Document:

exv10w1

 

Exhibit 10.1

CREDIT AGREEMENT

MARYLAND

September 5, 2003

Borrower:United Tote Company                    

   a(n)o   individualþ    corporationo    general partnershipo    limited liability companyo

                    

organized under the laws of Montana          

having its chief executive office at 11505 Susquehanna Trail, Glen Rock, Pennsylvania          

	 	 	Bank: MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking corporation with its chief executive office at One M&T Plaza, Buffalo, NY 14240. Attention: Office of General Counsel

The Bank and the Borrower agree as follows:

			
	1.	 	Definitions.

	 	a.	 	“Account” means an “account” as defined in the UCC.
	 
	 	b.	 	“Account Debtor” means, with respect to any Account, any person who is
obligated to make payments to the Borrower on such Account.
	 
	 	c.	 	“Acquisition” means the acquisition by UT Group, LLC of 100% of the stock of
Borrower pursuant to the Acquisition Agreement.
	 
	 	d.	 	“Acquisition Agreement” means that certain Stock Purchase Agreement dated as
of the date hereof by and among UT Group, LLC, United Wagering Systems, Inc., Borrower
and United Tote Canada Inc.
	 
	 	e.	 	“Acquisition Documents” means the Acquisition Agreement, the agreements and
documents executed in connection therewith and attached as exhibits thereto.
	 
	 	f.	 	“Change of Control” means, with respect to any person, (i) a merger,
consolidation, reorganization, recapitalization or share or interest exchange, sale or
transfer or any other transaction or series of transactions in which its stockholders,
managers, partners, owners or interest holders immediately prior to such transaction
or series of transactions receive, in exchange for the stock or interests owned by
them, cash, property or securities of the resulting or surviving

 

 

	 	 	 	entity or any affiliate thereof, and, as a result thereof, persons who,
individually or in the aggregate, were holders of 50% or more of its voting stock,
securities or equity, partnership or ownership interests immediately prior to such
transaction or series of transactions hold less than 50% of the voting stock,
securities or other equity, partnership or ownership interests of the resulting or
surviving entity or such affiliate thereof, calculated on a fully diluted basis, or
(ii) a direct or indirect sale, transfer or other conveyance or disposition, in any
single transaction or series of transactions, of all or substantially all of such
person’s assets.
	 
	 	j.	 	“Checking Account” means the following commercial checking or NOW account of
Borrower at the Bank which has been linked to the Revolving Credit Facility for
overdraft protection: #9835197857.
	 
	 	k.	 	“Closing Date” means the date of this Agreement.
	 
	 	l.	 	“Collateral” means collectively all of the property (whether real, personal or
mixed, and whether tangible or intangible), rights, titles and interests subject to
the Security Interest.
	 
	 	m.	 	“Cost of Funds” means, with respect to any advance hereunder, the most recent
yield on United States Treasury Obligations adjusted to a constant maturity of five
(5) years in effect two (2) business days prior to such advance as published by the
Board of Governors of the Federal Reserve System in the Federal Reserve Statistical
Release H.15(519), or by such other quoting service, index or commonly available
source utilized by Bank, plus the “ask” side of the five (5) year swap spread in
effect two (2) business days prior to such advance as set forth in Bloomberg, L.P. or
by such other quoting service, index or commonly available source utilized by
Manufacturers and Traders Trust Company.
	 
	 	q.	 	“Default” means any event, fact or circumstance or conditions that, with the
giving of applicable notice or passage of time or both, would constitute or be or
result in an Event of Default.
	 
	 	r.	 	“Eligible Account” means the gross outstanding balance, less all finance
charges, late fees and other fees which are unearned, sales, excise or similar taxes,
and credits or allowances granted, of those Accounts of Borrower arising out of sales
of merchandise, goods or services in the ordinary course of business, made by Borrower
to a person which is not an Affiliate, which are not in dispute, and which constitute
collateral in which the Bank has a fully perfected first priority security interest;
provided, however, that an Account shall in no event be an Eligible
Account if, at the time of any evaluation thereof.

	 	(1)	 	such Account is more than ninety (90) days past the original
invoice date thereof; or
	 
	 	(2)	 	any covenant or warranty contained in any document between the
Bank

 

 

	 	 	 	and Borrower with respect to Accounts or Eligible Accounts, in general, or
to such specific Account, is not true and correct with respect to such
Account; or
	 
	 	(3)	 	the Account Debtor on such Account has disputed liability or
made any claim or defense with respect to any Account due from such Account
Debtor to Borrower; or
	 
	 	(4)	 	the Account Debtor on such Account has filed a petition for
bankruptcy or any other relief under the Title 11 of the United States Code
entitled “Bankruptcy,” as now or hereafter in effect, or any successor thereto
(the “Bankruptcy Code”) or any other law relating to bankruptcy, insolvency,
reorganization or relief of debtors; made an assignment for the benefit of
creditors; had filed against it any petition or other application for relief
under the Bankruptcy Code or any such other law has suspended business
operations, become insolvent, called a meeting of its creditors for the
purpose of obtaining any financial concession or accommodation, or had or
suffered a receiver or a trustee to be appointed for all or a significant
portion of its assets or affairs; or
	 
	 	(5)	 	the Account Debtor on such Account, or any of such Account
Debtor’s Affiliates, is also a supplier to or creditor of Borrower or any of
its subsidiaries, unless such supplier or creditor has executed a no-offset
letter satisfactory to the Bank; or
	 
	 	(6)	 	unless otherwise agreed to in writing by the Bank, the Account
Debtor on such Account is a governmental authority, and Borrower has not duly
assigned (the “Assignment”) its rights to payment of such Account to the Bank
pursuant to the Assignment of Claims Act of 1940, as amended, in the case of a
federal governmental authority, and/or pursuant to applicable state law, if
any, in the ease of any other governmental authority (which Assignment shall
include, without limitation, evidence of the acceptance and acknowledgment
thereof by the appropriate government officer(s); or
	 
	 	(7)	 	the sale represented by such Account is to an Account Debtor
outside the United States and Canada, unless the sale is on letter of credit
or acceptance terms acceptable to the Bank; or
	 
	 	(8)	 	the sale represented by such Account is on a bill-on-hold,
guaranteed sale, sale-and-return, sale-on-approval or consignment basis; or
	 
	 	(9)	 	such Account is subject to a lien in favor of any person or
entity other than the Bank; or
	 
	 	(10)	 	such Account is subject to any deduction, offset,
counterclaim, return privilege or other conditions; or

 

 

