesses. 6.11 Sale and Leaseback. Enter into any arrangement with any ------------------ Person providing for the leasing by the Borrower or any Subsidiary thereof of real or personal property which has been or is to be sold or transferred by the Borrower or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations thereof. 6.12 Limitation on Negative Pledge Clauses. Enter into any ------------------------------------- agreement with any Person other than the Bank which prohibits or limits the ability of the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its properties, assets or revenues, whether now owned or hereafter acquired; provided, that the Borrower or any Subsidiary -------- thereof may enter into such an agreement in connection with a Purchase Money Security Interest or Capital Lease permitted hereunder, provided that such prohibition or limitation is by its terms effective only against the assets subject to such Lien. 6.13 Interest Hedge Agreements. Enter into any interest hedge ------------------------- agreement other than an Interest Hedge Agreement, which in any event will be unsecured, and with respect to which the prior approval of the Bank, which shall not be unreasonably withheld, shall have been obtained. -39- SECTION 7. EVENTS OF DEFAULT 7.1 Events of Default. If any of the following events shall occur ----------------- and be continuing: (a) The Borrower shall fail to pay any principal of the Note or any Reimbursement Obligation when due in accordance with the terms thereof or hereof; or the Borrower shall fail to pay any interest on the Note, or any other amount payable hereunder, within five (5) days after any such interest or other amount becomes due in accordance with the terms thereof or hereof; or (b) Any representation or warranty (i) made or deemed made by the Borrower herein or (ii) which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made (subject as to any representation or warranty referred to in subsection (ii) above to the exclusions and qualifications contained in the last two sentences of Section 3.23); or (c) The Borrower shall default in the observance or performance of any agreement contained in Section 6; or (d) The Borrower shall default in the observance or performance of any other agreement contained in this Agreement (other than as provided in paragraphs (a) through (c) of this Section 7.1) or any other Loan Document, and such default shall continue unremedied for a period of 30 days; or (e) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance, subject to any customary deductible, and under which the applicable insurance carrier has acknowledged such full coverage in writing) of $500,000 or more and all such judgments or decrees shall not have been vacated, discharged, settled, satisfied or paid, or stayed or bonded pending appeal, within 60 days from the entry thereof; or (f) A Borrower or any Subsidiary thereof shall (i) default in the payment of any principal of or interest on or any other amount payable on any indebtedness for borrowed money (other than the Note), beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such indebtedness was created and the aggregate amount of such indebtedness in respect of which such default or defaults shall have occurred is at least $100,000 (the "Cross-Default Indebtedness"); or (ii) default in the -------------------------- observance or performance of any other agreement or condition relating to any such Cross-Default Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, with the giving of notice if required, such Cross-Default Indebtedness to become due and payable prior to its stated maturity; or (g) (i) The Borrower or any Subsidiary shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or -40- foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Borrower or any Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any Subsidiary shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (h) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Single Employer Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity in favor of the PBGC or a Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or institution of proceedings or appointment of a trustee is, in the reasonable opinion of the Bank, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist in regard to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (i) Any other event shall have occurred which could reasonably be expected to have a Material Adverse Effect. then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (g) above with respect to the Borrower, automatically the Commitment shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement, the Note and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall automatically and immediately become due and payable, and (B) if such event is any other Event -41- of Default, either or both of the following actions may be taken: (i) the Bank may by notice to the Borrower declare the Commitment to be terminated forthwith, whereupon the Commitment shall immediately terminate; and (ii) the Bank may by notice of default to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement, the Note and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Bank an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. The Borrower hereby grants to the Bank a security interest in such cash collateral to secure all obligations of the Borrower under this Agreement and the other Loan Documents. Amounts held in such cash collateral account shall be applied by the Bank to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the Note and the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the Note and the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower. The Borrower shall execute and deliver to the Bank such further documents and instruments as the Bank may request to evidence the creation and perfection of the within security interest in such cash collateral account. