exv10w5



 








Exhibit 10.5




MODIFICATION AGREEMENT




     THIS MODIFICATION AGREEMENT effective as of 4:00 p.m. (Baltimore time) on June 30, 2006 (this
“Agreement”) is made by and among MANUFACTURERS AND TRADERS TRUST COMPANY (the
“Bank”), UNITED TOTE COMPANY (the “Borrower”), and YOUBET.COM, INC.
(“Youbet”), and UT GAMING, INC. (“UT Gaming” and together with Youbet, collectively, the
“Guarantors” and individually, a “Guarantor”).



RECITALS




     A. Pursuant to a Credit Agreement dated September 5, 2003 (the “Closing Date”), the
Bank made available to the Borrower (a) an equipment line of credit in the original maximum
principal amount of $5,000,000 (the “Equipment Line of Credit”), (b) a revolving credit
facility in the original maximum principal amount of $2,000,000 (the “Revolving Credit
Facility”), and (c) a term loan in the original principal amount of $580,000 (the “Term
Loan”, which together with the Equipment Line of Credit and the Revolving Credit Facility are
hereinafter referred to as the “Credit Facilities”) (such credit agreement, as the same may
from time to time be amended, restated, supplemented, or otherwise modified, is hereinafter called
the “Credit Agreement”). Pursuant to a First Amendment to Credit Agreement dated as of
April 23, 2004 (the “First Amendment”), a Second Amendment to Credit Agreement dated as of
June 13, 2005 (the “Second Amendment”), and a Third Amendment to Credit Agreement dated as
of August 22, 2005, (the “Third Amendment”), the Bank and the Borrower have previously
agreed, among other things, to temporarily increase the maximum amount of the Revolving Credit
Facility to $3,000,000, to increase the maximum principal amount of the Equipment Line of Credit to
$15,500,000, and to amend certain other terms and conditions of the Credit Agreement.



     B. Pursuant to the terms of the Credit Agreement, the Bank’s obligation to make loans under
the Equipment Line of Credit (each, an “Equipment Loan”) terminated on September 5, 2005.
The Borrower’s obligation to repay each Equipment Loan, together with interest thereon, is
evidenced by a separate promissory note in the principal amount of the applicable Equipment Loan
and made payable to the order of the Bank (each such promissory note, as the same may from time to
time be amended, restated, supplemented or otherwise modified, being herein called an
“Equipment Note”). The Borrower’s obligation to repay all sums advanced to it from time to
time under the Revolving Credit Facility, together with interest thereon, is evidenced by the
Borrower’s First Amended and Restated Revolving Credit Note dated April 23, 2004, in the principal
amount of $3,000,000 and made payable to the order of the Bank (as the same may from time to time
be renewed, extended, modified, amended, replaced or restated, the “Revolving Credit
Note”). The Borrower’s obligation to repay the Term Loan, with interest, is evidenced by the
Borrower’s Libor Term Note dated the Closing Date in the principal amount of $580,000 and made
payable to the order of the Bank (as the same may from time to time be amended, restated,
supplemented or otherwise modified, the “Term Note”). The Equipment Notes, the Revolving
Credit Note and the Term Note are sometimes hereinafter called collectively, the “Notes”).



 









 





     C. Subsequent thereto, the parties entered into an ISDA Master Agreement dated as of March 24,
2005, to effectuate one or more interest rate hedging agreements (the “ISDA Master
Agreement”). As of the date hereof, there is one Transaction (as defined therein) outstanding.



     D. To induce the Bank to make the Credit Facilities and other financial accommodations
available to the Borrower, the Guarantors agreed to unconditionally and irrevocably guarantee the
repayment in full of all sums due by the Borrower to the Bank, pursuant to (a) a Continuing
Guaranty dated February 9, 2006 from Youbet, Inc to the Bank, and (b) a Continuing Guaranty dated
February 9, 2006 from UT Gaming, Inc. to the Bank (such guaranties, as the same may from time to
time be amended, restated, supplemented, or otherwise modified, being hereinafter called
collectively the “Guaranties”).



     E. The Borrower’s obligations in connection with the Credit Facilities are secured by, among
other things, the collateral (collectively, the “Collateral”) granted and described in (a)
that certain General Security Agreement dated as of the Closing Date from the Borrower to the Bank
(as the same may from time to time be amended, restated, supplemented, or otherwise modified, the
“Security Agreement”), (b) that certain Securities Pledge Agreement dated as of the Closing
Date from the Borrower, United Tote Canada, Inc., and Dynatote of Pennsylvania, Inc. (as the same
may from time to time be amended, restated, supplemented, or otherwise modified, the
“Securities Pledge Agreement”), (c) that certain Trademark Security Agreement dated as of
the Closing Date from the Borrower to the Bank (as the same may from time to time be amended,
restated, supplemented, or otherwise modified, the “Trademark Security Agreement”) and (d)
that certain Mortgage dated as of the Closing Date from the Borrower to the Bank (as the same may
from time to time be amended, restated, supplemented, or otherwise modified, the
“Mortgage”).