	 	(11)	 	such Account is, in the Bank’s sole discretion, subject to any
potential claim of a surety or bonding company; or
	 
	 	(12)	 	the Account Debtor on such Account is located in New Jersey,
Minnesota, West Virginia or Indiana, unless the Borrower (i) has received a
certificate of authority to do business and is in good standing in such state
or (ii) has filed a Notice of Business Activities Report with the appropriate
office or agency of such state for the current year; or
	 
	 	(13)	 	the Bank deems such Account ineligible, in accordance with the
Bank’s customary criteria, applied in the Bank’s sole discretion; or
	 
	 	(14)	 	such Account is with an Account Debtor, where 50% or more of
the outstanding Accounts of such Account Debtor, that constituted Eligible
Accounts at the time they arose, have become, or have been determined by the
Bank in accordance with the provisions hereof, to be ineligible; or
	 
	 	(15)	 	the sale represented by such Account is denominated in other
than United States or Canadian dollars; or
	 
	 	(16)	 	the Bank believes, in its sole discretion, that the collection
of such Account is insecure or that such Account may not be paid; or
	 
	 	(17)	 	such Account is not evidenced by an invoice or other writing
in form acceptable to the Bank, in its sole discretion; or
	 
	 	(18)	 	such Account is evidenced by Chattel Paper or Instruments
(each as defined in the UCC, as defined below), unless (i) the Bank has
otherwise agreed in writing that such Account shall be deemed an Eligible
Account and (ii) all originals of such Chattel Paper and/or Instruments have
been endorsed and delivered to the Bank; or
	 
	 	(19)	 	Borrower, in order to be entitled to collect such Account, is
required to perform any additional service for, or perform or incur any
additional obligation to, the Person to whom or to which it was made; or
	 
	 	(20)	 	Accounts of such Account Debtor represent more than twenty
percent (20%) of the Eligible Accounts at such time, in which case any such
Account shall not be an Eligible Account to the extent that such Accounts
represent more than twenty percent (20%) of the Eligible Accounts at such
time.

	 	s.	 	“Eligible Inventory” means the lesser of (i) the aggregate book value (based
on a o FIFO
o LIFO valuation (check appropriate box, if no box is checked, the
valuation shall be FIFO)), or (ii) the fair market value, of all finished goods
inventory, owned by the Borrower and in which the Bank holds a valid and

 

 

	 	 	 	perfected first priority security interest, less appropriate reserves determined in
accordance with GAAP, and excluding Inventory (as defined in the UCC,) which, at
the time of any evaluation thereof:

	 	(1)	 	is not in good condition or fails to meet standards for sale
or use imposed by governmental agencies, departments or divisions having
regulatory authority over such goods;
	 
	 	(2)	 	is not usable or salable at prices approximating their cost in
the ordinary course of Borrower’s business (including, without duplication,
the amount of any reserves for obsolescence, unassailability or decline in
value);
	 
	 	(3)	 	is subject to any assignment, consignment, claim, lien or
security interest other than any permitted lien consented to by the Bank, in
writing;
	 
	 	(4)	 	constitutes returned, rejected, damaged or obsolete goods;
	 
	 	(5)	 	consists of spare parts or components;
	 
	 	(6)	 	Borrower’s covenants, representations and warranties, with
respect to such Inventory, in any agreement executed by Borrower, are not true
and complete; or
	 
	 	(7)	 	the Bank has deemed to be ineligible, in accordance with the
Bank’s customary criteria, applied in the Bank’s sole discretion

	 	t.	 	“Equipment Line of Credit Facility” means the credit facility extended to the
Borrower by the Bank pursuant to Section 2(a) of this Agreement.
	 
	 	u.	 	“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
	 
	 	v.	 	“GAAP” means, with respect to any date of determination, generally accepted
accounting principles as used by the Financial Accounting Standards Board and/or the
American Institute of Certified Public Accountants consistently applied and maintained
throughout the periods indicated.
	 
	 	w.	 	“Interest Expense” means all finance charges reflected on the income statement
as interest expense for all obligations of Borrower to any person, including but not
limited to, Bank, as shown on the balance sheet in accordance with GAAP.
	 
	 	x.	 	“Inventory Borrowing Base” means, at any time of computation, forty percent
(40%) of Eligible Inventory that constitutes finished goods. (The percentage
applicable to the calculation of the Inventory Borrowing Base, as it relates to the
calculation of the Revolver Borrowing Capacity, is subject to the Bank’s

 

 

	 	 	 	continuing review and right of modification and/or restriction at any time, for any
reason, in the Bank’s sole discretion, without prior notice to Borrower and without
effect on Borrowers obligations under this Agreement.)

	 	y.	 	“LIBOR” means the rate obtained by dividing (i) the one day interest period
London Interbank Offered Rate as fixed by the British Bankers Association for United
States dollar deposits in the London Interbank Eurodollar Market at approximately
11:00 a.m. London, England time (or as soon thereafter as practicable) as determined
by the Bank from any broker, quoting service or commonly available source utilized by
the Bank by (ii) a percentage equal to 100% minus the stated maximum rate of all
reserves required to be maintained against “Eurocurrency Liabilities” as specified in
Regulation D (or against any other category of liabilities which includes deposits by
reference to which the interest rate on LIBOR Rate Loan or Loans is determined or any
category of extensions of credit or other assets which includes loans by a non-United
States’ office of a bank to United States’ residents) on such date to any member bank
of the Federal Reserve System.
	 
	 	z.	 	“Loans” means, collectively, the Equipment Loans, the Revolving Loans and the
Term Loan.
	 
	 	aa.	 	“Long Term Debt” means all obligations of Borrower to any person, including,
but not limited to, the Obligations, payable more than twelve (12) months from the
date of their creation, which in accordance with GAAP are shown on the balance sheet
as a liability (excluding reserves for deferred income taxes) for the period then
ended.
	 
	 	bb.	 	“Material Adverse Change” means any set of circumstances or events which (i)
has or could reasonably be expected to have any material adverse effect upon the
validity or enforceability of this Agreement or any other Transaction Documents, (ii)
is or could reasonably be expected to be material and adverse to the business,
properties, assets, condition, financial or otherwise or results of operations of
Borrower, (iii) impairs materially or could reasonably be expected to impair
materially the ability of Borrower to duly and punctually pay or perform its
obligations under any Transaction Document to which it is a party, or (iv) impairs
materially or could reasonably be expected to impair materially the ability of Bank,
to the extent permitted, to enforce its legal remedies pursuant to this Agreement and
the other Transaction Documents.
	 
	 	cc.	 	“Maturity Date” means September 5, 2008.
	 
	 	dd.	 	“Maximum Equipment Line of Credit Amount” means $5,000,000.
	 
	 	ee.	 	“Maximum Revolving Credit Amount” means $2,000,000.
	 
	 	ff.	 	“Maximum Term Loan Amount” means $580,000.