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 8. MISCELLANEOUS 8.1 Amendments and Waivers. Neither this Agreement, the Note or any ---------------------- other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this subsection. With the written consent of the Bank and the Borrower may, from time to time, enter into written amendments, supplements or modifications hereto and to the Note and the other Loan Documents for the purpose of adding any provisions to this Agreement or the Note or the other Loan Documents or changing in any manner the rights of the Bank or of the Borrower hereunder or thereunder or waiving, on such terms and conditions as the Bank may specify in such instrument, any of the requirements of this Agreement or the Note or the other Loan Documents or any Default or Event of Default and its consequences. Any such waiver and any such amendment, supplement or modification shall be binding upon the Borrower, the Bank and all future holders of the Note. In the case of any waiver, the Borrower and the Bank shall be restored to their former position and rights hereunder and under the outstanding Note, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. -42- 8.2 Notices. All notices, requests and demands to or upon the ------- respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid, or the next Business Day if sent by reputable overnight carrier for next day delivery, postage prepaid, or, in the case of telecopy notice, when sent during normal business hours with electronic confirmation or otherwise when received, addressed as follows in the case of the Borrower and the Bank, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Note: The Borrower: Dover Downs Gaming & Entertainment, Inc. 1131 N. duPont Highway Dover, DE 19903 Attention: Mr. Timothy Horne Telecopy: (302) 734-3142 with a copy to: Dover Downs Entertainment, Inc. 15/th/ Floor 2200 Concord Pike Wilmington, DE 19803 Attention: Klaus M. Belohoubek, Esquire Telecopy: (302) 426-3555 The Bank: Wilmington Trust Company 121 South State Street Dover, DE 19901 Attention: Michael B. Gast, Commercial Banking Department Telecopy: (302) 735-2089 with a copy to: Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, DE 19890 Attention: Commercial Banking Department provided that any notice, request or demand to or upon the Bank pursuant to - -------- Sections 2.2, 2.4, 2.5, 2.6, 2.10, 2.11 or 2.18 shall not be effective until received. 8.3 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Bank, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. -43- 8.4 Survival of Representations and Warranties. All representations ------------------------------------------ and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement, the Note and the other Loan Documents. 8.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or ----------------------------- reimburse the Bank for all of its out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Note, the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Bank, (b) to pay or reimburse the Bank for all of their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents, the Letters of Credit and any such other documents, including, without limitation, reasonable fees and disbursements of counsel to the Bank, and (c) to pay, indemnify, and hold the Bank harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Note, the other Loan Documents, and any such other documents, and (d) to pay, indemnify, and hold the Bank harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, and the performance and administration, of this Agreement, the Note, the other Loan Documents, the Letters of Credit and any such other documents (all the foregoing, collectively, the "indemnified liabilities"), provided, that the Borrower shall have no -------- obligation hereunder to the Bank with respect to indemnified liabilities arising from the gross negligence or willful misconduct of the Bank. The agreements in this subsection shall survive repayment of the Note and all other amounts payable hereunder. 8.6 Successors and Assigns. ---------------------- (a) Except as otherwise provided in Section 8.8(b), whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all covenants, promises and agreements by or on behalf of the Borrower or the Bank that are contained in this Agreement shall bind and inure to the benefit of their respective successors and assigns. The Borrower may not assign or transfer any of its rights or obligations under this Agreement or the other Loan Documents without the prior written consent of the Bank. (b) The Bank may without the consent of the Borrower sell participations to one or more banks or other entities (each a "Participant") in ----------- all or a portion of its rights and obligations under this Agreement (including all or a portion of the Commitment, the Loans and the Note); provided, however, -------- ------- that (i) the Bank's obligations under this Agreement shall remain unchanged, (ii) the Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Bank shall remain the holder of the Note for all -44- purposes under this