     F. As used herein, the term “Transaction Documents” means, collectively, the Credit
Agreement, the Notes, the ISDA Master Agreement and all Confirmations executed pursuant thereto,
the Guaranties, the Security Agreement, the Securities Pledge Agreement, the Trademark Security
Agreement, the Mortgage, and all other documents now or hereafter executed and delivered to
evidence, secure, or guarantee, or in connection with, any or all of the Credit Facilities, and the
term “Obligations” means the unpaid principal balance of each of the Credit Facilities,
together with all accrued and unpaid interest thereon and all of the other obligations owed by the
Borrower to the Bank under and pursuant to the Transaction Documents.



     G. Pursuant to Section 8 of the Credit Agreement, the Borrower agreed to comply with and be
bound by certain financial covenants set forth therein.



     H. Pursuant to Section 9 of the Credit Agreement, the parties agreed that any of the following
events or conditions, among others, shall constitute an “Event of Default” thereunder:




	 	(i)	 	default, breach, failure or violation by the Borrower in the
performance, observance or compliance with any covenant, obligation, term or
condition contained in Section 7 or Section 8 of the Credit Agreement; and




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	 	(ii)	 	the occurrence of a “Change of Control” with respect to
the Borrower.




As set forth in the Credit Agreement, “Change of Control” means “with respect to any
person, (i) a merger, consolidation, reorganization, recapitalization or share or interest
exchange, sale or transfer or any other transaction or series of transactions in which the
stockholders, managers, partners, owners or interest holders immediately prior to such transaction
or series of transactions receive, in exchange for the stock or interests owned by them, cash,
property or securities of the resulting or surviving entity or any affiliate thereof, and as a
result thereof, persons who, individually or in the aggregate, were holders of 50% or more of its
voting stock, securities or equity, partnership or ownership interests immediately prior to such
transaction or series of transactions hold less than 50% of the voting stock, securities or other
equity, partnership or ownership interests of the resulting or surviving entity, or such affiliate
thereof, calculated on a fully diluted basis, or (ii) a direct or indirect sale, transfer or other
conveyance or disposition, in any single transaction or series of transactions, of all or
substantially all of such person’s assets.”




     I. On or about November 30, 2005, the Borrower, UT Group, LLC (the former shareholder of the
Borrower), Youbet and UT Gaming entered into a Stock Purchase Agreement (the “Stock Purchase
Agreement”), pursuant to which UT Gaming agreed to purchase from UT Group, LLC 100% of the
Borrower’s outstanding capital stock. On February 10, 2006, the parties consummated said sale (the
“Change of Control Date”).



     J. Prior to the Change of Control Date, the Borrower notified the Bank of the intended sale of
its stock, and, notwithstanding the fact that such sale would constitute a “Change of
Control” thereby giving rise to an Event of Default, requested that the Bank temporarily
forbear from exercising its various rights and remedies as a result of the occurrence of such Event
of Default (the “Acknowledged Default”).



     K. On February 9, 2006, the Bank, by a letter agreement with the Obligors, agreed to forbear
until April 30, 2006 (the “Original Forbearance Period”) from exercising its various rights
and remedies as a result of the Acknowledged Default or any Event of Default arising as a result of
a breach of Section 8 of the Credit Agreement.



     L. Pursuant to Section 6 of the Credit Agreement, the Borrower is required to deliver to the
Bank each quarter a quarterly compliance certificate signed by the Borrower’s chief financial
officer or such other person responsible for the financial management of the Borrower, (A) setting
forth the computation required to establish the Borrower’s compliance with each financial covenant
during such period, (B) stating that the signer of the certificate has reviewed the Credit
Agreement and the operations and conditions (financial or other) of the Borrower during the
relevant period, and (C) stating that no Event of Default has occurred during this period, or if an
Event of Default did occur, describing its nature, the date(s) of its occurrence or period of
existence and what action the Borrower has taken with respect thereto.



     M. To date, the Bank has yet to receive the quarterly compliance certificate due from the
Borrower with respect to the quarterly period ending March 31, 2006 (the “Additional Known
Default”).



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     N. On April 19, 2006, the Bank issued a letter to Youbet wherein the Bank agreed to extend the
Original Forbearance Period through June 30, 2006 (the Original Forbearance Period, as extended
thereby, the “Forbearance Period”).



     O. The Bank asserts that certain other events of default have occurred under certain of the
covenants contained in the Credit Agreement, all as more particularly identified in that certain
letter dated May 22, 2006 from the Bank to the Borrower, such additional defaults, together with
(i) any additional existing events of default under Section 6(a)(i), 6(a)(ii), 6(a)(iii), 6(e),
6(f), 8(a), and Additional Financial Covenants (§8) of the Credit Agreement, (ii) the Acknowledged
Default and Additional Known Default being hereinafter referred to as the “Existing
Defaults”).



     P. Upon expiration of the Forbearance Period, absent further agreement, the Bank has the right
to pursue its various rights and remedies under the Transaction Documents.



     Q. Borrower and the Guarantors (hereinafter collectively referred to as the
“Obligors”) have now requested that the Bank, among other things, (a) waive the Existing
Defaults and, (b) modify certain other terms and conditions of the Transaction Documents. The Bank
is willing to grant the Obligors’ request, subject to the terms and conditions hereinafter set
forth.



     NOW, THEREFORE, in consideration of the premises and of the representations and mutual
agreements made herein and for other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:


ARTICLE I


DEFINITIONS; EFFECTIVE DATE



     Section 1.1. Defined Terms. Capitalized terms used herein and in the Preamble shall
have the meanings given to such terms in the Recitals. All other capitalized terms used herein and
not defined shall have the meanings given to such terms in the Credit Agreement.



