Document:

Exhibit
10.5

 

SECOND AMENDMENT TO THE 

QUANEX CORPORATION HOURLY BARGAINING UNIT SAVINGS PLAN

 

THIS AGREEMENT by Quanex Corporation, a
Delaware corporation (the “Company”),

 

W I T N E S S E T H:

 

WHEREAS, the Company maintains the Quanex
Corporation Hourly Bargaining Unit Savings Plan (the “Plan”); and

 

WHEREAS, the Company desires to amend the
Plan to comply with certain requirements of the Economic Growth and Revenue
Reconciliation Act of 2001, Final Department of Treasury Regulations issued
under section 401(a)(9) of the Internal Revenue Code of 1986, as amended and
new claims procedure rules issued by the Department of Labor;

 

NOW THEREFORE, the Plan is hereby amended
as follows:

 

(1)           Effective January 1, 2003, the
following new definitions shall be added to Article I in alphabetical
order:

 

“Applicable Distribution Period” means
as follows:

 

(a)           Distributions During the Participant’s or former
Participant’s Life.  For
Distribution Calendar Years commencing on or after January 1, 2003, up to and
including the Distribution Calendar Year that includes the Participant’s or
former Participant’s death, the “Applicable Distribution Period” is the
Participant’s or former Participant’s life expectancy determined using the
Uniform Lifetime Table in Regulation section 1.401(a)(9)-9 for his age as of
his birthday in the relevant Distribution Calendar Year.  However, if the Participant’s or former
Participant’s sole Section 401(a)(9) Beneficiary for the entire Distribution
Calendar Year is his Spouse, for distributions during his lifetime, his “Applicable
Distribution Period” shall not be less than the joint life
expectancy of him and his Spouse using his and his Spouse’s attained ages as of
his and his Spouse’s birthdays in the Distribution Calendar Year.

 

(b)           Distributions after the Participant’s or former
Participant’s Death. 
Effective for Distribution Calendar Years commencing on or after
January, 1, 2003, if a Participant or former Participant dies on or after his
Required Beginning Date, the “Applicable Distribution Period” for
Distribution Calendar Years after the Distribution Calendar Year containing the
Participant’s or former Participant’s date of death is the longer of the
remaining life expectancy of his Section 401(a)(9) Beneficiary (if any)

 

 

determined in accordance with the Final Section
401(a)(9) Regulations (calculated by using the age of the Section 401(a)(9)
Beneficiary in the year following the year of the former Participant’s death,
reduced by one for each subsequent year) or the remaining life expectancy of
the  former Participant determined in
accordance with the Final Section 401(a)(9) Regulations (calculated by using
the age of the former Participant in the year of death, reduced by one or each
subsequent year).  However, if the
former Participant’s surviving Spouse is the former Participant’s sole Section
401(a)(9) Beneficiary, the remaining life expectancy of the surviving Spouse is
calculated for each Distribution Calendar Year after the year of the former
Participant’s death using the surviving Spouse’s age as the surviving Spouse’s
birthday in that year; and for distribution calendar years after the year of
the surviving Spouse’s death, the remaining life expectancy of the surviving
Spouse is calculated using the age of the surviving Spouse as of the surviving
Spouse’s birthday in the calendar year of the surviving Spouse’s death, reduced
by one for each subsequent calendar year.

 

“Claimant” means a Participant, former
Participant or Beneficiary, as applicable.

 

“Distribution Calendar Year”
means a calendar year for which a minimum distribution is required to be made
to a Participant or former Participant under section 401(a)(9) of the Code and
Department of Treasury Regulations thereunder. 
If a Participant’s or former Participant’s Required Beginning Date is
April 1 of the calendar year following the calendar year in which he attains
age 701⁄2, his first Distribution Calendar Year is the calendar year in which he
attains age 701⁄2.  If a Participant’s or
former Participant’s Required Beginning Date is April 1 of the calendar year
following the calendar year in which he incurs a Separation From Service, his
first Distribution Calendar Year is the calendar year in which he incurs a
Separation From Service.

 

“Final Section 401(a)(9) Regulations”
means the final Department of Treasury Regulations issued under section
401(a)(9) of the Code which were published in the Federal Register on April 17,
2002.

 

“Section 401(a)(9) Beneficiary” means
an individual who is a Participant’s or former Participant’s Beneficiary on the
date of the Participant’s or former Participant’s death and (unless the
Beneficiary dies after the date of the Participant’s or former Participant’s
death and before September 30 of the following calendar year without
disclaiming benefits under the Plan) who remains a Beneficiary as of September
30 of the calendar year following the calendar year of the Participant’s or
former Participant’s death.  If the
Participant’s or former Participant’s Beneficiary is a trust, an individual
beneficiary of the trust may be a Section 401(a)(9) Beneficiary of the
Participant or former Participant if the requirements of Regulation Section
1.401(a)(9)-4 are satisfied.

 

“Spouse” means the person
to whom the Participant or former Participant is married under applicable local
law.  In addition, to the extent
provided in a Qualified Domestic Relations Order, a surviving former spouse of
a Participant or former Participant will be treated as the Spouse of the
Participant or former Participant, and to the same extent any current spouse of
the Participant or former Participant will not be treated as a Spouse of the
Participant or former Participant.  For
purposes of Section 5.06, a former Spouse to whom all or a portion of a

 

2

 

Participant’s or former Participant’s Plan benefit is payable under a
Qualified Domestic Order shall, to that extent, be treated as a Spouse or
surviving Spouse regardless of whether the Qualified Domestic Relations Order
specifically provides that the former Spouse is to be treated as the Spouse for
purposes of Sections 401(a)(11) and 417 of the Code.

 

(2)       Effective January 1, 2003,
the definition of “Spouse” contained in Article 1 (as in effect prior to this
amendment) is deleted.

 

(3)       Effective January 1, 2003,
Section 3.02 of the Plan is amended by changing all references therein to
“Participant” to “Catch-up Eligible Participant”.

 

(4)       Effective January 1, 2003,
Section 5.06 is amended by redesignating paragraph (e) thereof as paragraph (h)
and by replacing the remaining text of Section 5.06 with the following
language:

 

5.06     Required
Distributions:

 

Notwithstanding any other provision of the Plan, all
benefits payable under the Plan shall be distributed, or commence to be
distributed, in compliance with the following provisions:

 

(a)           Required Distributions for Certain Persons Who are
701⁄2 or Older.  Unless
a Participant’s or former Participant’s entire nonforfeitable interest in his
Plan benefit is distributed to him in a single sum no later than his Required
Beginning Date or in the form of an annuity purchased from an insurance
company, the Participant’s or former Participant’s nonforfeitable interest in
his Plan benefit must begin to be distributed, not later than his Required
Beginning Date, over the life of the Participant or former Participant, or the
joint lives of the Participant or former Participant and his Section 401(a)(9)
Beneficiary, or over a period not extending beyond the life expectancy of the
Participant or former Participant or the joint and last survivor expectancy of
the Participant or former Participant and his Section 401(a)(9)
Beneficiary.  The distribution required
to be made on or before the Participant’s or former Participant’s Required
Beginning Date shall be the distribution required for his first Distribution
Calendar Year.  The minimum required
distribution for other Distribution Calendar Years, including the required
minimum distribution for the Distribution Calendar Year in which the
Participant’s or former Participant’s Required Beginning Date occurs must be
made on or before December 31 of that Distribution Calendar Year.  In the case of a benefit payable in a form
other than a single sum or an annuity purchased from an insurance company, the
amount that must be distributed for a Distribution Calendar Year is an amount
equal to the amount specified in Paragraph (b) of this Section 5.06.

