Exhibit 10.1
Loan And Security Agreement
Dated As Of December 3, 2008
By And Among
National City Bank, as Lender,
and
Youbet.com, Inc.,
United Tote Company,
and
Youbet Services Corporation,
as Borrowers

 

 

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Table Of Contents

         
1. Definitions And Terms
    1  
2. Loans: Disbursements, Interest Rates, Loan Requests And Fees
    16  
2.1 Loans
    16  
(A) Revolving Loans
    16  
(B) Term Loan A
    17  
2.2 Letters of Credit
    17  
2.3 Interest Rates and Fees
    18  
(A) Loan Interest Rates
    18  
(B) Letter of Credit Fees
    18  
(C) Closing Fee
    18  
(D) Non-Utilization Fee
    18  
2.4 LIBOR Loans
    19  
2.5 Computation of Interest
    20  
3. LOANS: GENERAL TERMS
    20  
3.1 Payments
    20  
(A) Scheduled Payments
    21  
(B) Term Loan Mandatory Prepayments
    21  
(C) Revolving Loan Mandatory Payments
    21  
(D) Prepayment Premium
    21  
3.2 Late Payment Provision
    21  
3.3 Notes
    21  
3.4 One Loan
    21  
3.5 Use of Loan Proceeds
    22  
3.6 Representation and Warranty
    22  
3.7 Authorization to Disburse
    22  
3.8 Payment of Costs, Fees and Expenses
    22  
3.9 Debit of Accounts
    22  
3.10 Application of Payments
    22  
3.11 Co-Obligor Provisions
    23  
4. COLLATERAL: GENERAL TERMS
    24  
4.1 Grant of Security Interest
    24  
4.2 Supplemental Documentation
    25  
4.3 Inspections and Verifications
    25  
4.4 Liens/Collateral Locations
    26  
4.5 Endorsement
    26  
4.6 Account Earnings Credit
    26  
4.7 Assignment of Competing Security Interest
    26  
4.8 Special Collateral
    27  
4.9 No Custom or Waiver
    27  
4.10 Lien on Realty
    27  
5. COLLATERAL: ACCOUNTS
    27  
5.1 Eligible Accounts
    27  
5.2 Notice of Ineligible Accounts
    29  
5.3 Additional Representations, Warranties and Covenants
    29  
5.4 Revolving Loans
    30  
5.5 Verification of Accounts
    30  
5.6 Reserved
    30  
5.7 Notice Regarding Disputed Accounts
    30  
5.8 Attorney and Agent-In-Fact
    30  

 

 

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6. COLLATERAL: INVENTORY
    31  
6.1 Eligible Inventory
    31  
6.2 Representations, Warranties and Covenants
    31  
6.3 Sale of Inventory
    31  
6.4 Responsibility for Inventory
    31  
7. EQUIPMENT
    32  
7.1 Representations, Warranties and Covenants
    32  
7.2 Maintenance of Equipment
    32  
7.3 Evidence of Ownership
    32  
7.4 Records and Schedules of Equipment
    32  
7.5 Eligible Equipment
    32  
8. INSURANCE AND TAXES
    32  
8.1 Insurance
    32  
8.2 Taxes
    33  
9. REPRESENTATIONS, WARRANTIES AND COVENANTS: GENERAL
    34  
9.1 Representations and Warranties
    34  
(A) Organization and Qualification
    34  
(B) Company Power and Authority
    34  
(C) No Violation of Law
    34  
(D) Title to Collateral
    34  
(E) Solvency
    34  
(F) Litigation
    34  
(G) Indebtedness
    34  
(H) Government Contracts
    34  
(I) Adequate Assets/Trademarks/Copyrights/Patents
    35  
(J) Good Standing
    35  
(K) Burdensome Agreements
    35  
(L) Violation of Law/Compliance with Laws
    35  
(M) Breach of Other Loan Documents
    35  
(N) Financial Information
    35  
(O) Material Adverse Effect
    35  
(P) Change of Corporate Name or Structure
    35  
(Q) Capital Structure
    36  
(R) Pension Plans
    36  
(S) Labor Relations
    36  
(T) Trade Relations
    36  
(U) Environmental Matters
    36  
(V) Encumbrances
    36  
(W) Levies and Attachments
    36  
(X) Receiver, Trustee or Assignee
    36  
(Y) Surety
    36  
(Z) Affiliate Transactions
    37  
(AA) Commercial Tort Claims
    37  
9.2 Covenants
    37  
(A) Organization and Qualification
    37  
(B) No Violation of Law
    37  
(C) Title to Collateral
    37  
(D) Solvency
    37  
(E) Adequate Assets/Trademarks/Copyrights/Patents
    37  
(F) Good Standing
    37  
(G) Violation of Law
    38  

 

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(H) Breach of Other Loan Documents
    38  
(I) Financial Statements
    38  
(J) Material Adverse Change
    38  
(K) Change of Corporate Name or Structure
    38  
(L) Pension Plans
    38  
(M) Notices to Lender
    39  
(N) Landlord and Storage Agreements
    39  
(O) Subordinations
    39  
(P) Environmental Matters
    39  
(Q) Commercial Tort Claims
    39  
(R) Rate Hedging
    40  
9.3 Negative Covenants
    40  
(A) Additional Encumbrances
    40  
(B) Levies and Attachments
    40  
(C) Reserved
    40  
(D) Mergers and Acquisitions
    40  
(E) Ordinary Course of Business
    40  
(F) Investments/Loans/Subsidiaries
    40  
(G) Surety
    40  
(H) Capital Structure
    40  
(I) Encumbrance or Sale
    40  
(J) Reserved
    41  
(K) Indebtedness
    41  
(L) Restricted Payments
    41  
(M) Constituent Documents/Fiscal Year End
    41  
(N) Affiliate Transactions
    41  
9.4 Financial Covenants
    41  
(A) Debt Service Coverage Ratio
    41  
(B) Leverage Ratio
    41  
(C) Adjusted EBITDA
    41  
(D) Capital Expenditures
    41  
9.5 Financial Reporting
    42  
10. CONDITIONS PRECEDENT
    43  
10.1 Conditions to Initial Funding
    43  
10.2 Conditions to Subsequent Fundings
    44  
11. EVENT OF DEFAULT; REMEDIES
    44  
11.1 Events of Default
    44  
11.2 Cumulative Remedies
    46  
11.3 Discontinuing Advances
    46  
11.4 Remedies
    46  
11.5 Assembling Collateral
    47  
11.6 Sale of Collateral
    47  
11.7 Standards for Exercising Remedies
    47  
12. GENERAL
    48  
12.1 Bank Accounts
    48  
12.2 Application of Payments
    48  
12.3 Additional Representations, Warranties and Covenants
    48  
12.4 Modification and Assignment of Loan Documents
    48  
12.5 Waiver of Defaults
    49  
12.6 Severability
    49  

 

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12.7 Successors and Assigns
    49  
12.8 Incorporation of Other Agreements; Exhibits; and Schedules
    49  
12.9 Survival of Termination
    49  
12.10 Waiver of Notices
    50  
12.11 Authority to Execute and Borrow
    50  
12.12 Costs, Fees and Expenses
    50  
12.13 Binding Agreement; Governing Law
    50  
12.14 Notices
    51  
12.15 Release of Claims
    51  
12.16 Capital Adequacy Charge
    51  
12.17 Headings
    51  
12.18 Maximum Interest
    52  
12.19 Construction
    52  
12.20 Revival of Liabilities
    52  
12.21 General Indemnity
    52  
12.22 Environmental and Safety and Health Indemnity
    53  
12.23 Other Amounts Deemed Loans
    53  
12.24 Completion of Loan Agreement and Other Agreements
    53  
12.25 Further Assurances
    53  
12.26 Joint and Several Liability
    54  
12.27 Disclosure of Information
    54  
12.28 Patriot Act
    54  
12.29 Merger Clause
    54  
12.30 SERVICE OF PROCESS
    54  
12.31 JURISDICTION; VENUE
    54  
12.32 JURY WAIVER
    55  
12.33 Counterparts
    55  

     
Schedule 1.1(A)
  Permitted Liens
Schedule 1.1(B)
  Permitted Indebtedness
Schedule 1.1(C)
  Permitted Investments
Schedule 4.1
  Commercial Tort Claims
Schedule 4.2
  Borrower’s Information
Schedule 4.4
  Chief Executive Office and Collateral Locations
Schedule 4.11
  Real Property Owned by Borrowers
Schedule 9.1(F)
  Litigation
Schedule 9.1(O)
  Change of Name, State of Formation, Identity, Corporate Structure or Chief
Executive Office
Schedule 9.1(Q)
  Borrowers and their Subsidiaries’ Corporation Information
Schedule 9.1(S)
  Labor Relations

 

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Loan And Security Agreement
This Loan and Security Agreement (this “Loan Agreement”) is made and entered
into as of December 3 2008, by and among National City Bank, a national banking
association (“Lender”), with an office located at One North Franklin, 20th
Floor, Chicago, Illinois 60606, Youbet.com, Inc., a Delaware corporation, with
its chief executive office located at 5901 De Soto Avenue, Woodland Hills,
California 91367 (“Youbet”), United Tote Company, a Montana corporation (“United
Tote”), with its chief executive office located at 5901 De Soto Avenue, Woodland
Hills, California 91367, and Youbet Services Corporation, a Delaware corporation
(“Youbet Services”) (Youbet, United Tote and Youbet Services are each
individually a “Borrower” and collectively the “Borrowers”).
W I T N E S S E T H:
WHEREAS, Borrowers desire Lender to provide certain extensions of credit, loans
or other financial accommodations to Borrowers (the “Financial Accommodations”);
and
WHEREAS, Lender is willing to provide the Financial Accommodations to Borrowers,
but solely on the terms and subject to the conditions set forth in this Loan
Agreement and the other documents, instruments and agreements executed and
delivered pursuant to this Loan Agreement or referenced herein.
NOW THEREFORE, in consideration of the Financial Accommodations, the mutual
promises and understandings of Lender and Borrowers set forth herein, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Lender and Borrowers hereby agree as set forth in this Loan
Agreement.
1. Definitions And Terms
The following words, terms or phrases shall have the following meanings:
“Account”, “Account Debtor”, “Chattel Paper”, “Commercial Tort Claims”, “Deposit
Account”, “Document”, “Document of Title”, “Electronic Chattel Paper”,
“Equipment”, “Fixture”, “General Intangibles”, “Goods”, “Instrument”,
“Inventory”, “Investment Property”, “Letter of Credit Rights”, “Payment
Intangibles”, “Proceeds”, “Supporting Obligations” and “Tangible Chattel Paper”:
shall have their respective meanings as set forth in the Illinois Uniform
Commercial Code, as amended or restated from time to time.
“Adjusted EBITDA”: shall mean, EBITDA, plus, to the extent deducted from Net
Income to determine EBITDA, the sum of (1) expenses accrued for Equity Interest
compensation, (2) restructuring charges not to exceed $750,000 in any fiscal
year, (3) transaction expenses incurred in connection with the consummation of
the Loan Documents, (4) non-cash charges, including compensation expense, and
(5) after the sale of United Tote, EBITDA attributable to United Tote.
“Affiliate”: shall mean any Person that directly or indirectly, through one or
more intermediaries, owns, controls or is controlled by, or is under common
control with, any Borrower. A Person shall be presumed to control a Borrower if
such Person is the direct or indirect legal or beneficial owner of more than
twenty percent (20%) of the outstanding Equity Interests of such Borrower.

 

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“Applicable Margin” shall mean, for any day, the rate per annum set forth below
opposite the level (the “Level”) then in effect based upon Borrowers’ Leverage
Ratio calculated on a trailing twelve (12) month basis, it being understood that
the Applicable Margin for (i) LIBOR Loans shall be the percentage set forth
under the column “LIBOR Margin”, (ii) Prime Loans shall be the percentage set
forth under the column “Prime Margin”, and (iii) the L/C Fee Rate shall be the
percentage set forth under the column “L/C Fee Rate”:

                                      LIBOR     Prime     L/C Fee   Level  
Leverage Ratio   Margin     Margin     Rate  
I
  Greater than or equal to 2.0 to 1.0   375 bps   250 bps   375 bps
II
  Greater than or equal to 1.5 to 1.0 but less than 2.0 to 1.0   350 bps   225
bps   350 bps
III
  Less than 1.5 to 1.0   325 bps   200 bps   325 bps

The LIBOR Margin, the Prime Margin and the L/C Fee Rate shall be adjusted, to
the extent applicable, on the fifth (5th) Business Day after Borrowers provide
or are required to provide the annual and quarterly (for each fiscal quarter,
other than the year-end fiscal quarter) financial statements, covenant
compliance certificates and other information pursuant to Section 9.5 below, as
applicable. Notwithstanding anything contained in this paragraph to the
contrary, (a) if Borrowers fail to deliver the financial statements and
compliance certificate in accordance with the provisions of Section 9.5, the
LIBOR Margin, the Prime Margin and the L/C Fee Rate shall be based upon the
level immediately above the level then currently in effect beginning on the date
such financial statements and compliance certificate were required to be
delivered until the fifth (5th) Business Day after such financial statements and
compliance certificate are actually delivered, whereupon the Applicable Margin
shall be determined by the then current Level; (b) no reduction to any
Applicable Margin shall become effective at any time when an Event of Default or
Unmatured Event of Default has occurred and is continuing; and (c) the initial
Applicable Margin as of the date of this Loan Agreement shall be based on Level
I until the fifth (5th) Business Day after the Borrowers provide the annual
financial statements and covenant compliance certificate pursuant to Section 9.5
below for the period ending December 31, 2008.
“Appraised Value”: shall mean the orderly liquidation value of Borrowers’
Equipment as set forth on an appraisal of Borrowers’ Equipment reasonably
acceptable to Lender. Lender shall have the right to obtain a new appraisal of
Borrowers’ Equipment from time to time; provided, however, prior to the
occurrence and continuation of an Event of Default, not more than one such
appraisal shall be obtained by Lender during any consecutive 12 month period. As
of the date hereof, no appraisal of Borrowers’ Equipment has been performed by
Lender or for Lender’s benefit.
“Board”: shall mean the Board of Governors of the Federal Reserve System of the
United States of America.

 

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“Borrowing Base”: shall mean the total, without duplication, of:
(i) up to eighty-five percent (85%) of the face amount of all then existing
Eligible Accounts as set forth on the Borrowing Base Certificate delivered by
Borrowers to Lender from time to time;
(ii) plus up to fifty-five percent (55%) of the Value of all then existing
Eligible Inventory;
(iii) plus, up to the lesser of fifty percent (50%) of the book value or sixty
percent (60%) of the Appraised Value of Borrower’s Eligible Equipment;
(iv) plus 100% of Borrowers’ cash, excluding cash deposits made by Borrowers’
customers and any other cash for which Borrowers’ use is restricted;
(v) less, such other reserves as Lender may establish from time to time in its
sole reasonable discretion.
“Borrowing Base Certificate”: shall mean the certificate summarizing the
Borrowing Base delivered from time to time by Borrowers to Lender in accordance
with the terms of this Loan Agreement, in form and substance acceptable to
Lender, which shall, among other things, certify to Lender each Borrower’s state
of formation.
“bps”: shall mean basis points per annum.
“Business Day”: shall mean any day other than a Saturday, a Sunday or (1) with
respect to all matters, determinations, fundings and payments in connection with
LIBOR Loans, any day on which banks in London, England or Chicago, Illinois are
required or permitted to close, and (2) with respect to all other matters, any
day that banks in Chicago, Illinois are required or permitted to close.
“Capital Expenditures”: shall mean, as to any Person, any and all expenditures
of such person for fixed or capital assets, all as determined in accordance with
GAAP, except that Capital Expenditures shall not (i) include expenditures for
fixed or capital assets to the extent such expenditures are paid for or
reimbursed from the proceeds of insurance, (ii) expenditures made with the net
cash proceeds of Permitted Dispositions, (iii) expenditures to the extent that
they are actually paid for by a third party and for which no Borrower has
provided or is required to provide or incur, directly or indirectly, any
consideration or monetary obligation to such third party or other person
(whether before, during or after such period), (iv) expenditures for capitalized
software costs, but only to the extent such costs are less than or equal to
$750,000 during any Fiscal Year and thereafter only the excess shall be included
hereunder, and (v) Capitalized Lease Obligations.
“Capital Lease”: shall mean a capitalized lease of real or personal property, or
conditional sale or other title retention agreement, as determined in accordance
with GAAP, whether or not the rights and remedies of the lessor, seller or
lender thereof are limited to repossession of the property giving rise to such
obligations or liabilities.
“Capitalized Lease Obligations”: shall mean all obligations or liabilities
created or arising under any Capitalized Lease.

 

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“Cash Equivalents”: shall mean, at any time, (A) any evidence of Indebtedness
with a maturity date of 360 days or less fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof; provided,
that the full faith and credit of the United States of America is pledged in
support thereof, (B) certificates of deposit or bankers’ acceptances with a
maturity of 360 days or less issued or guaranteed by or placed with, or time or
demand deposits maintained with, any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $250,000,000, (C) commercial paper (including variable
rate demand notes) with a maturity of 360 days or less issued by a Person
(except an Affiliate of any Borrower) organized under the laws of any State of
the United States of America or the District of Columbia and rated at least A-1
by Standard & Poor’s Ratings Service, a division of The McGraw-Hill Companies,
Inc (“S&P”) or at least P-1 by Moody’s Investors Service, Inc. (“Moody’s”), (D)
repurchase obligations with a term of not more than thirty (30) days for
underlying securities of the types described in clause (A) above entered into
with any financial institution having combined capital and surplus and undivided
profits of not less than $250,000,000, (E) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States of America or issued by any
governmental agency thereof and backed by the full faith and credit of the
United States of America, in each case maturing within 30 days or less from the
date of acquisition; provided, that the terms of such agreements comply with the
guidelines set forth in the Federal Financial Agreements of Depository
Institutions with Securities Dealers and Others, as adopted by the Comptroller
of the Currency on October 31, 1985, (F) investments in securities with
maturities of 365 days or less from the date of acquisition thereof fully
guaranteed or insured by the full faith and credit of any state or commonwealth
of the United States of America, or by any political subdivision or taxing
authority thereof, and with a rating of AA or higher by S&P and Aa2 or higher by
Moody’s, (G) marketable corporate debt securities issued by Persons with a
rating of AA or higher by S&P and Aa2 or higher by Moody’s, and (H) investments
in money market funds and mutual funds which invest all of their assets in
securities of the types described in clauses (A) through (G) above.
“Change in Control”: shall mean (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof) of Equity
Interests representing more than forty percent (40%) of the aggregate ordinary
voting power represented by the issued and outstanding Equity Interests of
Youbet; (b) occupation of a majority of the seats (other than vacant seats) on
the board of directors of Youbet by Persons who were neither (i) nominated by
the board of directors of Youbet nor (ii) appointed by directors so nominated;
or (c) Youbet shall cease to own, free and clear of all Liens or other
encumbrances, 100% of each of its Subsidiaries on a fully diluted basis, other
than (i) United Tote, provided United Tote is sold in accordance with the terms
hereof, and (ii) Subsidiaries with no operations or assets, other than de
minimus assets.
“Charges”: shall mean all national, federal, state, county, city, municipal or
other governmental, including, but not limited to, any instrumentality,
division, agency, body or department thereof, taxes, levies, assessments,
charges, liens, claims or encumbrances upon or relating to the Collateral, the
Liabilities, each Borrower’s business, ownership or use of any of its assets, or
each Borrower’s income or gross receipts.
“Collateral”: shall have the meaning ascribed to such term in Section 4.1 below.
“Collateral Disposition Proceeds”: shall have the meaning set forth in
Section 3.1(B) below.
“Constituent Documents”: shall mean, for each Borrower, as applicable, such
Borrower’s articles or certificate of incorporation, formation or organization,
by-laws, operating agreement, limited partnership agreement, general partnership
agreement and any other similar documents, agreements or certificates relating
to such Borrower’s legal formation and governance.

 

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“Control”: means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.
“Controlling” and “Controlled” have meanings correlative thereto.
“Covenants”: shall mean all now existing and hereafter arising covenants,
duties, obligations and agreements of Borrowers or any Borrower to and with
Lender, whether pursuant to this Loan Agreement, the Other Agreements or
otherwise.
“Debt Service Coverage Ratio”: shall mean, with respect to any period, the ratio
of (1) Adjusted EBITDA, to (2) the sum of (A) Capital Expenditures (other than
Capital Expenditures financed with the proceeds of purchase money Indebtedness
or Capital Leases to the extent permitted hereunder), (B) dividends paid in
cash, (C) taxes paid in cash, and (D) Fixed Charges, all as determined for
Borrowers on a consolidated basis in accordance with GAAP.
“Default Rate”: shall mean, for each Loan, two percent (2%) per annum in excess
of the otherwise applicable interest rate for such Loan, and for all other
Liabilities, shall mean two percent (2%) per annum in excess of the Prime Rate.
“Designated Person”: for each Borrower, shall mean any officer of such Borrower
and any other Person designated in writing by any Borrower to Lender as a
“Designated Person”.
“EBITDA” means, for any period, (1) Net Income for such period, (2) plus, to the
extent deducted in determining such Net Income, the sum of Interest Expense, net
income tax expense, depreciation and amortization, all as determined for
Borrowers on a consolidated basis in accordance with GAAP.
“Eligible Accounts”: shall have the meaning ascribed to such term in Section 5.1
below.
“Eligible Equipment”: shall mean Equipment which (1) is owned by a Borrower,
(2) is subject to a first priority security interest in favor of Lender, subject
only to the liens set forth in clauses (1) through (4) in the definition of
Permitted Liens, (3) is in good condition and working order, ordinary wear and
tear excepted, and (4) does not constitute Fixtures.
“Eligible Inventory”: shall have the meaning ascribed to such term in
Section 6.1 below.
“Environmental Laws”: shall mean all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters, as may be amended
from time to time, including, but not limited to, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Toxic Substances Control Act, the Clean Water Act,
the River and Harbor Act, Water Pollution Control Act, the Marine Protection
Research and Sanctuaries Act, the Deep-Water Port Act, the Safe Drinking Water
Act, the SuperFund Amendments and Reauthorization Act of 1986, the Federal
Insecticide, Fungicide and Rodenticide Act, the Mineral Lands and Leasing Act,
the Surface Mining Control and Reclamation Act, state and federal superlien and
environmental clean up programs and laws, and U.S. Department of Transportation
regulations.

 

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“Equity Interests”: shall mean any and all shares and other equity and ownership
interests, however designated, of or in a Person, whether or not voting,
including, but not limited to, common stock, warrants, membership interests,
preferred stock, convertible debentures and all agreements, instruments and
documents convertible, in whole or in part, into any one or more of the
foregoing.
“ERISA”: shall mean the Employee Retirement Income Security Act of 1974 and all
rules and regulations from time to time promulgated thereunder.
“Event of Default”: shall have the meaning ascribed to such term in Section 11.1
below.
“Excluded Accounts”: shall mean segregated deposit accounts maintained by Youbet
which only hold deposits made by Youbet’s customers and which are required to
remain unencumbered by applicable federal, state or local law.
“Financials”: shall mean all year-end financial statements, projections, interim
financial statements, tax returns, reports and similar documentation, together
with all information previously delivered by Borrowers to Lender and the
documents described in Section 9.5 below, individually or collectively.
“Fiscal Year”: shall mean each twelve (12) month accounting period of Borrowers
which ends on December 31 of each year.
“Fixed Charges”: means, for any period, the sum of, without duplication,
(1) Interest Expense, plus (2) scheduled or required payments of principal on
Indebtedness, including, without limitation, scheduled payments on Capital
Leases, but excluding Revolving Loan payments, each as paid or payable for such
period and all as determined for Borrowers in accordance with GAAP. For purposes
of clarification, payments under operating leases shall not be deemed Fixed
Charges.
“Foreign Subsidiary”: means any Subsidiary that is not organized under the laws
of the United States or any state or commonwealth of the United States.
“Funded Debt”: means all outstanding loan balances under this Loan Agreement and
the principal amount of all other interest bearing Indebtedness for borrowed
money with any other lender (including Capital Leases).
“GAAP”: shall mean generally accepted accounting principles consistently applied
from time to time.
“Governmental Authority”: shall mean any nation or government, any state,
province, or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
“Guaranty”: shall mean that certain Guaranty of even date herewith executed and
delivered by UT Gaming to Lender, as amended or restated from time to time.
“Hazardous Substances”: shall have the meaning set forth in 42 USC § 9601(14),
42 USC § 9601(33) and 42 USC § 6991(8) or any state or local counterpart
Environmental Law.