     Section 1.2. Effective Date. This Agreement shall become effective as of 4:00 p.m.
(Baltimore time) on June 30, 2006 (referred to herein as the “Effective Date”) if and only
if Obligors shall not have indefeasibly satisfied in full all Obligations prior to that time.


ARTICLE II


REPRESENTATIONS AND WARRANTIES



     Section 2.1. Acknowledgments of the Borrower. The Borrower hereby acknowledges that:



          a. The Recitals set forth above are true and complete in all respects and are incorporated by
reference herein.




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          b. As of the date hereof, by virtue of the Acknowledged Default and Additional Known Default,
the Borrower is currently in default of its Obligations under one or more of the Transaction
Documents.




          c. As of June 20, 2006, the Borrower owed the Bank, (i) pursuant to the terms of the Equipment
Notes, $11,404,802.95, consisting of $11,369,309.61 in principal, $35,493.34 in accrued but unpaid
interest, plus fees, costs and other expenses, (ii) pursuant to the terms of the Revolving Credit
Note, $1,327,767.97, consisting of $1,320,992.12 in principal, $6,775.85 in accrued but unpaid
interest, plus fees, costs and other expenses and (iii) pursuant to the terms of the Term Note,
$501,931.76, consisting of $500,249.89 in principal, $1,681.87 in accrued but unpaid interest, plus
fees, costs and other expenses.




          d. The Borrower has no defenses, affirmative or otherwise, rights of setoff, rights of
recoupment, claims, counterclaims, actions or causes of action of any kind or nature whatsoever
against the Bank or any past, present or future agent, attorney, legal representative,
predecessor-in-interest, affiliate, successor, assign, employee, director or officer of the Bank
(collectively, the “Bank Group”), directly or indirectly, arising out of, based upon, or in
any manner connected with, any transaction, event, circumstance, action, failure to act, or
occurrence of any sort or type, whether known or unknown, which occurred, existed, was taken,
permitted, or began prior to the execution of this Agreement and accrued, existed, was taken,
permitted or begun in accordance with, pursuant to, or by virtue of the Obligations or any of the
terms or conditions of the Transaction Documents, or which directly or indirectly relate to or
arise out of or in any manner are connected with the Obligations or any of the Transaction
Documents; TO THE EXTENT ANY SUCH DEFENSES, AFFIRMATIVE OR OTHERWISE, RIGHTS OF SETOFF, RIGHTS OF
RECOUPMENT, CLAIMS, COUNTERCLAIMS, ACTIONS OR CAUSES OF ACTION EXIST, SUCH DEFENSES, RIGHTS,
CLAIMS, COUNTERCLAIMS, ACTIONS AND CAUSES OF ACTION ARE HEREBY FOREVER WAIVED, DISCHARGED AND
RELEASED.




          e. The Borrower has freely and voluntarily entered into this Agreement after an adequate
opportunity and sufficient period of time to review, analyze and discuss all terms and conditions
of this Agreement and all factual and legal matters relevant hereto with counsel freely and
independently chosen by them. The Borrower further acknowledges that it has actively and with full
understanding participated in the negotiation of this Agreement after consultation and review with
its counsel and that this Agreement has been negotiated, prepared and executed without fraud,
duress, undue influence or coercion of any kind or nature whatsoever having been exerted by or
imposed upon any party to this Agreement.




          f. As of the date hereof, there are no proceedings or investigations pending or, so far as the
Borrower knows, threatened against the Borrower, before any court or arbitrator or any
governmental, administrative or other judicial authority or agency, in each case, which would
prohibit or cause a default under or in any way prevent the execution, delivery, performance,
compliance or observance of any of the terms or conditions of this Agreement.




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          g. There is no statute, rule, regulation, order or judgment, no charter, by-law, operating
agreement, or preference stock provision of the Borrower, and no provision of any mortgage,
indenture, contract or other agreement binding on the Borrower or any of its properties which would
prohibit or cause a default under or in any way prevent the execution, delivery, performance,
compliance or observance of any of the terms or conditions of this Agreement.




          h. The Borrower has not, voluntarily or involuntarily, granted any liens or security interests
to any creditor not previously disclosed to the Bank in writing on or before the date of this
Agreement or otherwise taken any action or failed to take any action which could or would impair,
change, jeopardize or otherwise adversely affect the priority, perfection, validity or
enforceability of any liens or securing interests securing all or any portion of the Obligations or
the priority or validity of the Bank’s claims with respect to the Obligations relative to any other
creditor of the Borrower.




          i. The Borrower has the full legal right, power and authority to enter into and perform its
obligations under this Agreement and any other documents executed in connection herewith
(collectively, the “Modification Documents”), and the execution and delivery of this
Agreement and the other Modification Documents by the Borrower and the consummation by the Borrower
of the transactions contemplated hereby and thereby and performance of its obligations hereunder
and thereunder have been duly authorized by all appropriate action (corporate or otherwise).




          j. This Agreement and each of the other Modification Documents to which the Borrower is party
constitutes the valid, binding and enforceable agreement of the Borrower, enforceable against the
Borrower in accordance with the terms thereof.




