Document:

exv10w3

 

Exhibit 10.3

[Manufacturers and Traders Trust Company]

February 9, 2006

Youbet.com, Inc.

5901 De Soto Avenue

Woodland Hills, California 91367

Attention: Gary Sproule, CFO

United Tote Company

11505 Susquehanna Trial

Glen Rock, PA 17327

Attention: Terry Woods, President

     Re:     Sale of United Tote Company

Gentlemen:

     Pursuant to a Credit Agreement dated September 5, 2003, as amended by a First Amendment dated
January 4, 2005, a Second Amendment dated June 13, 2005, a Third Amendment dated August 22, 2005,
and a Fourth Amendment dated November 23, 2005 (as so amended, the “Credit Agreement”) by and among
United Tote Company (“Borrower”) and Manufacturers and Traders Trust Company (“Lender”), Lender has
made certain loans and financial accommodations available to Borrower. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed thereto in the Credit Agreement.

     Borrower, UT Group, LLC (the former sole shareholder of Borrower), Youbet.com, Inc.
(“Youbet”), and UT Gaming, Inc., a wholly-owned subsidiary of Youbet (“Purchaser”), in a Stock
Purchase Agreement dated as of November 30, 2005, as amended (the “Purchase Agreement”), agreed
that Purchaser will acquire 100% of Borrower’s outstanding capital stock (the “Capital Stock”) at
the time of purchase.

     The acquisition of Borrower by Purchaser would constitute an Event of Default (the “Potential
Event of Default”) pursuant to the terms and conditions set forth in the Credit Agreement in that
Borrower would undergo a Change of Control. Pursuant to Section 9(b) of the Credit
Agreement, upon the occurrence of any such Event of Default, Lender may declare all or any part of
any Obligations immediately due and payable without demand or notice of any kind and terminate any
obligation it may have to grant any additional loan, credit or other financial accommodation to the
Borrower or any Subsidiary.

     Lender agrees to forbear from exercising its rights and remedies as set forth in the Credit
Agreement (including any right to collect default interest or accelerate the maturity date of any

 

 

loans made by Lender to Borrower) with respect to the Potential Event of Default during the
Forbearance Period (as defined below) on the following express conditions:

     a. Affirmation of Obligations. Borrower hereby acknowledges that the
Transaction Documents and the Obligations of Borrower thereunder constitute valid
and binding obligations of Borrower, enforceable against Borrower in accordance
with their respective terms, and Borrower hereby affirms its obligations under the
Transaction Documents.

     b. Financial Statements. Borrower shall deliver, in form and
substance satisfactory to Lender, (i) a detailed budget for the fiscal year ending
December 31, 2006; and (ii) a 13-week cash forecast through May 5, 2006, in each
case no later than February 15, 2006.

     c. Guaranty. Each of Youbet and Purchaser shall enter into,
concurrently with the closing of the acquisition, a Guaranty in form and substance
satisfactory to Lender in which Youbet and Purchaser, as primary obligors and not
as sureties, guarantee to Lender the Obligations under the Credit Agreement, which
Guaranty shall constitute a Transaction Document under the Credit Agreement. Upon
the receipt of such Guaranty, Lender shall release UT Group, LLC from the
Continuing Guaranty delivered by it in connection with the consummation of the
financing transactions described in the Credit Agreement.

     As used herein, “Forbearance Period” shall mean the period commencing on the date of the
consummation of the acquisition of Borrower pursuant to the Stock Purchase Agreement and continuing
through the earliest of : (i) April 30, 2006; (ii) the occurrence of any Event of Default, other
than the Potential Event of Default or any Event of Default arising as a result of a breach of
Section 8 of the Credit Agreement for the period ending April 30, 2006; (iii) the date of any
breach of any of the conditions, agreements, representations or warranties provided in this letter
agreement; and (iv) the date on which the Lender received written notice from Youbet that the
Purchase Agreement has been terminated. In the event the acquisition is not consummated by
February 13, 2006, this letter agreement and any and all guaranties, pledge agreements or other
documents executed and delivered by Youbet and Purchaser shall be deemed null and void and of no
legal consequence.

     The Borrower acknowledges and agrees that upon the termination of Lender’s agreement to
forbear as provided herein, Lender shall be entitled to exercise any or all of its rights and
remedies under the Transaction Documents or any applicable law, including seeking the appointment
of a receiver, acceleration of the Obligations and at any time thereafter Lender shall be entitled
to exercise any or all of its rights and remedies under the Transaction Documents as a result of
any Default or Event of Default.

     Each of Youbet, Purchaser and Borrower (collectively, the “Companies”) hereby acknowledge and
agree that (a) Lender has not agreed to, and Lender has no obligations whatsoever to discuss,
negotiate or to agree to, any restructuring of Companies’ liabilities to Lender, or any
modification, amendment, restructuring, restatement or renewal of the Credit Agreement or the other
Transaction Documents, (b) if there are any future discussions between Lender and Companies
concerning any such modification, amendment, restructuring, restatement, renewal or forbearance,
that no modification, amendment, restructuring,

-2-

 

restatement, renewal, forbearance, compromise, settlement, agreement or understanding with
respect to Companies’ liabilities to Lender under the Credit Agreement or the other Transaction
Documents or any term, provision or aspect thereof, shall constitute a legally binding agreement or
contract or have any force or effect whatsoever unless and until reduced to writing and signed by
authorized representatives of all parties thereto, and that none of the parties hereto shall assert
or claim in any legal proceedings or otherwise that any such agreement or contract exists except in
accordance with the terms of this agreement, (c) if there are any future discussions among Lender
and Companies or any of their respective affiliates concerning any new loan, financing or other
extension of credit by Lender, that no such discussions or any written correspondence, proposals or
other communications in conjunction therewith shall constitute a legally binding agreement or
contract or have any force or effect whatsoever unless and until, if ever, reduced to writing and
signed by authorized representatives of all parties thereto, and that none of the parties hereto
shall assert or claim in any legal proceedings or otherwise that any such agreement or contract
exists except in accordance with the terms of this agreement, and (d) except as otherwise expressly
set forth herein, the Credit Agreement and the other Transaction Documents shall remain unchanged
and in full force and effect.

     This letter agreement is limited as specified and shall not constitute (i) an endorsement of
any action or inaction of any Company or (ii) a modification, amendment or waiver of any other
provision of the Credit Agreement or any of the other Transaction Documents. Each Company agrees
that it will not assert laches, waiver or any other defense to the enforcement of any of the
Transaction Documents based upon the foregoing agreement.

     This Agreement shall be construed and enforced in accordance with and governed by all of the
provisions of the internal laws (as opposed to conflicts of law provisions) of the State of
Maryland.

     All provisions, terms or conditions and all covenants, representations, warranties and
agreement contained in the Transaction Documents shall remain in full force and effect, except as
expressly provided herein. The forbearance referenced herein is limited to the specifics hereof,
shall not apply with respect to any facts or occurrences other than those on which the same are
based and shall not be deemed to constitute a waiver or modification of any other term, provision
or condition of the Credit Agreement or any other Transaction Document or to prejudice any right or
remedy that any holder of the Security Documents may now have or may have in the future.