 

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“Indebtedness”: shall mean all of Borrowers’ or any Borrower’s liabilities,
obligations and indebtedness to any Person of any and every kind and nature,
whether primary, secondary, direct, indirect, absolute, contingent, fixed, or
otherwise, heretofore, now or hereafter owing, due, or payable, however
evidenced, created, incurred, acquired or owing and however arising, whether
under written or oral agreement, by operation of law, or otherwise. Without in
any way limiting the generality of the foregoing, Indebtedness specifically
includes (1) the Liabilities, (2) all obligations or liabilities of any Person
that are secured by any lien, claim, encumbrance, or security interest upon
property owned by a Borrower, even though such Borrower has not assumed or
become liable for the payment thereof, (3) all obligations or liabilities
created or arising under any leases of real or personal property, or conditional
sale or other title retention agreement with respect to property used and/or
acquired by a Borrower, even though the rights and remedies of the lessor,
seller and/or lender thereunder are limited to repossession of such property,
and (4) all unfunded pension fund obligations and liabilities.
“Indemnified Liabilities”: shall have the meaning ascribed to such term in
Section 12.21 below.
“Indemnitees”: shall have the meaning ascribed to such term in Section 12.21
below.
“Intellectual Property”: shall mean, without limitation, any and all of the
following in any jurisdiction throughout the world, whether registered or
unregistered, in whatever form or medium (whether now known or hereafter
created): (1) inventions (whether patented, patentable or unpatentable and
whether or not reduced to practice), discoveries, improvements, patents, patent
applications, patent rights, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, divisions,
extensions, allowances, adjustments and reexaminations thereof; (2) trade
secrets, confidential information, proprietary rights, know how, mask work
rights, design rights, research, processes, procedures, methods, technologies,
techniques, formulae and compounds; (3) works of authorship (whether published
or unpublished), copyrights, drawings, designs, blueprints, surveys, reports,
manuals, and operating standards; (4) trademarks, source designators, service
marks, trade dress, trade names, logos, slogans, corporate names, assumed names,
and domain names, together with all goodwill associated with each of the
foregoing; (5) software, source code, executable code, data, databases and
websites; (6) developments, revisions or improvements invented, conceived,
created, discovered, developed, authored or devised, in whole or in part,
individually or in collaboration with any other person or entity; (7) all other
intellectual, intangible, industrial and proprietary property or rights; and
(8) goodwill, licenses, applications, registrations, renewals, derivative works,
translations, adaptations, causes of action, and rights to receive income,
royalties, damages and payments for past, present and future infringements
related to the foregoing.
“Intellectual Property Security Agreement”: shall mean that certain Intellectual
Property Security Agreement of even date herewith executed and delivered by
Borrowers to Lender, as amended or restated from time to time.
“Interest Expense”: shall mean, with reference to any period, total interest
expense (including that attributable to Capitalized Lease Obligations) of
Borrowers for such period with respect to all outstanding Indebtedness of
Borrowers (including all Liabilities and all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers’ acceptance
financing and net costs under Rate Management Agreements in respect of interest
rates to the extent such net costs are allocable to such period in accordance
with GAAP), calculated for Borrowers for such period in accordance with GAAP.

 

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“Interest Period”: shall mean the period commencing on the date a LIBOR Loan is
made and ending, as selected by Borrowers, one month, two months or three months
thereafter.
“Letters of Credit”: shall mean any letters of credit which are now or at any
time hereafter issued by Lender at the request of and for the account of any
Borrower.
“Letter of Credit Backstop”: shall mean, in respect of any Letter of Credit,
unencumbered, unrestricted cash collateral deposited with Lender to satisfy any
obligation of any Borrower in respect of such Letter of Credit, in each case, in
an amount equal to 103% of the undrawn face amount of such Letter of Credit.
“Letter of Credit Obligations”: shall mean the sum of the aggregate outstanding
face amount available to be drawn under all of the Letters of Credit, plus the
aggregate outstanding face amount of any unpaid drafts presented under any of
the Letters of Credit.
“Leverage Ratio”: shall mean, as of the last day of any period, the ratio of
(1) Borrowers’ consolidated Funded Debt, less, to the extent included in
consolidated Funded Debt, the amount outstanding under the Restricted Note, as
of the last day of such period, to (2) Adjusted EBITDA for the applicable
period, all as determined for Borrowers on a consolidated basis in accordance
with GAAP. Notwithstanding the foregoing, if any amount remains outstanding
under the Restricted Note from and after June 1, 2009, such amount shall not be
subtracted from Funded Debt for purposes of determining Leverage Ratio from and
after such date.
“Liabilities”: shall mean any and all obligations, liabilities, indebtedness,
Rate Management Obligations, fees, costs and expenses, now or hereafter owed or
owing by Borrowers or any Borrower to Lender, including, but not limited to, all
principal, interest, debts, claims and indebtedness of any and every kind and
nature, howsoever created, arising or evidenced, whether primary or secondary,
direct or indirect, absolute or contingent, insured or uninsured, liquidated or
unliquidated, or otherwise, and whether arising or existing under written or
oral agreement or by operation of law, together with all costs, fees and
expenses of Lender arising hereunder, including, but not limited to, (1) the
indebtedness evidenced by the Notes, (2) reasonable attorneys’ and paralegals’
fees or charges relating to the preparation of this Loan Agreement and the Other
Agreements and the enforcement of Lender’s rights and remedies pursuant to this
Loan Agreement and the Other Agreements, and (3) all liabilities and obligations
arising under or in connection with Rate Management Agreements.
“LIBOR Loan”: shall mean all or any portion of a Loan subject to a single
Interest Period which bears interest at the LIBOR Rate plus the Applicable
Margin.
“LIBOR Rate”: means, with respect to any LIBOR Loan borrowing for any Interest
Period, the interest rate determined by Lender by reference to Reuters Screen
LIBOR01, formerly known as Page 3750 of the Moneyline Telerate Service (together
with any successor or substitute, the “Service”) or any successor or substitute
page of the Service providing rate quotations comparable to those currently
provided on such page of the Service, as determined by Lender from time to time
for purposes of providing quotations of interest rates applicable to dollar
deposits in the London interbank market (the “Page”), to be the rate at
approximately 11:00 a.m. London time, two Business Days prior to the
commencement of the Interest Period for dollar deposits with a maturity equal to
such Interest Period. If no LIBOR Rate is available to Lender, the applicable
LIBOR Rate for the relevant Interest Period shall instead be the rate determined
by Lender to be the rate at which Lender offers to place U.S. dollar deposits
having a maturity equal to such Interest Period with first-class banks in the
London interbank market at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period. Each determination of the
LIBOR Rate made by Lender shall be conclusive and binding on Borrowers absent
manifest error.

 

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“Loan or Loans”: shall mean, individually and collectively, the Revolving Loan,
Term Loan A and any other loans provided by Lender to the Borrowers from time to
time.
“Loan Documents”: shall mean this Loan Agreement, as amended, renewed, restated
or replaced from time to time, together with the Other Agreements.
“Material Adverse Effect”: means a material adverse effect on (1) the business,
assets, operations, or financial condition of the Obligors taken as a whole,
including, without limitation, the existence of any claims, litigation,
arbitration proceedings or governmental proceedings pending or known to be
threatened against any Borrower which could reasonably be expected to cause any
such material adverse effect, (2) the ability of any Obligor to perform any of
its obligations under the Loan Documents to which it is a party, (3) the
Collateral, or the Lender’s liens on the Collateral or the priority of such
liens, or (4) the rights of or benefits available to the Lender thereunder.
“Maximum Revolving Loan”: shall initially mean an amount equal to Five Million
and no/100 Dollars ($5,000,000.00).
“Minimum Adjusted EBITDA Benchmark”: shall mean $10,000,000.00 as of the last
day of each fiscal quarter; provided, however, if Borrowers’ outstanding Funded
Debt is less than $7,500,000 at all times during a fiscal quarter, but greater
than or equal to $5,000,000 at all times during such fiscal quarter, then the
Minimum Adjusted EBITDA Benchmark for the twelve (12) month period ending as of
the last day of such fiscal quarter shall be $7,500,000; provided, further, if
Borrowers’ outstanding Funded Debt is less than $5,000,000 at all times during a
fiscal quarter, then the Minimum Adjusted EBITDA Benchmark for the twelve
(12) month period ending as of the last day of such fiscal quarter shall be
$5,000,000.
“Multiemployer Plan”: shall have the meaning ascribed to such term in
Section 4001(a)(3) of ERISA.
“Net Income”: shall mean the net income (or loss) of Borrowers determined on a
consolidated basis in accordance with GAAP.
“Notes”: shall mean, respectively, each of and collectively, the Revolving Note
and Term Note A.
“Obligor”: shall mean each Borrower and each other Person who is or shall become
primarily or secondarily liable for any of the Liabilities or has provided
collateral to secure all or any portion of the Liabilities.
“Other Agreements”: shall mean all agreements, instruments and documents,
including, but not limited to, guaranties, mortgages, deeds of trust, pledges,
powers of attorney, consents, assignments, contracts, notices, security
agreements, leases, financing statements and all other writings heretofore, now
or from time to time hereafter executed by or on behalf of Borrowers, any
Borrower or any other Person and delivered to Lender in connection with the
Liabilities or any of the transactions contemplated herein, together with any
amendments, modifications, extensions or renewals thereto, including, but not
limited to, the documents, instruments and agreements described in
Section 10.1(A) of this Loan Agreement and all Rate Management Agreements.

 

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“Permitted Acquisition”: shall mean the acquisition of any Person, business,
division, or specified group of assets by any Borrower, provided that each of
the following conditions is met with respect to any such acquisition:
(a) immediately prior to and after giving effect to such acquisition, no
Unmatured Event of Default or Event of Default shall then exist, and the
Borrowers shall have delivered to Lender a statement certified by the principal
financial or accounting officer of Borrowers to the effect that immediately
prior to and after giving effect to such acquisition, no Unmatured Event of
Default or Event of Default exists and attaching, in reasonable detail,
computations evidencing on a pro forma basis compliance (on a consolidated
basis) with the financial covenants contained in Section 9.4, immediately prior
to and after giving effect to such acquisition;
(b) (i) with respect to acquisitions which are not in the same line of business
as (or a line of business substantially similar to) the line of business of
Borrowers or any of their Subsidiaries or such business is not complimentary or
ancillary thereto, (A) the aggregate consideration paid or to be paid by
Borrowers shall not, without the prior written consent of Lender, exceed
$15,000,000 as to all such acquisitions during the time from the date of this
Loan Agreement through the Revolving Loan Termination Date, and (B) 100% of the
acquisition costs and expenses, including the purchase price thereof and all
professional fees, broker fees, taxes and other expenses, shall be satisfied
from cash equity contributions provided by Youbet’s Equity Interest holders;
(ii) with respect to acquisitions which are in the same line of business as (or
a line of business substantially similar to) the line of business of Borrowers
or any of their Subsidiaries or such business is complimentary or ancillary
thereto, and 100% of the acquisition costs and expenses, including the purchase
price thereof and all professional fees, broker fees, taxes and other expenses,
is satisfied from cash equity contributions provided by Youbet’s Equity Interest
holders, the aggregate consideration paid or to be paid by Borrowers shall not,
without the prior written consent of Lender, exceed $25,000,000 as to all such
acquisitions during the time from the date of this Loan Agreement through the
Revolving Loan Termination Date; and (iii) with respect to acquisitions which
are in the same line of business as (or a line of business substantially similar
to) the line of business of Borrowers or any of their Subsidiaries or such
business is complimentary or ancillary thereto, and the acquisition costs and
expenses are not provided by Youbet’s Equity Interest holders as set forth in
clause (ii) of this paragraph, the aggregate consideration paid or to be paid in
cash by Borrowers shall not, without the prior written consent of Lender, exceed
$1,000,000 as to all such acquisitions during the time from the date of this
Loan Agreement through the Revolving Loan Termination Date;
(c) either (i) such acquisition is the acquisition of assets which would be
deemed Collateral pursuant to this Loan Agreement and Lender shall concurrently
with the closing of the acquisition be granted a perfected, first priority
security interest therein (subject only to Permitted Liens) or (ii) such
acquisition involves the purchase of the Equity Interests of a Person and each
of the following conditions is met:
(A) such acquisition is the acquisition of one hundred percent (100%) of each of
the Equity Interests, including all voting Equity Interests, of such Person; and

 

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(B) contemporaneously with the occurrence of such acquisition, such Borrower
shall (1) cause such acquired Person to guaranty all of the Liabilities
hereunder pursuant to a guaranty in form and substance satisfactory to Lender in
its sole discretion, which such guaranty shall be a Loan Document hereunder, or
at Lender’s option, cause such acquired Person to become a Borrower hereunder
pursuant to a joinder agreement in form and substance satisfactory to Lender,
(2) cause such acquired Person to take all steps as may be necessary or
advisable in the opinion of Lender to grant to Lender a first priority,
perfected security interest (subject only to Permitted Liens) in all of its
assets which would be deemed Collateral pursuant to this Loan Agreement as
collateral security for such guaranty, pursuant to security documents, pledges
and other documents in form and substance satisfactory to Lender, each of which
documents shall be Loan Documents hereunder, and (3) cause such Person to
deliver to Lender (y) evidence of proper or similar corporate authorization and
(z) if requested by Lender, legal opinions with respect to each of the matters
and documents set forth in this clause (C), in each case, in form and substance
satisfactory to Lender; and
(d) such acquisition shall not have been hostile and shall have been approved by
the board of directors (or equivalent managing board) of the Person so acquired.
“Permitted Dispositions”: shall mean each of the following: (1) sales of
Inventory in the ordinary course of business, (2) the sale or other disposition
of (i) Equipment that is substantially worn, damaged or obsolete or surplus or
(ii) Equipment having a book value not in excess of $100,000 for all such
Equipment disposed of under this clause (2)(ii) in any Fiscal Year of any
Borrower or as Lender may otherwise agree, (3) any arm’s length sale for cash of
an investment to the extent such investment is permitted by Section 9.3(D)
hereof, (4) any arm’s length sale, assignment or transfer, or any abandonment of
Intellectual Property that is immaterial, unnecessary, or no longer used or
useful in the ordinary course of business, (5) the licensing, on a non-exclusive
basis, of Intellectual Property in the ordinary course of business, (6) the
termination, surrender or sublease of a lease of real property of the Borrower
in the ordinary course of business, (7) transfers of assets among the Borrowers,
(8) dispositions resulting from any casualty or other insured damage to, or any
taking under power of eminent domain or by condemnation or similar proceeding
of, any property or asset of the Borrower, (9) the sale, lease or other
disposition of assets in the aggregate by the Borrowers not to exceed $100,000
per Fiscal Year, (11) an arm’s length sale of all or a portion of the Equity
Interests of United Tote, and (12) other sales or dispositions of assets
approved by Lender in its sole discretion.
“Permitted Indebtedness”: shall mean (1) existing Indebtedness set forth and
described in the most recent Financials delivered to Lender; (2) trade payables
arising in the ordinary course of each Borrower’s business; (3) other
Indebtedness of Borrowers incurred in the ordinary course of Borrowers’
businesses as presently conducted that are not (a) past due, or (b) incurred
through the borrowing of money or the obtaining of credit; (4) Indebtedness in
respect of taxes, assessments, governmental charges or levies and claims for
labor, materials and supplies that is incurred in the ordinary course of
Borrowers’ businesses as presently conducted and is not past due; (5)
Indebtedness in respect of employee benefit plans and programs that is incurred
in the ordinary course of Borrowers’ businesses as presently conducted and is
not past due; (6) the Subordinated Debt; (7) Indebtedness arising under
operating leases, provided that the total operating lease payments for any
Fiscal Year shall not exceed $1,500,000; (8) Capitalized Lease Obligations and
other purchase money Indebtedness arising to finance the purchase of Equipment
and purchase money mortgages on real property, provided that Borrowers shall not
incur Indebtedness in connection with purchase money financing (whether for
personal property or real property) and Capital Leases in excess of $1,125,000
outstanding at any time; (9) the Liabilities; (10) the Indebtedness of any
Borrower to any other Borrower; (11) unsecured

 

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Indebtedness of any Borrower consisting of Subordinated Debt arising after the
date hereof to any third person (but not to any other Borrower); provided, that
each of the following conditions is satisfied as determined by Lender in good
faith: (a) Lender shall have received not less than ten days’ prior written
notice of the intention of such Borrower to incur such Subordinated Debt, which
notice shall set forth in reasonable detail reasonably satisfactory to Lender
the amount of such Subordinated Debt, the person or persons to whom such
Subordinated Debt will be owed, the interest rate, the schedule of repayments
and maturity date with respect thereto and such other information as Lender may
reasonably request with respect thereto, (b) Lender shall have received true,
correct and complete copies of all agreements, documents and instruments
evidencing or otherwise related to such Subordinated Debt, (c) in no event shall
the Person to whom such Subordinated Debt will be owed be entitled to receive
any cash payments, whether in respect of the principal, interest or otherwise,
in satisfaction of all or any portion of such Subordinated Debt prior to the
final payment in full of the Liabilities and termination of this Loan Agreement
and the Other Agreements; (12) Indebtedness of any Borrower entered into as
required by Lender or in the ordinary course of business pursuant to a Rate
Management Agreement entered into with Lender; (13) Indebtedness arising
pursuant to surety, appeal, bid, customs, statutory, stay, performance and
completion guarantees or performance bonds or similar obligations, in each case
incurred in the ordinary course of business; (14) Indebtedness of the Borrowers
to an insurance company, the proceeds which are used by such Borrower to finance
their insurance premiums payable on certain insurance policies maintained by
such Borrowers in each case incurred in the ordinary course of business;
(15) the Indebtedness set forth on Schedule 1.1(B) and refinancings of such
Indebtedness; (16) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business; (17) Indebtedness under
the Restricted Note; (18) Indebtedness representing the guaranty of a Borrower’s
Indebtedness by another Borrower, and (19) other Indebtedness not otherwise
permitted in this paragraph in an aggregate amount not to exceed $50,000 at any
one time outstanding.
“Permitted Investments”: shall mean each of the following: (1) the endorsement
of instruments for collection or deposit in the ordinary course of business;
(2) investments in cash or Cash Equivalents, (3) the existing equity investments
of any Borrower as of the date hereof in its respective Subsidiaries; (4) loans
and advances by any Borrower to employees of such Borrower not to exceed the
principal amount of $10,000 in the aggregate at any time outstanding for
reasonable and necessary relocation expenses of such employees and loans and
advances by any Borrower to employees of such Borrower not to exceed the
principal amount of $10,000 in the aggregate at any time outstanding for
reasonable and necessary work-related travel or other ordinary business expenses
to be incurred by such employees in connection with their work for such
Borrower; (5) equity investments in or loans by a Borrower to a Borrower;
(6) the investments in existence on the date hereof and set forth on
Schedule 1.1(C) and any extension, modification or renewal of any such
investments, but only to the extent not involving additional advances,
contributions or other investments of cash or other assets or other increases
thereof (other than as a result of the accrual or accretion of interest or
original issue discount or the issuance of pay-in-kind securities, in each case,
pursuant to the terms of such investment as in effect on the date hereof);
(7) equity investments in, or loans to, Subsidiaries that are not parties hereto
existing as of the date of this Loan Agreement; (8) Permitted Acquisitions;
(9) Rate Management Agreements required hereunder or entered into in the
ordinary course of business for non speculative purposes; (10) earnest money
deposits required in connection with Permitted Acquisitions; (11) investments of
any Person existing at the time such Person becomes a Subsidiary or
consolidates, amalgamates or merges with or into a Borrower so long as such
investments were not made in contemplation of such Person becoming a Subsidiary
or of such consolidation, amalgamation or merger; (12) extensions of trade
credit in the ordinary course of business; (13) investments in replacement
assets made with Collateral disposition proceeds of insurance or condemnation
awards; (14) investments not otherwise permitted hereunder not to exceed $50,000
at any one time; and (15) other investments consented to by Lender in its sole
discretion.

 

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“Permitted Liens”: shall mean (1) liens for current taxes and duties not
delinquent or for taxes being contested in good faith, by appropriate
proceedings which do not involve, in the sole determination of Lender, any
material danger of the sale or loss of any of the Collateral and with respect to
which Borrowers have provided for and are maintaining adequate cash reserves
with Lender in accordance with GAAP; (2) liens in Lender’s favor; (3) liens
incurred in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other statutory obligations, provided
that such obligations are not past due and owing; (4) zoning restrictions,
licenses, covenants, easements, rights of way, restrictions and other similar
charges or encumbrances with respect to real property not interfering in any
material respect with the ordinary conduct of each Borrower’s business;
(5) subject to the limitations set forth in the definition of “Permitted
Indebtedness”, liens arising in connection with Capital Leases and purchase
money financing (and attaching only to the Equipment being leased or financed);
(6) carriers’, warehousemen’s, mechanics’, materialmen’s, suppliers’,
repairmen’s, construction builders’, landlords’ and other like liens imposed by
applicable law, (i) arising in the ordinary course of business and securing
obligations that are not overdue by more than seventy-five (75) days, (ii)
(A) that are being contested in good faith by appropriate proceedings, (B) the
applicable Borrower has set aside on its books adequate reserves with respect
thereto in accordance with GAAP and (C) such contest effectively suspends
collection of the contested obligation and enforcement of any lien securing such
obligation; (7) pledges and deposits of cash by any Borrower after the date
hereof to secure the performance of tenders, bids, leases, trade contracts
(other than for the repayment of Indebtedness), government contracts, statutory
obligations, self-insurance or reinsurance obligations, and other similar
obligations in each case in the ordinary course of business; (8) liens arising
from (i) operating leases and the precautionary UCC financing statement filings
in respect thereof and (ii) equipment or other materials which are not owned by
any Borrower located on the premises of such Borrower (but not in connection
with, or as part of, the financing thereof) from time to time in the ordinary
course of business and consistent with current practices of such Borrower and
the precautionary UCC financing statement filings in respect thereof;
(9) judgments and other similar liens arising in connection with court
proceedings that do not constitute an Event of Default; (10) statutory or common
law liens or rights of setoff of depository banks with respect to funds of the
Borrowers at such banks to secure fees and charges in connection with returned
items or the standard fees and charges of such banks in connection with the
Deposit Accounts maintained by such Borrowers, at such banks (but not any other
Indebtedness or obligations); (11) pledges and deposits of cash after the date
hereof to secure obligations under appeal bonds or as otherwise required in
connection with court proceedings (including, without limitation, surety bonds,
security for costs of litigation where required by law and letters of credit) or
any other instruments serving a similar purpose; (12) liens in favor of an
insurance company to secure Indebtedness of the Borrowers permitted under clause
(14) of the definition of Permitted Indebtedness hereof to finance their
insurance premiums solely encumbering the insurance policy financed by such
Indebtedness and maintained by such Borrower in the ordinary course of business;
(13) liens arising from precautionary UCC filings regarding operating leases or
the consignment of goods to a Borrower; (14) voluntary liens on assets in
existence at the time such assets are acquired pursuant to a Permitted
Acquisition; provided such liens are not incurred in contemplation of such
Permitted Acquisition; (15) liens constituting the licensing of Intellectual
Property by Borrowers in the ordinary course of Borrowers’ business; and
(16) the security interests and liens listed on Schedule 1.1(A) attached hereto
and refinancings that include such security interests and liens and which do not
involve any additional Indebtedness.