 

3

 

(b)           Required Minimum Distributions.  If a Participant’s or former Participant’s
Required Beginning Date is before the date on which he incurs a Separation From
Service, the Participant or former Participant (if he is then alive) must be
paid either the entire amount credited to his Account or annual distributions
from the Plan in the amounts required under section 401(a)(9) of the Code and
Regulations thereunder commencing no later than his Required Beginning Date
until his entire interest under the Plan has been distributed under this
Article V.  The distribution required to
be made on or before the Participant’s or former Participant’s Required
Beginning Date shall be the distribution required for his first Distribution
Calendar Year.  The minimum required
distribution for other Distribution Calendar Years, including the required
minimum distribution for the Distribution Calendar Year in which the
Participant’s or former Participant’s Required Beginning Date occurs must be
made on or before December 31 of that Distribution Calendar Year.  The amount that must be distributed for a
Distribution Calendar Year is an amount equal to (1) the Participant’s or
former Participant’s Account balance as of the last Valuation Date in the
calendar year immediately preceding the Distribution Calendar Year, increased
by any contributions or forfeitures allocated and made to the Account during
such immediately preceding calendar year after the Valuation Date, and
decreased by distributions made during such immediately preceding calendar year
after the Valuation Date, divided by (2) the Participant’s or former
Participant’s Applicable Distribution Period.

 

(c)           Distribution Deadline for Death
Benefit When Participant or Former Participant Dies Before His Distributions
Begin.  If a Participant or former
Participant dies before the date distribution of his nonforfeitable interest in
his Plan benefit begins, his entire nonforfeitable interest in his Plan benefit
will be distributed, or begin to be distributed, to his Section 401(a)(9)
Beneficiary no later than as follows:

 

(1)           If the Participant’s
or former Participant’s surviving Spouse is the Participant’s or former
Participant’s sole Section 401(a)(9) Beneficiary, then distributions to the
surviving Spouse will begin by December 31 of the calendar year
immediately following the calendar year in which the Participant or former
Participant died, or by December 31 of the calendar year in which the
Participant or former Participant would have attained age 70 1/2 , if later.

 

(2)           If the Participant’s
or former Participant’s surviving Spouse is not the Participant’s or former
Participant’s sole Section 401(a)(9) Beneficiary and the payment of Plan death
benefits to the Section 401(a)(9) Beneficiary will not be in the form of a
single sum or a commercial annuity, then distributions to the Section 401(a)(9)
Beneficiary will begin by December 31 of the calendar year immediately
following the calendar year in which the Participant or former Participant
died.

 

(3)           If the Participant’s
or former Participant’s surviving Spouse is the Participant’s or former Participant’s
sole Section 401(a)(9)  Beneficiary, and
the payment of a Plan death benefit to the Section 401(a)(9) Beneficiary will
be in the form of a single sum, then the Participant’s or former Participant’s
entire nonforfeitable interest in his

 

4

 

Plan benefit will
be distributed by December 31 of the calendar year containing the fifth
anniversary of the Participant’s or former Participant’s death.

 

(4)           If there is no
Section 401(a)(9) Beneficiary as of September 30 of the calendar year
following the calendar year of the Participant’s or former Participant’s death,
then the Participant’s or former Participant’s entire nonforfeitable interest
in his Plan benefit will be distributed by December 31 of the calendar
year containing the fifth anniversary of the Participant’s or former
Participant’s death.

 

(5)           If the Participant’s
or former Participant’s surviving Spouse is the Participant’s or former
Participant’s sole Section 401(a)(9) Beneficiary and the surviving Spouse dies
after the Participant or former Participant but before distributions to the
surviving Spouse begin, this Section 5.06(e), other than Section 5.06 (e)(1),
will apply as if the surviving Spouse were the Participant.

 

Unless the Participant’s
or former Participant’s interest is distributed in the form of an annuity or in
a single sum on or before the Required Beginning Date, as of the first
Distribution Calendar Year distributions will be made in accordance with
Paragraph (b) of this Section 5.06.

 

(d)           Distribution of Death Benefit When
Participant or Former Participant Dies On or After His Required Beginning Date.  If a Participant or former
Participant dies on or after his Required Beginning Date, his Plan benefit must
be distributed to his Section 401(a)(9) Beneficiary at least as rapidly as the
method of payment of minimum required distributions being used as of the date
of his death.

 

(e)       Limitations on Death
Benefits.  Benefits payable under
the Plan shall not be provided in any form that would cause a Participant’s or
former Participant’s death benefit to be more than incidental. Any distribution
required to satisfy the incidental benefit requirement shall be considered a
required distribution for purposes of section 401(a)(9) of the Code.

 

(f)       Requirements in the Case
of a Commercial Annuity.  If a
Participant’s or former Participant’s nonforfeitable interest in his Plan
benefit is distributed in the form of an annuity purchased from an insurance
company, distributions under the annuity contract will be made in accordance
with the requirements of section 401(a)(9) of the Code and Department of
Treasury Regulations.

 

(g)       Compliance with Section
401(a)(9).  All distributions under
the Plan will be made in accordance with the requirements of section 401(a)(9)
of the Code and all Regulations promulgated thereunder, including, effective
January 1, 2003, the Final Section 401(a)(9) Regulations, including
sections 1.401(a)(9)-1 through 1.401(a)(9)-9 of the Final Section 401(a)(9)
Regulations.  The provisions of the Plan
reflecting section 401(a)(9) of the Code override any distribution options in
the Plan inconsistent with section 401(a)(9) of the Code.

 

5

 

(5)       Effective January 1, 2002,
Section 5.12 is amended to provide as follows:

 

5.12         Claims Review Procedures; Claims
Appeal Procedures.

 

(a)           Claims Review Procedures.  When a benefit is due, the Claimant should
submit a claim to the Committee.  Under
normal circumstances, the Committee will make a final decision as to a claim
within 90 days after receipt of the claim. 
If the Committee notifies the Claimant in writing during the initial
90-day period, it may extend the period up to 180 days after the initial receipt
of the claim.  The written notice must
indicate the circumstances necessitating the extension and the anticipated date
for the final decision.  If a claim is
denied during the claims period, the Committee must notify the Claimant in
writing, and the written notice must set forth in a manner calculated to be
understood by the Claimant:

 

(1)           the
specific reason or reasons for denial;

 

(2)           specific
reference to the Plan provisions on which the denial is based;

 

(3)           a
description of any additional material or information necessary for the
Claimant to perfect the claim and an explanation of why such material or
information is necessary; and

 

(4)           an
explanation of the Plan claims review procedures and time limits, including a
statement of the Claimant’s right to bring a civil action under section 502(a)
of ERISA.

 

If a decision is not given to the Claimant within the claims review
period, the claim is treated as if it were denied on the last day of the claims
review period.