     Please acknowledge your receipt and acceptance of the terms of this letter by signing in the
space below.

{Signatures on following page}

-3-

 

	 	 	 	 	 
	 	Sincerely,

MANUFACTURERS AND TRADERS TRUST COMPANY

 	 
	 	By:  	/s/ William Keehn
 	 
	 	Name:  	William Keehn 
	 	Title:  	Vice President 
	 
	 	YOUBET.COM, INC.

 	 
	 	By:  	/s/ Gary W. Sproule
 	 
	 	Name:  	Gary W. Sproule 
	 	Title:  	Chief Financial Officer 
	 
	 	UT GAMING, INC.

 	 
	 	By:  	                   /s/ Gary W. Sproule
 	 
	 	Name:  	Gary W. Sproule 
	 	Title:  	Chief Financial Officer 
	 
	 	UNITED TOTE COMPANY

 	 
	 	By:  	                   /s/ Robert E. Michalik
 	 
	 	Name:  	Robert E. Michalik 
	 	Title:  	Vice Presidentexv10w4

 

Exhibit 10.4

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR ANY COMPARABLE STATE SECURITIES LAW. NEITHER THIS NOTE NOR ANY PORTION
HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF.

YOUBET.COM, INC.

PROMISSORY NOTE

			
	$5,200,000
	 	February 10, 2006

     Youbet.com, Inc., a Delaware corporation (the “Company”), hereby promises to pay to the order
of UT Group, LLC, a Delaware limited liability company (the “Holder”), the principal amount of Five
Million Two Hundred Thousand Dollars ($5,200,000), together with interest thereon calculated from
the date hereof in accordance with the provisions of this promissory note (this “Note”).

     This Note is one of three promissory notes issued pursuant to that certain Stock Purchase
Agreement, dated as of November 30, 2005 (as amended, modified or supplemented from time to time,
the “Purchase Agreement”), by and among the Company, UT Gaming, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company, the Holder and United Tote Company, a Montana corporation
(“UTCo”). The promissory notes issued pursuant to the Purchase Agreement are collectively referred
to herein as the “Purchase Notes.” Except as defined in Section 6 hereof or otherwise indicated
herein, capitalized terms used in this Note shall have the meanings ascribed to them in the
Purchase Agreement.

     1. Interest.

     (a) Accrual. Interest shall accrue on the principal amount of this Note outstanding
from time to time at a rate per annum equal to 5.02% (the LIBOR Rate). Such interest shall be
computed on the basis of a 360-day year for the actual number of days elapsed during which it
accrues.

     (b) Payment of Interest. On the last day of each Interest Period, the Company will pay
to the Holder all interest on the unpaid principal amount of this Note accrued during such Interest
Period.

     2. Payment of Principal.

     (a) Maturity. The Company shall pay the unpaid principal amount of this Note then
outstanding to the Holder, together with all unpaid interest accrued thereon, on February 9, 2007.

     (b) Optional Prepayments. The Company may, at any time and from time to time without
premium or penalty, prepay all or any portion of the outstanding principal amount of this Note
(together with all unpaid interest accrued thereon).

     (c) Mandatory Prepayments.

     (i) In the event any Affiliated Company receives any Excess Capital, the Company shall
make a prepayment on this Note in an amount equal to the lesser of (x) the then outstanding
principal amount of this Note and all unpaid interest accrued thereon and (y) the amount of
such

 

 

Excess Capital. Such prepayment shall be made within five (5) Business Days of the
applicable Affiliated Company’s receipt of such Excess Capital. Prepayments under this
Section 2(c) shall first be applied to accrued and unpaid interest on this Note, and then to
the outstanding principal of this Note.

     (ii) In the event that a Sale of the Company or a Sale of UTCo is consummated, the
Company shall prepay the outstanding principal amount of this Note and all unpaid interest
accrued thereon in full within five (5) Business Days of the consummation thereof.

     3. No Set Off. The Holder has made certain representations, warranties,
covenants and indemnities set forth in the Purchase Agreement. The Company agrees that the Company
may not set off any obligation of the Holder, including, without limitation, any Loss with respect
to which the Company is entitled to indemnification against any amounts due or outstanding under
this Note, whether this Note is held by the Holder or any of its successors or permitted assigns.

     4. Default and Acceleration.

     (a) Events of Default. The occurrence of any one of the following events shall
constitute an event of default by the Company hereunder (“Event of Default”) and shall cause the
full unpaid principal balance hereof, together with all accrued interest thereon, to become
immediately due and payable: (i) any principal or interest hereunder is not paid when due and
remains unpaid for a period of five (5) days following the date when due; (ii) a petition in
bankruptcy is filed by the Company or a proceeding is instituted by the Company under any law of
the United States for the relief of debtors; (iii) a petition in bankruptcy is filed against the
Company and remains undismissed or undischarged for a period of ninety (90) days after the filing
thereof; (iv) an “Event of Default” under any of the other Purchase Notes (as such term is defined
in such Purchase Notes); or (v) an event of default occurs with respect to any Indebtedness of the
Company or UTCo with a principal amount outstanding of at least $1,000,000 (other than Indebtedness
under the Purchase Notes) and as a result of such event of default such Indebtedness is declared to
be or becomes due and payable prior its stated maturity.

     (b) Default Interest. Interest shall accrue on the outstanding principal amount of
this Note at a per annum rate equal to 11.02% upon the occurrence of an Event of Default and until
the earlier of the date on which (i) the Event of Default is cured, or (ii) the full unpaid
principal amount of this Note, together with all accrued and unpaid interest thereon, is paid in
full. Such interest shall be computed on the basis of a 360-day year for the actual number of days
elapsed during which it accrues.

     5. Covenants and Representations. The Company hereby covenants that it
shall not declare or pay any dividend (other than a dividend payable solely in capital stock of the
Company) to its stockholders for so long as any principal or accrued unpaid interest remains
outstanding under this Note. The Company hereby represents that for the year ended December 31,
2005, the Company’s revenues constituted at least eighty percent (80%) of the consolidated revenues
of the Affiliated Companies.

     6. Definitions.

     “Affiliated Companies” means, collectively, the Company and all Subsidiaries of the Company.

     “Dollars”, “dollars” and “$” each mean lawful money of the United States of America.

     “Excess Capital” means the sum of (i) the difference between (A) the sum of (x) the aggregate
amount of any Indebtedness for borrowed money incurred by any Affiliated Company from any Person
other than an Affiliated Company after the date hereof (other than Indebtedness under the Credit

2

 

Agreement, Indebtedness incurred to Refinance other Indebtedness, un-drawn amounts under
revolving credit facilities and amounts drawn under any revolving credit facility to the extent
such amounts have previously been borrowed and repaid), net of any fees and expenses incurred in
connection therewith, plus (y) the proceeds received by an Affiliated Company from any Person other
than an Affiliated Company after the date hereof from the sale of capital stock of such Affiliated
Company (other than the proceeds received from officers, directors or employees of any of the
Affiliated Companies upon exercise of stock options or issuances of restricted stock and from the
exercise of outstanding warrants), net of any fees and expenses incurred in connection therewith,
minus (B) $5,000,000, plus (ii) the difference between (I) the after-tax proceeds received by any
of the Affiliated Companies from any Person other than an Affiliated Company after the date hereof
from the sale of assets (other than sales of assets in the ordinary course of business), net of any
fees and expenses incurred in connection therewith, minus (II) $5,000,000.