     Section 2.2. Acknowledgments of the Guarantors. The Guarantors hereby acknowledge
that:



          a. The Recitals set forth above are true and complete in all respects and incorporated by
reference herein.




          b. As of the date hereof, by virtue of the Acknowledged Defaults and Additional Known Default,
the Guarantors are currently in default of their Obligations under the Transaction Documents.




          c. The Guarantors acknowledge that they have no defenses, affirmative or otherwise, rights of
setoff, rights of recoupment, claims, counterclaims, actions or causes of action of any kind or
nature whatsoever against the Bank or any of the Bank Group, directly or indirectly, arising out
of, based upon, or in any manner connected with, any transaction, event, circumstance, action,
failure to act, or occurrence of any sort or type, whether known or unknown, which occurred,
existed, was taken, permitted, or began prior to the execution of this Agreement and accrued,
existed, was taken, permitted or begun in accordance with, pursuant to, or by virtue of the
Obligations or any of the terms or conditions of the Transaction Documents, or which directly or
indirectly relate to or arise out of or in any manner are connected with the Obligations or any of
the Transaction Documents; TO THE EXTENT ANY SUCH DEFENSES,


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AFFIRMATIVE OR OTHERWISE, RIGHTS OF SETOFF, RIGHTS OF RECOUPMENT, CLAIMS, COUNTERCLAIMS, ACTIONS OR
CAUSES OF ACTION EXIST, SUCH DEFENSES, RIGHTS, CLAIMS, COUNTERCLAIMS, ACTIONS AND CAUSES OF ACTION
ARE HEREBY FOREVER WAIVED, DISCHARGED AND RELEASED.




          d. The Guarantors have freely and voluntarily entered into this Agreement after an adequate
opportunity and sufficient period of time to review, analyze and discuss all terms and conditions
of this Agreement and all factual and legal matters relevant hereto with counsel freely and
independently chosen by the Guarantors. The Guarantors further acknowledge that they have actively
and with full understanding participated in the negotiation of this Agreement after consultation
and review with their counsel and that this Agreement has been negotiated, prepared and executed
without fraud, duress, undue influence or coercion of any kind or nature whatsoever having been
exerted by or imposed upon any party to this Agreement.




          e. As of the date hereof, there are no proceedings or investigations pending or, so far as any
Guarantor knows, threatened against any Guarantor, before any court or arbitrator or any
governmental, administrative or other judicial authority or agency, in each case, which would
prohibit or cause a default under or in any way prevent the execution, delivery, performance,
compliance or observance of any of the terms or conditions of this Agreement.




          f. There is no statute, rule, regulation, order or judgment, no charter , bylaw, or preference
stock provision, and no provision of any mortgage, indenture, contract or other agreement binding
on any Guarantor or any of its or their properties which would prohibit or cause a default under or
in any way prevent the execution, delivery, performance, compliance or observance of any of the
terms or conditions of this Agreement.




          g. No Guarantor has, voluntarily or involuntarily, granted any liens or security interests to
any creditor not previously disclosed to the Bank in writing on or before the date of this
Agreement or otherwise taken any action or failed to take any action which could or would impair,
change, jeopardize or otherwise adversely affect the priority, perfection, validity or
enforceability of any liens or securing interests securing all or any portion of the Obligations or
the priority or validity of the Bank’s claims with respect to the Obligations relative to any other
creditor of any of the Guarantors.




          h. The Guarantors have the full legal right, power and authority to enter into and perform
their obligations under this Agreement and any other Modification Documents, and the execution and
delivery of this Agreement and the other Modification Documents by the Borrower and the
consummation by the Borrower of the transactions contemplated hereby and thereby and performance of
its obligations hereunder and thereunder have been duly authorized by all appropriate action
(corporate or otherwise).




          i. This Agreement constitutes the valid, binding and enforceable agreement of each Guarantor,
enforceable against each Guarantor, in accordance with its terms.




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ARTICLE III


COVENANTS AND AMENDMENTS



     In consideration of the Bank’s agreement to enter into this Agreement, the Obligors hereby
agree with the Bank as follows:



     Section 3.1. Amendments to Credit Agreement. The Credit Agreement is hereby amended
as follows:



          a. The definition of “Maturity Date” set forth in Section 1(cc) thereof is hereby
deleted in its entirety, and the following inserted in lieu thereof:




               “cc. “Maturity Date “ means August 31, 2006”.



          b. The third sentence of Section 2(f) is hereby deleted, and the following is inserted in lieu
thereof:





“In addition, notwithstanding anything to the contrary contained
herein or in the Equipment Notes, the Revolving Note or the Term
Note (each, a “Note” and collectively, the “Notes”),
immediately upon the occurrence of an Event of Default, the interest
rate payable on each of the Notes shall automatically increase to
the default rate provided in the applicable Note, or, if no such
default rate is specified, to a rate equal to 2.5 percentage points
above the otherwise applicable interest rate, and any judgment
entered hereon or thereon or otherwise in connection with any
amounts due hereunder shall bear interest at such default rate of
interest.”



          c. The Section entitled “Additional Financial Covenants” in the Schedule to the Credit
Agreement is hereby deleted in its entirety.




          d. Section 8A. is hereby deleted, and the following is hereby inserted in lieu thereof:





“A. The Borrower shall maintain Tangible Net Worth of not less than
$7,600,000, as measured quarterly at the end of each quarter.”



          e. Section 9(a)(ii) is amended by deleting therefrom the words “which is not cured within
fifteen (15) days of the date when the Borrower knew or should have known of such default”.