 

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“Person”: shall mean any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party or foreign or United States
government, whether federal, state, county, city, municipal or otherwise,
including, but not limited to, any instrumentality, division, agency, body or
department thereof.
“Plan”: shall mean an employee benefit plan now or hereafter maintained for
employees of Borrowers that is covered by Title IV of ERISA.
“Prime Rate”: shall mean a rate per annum equal to the prime rate of interest
announced from time to time by Lender (which is not necessarily the lowest rate
charged to any customer), changing when and as said prime rate changes.
“Prime Loan”: shall mean all or the portion of any Loan which bears interest at
the Prime Rate plus the Applicable Margin.
“Prohibited Transaction”: shall mean any transaction set forth in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986.
“Rate Management Agreement”: means any agreement, device or arrangement
providing for payments which are related to fluctuations of interest rates,
exchange rates, forward rates, or equity prices, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts and warrants, and any
agreement pertaining to equity derivative transactions (e.g., equity or equity
index swaps, options, caps, floors, collars and forwards), including without
limitation any ISDA Master Agreement between one or more Borrowers and Lender or
any affiliate of Lender, and any schedules, confirmations and documents and
other confirming evidence between the parties confirming transactions
thereunder, all whether now existing or hereafter arising, and in each case as
amended, modified or supplemented from time to time.
“Rate Management Obligations”: means any and all obligations of any one or more
Borrowers to Lender or any affiliate of Lender, whether absolute, contingent or
otherwise and howsoever and whensoever (whether now or hereafter) created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under or in connection with
(i) any and all Rate Management Agreements, and (ii) any and all cancellations,
buy-backs, reversals, terminations or assignments of any Rate Management
Agreement.
“Reportable Event”: shall mean any of the events set forth in Section 4043(b) of
ERISA.
“Restricted Note”: shall mean that certain promissory note dated as of
February 10, 2006, issued by Youbet to UT Group, LLC in the principal amount of
$3,200,000.
“Restricted Payments”: shall mean any of the following: (1) any dividend,
distribution or return of capital to any shareholder, member or other owner of
any Equity Interests in a Borrower, or any other payment or delivery of property
or cash to any of Borrowers’ shareholders, members or other Equity Interest
owners, or any redemption, retirement, purchase or other acquisition of all or
any portion of the Equity Interests of any Borrower, (2) any distribution, loan,
or advance to any Affiliate, employee, officer, director, shareholder, member or
manager of any Borrower, (3) any management fee payments and distributions, and
(4) any payments made in satisfaction of all or any portion of the Restricted
Note.

 

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“Revolving Loan”: shall mean, individually and collectively, the loans provided
by Lender from time to time to Borrowers pursuant to Section 2.1(A) below.
“Revolving Loan Termination Date”: shall mean November 30, 2010.
“Revolving Note”: shall mean that certain Revolving Note of even date herewith
executed and delivered by Borrowers to Lender in a maximum aggregate principal
amount not to exceed $5,000,000.00, as amended, renewed, restated or replaced
from time to time.
“Special Collateral”: shall mean that portion of the Collateral evidenced by
Chattel Paper, Instruments or Documents.
“Stock Pledge Agreement”: shall mean that certain Stock Pledge Agreement of even
date herewith executed and delivered by UT Gaming to Lender, as amended or
restated from time to time.
“Subordinated Debt”: shall mean Borrowers’ Indebtedness which is subordinated to
the payment of all of the Liabilities to Lender pursuant to a written
subordination agreement in form and substance acceptable to Lender, which
subordination agreement specifically states that such Borrowers’ Indebtedness is
Subordinated Debt under this Loan Agreement.
“Subsidiary”: shall mean any Person who is under the direct or indirect
ownership or control of any Borrower.
“Supplemental Documentation”: shall have the meaning set forth in Section 4.2
below.
“Tax”: shall mean, in relation to any LIBOR Loans and the applicable LIBOR Rate,
any tax, levy, impost, duty, deduction, withholding or charges of whatever
nature required to be paid by Lender and/or to be withheld or deducted from any
payment otherwise required hereby to be made by Borrowers to Lender; provided,
that the term “Tax” shall not include any taxes imposed upon the net income of
Lender.
“Test Period”: shall mean a trailing twelve (12) month period ending as of the
last day of each of Borrowers’ fiscal quarters.
“Term Loan A”: shall have the meaning set forth in Section 2.1(B) below.
“Term Loans”: shall mean, Term Loan A and any other term loans provided by
Lender to Borrowers under this Loan Agreement, as amended from time to time.
“Term Note A”: shall mean that certain Term Note A of even date herewith
executed and delivered by Borrowers to Lender in the original principal amount
of Ten Million and no/100 Dollars ($10,000,000.00), as amended, renewed or
restated from time to time.
“Unmatured Event of Default”: shall mean the occurrence or existence of any
event or condition which with notice, lapse of time or both would constitute an
Event of Default.
“UT Gaming”: shall mean UT Gaming, Inc., a Delaware corporation.
“Value”: shall mean, from time to time, the lesser of (1) Borrowers’ cost of
Inventory determined on a weighted average basis, or (2) the current market
value of Borrowers’ Inventory, as may be determined by Lender in its sole
discretion.

 

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1.2 Except as otherwise defined in this Loan Agreement or the Other Agreements,
any accounting terms used in this Loan Agreement which are not specifically
defined herein shall have the meanings customarily given them in accordance with
GAAP. Unless the context indicates otherwise, all other words, terms or phrases
used herein shall be defined by the applicable definition therefor, if any, in
the Uniform Commercial Code as adopted by the State of Illinois from time to
time.
2. Loans: Disbursements, Interest Rates, Loan Requests And Fees
2.1 Loans.
(A) Revolving Loans.
(1) Provided that an Unmatured Event of Default or Event of Default does not
then exist or would not be created by such Revolving Loan advance, and all of
the conditions precedent in Section 10 of this Loan Agreement have been
satisfied, from the date hereof through and including the Revolving Loan
Termination Date, Lender shall loan to Borrowers on a revolving credit basis up
to the Maximum Revolving Loan; provided, however, at no time shall (a) the sum
of the outstanding principal amount of the Revolving Loan and Term Loan A, plus
the Letter of Credit Obligations exceed the Borrowing Base, and (b) the sum of
the outstanding principal amount of the Revolving Loan and the Letter of Credit
Obligations exceed the Maximum Revolving Loan. The Revolving Loan shall be
evidenced by and repaid in accordance with the Revolving Note. Notwithstanding
anything contained in this Loan Agreement or the Other Agreements to the
contrary, Lender may, in its reasonable discretion exercised in good faith,
change, at any time and from to time, the method of calculating the Borrowing
Base, including, but not limited to, reducing advance rates against Eligible
Accounts and Eligible Inventory and deducting additional or other reserves from
the Borrowing Base.
(2) A request for a Revolving Loan shall be made, or shall be deemed made, in
the following manner: (a) Borrowers may give Lender notice of their intention to
borrow in accordance with the provisions of this Section 2.1(A), or (b) if any
amount required to be paid under this Loan Agreement or the Other Agreements
becomes due, such occurrence shall be deemed irrevocably to be a request for a
Revolving Loan on the due date in the amount then due and such Revolving Loan
advance will be deemed an advance to Borrowers.
(3) Each request for a Revolving Loan, other than LIBOR Loans (the borrowing of
which shall be governed by Section 2.4) shall be made by notice, given not later
than 11:00 A.M. (Chicago time) on the Business Day of the proposed Revolving
Loan, from Borrowers to Lender.
(4) Lender is aware that Borrowers will be seeking an increase in the Revolving
Loan commitment of up to $5,000,000 within the first 6 months of 2009. Lender is
pleased with the financial performance of Borrowers to date and provided that
Borrowers continue to perform satisfactorily, Lender will not unreasonably deny
an increase in the Revolving Loan commitment of up to $5,000,000, provided that
Borrowers are in compliance with this Loan Agreement.

 

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(B) Term Loan A. Provided that an Unmatured Event of Default or Event of Default
does not exist and all of the conditions precedent in Section 10 of this Loan
Agreement have been satisfied, Lender shall loan to Borrowers up to the
principal amount of Ten Million and no/100 Dollars ($10,000,000.00), which Loan
shall be evidenced by and repaid in accordance with Term Note A. Term Loan A may
be advanced in not more than 2 draws, with the final draw occurring not later
than June 30, 2009. The initial Term Loan A draw shall be in an amount not less
than $6,000,000.00. As of the last day of each fiscal quarter from and after
December 31, 2008, the amount available to be drawn under Term Loan A shall
automatically decrease by an amount equal to the product of (i) the percent
obtained by dividing the total undrawn principal amount of Term Loan A
(regardless of repayments) as of the last day of each such quarter by
$10,000,000, and (ii) One Million Two Hundred Fifty Thousand and no/100 Dollars
($1,250,000.00).
2.2 Letters of Credit.
(A) Provided that an Unmatured Event of Default or Event of Default does not
then exist and all of the conditions precedent in Section 10 of this Loan
Agreement have been satisfied, Lender may, at any Borrower’s request and for the
account of Borrowers, issue one or more Letters of Credit in an aggregate
undrawn face amount outstanding at any one time not to exceed the lesser of
(1) the Borrowing Base less the outstanding amount of the Revolving Loans and
Term Loan A, (2) the Maximum Revolving Loan less the outstanding amount of the
Revolving Loans, or (3) Five Hundred Thousand and no/100 Dollars ($500,000.00).
The Letters of Credit shall have an expiration date of the earlier of (a) one
(1) year from the date of issuance, or (b) the Revolving Loan Termination Date.
Borrowers shall reimburse Lender, immediately upon demand, for any payments made
by Lender to any Person with respect to any Letter of Credit and until Lender
shall be so reimbursed by Borrowers such payments by Lender shall be deemed to
be a part of the Revolving Loans. The obligation of Borrowers to reimburse
Lender for payments and disbursements made by Lender under or on account of the
Letters of Credit shall be absolute and unconditional irrespective of any
setoff, counterclaim or defense to payment which Borrowers may have or have had
against Lender or such beneficiary, including, but not limited to, any defense
based on the failure of such demand for payment to conform to the terms of the
Letters of Credit, any non-application or misapplication by such beneficiary of
the proceeds of such demand for payment or the legality, validity, regularity or
enforceability of the Letters of Credit or any document or contract related to
or required to be presented under the terms of the Letters of Credit; provided,
however, that Borrowers shall not be obligated to reimburse Lender for any
wrongful payment or disbursement made by Lender under or on account of the
Letters of Credit as a result of acts or omissions constituting gross
negligence, bad faith or willful misconduct on the part of Lender or any of its
officers, employees or agents. If any of the terms and provisions set forth in
this Section 2.2 contradict or conflict with the terms and provisions of any
reimbursement agreement or master letter of credit agreement executed and
delivered prior hereto, contemporaneously herewith or hereafter by Borrowers or
any Borrower to Lender, the terms of such reimbursement agreement or master
letter of credit agreement shall govern and control.
(B) In the event that Lender has issued any Letters of Credit for the account of
Borrowers, Lender may, at any time after (1) the occurrence and during the
continuation of an Event of Default, (2) this Loan Agreement shall terminate for
any reason, (3) the sum of the outstanding principal balance of the Revolving
Loan, the outstanding principal balance of Term Loan A and the Letter of Credit
Obligations exceeds the Borrowing Base, or (4) the sum of the outstanding
principal balance of the Revolving Loan and the Letter of Credit Obligations
exceeds the Maximum Revolving Loan, request of Borrowers, and Borrowers shall
thereupon deliver to Lender, cash collateral for any Letter of Credit issued for
the account of Borrowers. If Borrowers fail to deliver such cash to Lender
promptly upon Lender’s request therefor, Lender may, without limiting Lender’s

 

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rights or remedies arising from such failure to deliver cash, retain, as cash
collateral, cash proceeds of the Collateral in an amount equal to the aggregate
undrawn face amount of all Letters of Credit then outstanding. Lender may at any
time apply any or all of such cash and cash collateral to the payment of any or
all of the Liabilities, including, without limitation, to the payment of any or
all of Borrowers’ reimbursement obligations with respect to any Letter of
Credit. Pending such application, Lender may (but shall not be obligated to)
(a) invest the same in a savings account, under which deposits are available for
immediate withdrawal, with Lender or such other bank as Lender may, in its sole
discretion select, or (b) hold the same as a credit balance in an account with
Lender in any Borrower’s name. Interest payable on any such savings account
described in the foregoing sentence shall be collected by Lender and shall be
paid to Borrowers as it is received by Lender, less any fees owing by Borrowers
to Lender with respect to any Letter of Credit and less any amounts necessary to
pay any of the Liabilities which may be due and payable at such time.
2.3 Interest Rates and Fees.
(A) Loan Interest Rates. Borrowers hereby jointly and severally promise to pay
interest on the unpaid principal amount of the Revolving Loan and Term Loan A as
provided in Section 3.1 below at the floating per annum rate of interest equal
to the Prime Rate plus the Applicable Margin for the period commencing on the
date such Loans are disbursed until the date such Loans are paid in full.
Provided, however, Borrowers shall have the option of borrowing all or a portion
of the Revolving Loan or Term Loan A at, or converting the interest rate for all
or a portion of the Revolving Loan and/or Term Loan A to, the LIBOR Rate plus
the Applicable Margin, in accordance with Section 2.4 below. Notwithstanding the
foregoing, upon the occurrence and during the continuance of an Event of
Default, the unpaid principal amount of the Loans shall, at Lender’s option bear
interest at the Default Rate.
(B) Letter of Credit Fees. For each standby Letter of Credit issued by Lender,
Borrowers shall pay to Lender a fee computed on a daily basis equal to the face
amount of such Letter of Credit multiplied by the L/C Fee Rate Applicable
Margin, payable monthly in arrears on the first day of each month. Prior to the
issuance of each documentary Letter of Credit and on each annual anniversary of
the issuance thereof, Borrowers shall remit to Lender a Letter of Credit fee at
the rate quoted by Lender to Borrowers at the time of issuance. In addition,
Borrowers shall pay to and/or reimburse Lender for any costs, fees and expenses
incurred by Lender in connection with the application for, issuance of or
amendment to any Letter of Credit upon Lender’s demand therefor and any amounts
not so paid shall bear interest at the Default Rate until paid.
(C) Closing Fee. Contemporaneously with the initial funding of the Loans,
Borrowers shall pay to Lender a fully-earned, non-refundable closing fee in the
amount of Two Hundred Twenty-Five Thousand and no/100 Dollars ($225,000.00).
(D) Non-Utilization Fee. From and after the date hereof, Borrowers shall pay to
Lender, monthly in arrears on the first Business Day of each month for the
immediately preceding month, a non-utilization fee equal to the sum of (1) fifty
(50) basis points per annum multiplied by the difference between (a) the average
daily Maximum Revolving Loan for the immediately preceding month, and (b) the
average daily outstanding balance of the Revolving Loan and the Letter of Credit
Obligations during the immediately preceding month, plus, (2) fifty (50) basis
points per annum multiplied by the daily average undrawn principal amount of
Term Loan A during the immediately preceding month. The non-utilization fee set
forth in clause (2) of this Section 2.3(D) shall cease to accrue from and after
the date Lender’s commitment to advance Term Loan A terminates. Such fee shall
be computed for the actual number of days elapsed on the basis of a three
hundred sixty (360) day year.

 

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2.4 LIBOR Loans.
(A) Each LIBOR Loan shall be in the minimum amount of Two Hundred Fifty Thousand
and no/100 Dollars ($250,000.00), with increments of One Hundred Thousand and
no/100 Dollars ($100,000.00) thereafter. Not more than five (5) nor less than
two (2) Business Days prior to the requested date of any borrowing at or
conversion to a LIBOR Loan, Borrowers shall deliver to Lender an irrevocable
written or telephonic notice setting forth the requested date and amount of such
LIBOR Loan, together with the Interest Period applicable thereto. Unless
Borrowers notify Lender to the contrary, upon the expiration of any Interest
Period for a LIBOR Loan, such LIBOR Loan shall automatically convert to a Prime
Loan. Borrowers shall not (x) request a LIBOR Loan for an Interest Period that
expires on any date after the repayment date of all or any portion of such LIBOR
Loan, (y) request, nor permit to be in effect, more than five (5) LIBOR Loans at
any time, nor (z) prepay any LIBOR Loan unless Borrowers pay to Lender all
breakage costs incurred by Lender as a result of such prepayment. If Borrowers
pay any LIBOR Loan on any day other than the last day of the Interest Period,
then Borrowers shall pay to Lender all of Lender’s costs, fees and expenses
incurred in connection therewith, including, without limitation, charges or
costs associated with changing LIBOR Rates prior to the expiration of their
scheduled Interest Period. Lender’s determination of such breakage costs shall
be conclusive absent manifest error.
(B) If Lender determines, in good faith (which determination shall be
conclusive, absent manifest error), prior to the commencement of any Interest
Period that (1) U.S. Dollar deposits of sufficient amount and maturity for
funding the LIBOR Loans are not available to Lender in the London Interbank
Eurodollar market in the ordinary course of business, or (2) by reason of
circumstances affecting the London Interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the rate of interest to be applicable
to the Loans requested by Borrowers to be LIBOR Loans or the LIBOR Loans shall
not represent the effective pricing to Lender for U.S. Dollar deposits of a
comparable amount for the relevant period (such as, for example, but not limited
to, official reserve requirements required by Regulation D to the extent not
given effect in determining the rate), Lender shall promptly notify Borrowers
and all existing LIBOR Loans shall convert to Prime Loans upon the end of the
applicable Interest Period. Thereafter, no additional LIBOR Loans shall be made
until such circumstances are cured.
(C) If, after the date hereof, the introduction of, or any change in any
applicable law, treaty, rule, regulation or guideline or in the interpretation
or administration thereof by any Governmental Authority or any central bank or
other fiscal, monetary or other authority having jurisdiction over Lender or its
lending offices (a “Regulatory Change”), shall, in the opinion of counsel to
Lender, make it unlawful for Lender to make or maintain LIBOR Loans, then Lender
shall promptly notify Borrowers thereof, and the LIBOR Loans shall convert to
Prime Loans upon the end of the applicable Interest Period or on such earlier
date as required by law. Thereafter, no additional LIBOR Loans shall be made
until such circumstance is cured.

 

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(D) If any Regulatory Change (whether or not having the force of law) shall
(1) impose, modify or deem applicable any assessment, reserve, special deposit
or similar requirement against assets held by, or deposits in or for the account
of or loans by, or any other acquisition of funds or disbursements by, Lender;
(2) subject Lender or the LIBOR Loans to any Tax or change the basis of taxation
of payments to Lender of principal or interest due from Borrowers to Lender
hereunder (other than a change in the taxation of the overall net income of
Lender); or (3) impose on Lender any other condition regarding the LIBOR Loans
or Lender’s funding thereof, and Lender shall determine (which determination
shall be conclusive, absent any manifest error) that the result of the foregoing
is to increase the cost to Lender of making or maintaining the LIBOR Loans or to
reduce the amount of principal or interest received by Lender hereunder, then
Borrowers shall pay to Lender, on demand, such additional amounts as Lender
shall, from time to time, determine are sufficient to compensate and indemnify
Lender from such increased cost or reduced amount.
(E) Lender shall receive payments of amounts of principal of and interest with
respect to the LIBOR Loans free and clear of, and without deduction for, any
Taxes. If (1) Lender shall be subject to any Tax in respect of any LIBOR Loans
or any part thereof or, (2) Borrowers shall be required to withhold or deduct
any Tax from any such amount, the LIBOR Rate applicable to such LIBOR Loans
shall be adjusted by Lender to reflect all additional costs incurred by Lender
in connection with the payment by Lender or the withholding by Borrowers of such
Tax and Borrowers shall provide Lender with a statement detailing the amount of
any such Tax actually paid by Borrowers. Determination by Lender of the amount
of such costs shall be conclusive, absent manifest error. If after any such
adjustment any part of any Tax paid by Lender is subsequently recovered by
Lender, Lender shall reimburse Borrowers to the extent of the amount so
recovered. A certificate of an officer of Lender setting forth the amount of
such recovery and the basis therefor shall be conclusive, absent manifest error.
2.5 Computation of Interest. Interest on the Loans shall be computed for the
actual number of days elapsed on the basis of a three hundred sixty (360) day
year.
3. LOANS: GENERAL TERMS
3.1 Payments.
(A) Scheduled Payments. Except as otherwise provided in this Loan Agreement or
the Other Agreements, that portion of the Liabilities consisting of: (1) the
principal portion of the Revolving Loan shall be payable in full by Borrowers to
Lender on or before the Revolving Loan Termination Date; (2) the principal
portion of Term Loan A shall be repaid as set forth in Term Note A; (3) interest
on the Revolving Loan and Term Loan A, other than that portion of the Loans
constituting LIBOR Loans, shall be payable by Borrowers to Lender in arrears on
the first Business Day of each month, as debited by Lender; (4) interest on each
LIBOR Loan shall be payable by Borrowers to Lender on the last day of the
applicable Interest Period with respect to such LIBOR Loan, as debited by
Lender; (5) all costs, fees and expenses payable pursuant to this Loan Agreement
and the Other Agreements shall be payable by Borrowers to Lender, or to such
other Persons designated by Lender, on demand; and (6) the balance of the
Liabilities, if any, shall be payable by Borrowers to Lender on demand. All such
payments to Lender shall be payable at Lender’s principal office in Chicago,
Illinois, or at such other place or places as Lender may designate in writing to
Borrowers. All such payments to Persons other than Lender shall be payable at
such place or places as Lender may designate in writing to Borrowers. All such
payments made to Lender shall be paid by Borrowers without offset or other
reduction.

 

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(B) Term Loan Mandatory Prepayments. Upon receipt of the proceeds of the sale or
other disposition of United Tote or its assets, or any Equipment or real
property of any Borrower which is subject to a lien or mortgage in favor of
Lender, or if any of the Equipment or real property subject to such lien or
mortgage is damaged, destroyed or taken by condemnation in whole or in part, the
net proceeds thereof, after deducting all direct expenses incurred in connection
with such sale or other disposition (the “Collateral Disposition Proceeds”)
shall be paid by Borrowers to Lender as a mandatory prepayment of the
Liabilities, such payment to be applied against the remaining installments of
principal of the Term Loans in the inverse order of their maturities until the
Term Loans are repaid in full, and then against the other Liabilities, as
determined by Lender, in its sole discretion. Notwithstanding the foregoing,
(i) if no Event of Default then exists and the Collateral Disposition Proceeds
for any single occurrence or series of related occurrences as determined by
Lender in its sole discretion, is less than $10,000, Borrowers shall not be
required to apply such Collateral Disposition Proceeds to the Liabilities,
(ii) if no Event of Default then exists, Borrowers shall only be required to
make a mandatory prepayment of the Liabilities in an amount equal to 50% of the
Collateral Disposition Proceeds from the sale of United Tote or its assets, and
(iii) if no Event of Default then exists, Borrowers’ right to receive Collateral
Disposition Proceeds arising from casualty insurance with respect to damaged or
destroyed Equipment or real property shall not require a mandatory prepayment
hereunder and such proceeds shall be made available to Borrowers to repair,
restore, rebuild or replace such Equipment or real property, provided the total
amount of such Collateral Disposition Proceeds for any such casualty or series
of related casualties is less than $2,500,000.
(C) Revolving Loan Mandatory Payments. Borrowers agree that if at any time
(1) the aggregate unpaid principal amount of all Revolving Loans plus the
outstanding Letter of Credit Obligations shall exceed the Maximum Revolving
Loan, or (2) the aggregate unpaid principal amount of all Revolving Loans, plus
the unpaid principal amount of Term Loan A, plus the outstanding Letter of
Credit Obligations shall exceed the Borrowing Base, then (1) they will forthwith
make a mandatory payment of principal in an amount equal to such excess within
three (3) days after the occurrence thereof, and such mandatory prepayment shall
apply to the amount of the remaining principal of the Revolving Loans.
(D) Prepayment Premium. Except as otherwise provided in this Loan Agreement or
any of the Other Agreements with respect to LIBOR Loans or under any Rate
Management Agreements or other so-called “swap” agreements relating to such
Liabilities, the Borrowers may from time to time prepay the Liabilities at any
time, in whole or in part, without premium or penalty. Any prepayment of a Term
Loan shall be applied by Lender to the outstanding principal balance of such
Term Loan in the inverse order of maturity and shall not reduce the otherwise
scheduled payments thereunder until such Term Loan is paid in full.
3.2 Late Payment Provision. If any payment required under this Loan Agreement is
ten (10) days or more late, Borrowers will be charged five percent (5.0%) of the
regularly scheduled payment or Twenty-Five and no/100 Dollars ($25.00),
whichever is greater.
3.3 Notes. Loans made by Lender to Borrowers pursuant to this Loan Agreement may
or may not, at Lender’s discretion, be evidenced by notes or other instruments
issued or executed and delivered by Borrowers to Lender, including, but not
limited to, the Notes. Where such Loans are not so evidenced, such Loans shall
be evidenced by entries upon the ledgers, books, records or computer records of
Lender maintained for that purpose. Lender’s failure to record any portion of
the Liabilities on such books and records shall not limit or otherwise affect
the obligations and liabilities of Borrowers to repay the Liabilities due and
owing to Lender pursuant to this Loan Agreement and the Other Agreements.
3.4 One Loan. All of the Liabilities shall constitute one loan secured by
Lender’s security interest and lien in the Collateral and by all other security
interests, liens, mortgages, claims and encumbrances heretofore, now or from
time to time hereafter granted by Borrowers to Lender.