 

(b)           Claims Appeals Procedures. If a
Claimant’s claim made pursuant to Section 5.12(a) is denied and he wants a
review, he must apply to the Committee in writing.  That application can include any arguments, written comments,
documents, records, and other information relating to the claim for
benefits.  In addition, the Claimant is entitled
to receive on request and free of charge reasonable access to and copies of all
information relevant to the claim.  For
this purpose, “relevant” means information that was relied on in making the
benefit determination or that was submitted, considered or generated in the
course of making the determination, without regard to whether it was relied on,
and information that demonstrates compliance with the Plan’s administrative
procedures and safeguards for assuring and verifying that Plan provisions are
applied consistently in making benefit determinations.  The Committee must take into account all
comments, documents, records, and other information submitted by the Claimant
relating to the claim, without regard to whether the information was submitted
or considered in the initial benefit determination.  The Claimant may either represent himself or appoint a
representative, either of whom has the right to inspect all documents
pertaining to the claim and its denial. 
The Committee can schedule any meeting with the

 

6

 

Claimant or his representative that it finds necessary
or appropriate to complete its review.

 

(c)           This Section 5.12 does not apply in
connection with determinations as to whether a Participant or former
Participant has incurred a Disability. 
Rather, such determinations shall be subject to the procedures specified
in Section 5.13.

 

(6)       Effective January 1, 2003,
Article V is amended by adding these to the following new Section 5.13:

 

5.13         Disability
Benefit Claims Procedure.

 

(a)           Disability Benefit Initial Determination Procedure.  In the case of a claim for Disability
benefits, the Claimant should submit a claim to the office designated by the
Committee to receive claims. Under normal circumstances, the Committee shall
notify the Claimant of any Disability claims denial (wholly or partially)
within 45 days after receipt of the claim.

 

The Committee retains the
authority to unilaterally extend the initial 45 day Disability claims
determination period by a period not to exceed an additional 30 days, if the
Committee determines that such extension is necessary due to matters beyond the
control of the Committee.  If the
initial Disability claims determination period is extended by the unilateral action
of the Committee, the Committee shall, prior to the expiration of the initial
45 day Disability claims determination period, notify the Claimant in writing
of the extension and of the circumstances requiring the extension of the
Disability claims determination period.

 

If, prior to the end of
the first 30-day extension, the Committee determines that, due to matters
beyond the control of the Plan, a decision cannot be rendered within the
extension period, the Disability claims determination period may be extended
for an additional 30 days, provided the Committee, prior to the expiration of
the first 30-day extension period, notifies the Claimant in writing of the
circumstances requiring the extension and the date on which the Plan expects to
render a decision.  In the case of any
notice extending the Disability claims determination period, the notice must be
in writing and shall specifically explain the standards on which the
entitlement to a benefit is based; the unresolved issues that prevent a
determination on a claim; additional information that is needed to resolve
those issues; and, if additional information is required from the Claimant, a
statement as to the amount of time the Claimant has to supply that information.

 

Calculation of Time Periods.   The
period of time within which a Disability benefit determination is required to
be made shall begin on that date the claim is filed in accordance with this
Section, without regard to whether all the information necessary to make the
Disability benefits determination accompanies the filing.  In the event the Disability claims
determination period is extended due to the Claimant’s failure to submit

 

7

 

information necessary to such determination, the
Disability claims determination period shall be tolled from the date on which
the notification of the extension is sent to the Claimant until the date on
which the Claimant responds to the request for additional information.  The Claimant shall be afforded at least 45
days from receipt of the notice of extension to provide the specified
information.  If the Claimant fails to
supply the specified information within the 45-day period, the claim
determination process shall continue and the specified information shall be
deemed not to exist.

 

(b)           Disability Claims Appeal Procedure.  If a Claimant’s claim for a
Disability benefit is denied (in whole or in part), he is entitled to a full
and fair review of that denial.  A full
and fair review of a Disability benefit claim denial shall provide the Claimant
with 180 days from the receipt of any adverse claim determination to appeal the
denial.  If the Claimant does not file
an appeal within 180 days of the adverse claim determination, such denial
becomes final.

 

Under the full and fair
review, the Claimant shall be afforded an opportunity to submit written
comments, documents, records, and other information relating to the claim for
benefits to the reviewing fiduciary. 
The Claimant shall be entitled to receive upon request and free of
charge reasonable access to and copies of all information relevant to the
claim. For purposes of a Disability benefit claim denial, the term “relevant”
shall mean information that was relied on in making the benefit determination
or that was submitted, considered or generated in the course of making the
determination, without regard to whether it was relied on, and information that
demonstrates compliance with the Plan’s administrative procedures and
safeguards for assuring and verifying that Plan provisions are applied
consistently in making benefit determinations. 
For this purpose, the term “relevant” shall also include a statement of
policy or guidance with respect to the Plan concerning the Disability benefit
for the diagnoses of the Claimant, without regard to whether such advice or
statement was relied upon in making the claims determination.  The review of a benefit claim denial shall
not afford any deference to the initial adverse claim determination.

 

The review of the
Disability claims denial shall be conducted by the appropriate named fiduciary
who is neither
the named fiduciary who made the initial adverse claim determination nor
subordinate to such individual.

 

In reviewing a denial of
a claim for a Disability benefit, in which the denial was based in whole or in
part on medical judgement, the appropriate named fiduciary shall consult with a
health care professional who has appropriate training and experience in the
field of medicine involved in the medical judgement.  The health care professional consulted upon review of an adverse
benefit claim denial shall be neither the health care professional that
was consulted in connection with the adverse benefit determination that is the
subject of the appeal nor a subordinate of any such individual.  The reviewing fiduciary shall provide the
identification of the medical or vocational experts whose advice was obtained
on behalf of the Plan in connection with Claimant’s Disability benefit claim
denial, without regard as to whether the advice was relied upon in making the
benefit determination.

 

8

 

The appropriate reviewing
fiduciary must take into account all comments, documents, records, and other
information submitted by the Claimant relating to the claim, without regard as
to whether the information was submitted or considered in the initial benefit
determination.  The Claimant may either
represent himself or appoint a representative, either of whom has the right to
inspect all documents pertaining to the claim and its denial.  The reviewing fiduciary can schedule any
meeting with the Claimant or his representative that it finds necessary or
appropriate to complete its review.

 

If a timely request is
made, the reviewing fiduciary shall notify the Claimant of the determination
upon appeal within 45 days after receipt of the request for review (without
regard to whether all the information necessary to make the benefit
determination accompanies the filing).  The
reviewing fiduciary retains the authority to unilaterally extend the initial
45-day review period by a period not to exceed an additional 45 days, if the
fiduciary determines that special circumstances exist requiring additional time
for reviewing the claim.  If the initial
review period is extended by the unilateral action of the appropriate reviewing
fiduciary, the fiduciary shall, prior to the expiration of the initial 45 day
review period, notify the Claimant in writing of the extension.  The written notice of extension shall
identify the special circumstances necessitating the extension and provide the
anticipated date by which the Plan expects to render the determination on
review.

 

Calculation of Time Periods Upon
Appeal.   The period
of time within which a determination on a Disability claims appeal is required
to be made shall begin on that date the appeal is filed in accordance with this
Section, without regard to whether all the information necessary to make the
Disability benefits determination accompanies the filing.  In the event the Disability claims review
period is extended due to the Claimant’s failure to submit information
necessary to such determination, the Disability claims review period shall be
tolled from the date on which the notification of the extension is sent to the Claimant
until the date on which the Claimant responds to the request for additional
information.  The Claimant shall be
afforded at least 45 days from receipt of the notice of extension to provide
the requested information.  If the
Claimant fails to supply the requested information within the 45-day period,
the claims review process shall continue and the specified information shall be
deemed not to exist.