     “Indebtedness” means with respect to any Person (i) all obligations of such Person for
borrowed money, whether current or funded, secured or unsecured, (ii) all obligations of such
Person for the deferred purchase price of any property or services (other than trade accounts
payable arising in the ordinary course of the business of such Person), (iii) all obligations of
such Person created or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of a default may be limited to repossession or sale of
such property), (iv) all obligations of such Person secured by a purchase money mortgage or other
lien to secure all or part of the purchase price of property subject to such mortgage or lien, (v)
all obligations under leases which shall have been or should be, in accordance with GAAP, recorded
as capital leases in respect of which such Person is liable as lessee, (vi) any obligation of such
Person in respect of bankers’ acceptances or letters of credit, (vii) any obligations secured by
liens on property acquired by such Person, whether or not such obligations were assumed by such
Person at the time of acquisition of such property, (viii) all obligations of a type referred to in
clauses (i) through (vii) above which is directly or indirectly guaranteed by such Person or which
it has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which
it has otherwise assured a creditor against loss and (ix) any refinancings of any obligation of a
type referred to in clauses (i) through (viii) above.

     “Interest Period” means (i) initially, the period commencing on the date hereof and ending May
31, 2006, and (ii) thereafter, the quarterly periods ending on August 31, 2006, and November 30,
2006, and (iii) thereafter, the period commencing on December 1, 2006 and ending on the date which
is the one (1) year anniversary of the date of this Note.

     “LIBOR Rate” means the offered rate per annum for deposits of Dollars for twelve (12) month
loans that appears on Telerate Page 3750 as of 11:00 A.M. (London, England time) three (3) Business
Days prior to the date of this Note.

     “Refinance” means, in respect of any security or Indebtedness, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in
exchange or replacement for, such security or Indebtedness, in whole or in part. “Refinanced” and
“Refinancing” shall have correlative meanings.

     “Sale of the Company” means:

     (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the exchange Act of 1934, as amended (the “Exchange Act”)), of beneficial ownership
of a majority of the then outstanding shares of common stock of the Company or the combined voting
power of the then outstanding voting securities of the Company entitled to vote generally in the
election of

3

 

directors; provided, however, that any acquisition by an Affiliated Company,
or any employee benefit plan (or related trust) of any Affiliated Company, of the then outstanding
shares of common stock of the Company or the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of directors as the case may
be, shall not constitute a Sale of the Company;

     (b) approval by the stockholders of the Company of a reorganization, merger or consolidation
of the Company, in each case, with respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting securities of the Company immediately
prior to such reorganization, merger or consolidation do not, following such reorganization, merger
or consolidation, beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding common stock and voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such reorganization, merger or
consolidation, or a complete liquidation or dissolution of the Company; or

     (c) the sale or other disposition of all or substantially all of the assets of the Company.

     “Sale of UTCo” means the sale of UTCo to any Person or group of Persons, in each case, that is
not an Affiliate of the Company, pursuant to which such Person or group of Persons acquires capital
stock of UTCo possessing the voting power under normal circumstances to elect a majority of the
members of the Board of Directors of UTCo (whether by merger, consolidation or sale or transfer of
UTCo’s capital stock) or the sale or other disposition of all or substantially all of the assets of
UTCo.

     “Transfer” means any sale, transfer, assignment, pledge, mortgage, exchange, hypothecation,
gift, grant of a security interest or other direct or indirect disposition or encumbrance of an
interest, whether with or without consideration and whether voluntarily, involuntarily or by
operation of law.

     7. Assignment; Replacement; Cancellation.

     (a) Transfer. The holder of this Note may not directly or indirectly Transfer this
Note without the Company’s prior written consent. Any attempted transfer of this Note in violation
of this Section 7(a) shall be null and void and of no force or effect. The Company shall be under
no obligation to make payment of principal or interest under this Note to any Person other than the
Holder or its transferee in a Transfer made in compliance with this Section 7(a).

     (b) Replacement. Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or, in the case
of any such mutilation, upon the surrender of this Note to the Company at its principal office, the
Company shall execute and deliver, in lieu thereof, a new Note representing the same rights
represented by such lost, stolen, destroyed or mutilated Note and dated so that there will be no
loss of interest on such Note.

     (c) Cancellation. Immediately after all principal and accrued interest owed on this
Note have been paid in full, this Note shall be automatically canceled, and the Holder shall
promptly surrender this Note to the Company for cancellation.

     8. Payments. All payments when made to the Holder shall be paid in the
lawful money of the United States of America in immediately available funds.

4

 

     9. Place of Payment; Notice. Payments of principal and interest and all
notices, requests, demands and other communications (each of which shall be in writing) shall be
delivered to the parties herein, as applicable, at the following addresses:

	 	 	 	 	 
	 

	 	If to the Company:
	 	Youbet.com, Inc.
	 

	 	 	 	5901 De Soto Avenue
	 

	 	 	 	Woodland Hills, California 91367
	 

	 	 	 	Attention: Scott Solomon
	 

	 	 	 	Fax: (818) 668-2101
	 
	 	 	 	 
	 

	 	 	 	with a copy to (which copy shall not constitute a
notice hereunder):
	 
	 	 	 	 
	 

	 	 	 	Katten Muchin Rosenman LLP
	 

	 	 	 	525 West Monroe Street
	 

	 	 	 	Chicago, Illinois 60661
	 

	 	 	 	Attention: Kenneth W. Miller
	 

	 	 	 	Fax: (312) 902-1061
	 
	 	 	 	 
	 

	 	If to the Holder:
	 	UT Group, LLC
	 

	 	 	 	c/o Kinderhook Industries, LLC
	 

	 	 	 	888 Seventh Avenue
	 

	 	 	 	16th Floor
	 

	 	 	 	New York, NY 10106
	 

	 	 	 	Attention: Robert E. Michalik
	 

	 	 	 	Fax: (212) 201-6790
	 
	 	 	 	 
	 

	 	 	 	with a copy to(which copy shall not
constitute a notice hereunder):
	 
	 	 	 	 
	 

	 	 	 	Kirkland & Ellis LLP
	 

	 	 	 	153 East 53rd Street
	 

	 	 	 	New York, NY 10022
	 

	 	 	 	Attention: W. Brian Raftery
	 

	 	 	 	Fax: (212) 446-6460

     or to such other address or to the attention of such other person as is specified from time to
time by prior written notice.

     10. Business Days. If any payment is due, or any time period for giving
notice or taking action expires, on a day that is not a Business Day, the payment shall be due and
payable on, and the time period shall automatically be extended to, the next succeeding Business
Day, and interest shall continue to accrue at the applicable rate provided hereunder until any such
payment is made.