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          f. The following paragraph is hereby added to the end of Section 9(b):





     CONFESSION OF JUDGMENT. AFTER THE OCCURRENCE OF AN
EVENT OF DEFAULT, THE BORROWER HEREBY AUTHORIZES ANY ATTORNEY
DESIGNATED BY THE BANK OR CLERK OF ANY COURT OF RECORD TO APPEAR FOR
IT IN ANY COURT OF RECORD AND TO CONFESS JUDGMENT AGAINST IT WITHOUT
PRIOR NOTICE OR A PRIOR HEARING, IN FAVOR OF THE BANK FOR AND IN THE
AMOUNT OF THE PRINCIPAL BALANCE OF THE NOTES THEN OUTSTANDING PLUS
INTEREST ACCRUED AND UNPAID THEREON, ALL OTHER AMOUNTS THEN DUE AND
PAYABLE HEREUNDER, COSTS OF SUIT AND AN ATTORNEY’S FEE OF THE
GREATER OF 10% OF SUCH SUMS OR $1,000 (BUT NOT TO EXCEED THE MAXIMUM
AMOUNT PERMITTED BY APPLICABLE LAW). THE AUTHORITY AND POWER TO
APPEAR FOR AND TO ENTER JUDGMENT AGAINST THE BORROWER SHALL NOT BE
EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT
EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT
ENTERED PURSUANT THERETO. SUCH AUTHORITY AND POWER MAY BE EXERCISED
ON ONE OR MORE OCCASIONS, FROM TIME TO TIME, IN THE SAME OR
DIFFERENT JURISDICTIONS, AS OFTEN AS THE BANK SHALL DEEM NECESSARY
OR DESIRABLE, FOR ALL OF WHICH THIS NOTE SHALL BE A SUFFICIENT
WARRANT. THE BORROWER HEREBY FOREVER WAIVES AND RELEASES ALL ERRORS
IN SAID PROCEEDINGS AND ALL RIGHTS OF APPEAL AND ALL RELIEF FROM ANY
AND ALL APPRAISEMENT, STAY OR EXCEPTION LAWS OF ANY STATE NOW IN
FORCE OR HEREAFTER ENACTED IN TRUST ON SUCH JUDGMENT THAT ACCRUE AT
THE DEFAULT RATE.



     Section 3.2. Amendments to Equipment Notes. Each Equipment Line of Credit Term Note
is hereby amended as follows:



          a. The definition of “Maturity Date” as set forth in Section 1.i. thereof is hereby
deleted in its entirety, and the following inserted in lieu thereof.




               “i. “Maturity Date” is August 31, 2006”.



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          b. Notwithstanding anything contained in Section 2.d. thereof to the contrary, the Note shall
mature and all sums due thereunder shall be due and payable in full on the Maturity Date.




     Section 3.3. Amendments to Revolving Credit Note. The Revolving Credit Note is
hereby amended as follows:



          a. The following paragraph is hereby added at the end of the Revolving Credit Note:





     11. CONFESSION OF JUDGMENT. AFTER MATURITY OF THIS
NOTE (WHETHER BY ACCELERATION, DECLARATION, EXTENSION OR OTHERWISE),
THE BORROWER HEREBY AUTHORIZES ANY ATTORNEY DESIGNATED BY THE BANK
OR CLERK OF ANY COURT OF RECORD TO APPEAR FOR IT IN ANY COURT OF
RECORD AND TO CONFESS JUDGMENT AGAINST IT WITHOUT PRIOR NOTICE OR A
PRIOR HEARING, IN FAVOR OF THE BANK FOR AND IN THE AMOUNT OF THE
PRINCIPAL BALANCE OF THIS NOTE THEN OUTSTANDING PLUS INTEREST
ACCRUED AND UNPAID THEREON, ALL OTHER AMOUNTS THEN DUE AND PAYABLE
HEREUNDER, COSTS OF SUIT AND AN ATTORNEY’S FEE OF THE GREATER OF 10%
OF SUCH SUMS OR $1,000 (BUT NOT TO EXCEED THE MAXIMUM AMOUNT
PERMITTED BY APPLICABLE LAW). THE AUTHORITY AND POWER TO APPEAR FOR
AND TO ENTER JUDGMENT AGAINST THE BORROWER SHALL NOT BE EXHAUSTED BY
ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT EXERCISE THEREOF,
AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT
THERETO. SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR MORE
OCCASIONS, FROM TIME TO TIME, IN THE SAME OR DIFFERENT
JURISDICTIONS, AS OFTEN AS THE BANK SHALL DEEM NECESSARY OR
DESIRABLE, FOR ALL OF WHICH THIS NOTE SHALL BE A SUFFICIENT WARRANT.
THE BORROWER HEREBY FOREVER WAIVES AND RELEASES ALL ERRORS IN SAID
PROCEEDINGS AND ALL RIGHTS OF APPEAL AND ALL RELIEF FROM ANY AND ALL
APPRAISEMENT, STAY OR EXCEPTION LAWS OF ANY STATE NOW IN FORCE OR
HEREAFTER ENACTED IN TRUST ON SUCH JUDGMENT THAT ACCRUE AT THE
DEFAULT RATE.