Agreement and the other Loan Documents, (iv) the Borrower shall continue to deal solely and directly with the Bank in connection with the Bank's rights and obligations under this Agreement and the other Loan Documents, (v) in any proceeding under the Bankruptcy Code the Bank shall be, to the extent permitted by law, the sole representative with respect to the obligations held in the name of the Bank, whether for its own account or for the account of any Participant and (vi) the Bank shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of this Agreement or the Note or any other Loan Document, other than any such amendment, modification or waiver with respect to any Loan or Commitment in which such Participant has an interest that forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan or Commitment, or postpones any date fixed for any regularly scheduled payment of principal of, or interest or fees on, any such Loan, or releases any guarantor of such Loan or releases all or substantially all of the collateral, if any, securing any such Loan. (c) The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13, 2.14, 2.15, 2.18 and 8.5 with respect to its participation in the Commitment and the Loans and Letters of Credit outstanding from time to time; provided, that no Participant shall be entitled -------- to receive any greater amount pursuant to such Sections than the Bank would have been entitled to receive in respect of the amount of the participation transferred by the Bank to such Participant had no such transfer occurred. (d) If any Participant of the Bank is organized under the laws of any jurisdiction other than the United States or any state thereof, the Bank, concurrently with the sale of a participating interest to such Participant, shall cause such Participant (i) to represent to the Bank (for the benefit of the Bank and the Borrower) that under applicable law and treaties no taxes will be required to be withheld by the Borrower or the Bank with respect to any payments to be made to such Participant in respect of its participation in the Loans and (ii) to agree (for the benefit of the Bank and the Borrower) that it will deliver (i) two duly completed copies of United States Internal Revenue Service Form W-8ECI or W-8BEN or successor applicable form, as the case may be, and (ii) Internal Revenue Service Form W-8 or W-9 or successor applicable form, and comply from time to time with all applicable U.S. laws and regulations with respect to withholding tax exemptions. (e) The Bank may at any time assign all or any portion of its rights under this Agreement and the Note to a Federal Reserve Bank; provided -------- that no such assignment shall release the Bank from any of its obligations hereunder. 8.7 Disclosure of Information. Unless otherwise consented to by the ------------------------- Borrower in writing, the Bank agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with its customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied to it by the Borrower pursuant to this Agreement; provided, that -------- nothing herein shall limit the disclosure of any such information (a) to the extent required by statute, rule, regulation or judicial process, (b) to counsel for the Bank, (c) to bank examiners, auditors or accountants, -45- (d) to the Bank, (e) in connection with any litigation to which the Bank is a party involving the Borrower or any Subsidiary or its or their properties or in any way relating to this Agreement or any other Loan Document or any Loans or Letters of Credit or other obligations of the Borrower to the Bank and (f) to any Participant (or prospective Participant) so long as such Participant (or prospective Participant) agrees to comply with the requirements of this Section. In the event of any disclosure pursuant to clauses (a) or (e) above, the Bank shall use its reasonable best efforts to notify the Borrower prior to making such disclosure, and shall cooperate with the Borrower, at the Borrower's expense, in obtaining a protective order if the Borrower so chooses. 8.8 Adjustments; Set-off. In addition to any rights and remedies of -------------------- the Bank provided by law, upon the occurrence of an Event of Default, the Bank shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder or under the Note (whether at the stated maturity, by acceleration or otherwise) to set- off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Bank to or for the credit or the account of the Borrower. The Bank agrees promptly to notify the Borrower after any such set-off and application made by the Bank, provided, that the failure to give such notice -------- shall not affect the validity of such set-off and application. 8.9 Counterparts. This Agreement may be executed by one or more of ------------ the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Bank. 8.10 Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.11 Integration. This Agreement represents the agreement of the ----------- Borrower and the Bank with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Bank relative to subject matter hereof not expressly set forth or referred to herein or in the Note or the other Loan Documents. 8.12 Governing Law. This Agreement, the Note and the other Loan ------------- Documents and the rights and obligations of the parties under this Agreement, the Note and the other Loan Documents shall be governed by, and construed and interpreted in accordance with, the law of the State of Delaware. 