     11. Governing Law. All issues and questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the State of New York.

5

 

     12. Enforcement. The Company hereby agrees to pay or reimburse the Holder
for all reasonable costs, including without limitation reasonable attorneys’ fees, incurred by the
Holder in seeking to enforce the obligations of the Company to pay any portion of the principal
amount hereunder or any accrued interest thereon, when due in accordance with the terms hereof but
unpaid, against the Company after and during the continuance of an Event of Default, whether or not
pursued in arbitral forums or otherwise.

     13. Severability. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Note is held to be invalid, illegal or unenforceable in any respect under any applicable
law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Note shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been
contained herein.

     14. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND, BY ACCEPTING THIS NOTE,
THE HOLDER HEREBY, TO THE FULLEST EXTENT PERMITTED BY LAW, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING INSTITUTED IN CONNECTION WITH THIS NOTE. EACH OF THE COMPANY
AND THE HOLDER HEREBY REPRESENTS TO THE OTHER THAT THE FOREGOING WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY GIVEN.

[Signature page follows.]

6

 

     IN WITNESS WHEREOF, this promissory note has been executed as of the date first above
written.

	 	 	 	 	 
	 	YOUBET.COM, INC.

 	 
	 	By:  	Gary W. Sproule
 	 
	 	Name:  	Gary W. Sproule 
	 	Its:  Chief Financial Officer 	 
	 

The undersigned hereby acknowledges the
terms of this promissory note:

UT GROUP, LLC

	 	 	 	 	 
	By:

	 	Robert E. Michalik
	 	 
	Name: Robert E. Michalik	 	 
	Its: Vice President	 	 

SIGNATURE PAGE TO PROMISSORY NOTE

 

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR ANY COMPARABLE STATE SECURITIES LAW. NEITHER THIS NOTE NOR ANY PORTION
HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF.

YOUBET.COM, INC.

PROMISSORY NOTE

			
	$1,800,000
	 	February 10, 2006

     Youbet.com, Inc., a Delaware corporation (the “Company”), hereby promises to pay to the order
of UT Group, LLC, a Delaware limited liability company (the “Holder”), the principal amount of One
Million Eight Hundred Thousand Dollars ($1,800,000), together with interest thereon calculated from
the date hereof in accordance with the provisions of this promissory note (this “Note”).

     This Note is one of three promissory notes issued pursuant to that certain Stock Purchase
Agreement, dated as of November 30, 2005 (as amended, modified or supplemented from time to time,
the “Purchase Agreement”), by and among the Company, UT Gaming, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company, the Holder and United Tote Company, a Montana corporation
(“UTCo”). The promissory notes issued pursuant to the Purchase Agreement are collectively referred
to herein as the “Purchase Notes.” Except as defined in Section 6 hereof or otherwise indicated
herein, capitalized terms used in this Note shall have the meanings ascribed to them in the
Purchase Agreement.

     1. Interest.

     (a) Accrual. Interest shall accrue on the principal amount of this Note
outstanding from time to time at a rate per annum equal to 5.02% (the LIBOR Rate). Such interest
shall be computed on the basis of a 360-day year for the actual number of days elapsed during which
it accrues.

     (b) Payment of Interest. The Company will pay to the Holder all interest accrued on
the unpaid principal amount of this Note on the Maturity Date.

     2. Payment of Principal.

     (a) Maturity. The Company shall pay the unpaid principal amount of this Note then
outstanding to the Holder, together with all unpaid interest accrued thereon, on February 8, 2008
(the “Maturity Date”).

     (b) Optional Prepayments. The Company may, at any time and from time to time without
premium or penalty, prepay all or any portion of the outstanding principal amount of this Note
(together with all unpaid interest accrued thereon). In the event the Company elects to make any
such prepayment on or prior to March 9, 2007, the Holder and the Company shall enter into an escrow
agreement (the “Retention Escrow Agreement”) in substantially the form attached as
Exhibit 4 to the Purchase Agreement, and the Company shall fund the amount of such
prepayment in to an escrow account to be held pursuant to the Retention Escrow Agreement.

     (c) Mandatory Prepayments. After all obligations for principal and interest under the
$5.2 Million Note have been paid in full:

 

 

     (i) In the event any Affiliated Company receives any Excess Capital, the Company shall
make a prepayment on this Note in an amount equal to the lesser of (x) the then outstanding
principal amount of this Note and all unpaid interest accrued thereon and (y) the amount of
such Excess Capital. Such prepayment shall be made within five (5) Business Days of the
applicable Affiliated Company’s receipt of such Excess Capital. Prepayments under this
Section 2(c) shall first be applied to accrued and unpaid interest on this Note, and then to
the outstanding principal of this Note.

     (ii) In the event that a Sale of the Company or a Sale of UTCo is consummated, the
Company shall prepay the outstanding principal amount of this Note and all unpaid interest
accrued thereon in full within five (5) Business Days of the consummation thereof.

     (iii) Notwithstanding anything to the contrary contained in this Section 2(c), the
Company shall not be required to make any prepayment on this Note on or prior to March 9,
2007; provided that in the event the Company becomes obligated to make a prepayment
pursuant to paragraph (i) or (ii) above at any time on or prior to March 9, 2007, the
Company shall be obligated to make such prepayment on March 12, 2007.

     3. Set Off. The Holder has made certain representations, warranties,
covenants and indemnities set forth in the Purchase Agreement. Except as set forth in the
following sentence, the Company agrees that the Company may not set off any obligation of the
Holder, including, without limitation, any Loss with respect to which the Company is entitled to
indemnification against any amounts due or outstanding under this Note, whether this Note is held
by the Holder or any of its successors or permitted assigns. The Holder agrees that the Company
may set off any payments required under Section 2(a) of that certain Management Retention
Agreement, dated February 10, 2006, by and among the Company, Holder, Joe Tracy and Terry Woods,
against any amounts due or outstanding under this Note, whether this Note is held by the Holder or
any of its successors or permitted assigns.

     4. Default and Acceleration.

     (a) Events of Default. The occurrence of any one of the following events shall
constitute an event of default by the Company hereunder (“Event of Default”) and shall cause the
full unpaid principal balance hereof, together with all accrued interest thereon, to become
immediately due and payable; provided, that in no event shall the foregoing cause any such
amounts to come due on or prior to March 9, 2007: (i) any principal or interest hereunder is not
paid when due and remains unpaid for a period of five (5) days following the date when due; (ii) a
petition in bankruptcy is filed by the Company or a proceeding is instituted by the Company under
any law of the United States for the relief of debtors; (iii) a petition in bankruptcy is filed
against the Company and remains undismissed or undischarged for a period of ninety (90) days after
the filing thereof; (iv) an “Event of Default” under any of the other Purchase Notes (as such term
is defined in such Purchase Notes); or (v) an event of default occurs with respect to any
Indebtedness of the Company or UTCo with a principal amount outstanding of at least $1,000,000
(other than Indebtedness under the Purchase Notes) and as a result of such event of default such
Indebtedness is declared to be or becomes due and payable prior its stated maturity.