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     Section 3.4. Amendments to Term Note. The Term Note is hereby amended as follows:



          a. Section 1(i) of the Term Note is hereby deleted in its entirety, and the following inserted
in lieu thereof:




               “i. “Maturity Date” is August 31, 2006.”



          b. The following paragraph is hereby added at the end of the Term Note:





     12. CONFESSION OF JUDGMENT. AFTER MATURITY OF THIS
NOTE (WHETHER BY ACCELERATION, DECLARATION, EXTENSION OR OTHERWISE),
THE BORROWER HEREBY AUTHORIZES ANY ATTORNEY DESIGNATED BY THE BANK
OR CLERK OF ANY COURT OF RECORD TO APPEAR FOR IT IN ANY COURT OF
RECORD AND TO CONFESS JUDGMENT AGAINST IT WITHOUT PRIOR NOTICE OR A
PRIOR HEARING, IN FAVOR OF THE BANK FOR AND IN THE AMOUNT OF THE
PRINCIPAL BALANCE OF THIS NOTE THEN OUTSTANDING PLUS INTEREST
ACCRUED AND UNPAID THEREON, ALL OTHER AMOUNTS THEN DUE AND PAYABLE
HEREUNDER, COSTS OF SUIT AND AN ATTORNEY’S FEE OF 10% OF SUCH SUMS
OR $1,000 (BUT NOT TO EXCEED THE MAXIMUM AMOUNT PERMITTED BY
APPLICABLE LAW). THE AUTHORITY AND POWER TO APPEAR FOR AND TO ENTER
JUDGMENT AGAINST THE BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE
EXERCISES THEREOF, OR BY ANY IMPERFECT EXERCISE THEREOF, AND SHALL
NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO. SUCH
AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR MORE OCCASIONS, FROM
TIME TO TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS OFTEN AS
THE BANK SHALL DEEM NECESSARY OR DESIRABLE, FOR ALL OF WHICH THIS
NOTE SHALL BE A SUFFICIENT WARRANT. THE BORROWER HEREBY FOREVER
WAIVES AND RELEASES ALL ERRORS IN SAID PROCEEDINGS AND ALL RIGHTS OF
APPEAL AND ALL RELIEF FROM ANY AND ALL APPRAISEMENT, STAY OR
EXCEPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED IN
TRUST ON SUCH JUDGMENT THAT ACCRUE AT THE DEFAULT RATE.



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     Section 3.5. Covenants of the Obligors.



          a. Inspection. During the period from the date hereof until all Obligations have been
repaid in full, the Borrower shall permit the Bank, by its representatives and agents, upon one
day’s prior notice and during normal business hours, to perform inspections or field audits of any
of the properties, books and financial records of the Borrower to examine and make copies of the
books of accounts and other financial records of the Borrower, and to discuss the affairs, finances
and accounts of the Borrower with, and to be advised as to the same by, the Borrower (or its
representatives) at such reasonable times and intervals as the Bank may designate. In connection
with the foregoing, the Bank and its representatives and agents, at the expense of the Borrower,
shall have the right to (i) enter any business premises of the Borrower or any other premises where
the Collateral and the records relating thereto may be located and to audit, appraise, examine and
inspect the Borrower’s records and to make extracts therefrom and copies thereof, and (ii) verify
under reasonable procedures the validity, amount, quality, quantity, value and condition of, and
any other matter relating to Collateral, including contacting account debtors or any person
possessing any of such Collateral. The Borrower shall pay all reasonable costs and expenses related
to any field audits or inspections performed by or on behalf of the Bank.




          b. Equipment Line of Credit Facility; Strict Compliance with Transaction Documents.
The Borrower acknowledges that the Bank is under no obligation to make any further advances under
the Equipment Line of Credit. The Bank shall continue to make such advances under the Revolving
Credit Facility, up to the maximum amount at any one time outstanding not to exceed the Revolver
Borrowing Capacity (as defined in the Credit Agreement) subject to the terms and conditions set
forth in the Credit Agreement, as amended, only so long as the Borrower shall be in strict
compliance with the provisions of each of the Transaction Documents and no Event of Default (as
defined in the Credit Agreement) or event which, with the passage of time or the giving of notice
or both, shall have occurred and be continuing.




          c. Swap Agreements. If not previously instructed by the Borrower to do so, the
Borrower hereby instructs the Bank to terminate all swap and other interest rate hedging agreements
between the Bank and the Borrower with respect to, or executed in connection with, the Obligations.
Any amounts owed to Borrower as a result of such termination shall be applied to the remaining
balances due under one or more of the Equipment Notes (as selected by the Bank in its discretion),
and any amount applied to repay any portion of any Equipment Note shall be applied to principal
payments due under such Equipment Note in the inverse order of their maturity. The Borrower
recognizes that all rights and obligations of the Bank and the Borrower under the ISDA Master
Agreement and all Confirmations executed pursuant thereto are now cancelled and terminated and the
Borrower hereby agrees not to make any claim against the Bank with respect to any obligations of
the Bank arising and to be performed by it thereunder.




          d. Borrower’s DDA Account. The Bank shall be under no obligation to honor any
presentments made on the Borrower’s DDA Account in the event there are either insufficient or
unavailable funds to cover those items. In such event, such items will be dishonored and returned
by the Bank with no liability to the Bank whatsoever.