 

 

	 	gg.	 	“Mortgage” means that certain Mortgage executed by Borrower on the date hereof
in favor of Bank as such may be modified, amended or supplemented from time to time.
	 
	 	hh.	 	“Obligations” means any and all indebtedness or other obligations of the
Borrower to the Bank in any capacity, now existing or hereafter incurred, however
created or evidenced, regardless of kind, class or form, whether direct, indirect,
absolute or contingent .(including obligations pursuant to any guaranty,
endorsement, other assurance of payment or otherwise), whether joint or several,
whether from time to time reduced and thereafter increased, or entirely extinguished
and thereafter reoccurred, together with all extensions, renewals and replacements
thereof, and all interest, fees, charges, costs or expenses which accrue on or in
connection with the foregoing, including any indebtedness or obligations (i) not yet
outstanding but contracted for, or with regard to which any other commitment by the
Bank exists, (ii) arising prior to, during or after any pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding; (iii) owed by the Borrower to others and which the Bank
obtained, or may obtain, by assignment or otherwise; and (iv) payable under this
Agreement.
	 
	 	ii.	 	“Receivables Borrowing Base means, at the time of computation, eighty percent
(80%) of the aggregate sum of the Eligible Accounts; provided, that, the value of
Accounts with Account Debtors located in Canada that are included in the Receivables
Borrowing Base shall not exceed $400,000.
	 
	 	jj.	 	“Revolver Borrowing Capacity” shall be, at any one time of computation, the
lesser of (i) the Maximum Revolving Credit Amount, or (ii) the aggregate sum of the
amounts calculated according to the respective formulas described in categories (A)
and (B) below:

	 	(A)	 	The Receivables Borrowing Base; and
	 
	 	(B)	 	The Inventory Borrowing Base, subject to maximum amount of
$500,000, which amount shall reduce by $50,000 at the end of each calendar
quarter commencing on December 31, 2003;
	 
	 	 	 	minus, the aggregate amount of all bankers’ acceptances, letters of
guaranty or letters of credit issued by the Bank for Borrower’s account in
favor of a third party, and minus, all reasonable reserves as
determined in Bank’s sole discretion.

	 	kk.	 	“Revolving Credit Facility” means the credit facility extended to the Borrower
by the Bank pursuant to Section 2(b) of this Agreement.

 

 

	 	ll.	 	“Security Agreement” means that certain Security Agreement executed by
Borrower in favor of Bank on the date hereof as such may be modified, amended or
supplemented from time to time.
	 
	 	mm.	 	“Security Documents” means the Security Agreement, the Stock Pledge Agreement,
the Mortgage, the UCC financing statements and all other documents or instruments
necessary to create or perfect the liens in the Collateral, as such may be modified,
amended or supplemented from time to time.
	 
	 	nn.	 	“Security Interest” means all liens in favor of Bank created hereunder or
under any of the Security Documents to secure the Obligations.
	 
	 	oo.	 	“Stock Pledge Agreement” means that certain Securities Pledge Agreement
executed by Borrower in favor of Bank on the date hereof as such may be modified,
amended or supplemented from time to time.
	 
	 	pp.	 	“Subordinated Debt” means all indebtedness of the Borrower which has been
formally subordinated to payment and collection of the Obligations.
	 
	 	qq.	 	“Subsidiary” means any corporation or other business entity of which at least
fifty percent (50%) of the voting stock or other ownership interest is owned by the
Borrower directly or indirectly through one or more Subsidiaries. If the Borrower has
no Subsidiaries, the provisions of this Agreement relating to the Subsidiaries shall
be disregarded, without affecting the applicability of such provisions to the Borrower
alone.
	 
	 	rr.	 	“Tangible Net Worth” means the aggregate assets of Borrower excluding all
intangible assets, including, but not limited to, goodwill, licenses, trademarks,
patents, copyrights, organization costs, appraisal surplus, officer, stockholder,
related entity and employee advances or receivables, mineral rights and the like, less
liabilities, plus Subordinated Debt, all determined in accordance with GAAP (except to
the extent that under GAAP. “tangible net worth” excludes leasehold improvements which
are included in “Tangible Net Worth” as defined herein).
	 
	 	ss.	 	“Term Loan Facility” means the credit facility extended to the Borrower
pursuant to Section 2(c) of this Agreement.
	 
	 	tt.	 	“Total Liabilities” means the aggregate amount of all liabilities of the
Borrower less Subordinated Debt (if any), as shown on the balance sheet in accordance
with GAAP.
	 
	 	uu.	 	“Transaction Documents” means this Agreement and all documents, instruments or
other agreements executed by the Borrower in favor of the Bank in connection (directly
or indirectly) with the Obligations, whether now or hereafter in

 

 

	 	 	 	existence, including promissory notes, security agreements, guaranties and letter
of credit reimbursement agreements.

	 	vv.	 	“UCC” means the Uniform Commercial Code as in effect in the State of Maryland
from time to time.

			
	2.	 	BASIC TERMS OF THE CREDIT FACILITIES

	 	a.	 	Equipment Line of Credit Facility.

(1) Through September 5, 2005 (the “Equipment Availability End Date”), and subject
to the continued compliance of Borrower with this Agreement and all other
accompanying Transaction Documents and the continued absence of any default by
Borrower or any indorser, guarantor or any other party liable for, or whose assets
or any interest therein secures payment of any of the Obligations, Bank shall make
equipment loans (“Equipment Loans”) to Borrower, for use by Borrower as hereafter
provided, as requested by Borrower, but which shall not exceed in the aggregate at
any one time outstanding the Maximum Equipment Line of Credit Amount.
Notwithstanding the foregoing, with respect to any request by Borrower for an
Equipment Loan which shall cause the aggregate outstanding principal amount of
Equipment Loans to exceed $2,000,000, the Bank shall have sale and absolute
discretion whether to make any such requested Equipment Loan. Borrower may make
one request for an Equipment Loan per calendar month (provided, that, if any such
request is not granted by Bank, Borrower shall have the right to make an additional
request during such calendar month), and each such request for an Equipment Loan
must be for a minimum of One Hundred Thousand Dollars ($100,000). Borrower shall
not request any Equipment Loan which exceeds the Maximum Equipment Line of Credit
Amount. Even if the aggregate amount of Equipment Loans made and outstanding under
the Equipment Line of Credit Facility shall at any time and for any reason exceed
the Maximum Equipment Line of Credit Amount, Borrower shall nevertheless be liable
for the entire amount outstanding with interest thereon in accordance with this
Agreement and all accompanying Transaction Documents, and Borrower shall be
responsible for observance of, performance of and compliance with all of the terms,
covenants and provisions hereof and thereof. On or before the first anniversary of
the date hereof, and on or before each subsequent anniversary of the date hereof
twelve months prior to the then Equipment Availability End Date, Bank may, in its
sole and absolute discretion, extend the Equipment Availability End Date by twelve
months by providing written notice to Borrower.