 

The reviewing fiduciary
shall provide the Claimant with a written notice of the Plan’s benefit determination
upon review.  The notice shall set forth
the specific reasons for its action, the Plan provisions on which its decision
is based, and a statement that the Claimant is entitled to receive, upon
request and free of charge, reasonable access to, and copies of, all documents,
records, and other information relevant to the Claimant’s claim for benefits,
and a statement of the Claimant’s right to bring an action under section 502(a)
of ERISA.  The notice shall also include
the following statement,

 

“You and the Plan may have other voluntary alternative
dispute resolution options, such as mediation. 
One way to find out what may be available is

 

9

 

to contact your local U.S. Department of Labor Office and your
State insurance regulatory agency.”

 

If a decision is not
given to the Claimant within the review period, the claim is treated as if it
were denied on the last day of the review period.

 

The request for review
must be filed within 90 days after the denial. 
If it is not, the denial becomes final. 
If a timely request is made, the reviewing fiduciary must make its
decision, under normal circumstances, within 60 days of the receipt of the
request for review.  However, if the
reviewing fiduciary notifies the Claimant prior to the expiration of the
initial review period, it may extend the period of review up to 120 days
following the initial receipt of the request for a review.  The written notice must indicate the circumstances
necessitating the extension and the anticipated date for the final
decision.  All decisions of the
reviewing fiduciary must be in writing and must include the specific reasons
for its action, the Plan provisions on which its decision is based, and a
statement that the Claimant is entitled to receive, upon request and free of
charge, reasonable access to, and copies of, all documents, records, and other
information relevant to the Claimant’s claim for benefits, and a statement of
the Claimant’s right to bring an action under section 502(a) of ERISA.  If a decision is not given to the Claimant
within the review period, the claim is treated as if it were denied on the last
day of the review period.

 

(7)       Effective January 1, 2003,
the second sentence of paragraph (d) of Section 12.01 is amended by deleting
the words “or if the Plan is deemed amended by an automatic change to or from a
top heavy vesting schedule”.

 

(8)       Effective January 1, 2003,
the first sentence of Section A.2.3 of the Appendix A is revised to provide as
follows:

 

The maximum Salary
Deferral Contribution that a Participant may elect to have made on his behalf
during a calendar year may not, when added to his elective deferrals under
other plans or arrangements which are both (1) described in
sections 401(k), 403(b), 408(k) and 408(p)(2) of the Code and (2)
maintained by the Employer or an Affiliated Employer, exceed the amount of the
limitation in effect under section 402(g)(1) of the Code for the Participant’s
taxable year beginning in such calendar year.

 

10

 

IN WITNESS WHEREOF, the Company has caused
this Agreement to be executed in multiple counterparts, each of which shall be
deemed to be an original, on this 30th day of December, 2002.

 

 

	
   

  	
  QUANEX
  CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
     /s/ Paul
  J. Giddens

  	
   

  
	
   

  	
  Name:

  	
  Paul J. Giddens

  
	
   

  	
  Title:

  	
  Vice President Human Resources

  and Administration

  
					

 

11<PAGE>

                                                                    EXHIBIT 10.1

                             NOTE PURCHASE AGREEMENT

                                 By and Between

                                   [Investor]

                                as the Purchaser

                                       and

                                Youbet.com, Inc.

                                 as the Company

                                     Dated:

                             As of February 11, 2003

                                        3
<PAGE>

         THIS NOTE PURCHASE AGREEMENT (this "Agreement"), is made as of February
11, 2003 by and between Youbet.com,  Inc. a Delaware corporation (the "Company")
and [Investor], (the "Purchaser").

                                    RECITALS

         A. The Purchaser desires to purchase from the Company,  and the Company
desires to issue to the  Purchaser,  or its  designee,  a note in the  aggregate
principal  amount of $XXX,XXX (the "Note") which is part of a series of notes in
the aggregate principal amount $2,000,000 (the "Notes");

         B. The Company and the  Purchaser are  executing  and  delivering  this
Agreement in reliance upon the exemption from securities  registration  afforded
by the provisions of Regulation D ("Regulation  D") as promulgated by the United
States  Securities and Exchange  Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act"); and

         C. Contemporaneously with the execution and delivery of this Agreement,
the parties  hereto are executing and  delivering  an  Intercreditors  Agreement
referred  to in  Section  5(a)  below  (the  "Intercreditors  Agreement").  This
Agreement,  the Intercreditors  Agreement and the Note are sometimes hereinafter
collectively referred to as the "Transaction Documents."

                                   AGREEMENTS

         NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby  acknowledged  by the  parties,  the Company and the  Purchaser
hereby agree as follows:

         ISSUANCE SALE AND DELIVERY OF SECURITIES.

         Issuance of the Note.  Subject to the terms and conditions set forth in
         ---------------------
this Agreement and in reliance upon the representations and warranties contained
herein, the Company agrees to issue and sell to Purchaser, or its designees, and
Purchaser  hereby agrees to purchase from the Company,  the Note. The Note shall
(a) have a maturity date of February 11, 2005,  with interest at the rate of 10%
per  annum  with  interest  only  payable   quarterly,   and  (b)  otherwise  be
substantially in the form attached hereto as Exhibit A.

         Closing.  The  closing  of the  purchase  and  sale  of the  Note  (the
         -------
"Closing")  shall  be held at the  offices  of Loeb & Loeb  LLP in Los  Angeles,
California,  or at such other  location  as shall be agreed  upon by the parties
hereto. At the Closing, the Company shall deliver the Note to the Purchaser,  or
such other person as the Purchaser shall otherwise designate,  and the Purchaser
shall pay an aggregate of $XXX,XXX to the Company by cashiers' check,  certified
funds or wire transfer.

                                        4
<PAGE>

         PURCHASER'S REPRESENTATIONS AND WARRANTIES.

         The Purchaser understands,  agrees with, and represents and warrants to
the Company with respect to the purchase hereunder, that:

         Investment  Purposes;  Compliance With Securities Act. The Purchaser is
         -----------------------------------------------------
purchasing the Note for the Purchaser's own account, for investment only and not
with a view towards,  or in  connection  with,  the public sale or  distribution
thereof, except pursuant to sales registered under or exempt from the Securities
Act.

         Accredited  Investor Status. The Purchaser is an "accredited  investor"
         ---------------------------
as that term is  defined in Rule 501 (a) of  Regulation  D. The  Purchaser  is a
sophisticated  investor and has such  knowledge and  experience in financial and
business matters that Purchaser is capable of evaluating the merits and risks of
an investment made pursuant to this Agreement.

         Reliance on  Exemptions.  The Purchaser  understands  the Note is being
         -----------------------
offered and sold to in reliance on  specific  exemptions  from the  registration
requirements of the applicable  United States federal and state  securities laws
and that the  Company  is  relying  upon the  truth  and  accuracy  of,  and the
Purchaser's compliance with, the representations,  warranties,  acknowledgments,
understandings,  agreements  and  covenants of the Purchaser set forth herein in
order to determine the  availability  of such  exemptions and the eligibility of
the Purchaser to acquire the Note.