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          e. Modification Fee. To induce the Bank to enter into this Agreement, the Borrower has
agreed to pay to the Bank a modification fee in the amount of $150,000 (the “Modification
Fee”), which fee shall be deemed fully earned and non-refundable as of the Effective Date. One
half of such Modification Fee shall be paid to the Bank by not later than 4:00 p.m., Baltimore
time, on the Effective Date, and the remaining half of such Modification Fee shall be due and
payable no later than 4:00 p.m. (Baltimore time) on August 1, 2006, unless the Obligations are
repaid in full prior to such time.




          f. Additional Fees and Other Payments Due. On the date hereof, the Borrower shall (a)
pay to the Bank all past-due payments of principal and/or interest, if any, and (b) pay to the Bank
and to its counsel all Enforcement Costs due under Section 6.10(a) hereof. On the
Effective Date, the Bank shall pay to the Bank $75,000 of the Modification Fee due on said date
pursuant to Section 3.5(e) hereof.




          g. Commitment and Mandatory Prepayment. Unless the Borrower delivers to the Bank,
prior to 12:00 p.m., Baltimore time, on July 31, 2006, an Acceptable Commitment (as hereinafter
defined), the Borrower shall pay to the Bank, not later than 4:00 p.m., Baltimore time, on August
1, 2006, a mandatory prepayment in the amount of $500,000, which prepayment shall be applied to the
Obligations in such order and manner as the Bank shall determine in its discretion. As used
herein, the term “Acceptable Commitment” means a commitment letter from a bank or other
financial institution acceptable to the Bank, committing to lend to the Borrower an amount
sufficient to repay in full all of the Borrower’s Obligations, which commitment letter shall (1)
contemplate a closing not later than August 31, 2006, and (2) be non-contingent except for ordinary
and customary closing conditions.



ARTICLE IV


DEFAULT WAIVER PROVISIONS



     Section 4.1. Waiver. The Bank hereby agrees to waive the Existing Defaults. Nothing
herein shall be construed to impair the Bank’s ability to exercise any available remedies with
respect to (a) any future Event of Default, or (b) any existing Event of Default not previously
identified in writing to the Bank.



     Section 4.2. Other Obligations. All of the Obligations under the Transaction
Documents, except to the extent modified or altered by the terms of this Agreement, shall remain in
full force and effect and unchanged.


ARTICLE V


RELEASES



     Section 5.1. Releases and Waivers.



          a. The Obligors hereby knowingly and voluntarily forever release, acquit and discharge the
Bank and the Bank Group from and of any and all claims that the Bank or any


13









 







member of the Bank Group is in any way responsible for the past, current or future condition or
deterioration of the business operations and/or financial condition of the Obligors, and from and
of any and all claims that the Bank or any member of the Bank Group breached any agreement to loan
money, to execute and/or terminate a Rate Protection Transaction, or make other financial
accommodations available to the Obligors or to fund any operations of the Borrower at any time.
The Obligors also hereby knowingly and voluntarily forever release, acquit and discharge the Bank
and the Bank Group, from and of any and all other claims, damages, losses, actions, counterclaims,
suits, judgments, obligations, liabilities, defenses, affirmative defenses, setoffs, and demands of
any kind or nature whatsoever, in law or in equity, whether presently known or unknown, which any
of the Obligors may have had, or may now have (regardless of when asserted or brought), by reason
of any matter, course or thing whatsoever relating to, arising out of, based upon, or in any manner
connected with, any transaction, event, circumstance, action, failure to act, or occurrence of any
sort or type, whether known or unknown, which occurred, existed, was taken, permitted, begun, or
otherwise related or connected to or with any or all of the Obligations, this Agreement, or any of
the Transaction Documents, and/or any direct or indirect action or omission of the Bank and/or any
of the Bank Group. The Obligors further agree that from and after the date hereof, they will not
assert to any person or entity that any deterioration of the business operations or financial
condition of the Obligors was caused by any breach or wrongful act of the Bank or any of the Bank
Group which occurred prior to the date hereof.




          b. Upon the indefeasible payment in full of all sums due to the Bank and satisfaction of all
of the Obligors’ other Obligations, the Bank shall, at the Obligors’ sole cost and expense, release
its liens on all collateral pledged or given to secure said Obligations and, in connection
therewith, forever release, acquit and discharge the Obligors from and of any and all other future
claims, suits, actions, obligations and liabilities of any kind or nature whatsoever arising out of
or relating to or due in connection with the Transaction Documents.



ARTICLE VI


MISCELLANEOUS



     Section 6.1. Headings. Descriptive headings are for convenience only and will not
control or affect the meaning or construction of any provision of this Agreement.



     Section 6.2. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and each of their respective heirs, personal representatives,
successors and assigns.



     Section 6.3. Time of Essence. Time is of the essence of this Agreement.



     Section 6.4. Counterparts. This Agreement may be executed in any number of duplicate
originals or counterparts, each of such duplicate originals or counterparts shall be deemed to be
an original and all taken together shall constitute but one and the same instrument. The parties
further agree that facsimile signatures shall be binding on all parties and have the same force and
effect as original signatures.



14









 





     Section 6.5. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.



     Section 6.6. Severability. In case one or more provisions contained in this Agreement
shall be invalid, illegal, or unenforceable in any respect under any law, the validity, legality
and enforceability of the remaining provisions contained herein shall remain effective and binding
and shall not be affected or impaired thereby.