(2) Each Equipment Loan shall be evidenced by a separate term promissory note, each
substantially in the form of Exhibit A-1 for LIBOR interest rate Equipment
Loans or Exhibit A-2 for Cost of Funds interest rate Equipment Loans, each
attached hereto, duly executed and delivered by Borrower (the “Equipment Notes”).
Bank is hereby authorized, but is not obligated, to enter the amount of each
Equipment Loan, and the amount of each payment or

 

 

prepayment of principal or interest thereon in the appropriate spaces on the
reverse of or on an attachment to such Equipment Note(s).

(3) The Equipment Loans shall be utilized by Borrower to finance up to 100% of the
invoice amount (less invoiced charges for installation, delivery and taxes) of
equipment purchased by the Borrower on, or no earlier than forty-five (45) days
prior to, the date of making of such Equipment Loan.

(4) So long as no Default or Event of Default shall have occurred and be
continuing, Borrower may give Bank irrevocable written notice requesting an advance
under the Equipment Line of Credit Facility by delivering to Bank by mail,
facsimile or telex an irrevocable written request (each an “Equipment Loan Advance
Request”), accompanied by supporting invoices, to the Bank not less than five (5)
business days prior to the date of the proposed borrowing. On each date on which a
requested advance is to be made, Borrower irrevocably authorizes Bank to disburse
the proceeds of the requested advance to the applicable account(s) of Borrower
specified in the applicable Equipment Loan Advance Request, each of which accounts
shall constitute one or more of the accounts set forth on Schedule 2a(4).

(5) Interest shall accrue from the date of each Equipment Loan at the rate per
annum of either (i) LIBOR plus three and one-quarter percent (3.25%) or (ii) Cost
of Funds plus three and one-quarter percent (3.25%), as elected by the Borrower in
the Equipment Loan Advance Request for such Equipment Loan, in either case,
calculated on the basis of a 360-day year and for the actual number of calendar
days elapsed in each interest calculation period. The principal and interest
accruing thereon of each Equipment Loan used by Borrower to finance greater than
80% of the cost of equipment shall be amortized over a period of thirty-six (36)
months, payable in accordance with the provisions of the Equipment Note provided,
however, that all principal, accrued and unpaid interest thereon, all fees and
other amounts owed hereunder shall be payable on the Maturity Date. The principal
and interest accruing thereon of each Equipment Loan used by Borrower to finance
eighty percent (80%) or less of the cost of equipment shall be amortized over a
period of sixty (60) months, payable in accordance with the provisions of the
Equipment Note, provided, however, that all principal, accrued and unpaid interest
thereon, all fees and other amounts owed hereunder shall be payable on the Maturity
Date.

	 	b.	 	Revolving Credit Facility.

(1) Borrower hereby authorizes Bank to make advances under the Revolving Credit
Facility (“Revolving Loans”), without any further notice or consent, if (a) an item
is presented against the Checking Account (including, without limitations, checks,
fees, or service charges) or Borrower withdraws funds or makes a transfer from such
Checking Account and (b) the available funds in such Checking Account are not
sufficient to pay such item or make the withdrawal or

 

 

transfer. The amount of such Revolving Loan shall not be less than the difference
between (x) the amount of available funds in the Checking Account and (y) the
amount necessary to pay the item presented against the Checking Account or to
effectuate the withdrawal or transfer requested by Borrower, but which shall not
exceed the aggregate the Revolver Borrowing Capacity. The Revolving Credit
Facility is a revolving credit facility which may be drawn, repaid and redrawn from
time to time as permitted under this Agreement. Any determination as to the
Revolver Borrowing Capacity shall be made by the Bank in its sole and absolute
discretion. Even if the aggregate amount of Revolving Loans made and outstanding
shall at any time and for any reason exceed the Revolver Borrowing Capacity,
Borrower shall nevertheless be liable for the entire amount outstanding with
interest thereon in accordance with this Agreement and all accompanying Transaction
Documents, and Borrower shall be responsible for observance of, performance of and
compliance with all of the terms, covenants and provisions hereof and thereof.

(2) All advances under the Revolving Credit Facility shall be evidenced by a
revolving promissory note, substantially in the form of Exhibit B
hereto (the “Revolving Note”), duly executed and delivered by Borrower. Bank
is hereby authorized, but is not. obligated, to enter the amount of each
Revolving Loan, and the amount of each payment or prepayment of principal or
interest thereon in the appropriate spaces on the reverse of or on an attachment to
the Revolving Note.  All amounts outstanding under the Revolving Note
and all other Obligations under the Revolving Credit Facility shall be due and
payable in full, if not earlier in accordance with this Agreement, on the second
anniversary of the date hereof (the “Revolver Maturity Date”); provided, however,
that the Bank may, in its sole and absolute discretion, at any time on or before
the date twelve months prior to the Revolver Maturity Date, extend the Revolver
Maturity Date by a twelve month period.

(3) The Bank shall have sole and absolute discretion whether to make any Revolving
Credit Loan, or any portion of any Revolving Loan, requested by Borrower, and the
Bank may refuse to make any requested Revolving Loan even though the sum of the
outstanding principal amount under the Revolving Credit Facility and the requested
Revolving Loan amount does not exceed the Revolver Borrowing Capacity. Further,
and without thereafter impairing the Bank’s absolute discretion whether to make any
Revolving Loan, the Bank may make a Revolving Loan to Borrower even though the
Revolver Borrowing Capacity would be exceeded by the making of such Revolving Loan,
and any such Revolving Loan shall still be included in the computation of the
outstanding principal amount. Whenever the outstanding principal amount under the
Revolving Credit Facility exceeds the Revolver Borrowing Capacity, Borrower shall
pay to the Bank within three (3) days an amount equal to such excess.