 

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3.5 Use of Loan Proceeds. Each Borrower represents, warrants and covenants unto
Lender that each Borrower shall use the proceeds of all Loans made by Lender to
such Borrower pursuant to this Loan Agreement and the Other Agreements as
follows: (A) the initial draw on the Revolving Loan, together with the proceeds
of Term Loan A, shall be used to repay in full all loans owed by Borrowers to
their existing senior lender and for general purposes, including stock
repurchases expressly permitted under this Loan Agreement, (B) from time to time
hereafter, the Revolving Loan shall be used to meet Borrowers’ general operating
capital needs to the extent consistent with this Loan Agreement, and
(C) proceeds of the Loans shall be used solely for general business purposes and
consistent with all applicable laws and statutes, including, but not limited to,
Illinois Compiled Statutes, Chapter 815, Act 205, Section 4 (815 ILCS 205/4).
Each Borrower further represents and warrants to Lender that such Borrower does
not and will not at any time hereafter own any margin securities, and that none
of the proceeds of the Loans shall be used for the purpose of (1) purchasing or
carrying any margin securities, (2) reducing or retiring any indebtedness which
was originally incurred to purchase any margin securities, or (3) any other
purpose not permitted by Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
3.6 Representation and Warranty. Each request for a Loan advance made by
Borrowers to Lender pursuant to this Loan Agreement and the Other Agreements
shall constitute an automatic representation and warranty by Borrowers to Lender
that there does not then exist an Unmatured Event of Default or Event of
Default.
3.7 Authorization to Disburse. Each Borrower hereby authorizes and directs
Lender to disburse for and on behalf of such Borrower, and for the Borrowers’
account, the proceeds of Loans made by Lender to Borrowers pursuant to this Loan
Agreement to such Person or Persons as any Borrower or any Person specified in
Paragraph 12.11 of this Loan Agreement shall direct, whether in writing or
orally.
3.8 Payment of Costs, Fees and Expenses. Lender, in its discretion, may disburse
any or all proceeds of Loans made to Borrowers pursuant to this Loan Agreement
or the Other Agreements to pay any costs, fees, expenses or other amounts
required to be paid by Borrowers hereunder and not timely paid, or to pay any
Person as Lender deems necessary to insure that the security interest and lien
granted to Lender in the Collateral shall at all times be a first priority,
perfected security interest and lien, subject only to Permitted Liens. All
monies so disbursed by Lender shall be part of the Liabilities, secured by the
Collateral and payable by Borrowers to Lender on demand.
3.9 Debit of Accounts. Each Borrower hereby authorizes Lender to debit such
Borrower’s accounts with Lender for (A) the principal, interest and other costs,
fees and expenses arising under or pursuant to this Loan Agreement and the Other
Agreements, and (B) all other Liabilities owed to Lender.
3.10 Application of Payments. Any check, draft, wire transfer or similar item of
payment by or for the account of Borrowers delivered to Lender on account of the
Liabilities shall be applied by Lender to the Liabilities as follows: (A) wire
transfers of immediately available funds and other cash deposits will be
credited on the day of receipt by Lender, if received by 2:00 P.M. Chicago time,
or on the next Business Day if received after 2:00 P.M. Chicago time, and (B)
checks and other instruments will be credited by Lender, provided the same is
honored by Lender and final settlement thereof is reflected by irrevocable
credit to Lender, on account of the Liabilities one (1) Business Day after such
check or other instrument is actually received by Lender.

 

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3.11 Co-Obligor Provisions.
(A) Each Borrower is jointly and severally liable for all amounts due to Lender
under this Loan Agreement and the Other Agreements, regardless of which Borrower
actually receives Loans or other extensions of credit hereunder or the amount of
such Loans received or the manner in which Lender accounts for such Loans or
other extensions of credit on its books and records.
(B) Lender shall not be required or obligated to take any of the following
action prior to pursuing any rights or remedies Lender may have against any
Borrower: (1) take any action to collect from, or to file any claim of any kind
against, any other Borrower, any guarantor, or any other person or entity
liable, jointly or severally, for the full and timely performance of the
Covenants or the full and timely payment of any of the Liabilities; (2) take any
steps to protect, enforce, take possession of, perfect any interest in,
foreclose or realize on any collateral or security, if any, securing the
Covenants or the Liabilities; or (3) in any other respect, exercise any
diligence whatsoever in enforcing, collecting or attempting to collect any of
the Liabilities by any means.
(C) Each Borrower unconditionally and irrevocably waives each and every surety
defense which would otherwise impair, restrict, diminish or affect any of the
Liabilities. Without limiting the foregoing, Lender shall have the exclusive
right from time to time without impairing, restricting, diminishing or affecting
any of the Liabilities, and without notice of any kind to all Borrowers, to
(1) provide additional financial accommodations to Borrowers; (2) accept partial
payments on the Liabilities; (3) take and hold collateral or security to secure
the Covenants and the Liabilities, or take any other guaranty to secure the
Covenants and the Liabilities; (4) in its sole discretion, apply any such
collateral or security, and direct the order or manner of sale thereof, and the
application of the proceeds thereof; (5) release any guarantor or co-obligor of
the Liabilities; and (6) settle, release, compromise, collect or otherwise
liquidate the Liabilities or exchange, enforce, sell, lease, use, maintain,
impair and release any collateral or security therefor in any manner, without
affecting or impairing any of the Liabilities hereunder.
(D) Each Borrower hereby unconditionally waives (1) notice of any default by
Borrowers in the full and prompt performance of the Covenants or the full and
prompt payment of the Liabilities, and (2) presentment, notice of dishonor,
protest, demand for payment and any other notices of any kind.
(E) Each Borrower assumes full responsibility for keeping informed of (1) the
financial condition of the other Borrower; (2) the extent of the Liabilities;
and (3) all other circumstances bearing upon Borrowers or the risk of
non-payment of the Liabilities. Each Borrower agrees that Lender shall have no
duty or obligation to advise, furnish or supply such Borrower of or with any
information known to Lender, including, but not limited to, the financial
condition of the other Borrower, any other circumstances relating to non-payment
of the Liabilities or otherwise. If Lender, in its sole discretion, provides any
advice or information to any Borrower, Lender shall be under no obligation to
investigate the matters contained in such advice or information, or to correct
such advice or information if Lender thereafter knows or should have known that
such advice or information is misleading or untrue, in whole or in part, or to
update or provide any other advice or information in the future.
(F) Each Borrower acknowledges and agrees that it may have a right of
indemnification, subrogation, contribution and reimbursement from the other
Borrower, Lender or any guarantor of the Liabilities based upon its execution of
this Loan Agreement. Each Borrower understands the benefits of having such
rights, including, but not limited to, (1) such Borrower’s right to
reimbursement from the other Borrower of all monies expended for the payment of
the Liabilities; and (2) such Borrower’s subrogation to the rights of Lender
after payment of the Liabilities. No Borrower shall exercise any such rights of
indemnification, subrogation, contribution or reimbursement from the other
Borrower, Lender or any guarantor of the Liabilities prior to the indefeasible
payment and satisfaction in full to Lender of the Liabilities.

 

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(G) Each Borrower appoints the other Borrower as its agent for all purposes
relevant to this Loan Agreement and the Other Agreements, including, without
limitation, the giving and receipt of notices and execution and delivery of all
documents, instruments and certificates contemplated herein and all
modifications hereto. Any acknowledgment, consent, direction, certification or
other action which might otherwise be valid or effective only if given or taken
by all of the Borrowers or any Borrower acting singly, shall be valid and
effective if given or taken only by one Borrower, whether or not the other
Borrower joins therein.
4. COLLATERAL: GENERAL TERMS
4.1 Grant of Security Interest. To secure the full and timely payment and
performance by Borrowers or any Borrower to Lender of the Liabilities and the
Covenants, each Borrower hereby grants to Lender a priority security interest
and lien in and right of setoff against all of such Borrower’s assets, personal
property, fixtures, rights and interests of such Borrower, whether now existing
or owned and hereafter arising or acquired and wherever located, including,
without limitation, all of each Borrower’s: (1) Accounts; (2) Goods for sale,
lease or other disposition by such Borrower which have given rise to Accounts
and have been returned to or repossessed or stopped in transit by such Borrower;
(3) contract rights and documents, instruments, contracts or other writings
executed in connection therewith, including, but not limited to, all real and
personal property lease rights; (4) Chattel Paper, Electronic Chattel Paper,
Tangible Chattel Paper, Documents of Title, Instruments, Documents, General
Intangibles, Payment Intangibles, Letter of Credit Rights, letters of credit and
Supporting Obligations; (5) Intellectual Property and all registrations,
licenses, franchises, customer lists, tax refund claims, claims against carrier
and shippers, insurance claims, guaranty claims, all other claims, proof of
claims filed in any bankruptcy, insolvency or other proceeding, contract rights,
choses in action, security interests, security deposits and rights to
indemnification; (6) Goods, including, without limitation, Inventory, Equipment,
Fixtures, trade fixtures and vehicles; (7) Investment Property; (8) deposits,
cash and Cash Equivalents and any property of each Borrower now or hereafter in
the possession, custody or control of Lender, whether for safekeeping, deposit,
collection, custody, pledge, transmission or otherwise; (9) Commercial Tort
Claims listed on Schedule 4.1 hereto, as amended from time to time; (10) Deposit
Accounts held with Lender or any other depository institution; (11) all other
personal property of each Borrower of any kind or nature; and (12) additions and
accessions to, substitutions for and replacements, products and cash and
non-cash Proceeds of all of the foregoing property, including, but not limited
to, Proceeds of all insurance policies insuring the foregoing and all of each
Borrower’s books and records relating to any of the foregoing and to each
Borrower’s business (all of the foregoing property, together with all other real
or personal property of any other Person now or hereafter pledged to Lender to
secure, either directly or indirectly, repayment of any of the Liabilities, is
collectively referred to as the “Collateral”); provided, however, that the
Collateral shall not include (collectively, the “Excluded Assets”) (a) shares of
capital stock of any Foreign Subsidiary that is not a Foreign Subsidiary or
capital stock having voting power in excess of 65% of the voting power of all
classes of capital stock of a first tier Foreign Subsidiary of any Borrower;
(b) Excluded Accounts; or (c) any governmental permit, license or franchise that
prohibits liens on or collateral assignments of such permit, license or
franchise; provided, further, that (x) upon the ineffectiveness, lapse,
cessation or the termination of any provision of any contract, agreement,
instrument or indenture, any law or any condition or circumstances, the
existence of which caused any asset or personal property to constitute an
Excluded Asset hereunder, such asset or personal property shall no longer be
considered an “Excluded Asset” hereunder, and (y) “Excluded Assets” shall not
include any proceeds, products, substitutions or replacements of Excluded Assets
(unless such proceeds, products, substitutions or replacements would otherwise
constitute Excluded Assets). Borrowers shall make appropriate entries upon their
financial statements and books and records disclosing Lender’s first position
priority security interest and lien in the Collateral.

 

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4.2 Supplemental Documentation. Borrowers shall execute and deliver to Lender,
at any time and from time to time, all agreements, instruments, documents and
other written matter (the “Supplemental Documentation”) that Lender may
reasonably request, in form and substance acceptable to Lender, to perfect and
maintain perfected Lender’s first position priority security interest and lien
in the Collateral and to consummate the transactions contemplated by this Loan
Agreement and the Other Agreements, including, without limitation, all documents
required to perfect Lender’s security interest in each Borrower’s vehicles with
an aggregate fair market value in excess of $75,000. Each Borrower, irrevocably,
hereby makes, constitutes and appoints Lender, and all Persons designated by
Lender for that purpose, as such Borrower’s true and lawful attorney and
agent-in-fact, to sign the name of such Borrower on the Supplemental
Documentation and to deliver such Supplemental Documentation to such Persons as
Lender may reasonably elect. Each Borrower hereby irrevocably authorizes Lender
at any time, and from time to time, to file in any jurisdiction any initial
financing statements and amendments thereto without the signature of such
Borrower that (a) indicate the Collateral (1) is comprised of all assets of the
Borrower or words of similar effect, regardless of whether any particular asset
comprising a part of the Collateral falls within the scope of Article 9 of the
Uniform Commercial Code of the jurisdiction wherein such financing statement or
amendment is filed, or (2) as being of an equal or lesser scope or within
greater detail as the grant of the security interest set forth herein, and
(b) contain any other information required by Section 5 of Article 9 of the
Uniform Commercial Code of the jurisdiction wherein such financing statement or
amendment is filed regarding the sufficiency or filing office acceptance of any
financing statement or amendment, including (i) whether each Borrower is an
organization, the type of organization and any organizational identification
number issued to such Borrower, and (ii) in the case of a financing statement
filed as a fixture filing or indicating Collateral as as-extracted collateral or
timber to be cut, a sufficient description of the real property to which the
Collateral relates. Each Borrower further ratifies and affirms its authorization
for any financing statements and/or amendments thereto, executed and/or filed by
Lender in any jurisdiction prior to the date of this Loan Agreement.
Schedule 4.2 attached hereto sets forth each Borrower’s exact legal name, state
of organization and organizational identification number.
4.3 Inspections and Verifications. Upon reasonable advance notice, Borrowers
shall permit Lender, or any Persons designated by Lender, to call at each
Borrower’s places of business at any reasonable times, and, without hindrance or
delay, to inspect the Collateral and to inspect, audit, check and make extracts
from each Borrower’s books, records, journals, orders, receipts and any
correspondence and other data relating to each Borrower’s business, the
Collateral or any transactions between the parties hereto, and shall have the
right to make such verification concerning each Borrower’s business as Lender
may consider reasonable under the circumstances. Lender, at its discretion, will
perform field audits and/or fixed asset appraisals on an annual basis, or, if an
Event of Default or Unmatured Event of Default then exists, more frequently as
determined by Lender. Borrowers shall furnish to Lender such information
relevant to Lender’s rights under this Loan Agreement as Lender shall at any
time and from time to time request. Upon the occurrence and during the
continuation of an Unmatured Event of Default or Event of Default, Lender,
through its officers, employees or agents shall have the right, at any time and
from time to time, in Lender’s name, to verify the validity, amount or any other
matter relating to any of each Borrower’s Accounts, by mail, telephone,
telegraph or otherwise. Each Borrower authorizes Lender to discuss the affairs,
finances and business of Borrowers with any officers, employees or directors of
any Borrower or with any Affiliate or the officers, employees or directors of
any Affiliate, and to discuss the financial condition of Borrowers with
Borrowers’ independent public accountants. Any such discussions shall be without
liability to Lender or to Borrowers’ independent public accountants. Borrowers
shall pay to Lender all reasonable fees and all costs and out-of-pocket expenses
incurred by Lender in the exercise of its rights hereunder, and all such fees,
costs and expenses shall constitute Liabilities hereunder, shall be payable on
demand and, if not paid within ten days of demand, shall bear interest at the
Default Rate.

 

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4.4 Liens/Collateral Locations. Each Borrower represents, warrants and covenants
unto Lender that: (A) Lender’s security interest and lien in the Collateral is
now and at all times hereafter shall be perfected and have a first priority to
the extent that a security interest may be perfected by filing a blanket
financing statement, subject to Permitted Liens; (B) except for the Permitted
Liens, the Collateral is and shall remain free and clear of all security
interests, liens and other encumbrances; (C) each Borrower’s respective chief
executive office, all other offices and places of business and the offices and
locations where each Borrower keeps the Collateral are at the locations
specified on Schedule 4.4; (D) Borrowers shall not remove the Collateral from
the locations specified on Schedule 4.4 and shall not keep any of the Collateral
(except for Collateral in transit or out for repair in the ordinary course of
business) in excess of $250,000 at any other office or location unless Borrowers
give Lender five (5) Business Days’ written notice; and (E) the Collateral is
and shall remain within the continental United States of America, other than up
to $250,000 of Collateral at any one time which may be moved or maintained
outside of the continental United States of America. Each Borrower shall provide
Lender with five (5) Business Days’ written notice of the opening of any new
office or place of business, the closing of any existing office or place of
business or delivering any Collateral to a warehouse or other storage facility
not listed on Schedule 4.4.
4.5 Endorsement. Each Borrower irrevocably, hereby makes, constitutes and
appoints Lender, and all persons designated by Lender for that purpose, as such
Borrower’s true and lawful attorney and agent-in-fact to take control of and
endorse any Borrower’s name to any of the items of payment or proceeds of the
Collateral. After the occurrence and during the continuation of an Event of
Default, all such items of payment or proceeds received by Lender shall, unless
Lender shall otherwise elect, be deposited into a cash collateral account
maintained with Lender over which Lender has sole authority and shall be applied
by Lender to the Liabilities.
4.6 Account Earnings Credit. Should Lender’s operating costs relating to
Borrowers’ operating accounts and any lockbox exceed the earnings credit rate
associated with the account balances in any one month, such deficiency shall be
part of the Liabilities, secured by the Collateral and payable by Borrowers to
Lender on demand.
4.7 Assignment of Competing Security Interest. Lender, in its discretion,
without waiving or releasing any obligation, liability or duty of Borrowers
under this Loan Agreement and the Other Agreements or any Unmatured Event of
Default or Event of Default, may at any time or times hereafter, but shall not
be obligated to do so, pay, acquire or accept an assignment of any security
interest, lien, encumbrance or claim asserted by any Person against the
Collateral. All sums paid by Lender in connection therewith and all costs, fees
and expenses, including, but not limited to, reasonable attorneys’ fees, court
costs, expenses and other charges relating thereto incurred by Lender on account
thereof shall be part of the Liabilities, secured by the Collateral and payable
by Borrowers to Lender on demand.

 

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4.8 Special Collateral. Immediately upon any Borrower’s receipt of any Special
Collateral with an aggregate value of all such Collateral in excess of $50,000,
such Borrower shall mark the same to show that such Special Collateral is
subject to a first position security interest and lien in favor of Lender and
shall deliver the original thereof to Lender, together with an appropriate
endorsement or other specific evidence of assignment in form and substance
acceptable to Lender.
4.9 No Custom or Waiver. No authorization given by Lender pursuant to this Loan
Agreement or the Other Agreements to sell any specified portion of the
Collateral or any items thereof, and no waiver by Lender in connection
therewith, shall establish a custom or constitute a waiver of the prohibition
contained in this Loan Agreement or the Other Agreements against such sales,
with respect to any portion of the Collateral or any item thereof not covered by
said authorization.
4.10 Lien on Realty. Each Borrower represents and warrants to Lender that such
Borrower is not the direct or indirect legal or beneficial owner of any real
property, except the real property set forth on Schedule 4.10 hereto. If any
Borrower shall acquire at any time or times hereafter an interest in any real
property with a value in excess of $250,000 other than as set forth on
Schedule 4.10 hereto, such Borrower agrees promptly to execute and deliver to
Lender as additional security and Collateral for the Liabilities, deeds of
trust, security deeds, mortgages or other collateral assignments satisfactory in
form and substance to Lender, and its counsel (herein collectively referred to
as “New Mortgages”) covering such real property. Each New Mortgage shall be duly
recorded in each office where such recording is required to constitute a valid
first lien on the real property covered thereby. Borrowers shall deliver to
Lender at Borrowers’ expense, mortgagee title insurance policies issued by a
title insurance company satisfactory to Lender insuring Lender as mortgagee;
such policies shall be in form and substance satisfactory to Lender and shall
insure a valid lien in favor of Lender and the property covered thereby, subject
only to those exceptions acceptable to Lender and its counsel. Borrowers shall
deliver to Lender such other documents as Lender and its counsel may reasonably
request relating to any such New Mortgages.
5. COLLATERAL: ACCOUNTS
5.1 Eligible Accounts. An “Eligible Account” is an Account that, when scheduled
to Lender and at all times thereafter, does not violate the negative covenants
and other provisions of this Section 5 and does satisfy the positive covenants
and other provisions of this Section 5. The following Accounts are not and shall
not be considered Eligible Accounts:
(A) Accounts which remain unpaid for more than ninety (90) days after their
invoice date;
(B) Accounts owing by a single Account Debtor, including a currently scheduled
Account, if forty percent (40%) of the balance owing by said Account Debtor is
ineligible as a result of Section 5.1 (A) above;
(C) Accounts which are not due and payable within at least thirty (30) days
after their invoice dates;
(D) Accounts with respect to which the Account Debtor is a director, officer,
employee or agent of any Borrower or is an Affiliate of any Borrower;

 

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(E) Accounts with respect to which payment by the Account Debtor is or becomes
conditional upon the Account Debtor’s approval of the Goods or services, or is
otherwise subject to any repurchase obligation or return right, as with sales
made on a bill-and-hold, guaranteed sale, sale on approval, sale or return or
consignment basis;
(F) Accounts which are owed by an Account Debtor which (1) does not maintain its
chief executive office in the U.S. or Canada, or (2) is not organized under
applicable law of the U.S., any state of the U.S., Canada, or any province of
Canada unless, in either case, such Account is backed by a letter of credit
acceptable to Lender which is in the possession of, has been assigned to and is
directly drawable by Lender; notwithstanding the foregoing, an Accounts that
satisfy all of the requirements of Eligible Accounts, with the exception of this
subsection 5.1(F), shall be deemed Eligible Accounts up to a maximum amount of
ten (10%) percent of the total Eligible Accounts included in the Borrowing Base;
(G) Accounts with respect to which the Account Debtor is (1) the United States
of America or any department, agency or instrumentality thereof, unless the
applicable Borrower assigns its right to payment of such Accounts to Lender in
accordance with the Assignment of Claims Act of 1940, as amended, or (2) any
country other than the United States of America or any department, agency or
instrumentality thereof;
(H) The face amount of any Accounts with respect to which any Borrower is or may
become liable to the Account Debtor for Goods sold or services rendered by such
Account Debtor to such Borrower, but only to the extent of the maximum aggregate
amount of Borrowers’ liability to such Account Debtor;
(I) Accounts with respect to which (1) the Goods giving rise thereto have not
been shipped and delivered to and accepted as satisfactory by the Account
Debtor, or (2) the services performed have not been completed and accepted as
satisfactory by the Account Debtor;
(J) Accounts which are not invoiced, dated as of such date and sent to the
Account Debtor concurrently with the shipment and delivery to and acceptance by
said Account Debtor of the goods or the performance of the services giving rise
thereto;
(K) Accounts with respect to which possession or control of the goods sold is
held, maintained or retained by a Borrower, or by any agent or custodian of a
Borrower, for the account of or subject to further or future direction from the
Account Debtor;
(L) Accounts which are owing by any Account Debtor involved as a debtor in any
bankruptcy or insolvency proceeding, whether voluntary or involuntary;
(M) Accounts which arise in any manner other than the sale of inventory or
services in the ordinary course of a Borrower’s business;
(N) Accounts with respect to which the Account Debtor is located in a state
which requires the applicable Borrower, as a precondition to commencing or
maintaining an action in the courts of that state, either to (1) receive a
certificate of authority to do business and be in good standing in such state,
or (2) file a notice of business activities report or similar report with such
state’ s taxing authority, unless (a) such Borrower has taken one of the actions
described in clauses (1) or (2), (b) the failure to take one of the actions
described in either clause (1) or (2) may be cured retroactively by such
Borrower at its election, or (c) such Borrower has proven, to Lender’s
satisfaction, that it is exempt from any such requirements under any such
state’s laws;

 

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(O) All or any portion of an Account to the extent there exists or the Account
Debtor has asserted a counterclaim or dispute; provided, however, if the amount
of such counterclaim or dispute is equal to or greater than twenty-five percent
(25%) of the total Account owing from such Account Debtor to Borrowers, then the
full amount of such Account shall be deemed an ineligible Account;
(P) Accounts for any Account Debtor which exceed a credit limit established by
Lender for such Account Debtor, but only to the extent of such excess;
(Q) Accounts as to which any covenant, representation or warranty with respect
to such Account has been breached;
(R) Accounts which are not subject to a first priority lien in favor of Lender;
and
(S) Accounts as to which Lender, at any time or times hereafter, determines in
good faith that the prospect of payment or performance by the Account Debtor is
or will be impaired.
5.2 Notice of Ineligible Accounts. Immediately upon learning thereof, Borrowers
shall notify Lender that an Account is no longer an Eligible Account if the
effect thereof is to require Borrowers to make a mandatory prepayment in
accordance with Section 3.1(C). Borrowers shall within one (1) Business Day
prepay the Revolving Loans to Lender and/or cash collateralize the outstanding
Letters of Credit in a manner reasonably acceptable to Lender in an amount of
money equal to the monies theretofore advanced by Lender to Borrowers upon an
Account that is no longer an Eligible Account but only to the extent that the
sum of the outstanding Revolving Loans and the Letter of Credit Obligations
exceed the Borrowing Base, if any, and Lender shall apply such payment to and on
account of the Liabilities.
5.3 Additional Representations, Warranties and Covenants. With respect to each
of the Eligible Accounts, each Borrower represents, warrants and covenants unto
Lender that: (A) they are and shall be genuine, in all respects what they
purport to be and are not evidenced by a judgment; (B) they represent
undisputed, bona fide transactions completed in accordance with the terms and
provisions contained in the invoices and other documents delivered to Lender
with respect thereto; (C) the amounts thereof, which may be shown on any
Borrowing Base Certificate or invoices and statements delivered to Lender with
respect thereto, are and shall be actually and absolutely owing to Borrowers and
are not contingent for any reason; (D) no payments have been made thereon;
(E) there are no setoffs, counterclaims or disputes existing or asserted with
respect thereto and Borrowers have not made and will not make any agreement with
any Account Debtor for any deduction therefrom, except regular discounts allowed
by Borrowers in the ordinary course of their respective businesses for prompt
payment; (F) to the actual knowledge of Borrower, there are no facts, events or
occurrences which in any way impair the validity or enforcement thereof or tend
to reduce the amount payable thereunder; (G) to the actual knowledge of
Borrower, all Account Debtors have the capacity to contract and are solvent;
(H) the services furnished or Goods sold giving rise thereto are not subject to
any lien, claim, encumbrance or security interest, except the first position
priority security interest and lien of Lender and Permitted Liens; (I) Borrowers
have no knowledge of any fact or circumstance which would impair the validity or
collectibility thereof; and (J) to the actual knowledge of Borrower, there are
no proceedings or actions which are threatened or pending against any Account
Debtor which might result in any material adverse change in its financial
condition.