8.13 Submission To Jurisdiction; Waivers. The Borrower hereby ----------------------------------- irrevocably and unconditionally: -46- (a) submits for itself and its property in any legal action or proceeding relating to this Agreement, the Note or the other Loan Documents, or for recognition and enforcement of any judgment in respect thereof, to the non- exclusive general jurisdiction of the Courts of the State of Delaware, the courts of the United States of America for the District of Delaware, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower at the address set forth in Section 8.2 or at such other address of which the Bank shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary or punitive or consequential damages. 8.14 Acknowledgements. The Borrower hereby acknowledges that: ---------------- (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement, the Note and the other Loan Documents; (b) the Bank has no fiduciary relationship to the Borrower, and the relationship between the Bank and the Borrower is solely that of debtor and creditor; and (c) no joint venture exists between the Bank and the Borrower. 8.15 WAIVERS OF JURY TRIAL. EACH OF THE BORROWER AND THE BANK HEREBY --------------------- IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS AND FOR ANY COUNTERCLAIM THEREIN. -47- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. DOVER DOWNS GAMING & ENTERTAINMENT, INC. By: _____________________________ Name: Title: WILMINGTON TRUST COMPANY By: _____________________________ Name: Title: -48- SCHEDULE I BANK AND COMMITMENT INFORMATION Bank and Address Commitment ---------------- ---------- Wilmington Trust Company $55,000,000 through 121 South State Street December 31, 2002 and Dover, DE 19901 $50,000,000 thereafter Attn: Commercial Banking Department SCHEDULE II LETTER OF CREDIT FEES (see attached) EXHIBIT A FORM OF REVOLVING CREDIT BORROWING REQUEST Wilmington Trust Company 121 South State Street Dover, DE 19901 Attention: Commercial Banking Department Ladies and Gentlemen: The undersigned, Dover Downs Gaming & Entertainment, Inc. refers to the Credit Agreement dated as of January __, 2002 (the "Credit Agreement") (capitalized terms being used herein as therein defined), between the undersigned and Wilmington Trust Company, and hereby gives you notice, irrevocably, pursuant to Section 2.2 of the Credit Agreement that the undersigned hereby requests [a Revolving Credit Loan] [the renewal of a Eurodollar Rate Option] [the conversion of an interest rate option] as follows: 1. The proposed borrowing date is _______________, 200_. 2. The amount of the Revolving Credit Loan comprising the Borrowing is $______________. 3. The [Eurodollar Rate Option] [Base Rate Option] shall apply to the Revolving Credit Loan comprising the Borrowing. 4. The Interest Period for the Revolving Credit Loan comprising the Borrowing is _________ [months]. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the borrowing date: (a) each of the representations and warranties made by the undersigned in the Credit Agreement or which are contained herein are true and correct in all material respects on and as of the date hereof as if made on and as of the date hereof (except representations and warranties which expressly relate solely to an earlier date or time); and (b) no Default or Event of Default has occurred and is continuing on the date hereof or will occur after giving effect to the Extensions of Credit requested hereby. Very truly yours, DOVER DOWNS GAMING & ENTERTAINMENT, INC. By:____________________________________ Name: _________________________________ Title: ________________________________ EXHIBIT B FORM OF NOTE $_______________ Dated as of ________, 2002 Dover, DE FOR VALUE RECEIVED, DOVER DOWNS GAMING & ENTERTAINMENT, INC., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of WILMINGTON TRUST COMPANY (the "Bank"), in accordance with the terms of the Credit Agreement, as hereinafter defined, the lesser of the principal sum of $55,000,000.00 or the aggregate unpaid principal amount of all Revolving Credit Loans as defined in the Credit Agreement made by the Bank to the Borrower pursuant to the Credit Agreement, together with all unpaid interest accrued thereon and all other costs, fees and expenses as provided in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount hereof from the date hereof until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America at the office of the Bank (as hereinafter defined) at 121 South State Street, Dover, Delaware 19901, in immediately available funds. This Note is the Note referred to in, and is entitled to the benefits of, the Credit Agreement dated as of January __, 2002 (said Agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Credit Agreement") between the Borrower and the Bank. The Credit Agreement, among other things, (i) provides for the making of Revolving Credit Loans by the Bank to the Borrower in an aggregate amount not to exceed at any time outstanding the dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such Revolving Credit Loan being evidenced by this Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. The Borrower hereby waives presentment, demand, protest and notice of any kind, other than as set forth in the Credit Agreement. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. This Note shall be governed by, and construed in accordance with, the laws of the State of Delaware. DOVER DOWNS GAMING & ENTERTAINMENT, INC. By:__________________________________ Name: Title: EXHIBIT C GUARANTY AND SURETYSHIP AGREEMENT THIS GUARANTY AND SURETYSHIP AGREEMENT (this "Guaranty") is made and entered into as of this ____ day of January, 2002, by DOVER DOWNS, INC., a Delaware corporation, (the "Guarantor"), with an address at 1131 N. duPont Highway, Dover, DE 19903, in consideration of the extension of credit by Wilmington Trust Company (together with its successors and assigns, the "Bank"), with an address of 121 South State Street, Dover, DE 19803, pursuant to the Credit Agreement of even date herewith between the Bank and DOVER DOWNS GAMING & ENTERTAINMENT, INC. (the "Borrower"), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged. BACKGROUND In connection with the Credit Agreement, it is a condition precedent to the effectiveness of the Credit Agreement and to the making of loans and the issuance of letters of credit by the Bank from time to time that the Guarantor executes and delivers this Guaranty. In consideration of the foregoing and in order to induce the Bank to make loans and issue letters of credit to the Borrower under the Credit Agreement from time to time and for other consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Guarantor hereby agrees as follows: 1. Guaranty of Obligations. The Guarantor hereby guarantees, and ----------------------- becomes surety for, the prompt payment and performance of all loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Bank of any kind or nature, present or future (including, without limitation, any interest accruing thereon after maturity, or after the filing of a petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to the Guarantor or the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether or not evidenced by any note, guaranty or other instrument, arising under the Credit Agreement or any Loan Document (as defined in the Credit Agreement), whether direct or indirect (including those acquired by assignment or participation), absolute or contingent, joint or several, due or to become due, now existing or hereafter arising, and any amendments, extensions, renewals or increases and all costs and expenses of the Bank incurred in the modification, enforcement or collection of any of the foregoing, including reasonable attorneys' fees and expenses (collectively the "Obligations"). If the Borrower defaults under any such Obligations, the Guarantor will pay the amount due to the Bank. 2. Nature of Guaranty; Waivers. This is a guaranty of payment and --------------------------- not of collection and the Bank shall not be required, as a condition of the Guarantor's liability, to make any demand upon or to pursue any of its rights against the Borrower, or to pursue any rights which may be available to them with respect to any other person who may be liable for the payment of the Obligations. This is an absolute, unconditional, irrevocable and continuing guaranty and will remain in full force and effect until all of the Obligations have been indefeasibly paid in full, and the Bank has terminated this Guaranty. This Guaranty will not be affected by any surrender, exchange, acceptance, compromise or release by the Bank of any other party, or any other guaranty or any security held by it for any of the Obligations, by any failure of the Bank to take any steps to perfect or maintain its lien or security interest in or to preserve its rights to any security or other collateral for any of the Obligations or any guaranty, or by any irregularity, unenforceability or invalidity of any of the Obligations or any part thereof or any security or other guaranty thereof. The Guarantor's obligations hereunder shall not be affected, modified or impaired by any counterclaim, set-off, deduction or defense based upon any claim the Guarantor may have against the Borrower or the Bank, except payment or performance of the Obligations. Notice of acceptance of this Guaranty, notice of extensions of credit to the Borrower from time to time, notice of default, diligence, presentment, notice of dishonor, protest, demand for payment, are hereby waived. The Bank at any time and from time to time, without notice to or the consent of the Guarantor, and without impairing or releasing, discharging or modifying the Guarantor's liabilities hereunder, may (a) change the manner, place, time or terms of payment or performance of or interest rates on, or other terms relating to, any of the Obligations; (b) renew, substitute, modify, amend or alter, or grant consents or waivers relating to any of the Obligations, any other guaranties, or any security for any Obligations or guaranties; (c) apply any and all payments by whomever paid or however realized including any proceeds of any collateral, to any Obligations of the Borrower in such order, manner and amount as the Bank may determine in its sole discretion; (d) deal with any other persons with respect to any Obligations in such manner as the Bank deems appropriate in its sole discretion; (e) substitute, exchange or release any security or guaranty; or (f) take such actions and exercise such remedies hereunder as provided herein. 