     (b) Default Interest. Interest shall accrue on the outstanding principal amount of
this Note at a per annum rate equal to 11.02% upon the occurrence of an Event of Default and until
the earlier of the date on which (i) the Event of Default is cured, or (ii) the full unpaid
principal amount of this Note, together with all accrued and unpaid interest thereon, is paid in
full. Such interest shall be computed on the basis of a 360-day year for the actual number of days
elapsed during which it accrues.

2

 

     5. Covenants and Representations. The Company hereby covenants that it
shall not declare or pay any dividend (other than a dividend payable solely in capital stock of the
Company) to its stockholders for so long as any principal or accrued unpaid interest remains
outstanding under this Note. The Company hereby represents that for the year ended December 31,
2005, the Company’s revenues constituted at least eighty percent (80%) of the consolidated revenues
of the Affiliated Companies.

     6. Definitions.

     “Affiliated Companies” means, collectively, the Company and all Subsidiaries of the Company.

     “Dollars”, “dollars” and “$” each mean lawful money of the United States of America.

     “Excess Capital” means the difference between (x) the sum of (i) the difference between (A)
the sum of (1) the aggregate amount of any Indebtedness for borrowed money incurred by any
Affiliated Company from any Person other than an Affiliated Company after the date hereof (other
than Indebtedness under the Credit Agreement, Indebtedness incurred to Refinance other
Indebtedness, un-drawn amounts under revolving credit facilities and amounts drawn under any
revolving credit facility to the extent such amounts have previously been borrowed and repaid), net
of any fees and expenses incurred in connection therewith, plus (2) the proceeds received by an
Affiliated Company from any Person other than an Affiliated Company after the date hereof from the
sale of capital stock of such Affiliated Company (other than the proceeds received from officers,
directors or employees of any of the Affiliated Companies upon exercise of stock options or
issuances of restricted stock and from the exercise of outstanding warrants), net of any fees and
expenses incurred in connection therewith, minus (B) $5,000,000, plus (ii) the difference between
(I) the after-tax proceeds received by any of the Affiliated Companies from any Person other than
an Affiliated Company after the date hereof from the sale of assets (other than sales of assets in
the ordinary course of business), net of any fees and expenses incurred in connection therewith,
minus (II) $5,000,000; minus (y) the sum of all mandatory prepayments made pursuant to the $5.2
Million Note with any such amounts.

     “Indebtedness” means with respect to any Person (i) all obligations of such Person for
borrowed money, whether current or funded, secured or unsecured, (ii) all obligations of such
Person for the deferred purchase price of any property or services (other than trade accounts
payable arising in the ordinary course of the business of such Person), (iii) all obligations of
such Person created or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of a default may be limited to repossession or sale of
such property), (iv) all obligations of such Person secured by a purchase money mortgage or other
lien to secure all or part of the purchase price of property subject to such mortgage or lien, (v)
all obligations under leases which shall have been or should be, in accordance with GAAP, recorded
as capital leases in respect of which such Person is liable as lessee, (vi) any obligation of such
Person in respect of bankers’ acceptances or letters of credit, (vii) any obligations secured by
liens on property acquired by such Person, whether or not such obligations were assumed by such
Person at the time of acquisition of such property, (viii) all obligations of a type referred to in
clauses (i) through (vii) above which is directly or indirectly guaranteed by such Person or which
it has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which
it has otherwise assured a creditor against loss and (ix) any refinancings of any obligation of a
type referred to in clauses (i) through (viii) above.

     “LIBOR Rate” means the offered rate per annum for deposits of Dollars for twelve (12)
month loans that appears on Telerate Page 3750 as of 11:00 A.M. (London, England time) three (3)
Business Days prior to the date of this Note.

3

 

     “Refinance” means, in respect of any security or Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in
exchange or replacement for, such security or Indebtedness, in whole or in part. “Refinanced” and
“Refinancing” shall have correlative meanings.

     “Sale of the Company” means:

     (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the exchange Act of 1934, as amended (the “Exchange Act”)), of beneficial ownership
of a majority of the then outstanding shares of common stock of the Company or the combined voting
power of the then outstanding voting securities of the Company entitled to vote generally in the
election of directors; provided, however, that any acquisition by an Affiliated
Company, or any employee benefit plan (or related trust) of any Affiliated Company, of the then
outstanding shares of common stock of the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the election of
directors as the case may be, shall not constitute a Sale of the Company;

     (b) approval by the stockholders of the Company of a reorganization, merger or consolidation
of the Company, in each case, with respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting securities of the Company immediately
prior to such reorganization, merger or consolidation do not, following such reorganization, merger
or consolidation, beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding common stock and voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such reorganization, merger or
consolidation, or a complete liquidation or dissolution of the Company; or

     (c) the sale or other disposition of all or substantially all of the assets of the Company.

     “Sale of UTCo” means the sale of UTCo to any Person or group of Persons, in each case, that is
not an Affiliate of the Company, pursuant to which such Person or group of Persons acquires capital
stock of UTCo possessing the voting power under normal circumstances to elect a majority of the
members of the Board of Directors of UTCo (whether by merger, consolidation or sale or transfer of
UTCo’s capital stock) or the sale or other disposition of all or substantially all of the assets of
UTCo.

     “Transfer” means any sale, transfer, assignment, pledge, mortgage, exchange, hypothecation,
gift, grant of a security interest or other direct or indirect disposition or encumbrance of an
interest, whether with or without consideration and whether voluntarily, involuntarily or by
operation of law.

     7. Assignment; Replacement; Cancellation.

     (a) Transfer. The holder of this Note may not directly or indirectly Transfer this
Note without the Company’s prior written consent. Any attempted transfer of this Note in violation
of this Section 7(a) shall be null and void and of no force or effect. The Company shall be under
no obligation to make payment of principal or interest under this Note to any Person other than the
Holder or its transferee in a Transfer made in compliance with this Section 7(a).

     (b) Replacement. Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or, in the case
of any such mutilation, upon the surrender of this Note to the Company at its principal office, the
Company shall

4

 

execute and deliver, in lieu thereof, a new Note representing the same rights represented by
such lost, stolen, destroyed or mutilated Note and dated so that there will be no loss of interest
on such Note.

     (c) Cancellation. Immediately after all principal and accrued interest owed on this
Note have been paid in full, this Note shall be automatically canceled, and the Holder shall
promptly surrender this Note to the Company for cancellation.

     8. Payments. All payments when made to the Holder shall be paid in the
lawful money of the United States of America in immediately available funds.

     9. Place of Payment; Notice. Payments of principal and interest and all
notices, requests, demands and other communications (each of which shall be in writing) shall be
delivered to the parties herein, as applicable, at the following addresses:

	 	 	 	 	 
	 

	 	If to the Company:
	 	Youbet.com, Inc.
	 