 

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5.4 Revolving Loans. Borrowers shall not request nor permit Lender to make any
Revolving Loans with respect to any Account contained on any Borrowing Base
Certificate, except and only so long as such Account is an Eligible Account.
5.5 Verification of Accounts. Any of Lender’s officers, employees or agents
shall have the right, at any time or times hereafter, in Lender’s name (at any
time or times during which any Event of Default shall exist or have occurred and
be continuing) or in the name of a nominee (at all other times) of Lender, to
verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, facsimile transmission, telegraph or otherwise. All reasonable
costs, fees and expenses relating thereto incurred by Lender, or for which
Lender becomes obligated, shall be part of the Liabilities, secured by the
Collateral and payable by Borrowers to Lender on demand.
5.6 Reserved.
5.7 Notice Regarding Disputed Accounts. In the event any amount due and owing in
excess of Twenty-Five Thousand and no/100 Dollars ($25,000.00) is in dispute for
a period of thirty (30) days or more after any Borrower receives notice or
obtains knowledge thereof between any Borrower and an Account Debtor, such
Borrower shall provide Lender with written notice thereof at the time of
submission of the next Borrowing Base Certificate explaining in detail the
reason for the dispute, all claims related thereto and the amount in
controversy; provided, however, in the event the aggregate total of such amounts
in dispute exceeds Fifty Thousand and no/100 Dollars ($50,000.00), such written
notice must be provided to Lender immediately upon such Borrower having
knowledge of such disputes.
5.8 Attorney and Agent-In-Fact. Each Borrower irrevocably hereby designates,
makes, constitutes and appoints Lender, and all Persons designated by Lender, as
such Borrower’s true and lawful attorney and agent-in fact, in any Borrower’s or
Lender’s name, to at any time an Event of Default has occurred and is existing:
(A) demand payment of the Accounts and Special Collateral; (B) enforce payment
of the Accounts and Special Collateral by legal proceedings or otherwise; (C)
exercise all of Borrowers’ rights and remedies with respect to the collection of
the Accounts and Special Collateral; (D) settle, adjust, compromise, extend or
renew the Accounts and Special Collateral; (E) settle, adjust or compromise any
legal proceedings brought to collect the Accounts and Special Collateral;
(F) sell or assign the Accounts and Special Collateral upon such terms, for such
amounts and at such time or times as Lender deems advisable; (G) discharge and
release the Accounts and Special Collateral; (H) take control, in any manner, of
any item of payment or proceeds referred to in Section 4.5 above; (I) prepare,
file and sign any Borrowers’ name on any notice of lien, assignment or
satisfaction of lien or similar document in connection with the Accounts and
Special Collateral; (J) prepare, file and sign any Borrower’s name on any Proof
of Claim in bankruptcy or similar document against any Account Debtor; (K) do
all acts and things necessary, in Lender’s sole discretion, to fulfill
Borrowers’ obligations under this Loan Agreement; (L) endorse the name of any
Borrower upon any of the items of payment or proceeds referred to in Section 4.5
above and to deposit the same on account of the Liabilities; (M) endorse the
name of any Borrower upon any Chattel Paper, Document, Instrument, invoice,
freight bill, bill of lading or similar document or agreement relating to the
Accounts and Special Collateral; and (N) sign the name of any Borrower to
verifications of the Accounts and Special Collateral and notices thereof to
Account Debtors.

 

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6. COLLATERAL: INVENTORY
6.1 Eligible Inventory. “Eligible Inventory” means the portion of Inventory
that: (A) consists of raw materials, work-in-process or finished goods held for
resale in the ordinary course of Borrowers’ business; (B) is not more than three
hundred sixty-five (365) days old; (C) is not consigned to or from any Person;
(D) does not violate the negative covenants and similar provisions of this
Section 6 and does satisfy the positive covenants and similar provisions of this
Section 6; (E) Lender has in good faith determined, in accordance with its
customary business practices, is not unacceptable due to age, type, category,
quantity or obsolescence; (F) is subject to Lender’s first position priority
perfected security interest and lien; and (G) is located at one of the locations
specified on Schedule 4.4 and if located at a warehouse, other storage facility
or a leased facility, Lender has (i) received an original Warehouse Agreement or
Landlord Agreement in form and substance acceptable to Lender, (ii) filed its
Uniform Commercial Code financing statements in accordance with applicable law
with regard to the respective location of each such warehouse, leased facility
or other storage facility, and (iii) as evidenced by then currently dated
Uniform Commercial Code judgment and lien searches satisfactory to Lender, there
are no security interests or liens in and to the Collateral located at such
warehouse, other storage facility or leased facility other than Lender’s first
position priority security interest and lien.
6.2 Representations, Warranties and Covenants. Each Borrower represents and
warrants to and covenants with Lender that: (A) Borrowers’ Inventory shall be
kept only at the locations specified on Schedule 4.4 (other than Inventory in
transit in the ordinary course of business); (B) each Borrower now keeps and
hereafter at all times shall keep correct and accurate records itemizing and
describing the age, kind, type and quantity of its Inventory and such Borrower’s
stated actual cost therefor, together with withdrawals therefrom and additions
thereto for each month, all of which records shall be available, upon demand, to
any of Lender’s officers, employees or agents for inspection and copying
thereof; (C) all Inventory is now and hereafter at all times shall be of good
and merchantable quality, free from defects; (D) any of Lender’s officers,
employees or agents shall, now and at any time or times hereafter, have the
right, upon demand, to inspect and examine the Inventory and to check and test
the same as to quality, quantity, value and condition; provided, however, if no
Event of Default then exists, Lender shall provide reasonable notice to
Borrowers prior to any such inspection or examination; and (E) all Eligible
Inventory set forth on the Borrowing Base Certificate shall strictly conform to
the definition of Eligible Inventory set forth in Section 6.1 above. All costs,
fees and expenses incurred by Lender in connection with this Section 6, or which
Lender becomes obligated to pay, shall be part of the Liabilities, secured by
the Collateral and payable by Borrowers to Lender on demand.
6.3 Sale of Inventory. Until an Event of Default has occurred, Borrowers may
sell Inventory in the ordinary course of business, but may not transfer any
Inventory in partial or total satisfaction of any of the Indebtedness. After the
occurrence and during the continuation of an Event of Default, upon notice to
Borrowers from Lender, Borrowers shall not sell Inventory. In no event shall
Borrowers make any sale of Inventory which would violate the terms and
provisions of the Loan Agreement and the Other Agreements.
6.4 Responsibility for Inventory. Borrowers shall be liable and responsible for:
(A) the safekeeping of Inventory; (B) any loss, damage or destruction to the
Inventory occurring or arising in any manner or fashion; (C) any diminution in
the value thereof; or (D) any act or event of default of any carrier,
warehouseman, bailee or forwarding agency thereof or any other Person.

 

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7. EQUIPMENT
7.1 Representations, Warranties and Covenants. Each Borrower represents and
warrants to and covenants with Lender that (A) Borrowers have and shall have
good, indefeasible and merchantable title, free and clear of all security
interests, claims and encumbrances to and ownership of the Equipment, except for
the Permitted Liens; and (B) the Equipment shall be kept and maintained solely
at each Borrower’s respective places of business specified on Schedule 4.4
(except for Equipment in transit or out for repair in the ordinary course of
business).
7.2 Maintenance of Equipment. Each Borrower shall keep and maintain the
Equipment in good operating condition and repair (ordinary wear and tear
excepted) and shall make all necessary replacements thereof and renewals thereto
so that the value and operating efficiency of the Equipment shall at all times
be maintained and preserved. No Borrower shall permit any of the Equipment to
become a Fixture to real estate or accession to other personal property.
7.3 Evidence of Ownership. Upon Lender’s request, each Borrower shall deliver to
Lender any and all evidence of ownership to, including, without limitation,
certificates of title to and applications for title to, any of the Equipment;
provided, however, Lender shall not make such request more than two (2) times
during any twelve (12) month period if no Event of Default then exists.
7.4 Records and Schedules of Equipment. Each Borrower shall maintain accurate
records itemizing and describing the kind, type, quality, quantity and value of
its Equipment and all dispositions thereof, and shall furnish Lender with a
current schedule containing the foregoing information upon reasonable request by
Lender.
7.5 Eligible Equipment. Borrowers shall not request nor permit Lender to make
any Revolving Loans with respect to any Equipment contained on any Borrowing
Base Certificate, except and only so long as such Equipment is Eligible
Equipment. If Equipment with an Appraised Value of more than $50,000 is lost,
materially damaged or destroyed, Borrowers shall immediately notify Lender
thereof and shall remit to Lender an updated Borrowing Base Certificate
excluding all such Equipment therefrom.
8. INSURANCE AND TAXES
8.1 Insurance.
(A) Borrowers, at their sole cost and expense, shall keep and maintain: (1) the
Collateral insured for the full insurable value against loss or damage by fire,
theft, explosion, sprinklers and all other hazards and risks ordinarily insured
against by other owners or users of such properties in similar businesses; and
(2) business interruption insurance, workmen’s compensation insurance, public
liability insurance and property damage insurance relating to Borrowers’
businesses and ownership and use of their assets.
(B) All such policies of insurance shall be in form and substance, in such
amounts and with insurers recognized as adequate by prudent business persons, as
may be satisfactory to Lender, [it being understood and agreed that the
insurance in place on the date hereof and disclosed to Lender is acceptable to
Lender]. Borrowers shall deliver to Lender the original, or certified copy, of
each policy of insurance or a certificate of insurance, and evidence of payment
of all premiums for each such policy. All property insurance policies shall
contain an endorsement, in form and substance acceptable to Lender, showing
Lender as lender’s loss payee and all liability insurance policies shall contain
an endorsement, in form and substance acceptable to Lender, showing Lender as
additional insured. Such endorsement or independent instrument furnished to
Lender shall provide that the insurance companies will give Lender at least
thirty (30) days written notice before any such policy or policies of insurance
shall be altered or canceled and that no act or default of Borrowers or any
other person shall affect the right of Lender to recover under such policy or
policies of insurance in case of loss or damage.

 

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(C) Borrowers hereby direct all insurers under such policies of insurance to pay
all proceeds payable thereunder directly to Lender. Each Borrower irrevocably,
makes, constitutes and appoints Lender, and all officers, employees or agents
designated by Lender, as such Borrower’s true and lawful attorney and
agent-in-fact for the purpose of making, settling and adjusting claims under
such policies of insurance with respect to the Collateral, endorsing the name of
such Borrower on any check, draft, instrument or other item of payment
constituting the proceeds of such policies of insurance with respect to the
Collateral at any time or times hereafter, and for making all determinations and
decisions with respect to such policies of insurance. If Borrowers at any time
or times hereafter shall fail to obtain or maintain any of the policies of
insurance required above or to pay any premium in whole or in part relating
thereto, then Lender, without waiving or releasing any obligation, Unmatured
Event of Default or Event of Default by Borrowers hereunder, may at any time or
times thereafter, but shall not be obligated to do so, obtain and maintain such
policies of insurance, pay such premium and take any other action with respect
thereto which Lender deems advisable. All sums so disbursed by Lender,
including, but not limited to, attorneys’ fees, court costs, expenses and other
charges relating thereto, shall be part of the Liabilities, secured by the
Collateral and payable by Borrowers to Lender on demand.
(D) Notwithstanding the foregoing, if no Event of Default then exists,
Collateral Disposition Proceeds arising from casualty insurance with respect to
damaged or destroyed Equipment or real property shall be made available to
Borrowers to repair, restore, rebuild or replace such Equipment or real
property, provided the total amount of such Collateral Disposition Proceeds for
any such casualty or series of related casualties is less than $2,500,000.
(E) Each Borrower hereby acknowledges that the following notice by Lender is
required by and given in full compliance with the Illinois Collateral Protection
Act, 815 ILCS 180/15:
Unless Borrowers provide Lender with evidence of the insurance coverage required
by this Loan Agreement, Lender may purchase insurance at Borrowers’ expense to
protect Lender’s interest in the Collateral. This insurance may, but need not,
protect Borrowers’ interests. The coverage that Lender purchases may not pay any
claim that Borrowers make or any claim that is made against Borrowers in
connection with the Collateral. Borrowers may later cancel any insurance
purchased by Lender, but only after providing Lender with evidence that
Borrowers have obtained insurance as required by this Loan Agreement. If Lender
purchases insurance for the Collateral, Borrowers will be responsible for the
cost of that insurance, including interest and any other charges Lender may
impose in connection with the placement of the insurance, until the effective
date of the cancellation or expiration of the insurance. The cost of the
insurance may be added to Borrowers’ total outstanding balance or obligation.
The cost of insurance may be more than the cost of insurance Borrowers may be
able to obtain on their own.
8.2 Taxes. Each Borrower shall pay when due all Charges imposed upon it or its
assets, franchises, business, income or profits before any penalty or interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums which by law might be a lien
or charge upon any of its assets, provided that (unless any material item or
property would be lost, forfeited or materially damaged as a result thereof) no
such Charge need be paid if it is being diligently contested in good faith, if
Lender is notified in advance of such contest and if such Borrower establishes
an adequate reserve or other appropriate provision required by GAAP and deposits
with Lender cash or bond in an amount acceptable to Lender.

 

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9. REPRESENTATIONS, WARRANTIES AND COVENANTS: GENERAL
9.1 Representations and Warranties. To induce Lender to enter into this Loan
Agreement and to make Loans hereunder, each Borrower represents and warrants to
Lender that:
(A) Organization and Qualification. Each Borrower is the type of legal entity
set forth in the first paragraph of this Loan Agreement for such Borrower, duly
organized and existing and in good standing under the laws of the State of its
formation reflected in the first paragraph of this Loan Agreement, and qualified
or licensed to do business in all states in which the laws thereof require
Borrowers to be so qualified or licensed, except where the failure to so qualify
or become licensed could reasonably be expected to have a Material Adverse
Effect.
(B) Company Power and Authority. Each Borrower has the right, power and capacity
and is duly authorized and empowered to enter into, execute, deliver and perform
this Loan Agreement and the Other Agreements.
(C) No Violation of Law. The execution, delivery and performance by Borrowers of
this Loan Agreement and the Other Agreements do not and shall not, by the lapse
of time, the giving of notice or otherwise, constitute a violation of any
applicable law or breach of any provision contained in any Borrower’s
Constituent Documents, or contained in any agreement, instrument or document to
which any Borrower is a party or by which it is bound, other than violations or
breaches of contracts and agreements which have general non-assignability
provisions contained therein which are breached by the grant of a security
interest in such contracts and agreements.
(D) Title to Collateral. Borrowers have good and merchantable title to and
ownership of the Collateral, free and clear of all liens, claims, security
interests and encumbrances, except for the Permitted Liens.
(E) Solvency. Each Borrower (1) is solvent, (2) has adequate cash flow to pay
its debts as they mature or otherwise become due, (3) has sufficient capital to
conduct its business in the ordinary course, and (4) has property and assets
which, if valued at fair market valuation on a going concern basis, are greater
than the sum of such Borrower’s debts and liabilities.
(F) Litigation. As of the date of this Loan Agreement, except as disclosed on
Schedule 9.1(F) attached hereto, there are no suits or proceedings pending or
threatened against or affecting any Borrower, and no proceedings before any
governmental body are pending or threatened against any Borrower.
(G) Indebtedness. No Borrower has Indebtedness, except Permitted Indebtedness.
(H) Government Contracts. No Borrower is subject to the renegotiation of any
material government contracts.

 

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(I) Adequate Assets/Trademarks/Copyrights/Patents. Each Borrower possesses
adequate assets, licenses, patents, copyrights, trademarks and trade names to
continue to conduct its respective business as previously conducted by it.
Borrowers do not own any registered patents, trademarks or copyrights, except as
otherwise specifically identified in the Intellectual Property Security
Agreement.
(J) Good Standing. Each Borrower has been and is in good standing with respect
to all governmental permits, certificates, consents and franchises necessary to
continue to conduct its business as previously conducted by it and to own or
lease and operate its properties as now owned or leased by, except to the extent
that the failure to do so by such Borrower could not reasonably be expected to
have a Material Adverse Effect.
(K) Burdensome Agreements. No Borrower is a party to any contract or agreement
or subject to any charge, restriction, judgment, decree or order which could
reasonably be expected to have a Material Adverse Effect.
(L) Violation of Law/Compliance with Laws. No Borrower is in violation of any
applicable statute, regulation or ordinance of the United States of America, any
state, city, town, municipality, county, or any other jurisdiction, or any
agency thereof, which could reasonably be expected to have a Material Adverse
Effect.
(M) Breach of Other Loan Documents. No Borrower is in default with respect to
any indenture, loan agreement, mortgage, deed or other similar agreement
relating to the borrowing of monies to which it is a party or by which it is
bound.
(N) Financial Information. All factual information (taken as a whole) furnished
by or on behalf of Borrowers or their Subsidiaries in writing to Lender
(including all information contained in the Schedules and Exhibits hereto or in
the other Loan Documents) for purposes of or in connection with this Loan
Agreement, the other Loan Documents, or any transaction contemplated herein or
therein is true and accurate in all material respects on the date as of which
such information is dated or certified and not incomplete by omitting to state
any fact necessary to make such information (taken as a whole) not misleading in
any material respect at such time in light of the circumstances under which such
information was provided. As of the date of this Loan Agreement, the projections
previously provided by Borrowers to Lender represent Borrowers’ good faith
estimate of their and their Subsidiaries’ future performance for the periods
covered thereby based upon assumptions believed by Borrowers to be reasonable at
the time of the delivery thereof to Lender (it being understood that such
projections and forecasts are subject to uncertainties and contingencies, many
of which are beyond the control of Borrowers and their Subsidiaries and no
assurances can be given that such projections or forecasts will be realize).
(O) Material Adverse Effect. There has been no Material Adverse Effect with
respect to the Borrowers since the date of the most recent Financials for the
Borrowers delivered to Lender.
(P) Change of Corporate Name or Structure. No Borrower has within the previous
five (5) years changed its name, state of formation, identity, corporate
structure or chief executive office, except as set forth on Schedule 9.1(O).

 

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(Q) Capital Structure. As of the date hereof, Schedule 9.1(Q) attached hereto
and made a part hereof states (1) the correct name of each of the Subsidiaries
of each Borrower, and the jurisdiction of organization and the percentage of
voting Equity Interests owned by Borrowers, (2) the name of each Borrower’s
corporate or joint venture Affiliates and the nature of the affiliation, (3) the
number, nature and holder of all outstanding Equity Interests of each Borrower
and each Subsidiary of each Borrower, and (4) the number of authorized and
issued Equity Interests of United Tote and each Subsidiary of each Borrower.
Each Borrower has good and marketable title to all of the Equity Interests it
purports to own of each Subsidiary, free and clear in each case of any lien
other than Permitted Liens. All such Equity Interests have been duly issued and
are fully paid and non-assessable. Except as described on Schedule 9.1(Q), there
are not outstanding any options to purchase, or any rights or warrants to
obligations convertible into, or any powers of attorney relating to, shares of
Equity Interests of any Borrower. Except as described on Schedule 9.1(Q), there
are not outstanding any agreements or instruments binding upon any Borrower’s
shareholders relating to the ownership of its Equity Interests.
(R) Pension Plans. No Borrower has received any notice to the effect that it is
not in full compliance with any of the requirements of ERISA and the regulations
promulgated thereunder. No fact or situation that could lead to a Material
Adverse Effect, including, but not limited to, any Reportable Event or
Prohibited Transaction, exists in connection with any Plan. Borrowers have no
withdrawal liability in connection with a Multiemployer Plan.
(S) Labor Relations. Except as described on Schedule 9.1(S) attached hereto and
made a part hereof, no Borrower is a party to any collective bargaining
agreement, and there are no material grievances, disputes or controversies with
any union or any other organization of any Borrower’s employees, or threats of
strikes, work stoppages or any asserted pending demands for collective
bargaining by any union or organization.
(T) Trade Relations. There exists no actual or threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship between any Borrower and any customer or any group of customers
whose purchases individually or in the aggregate are material to the business of
such Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially adversely
affect any Borrower or prevent any Borrower from conducting such business after
the consummation of the transaction contemplated by this Loan Agreement in
substantially the same manner in which it has heretofore been conducted, other
than, in each case, contracts expiring in the ordinary course of business of the
Borrowers.
(U) Environmental Matters. Each Borrower is in compliance in all material
respects with all applicable Environmental Laws.
(V) Encumbrances. There are no liens, claims or other encumbrances upon any of
the Collateral, except for the Permitted Liens, other than Permitted Liens.
(W) Levies and Attachments. There are no levies, attachments or restraints
affecting any of Borrowers’ assets or the Collateral, other than Permitted
Liens.
(X) Receiver, Trustee or Assignee. There is no receiver, trustee or assignee for
the benefit of creditors currently appointed to take possession of all or any
portion of any Borrower’s assets or any of the Collateral.
(Y) Surety. Except for guarantees in favor of Lender, no Borrower is liable,
whether through the execution of a guaranty or otherwise, with respect to the
obligations or liabilities of any other Person except (i) by endorsement of
instruments or items of payment for deposit to the general account of Borrowers
or for delivery to Lender on account of the Liabilities, and (ii) as permitted
in clause 18 in the definition of Permitted Indebtedness.