3. Repayments or Recovery from Bank. If any demand is made at any -------------------------------- time upon the Bank for the repayment or recovery of any amount received by it in payment or on account of any of the Obligations and if the Bank repays all or any part of such amount by reason of any judgment, decree or order of any court or administrative body or by reason of any settlement or compromise of any such demand, the Guarantor will be and remain liable hereunder for the amount so repaid or recovered to the same extent as if such amount had never been received originally by the Bank. The provisions of this section will be and remain effective notwithstanding any contrary action which may have been taken by the Guarantor in reliance upon such payment, and any such contrary action so taken will be without prejudice to the Bank's rights hereunder and will be deemed to have been conditioned upon such payment having become final and irrevocable. 4. Enforceability of Obligations. No modification, limitation or ----------------------------- discharge of the Obligations arising out of or by virtue of any bankruptcy, reorganization or similar proceeding for relief of debtors under federal or state law will affect, modify, limit or discharge the Guarantor's liability in any manner whatsoever and this Guaranty will remain and continue in full force and effect and will be enforceable against the Guarantor to the same extent and with the same force and effect as if any such proceeding had not been instituted. The Guarantor waives all rights and benefits which might accrue to it by reason of any such proceeding and will be liable to the full extent hereunder, irrespective of any modification, limitation or discharge of the liability of the Borrower that may result from any such proceeding. 5. Events of Default. If any of the following occur (each an "Event ----------------- of Default"): (i) any Event of Default (as defined in the Credit Agreement) (ii) the failure by the Guarantor to perform any of its obligations hereunder; (iii) the falsity, inaccuracy or material breach by the Guarantor of any written warranty, representation or statement made or furnished to the Bank by or on behalf of the Guarantor; or (iv) the termination or attempted termination of this Guaranty, then the Guarantor will, on the demand of the Bank, immediately deposit with the Bank in U.S. dollars all amounts due or to become due under the Obligations and the Bank will use such funds to repay the Obligations. Upon the occurrence of any Event of Default, the Bank in its discretion may exercise with respect to any collateral any one or more of the rights and remedies provided a secured party under the applicable version of the Uniform Commercial Code. 6. Right of Setoff. In addition to all liens upon and rights of --------------- setoff against the money, securities or other property of the Guarantor given to the Bank by law, the Bank shall have, with respect to the Guarantor's obligations to the Bank under the Guaranty and to the extent permitted by law, a contractual possessory security interest in a contractual right of setoff against, and the Guarantor hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the Guarantor's right, title and interest in and to, all deposits, moneys, securities and other property of the Guarantor now or hereafter in the possession of or on deposit with, or in transit to the Bank, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to the Guarantor. Every such right of setoff shall be deemed to have occurred immediately upon the occurrence of an Event of Default hereunder without any action of any of the Bank, although the Bank may enter such setoff on its respective books and records at a later time. 7. Costs. The Guarantor agrees to pay or reimburse the Bank for all ----- of its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Guaranty, including, without limitation, reasonable fees and disbursements of counsel to the Bank. 8. Postponement of Subrogation. Until the Obligations are --------------------------- indefeasibly paid in full, the Guarantor postpones and subordinates in favor of the Bank any and all rights which the Guarantor may have to (a) assert any claim against the Borrower based on subrogation rights with respect to payments made hereunder, and (b) any realization on any property of the Borrower, including participation in any marshalling of the Borrower's assets. 9. Notices. All notices, demands, requests, consents, approvals and ------- other communications required or permitted hereunder must be in writing and will be effective upon receipt if delivered personally, or if sent by facsimile transmission with confirmation of delivery, or by nationally recognized overnight courier service, to the addresses for the Bank and the Guarantor set forth above or to such other address as one may give to the other in writing for such purpose. 10. Preservation of Rights. No delay or omission on the Bank's part ---------------------- to exercise any right or power arising hereunder will impair any such right or power or be considered a waiver of any such right or power, nor will the Bank's action or inaction impair any such right or power. The Bank's rights and remedies hereunder are cumulative and not exclusive of any other right or remedies which the Bank may have under other agreements, at law or in equity. The Bank may proceed in any order against the Borrower, the Guarantor or any other obligor of, or collateral securing, the Obligations. 11. Illegality. In case any one or more of the provisions contained ---------- in this Guaranty should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 12. Changes in Writing. No modification, amendment or waiver of any ------------------ provision of this Guaranty nor consent to any departure by the Guarantor therefrom will be effective unless made in a writing signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Guarantor in any case will entitle the Guarantor to any other or future notice or demand in the same, similar or other circumstance. 