	 	 	 	5901 De Soto Avenue
	 

	 	 	 	Woodland Hills, California 91367
	 

	 	 	 	Attention: Scott Solomon
	 

	 	 	 	Fax: (818) 668-2101
	 
	 	 	 	 
	 

	 	 	 	with a copy to (which copy shall not constitute a
notice hereunder):
	 
	 	 	 	 
	 

	 	 	 	Katten Muchin Rosenman LLP
	 

	 	 	 	525 West Monroe Street
	 

	 	 	 	Chicago, Illinois 60661
	 

	 	 	 	Attention: Kenneth W. Miller
	 

	 	 	 	Fax: (312) 902-1061
	 
	 	 	 	 
	 

	 	If to the Holder:
	 	UT Group, LLC
	 

	 	 	 	c/o Kinderhook Industries, LLC
	 

	 	 	 	888 Seventh Avenue
	 

	 	 	 	16th Floor
	 

	 	 	 	New York, NY 10106
	 

	 	 	 	Attention: Robert E. Michalik
	 

	 	 	 	Fax: (212) 201-6790
	 
	 	 	 	 
	 

	 	 	 	with a copy to(which copy shall not constitute a notice hereunder):
	 
	 	 	 	 
	 

	 	 	 	Kirkland & Ellis LLP
	 

	 	 	 	153 East 53rd Street
	 

	 	 	 	New York, NY 10022
	 

	 	 	 	Attention: W. Brian Raftery
	 

	 	 	 	Fax: (212) 446-6460

     or to such other address or to the attention of such other person as is specified from time to
time by prior written notice.

5

 

     10. Business Days. If any payment is due, or any time period for giving
notice or taking action expires, on a day that is not a Business Day, the payment shall be due and
payable on, and the time period shall automatically be extended to, the next succeeding Business
Day, and interest shall continue to accrue at the applicable rate provided hereunder until any such
payment is made.

     11. Governing Law. All issues and questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the State of New York.

     12. Enforcement. The Company hereby agrees to pay or reimburse the Holder
for all reasonable costs, including without limitation reasonable attorneys’ fees, incurred by the
Holder in seeking to enforce the obligations of the Company to pay any portion of the principal
amount hereunder or any accrued interest thereon, when due in accordance with the terms hereof but
unpaid, against the Company after and during the continuance of an Event of Default, whether or not
pursued in arbitral forums or otherwise.

     13. Severability. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Note is held to be invalid, illegal or unenforceable in any respect under any applicable
law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Note shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been
contained herein.

     14. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND, BY ACCEPTING THIS NOTE,
THE HOLDER HEREBY, TO THE FULLEST EXTENT PERMITTED BY LAW, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING INSTITUTED IN CONNECTION WITH THIS NOTE. EACH OF THE COMPANY
AND THE HOLDER HEREBY REPRESENTS TO THE OTHER THAT THE FOREGOING WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY GIVEN.

[Signature page follows.]

6

 

     IN WITNESS WHEREOF, this promissory note has been executed as of the date first above written.

	 	 	 	 	 
	 	YOUBET.COM, INC.

 	 
	 	By:  	Gary W. Sproule
 	 
	 	Name:  	Gary W. Sproule 	 
	 	Its:  Chief Financial Officer 	 
	 

The undersigned hereby acknowledges the
terms of this promissory note:

UT GROUP, LLC

	 	 	 	 	 
	By:

	 	Robert E. Michalik
	 	 
	Name: Robert E. Michalik	 	 
	Its: Vice President	 	 

SIGNATURE PAGE TO PROMISSORY NOTE

 

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR ANY COMPARABLE STATE SECURITIES LAW. NEITHER THIS NOTE NOR ANY PORTION
HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF.

YOUBET.COM, INC.

PROMISSORY NOTE

			
	$3,200,000
	 	February 10, 2006

     Youbet.com, Inc., a Delaware corporation (the “Company”), hereby promises to pay to the order
of UT Group, LLC, a Delaware limited liability company (the “Holder”), the principal amount of
Three Million Two Hundred Thousand Dollars ($3,200,000), together with interest thereon calculated
from the date hereof in accordance with the provisions of this promissory note (this “Note”).

     This Note is one of three promissory notes issued pursuant to that certain Stock Purchase
Agreement, dated as of November 30, 2005 (as amended, modified or supplemented from time to time,
the “Purchase Agreement”), by and among the Company, UT Gaming, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company, the Holder and United Tote Company, a Montana corporation
(“UTCo”). The promissory notes issued pursuant to the Purchase Agreement are collectively referred
to herein as the “Purchase Notes.” Except as defined in Section 6 hereof or otherwise indicated
herein, capitalized terms used in this Note shall have the meanings ascribed to them in the
Purchase Agreement.

     1. Interest.

     (a) Accrual. Interest shall accrue on the principal amount of this Note
outstanding from time to time at a rate per annum equal to 5.02% (the LIBOR Rate). Such interest
shall be computed on the basis of a 360-day year for the actual number of days elapsed during which
it accrues.

     (b) Payment of Interest. The Company will pay to the Holder all interest accrued on
the unpaid principal amount of this Note on the Maturity Date.

     2. Payment of Principal.

     (a) Maturity. The Company shall pay the unpaid principal amount of this Note then
outstanding to the Holder, together with all unpaid interest accrued thereon, on February 8, 2008
(the “Maturity Date”).

     (b) Optional Prepayments. The Company may, at any time and from time to time without
premium or penalty, prepay all or any portion of the outstanding principal amount of this Note
(together with all unpaid interest accrued thereon). In the event the Company elects to make any
such prepayment on or prior to June 11, 2007 or, if a Set Off Request is then pending, at any time
prior to the Maturity Date, the Holder and the Company shall enter into an escrow agreement (the
“Indemnity Escrow Agreement”) in substantially the form attached as Exhibit 3 to
the Purchase Agreement, and the Company shall fund the amount of such prepayment or, if the
prepayment is after June 11, 2007 and a Set Off Request is pending, the amount claimed in such Set
Off Request, into an escrow account to be held pursuant to the Indemnity Escrow Agreement.

 

 

     (c) Mandatory Prepayments. After all obligations for principal and interest under the
other Purchase Notes have been paid in full:

     (i) In the event any Affiliated Company receives any Excess Capital, the Company shall
make a prepayment on this Note in an amount equal to the lesser of (x) the then outstanding
principal amount of this Note and all unpaid interest accrued thereon and (y) the amount of
such Excess Capital. Such prepayment shall be made within five (5) Business Days of the
applicable Affiliated Company’s receipt of such Excess Capital. Prepayments under this
Section 2(c) shall first be applied to accrued and unpaid interest on this Note, and then to
the outstanding principal of this Note.

     (ii) In the event that a Sale of the Company or a Sale of UTCo is consummated, the
Company shall prepay the outstanding principal amount of this Note and all unpaid interest
accrued thereon in full within five (5) Business Days of the consummation thereof.

     (iii) Notwithstanding anything to the contrary contained in this Section 2(c), the
Company shall not be required to make any prepayment on this Note on or prior to June 11,
2007; provided that in the event the Company becomes obligated to make a prepayment
pursuant to paragraph (i) or (ii) above at any time on or prior to June 11, 2007, the
Company shall be obligated to make such prepayment (subject to the suspension of the
obligation to make all or a portion of such prepayment pursuant to Section 3(d)) on June 12,
2007.