         Information.  The Purchaser and the advisors of the Purchaser,  if any,
         ------------
have been  furnished with all materials  relating to the business,  finances and
operations  of the Company and  materials  relating to the offer and sale of the
Note  that  have  been  requested  by  the  Purchaser.  The  Purchaser  and  the
Purchaser's advisors, if any, have been afforded the opportunity to ask all such
questions of the Company as they have in their discretion deemed advisable.  The
Purchaser  understands  that the  Purchaser's  investment in the Note involves a
high degree of risk.  The  Purchaser has sought such  accounting,  legal and tax
advice as it has considered  necessary to an informed  investment  decision with
respect to the investment made pursuant to this Agreement.

         Transfer or Resale.  The Purchaser  understands  that: (i) the Note has
         ------------------
not been and is not  being  registered  under  the  Securities  Act or any state
securities laws, and may not be offered for sale, sold,  assigned or transferred
unless either (a) subsequently  registered thereunder or (b) the Purchaser shall
have delivered to the Company an opinion by counsel  reasonably  satisfactory to
the  Company,  in form,  scope  and  substance  reasonably  satisfactory  to the
Company,  to the effect that the Note to be sold, assigned or transferred may be
sold,  assigned or transferred  pursuant to an exemption from such registration,
and (ii)  neither the Company nor any other  person is under any  obligation  to
register such Note under the Securities Act or any state  securities  laws or to
comply with the terms and conditions of any exemption thereunder.

         Legends. The Note shall bear the following legend:
         -------

                                        5
<PAGE>

"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR, IF APPLICABLE,  STATE SECURITIES LAWS. EXCEPT AS PROVIDED IN SECTION 2(E) OF
THE NOTE PURCHASE  AGREEMENT,  DATED AS OF THE DATE HEREOF. THIS NOTE MAY NOT BE
SOLD,  OFFERED FOR SALE,  PLEDGED OR HYPOTHECATED IN THE ABSENSE OF AN EFFECTIVE
REGISTRATION  STATEMENT  AS TO THIS NOTE OR AN  OPINION  OF  COUNSEL  REASONABLY
SATISFACTORY TO YOUBET.COM, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

         Authorization;  Enforcement.  The Transaction  Documents have been duly
         ---------------------------
and validly authorized, executed and delivered by the Purchaser and are each and
collectively  valid and  binding  agreements  of the  Purchaser  enforceable  in
accordance  with  their  terms,  except  as  enforceability  may be  limited  by
bankruptcy, insolvency, moratorium, liquidation, or similar laws relating to, or
affecting,  generally the  enforcement  of creditors'  rights and remedies or by
other equitable principles of general application.

         REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company  understands,  agrees with,  and represents and warrants to
the Purchaser that:

         Organization  and  Qualification.  The Company and its subsidiaries are
         --------------------------------
duly  organized and existing in good standing  under the laws of the  respective
jurisdictions in which they are  incorporated  and have the requisite  corporate
power to own  their  properties  and to carry on  their  business  as now  being
conducted.  Each of the  Company and its  subsidiaries  is duly  qualified  as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the  business  conducted  by it makes such  qualification
necessary  and where the  failure  so to qualify  would have a Material  Adverse
Effect.  "Material  Adverse  Effect" as used herein means any  material  adverse
effect on the operations,  properties or financial  condition of the Company and
its subsidiaries taken as a whole.

         Authorization; Enforcement. (i) The Company has the requisite corporate
         --------------------------
power and  authority  to enter into and perform the  Transaction  Documents,  to
issue and sell the Note in accordance with the terms hereof,  and to perform its
obligations under the Note in accordance with the requirements of the same, (ii)
the  execution,  delivery and  performance of the  Transaction  Documents by the
Company and the consummation by it of the transactions  contemplated  hereby and
thereby have been duly  authorized  by the  Company's  Board of Directors and no
further consent or authorization of the Company, its Board of Directors,  or its
shareholders  is required,  (iii) the  Transaction  Documents have been duly and
validly  authorized,  executed  and  delivered  by the  Company,  and  (iv)  the
Transaction  Documents  constitute  the valid  and  binding  obligations  of the
Company  enforceable  against the Company in  accordance  with their  respective
terms,  except as such  enforceability may be limited by applicable  bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting, generally, the enforcement of creditors' rights and remedies or by
other equitable principles of general application.

                                        6
<PAGE>

         No Conflicts. The execution, delivery and performance of this Agreement
         ------------
by the  Company  and  the  consummation  by  the  Company  of  the  transactions
contemplated  hereby will not (i) result in a violation  of the  Certificate  of
Incorporation  or Bylaws or (ii)  conflict  with, or constitute a default (or an
event which with notice or lapse of time or both would become a default)  under,
or  give to  others  any  rights  of  termination,  amendment,  acceleration  or
cancellation of, any agreement,  indenture or instrument to which the Company or
any of its  subsidiaries  is a party, or result in a violation of any law, rule,
regulation,  order,  judgment or decree (including  federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its  subsidiaries  is bound
or affected  (except for such  conflicts,  defaults,  terminations,  amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a material adverse effect).

         Consents. Except as set forth in Schedule 3(d) and the filing of a Form
         --------
D with the United States Securities and Exchange Commission,  the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental  agency in order for it to execute,
deliver or perform any of its obligations under the Transaction Documents.

         SEC Reports.  The Company has filed all proxy  statements,  reports and
         -----------
other documents required to be filed by it under the Securities  Exchange Act of
1934 as amended (the  "Exchange  Act").  The Company has furnished the Purchaser
with  copies of (i) its  Annual  Report on Form 10-K for the  fiscal  year ended
December 31, 2001 and its Quarterly  Report on Form 10-QSB for the quarter ended
September  30, 2002 (the "SEC  Reports").  The SEC Reports  were in  substantial
compliance  with the  requirements  of its  respective  form and neither the SEC
Reports,  nor the financial  statements (and the notes thereto)  included in the
SEC Reports,  contained  any untrue  statement of a material  fact or omitted to
state a material  fact  required to be stated  therein or  necessary to make the
statements  therein,  in light of the circumstances  under which they were made,
not misleading.

         Absence ff Certain Changes. Since September 30, 2002, there has been no
         --------------------------
material  adverse  change and no material  adverse  development in the business,
properties,  operation,  financial condition, results of operations or prospects
of the Company; provided that the Company must raise additional cash to continue
its operations and that its auditor has expressed  doubt regarding the Company's
ability to continue as a going concern in its report on the Company's  financial
statements for the year ended December 31, 2001.

         Absence of Litigation.  Except as set forth in Schedule 3(g) and in the
         ---------------------
Company's  filings with the SEC,  which the Purchaser has reviewed,  there is no
action,  suit,  proceeding,  inquiry  or  investigation  before or by any court,
public  board or body pending or, to the  knowledge  of the Company,  threatened
against or affecting the Company,  wherein an  unfavorable  decision,  ruling or
finding would have a Material Adverse Effect or which would adversely affect the

                                        7
<PAGE>

validity or  enforceability  of, or the  authority  or ability of the Company to
perform  its  obligations   under,  this  Agreement  or  any  of  the  documents
contemplated herein.

         Title to Assets and Liens.  Except as set forth on Schedule  3(h),  the
         -------------------------
Company has good and  marketable  title to the Assets  owned by it and the valid
and  enforceable  right to  receive  and/or  use each of the Assets in which the
Company has any other interest,  free and clear of all Liens. As used herein (i)
"Liens" shall mean any lien, encumbrance,  pledge, mortgage,  security interest,
lease, charge,  conditional sales contract,  option,  restriction,  reversionary
interest,  right of first refusal,  voting trust arrangement,  preemptive right,
claim under bailment or storage contract, easement or any other adverse claim or
right  whatsoever;  and (ii) "Assets"  shall mean all of the  goodwill,  assets,
properties and rights of every nature, kind and description, whether tangible or
intangible, real, personal or mixed, wherever located and whether or not carried
or  reflected  on the books and records of the  Company,  which are owned by the
Company or in which the Company has any interest (including the right to use).