13. Entire Agreement. This Guaranty (including the documents and ---------------- instruments referred to herein) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, between the Guarantor and the Bank with respect to the subject matter hereof. 14. Successors and Assigns. This Guaranty will be binding upon and ---------------------- inure to the benefit of the Guarantor and the Bank and, other than with respect to Section 6, their respective heirs, executors, administrators, successors and assigns; provided, however, that the Guarantor may not assign this Guaranty in -------- ------- whole or in part without the Bank's prior written consent and the Bank at any time may assign this Guaranty in whole or in part. 15. Interpretation. In this Guaranty, unless the Bank and the -------------- Guarantor otherwise agree in writing, the singular includes the plural and the plural the singular; references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; the work "or" shall be deemed to include "and/or", the words "including", "includes" and "include" shall be deemed to be followed by the words "without limitation"; and references to sections or exhibits are to those of this Guaranty unless otherwise indicated. Section headings in this Guaranty are included for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose. If this Guaranty is executed by more than one party as Guarantor, the obligations of such persons or entities will be joint and several. 16. Indemnity. The Guarantor agrees to indemnify each of the Bank --------- and its respective directors, officers and employees and each legal entity, if any, who controls the Bank (collectively, the "Indemnified Parties") and to hold each Indemnified Party harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement and performance of this Guaranty (all of the foregoing, collectively, the "Indemnified Liabilities"); provided, however, that -------- ------- the Guarantor shall have no obligation hereunder to any Indemnified Party with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of any Indemnified Party. The indemnity agreement contained in this Section shall survive the termination of this Guaranty. 17. Governing Law and Jurisdiction. ------------------------------ (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE. (b) The Guarantor hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of Delaware, the courts of the United States of America for the District of Delaware, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Guarantor at the address set forth above or at such other address of which the Bank shall have been notified pursuant to Section 10 hereof; (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (v) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary or punitive or consequential damages. 18. Waiver of Jury Trail. THE GUARNATOR HEREBY IRREVOCABLY AND -------------------- UNCONDITIONALLY WIAVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN. The Guarantor acknowledges that it has read and understood all the provisions of this Guaranty, including the waiver of jury trial, and has been advised by counsel as necessary or appropriate. WITNESS the due execution hereof as a document under seal, as of the date first written above, with the intent to be legally bound hereby. DOVER DOWNS, INC. Attest:_____________________________ By: _________________________________ Name: Name: Title: Title: EXHIBIT D FORM OF OPINION OF COUNSEL TO BORROWER AND GUARANTOR January __, 2002 Wilmington Trust Company 121 South State Street Dover, DE 19901 Ladies and Gentlemen: We have acted as counsel to Dover Downs Gaming & Entertainment, Inc., a Delaware corporation (the "Borrower"), and Dover Downs, Inc., a Delaware corporation (the "Guarantor"), in connection with the execution and delivery of the Credit Agreement dated as of January __, 2002 (the "Credit Agreement"), between the Borrower and the Bank, and the transactions contemplated thereby. This opinion is delivered to you pursuant to Section 4.1(g) of the Credit Agreement. Terms defined in the Credit Agreement and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. In so acting, we have examined executed originals or counterparts of the following documents, each dated the date hereof (the "Loan Documents"): (a) the Credit Agreement; (b) the Note; and (c) the Guaranty Agreement. We have also examined the articles or certificate of incorporation and bylaws, each as amended to date, of the Borrower and the Guarantor and such other documents and instruments and have made such further inquiries as we have deemed appropriate for purposes of this opinion. As to certain issues of fact, we have, where such facts were not independently known to us, relied with your consent and without independent investigation upon the representations and warranties made by the Borrower in the Credit Agreement and upon certificates of representatives of the Borrower dated January __, 2002. On the basis of the foregoing, we are of the opinion that: 1. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the business conducted by it requires such qualification. 2. The Borrower has the corporate or other power and authority to own or lease and operate its properties and assets, to conduct the business in which it is now engaged, and to execute and deliver and perform its obligations under the Loan Documents to which it is a party. The execution, delivery and performance of the Loan Documents to which it is a party by the Borrower have been duly authorized by all necessary action on the part of the Borrower. 