     3. Right to Set Off.

     (a) The Holder has made certain representations, warranties, covenants and indemnities set
forth in the Purchase Agreement. The Holder agrees that the Company may set off any Loss with
respect to which the Company is entitled to indemnification pursuant to the Purchase Agreement
against any amounts due or outstanding under this Note, whether this Note is held by the Holder or
any of its successors or permitted assigns. In the event the Company wishes to set off any Loss
against any amounts due or outstanding under this Note, the Company shall give the Holder written
notice which sets forth the amount proposed to be set off (a “Set Off Request”).

     (b) If, after delivery of a Set Off Request, the Holder desires to challenge the propriety
and/or the amount of the set off therein or a portion thereof, then the Holder may do so by
delivering to the Company written notice (a “Challenge Notice”), within 30 days after a Set Off
Request is delivered to it, describing in reasonable detail the amount of the set off being
challenged (the “Challenge Amount”) and the basis for such challenge (or, in the alternative,
stating that the Holder does not possess information sufficient to determine the propriety and/or
amount of the requested set off).

     (c) On the date 30 days after delivery of a Set Off Request, the Holder shall be deemed to
have authorized the Company to set off against this Note (any such set off to be applied first to
interest and then to principal) the entire amount claimed in the Set Off Request, or, if a
Challenge Notice is delivered within 30 days after a Set Off Request is delivered, the amount
claimed in excess of the Challenge Amount (or, if less, the entire amount of principal and interest
outstanding under this Note), which deemed authorization shall be final and binding on the Holder.
Upon such authorized set off, the applicable amount of principal shall be permanently reduced and
deemed to have been paid.

     (d) After delivery of a Set Off Notice to Holder, notwithstanding anything to the contrary
contained in this Note, all obligations of the Company to make any payment (including any
prepayment) of principal or interest (including, if applicable, any default interest) under this
Note shall be suspended, and interest (including, if applicable, any default interest) shall not
accrue, with respect to the amount

2

 

claimed in such Set Off Notice. If a Challenge Notice is delivered, and either Holder and the
Company agree in writing, or a final, binding and non-appealable judgment of a court of competent
jurisdiction determines, that the Company is not entitled to indemnification for any portion of a
Challenged Amount, the suspension of obligations to make any payment of principal or interest shall
cease (and if any such payments are then due, they shall promptly be made), and interest
(including, if applicable, any default interest) shall resume accruing and shall be deemed to have
accrued with respect to such portion since the date of the Set Off Notice. Any Set Off Request
made by the Company in good faith, and the suspension of any payments as set forth in this Section
3 with respect thereto, shall not be an Event of Default, whether or not all or any portion of the
amount claimed in such Set Off Request is ultimately set off against this Note.

     4. Default and Acceleration.

     (a) Events of Default. The occurrence of any one of the following events shall
constitute an event of default by the Company hereunder (“Event of Default”) and shall cause the
full unpaid principal balance hereof, together with all accrued interest thereon, to become
immediately due and payable (subject to the suspension of the obligation to make all or a portion
of such payment pursuant to Section 3(d)); provided, that in no event shall the foregoing
cause any such amounts to come due on or prior to June 11, 2007: (i) any principal or interest
hereunder is not paid when due and remains unpaid for a period of five (5) days following the date
when due; (ii) a petition in bankruptcy is filed by the Company or a proceeding is instituted by
the Company under any law of the United States for the relief of debtors; (iii) a petition in
bankruptcy is filed against the Company and remains undismissed or undischarged for a period of
ninety (90) days after the filing thereof; (iv) an “Event of Default” under any of the other
Purchase Notes (as such term is defined in such Purchase Notes); or (v) an event of default occurs
with respect to any Indebtedness of the Company or UTCo with a principal amount outstanding of at
least $1,000,000 (other than Indebtedness under the Purchase Notes) and as a result of such event
of default such Indebtedness is declared to be or becomes due and payable prior its stated
maturity.

     (b) Default Interest. Interest shall accrue on the outstanding principal amount of
this Note at a per annum rate equal to 11.02% upon the occurrence of an Event of Default and until
the earlier of the date on which (i) the Event of Default is cured, or (ii) the full unpaid
principal amount of this Note, together with all accrued and unpaid interest thereon, is paid in
full. Such interest shall be computed on the basis of a 360-day year for the actual number of days
elapsed during which it accrues.

     5. Covenants and Representations. The Company hereby covenants that it
shall not declare or pay any dividend (other than a dividend payable solely in capital stock of the
Company) to its stockholders for so long as any principal or accrued unpaid interest remains
outstanding under this Note. The Company hereby represents that for the year ended December 31,
2005, the Company’s revenues constituted at least eighty percent (80%) of the consolidated revenues
of the Affiliated Companies.

     6. Definitions.

     “Affiliated Companies” means, collectively, the Company and all Subsidiaries of the Company.

     “Dollars”, “dollars” and “$” each mean lawful money of the United States of America.

     “Excess Capital” means the difference between (x) the sum of (i) the difference between (A)
the sum of (1) the aggregate amount of any Indebtedness for borrowed money incurred by any
Affiliated Company from any Person other than an Affiliated Company after the date hereof (other
than Indebtedness under the Credit Agreement, Indebtedness incurred to Refinance other
Indebtedness, un-drawn amounts under revolving credit facilities and amounts drawn under any
revolving credit facility to

3

 

the extent such amounts have previously been borrowed and repaid), net of any fees and
expenses incurred in connection therewith, plus (2) the proceeds received by an Affiliated Company
from any Person other than an Affiliated Company after the date hereof from the sale of capital
stock of such Affiliated Company (other than the proceeds received from officers, directors or
employees of any of the Affiliated Companies upon exercise of stock options or issuances of
restricted stock and from the exercise of outstanding warrants), net of any fees and expenses
incurred in connection therewith, minus (B) $5,000,000, plus (ii) the difference between (I) the
after-tax proceeds received by any of the Affiliated Companies from any Person other than an
Affiliated Company after the date hereof from the sale of assets (other than sales of assets in
the ordinary course of business), net of any fees and expenses incurred in connection therewith,
minus (II) $5,000,000; minus (y) the sum of all mandatory prepayments made pursuant to the other
Purchase Notes with any such amounts.

     “Indebtedness” means with respect to any Person (i) all obligations of such Person for
borrowed money, whether current or funded, secured or unsecured, (ii) all obligations of such
Person for the deferred purchase price of any property or services (other than trade accounts
payable arising in the ordinary course of the business of such Person), (iii) all obligations of
such Person created or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of a default may be limited to repossession or sale of
such property), (iv) all obligations of such Person secured by a purchase money mortgage or other
lien to secure all or part of the purchase price of property subject to such mortgage or lien, (v)
all obligations under leases which shall have been or should be, in accordance with GAAP, recorded
as capital leases in respect of which such Person is liable as lessee, (vi) any obligation of such
Person in respect of bankers’ acceptances or letters of credit, (vii) any obligations secured by
liens on property acquired by such Person, whether or not such obligations were assumed by such
Person at the time of acquisition of such property, (viii) all obligations of a type referred to in
clauses (i) through (vii) above which is directly or indirectly guaranteed by such Person or which
it has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which
it has otherwise assured a creditor against loss and (ix) any refinancings of any obligation of a
type referred to in clauses (i) through (viii) above.