(4) Borrower shall immediately upon acquiring knowledge or reason to know of any
event or condition that caused or will or might cause any Account or item

 

 

of inventory to cease to be an “Eligible Account” or “Eligible Inventory”, or that
adversely affects or will or might adversely affect the value of such Account or
item of Inventory as security for the repayment of the Loans, or any of the Bank’s
rights and remedies relating to such Account or item of Inventory, deliver notice
of such event or condition to the Bank.

(5) Interest on the outstanding principal amount under the Revolving Note shall be
payable monthly in arrears on the first day of each calendar month at an variable
rate per annum equal to L1BOR plus three percent (3%) calculated on the basis of a
360-day year and for the actual number of calendar days elapsed in each interest
calculation period. Interest accrued on the Revolving Note shall be due and
payable on the first day of each calendar month, in accordance with the procedures
set forth in Section 2(f), commending on October 1, 2003 and continuing until the
later of the Revolver Maturity Date and the full performance and irrevocable
payment in full in cash of the Obligations and termination of this Agreement.
Notwithstanding, and without limiting any other provision of any Transaction
Document, Bank shall apply on a daily basis, all funds transferred into the
Checking Account to all outstanding unpaid principal amounts under the Revolving
Credit Facility.

	 	c.	 	Term Loan Facility.

(1) Subject to the terms and conditions set forth in this Agreement, Bank agrees to
loan to Borrower on the Closing Date the Maximum Term Loan Amount (the “Term
Loan”); provided, however, that the aggregate amount of the Term
Loan shall never exceed the Maximum Term Loan Amount. Any principal balance of the
Term Loan outstanding at any time in excess of the foregoing limits shall be
immediately due and payable by Borrower whether or not a Default or Event of
Default has occurred or is continuing without the necessity of any demand and shall
be paid in the manner specified in this Agreement. The Term Loan is not a
revolving credit facility and may not be drawn, repaid and redrawn. The proceeds
of the Term Loan shall be used by Borrower to pay a portion of the purchase price
contemplated in the Acquisition Agreement. Any repayments of principal on the Term
Loan shall be applied to permanently reduce the Term Loan and the Maximum Term Loan
Amount. The Term Loan shall be evidenced by a term promissory note, substantially
in the form of Exhibit C hereto, payable to the order of Bank in the
principal amount of the Maximum Term Loan Amount, duly executed and delivered by
Borrower (the “Term Note”). The Term Note shall evidence the aggregate
indebtedness of Borrower to Bank under the Term Loan. Bank hereby is authorized,
but is not obligated, to enter the amount of outstanding principal of the Term Loan
and the amount of each payment or prepayment of principal and interest thereon on
the reverse of or on an attachment to the Term Note. On the Closing Date, Borrower
irrevocably authorizes Bank to disburse the proceeds of the Term Loan to the
applicable account(s) of Borrower set forth on Schedule 2.a(4), in all
cases for credit to Borrower (or to such other account as to which the Borrower
shall instruct Bank

 

 

in writing) via Federal funds wire transfer.

(2) The principal amount of the Term Loan and interest on the outstanding principal
balance of the Term Loan under the Term Note shall accrue and be payable in
accordance with-the terms of the Term Note.

(3) All accrued and unpaid interest on the Term Note, all fees and other amounts
owed hereunder and all other outstanding Obligations related thereto shall be
payable on the Maturity Date.

(4) Advances under the Revolving Credit Facility may be made automatically for the
payment of interest on and scheduled principal of the Term Note and the Obligations
on the date when due to the extent available and as provided for herein.

	 	d.	 	Reliance.

With respect to each advance and all matters and transactions in connection
therewith, Borrower hereby irrevocably authorizes Bank to accept, rely upon,
act upon and comply with any oral or written instructions, requests,
confirmation and orders of any employee or representative of Borrower who is so
authorized or designated as a signer of loan documents under the provisions of
Borrowers most recent resolutions or similar documents on file with Bank. Borrower
acknowledges that the transmission between Borrower and Bank of any such
instructions, requests, confirmations and orders involves the possibility of
errors, omissions, mistakes and discrepancies and agrees to adopt such internal
measures and operational procedures as may be necessary to protect its interests.
By reason thereof, Borrower hereby assumes all risk of loss and responsibility for,
and releases and discharges Bank from any and all responsibility or liability for,
and agrees to indemnify, reimburse on demand and hold Bank harmless from, any and
all claims, actions, damages, losses, liability and expenses by reason of, arising
out of, or in any way connected with or related to: (i) Bank’s accepting, relying
and acting upon, complying with or observing any such instruction, request,
confirmation or order; or (ii) any such error, omission, mistake, or discrepancy,
provided such error, omission, mistake or discrepancy is not caused by the Bank’s
gross negligence or willful misconduct.

	 	e.	 	Prepayments.

(1) Subject to the following, during the term of this Agreement, Borrower shall
have the option of paying the principal amount under any of the Loans in advance of
the Maturity Date, in whole or in part, at any time and from time to time upon
written notion received by Bank at least three (3) business days prior to making
such payment. If (i) Borrower prepays, in whole or in part, any principal amount
under any Loan when the applicable interest rate for such Loan is a fixed rate
based upon the Cost of Funds, the Borrower shall be liable for an

 

 

amount equal to the difference between (x) the maximum total interest (excluding
any default rate) hereunder which could have been earned based on the
interest rate hereunder in effect on the date of such prepayment on the principal
amount of the Loans being prepaid from the effective date of any prepayment through
and including the maturity date of such Loan, and (y) the total amount of interest
which would accrue on an amount equal to the amount being prepaid from the date of
such prepayment through and including the maturity date of such Loan calculated at
an interest rate per annum equal to the latest published (as published in The Wall
Street Journal) rate preceding the effective date of any prepayment for United
States Treasury Notes or Bills (Bills on a discounted basis shall be converted to a
bond equivalent) with a mature date closest to the maturity date of such Loan. The
determination of the Bank of the foregoing amount shall, in the absence of manifest
error, be conclusive and binding upon Borrower. Upon making any prepayment of the
entire outstanding principal amount under any Loan, Borrower shall pay to Bank all
interest and expenses owing pursuant to the applicable Note and remaining unpaid.
Each partial prepayment of principal under the Loans shall be applied in inverse
order of maturity to the principal included in the installments provided herein.
In the event that the Maturity Date is accelerated following an Event of Default,
any tender of payment of the amount necessary to satisfy the entire indebtedness
made after such Event of Default shall be expressly deemed a voluntary prepayment.
In such a case, to the extent permitted by law, the Bank shall be entitled to the
amount necessary to satisfy the entire indebtedness, plus the appropriate
prepayment premium calculated in accordance with this Section 2.e.