         COVENANTS.

         Best Efforts.  Each party shall use its best efforts  timely to satisfy
         ------------
each of the  conditions to be satisfied by it as provided in Sections 5 and 6 of
this Agreement.

         Securities  Laws.  The  Company  agrees to timely  file all reports and
         ----------------
other documents  required to be filed with the SEC,  specifically,  a Form D (or
equivalent  form required by  applicable  state law) with respect to the Note if
and as required under  Regulation D and applicable  state securities laws and to
provide a copy thereof to the Purchaser promptly after such filing.

         Expenses. Each party shall pay such party's expenses in connection with
         --------
the transactions contemplated by the Agreement.

         Use of Proceeds.  The Company  shall use the proceeds from the Note for
         ---------------
working capital and general corporate purposes.

         CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

         The   obligations   of  the  Company   hereunder  are  subject  to  the
satisfaction,  on or before the Closing,  unless otherwise specified, of each of
the following  conditions,  provided that these conditions are for the Company's
sole  benefit  and  may  be  waived  by the  Company  at any  time  in its  sole
discretion:

         The parties shall have executed this  Agreement and the  Intercreditors
Agreement.

         The  representations  and warranties of the Purchaser shall be true and
correct in all  material  respects as of the Closing as though made at that time
(except for  representations  and warranties  that speak as of a specific date).
The  Purchaser  shall have  performed,  satisfied  and  complied in all material
respects  with  the  covenants,  agreements  and  conditions  required  by  this
Agreement to be  performed,  satisfied or complied  with by the  Purchaser at or
prior to the Closing.

                                        8
<PAGE>

         No  statute,  rule,  regulation,  executive  order,  decree,  ruling or
injunction  shall have been  enacted,  entered,  promulgated  or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization  having  authority  over  the  matters  contemplated  hereby  which
restricts or prohibits the consummation of any of the transactions  contemplated
herein.

         All  consents,  approval,  authorizations  and  orders  required  to be
obtained and all registrations,  filings and notices required to be made with or
given to any regulatory  authority or person as provided  herein shall have been
made.

         CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE.

         The obligations of the Purchaser are subject to the satisfaction, on or
before  the  Closing,  unless  otherwise  specified,  of each  of the  following
conditions,  provided  that  these  conditions  are for the sole  benefit of the
Purchaser and may be waived by the Purchaser at any time in its sole discretion:

         The Company shall have executed this Agreement.

         The  representations  and  warranties  of the Company shall be true and
correct in all material  respects as of the Closing (except for  representations
and  warranties  that  speak as of a  specific  date).  The  Company  shall have
performed,  satisfied and complied in all material  respects with the covenants,
agreements and conditions required by this Agreement to be performed,  satisfied
or complied  with by the Company at or prior to the Closing.  The  Purchaser may
require a certificate,  executed by the Chief Executive  Officer of the Company,
dated as of the Closing, to the foregoing effect and as to such other matters as
may be reasonably requested by the Purchaser.

         No  statute,  rule,  regulation,  executive  order,  decree,  ruling or
injunction  shall have been  enacted,  entered,  promulgated  or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization  having  authority  over  the  matters  contemplated  hereby  which
restricts or prohibits the consummation of any of the transactions  contemplated
herein.

         All  consents,  approval,  authorizations  and  orders  required  to be
obtained and all registrations,  filings and notices required to be made with or
given to any regulatory  authority or person as provided  herein shall have been
made.

         POST CLOSING COVENANTS

         Within  sixty  days  from the  Closing,  the  Company  shall  cause the
delivery to the  Purchaser of an  assignment  of warrant or warrants to purchase
..667 shares of the Common  Stock for each $1  principal  amount of the Note (the
"Assigned  Warrants").  The per share exercise  price for the Assigned  Warrants
will be $.8075 representing 85% of the closing price on the trading day prior to
the Closing, and each Assigned Warrant shall be for a term of two years from the
Closing.

         GOVERNING LAW; MISCELLANEOUS.

                                        9
<PAGE>

         Governing  Law and  Venue.  This  Agreement  shall be  governed  by and
         -------------------------
interpreted  in  accordance  with the laws of the  State of  California  without
regard to the  principles  of conflict of laws.  In the event of any  litigation
regarding the  interpretation  or  application  of this  Agreement,  the parties
irrevocably  consent  to  jurisdiction  in any of the  state or  federal  courts
located in the City of Los Angeles,  State of California  and waive their rights
to  object  to  venue  in any  such  court,  regardless  of the  convenience  or
inconvenience  thereof  to any party.  Service  of  process in any civil  action
relating to or arising out of this  Agreement  (including  also all  Exhibits or
Schedules hereto) or the transaction(s)  contemplated herein may be accomplished
in any  manner  provided  by  law.  The  parties  hereto  agree  that  a  final,
non-appealable  judgment in any such suit or proceeding  shall be conclusive and
may be enforced in other  jurisdictions by suit on such judgment or in any other
lawful manner.

         Counterparts.  This  Agreement may be executed in two or more identical
         -------------
counterparts,  all of which shall be considered  one and the same  agreement and
shall  become  effective  when  counterparts  have been signed by each party and
signature pages from such counterparts have been delivered.

         Headings;   Gender,  Etc.  The  headings  of  this  Agreement  are  for
         -------------------------
convenience  of  reference  and  shall  not  form  a  part  of,  or  affect  the
interpretation of this Agreement.  As used herein,  the masculine shall refer to
the  feminine  and neuter,  the feminine to the  masculine  and neuter,  and the
neuter to the  masculine  and  feminine,  as the  context may  require.  As used
herein,  unless the context  clearly  requires  otherwise,  the words  "herein,"
"hereunder" and "hereby,"  shall refer to this entire  Agreement and not only to
the  Section or  paragraph  in which such word  appears.  If any date  specified
herein falls upon a Saturday, Sunday or public or legal holidays, the date shall
be construed to mean the next business day following  such  Saturday,  Sunday or
public or legal holiday. For purposes of this Agreement, a "business day" is any
day other than a Saturday, Sunday or public or legal holiday.

         Severability.  If any provision of this  Agreement  shall be invalid or
         ------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction  or the  validity  or  enforceability  of  any  provision  of  this
Agreement in any other jurisdiction.

         Entire  Agreement;  Amendments.  This  Agreement  and  the  instruments
         -------------------------------
referenced  herein contain the entire  understanding of the parties with respect
to the matters covered herein and therein and, except as specifically  set forth
herein  or  therein,   neither  the   Company  nor  the   Purchaser   makes  any
representation,  warranty, covenant or undertaking with respect to such matters.
No  provision  of this  Agreement  may be waived  or  amended  other  than by an
instrument in writing signed by the party to be charged with enforcement.