 

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(Z) Affiliate Transactions. No Borrower has entered into any transaction with an
Affiliate other than a transaction with another Borrower, except for
transactions in the ordinary course of business pursuant to the reasonable
requirements of each such Borrower’s business and upon fair and reasonable terms
no less favorable to such Borrower than such Borrower would obtain in a
comparable arms-length transaction.
(AA) Commercial Tort Claims. All Commercial Tort Claims in which a Borrower is a
claimant are set forth on Schedule 4.1 attached hereto.
9.2 Covenants. Until the termination of this Loan Agreement and thereafter until
all Liabilities are paid in full (other than contingent liabilities which
expressly survive the termination of this Loan Agreement and Letters of Credit
that have been cash collateralized by a Letter of Credit Backstop), each
Borrower agrees that, unless at any time Lender shall otherwise expressly
consent in writing:
(A) Organization and Qualification. Each Borrower at all times shall be (i) the
type of legal entity specified for such Borrower in the first paragraph of this
Loan Agreement, (ii) duly organized and existing and in good standing under the
laws of the State of its formation reflected in the first paragraph of this Loan
Agreement, (iii) qualified or licensed to do business in all states in which the
laws thereof require Borrowers to be so qualified or licensed, except where the
failure to so qualify or become licensed could not reasonably be expected to
have a Material Adverse Effect.
(B) No Violation of Law. The execution, delivery and performance by Borrowers of
this Loan Agreement and the Other Agreements shall not hereafter, by the lapse
of time, the giving of notice or otherwise, constitute a violation of any
applicable law or breach of any provision contained in any Borrower’s
Constituent Documents, or contained in any agreement, instrument or document to
which any Borrower is now or hereafter a party or by which it is or may become
bound, other than violations or breaches of contracts and agreements which have
general non-assignability provisions contained therein which are breached by the
grant of a security interest in such contracts and agreements.
(C) Title to Collateral. Borrowers at all times hereafter shall have good,
indefeasible and merchantable title to and ownership of the Collateral, free and
clear of all liens, claims, security interests and encumbrances, except for the
Permitted Liens.
(D) Solvency. Each Borrower shall at all times hereafter (1) remain solvent,
(2) have adequate cash flow to pay its debts as they mature or otherwise become
due, (3) have sufficient capital to conduct its business in the ordinary course,
and (4) have property and assets which, if valued at fair market valuation, are
greater than the sum of such Borrower’s debts and liabilities.
(E) Adequate Assets/Trademarks/Copyrights/Patents. Each Borrower shall continue
to possess adequate assets, licenses, patents, copyrights, trademarks and trade
names to continue to conduct its respective business as previously conducted by
it. Borrowers shall notify Lender if any Borrower acquires ownership of or a
license or other interest in any patents, trademarks or copyrights and shall
execute and deliver such documents to Lender as Lender shall request to assign
to Lender as security such Borrower’s interest in such patents, copyrights and
trademarks.
(F) Good Standing. Each Borrower shall remain in good standing with respect to
all governmental permits, certificates, consents and franchises necessary to
continue to conduct its business as previously conducted by it and to own or
lease and operate its properties as now owned or leased by it and none of said
permits, certificates, consents or franchises contain any term, provision,
condition or limitation more burdensome than such as are generally applicable to
persons engaged in the same or similar business as such Borrower, except to the
extent that the failure to do so by such Borrower could not reasonably be
expected to have a Material Adverse Effect.

 

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(G) Violation of Law. Each Borrower shall comply with all material federal,
state and local laws, regulations and orders applicable to such Borrower and its
assets including but not limited to all Environmental Laws, in all respects
material to such Borrower’s business, assets and prospects and shall immediately
notify Lender of any violation of any rule, regulation, statute, ordinance,
order or law relating to the public health or the environment and of any
complaint or notifications received by Borrower regarding any environmental or
safety and health rule, regulation, statute, ordinance or law.
(H) Breach of Other Loan Documents. No Borrower shall be in default for the
failure to pay with respect to any indenture, loan agreement, mortgage, deed or
other similar agreement with a value in excess of $100,000 relating to the
borrowing of monies to which it is a party or by which it is bound.
(I) Financial Statements. All factual information (taken as a whole) hereafter
furnished by or on behalf of Borrowers or their Subsidiaries in writing to
Lender (including all information contained in the Schedules and Exhibits hereto
or in the other Loan Documents) for purposes of or in connection with this Loan
Agreement, the other Loan Documents, or any transaction contemplated herein or
therein shall be true and accurate in all material respects on the date as of
which such information is dated or certified and not incomplete by omitting to
state any fact necessary to make such information (taken as a whole) not
misleading in any material respect at such time in light of the circumstances
under which such information was provided. As of the date of any projections
hereafter provided by Borrowers to Lender, such projections shall represent
Borrowers’ good faith estimate of their and their Subsidiaries’ future
performance for the periods covered thereby based upon assumptions believed by
Borrowers to be reasonable at the time of the delivery thereof to Lender (it
being understood that such projections and forecasts are subject to
uncertainties and contingencies, many of which are beyond the control of
Borrowers and their Subsidiaries and no assurances can be given that such
projections or forecasts will be realize).
(J) Material Adverse Change. There shall be no Material Adverse Effect with
respect to Borrowers since the date of the most recent Financials for the
Borrowers delivered to Lender.
(K) Change of Corporate Name or Structure. No Borrower shall at any time
hereafter, (i) without Lender’s prior written consent, change its corporate
structure or state of formation, or (ii) without prior written notice to Lender,
change its name, identity or chief executive office.
(L) Pension Plans . No fact or situation that could lead to a Material Adverse
Effect, including, but not limited to, any Reportable Event or Prohibited
Transaction, shall exist in connection with any Plan. Borrowers shall continue
to have no withdrawal liability in connection with a Multiemployer Plan.

 

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(M) Notices to Lender. Each Borrower shall notify Lender in writing:
(1) promptly after any Borrower learns thereof, of the commencement of any
litigation affecting a Borrower or any of its real or personal property, whether
or not the claim is considered by such Borrower to be covered by insurance, and
of the institution of any administrative proceeding, in each case, which may
have a Material Adverse Effect; (2) at least thirty (30) days prior thereto, of
any Borrower’s opening of any new office or place of business or any Borrower’s
closing of any existing office or place of business; (3) promptly after any
Borrower learns thereof, of any labor dispute to which a Borrower may become a
party, any strikes or walkouts relating to any of its plants or other
facilities, and the expiration of any labor contract to which it is a party or
by which it is bound; (4) promptly after any Borrower learns thereof, of any
material default by a Borrower under any note, indenture, loan agreement,
mortgage, lease, deed, guaranty or other similar agreement relating to any
Indebtedness of such Borrower exceeding One Hundred Thousand and no/100 Dollars
($100,000.00); (5) promptly after the occurrence thereof, of any Unmatured Event
of Default or Event of Default; (6) promptly after the rendition thereof, of any
judgment in excess of One Hundred Thousand and no/100 Dollars ($100,000.00)
rendered against a Borrower or any of its Subsidiaries; and (7) promptly after
any Borrower learns thereof, of any material adverse finding of any state or
federal government entity in connection with all or any part of the Collateral.
(N) Landlord and Storage Agreements. For Borrowers’ new leased or warehouse
Collateral locations, each Borrower shall provide Lender with copies of all
agreements between such Borrower and any landlord or warehouseman which owns or
operates any premises at which any Collateral may, from time to time, be
located, and shall use commercially reasonable efforts to deliver to Lender an
original executed landlord’s agreement or warehouse agreement, as the case may
be, in form and substance satisfactory to Lender with respect to each such
leased location or warehouse where Collateral with a fair market value in excess
of $50,000 is located and shall use commercially reasonable efforts to provide a
bailee letter, in form and substance satisfactory to Lender with respect to each
bailee that holds in excess of $500,000 of Collateral.
(O) Subordinations. Each Borrower shall provide Lender with debt subordination
agreements, in form and substance satisfactory to Lender, executed by Borrowers
and any Person who is an officer, director, member, manager or Affiliate of
Borrowers to whom any Borrower is or hereafter becomes indebted for borrowed
money, other than the Restricted Note.
(P) Environmental Matters.
(1) Each Borrower shall and shall cause each of its Subsidiaries to (a) comply
strictly and in all respects with all applicable Environmental Laws, (b) take
promptly any remediation and/or corrective action necessary to cure any
violation of Environmental Laws of which a Borrower has knowledge, (c) notify
the proper governmental agency promptly in the event of any release of any
material Hazardous Substances reportable under 42 USC §9603, 42 USC §11044, 33
USC §1321(b)(5) or any counterpart or similar state or local requirements,
(d) promptly forward to Lender, upon its request, a copy of any order, notice,
permit, application, or any other communication or report in connection with any
such release of any Hazardous Substance or any other material matter relating to
the Environmental Laws as they may affect their premises.
(2) Borrowers shall provide Lender with such evidence, reports and/or other
documentation as reasonably requested by Lender to insure that Borrowers are in
compliance with the terms of this Section 9.2(P).
(Q) Commercial Tort Claims. Each Borrower will advise Lender of any new
Commercial Tort Claim upon the filing of any such action. Each Borrower hereby
authorizes Lender to amend Schedule 4.1 from time to time to reflect such new
Commercial Tort Claims and to prepare and file any required Uniform Commercial
Code financing statements or amendments and take any other actions necessary for
Lender to perfect its security interest in such Commercial Tort Claims.

 

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(R) Rate Hedging. Within 180 days after the initial funding of the Loans
hereunder, Borrowers will obtain interest rate protection, in form and substance
reasonably satisfactory to Lender, for a principal amount of not less than 50%
of the then outstanding Term Loan A and for a period of not less than two
(2) years.
9.3 Negative Covenants. Each Borrower covenants unto Lender that such Borrower
shall not now or at any time hereafter, unless such Borrower obtains the prior
written consent of Lender:
(A) Additional Encumbrances. Grant a security interest in, assign, sell or
transfer any of the Collateral to any Person except Permitted Dispositions, or
permit, grant, or suffer a lien, claim or encumbrance upon any of the
Collateral, except for the Permitted Liens.
(B) Levies and Attachments. Permit or suffer any levy, attachment or restraint
to be made affecting any of its assets or the Collateral, other than Permitted
Liens.
(C) Reserved.
(D) Mergers and Acquisitions. Merge, consolidate with or acquire any Person,
except for Permitted Acquisitions; provided, however, that, if at the time
thereof and immediately after giving effect thereto, no Event of Default shall
have occurred and be continuing, any Borrower may merge into any other Borrower
so long as Youbet is the surviving corporation (including Permitted
Acquisitions) and Borrowers may dissolve any Subsidiary. Borrowers acknowledge
and agree that the business and assets acquired in any Permitted Acquisition and
all Inventory, Equipment and Accounts arising therefrom or associated therewith
shall not be included in the Borrowing Base until such time as Lender has
completed a satisfactory field examination and/or appraisal of such business and
assets and Lender has established advance rates with respect thereto in its sole
discretion.
(E) Ordinary Course of Business. Enter into any transaction not in the ordinary
course of its business as presently conducted except as otherwise permitted
hereunder (including Permitted Acquisitions).
(F) Investments/Loans/Subsidiaries. Make any investment in the securities of or
make any loans to any Person or form any new Subsidiaries; provided, however,
notwithstanding the foregoing, Borrowers may (i) make Permitted Investments, and
(ii) make Permitted Acquisitions.
(G) Surety. Except for guarantees in favor of Lender, guaranty or otherwise, in
any way, become liable with respect to the obligations or liabilities of any
Person except (i) by endorsement of instruments or items of payment for deposit
to the general account of Borrowers or for delivery to Lender on account of the
Liabilities, and (ii) as permitted in clause 18 in the definition of Permitted
Indebtedness.
(H) Capital Structure. Make any material change in such Borrower’s capital
structure or in any of its business objectives, purposes and operations which
might in any way adversely affect the repayment of the Liabilities.
(I) Encumbrance or Sale. Encumber, sell, pledge, mortgage, lease, or otherwise
dispose of or transfer, whether by merger, consolidation or otherwise, any of
such Borrower’s assets, except Permitted Liens and Permitted Dispositions.

 

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(J) Reserved.
(K) Indebtedness. Incur Indebtedness, except Permitted Indebtedness.
(L) Restricted Payments. Make any Restricted Payments, other than (1) payments
made to repurchase Youbet’s Equity Interests provided the aggregate amount of
all such payments shall not exceed $5,000,000 from the date of this Loan
Agreement through the Revolving Loan Termination Date and no such repurchase
shall occur at any time while an Unmatured Event of Default or Event of Default
exists, (2) provided no Unmatured Event of Default or Event of Default then
exists, payments made in satisfaction of the Restricted Note, (3) United Tote
may pay dividends to Youbet, (4) provided no Unmatured Event of Default or Event
of Default then exists or would be caused thereby, the Borrowers may repurchase
Equity Interests held by officers, directors or employees pursuant to any
employee stock ownership plan thereof upon the termination, retirement, death or
disability of any such employee in accordance with the provisions of such plan,
(5) reasonable compensation to officers, employees and directors for services
rendered to the Borrowers or their Subsidiaries in the ordinary course of
business and reimbursement for reasonable out-of-pocket expenses, (6)
transactions between and among the Borrowers and their Subsidiaries in each case
to the extent expressly permitted by the terms of this Loan Agreement, and
(7) transactions with officers, directors and employees in each case to the
extent expressly permitted by the terms of this Loan Agreement.
(M) Constituent Documents/Fiscal Year End. Amend or restate such Borrower’s
Constituent Documents in a manner that is material and adverse to the Lender or
change Borrowers’ Fiscal Year-end.
(N) Affiliate Transactions. Enter into any transaction with an Affiliate, except
for (i) transactions in the ordinary course of business pursuant to the
reasonable requirements of each such Borrower’s business and upon fair and
reasonable terms no less favorable to such Borrower than such Borrower would
obtain in a comparable arms-length transaction, and (ii) transactions between
one Borrower and one or more of the other Borrowers.
9.4 Financial Covenants. During the term of this Loan Agreement, and thereafter
for so long as there are any outstanding Liabilities owed to Lender, Borrowers
covenant that they shall:
(A) Debt Service Coverage Ratio. Not permit Borrowers’ consolidated Debt Service
Coverage Ratio to be less than (i) 1.25 to 1.00 as of any Test Period ending
December 31, 2008, March 31, 2009, June 30, 2009 or September 30, 2009, or
(ii) 1.30 to 1.00 as of the Test Period ending December 31, 2009, or as of the
last day of any Test Period thereafter.
(B) Leverage Ratio. Not permit Borrowers’ consolidated Leverage Ratio to exceed
2.00 to 1.00 as of the last day of any Test Period from and after the Test
Period ending December 31, 2008.
(C) Adjusted EBITDA. Not permit Borrowers’ consolidated Adjusted EBITDA to be
less than the Minimum Adjusted EBITDA Benchmark as of the last day of any Test
Period from and after the Test Period ending December 31, 2008.
(D) Capital Expenditures. Borrowers’ aggregate Capital Expenditures shall not
exceed (i) $9,000,000.00 from the date of this Loan Agreement through the
Revolving Loan Termination Date, or (ii) $4,500,000 for any Fiscal Year;
provided, that any unused amount of Capital Expenditures up to $1,500,000 each
Fiscal Year may be carried over and utilized in the next Fiscal Year as an
addition to the amount allowed pursuant to clause (ii).

 

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9.5 Financial Reporting. Borrowers represent, warrant and covenant unto Lender
that they will deliver to Lender the following financial information, all of
which shall accurately reflect the financial condition of Borrowers at and for
the periods of time described therein and shall be prepared in accordance with
GAAP:
(A) As soon as available but in no event later than one hundred twenty
(120) days after the close of each Fiscal Year of Borrowers, the audited
consolidated and consolidating financial statements of Borrowers, including, but
not limited to, (1) a balance sheet, (2) a statement of income and retained
earnings, and (3) a statement of cash flows, together with an unqualified
opinion of a firm of independent certified public accountants selected by
Borrowers.
(B) Concurrently with the delivery of the financial statements described in
Section 9.5(A) above, certificates of the chief financial officer or any
Designated Person of each Borrower in form and substance reasonably acceptable
to Lender, certifying to Lender that, based upon such financial statements,
(1) Borrowers are in compliance with all financial covenants contained in this
Loan Agreement, together with the calculations for the financial covenants
described therein; and (2) the chief financial officer or such Designated
Person, as the case may be, is not aware of any event or occurrence which
constitutes an Unmatured Event of Default or Event of Default.
(C) Contemporaneously with the delivery of Borrowers’ 10Q statement to the
Securities and Exchange Commission, such quarterly financial statements and
information as Borrower delivers to the Securities and Exchange Commission
Borrowers’ internally prepared consolidated and consolidating financial
statements, including, but not limited to, (1) a balance sheet, (2) a statement
of income and retained earnings, and (3) a statement of cash flows all for the
previous fiscal quarter, and the year-to-date statement for that portion of
Borrowers’ Fiscal Year then elapsed.
(D) Concurrently with the delivery of Borrowers’ internally prepared financial
statements pursuant to Section 9.5(C) above for each fiscal quarter-end period,
certificates of the chief financial officer or any Designated Person of each
Borrower, in form and substance reasonably acceptable to Lender, certifying to
Lender that, based upon the internally prepared financial statements,
(1) Borrowers are in compliance with all financial covenants contained in this
Loan Agreement, together with the calculations for the financial covenants
described herein, and (2) the chief financial officer or such Designated Person,
as the case may be, is not aware of any event or occurrence which constitutes an
Unmatured Event of Default or Event of Default.
(E) As soon as available, but in no event later than forty-five (45) days after
the end of each calendar quarter, the following reports dated as of the last day
of the immediately preceding calendar quarter: (1) Accounts receivable aging,
(2) accounts payable aging, and (3) Inventory summary report.
(F) As soon as available, but in no event later than thirty (30) days after the
end of each calendar month, a Borrowing Base Certificate dated as of the last
day of the immediately preceding month.
(G) As soon as available, but in no event later than fifteen (15) days prior to
each Fiscal Year-end, Borrowers’ internally prepared financial projections and
business plans for the forthcoming year, including, without limitation, (1) a
balance sheet, (2) a statement of income and retained earnings, and (3) a
statement of cash flows, all for the forthcoming year prepared on a month by
month basis.

 

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(H) Promptly upon the filing thereof, each Borrower shall deliver to Lender
copies of all registration statements and annual, quarterly, monthly or other
reports which such Borrower or any of its Subsidiaries files with the Securities
and Exchange Commission, as well as promptly providing to Lender copies of any
reports and proxy statements delivered to its shareholders.
(I) Such other data and information, financial and otherwise as Lender, from
time to time, may request.
10. CONDITIONS PRECEDENT
10.1 Conditions to Initial Funding. Lender’s obligation to make the initial Loan
pursuant to this Loan Agreement and the Other Agreements is subject to the full
and timely performance of the following covenants prior to or contemporaneously
with the making of the initial Loan.
(A) Lender shall have received each of the following, in form and substance
satisfactory to Lender and its counsel:
(1) A fully executed original of a Company General Certificate for each
Borrower.
(2) A fully executed original of this Loan Agreement.
(3) A fully executed original of the Revolving Note
(4) A fully executed original of Term Note A.
(5) A fully executed Stock Pledge Agreement pledging 100% of the issued an
outstanding Equity Interests of United Tote.
(6) A favorable written opinion from Borrowers’ counsel.
(7) Copies of the Uniform Commercial Code, tax lien and pending suit and
judgment searches from such jurisdictions as Lender deems necessary, which shall
not have disclosed any prior lien or security interest in the Collateral, except
for the Permitted Liens.
(8) An initial Borrowing Base Certificate, Accounts receivable aging and
inventory report, each dated as of the date of this Loan Agreement or such
earlier date as may be acceptable to Lender.
(9) Certificates of insurance with lender’s loss payable and additional insured
clauses covering all collateral for the Liabilities and meeting the requirements
of this Loan Agreement and the Other Agreements, each set forth on Acord
Form No. 28 or such other form acceptable to Lender.
(10) A fully executed original of a landlord’s agreement for each location
leased by Borrowers, if any.

 

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(11) A fully executed original of a warehouse agreement for all warehouses not
owned by Borrowers, if any, where the Collateral is located.
(12) A fully executed original of the Intellectual Property Security Agreement.
(13) A fully executed original of the Guaranty.
(14) Such other documents, instruments or agreements as Lender may request.
(B) No Unmatured Event of Default or Event of Default shall have occurred and be
continuing.
(C) There shall have been no Material Adverse Effect with respect to Borrowers
since the date of Borrowers’ then most recently delivered Financials.
(D) The representations and warranties contained in this Loan Agreement shall be
true and correct as of the making of the initial Loan.
10.2 Conditions to Subsequent Fundings. Lender’s obligation to make any
subsequent Loans pursuant to this Loan Agreement and the Other Agreements is
subject to the full and timely performance of each of the following covenants
either prior to or contemporaneously with the making of each subsequent Loan.
(A) No Unmatured Event of Default or Event of Default shall have occurred and be
continuing.
(B) There shall have been no Material Adverse Effect with respect to Borrowers
since the date of Borrowers’ then most recently delivered Financials or the
previous Loan advance.
(C) The representations and warranties of Borrowers contained in this Loan
Agreement shall be true and correct as of the making of any subsequent Loan,
with the same effect as though made on such date of each subsequent Loan.
11. EVENT OF DEFAULT; REMEDIES
11.1 Events of Default. The occurrence of any one of the following events shall
constitute a default (an “Event of Default”) by Borrowers under this Loan
Agreement:
(A) Borrowers fail to fully and timely pay the Liabilities, when due and payable
or declared due and payable;
(B) any Obligor fails or neglects to perform, keep or observe any of the
Covenants; provided, however, Borrowers shall have a period of fifteen (15) days
after the first to occur of Borrowers (i) obtaining knowledge of such failure or
neglect, or (ii) receiving notice of such failure or neglect from Lender, to
cure any failure or neglect to perform, keep or observe any of the Covenants set
forth in section 7.2 and subsections 9.2(A)(ii), (E), (F), (G), (L), (N), (O),
(P) and (Q) of this Loan Agreement;
(C) any representation, warranty, statement, report or certificate made or
delivered by any Obligor, or any of its officers, members, managers, employees,
or agents, to Lender is not true and correct in all material respects, whether
made in this Loan Agreement, the Other Agreements or otherwise;

 

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(D) any assets of any Obligor are attached, seized, subjected to a writ or
distress warrant, or are levied upon, or come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors;
(E) a petition under the United States Bankruptcy Code or any similar federal,
state or local law, statute or regulation shall be filed by any Obligor;
(F) a petition under the United States Bankruptcy Code or any similar federal,
state or local law, statute or regulation shall be filed against any Obligor and
such petition is granted or remains undismissed for a period of thirty (30) days
after the filing thereof;
(G) any Obligor shall make an assignment for the benefit of creditors, or an
application is made by any Obligor for the appointment of a receiver, trustee,
custodian or conservator for such Obligor or any of its assets;
(H) an application is made against any Obligor for the appointment of a
receiver, trustee, custodian or conservator for such Obligor or any of its
assets and such application is granted or remains undismissed for a period of
thirty (30) days after the filing thereof;
(I) Any Obligor is enjoined, restrained or in any way prevented by court order
from conducting any material part of its business affairs;
(J) a notice of a lien, levy or assessment is filed of record with respect to
any of the assets of any Obligor by the United States of America or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental department, agency, or instrumentality,
including without limitation, the Pension Benefit Guaranty Corporation;
(K) any Obligor defaults in the payment of any of its other obligations or
liabilities which are in excess of One Hundred Thousand and no/100 Dollars
($100,000.00), and such default is not cured within the time, if any, specified
therefor;
(L) the occurrence of a breach, default or event of default under any agreement,
instrument or document executed and delivered by any Person to Lender pursuant
to which such Person has guarantied to Lender the payment of all or any portion
of the Liabilities or provided collateral to secure all or any portion of the
Liabilities, or such Person terminates or purports to terminate its guaranty of
the Liabilities to Lender;
(M) a breach, default or event of default occurs under any of the Other
Agreements or any agreement, document or instrument executed and delivered by
any Obligor to Lender or any of its subsidiaries or affiliates, after the
expiration of applicable grace or cure periods;
(N) there shall be entered against any Obligor one or more judgments or decrees
in excess of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00) in the
aggregate at any one time outstanding for such Obligor (as determined by a court
of competent jurisdiction in a final judgment which is no longer appealable),
excluding those judgments or decrees (i) that shall have been stayed, vacated or
bonded, (ii) that shall have been outstanding less than 30 days from the entry
thereof, or (iii) for and to the extent to which such Obligor is insured and
with respect to which the insurer specifically has assumed responsibility in
writing;

 

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(O) Borrowers’ fail to pay any Rate Management Obligations when due or declared
due or any Borrower breaches any term, provision or condition contained in any
Rate Management Agreement; or
(P) the occurrence of a Change in Control.
11.2 Cumulative Remedies. All of Lender’s rights and remedies under this Loan
Agreement and the Other Agreements are cumulative and non-exclusive.
11.3 Discontinuing Advances. Upon the occurrence and during the continuance of
an Unmatured Event of Default or Event of Default, without notice or demand by
Lender to Borrowers, Lender shall have no further obligation to and may
immediately cease advancing monies or extending credit to or for the benefit of
Borrowers under this Loan Agreement and the Other Agreements. Upon the
occurrence and during the continuance of an Event of Default under
Sections 11.1(E) or 11.1(F) hereof, without notice or demand by Lender to
Borrowers, the Liabilities shall be immediately due and payable, including,
without limitation, all of Borrowers’ contingent liabilities with respect to any
Letters of Credit. Upon the occurrence of any Event of Default (other than an
Event of Default under Sections 11.1(E) or 11.1(F)), at the election of Lender
without notice or demand by Lender to Borrowers, the Liabilities shall be
immediately due and payable, including, without limitation, all of Borrowers’
contingent liabilities with respect to any Letters of Credit. ANY ADVANCES MADE
BY LENDER TO BORROWERS AFTER THE OCCURRENCE OF AN UNMATURED EVENT OF DEFAULT OR
AN EVENT OF DEFAULT SHALL NOT ESTABLISH A CUSTOM OR COURSE OF DEALING AND LENDER
SHALL BE ENTITLED TO CEASE MAKING ADVANCES AT ANY TIME THEREAFTER.
11.4 Remedies. Upon the occurrence and during the continuance of an Event of
Default, Lender, in its discretion, may: (A) exercise any one or more of the
rights and remedies accruing to a “secured party” under the Uniform Commercial
Code of Illinois and any other applicable law upon a default by a debtor;
(B) enter, with or without process of law and without breach of the peace, any
premises where the Collateral is or may be located, and without charge or
liability to Lender therefor, seize and remove the Collateral from said premises
or remain upon said premises and use the same for the purpose of collecting,
preparing and disposing of the Collateral; (C) sell or otherwise dispose of the
Collateral at public or private sale for cash or credit, provided, however, that
Borrowers shall be credited with the net proceeds of such sale only when such
proceeds are actually received by Lender; (D) take control, in any manner, of
any item of payment or proceeds of the Collateral and to direct all Account
Debtors to make payments directly to Lender; (E) notify any or all Account
Debtors that the Accounts and Special Collateral have been assigned to Lender
and that Lender has a first position priority security interest and lien
therein; (F) direct such Account Debtors to make all payments due from them to
Borrowers upon the Accounts and Special Collateral directly to Lender; and
(G) enforce payment of and collect, by legal proceedings or otherwise, the
Accounts and Special Collateral in the name of Lender and Borrowers.