(2) The Borrower shall prepay principal amounts outstanding under the Equipment
Line of Credit Facility within five (5) business days of Borrower’s receipt
thereof, in an amount equal to one hundred percent (100%) of the cash proceeds from
the sale, transfer or other disposition of equipment by Borrower, the purchase of
which was funded in whole or in part by the proceeds of an Equipment Loan.

(3) The Borrower shall prepay principal amounts outstanding under the Term Loan
Facility within five (5) business days of Borrower’s receipt thereof, in an amount
equal to one hundred percent (100%) of the proceeds from the sale, lease, transfer
or other disposition of the real property located at 11505 Susquehanna Trail, Glen
Rock, York County, Pennsylvania 17327-8606.

	 	f.	 	Manner of Payment; Late Charge; Default Rate.

          All payments required hereunder shall be made in immediately available United States funds at
any banking office of the Bank. If payment is not received within five days of its due date,
Borrower shall pay a late charge equal to the greatest of (a) 2.5% of the delinquent amount, or
(b) $50.00. In addition, if the Bank has not actually received any payment required under any of
the Equipment Notes, Revolving Notes or the Term Note (each individually a “Note” and collectively
the “Notes” within thirty (30) days after its due date, from and after such thirtieth day the
interest rate for all amounts outstanding under such Note shall automatically increase to 2.5
percentage points above the applicable interest rate of such Note, and any judgment entered hereon
or otherwise

 

 

in connection with any suit to collect amounts due hereunder shall bear interest at such
default rate. Payments may be applied in any order in the sole discretion of the Bank but, prior
to demand, shall be applied first to past due interest, expenses, late charges, and principal
payments, if any, which are past due, then to current interest and expenses and late charges, and
last to remaining principal.

	 	g.	 	Fees.

          (1) On or before the Closing Date, Borrower shall pay to Bank: (a) a nonrefundable
commitment fee equal to Twenty Thousand Dollars ($20,000) in respect of the Revolving Credit
Facility; and (b) a nonrefundable commitment fee equal to Five Thousand Dollars ($5,000) in
respect of the Term Loan Facility.

          (2) On the date of each advance under the Equipment Line of Credit Facility, Borrower
shall pay to Bank a funding fee in an amount equal to the product of (a) three-quarters of a
percent (0.75%) multiplied by (b) the amount of such advance.

          (3) Borrower shall pay to Bank an unused line fee (the “Unused Line Fee”) in an amount equal
to half a percent (0.50%) per annum of the difference derived by subtracting (a) the daily average
amount of Revolving Loans outstanding during the preceding month from (b) the Maximum Revolving
Credit Amount. The Unused Line Fee shall be payable-monthly in arrears on the first day of each
successive calendar month (starting with the month in which the Closing Date occurs).

          (4) Borrower shall pay to Bank a monthly collateral management fee of Two Hundred Fifty
Dollars ($250) on the first day of each successive calendar month (starting with the pro rata
portion for the month in which the Closing Date occurs).

	 	h.	 	Taxes.

          All payments made by Borrower under this Agreement and the Notes shall be made free and clear
of, and without deduction or withholding for or on account of, any present or future income, stamp
or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any governmental authority. If any
such taxes are required to be withheld from any amounts payable to Bank hereunder or under the
Notes, the amounts so payable to the Bank shall be increased to the extent necessary to yield to
the Bank (after payment of all such taxes) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Agreement and the Notes.

	 	i.	 	Increased Costs.

          Within thirty (30) calendar days following written demand, together with the written evidence
of the justification therefore (including in reasonable detail, the calculation thereof), Borrower
shall pay to Bank all direct increased costs incurred and any losses suffered or increased
payments made by Bank as a consequent of making any of the Loans by reason of any change in law or
regulation of the interpretation of any law or regulation imposing any

 

 

reserve, deposit, allocation of capital or similar requirement; provided, that Bank shall
take commercially reasonable steps to mitigate or reduce amounts otherwise payable by Borrower.

			
	3.	 	SECURITY

     To secure repayment of the Loans Borrower will on the Closing Date execute and deliver to
Bank the Security Documents, which shall secure the repayment of the Obligations. Unless
expressly provided to the contrary in documentation for any other loan or loans, it is the express
intent of Borrower and Bank that all Obligations, including those included in the Loans, be
cross-collateralized and cross-defaulted, such that collateral security securing any of the
Obligations shall secure repayment of all Obligations and a default under any Obligation shall be
a default under all Obligations.

			
	4.	 	CONDITIONS PRECEDENT

	 	a.	 	Conditions to Initial Advances, Funding the Term Loan and Closing

          The obligations of Bank to consummate the transactions contemplated herein and to make the
initial advances under the Revolving Credit Facility and the Equipment Credit Facility (together,
the “Initial Advances”) and fund the Term Loan are subject, in each case, to the satisfaction on
and as of the Closing Date of the following:

(1) Borrower shall have delivered to Bank the Transaction Documents to which it is
a party, each duly executed by an authorized officer of Borrower and the other
parties thereto;

(2) Bank shall have received (i) a report of Uniform Commercial Code financing
statement, tax and judgment lien searches performed with respect to Borrower and
any of Borrower’s Subsidiaries in each jurisdiction determined by Borrower in its
reasonable discretion, and such report shall show no liens on the Collateral (other
than liens set forth on the Schedule titled “Permitted Liens” and liens to be
terminated at Closing), (ii) each document (including, without limitation, any
Uniform Commercial Code financing statement) required by any Transaction Document
or under law or requested by Bank to be filed, registered or recorded to create, in
favor of Bank, a first priority and perfected security interest upon the
Collateral, and (iii) evidence of each such filing, registration or recordation and
of the payment by Borrower of any necessary fee, tax or expense relating thereto;

(3) Bank shall have received (i) copies of Borrowers certificate of incorporation
certified as true and correct by the applicable governmental authority of the State
of Montana dated within twenty (20) days of the date of this Agreement, (ii) a copy
of Borrower’s bylaws or other similar organizational document certified by an
authorized officer of Borrower to be true and complete, (iii) an original
certificate of good standing issued by the applicable governmental authority of the
State of Montana and of every other jurisdiction in

 