         Notices.  Any notices required or permitted to be given under the terms
         --------
of this  Agreement  shall be sent by U.S.  Mail or  delivered  personally  or by
courier or via  facsimile  (if via  facsimile,  to be followed  within three (3)
business  days by an original of the notice  document via U.S.  Mail or courier)
and shall be effective  five (5) days after being placed in the mail, if mailed,

                                       10
<PAGE>

certified or registered, return receipt requested, or upon receipt, if delivered
personally or by courier or by facsimile, in each case properly addressed to the
party to receive the same. The addresses for such communications shall be:

If to the Company:                  Youbet.com, Inc.
                                    5901 DeSoto Avenue
                                    Woodland Hills, CA  91367
                                    Attention:  President
                                    Telephone: (818) 668-2100
                                    Facsimile: (818) 668-2101

If to the  Purchaser,  at the address on the signature of this  Agreement.  Each
party shall provide written notice to the other party of any change in address.

         Successors and Assigns.  This Agreement shall be binding upon and inure
         ----------------------
to the benefit of the  parties  and their  respective  successors  and  assigns.
Neither the Company nor the Purchaser  shall assign this Agreement or any rights
or obligations  hereunder  without the prior written consent of the other (which
consent shall not be  unreasonably  withheld),  and in any event any assignee of
the Purchaser  shall be an accredited  investor (as defined in Regulation D), in
the written opinion of counsel who is reasonably  satisfactory  to Company,  and
such assignment shall be in form, substance and scope reasonably satisfactory to
the Company.  Notwithstanding  anything  herein to the  contrary,  Purchaser may
pledge the Note as  collateral  for a bona fide loan with a third party  lender,
and such pledge  shall not be  considered  an  assignment  in  violation of this
Agreement so long as it is made in compliance with all applicable law.

         No Third  Party  Beneficiaries.  This  Agreement  is  intended  for the
         -------------------------------
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

         Survival.  The  representations  and  warranties of the Company and the
         --------
Purchaser  contained in Sections 2 and 3 and the  agreements  and  covenants set
forth in Section 4 shall  survive the final  Closing of the purchase and sale of
the Note purchased and sold hereby.

         Further Assurance. Each party shall do and perform, or cause to be done
         -----------------
and performed,  all such further acts and things,  and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

         Remedies.  No provision of this  Agreement  providing  for any specific
         ---------
remedy to a party shall be construed to limit such party to the specific  remedy
described,  and any other remedy that would otherwise be available to such party
at law or in equity shall be so available. Nothing in this Agreement shall limit
any rights a party may have with any applicable federal or state securities laws
with respect to the transactions contemplated hereby.

                                       11
<PAGE>

         IN WITNESS WHEREOF, the Purchaser and the Company have caused this Note
Purchase Agreement to be duly executed as of the date first written above.

                                                THE COMPANY:

                                                YOUBET.COM, INC.

                                                By:
                                                    ---------------------------
                                                    Charles Champion, President

                                                THE PURCHASER:

                                               -------------------------------
                                                    [Investor]

                                       12
<PAGE>

                                 SCHEDULE 3(D)/
                                    CONSENTS

o    The Company may have to file a  transaction  notice under  Section 25102 of
     the  California  Corporations  Code.  The  Company  may be required to make
     additional filings under applicable state securities laws.

o    The  Company  may have to file a Form D with the  Securities  and  Exchange
     Commission and comply with certain Blue Sky requirements.

                                       13
<PAGE>

                                  SCHEDULE 3(G)
                                   LITIGATION

         On June 4, 1999, a complaint was filed against the Company in the Court
of  Chancery  of the State of  Delaware  in and for New Castle  County  entitled
George Von Opel v. Youbet Inc. (C.A. No. 17200 NC). In the complain Mr. Von Opel
alleges  that the Company  breached  its  contractual  obligation  pursuant to a
Private  Placement  Memorandum by failing to register the shares of common stock
underlying  400,000  warrants  issued by the Company to an  affiliate of Mr. Von
Opel.  The complain  seeks  specific  performance  of the alleged  obligation to
register such shares and damages for alleged breach of contract in the amount of
$8.7  million.  The Company has  answered  the  complaint  and intends to defend
itself  vigorously  in the action.  On August 19,  1999,  Mr. Von Opel moved for
summary  judgment on the issue of  liability,  which on June 2, 2000,  the court
denied.  The Company is proceeding with discovery and has noticed the deposition
of Mr. Von Opel. As the litigation is at an initial stage,  an outcome cannot be
predicted at this time.

                                       14
<PAGE>

                                  SCHEDULE 3(H)
                                 PLEDGED ASSETS

<TABLE>
<CAPTION>

1) Operating leases:
---------------------------------------------------------------------------------------------------------------------------
                                                                                NUMBER OF PAYMENTS
                                                                   MONTHLY           REMAINING          PURCHASE OPTION
                            PAYMENTS AT END OF LEASE
      DESCRIPTION            LEASE #             LESSOR
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
<S>                      <C>             <C>                      <C>            <C>                    <C>
Toshiba 5560 - copier    6703893-002     Toshiba easy lease          $694                4             Fair market value
---------------------------------------------------------------------------------------------------------------------------
Toshiba 6560 - copier    1482410         Citicorp                    $811               17             Fair market value
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------
</TABLE>

2) The Company has two  restricted  cash  accounts  with  respect to credit card
charges:

Surefire          $485,939

PRI               $54,344

The amounts will vary depending on charges.

3)       With respect to deposits from customers/subscribers:

         a)       The Company has a deposit with the State of California that is
                  restricted  ($500,000)  and with the State of  Oregon  that is
                  restricted ($XXX,XXX).

         b)       Deposits  from  customers/subscribers  are  held  in  a  trust
                  account  with  Comerica  Bank and are not the  property of the
                  estate in the case of bankruptcy

                                       15
<PAGE>

                                                                     EXHIBIT A

THIS NOTE HAS NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE,  PLEDGED  OR  HYPOTHECATED  IN THE  ABSENCE OF AN  EFFECTIVE  REGISTRATION
STATEMENT  AS TO THIS NOTE UNDER  SAID ACT OR AN  OPINION OF COUNSEL  REASONABLY
SATISFACTORY TO YOUBET.COM, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

                                      NOTE
                                      ----

                  FOR VALUE RECEIVED,  Youbet.com,  Inc. a Delaware  corporation
(the "Borrower"),  hereby promises to pay to [Investor] (the "Holder") or order,
without demand, the sum of [DOLLAR AMOUNT] ($XXX,XXX), with interest at the rate
of 10% per annum.  The principal  amount of the Note shall be due and payable on
February 11, 2005 (the "Maturity Date").

                  The following terms shall apply to this Note:

                                    ARTICLE I

                                     PAYMENT

                  1.1  Payment of Interest. Interest shall be paid quarterly
                       -------------------
in arrears commencing on May 11, 2003.

                  1.3  Maturity.  On the  Maturity  Date,  the entire  principal
                       --------
amount  and any unpaid  accrued  interest  shall be paid to the  Holder  without
offset or deduction of any kind.

                  1.4  Prepayment.  Any  prepayment  shall  include  all accrued
                       -----------
interest  to the  date of such  prepayment.  This  Note may be  prepaid  without
penalty prior to the Maturity Date upon at least 15 days notice.