 

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11.5 Assembling Collateral. Upon the occurrence and during the continuance of an
Event of Default, each Borrower, immediately upon demand by Lender, shall
assemble the Collateral and make it available to Lender at a place or places to
be designated by Lender which are reasonably convenient to Lender and Borrowers.
Each Borrower recognizes that if it fails to perform, observe or discharge any
of its obligations or liabilities under this Loan Agreement or the Other
Agreements, no remedy of law will provide adequate relief to Lender, and each
Borrower agrees that Lender shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
11.6 Sale of Collateral. Upon the occurrence and during the continuance of an
Event of Default, Lender may sell any or all of the Collateral at public or
private sale, upon such terms and conditions as Lender may deem proper, and
Lender may purchase any or all of the Collateral at any such sale. Each Borrower
acknowledges that Lender may be unable to effect a public sale of all or any
portion of the Collateral because of certain legal and/or practical restrictions
and provisions which may be applicable to the Collateral and, therefore, may be
compelled to resort to one or more private sales to a restricted group of
offerees and purchasers. Each Borrower consents to any such private sale so made
even though at places and upon terms less favorable than if the Collateral were
sold at public sale. Lender shall have no obligation to clean-up or otherwise
prepare the Collateral for sale. Lender may apply the net proceeds, after
deducting all costs, expenses, attorneys’ and paralegals’ fees incurred or paid
at any time in the collection, protection and sale of the Collateral and the
Liabilities, to the payment of any Note and/or any of the other Liabilities,
returning the excess proceeds, if any, to the Borrowers. Each Borrower shall
remain liable for any amount remaining unpaid after such application, with
interest at the Default Rate. Any notification of intended disposition of the
Collateral required by law shall be conclusively deemed reasonably and properly
given if given by Lender at least ten (10) calendar days before the date of such
disposition. Each Borrower hereby confirms, approves and ratifies all acts and
deeds of Lender relating to the foregoing, and each part thereof, and expressly
waives any and all claims of any nature, kind or description which it has or may
hereafter have against Lender or its representatives, by reason of taking,
selling or collecting any portion of the Collateral. Each Borrower consents to
releases of the Collateral at any time (including prior to default) and to sales
of the Collateral in groups, parcels or portions, or as an entirety, as Lender
shall deem appropriate. Each Borrower expressly absolves Lender from any loss or
decline in market value of any Collateral by reason of delay in the enforcement
or assertion or nonenforcement of any rights or remedies under this Loan
Agreement.
11.7 Standards for Exercising Remedies . Each Borrower agrees that Lender may,
if Lender deems it reasonable, postpone or adjourn any such sale of the
Collateral from time to time by an announcement at the time and place of sale,
without being required to give a new notice of sale. Further, each Borrower
agrees that Lender has no obligation to preserve rights against prior parties to
the Collateral. To the extent that applicable law imposes duties on Lender to
exercise remedies in a commercially reasonable manner, each Borrower
acknowledges and agrees that it is not commercially unreasonable for Lender
(a) to fail to incur expenses reasonably deemed significant by Lender to prepare
Collateral for disposition or otherwise to complete raw material or
work-in-process into finished goods or other finished products for disposition,
(b) to fail to obtain third party consents for access to Collateral to be
disposed of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of
Collateral to be collected or disposed of, (c) to fail to exercise collection
remedies against Account Debtors or other Persons obligated on Collateral or to
remove liens or encumbrances on or any adverse claims against Collateral, (d) to
exercise collection remedies against Account Debtors and other Persons obligated
on Collateral directly or through the use of collection agencies and other
collection specialists, (e) to advertise dispositions of Collateral through
publications or media of general circulation, whether or not the Collateral is
of a specialized nature, (f) to contact other Persons, whether or not in the
same business as the Borrowers, for expressions of interest in acquiring all or
any portion of the Collateral, (g) to hire one or more professional auctioneers
to assist in the disposition of Collateral, whether or not the collateral is of
a specialized nature, (h) to dispose of Collateral by utilizing internet sites
that provide for the auction of assets of the types included in the Collateral
or that have the reasonable capability of doing so, or that match buyers

 

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and sellers of assets, (i) to dispose of assets in wholesale rather than retail
markets, (j) to disclaim disposition warranties, including, without limitation,
any warranties of title, (k) to purchase insurance or credit enhancements to
insure Lender against risks of loss, collection or disposition of Collateral or
to provide to Lender a guaranteed return from the collection or disposition of
Collateral, or (l) to the extent deemed appropriate by Lender, to obtain the
services of other brokers, investment bankers, consultants and other
professionals to assist Lender in the collection or disposition of any of the
Collateral. Each Borrower acknowledges that the purpose of this section is to
provide non-exhaustive indications of what actions or omissions by Lender would
not be commercially unreasonable in Lender’s exercise of remedies against the
Collateral and that other actions or omissions by Lender shall not be deemed
commercially unreasonable solely on account of not being indicated in this
section. Without limitation upon the foregoing, nothing contained in this
section shall be construed to grant any rights to the Borrowers or to impose any
duties on Lender that would not have been granted or imposed by this Loan
Agreement or by applicable law in the absence of this section.
12. GENERAL
12.1 Bank Accounts. Borrowers shall keep and maintain all of their checking,
depository and other bank accounts with Lender; provided, Borrowers shall have
sixty (60) days after the date hereof to move all of such applicable accounts to
Lender and may use the institution of its choice for services not provided by
Lender or Lender’s Affiliates. Each statement of account by Lender delivered to
any Borrower relating to the Liabilities shall be presumed correct and accurate
and shall constitute an account stated between such Borrower and Lender unless,
within thirty (30) days after such Borrower’s receipt of said statement, such
Borrower delivers to Lender notice specifying the error or errors, if any,
contained in any such statement. Each Borrower shall grant Lender the first and
last opportunity to provide any corporate banking services required by such
Borrower and its Affiliates. Notwithstanding the foregoing, Borrowers shall be
entitled to open and maintain a petty cash account near any of their locations
which do not have a Lender branch located reasonably proximate thereto, provided
the maximum amount on deposit shall not exceed $10,000 for any single petty cash
account or $50,000 for all such petty cash accounts.
12.2 Application of Payments. Each Borrower waives the right to direct the
application of any and all payments at any time or times hereafter received by
Lender on account of the Liabilities and each Borrower agrees that Lender shall
have the continuing exclusive right to apply and re-apply any and all such
payments in such manner and in such order as Lender may deem advisable,
including, without limitation, to the payment of any costs, fees and expenses
payable by Borrowers under this Loan Agreement, notwithstanding any entry by
Lender upon any of its books and records.
12.3 Additional Representations, Warranties and Covenants. Each Borrower
represents, warrants and covenants unto Lender that (A) all representations and
warranties of Borrowers contained in this Loan Agreement and the Other
Agreements shall be true at the time of Borrowers’ execution of this Loan
Agreement and the Other Agreements, shall survive the execution, delivery and
acceptance thereof by the parties thereto and the closing of the transactions
described therein and shall be true as of the date of each borrowing under this
Loan Agreement, and (B) Borrowers shall fully and timely comply and maintain all
covenants set forth in this Loan Agreement and the Other Agreements.
12.4 Modification and Assignment of Loan Documents. This Loan Agreement and the
Other Agreements may not be modified, altered or amended, except by an agreement
in writing signed by Borrowers and Lender. Borrowers may not sell, assign or
transfer this Loan Agreement or the Other Agreements or any portion thereof,
including, without limitation, Borrowers’ rights, titles, interests, remedies,
powers or duties thereunder. Each Borrower hereby consents to Lender’s sale,
assignment, grant of participations, transfer or other disposition, at any time
and from time to time hereafter, of this Loan Agreement and the Other Agreements
or of any portion thereof, including, without limitation, Lender’s rights,
titles, interests, remedies, powers or duties; provided, that any such sale,
assignment, grant of participations, transfer or other disposition is subject to
the prior consent of the Borrowers.

 

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12.5 Waiver of Defaults. Lender’s failure at any time or times hereafter to
require strict performance by Borrowers of any provision of this Loan Agreement
shall not waive, affect or diminish any right of Lender thereafter to demand
strict compliance and performance therewith. Any suspension or waiver by Lender
of an Unmatured Event of Default or Event of Default by Borrowers under this
Loan Agreement or the Other Agreements shall not suspend, waive or affect any
other Unmatured Event of Default or Event of Default by Borrowers under this
Loan Agreement or the Other Agreements, whether the same is prior or subsequent
thereto and whether of the same or of a different type. NONE OF THE
UNDERTAKINGS, AGREEMENTS, WARRANTIES, COVENANTS AND REPRESENTATIONS OF BORROWERS
CONTAINED IN THIS LOAN AGREEMENT OR THE OTHER AGREEMENTS AND NO EVENT OF DEFAULT
BY BORROWERS UNDER THIS LOAN AGREEMENT OR THE OTHER AGREEMENTS SHALL BE DEEMED
TO HAVE BEEN SUSPENDED OR WAIVED BY LENDER UNLESS SUCH SUSPENSION OR WAIVER IS
IN WRITING SIGNED BY AN OFFICER OF LENDER AND DIRECTED TO BORROWERS SPECIFYING
SUCH SUSPENSION OR WAIVER.
12.6 Severability. Wherever possible, each provision of this Loan Agreement
shall be interpreted in such manner as to be valid and enforceable under
applicable law, but if any provision of this Loan Agreement is held to be
invalid or unenforceable by a court of competent jurisdiction, such provision
shall be severed herefrom and such invalidity or unenforceability shall not
affect any other provision of this Loan Agreement, the balance of which shall
remain in and have its intended full force and effect. Provided, however, if
such provision may be modified so as to be valid and enforceable as a matter of
law, such provision shall be deemed to be modified so as to be valid and
enforceable to the maximum extent permitted by law.
12.7 Successors and Assigns. This Loan Agreement and the Other Agreements shall
be binding on each Borrower and upon the successors of each Borrower, and shall
inure to the benefit of Lender, its successors, assigns, affiliates, divisions
and parents and may be assigned by Lender without notice to Borrowers. This
provision, however, shall not be deemed to modify Section 12.4 hereof.
12.8 Incorporation of Other Agreements; Exhibits; and Schedules. The terms and
provisions of the Other Agreements are incorporated herein by this reference
thereto. The Exhibits and Schedules referred to herein are attached hereto, made
a part hereof and incorporated herein by this reference thereto.
12.9 Survival of Termination. Except as otherwise provided in this Loan
Agreement or the Other Agreements, no termination or cancellation of this Loan
Agreement or the Other Agreements shall in any way affect or impair the powers,
obligations, duties, rights and liabilities of Borrowers or Lender in any way or
respect relating to (A) any transaction or event occurring prior to such
termination or cancellation, (B) the Collateral, or (C) any of the undertakings,
agreements, covenants, warranties and representations of Borrowers contained in
this Loan Agreement or the Other Agreements. All such undertakings, agreements,
representations, warranties and covenants shall survive such termination or
cancellation.

 

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12.10 Waiver of Notices. Except as otherwise expressly provided herein, each
Borrower waives any and all notices or demands which such Borrower might be
entitled to receive with respect to this Loan Agreement or the Other Agreements
by virtue of any applicable law, statute or regulation, and waives presentment,
demand, protest, notice, default, dishonor, non-payment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
Accounts, contract rights, Documents, Instruments, Chattel Paper and guaranties
at any time held by Lender on which Borrowers may in any way be liable, and
hereby ratifies and confirms whatever Lender may do in this regard.
12.11 Authority to Execute and Borrow. Until Lender is notified by Borrowers to
the contrary, the signature upon this Loan Agreement or upon any of the Other
Agreements of (A) a Designated Person, or (B) any other Person designated in
writing to Lender by any of the foregoing, shall bind all Borrowers and be
deemed to be the duly authorized act of all Borrowers. Each Designated Person
shall have the authority to Borrow funds on behalf of all Borrowers pursuant to
the terms of this Loan Agreement.
12.12 Costs, Fees and Expenses. Borrowers shall reimburse Lender for all
reasonable costs, fees and expenses incurred by Lender, or for which Lender
becomes obligated, whether before or after the occurrence of an Unmatured Event
of Default or Event of Default, in connection with the negotiation, preparation,
administration, enforcement and conclusion of this Loan Agreement and the Other
Agreements, including, but not limited to, reasonable attorneys’ and paralegals’
fees, costs and expenses, other professional fees, search fees, costs and
expenses, filing and recording fees, all taxes payable in connection with this
Loan Agreement or the Other Agreements, and any costs and fees incurred in
connection with any proceeding to protect, collect, sell, liquidate or otherwise
dispose of any of the Collateral. Borrowers shall further reimburse Lender, upon
demand, for the reasonable costs, fees and expenses incurred or charged by
Lender, its agents or employees, with respect to audits or other business
analysis performed in the administration of this Loan Agreement. All such costs,
fees and expenses referenced in this Section shall be part of the Liabilities
payable by Borrowers to Lender upon demand and if not paid within 10 days of
demand shall bear interest at the Default Rate until actually paid. Without
limiting the generality of the foregoing, such costs and expenses shall include
the reasonable fees, expenses and charges of attorneys, paralegals, accountants,
investment bankers, appraisers, valuation and other specialists, experts, expert
witnesses, auctioneers, court reporters, telegram, management consultants, telex
and telefax charges, overnight delivery services, messenger services and
expenses for travel, lodging and meals.
12.13 Binding Agreement; Governing Law. This Loan Agreement and the Other
Agreements are submitted by Borrowers to Lender, for Lender’s acceptance or
rejection thereof, at Lender’s office in Chicago, Illinois, as an offer by
Borrowers to borrow monies from Lender and shall not be binding upon Lender or
become effective until and unless accepted by Lender, in writing, at said place
of business. THIS LOAN AGREEMENT AND THE OTHER AGREEMENTS SHALL BE INTERPRETED,
CONSTRUED AND GOVERNED BY AND UNDER THE LAWS OF THE STATE OF ILLINOIS AS TO
INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER
RESPECTS INCLUDING, BUT NOT LIMITED TO, THE LEGALITY OF THE INTEREST RATE AND
OTHER CHARGES, BUT EXCLUDING ILLINOIS’ CHOICE OF LAW PROVISIONS.

 

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12.14 Notices. Any and all notices, demands, requests, consents, designations,
waivers and other communications required or desired hereunder shall be in
writing and shall be deemed effective upon personal delivery, upon confirmed
facsimile transmission, upon receipted delivery by reputable overnight carrier,
or three (3) days after mailing if mailed by registered or certified mail,
return receipt requested, postage prepaid, to Borrowers or Lender at the
following addresses or facsimile numbers or such other addresses and facsimile
numbers as Borrowers or Lender may specify in like manner; provided, however,
that notices of a change of address or facsimile number shall be effective only
upon receipt thereof.

         
 
  If to Borrowers, then to:   If to Lender, then to:
 
       
 
  c/o Youbet.com, Inc.   National City Bank
 
  5901 De Soto Avenue   One North Franklin, 20th Floor
 
  Woodland Hills, California 91367   Chicago, Illinois 60606
 
  Attention: James Burk   Attention: Mr. Brian F. Hewett
 
  Facsimile No.: (818) 668-2179   Facsimile No.: (312) 384-4666
 
       
 
  with a copy to:   With a copy to:
 
       
 
  Kirkland & Ellis LLP   Thompson Coburn LLP
 
  200 E. Randolph   55 East Monroe Street, 37th Floor
 
  Chicago, IL 60601   Chicago, Illinois 60603
 
  Attention: Amy Peters   Attention: Victor A. Des Laurier, Esq.
 
  Facsimile No.: (312) 861-2200   Facsimile No.: (312) 782-1746

12.15 Release of Claims. Excepting only causes of action or claims for Lender’s
willful misconduct, each Borrower hereby releases Lender from any and all causes
of action or claims which Borrowers may now or hereafter have for any asserted
loss or damage to any Borrower caused by or arising from: (A) any failure of
Lender to protect, enforce or collect in whole or in part any of the Collateral;
(B) Lender’s notification to any Account Debtor of Lender ’s security interest
and lien in the Accounts and Special Collateral; (C) Lender directing any
Account Debtor to pay any sums owing to any Borrower directly to Lender; and
(D) any other act or omission to act on the part of Lender, its officers, agents
or employees.
12.16 Capital Adequacy Charge. In the event that Lender shall have determined
that the adoption of any law, rule or regulation regarding capital adequacy, or
any change therein or in the interpretation or application thereof or compliance
by Lender with any directive regarding capital adequacy (whether or not having
the force of law) from any central bank or Governmental Authority does or shall
have the effect of reducing the rate of return on Lender’s capital as a
consequence of its obligations hereunder to a level below that which Lender
could have achieved but for such adoption, change or compliance (taking into
consideration Lender’s policies with respect to capital adequacy) by an amount
deemed by Lender, in its sole discretion, to be material, then from time to
time, after submission by Lender to Borrowers of a written demand therefor,
Borrowers shall pay to Lender such additional amount or amounts as will
compensate Lender for such reduction. A certificate of Lender claiming
entitlement to payment as set forth above shall be conclusive in the absence of
manifest error. Such certificate shall set forth the nature of the occurrence
giving rise to such payment, the additional amount or amounts to be paid to
Lender, and the method by which such amounts were determined. In determining
such amount, Lender may use any reasonable averaging and attribution method.
12.17 Headings. The captions contained in this Loan Agreement are inserted only
as a matter of convenience and shall in no way define, limit or extend the scope
or intent of this Loan Agreement or any provision of this Loan Agreement, and
shall not affect the construction or interpretation of this Loan Agreement.

 

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12.18 Maximum Interest . It is the intent of Borrowers and Lender that the rate
of interest and the other charges of Borrowers under this Loan Agreement shall
be lawful; therefore, if for any reason, the interest or other charges payable
under this Loan Agreement are found by a court of competent jurisdiction to
exceed the limit which Lender may lawfully charge Borrowers, then the obligation
to pay interest and other charges shall automatically be reduced to such limits.
If Borrowers have paid an amount in excess of such limit, then such amount shall
be applied to reduce the principal portion of the Liabilities.
12.19 Construction. Any provision of this Loan Agreement which requires a party
to perform any act shall be construed as requiring the party to perform the act
or cause such act to be performed. Any provision of this Loan Agreement which
requires a party to refrain from taking any act shall be construed as requiring
the party to refrain from taking the act, to refrain from causing such act to be
taken and to cause those under his/her control from taking the act. Wherever the
term “including” is used, the same shall be deemed to mean, “including, but not
limited to”. “Any” shall be deemed to mean “any and all ” whenever applicable.
The singular shall be deemed to include the plural, and the plural shall be
deemed to include the singular. The masculine pronoun shall be deemed to include
the feminine and neuter pronouns, and vice versa. “Copies” means photostatic or
other reproduced originals which accurately, truly, correctly and completely
present the original of the document copied. References to “this Loan Agreement”
shall mean this Loan Agreement as amended from time to time. For purposes of
this Loan Agreement and the Other Agreements, an Event of Default shall be
deemed continuing at all times from the occurrence thereof until waived in
writing by Lender.
12.20 Revival of Liabilities. To the extent that Lender receives any payment on
account of the Liabilities, or any proceeds of the Collateral are applied on
account of the Liabilities, and any such payment or proceeds or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid by Lender to any Borrower, its estate, trustee,
receiver or any other party under the United States Bankruptcy Code or any
similar federal, state or local law, statute or regulation, then, to the extent
of such payment or proceeds received, the Liabilities shall be revived and
continue in full force and effect, as if such payment or proceeds had not been
received by Lender and applied on account of the Liabilities.
12.21 General Indemnity. In addition to the payment of expenses pursuant to
Section 12.12, whether or not the transactions contemplated hereby shall be
consummated, Borrowers agree to jointly and severally indemnify, pay and hold
Lender and its successors and assigns and the officers, directors, employees,
agents, and affiliates of Lender and its successors and assigns (collectively
the “Indemnitees”), harmless from and against any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for any of
such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto) that may be imposed on,
incurred by, or asserted against any Indemnitee in any manner relating to or
arising out of the Loan Documents or any other agreements executed and delivered
by any Borrower or any guarantor of the Liabilities in connection herewith, the
statements contained in any commitment or proposal letter delivered by Lender,
Lender’s agreement to make the Loans or the use or intended use of the proceeds
of any of the Loans hereunder (collectively the “Indemnified Liabilities”);
provided that Borrowers shall have no obligation to an Indemnitee hereunder with
respect to Indemnified Liabilities arising from the gross negligence, bad faith
or willful misconduct of such Indemnitee. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, Borrowers
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them. The provisions of the
undertakings and indemnification set out in this Section shall survive
satisfaction and payment of the Liabilities and termination of this Loan
Agreement.