 

which Borrower has an office or conducts business or is otherwise required to be in
good standing dated within twenty (20) days of the date of this Agreement, (iv)
copies of the resolutions of Borrower’s board of directors and, if required,
stockholders authorizing the execution, delivery and performance of the Transaction
Documents certified by an authorized officer of the Borrower as of the Closing
Date, (v) a certificate of the corporate secretary or assistant secretary of
Borrower dated the Closing Date, as to the incumbency and signature of the persons
executing the Transaction Documents on behalf of Borrower and (vi) the reasonably
acceptable written legal opinions of counsel and/or special counsel for Borrower,
and usual and customary for transactions of this type;

(4) Bank shall have completed examinations of the Collateral, the financial
statements and the books, records, business, obligations, financial condition and
operational state of Borrower;

(5) Bank shall have received (or is satisfied that it will receive simultaneously
with the funding of the Term Loan and/or Initial Advances, as applicable) all fees,
charges and expenses due and payable to Bank on or prior to the Closing Date
pursuant to the Transaction Documents;

(6) Borrowers shall have received such consents, approvals and agreements from such
third parties as Bank and its counsel shall determine in their reasonable
discretion are necessary or desirable with respect to (i) the consummation of the
Transaction Documents and/or the transactions contemplated thereby, (ii) claims
against Borrower or the Collateral, and/or (iii) agreements, documents or
instruments to which Borrower is a Party or by which any of its properties or
assets are bound or subject;

(7) Bank shall have received certificates of all such required insurance policies
and confirmation that they are in effect and that the premiums due and owing with
respect thereto have been paid in full when and if due and naming the Bank as
beneficiary or loss payee and additional insured, as appropriate;

(8) all corporate and other proceedings, documents, instruments and other legal
matters in connection with the transactions contemplated by the Transaction
Documents (including, but not limited to, those relating to corporate and capital
structures of Borrower) shall be satisfactory to Bank in its reasonable discretion;

(9) no default shall exist pursuant to any obligations of Borrower under any
material contract, and Borrower shall be in compliance with applicable laws in all
material respects; and with respect to such material contracts and such applicable
laws, there shall exist no fact, condition or circumstance which, with the passage
of time, the giving of notice or both, could reasonably be expected to constitute
or become a Material Adverse Change;

(10) Bank shall have received copies of all permits, licenses or other similar

 

 

authorizations required for Borrower to conduct the business in which it is
currently engaged or is contemplated pursuant to the Transaction Documents;

(11) Bank shall be satisfied, as determined in its sole and absolute discretion,
with the results of its due diligence examinations of the Borrower;

(12) there shall not have occurred any Material Adverse Change from that which was
reflected on the financial statements provided to Bank or any liabilities or
obligations of any nature with respect to Borrower which would reasonably be likely
to have a Material Adverse Change;

(13) Bank shall have received final audited financial statements of Borrower on a
consolidated and consolidating basis for and as of December 31, 2002;

(14) Bank shall have received (i) copies of all intercompany agreements, management
agreements, documents relating to indebtedness for borrowed money, capital leases,
occupancy leases and other material contracts, and (ii) such other documents or
materials as Bank shall deem necessary or appropriate;

(15) regarding the Acquisition and the transactions contemplated thereby: Bank
shall have received from Borrower certified copies of the applicable Acquisition
Documents; and

(16) Bank shall have received evidence that the Acquisition shall have been
consummated in form and substance satisfactory to Bank by the execution, delivery,
performance and recordation of the applicable Acquisition Documents and other
definitive agreements, instruments, and documents related to the Acquisition.

	 	b.	 	Conditions to Each Advance and Funding of the Revolving Loans and the
Equipment Loans

The obligation of Bank to make any advance under the Revolving Credit Facility or
the Equipment Line of Credit Facility (including, without limitation, the Initial
Advances) are subject to the satisfaction of the following additional conditions
precedent:

(1) Borrower shall have delivered to Bank in the case of an advance under the
Equipment Line of Credit Facility a written request pursuant to Section 2b(2) with
necessary supporting documentation required by this Agreement and executed by an
authorized officer of Borrower;

(2) Each of the representations and warranties made by Borrower herein or under the
other Transaction Documents or which are contained in any certificate, document or
financial or other statement furnished at any time under or in connection herewith
or therewith shall be true and correct in all material respects

 

 

on and as of such date as if made on and as of such date (except to the extent that
such representations and warranties relate expressly to an earlier date);

(3) No Default or Event of Default shall have occurred and be continuing on such
date or after giving effect to the making of such Revolving Loan or Equipment Loan,
as the case may be;

(4) There shall not have occurred any Material Adverse Change;

(5) In the case of an advance under the Revolving Credit Facility immediately after
giving effect to such advance, the aggregate outstanding principal amount under the
Revolving Credit Facility shall not exceed the Revolver Borrowing Capacity, or in
the case of a requested advance under the Equipment Line of Credit Facility,
immediately after giving effect to such requested advance, the aggregate
outstanding principal amount under the Equipment Line of Credit Facility shall not
exceed the Maximum Equipment Line of Credit Amount;

(6) Bank shall have received all fees, charges and expenses due and payable to Bank
on or prior to such date pursuant to the Transaction Documents; and

(7) All documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Transaction Documents
shall be satisfactory in form and substance to the Bank.

          Each request by Borrower for a Revolving Loan or an Equipment Loan hereunder shall constitute
a representation and warranty by Borrower as of the date of such Revolving Loan or Equipment Loan,
as the case may be, that the conditions contained in this Section 4b have been satisfied.

5. REPRESENTATIONS AND WARRANTIES. The Borrower makes the following representations and
warranties and any “Additional Representations and Warranties” on the schedule attached hereto and
made part hereof (the “Schedule”), all of which shall be deemed to be continuing representations
and warranties as long as this Agreement is in effect:

	 	a.	 	Commercial Loan. The Credit evidences a commercial loan and an extension of
credit for a commercial purpose within the meaning of Md. Code, Commercial Law Art.
	 
	 	b.	 	Good Standing; Authority. The Borrower and each Subsidiary (if either is not
an individual) is duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it was formed. The Borrower and each Subsidiary is duly
authorized to do business in each jurisdiction in which failure to be so qualified
could reasonably be expected to have a material adverse effect on its business or
assets and has the power and authority to execute, deliver and perform the Transaction
Documents and to own each of its assets and to use them in the ordinary course of
business now and in the future.