                                   ARTICLE II

                                EVENTS OF DEFAULT

                  2.1 Events of Default.  The occurrence of any of the following
                      -----------------
events of  default  ("Event  of  Default")  shall,  at the  option of the Holder
hereof,  make the principal  balance then remaining  unpaid hereon and all other
amounts  payable  hereunder  immediately  due and payable,  all without  demand,
presentment  or notice,  or grace  period,  all of which  hereby  are  expressly
waived, except as set forth below:

                                       16
<PAGE>

                  (a) Failure to Pay  Principal  and/or  Interest.  The Borrower
                      -------------------------------------------
fails to pay any  installment of principal or interest  hereon when due and such
failure continues for a period of ten (10) days after the due date.

                  (b) Breach of  Covenant.  The  Borrower  breaches any material
                      --------------------
covenant or other term or condition of this Note,  the Note  Purchase  Agreement
entered into by the Holder and Borrower in connection  with this Note (the "Note
Purchase  Agreement"),  and the Intercreditors  Agreement,  each dated as of the
date hereof,  (together  with the Note  Purchase  Agreement,  collectively,  the
"Transactional  Documents") in any material respect and such breach,  if subject
to cure,  continues  for a period of ten (10) days after  written  notice to the
Borrower from the Holder.

                  (c) Breach of  Representations  and  Warranties.  Any material
                      --------------------------------------------
representation  or warranty  of the  Borrower  made herein in any  Transactional
Document shall be false or misleading in any material respect.

                  (d) Receiver or Trustee. The Borrower shall make an assignment
                      -------------------
for the benefit of creditors,  or apply for or consent to the  appointment  of a
receiver  or  trustee  for it or for a  substantial  part  of  its  property  or
business; or such a receiver or trustee shall otherwise be appointed.

                  (e)  Judgments.  Any money  judgment,  writ or  similar  final
                       ----------
process,  shall be entered or filed  against  Borrower or any of its property or
other assets for more than  $500,000,  and shall remain  unvacated,  unbonded or
unstayed for a period of forty-five (45) days.

                  (f)  Bankruptcy.  Bankruptcy,  insolvency,  reorganization  or
                       -----------
liquidation  proceedings or other proceedings or relief under any bankruptcy law
or any law for the  relief of debtors  shall be  instituted  by or  against  the
Borrower and if instituted  against Borrower are not dismissed within 60 days of
initiation.

                  (g) Cross  Default.  The Company  shall  default in any of its
                      --------------
obligations  under any mortgage,  indenture or instrument,  other than the lease
for the premises  located at 5901 DeSoto  Avenue,  Woodland  Hills,  California,
under  which  there may be issued any  indebtedness  of the Company in an amount
exceeding  $500,000 and such default shall result in such indebtedness  becoming
or being declared due and payable prior to the date on which it would  otherwise
become due and payable.

                  2.2 Enforcement.  Upon the occurrence of any Event of Default,
                      ------------
the Holder may  thereupon  proceed to protect and  enforce its rights  either by
suit in  equity  and/or by  action  at law or by other  appropriate  proceedings
whether for the  specific  performance  (to the extent  permitted by law) of any
covenant or  agreement  contained  in this Note or in aid of the exercise of any
power granted in this Note, and proceed to enforce the payment of this Note held
by it, and to enforce any other legal or equitable right of such Holder.

                  2.3 Waiver;  Release. Except as expressly provided for herein,
                      -----------------
the  Company  specifically  (i)  waives  all rights it may have (A) to notice of

                                       17
<PAGE>

nonpayment,  notice of  default,  demand,  presentment,  protest  and  notice of
protest with respect to any of the  obligations  hereunder  and (B) to notice of
acceptance  hereof or of any other action taken in reliance  hereon,  notice and
opportunity  to be heard  before the  exercise by the Holder of the  remedies of
self-help,  set-off,  or other  summary  procedures  and all other  demands  and
notices of any type or  description  except for cure periods;  and (ii) releases
the Holder, its officers,  directors,  agents,  employees and attorneys from all
claims for loss or damage caused by any act or failure to act on the part of the
Holder,  its officers,  attorneys,  agents,  directors and employees  except for
gross negligence or willful misconduct.

                  2.4 Intercreditors Agreement.  Notwithstanding anything herein
                      ------------------------
to the contrary,  all of Holder's rights hereunder shall be subject to the terms
of the  Intercreditors  Agreement dated as of the date hereof among Holder,  the
Borrower  and other  holders of notes of the Borrower of which this Note is part
of a series of notes. To the extent of any conflict  between the  Intercreditors
Agreement and this Note, the provisions of the  Intercreditors  Agreement  shall
prevail.

                                   ARTICLE III

                                  MISCELLANEOUS

                  3.1 Failure or Indulgence  Not Waiver.  No failure or delay on
                      ----------------------------------
the part of Holder  hereof in the  exercise  of any  power,  right or  privilege
hereunder  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  such  power,  right or  privilege  preclude  other or  further
exercise  thereof  or of any other  right,  power or  privilege.  All rights and
remedies existing  hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.

                  3.2  Notices.  Any notice  herein  required or permitted to be
                       -------
given  shall  be in  writing  and  may  be  personally  served  or  sent  by fax
transmission  (with copy sent by  certified or  registered  mail or by overnight
courier).  For the purposes hereof,  the address and fax number of the Holder is
as set  forth on the  first  page  hereof.  The  address  and fax  number of the
Borrower  shall  be  5901  DeSoto  Avenue,  Woodland  Hills,  California  91367,
facsimile  number:  (818)  668-2101.  Both  Holder and  Borrower  may change the
address  and fax number for  service by service of notice to the other as herein
provided.

                  3.3  Amendment  Provision.  The term "Note" and all  reference
                       ---------------------
thereto,  as used  throughout  this  instrument,  shall mean this  instrument as
originally executed, or if later amended or supplemented,  then as so amended or
supplemented.

                  3.4  Assignability.  This  Note  shall  be  binding  upon  the
                       --------------
Borrower and its successors  and assigns,  and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder.

                  3.5 Cost of  Collection.  If default is made in the payment of
                      -------------------
this Note,  Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.

                                       18
<PAGE>

                  3.6 Maximum Payments. Nothing contained herein shall be deemed
                      ----------------
to  establish  or require the payment of a rate of interest or other  charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest  required  to be paid or other  charges  hereunder  exceed the  maximum
permitted by such law, any payments in excess of such maximum  shall be credited
against  amounts  owed by the  Borrower  to the Holder and thus  refunded to the
Borrower.

                  3.7  Governing  Law and Venue.  This Note shall be governed by
                       ------------------------
and interpreted in accordance  with the laws of the State of California  without
regard to the  principles  of conflict of laws.  In the event of any  litigation
regarding  the   interpretation   or  application  of  this  Note,  the  parties
irrevocably  consent  to  jurisdiction  in any of the  state or  federal  courts
located in the City of Los Angeles,  State of California  and waive their rights
to  object  to  venue  in any  such  court,  regardless  of the  convenience  or
inconvenience  thereof  to any party.  Service  of  process in any civil  action
relating to or arising out of this Agreement or the transaction(s)  contemplated
herein may be  accomplished  in any manner  provided by law. The parties  hereto
agree that a final, non-appealable judgment in any such suit or proceeding shall
be  conclusive  and  may be  enforced  in  other  jurisdictions  by suit on such
judgment or in any other lawful manner.

         IN WITNESS  WHEREOF,  Borrower has caused this Note to be signed in its
name by its President on this 11th day of February, 2003.

                                      YOUBET.COM, INC.

                                      By:
                                        -------------------------------------
                                               Charles Champion, President

                                       19
<PAGE>

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