3. The Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the corporate power and authority to own or lease and operate its properties and assets, to conduct the business in which it is now engaged, and to execute the Guaranty Agreement. 4. The Loan Documents to which the Borrower is a party delivered on the Closing Date have each been duly executed and delivered by or on behalf of the Borrower and are valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws or equitable principles affecting the enforcement of creditors' rights generally. 5. The Guaranty Agreement has been duly executed and delivered by or on behalf of the Guarantor and is the valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws or equitable principles affecting the enforcement of creditors' rights generally. 6. No authorization, approval or consent of, or filing or registration with, any governmental or regulatory body of the United States of America or the State of Delaware is required in connection with the execution, delivery and performance by the Borrower or the Guarantor of the Loan Documents to which it is a party or for any borrowings by the Borrower under the Credit Agreement. 7. Neither the execution and delivery by the Borrower or the Guarantor of the Loan Documents to which it is a party nor the performance and observance by the Borrower or the Guarantor of their respective obligations thereunder, will conflict with, or result in any violation or breach by the Borrower or the Guarantor of or constitute a default under (or an event which, with or without due notice or lapse of time or both, would constitute a default under), or accelerate the performance required by, or result in the creation of any Lien upon any of the properties or assets of the Borrower or the Guarantor under any of the terms, conditions or provisions of or require any filing or consent under (i) the Borrower's or the Guarantor's articles or certificate of incorporation or bylaws, (ii) any existing law, statute or governmental regulation applicable to the Borrower or the Guarantor, or (iii) to our knowledge, any judgment, order, decree, writ or injunction of any court, arbitrator or governmental department, commission, agency or instrumentality or any indenture, contract, guaranty or other agreement or instrument to which the Borrower or the Guarantor is a party or by which it or its properties may be bound or affected. 8. To our knowledge, there is no action, suit, proceeding or investigation at law or in equity, before any court, public board or body, pending or threatened against or affecting the Borrower wherein an unfavorable decision, ruling or finding would, individually or collectively, have a material adverse effect on the business or financial condition of the Borrower. 9. The borrowing on the date hereof under the Credit Agreement and the Note and the application of the proceeds thereof as contemplated by the Credit Agreement and the other Loan Documents do not violate any of the provisions of Regulation U or X of the Board of Governors of the Federal Reserve System. EXHIBIT E FORM OF COMPLIANCE CERTIFICATE This Compliance Certificate is executed and delivered by Dover Downs Gaming & Entertainment, Inc. (the "Borrower") in connection with the Credit Agreement dated as of January __, 2002 (together with all exhibits, schedules, extensions, renewals, amendments, substitutions and replacements thereof and thereto, the "Credit Agreement") entered into by and between the Borrower and Wilmington Trust Company (the "Bank"). All capitalized terms used in this Compliance Certificate as defined terms shall have the meanings given them in the Credit Agreement. The undersigned, [insert name], [insert title] of the Borrower, hereby attests on behalf of the Borrower to the Bank, with respect to the fiscal [quarter] [year] ended ____________, ____ (the "Fiscal Period"), as follows: 1. As of the date of this Compliance Certificate, and since the date of the most recent Compliance Certificate submitted to the Bank by the Borrower, (i) to the best of the undersigned's knowledge, the Borrower has kept, observed, performed and fulfilled each and every covenant and condition contained in the Credit Agreement, the Note and the other Loan Documents applicable to it and (ii) the undersigned has obtained no knowledge of any Default or Event of Default. 2. The Leverage Ratio as of the end of the Fiscal Period, for the four fiscal quarters then ended, is ________, as detailed below: (a) Consolidated Funded Debt $__________ (b) Consolidated EBITDA $__________ (c) Leverage Ratio (a/b) __________ 3. The Interest Coverage Ratio as of the end of the Fiscal Period, for the four fiscal quarters then ended, is __________, as detailed below: (a) Consolidated EBITDA $__________ (b) Consolidated Interest Expense $__________ (c) Interest Coverage Ratio (a/b) __________ 4. The Borrower's Consolidated Tangible Net Worth Fixed as of the end of the Fiscal Period is $________. Required Consolidated Tangible Net Worth as of the end of the Fiscal Period ($70,000,000 plus 25% of quarterly ---- consolidated net income (if positive) since March 31, 2002 is $__________. IN WITNESS WHEREOF, I have signed this Certificate as of the ____ day of __________, ____. DOVER DOWNS GAMING & ENTERTAINMENT, INC. By _____________________________ Name: Title: -----END PRIVACY-ENHANCED MESSAGE-----