     “LIBOR Rate” means the offered rate per annum for deposits of Dollars for twelve (12) month
loans that appears on Telerate Page 3750 as of 11:00 A.M. (London, England time) three (3) Business
Days prior to the date of this Note.

     “Refinance” means, in respect of any security or Indebtedness, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in
exchange or replacement for, such security or Indebtedness, in whole or in part. “Refinanced” and
“Refinancing” shall have correlative meanings.

     “Sale of the Company” means:

     (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the exchange Act of 1934, as amended (the “Exchange Act”)), of beneficial ownership
of a majority of the then outstanding shares of common stock of the Company or the combined voting
power of the then outstanding voting securities of the Company entitled to vote generally in the
election of directors; provided, however, that any acquisition by an Affiliated
Company, or any employee benefit plan (or related trust) of any Affiliated Company, of the then
outstanding shares of common stock of the Company or the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the election of
directors as the case may be, shall not constitute a Sale of the Company;

4

 

     (b) approval by the stockholders of the Company of a reorganization, merger or consolidation
of the Company, in each case, with respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting securities of the Company immediately
prior to such reorganization, merger or consolidation do not, following such reorganization, merger
or consolidation, beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding common stock and voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such reorganization, merger or
consolidation, or a complete liquidation or dissolution of the Company; or

     (c) the sale or other disposition of all or substantially all of the assets of the Company.

     “Sale of UTCo” means the sale of UTCo to any Person or group of Persons, in each case, that is
not an Affiliate of the Company, pursuant to which such Person or group of Persons acquires capital
stock of UTCo possessing the voting power under normal circumstances to elect a majority of the
members of the Board of Directors of UTCo (whether by merger, consolidation or sale or transfer of
UTCo’s capital stock) or the sale or other disposition of all or substantially all of the assets of
UTCo.

     “Transfer” means any sale, transfer, assignment, pledge, mortgage, exchange, hypothecation,
gift, grant of a security interest or other direct or indirect disposition or encumbrance of an
interest, whether with or without consideration and whether voluntarily, involuntarily or by
operation of law.

     7. Assignment; Replacement; Cancellation.

     (a) Transfer. The holder of this Note may not directly or indirectly Transfer this
Note without the Company’s prior written consent. Any attempted transfer of this Note in violation
of this Section 7(a) shall be null and void and of no force or effect. The Company shall be under
no obligation to make payment of principal or interest under this Note to any Person other than the
Holder or its transferee in a Transfer made in compliance with this Section 7(a).

     (b) Replacement. Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or, in the case
of any such mutilation, upon the surrender of this Note to the Company at its principal office, the
Company shall execute and deliver, in lieu thereof, a new Note representing the same rights
represented by such lost, stolen, destroyed or mutilated Note and dated so that there will be no
loss of interest on such Note.

     (c) Cancellation. Immediately after all principal and accrued interest owed on this
Note have been paid in full, this Note shall be automatically canceled, and the Holder shall
promptly surrender this Note to the Company for cancellation.

     8. Payments. All payments when made to the Holder shall be paid in the
lawful money of the United States of America in immediately available funds.

     9. Place of Payment; Notice. Payments of principal and interest and all
notices, requests, demands and other communications (each of which shall be in writing) shall be
delivered to the parties herein, as applicable, at the following addresses:

	 	 	 	 	 
	 

	 	If to the Company:
	 	Youbet.com, Inc.
	 

	 	 	 	5901 De Soto Avenue
	 

	 	 	 	Woodland Hills, California 91367
	 

	 	 	 	Attention: Scott Solomon

5

 

	 	 	 	 	 
	 

	 	 	 	Fax: (818) 668-2101
	 
	 	 	 	 
	 

	 	 	 	with a copy to (which copy shall not constitute a
notice hereunder):
	 
	 	 	 	 
	 

	 	 	 	Katten Muchin Rosenman LLP
	 

	 	 	 	525 West Monroe Street
	 

	 	 	 	Chicago, Illinois 60661
	 

	 	 	 	Attention: Kenneth W. Miller
	 

	 	 	 	Fax: (312) 902-1061
	 
	 	 	 	 
	 

	 	If to the Holder:
	 	UT Group, LLC
	 

	 	 	 	c/o Kinderhook Industries, LLC
	 

	 	 	 	888 Seventh Avenue
	 

	 	 	 	16th Floor
	 

	 	 	 	New York, NY 10106
	 

	 	 	 	Attention: Robert E. Michalik
	 

	 	 	 	Fax: (212) 201-6790
	 
	 	 	 	 
	 

	 	 	 	with a copy to(which copy shall not constitute a notice hereunder):
	 
	 	 	 	 
	 

	 	 	 	Kirkland & Ellis LLP
	 

	 	 	 	153 East 53rd Street
	 

	 	 	 	New York, NY 10022
	 

	 	 	 	Attention: W. Brian Raftery
	 

	 	 	 	Fax: (212) 446-6460

     or to such other address or to the attention of such other person as is specified from time to
time by prior written notice.

     10. Business Days. If any payment is due, or any time period for giving
notice or taking action expires, on a day that is not a Business Day, the payment shall be due and
payable on, and the time period shall automatically be extended to, the next succeeding Business
Day, and interest shall continue to accrue at the applicable rate provided hereunder until any such
payment is made.

     11. Governing Law. All issues and questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the State of New York.

     12. Enforcement. The Company hereby agrees to pay or reimburse the Holder
for all reasonable costs, including without limitation reasonable attorneys’ fees, incurred by the
Holder in seeking to enforce the obligations of the Company to pay any portion of the principal
amount hereunder or any accrued interest thereon, when due in accordance with the terms hereof but
unpaid, against the Company after and during the continuance of an Event of Default, whether or not
pursued in arbitral forums or otherwise.

6

 

     13. Severability. Whenever possible, each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Note is held to be invalid, illegal or unenforceable in any respect under any applicable
law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Note shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been
contained herein.

     14. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND, BY ACCEPTING THIS NOTE,
THE HOLDER HEREBY, TO THE FULLEST EXTENT PERMITTED BY LAW, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING INSTITUTED IN CONNECTION WITH THIS NOTE. EACH OF THE COMPANY
AND THE HOLDER HEREBY REPRESENTS TO THE OTHER THAT THE FOREGOING WAIVER IS KNOWINGLY, WILLINGLY AND
VOLUNTARILY GIVEN.

[Signature page follows.]

7

 

     IN WITNESS WHEREOF, this promissory note has been executed as of the date first above
written.

	 	 	 	 	 
	 	YOUBET.COM, INC.

 	 
	 	By:  	Gary W. Sproule
 	 
	 	Name:  	Gary W. Sproule 	 
	 	Its:  Chief Financial Officer 	 
	 

The undersigned hereby acknowledges the
terms of this promissory note:

UT GROUP, LLC

	 	 	 	 	 
	By:

	 	Robert E. Michalik
	 	 
	Name: Robert E. Michalik	 	 
	Its: Vice President	 	 

SIGNATURE PAGE TO PROMISSORY NOTE

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