 

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12.22 Environmental and Safety and Health Indemnity. Each Borrower hereby
jointly and severally agrees to indemnify Lender and agrees to hold Lender and
its predecessors and successors in interest, and its affiliates, employees,
agents, directors and officers harmless from and against any and all losses,
liabilities, damages, injuries, costs, expenses and claims of any and every kind
whatsoever (including, without limitation, court costs, consulting fees, costs
of investigation and reasonable attorneys’ fees) which at any time or from time
to time may be paid, incurred or suffered by, or asserted against, Lender for,
with respect to, or as a direct or indirect result of (A) the violation or
alleged violation by Borrowers or any of their predecessors in interest of any
Environmental Laws regarding past, present or future property or operations; (B)
the presence on or under, or the release from, at or to, properties utilized by
Borrowers and/or any predecessor in interest of any Hazardous Substances;
(C) the existence of any unsafe or unhealthful condition on or at any premises
utilized by Borrowers or any predecessor in interest in the past, present or
future; (D) transport, treatment, recycling, storage, disposal, or release or
threatened release, or arrangement therefor, to, at or from any facility owned
or operated by another Person, of any Hazardous Substances generated by
Borrowers or their predecessors in interest; (E) any remedial action or
corrective action arising out of, related to, or in connection with any past,
present or future property or operations of Borrowers or any of their
predecessors in interest; (F) asbestos-containing material, in or at any past,
present or future property of Borrowers or any of their predecessors in
interest; (G) failure to comply with any representations, warranties, covenants,
terms or conditions of this Loan Agreement that relate to Environmental Laws or
Hazardous Substances; and (H) any environmental, health or safety investigation
or review conducted by or on behalf of Lender in connection with this Loan
Agreement; provided that Borrowers shall have no obligation to Lender hereunder
with respect to any such liabilities arising from the gross negligence, bad
faith or willful misconduct of Lender. The provisions of and undertakings and
indemnification set out in this Section shall survive satisfaction and payment
of the Liabilities and termination of this Loan Agreement and shall expressly
cover time periods when Lender may have come into possession or control of any
of the property of Borrowers at any time thereafter.
12.23 Other Amounts Deemed Loans. If Borrowers fail to pay any Charge or levy or
to maintain insurance within the time permitted or required by this Loan
Agreement, or to discharge any lien or encumbrance prohibited hereby, or to
comply with any other Covenant, Lender may, but shall not be obligated to, pay,
satisfy, discharge or bond the same for the account of Borrowers, and to the
extent permitted by law and at the option of Lender, all monies so paid by
Lender on behalf of Borrowers shall be deemed Liabilities due upon demand and
shall bear interest at the Default Rate.
12.24 Completion of Loan Agreement and Other Agreements . Borrowers hereby
authorize Lender to correct any patent errors set forth in this Loan Agreement
and the Other Agreements and to complete all blanks in this Loan Agreement and
the Other Agreements.
12.25 Further Assurances. Borrowers shall execute, acknowledge and deliver, or
cause to be executed, acknowledged or delivered, any and all such further
assurances and other agreements or instruments, and take or cause to be taken
all such other action, as shall be reasonably necessary from time to time to
give full effect to the Loan Documents and the transactions contemplated
thereby.

 

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12.26 Joint and Several Liability. All references to Borrowers shall mean
Youbet, United Tote and Youbet Services, both individually and collectively, and
jointly and severally, and all representations, warranties, duties, covenants,
agreements and obligations of Borrowers shall be the individual and collective
representations, warranties, duties, covenants, agreements and obligations of
Youbet, United Tote and Youbet Services.
12.27 Disclosure of Information. Borrowers agree that Lender may provide any
information Lender may have about Borrowers or about any matter relating to this
Loan Agreement, the Other Agreements and all or any portion of the Liabilities
to Lender’s subsidiaries or affiliates or their successors, or to any one or
more purchasers or potential purchasers of this Loan Agreement, the Other
Agreements and all or any portion of the Liabilities.
12.28 Patriot Act. Lender hereby notifies Borrowers that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56, signed into
law October 26, 2001) (the “Act”), and Lender’s policies and practices, Lender
is required to obtain, verify and record certain information and documentation
that identifies each Borrower, which information includes the name and address
of each Borrower and such other information that will allow Lender to identify
each Borrower in accordance with the Act. In addition, and without limiting the
foregoing sentence, the Borrowers shall (a) ensure, and cause each Subsidiary to
ensure, that no person who owns a controlling interest in or otherwise controls
a Borrower or any Subsidiary is or shall be listed on the Specially Designated
Nationals and Blocked Person List or other similar lists maintained by the
Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or
included in any Executive Orders, (b) not use or permit the use of the proceeds
of the Loans to violate any of the foreign asset control regulations of OFAC or
any enabling statute or Executive Order relating thereto, and (c) comply, and
cause each Subsidiary to comply, with all applicable Bank Secrecy Act (“BSA”)
laws and regulations, as amended.
12.29 Merger Clause. This Loan Agreement constitutes the entire agreement
between Lender and Borrowers with regard to the subject matter hereof, and
supersedes all prior and contemporaneous communications, agreements and
assurances, whether verbal or written.
12.30 SERVICE OF PROCESS. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY
AND ALL PROCESS AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE BORROWERS AS SET FORTH
HEREIN IN THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF COURT OR
OTHERWISE.
12.31 JURISDICTION; VENUE. BORROWERS AND LENDER IRREVOCABLY AGREE, AND HEREBY
CONSENT AND SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE CIRCUIT COURT OF
COOK COUNTY, ILLINOIS, AND THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS, EASTERN DIVISION, WITH REGARD TO ANY ACTIONS OR
PROCEEDINGS ARISING FROM, RELATING TO OR IN CONNECTION WITH THE LIABILITIES,
THIS LOAN AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL. BORROWERS HEREBY
WAIVE ANY RIGHT BORROWERS MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY
LITIGATION FILED IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS, OR THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION.

 

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12.32 JURY WAIVER. EACH BORROWER AND LENDER HEREBY VOLUNTARILY, KNOWINGLY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN
OR AMONG ALL OR ANY BORROWERS AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO
THIS LOAN AGREEMENT OR ANY OF THE OTHER AGREEMENTS. THIS PROVISION IS A MATERIAL
INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN AND IN THE OTHER
AGREEMENTS. EACH BORROWER HEREBY REPRESENTS AND WARRANTS TO LENDER THAT IT HAS
CONSULTED WITH AND BEEN COUNSELED BY COMPETENT COUNSEL CONCERNING THE WAIVER SET
FORTH IN THIS SECTION AND HAS KNOWINGLY MADE SUCH WAIVER.
12.33 Counterparts. This Loan Agreement or any of the Other Agreements may be
executed in any number of counterparts, each of which shall be an original, but
all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of this Loan Agreement or any of the Other
Agreements by telefacsimile or other electronic method of transmission shall
have the same force and effect as the delivery of an original executed
counterpart of this Loan Agreement or any of such Other Agreements. Any party
delivering an executed counterpart of any such agreement by telefacsimile or
other electronic method of transmission shall also deliver an original executed
counterpart, but the failure to do so shall not affect the validity,
enforceability or binding effect of such agreement.
[signature page follows]

 

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IN WITNESS WHEREOF, Lender and Borrowers have caused this Loan Agreement to be
executed and delivered by their duly authorized officers as of the date first
set forth above.

                      National City Bank,
a national banking association       Youbet.com, Inc.
a Delaware corporation    
 
                   
By:
  /s/ Brian F. Hewett
 
Name: Brian F. Hewett       By:   /s/ James Burk
 
Name: James Burk    
 
  Title: Senior Vice President           Title: Chief Financial Officer    
 
                                United Tote Company,
a Montana corporation    
 
                   
 
          By:   /s/ James Burk
 
Name: James Burk    
 
              Title: Chief Financial Officer    
 
                                Youbet Services Corporation,
a Delaware corporation    
 
                   
 
          By:   /s/ Michael D. Nelson
 
Name: Michael D. Nelson    
 
              Title: Treasurer    

[Signature Page to Loan and Security Agreement]

 

 

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Schedule 1.1(A)
Permitted Liens

                  Original Date, File             Number and Filing        
Borrower   Location   Secured Party   Collateral
United Tote Company
  85138651
Filed 11/21/05
Montana Secretary of State   Dell Financial Services L.P.   All computer
equipment and peripherals pursuant to Equipment Lease #006828459-004 dated
11/16/2005, including, including, without limitation, all substitutions,
additions, accessions, etc. as more fully described therein.
 
           
United Tote Company
  85373107
Filed 12/9/05
Montana Secretary of State   Dell Financial Services L.P.   All computer
equipment and peripherals pursuant to Equipment Lease #6433050 dated 11/17/2005,
including, without limitation, all substitutions, additions, accessions, etc. as
more fully described therein.
 
           
United Tote Company
  86636342
Filed 3/13/06
Montana Secretary of State   IBM Corporation   All the following equipment (all
as more fully described on IBM Credit LLC Supplement(s) # 104264): IBM Equipment
Type 4836 and all additions, attachments, accessories, etc. as more fully
described therein.
 
           
United Tote Company
  90573519
Filed 1/17/07 Montana Secretary of State   California First Leasing Corporation
  All F4 Wagering Terminals described on the Addendum/Exhibit A thereto.

 

 

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                  Original Date, File             Number and Filing        
Borrower   Location   Secured Party   Collateral
United Tote Company
  96362581
Filed 5/5/8
Montana Secretary of State   Winmark Capital Corporation   Any and all equipment
now the subject of any lease agreement by and between the parties, including the
equipment contained on Lease Agreement Number UN042808 as more fully described
therein.
 
           
United Tote Company
  96507390
Filed 5/15/08
Montana Secretary of State   Winmark Capital Corporation   IBM and Cisco
Equipment attached thereto as Schedule A.
 
           
Youbet.com, Inc.
  4349819
Filed 12/7/04
Delaware Secretary of State   Dell Financial Services, L.P.   All computer
equipment and peripherals pursuant to the Master Lease Agreement #6427122 dated
7/16/2004 and all substitutions, additions, accessions, etc. as more fully
described therein.
 
           
Youbet.com, Inc.
  63812245
Filed 11/1/06
Delaware Secretary of State   Comerica Bank   All rights, title and interest in
Debtor’s securities accounts maintained with Comerica Institutional Trust
Department including account number 1085011230 and all Debtor’s investment
property contained therein including all securities, financial assets,
instruments or other property held or maintained in the security account
together with all interest, dividends, increases, profits, etc. as more fully
described therein.

 

 

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                  Original Date, File             Number and Filing        
Borrower   Location   Secured Party   Collateral
Youbet.com, Inc.
  20082863882
Filed 8/15/08
Delaware Secretary of State   De Lage Landen Financial Services, Inc.   Computer
Equipment described on Attachment A thereto, including all additions,
attachments, accessions, substitutions, replacements and proceeds of such
collateral.
 
           
United Tote Company
  DN20080526651
Filed 4/11/08
Jefferson County (Kentucky)   Commonwealth of Kentucky   All of the debtor’s
interest in property, either real or personal, tangible or intangible, now owned
or subsequently acquired.

 

      1  
Borrowers are obligated to have this lien released pursuant to the Post Closing
Agreement dated as of the date hereof.

 

 

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Schedule 1.1(B)
Permitted Indebtedness

1.  
The following letters of credit:

                  Beneficiary   Expiration   Extensions   Amount    
California Horse Racing Board
  2/22/07   Auto   $ 500,000  
Oregon Racing Commission
  8/4/07   Auto   $ 250,000  
Oregon Racing Commission
  4/30/07   Auto   $ 50,000  
Washington Horse Racing Commission
  6/30/07   Auto   $ 75,000  

2.  
Real property lease entered into with Ronald G. Cox, Trustee of the R.G. Cox
Revocable Trust dated as of March 11, 2000, with respect to 5901 De Soto Avenue,
Woodland Hills, California.
  3.  
Real property lease entered into with Ruffin Road Business Park, Ltd. dated as
of May 19, 1993 with respect to 3949 Ruffin Road, Suite B., San Diego,
California.
  4.  
Real property lease entered into with West Feliciana Properties, LLC dated as of
October 31, 2005 with respect to 7820 NE Holman St., Suite B1, Portland, Oregon.
  5.  
Real property lease entered into with RGBP, Limited Partnership dated as of
October 16, 2006 with respect to 2724 River Green Circle, Louisville, Kentucky.
  6.  
Real property lease entered into with NAP of the Americas, Inc. dated as of
December 12, 2006 with respect to NAP of the Americas, 50 NE 8th Street, Miami,
Florida.

 

 

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7.  
The following leases with Dell Financial Services, L.P.:

                      Commencement     Remaining Balance    Lease   Date     (in
dollars)  
Dell 526
    4/15/2006       12,364.26  
Dell 528
    5/15/2006       18,001.65  
Dell 531
    6/15/2006       3,244.66  
Dell 533
    9/15/2006       17,363.25  
Dell 535
    12/15/2006       30,669.31  
Dell 538
    3/15/2007       96,739.56  
Dell 540
    3/15/2008       105,274.79  
Dell 542
    3/15/2008       23,577.12  
Dell 543
    3/15/2008       53,118.92  
Dell 548
    12/15/2008       70,000.00  
Dell 549
    12/1/2008       92,090.88  
Dell 546
    12/1/2008       30,852.00  
Dell 544
    12/15/2007       272,207.00  
Dell 536
    1/15/2007       88,502.00  
Dell 537
    3/15/2007       20,895.00  
De Lage 1
    8/18/2008       261,310.00  

 

 

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Schedule 1.1(C)
Permitted Investments
Schedule 9.1(Q) is incorporated herein by reference.

 

 

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Schedule 4.1
Commercial Tort Claims
None.

 

 

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Schedule 4.2
Borrowers’ Information

                  ORGANIZATIONAL         IDENTIFICATION LEGAL NAME   STATE OF
ORGANIZATION   NUMBER
Youbet.com, Inc.
  Delaware   2560781
United Tote Company
  Montana   D041983
Youbet Services Corporation
  Delaware   4618031

 

 

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Schedule 4.4
Chief Executive Office And Collateral Locations

I.  
Youbet.com, Inc.
     
Chief Executive Office: 5901 De Soto Avenue, Woodland Hills, California 91367
     
Other Collateral Locations:
7820 NE Holman St. Suite B1, Portland, OR 97218
NAP of the Americas, 50 NE 8th Street, Miami, FL 33132-1715
  II.  
United Tote Company
     
Chief Executive Office: 5901 De Soto Avenue, Woodland Hills, California 91367
     
Other Collateral Locations:
2724 River Green Circle, Louisville, KY 40206
3949 Ruffin Rd. Suite B, San Diego, CA 92123
     
See attached list of additional locations where collateral of United Tote
Company is located.
  II.  
Youbet Services Corporation
     
Chief Executive Office: 5901 De Soto Avenue, Woodland Hills, California 91367

 

 

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Additional Collateral Locations for United Tote Company
UNITED TOTE@BELMONT PARK—0538, 2150 Hempstead Turnpike DOCK 1, ELMONT, NY, 11003
Brown Forman, PO Box 1080, Louisville, KY, 40201-1080
UNITED TOTE CO — 2617, 393A BEDINGTON BLVD, CHAMBERSBURG, PA, 17201
4201 VERSAILLES ROAD, , LEXINGTON, KY, 40592-1690
4500 DAN PATCH CIRCLE, , ANDERSON, IN, 46013
1001 HARRAH’S BLVD, , CHESTER, PA, 19013
14 RUTH STREET, P O BOX 509, NICHOLS, NY, 13812
dba HOLLYWOOD SLOTS HOTEL & RCY, 500 MAIN STREET, BANGOR, ME, 04401
2384 W RIVER ROAD, P O BOX 509, NICHOLS, NY, 13812
P O BOX 8, , FLORENCE, KY, 41022
HIGHWAY 41 NORTH, PO BOX 33, HENDERSON, KY, 42419-0033
1131 N DUPONT HWY, P O BOX 1412, DOVER, DE, 19903
PO Box 2968, , Evanston, WY, 82931
1200 FUTURITY DRIVE, , SUNLAND PARK, NM, 88063
2701 S 23RD STREET, , COUNCIL BLUFFS, IA, 51501
1 SOUTH STONE STREET, ACCOUNTS PAYABLE, WHEELING, WV, 26003-2099
5700 TELEGRAPH ROAD, , TOLEDO, OH, 43612
733 CENTRAL AVE, , ALBANY, NY, 12206
PO BOX 306, , BELMONT, NH, 03220
PO BOX 25250, 5857 ROUTE 96, FARMINGTON, NY, 14425
INTERSTATE 59, EXIT 45, , EUTAW, AL, 35462
164 THUNDER ROAD, , PRESSTONBURG, KY, 41653
P O BOX 179, , TAHLEQUAH, OK, 74465-0179
c/o ARAPAHOE PARK—0127, 26000 E QUINCY AVE, AURORA, CO, 80016
PO BOX 23088, 1550 N.INGRAM BLVD., WEST MEMPHIS, AR, 72303
C/O: MAINE OTB HUB, 729 MAIN STREET, LEWISTON, ME, 04240
1800 SW 3RD STRET, , POMPANO BEACH, FL, 33069
6968 US HIGHWAY 129 SOUTH, , JASPER, FL, 32052
1000 LONE STAR PARKWAY, , GRAND PRAIRIE, TX, 75050
1800 STATE FAIR PARK DR, , LINCOLN, NE, 685508
UNITED TOTE CO—0321, 832 MARTIN LUTHER KING BLVD, CHARENTON, LA, 70523
#5 HERBERT PLAZA, , BIRDROCK, ST KITTS,
THE SPORTS CENTER AmWest Ent, UNITED TOTE CO—2669, NORTH SIOUX CITY, SD, 57049
700 ELLICOTT STREET, , BATAVIA, NY, 14020-3797
PO BOX 141309, , AUSTIN, TX, 78714
301 E Dania Beach Blvd, , Dania, FL, 33004
PO BOX 50036, , BILLINGS, MT, 59105
CRYSTAL PALACE RESORT & CASINO, WEST BAY STREET at CABLE BEACH, NASSAU, NEW
PROVIDENCE,
P O BOX 140099, , BOISE, ID, 83714
1 PRAIRIE MEADOW DRIVE, , ALTOONA, IA, 50009
P O BOX 2449, , OPELOUSAS, LA, 70571
UNITED TOTE CO—0698, 5403 FM 2004, LA MARQUE, TX, 77562
1000 JOHN ROGERS DR, , BIRMINGHAM, AL, 35210

 

 

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CLARKSVILLE OTB—2244, 650 EASTERN BLVD, CLARKSVILLE, IN, 47129
3801 E WASHINGTON STREET, , PHOENIX, AZ, 85034-1796
GREYHOUND PARK DRIVE, , DUBUQUE, IA, 52001
P O BOX 348, 607 SOUTH VETERANS STREET, FLANDREAU, SD, 57028
1100 N WICKMAN RD, , MELBOURNE, FL, 32935-8941
P O BOX 804, , PRESQUE ISLE, ME, 04769
2717 DELTA DOWNS DRIVE, VINTON, LA, 70668
P O BOX 551, FLOWER SPRING ROAD, CHARLES TOWN, WV, 25414
2724 RIVER GREEN CIRCLE, , LOUISVILLE, KY, 40206
301 WASHINGTON, PLAINVILLE, MA, 02762
960 SOUTH WILLIAMSON BLVD, , DAYTONA BEACH, FL, 32114
1600 EAST GENEVA STREET, , DELAVAN, WI, 53115
1200 RED MILE ROAD, , LEXINGTON, KY, 40504
PO BOX 27, ROUTE 119, HINSDALE, NH, 03451
530 FAIR DRIVE, , FREDERICKSBURG, TX, 78624
PO BOX 405, , FRANKLIN, KY, 42135
UNITED TOTE CO—0153, 15 W RIDER RD, HARRINGTON, DE, 19952
3380 PARIS PIKE, , LEXINGTON, KY, 40511
PO BOX 4735, , TULSA, OK, 74159
UNITED TOTE CO-0038, 2551 W APACHE TRAIL, APACHE JUNCTION, AZ, 85220-5204
PO BOX 88, , LOVELAND, CO, 80539
UNITED TOTE CO—0327, 203 BLANCHARD RD, CUMBERLAND, ME, 04021
120 N JEFFERSON, P O BOX 228, EUREKA, KS, 67045
2601 SOUTH THIRD AVENUE, , TUCSON, AZ, 85713
2701 E. GENESEE ST, , SAGINAW, MI, 48601
150 ADMIRAL KALBFUS ROAD, , NEWPORT, RI, 02840
GREGORY PARK, PO BOX 8, ST. CATHARINE, JAMAICA,
FAIRGROUNDS, , BLACKFOOT, ID, 83221
#669 DUGU-DONG, KUMJUNG-GU, KOREA, BUSAN METROPOLITAN CITY, ,
150 DOWNS DRIVE, , PADUCAH, KY, 42001
C/O BIRMINGHAM RACE COURSE, 1000 JOHN ROGERS DRIVE, BIRMINGHAM, AL, 35210
PO BOX 1305, NUMBER 118, BRUNSWICK, ME, 04011
5 BOWAN CRESCENT, EPO BOX 1843R, MELBOURNE, VICTORIA, 3004
ATTN: ACCOUNTING DEPT, PO BOX 236, WORLEY, ID, 83876
PO BOX 6662, 1500 S. OAK, KENNEWICK, WA, 99336
P O BOX 65132, , TUCSON, AZ, 85728
FAIRGROUNDS, , SHELBY, MT, 59474
FAIRGROUNDS, , MILES CITY, MT, 59301
FAIRGROUNDS, , SKOWHEGAN, ME, 04976
9TH & ORCHARD, , WALLA WALLA, WA, 99362
8315 PARK ROAD, , BATAVIA, NY, 14020
123 PINE STREET, , TRINIDAD, CO, 81082
1101 SOUTH AVENUE, , MISSOULA, MT, 59801

 

 

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Schedule 4.11
Real Property Owned By Borrowers
None.

 

 

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Schedule 9.1(F)
Litigation
Paul Ficarro, et al. v. Joseph J. Tracy, et al., In the Court of Common Please
of York County, Pennsylvania, Case No. 2006 SU 1482-Y01
In December 2006, United Tote Company was served with a Complaint filed by six
current or former employees. The Complaint also named as Defendants the entity
from which United Tote’s parent company purchased United Tote, as well as two
individuals, each of which was a former owner and executive of United Tote, and
one of which remained an employee of United Tote. The Complaint, as amended,
asserts seven counts, including the following two against United Tote:
(i) Breach of Express Contract, and (ii) Pennsylvania Wage Payment and
Collection Law. United Tote has filed an Answer, and the case is in the initial
stages of discovery. The following individuals have had their depositions taken:
Greg Cline, Ken Vlazny, Vic Gallo, Chuck Champion, and Brendan Burgess.

 

 

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Schedule 9.1(O)
Change of Name, State of Formation, Identity, Corporate Structure or
Chief Executive Office

1.  
Formation of Youbet Nevada, Inc.
  2.  
Acquisition and sale of Bruen Productions International, Inc.
  3.  
Youbet.com, Inc. formed UT Gaming Inc., which purchased United Tote Company in
2006
  4.  
Formation of Youbet Services Corporation
  5.  
United Tote moved its chief executive office from Glenn Rock, Pennsylvania, to
its current location.

 

 

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Schedule 9.1(Q)
Borrowers And Their Subsidiaries’ Corporate Information

                                                              Percentage of    
          Number of Equity   Number of Authorized   Outstanding Equity  
Owner(s)   Entity   Interests Held   Equity Interests   Interests Held  
Various
  Youbet.com, Inc.   41,519,024 shares of common stock   100,000,000 shares of
common stock        
 
                  1,000,000 shares of preferred stock     N/A  
Youbet.com, Inc.
  Youbet Oregon, Inc.   100 shares of common stock   100 shares of common stock
    100 %
Youbet.com, Inc.
  UT Gaming, Inc.   100 shares of common stock   100 shares of common stock    
100 %
Youbet.com, Inc.
  IRG US Holdings Corp.   10 shares of common stock   100 shares of common stock
    100 %

 

 

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                                                              Percentage of    
          Number of Equity   Number of Authorized   Outstanding Equity  
Owner(s)   Entity   Interests Held   Equity Interests   Interests Held  
UT Gaming, Inc.
  United Tote Company   1,000 shares of common stock   10,000 shares of common
stock     100 %
United Tote Company
  United Tote Canada, Inc.   87,500 shares of common stock   87,500 shares of
common stock     100 %
 
          356,300 class B shares   356,300 class B shares     100 %
United Tote Company
  IWPSystems, LLC   N/A     N/A       100 %
IRG US Holdings Corp.
  IRG Services, Inc.   1,500 shares of common stock   2,500 shares of common
stock     100 %
IRG US Holdings Corp.
  IRG Holdings Curacao, N.V.   6,300 class A shares   6,300 class A shares    
100 %
 
          700 class B shares   700 class B shares     100 %
IRG Holdings Curacao, N.V.
  International Racing Group N.V.   6,000 shares   30,000 shares     100 %
Youbet.com, Inc.
  Youbet Services Corporation   100 shares of common stock   100 shares of
common stock     100 %

Options to purchase, rights or warrants to obligations convertible into, or any
powers of attorney relating to, shares of the Borrowers
Options outstanding under the Equity Incentive Plan.
Agreements or instruments binding upon any Borrower’s shareholders relating to
the ownership of its shares of such Borrower
None (to the actual knowledge of the Borrowers).
Corporate and Joint Venture Affiliates
None.

 

 

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Schedule 9.1(S)
Labor Relations
Local Union No. 3, International Brotherhood of Electrical Workers, AFL-CIO —
Collective Bargaining Agreement — this contract has terminated, but is being
renegotiated.