     Section 6.7. Amendments. This Agreement may be amended, modified or supplemented only
by written agreement signed by all parties hereto. No provision of this Agreement may be waived
except in writing signed by the party against whom such waiver is sought to be enforced.



     Section 6.8. Entire Agreement. This Agreement, each of the documents to be executed
pursuant to the terms hereof, and the Transaction Documents set forth the entire agreement and
understanding of the parties hereto with respect to payment and performance of the Obligations,
superseding all prior representations, understandings and agreements, whether written or oral.



     Section 6.9. Enforcement Costs. The Borrower agrees to pay to the Bank, on the date
hereof (and, if incurred after the date hereof, to the Bank or as the Bank may direct, within 10
days after receipt of an invoice therefor), all unpaid out-of-pocket fees, costs and expenses
incurred by or on behalf of the Bank in connection with (a) the original closing of the Credit
Facilities, and the negotiation and execution of the Forbearance Agreement, (b) the preparation,
negotiation, execution and delivery of this Agreement and any and all of the other documents
related hereto, and (c) the enforcement, preservation, or collection of the Obligations and/or this
Agreement, including, without limitation, reasonable attorneys fees and expenses, and recordation
and filing fees and taxes (collectively, the “Enforcement Costs”). The Borrower agrees to
pay directly to Ober, Kaler, Grimes & Shriver, the Bank’s counsel, on the date hereof, all fees and
expenses incurred in connection with the events leading up to and the negotiation and execution of
this Agreement and all of the other documents related hereto. If any such Enforcement Cost is not
paid when due, the Bank is hereby authorized, in its sole discretion, (a) to make an advance to pay
such Enforcement Costs, or (b) to offset the amount due against the Borrower’s Checking Account,
(as defined in the Credit Agreement). Such Enforcement Costs shall be deemed to be part of the
Obligations and be secured by all Collateral pledged to secure the Obligations.



     Section 6.10. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH THEY MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY
PERTAINING TO (A) THIS AGREEMENT (B) ANY OF THE OTHER DOCUMENTS EXECUTED BY THEM IN CONNECTION
HEREWITH, (C) ANY OF THE OBLIGATIONS, AND/OR (D) ANY OF THE TRANSACTION DOCUMENTS. IT IS AGREED AND
UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES
TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT.



15









 





     THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE PARTIES HERETO, AND EACH OF
THE PARTIES HERETO HEREBY REPRESENT AND WARRANT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE
BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY NOTIFY OR
NULLIFY ITS EFFECT. EACH OF THE PARTIES HERETO FURTHER REPRESENT THAT THEY HAVE BEEN REPRESENTED IN
THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL,
SELECTED OF THEIR OWN FREE WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.



     Section 6.11. Termination of Automated Borrowing Functions. Anything herein or in the
Credit Agreement or the other Transaction Documents to the contrary notwithstanding, the Borrower
hereby agrees with the Bank that (a) the Borrower shall give the Bank not less than three (3)
Business Days (and in all events by not later than 2:00 p.m., Baltimore time, on August 28, 2006)
prior written notice of its intent to repay the Obligations and to terminate the Revolving Credit
Facility; (b) three (3) Business Days prior to the termination of the Revolving Credit Facility,
the Bank shall be entitled to terminate all automated borrowing functions, and (c) from and after
the termination of said automated borrowing functions, the Bank shall be under no obligation to
make any further advances to pay instruments presented against or to be presented against the
Checking Account prior to the Maturity Date, and any further advances will be made (subject to all
of the conditions precedent set forth in the Credit Agreement), only upon the Bank’s receipt of the
Borrower’s written request therefore, such request to be received by the Bank not later than 2:00
p.m., Baltimore time, three (3) Business Days prior to the proposed payoff date with such advance
to be effective as of the next Business Day.



     Section 6.12. No Novation. This Agreement is only an agreement amending certain
provisions of the Transaction Documents. All of the provisions of the Transaction Documents are
incorporated herein by reference and shall continue in full force and effect as amended hereby.
The Obligors agrees that it is their intention that nothing herein shall be construed to
extinguish, release or discharge or constitute, create or effect a novation of, or an agreement to
extinguish, any of the obligations, indebtedness and liabilities of any of the Obligors or any
other party under the provisions of the Transaction Documents (as amended hereby).




[Signatures on Succeeding Page]



16









 








     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, under
seal, as of the day and year first above written.



	 	 	 	 	 	 	 
	WITNESS:	 	MANUFACTURERS AND TRADERS TRUST COMPANY
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ Theresa E. Hardee

	 	By:
	 	/s/ Linda J. Weinberg	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Linda J. Weinberg	 	 
	 

	 	 	 	Title: Administrative Vice President	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	UNITED TOTE COMPANY	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ Jae Yu

	 	By:
	 	/s/ Gary W. Sproule
	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Gary W. Sproule	 	 
	 

	 	 	 	Title: Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	YOUBET.COM, INC	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ Jae Yu

	 	By:
	 	/s/ Gary W. Sproule
	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Gary W. Sproule	 	 
	 

	 	 	 	Title: Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	UT GAMING, INC	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ Jae Yu

	 	By:
	 	/s/ Gary W. Sproule
	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Gary W. Sproule	 	 
	 

	 	 	 	Title: Chief Financial Officer	 	 







17