 

 

	 	c.	 	Compliance. The Borrower and each Subsidiary conducts its business and
operations and the ownership of its assets in compliance in all material respects with
each applicable statute, regulation and other law, including ERISA and environmental
laws. All material approvals, including authorizations, permits, consents,
franchises, licenses, registrations, filings, declarations, reports and notices (the
“Approvals”) necessary for the conduct of the Borrower’s and each Subsidiary’s
business and for the extension of credit hereunder have been duly obtained and are in
full force and effect. The Borrower and each Subsidiary is in compliance in all
material respects with the Approvals and has not received notice to the contrary. The
Borrower and each Subsidiary (if either is not an individual) is in compliance with
its certificate of incorporation, by-laws, partnership agreement, articles of
organization, operating agreement or other applicable organizational or governing
document as may be applicable to the Borrower or a Subsidiary depending on its
organizational structure (“Governing Documents”). The Borrower and each Subsidiary is
in compliance in all material respects with each material agreement to which it is a
party or by which it or any of its assets is bound.
	 
	 	d.	 	Legality. The execution, delivery and performance by the Borrower of this
Agreement and all related documents, including the Transaction Documents and the
consummation of the transactions contemplated thereby, (i) are within the Borrower’s
power and authority; (ii) do not (A) violate any statute, regulation or other law or
any judgment, order or award of any court, agency or other governmental authority or
of any arbitrator, which violation is material to the business of the Borrower or any
Subsidiary or (B) violate the Borrower’s or any Subsidiary’s Governing Documents (if
either is not an individual), constitute a default under any material agreement
binding on the Borrower or any Subsidiary or result in a lien or encumbrance on any
assets of the Borrower or any Subsidiary except liens in favor of the Bank; and (iii)
have been duly authorized by all necessary corporate actions. This Agreement has been
duly executed and delivered by Borrower and constitutes, and each other Transaction
Document constitutes, a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other similar laws
relating to or affecting creditors’ rights generally from time to time in effect and
to general principles of equity (including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing), regardless or whether
considered in a proceeding in equity or at law and the availability of the remedy of
specific performance.
	 
	 	e.	 	Fiscal Year. The fiscal year of the Borrower is the calendar year.
	 
	 	f.	 	Title to Assets. The Borrower and each Subsidiary has good and marketable
title to each of its assets free of security interests, mortgages or other liens or
encumbrances, except as set forth on the Schedule titled “Permitted Liens” or

 

 

	 	 	 	pursuant to the Banks prior written consent.
	 	 	 	 
	 	g.	 	Judgments and Litigation. There is no pending or, to Borrower’s knowledge,
threatened claim, audit, investigation, action or other legal proceeding or judgment,
order or award of any court, agency or other governmental authority or arbitrator
(any, an “Action”) which involves the Borrower, its Subsidiaries or their respective
assets and could reasonably be expected to have a material adverse effect upon the
Borrower or any Subsidiary or threaten the validity of the transactions contemplated
hereby, any Transaction Document or any related document or action. There exists no
default or Event of Default hereunder.
	 
	 	h.	 	Accounts. Unless otherwise indicated in writing to Bank, and except for
Accounts not exceeding $50,000 in the aggregate, each Account of Borrower (a) is an
Eligible Account (other than as a result of a determination of the Bank), (b) is
genuine and in all material respects what it purports to be and is not evidenced by a
judgment, (c) to the Borrower’s knowledge, there are no facts, events or occurrences
which in any way impair the validity or enforceability thereof or tend to reduce in
any material respect the amount payable thereunder from the face amount of the claim
or invoice and statements delivered to Bank with respect thereto (other than those
arising in the ordinary course of business or as may be reserved against on the
Borrower’s balance sheet), (e) to Borrower’s knowledge, (i) the Account Debtor
thereunder had the capacity to contract at the time any contract or other document
giving rise thereto was executed and (ii) such Account Debtor is solvent, (f) to the
Borrower’s knowledge, there are no proceedings or actions which are threatened or
pending against any Account Debtor which would reasonably be expected to result in any
material adverse change in such Account Debtor’s financial condition or the
collectability thereof, (g) has been billed and forwarded to the Account Debtor for
payment in accordance with applicable laws and is in compliance and conformance with
any requisite procedures, requirements and regulations governing payment by such
Account Debtor with respect to such Account, and (h) Borrower has obtained and
currently has all material permits necessary in the generation thereof.
	 
	 	i.	 	Inventory. With respect to all Inventory of Borrower, as reflected on the
books and records of the Borrower (a) such Inventory is of good and merchantable
quality, free from defects, and (b) such Inventory is not stored with a bailee,
warehouseman or similar party unless otherwise indicated in writing to Bank.
	 
	 	j.	 	Full Disclosure. Neither this Agreement nor any certificate, financial
statement or other writing provided to the Bank by or on behalf of the Borrower or any
Subsidiary contains any statement of fact that is incorrect or misleading in any
material respect or omits to state any fact necessary to make any such statement not
incorrect or misleading. The Borrower has not failed to disclose to the Bank any fact
that would reasonably be expected to have a material adverse effect on the Borrower or
any Subsidiary. All financial statements provided to the Bank by or on behalf of the
Borrower or any Subsidiary were prepared in

 

 

accordance with generally accepted accounting principles (except as indicated in
any notes thereto and except in the case of interim financial statements where
footnotes are omitted), are true and correct in all material respects and fairly
present the financial condition of the Borrower and its Subsidiaries, taken as a
whole, at such date and for the period then ended (except in the case of interim
financial statements which are subject to normal and immaterial year-end
adjustments).

	6.	 	AFFIRMATIVE COVENANTS. So long as this Agreement is in effect, the Borrower will comply,
and will cause its Subsidiaries to comply, with the following covenants and any “Additional
Affirmative Covenant” contained in the Schedule:

	 	a.	 	Financial Statements and Other Information. Promptly deliver to the Bank (i)
within forty-five (45) days after the end of each month, an unaudited consolidating
and consolidated financial statement of the Borrower and each Subsidiary as of the end
of such month, which financial statement shall consist of a balance sheet and related
statements of income and cash flows for the month and for the fiscal year-to-date
period and for the corresponding month and year-to-date period in the previous fiscal
year, all in such detail as the Bank may reasonably request; (ii) within one hundred
twenty (120) days after the end of each fiscal year, consolidating and consolidated
financial statements of the Borrower and each Subsidiary, which financial statements
shall consist of a balance sheet and related statements of income and cash flows,
setting forth comparative figures for the preceding fiscal year, audited by an
independent certified public accountant reasonably acceptable to the Bank; all such
statements shall be certified by the Borrower’s chief financial officer to be correct
and in accordance with the Borrower’s and each Subsidiary’s records and to present
fairly the results of the Borrower’s and each Subsidiary’s operations and cash flows
and its financial position at year end; and (iii) with each statement of income
delivered at the end of each fiscal quarter, a certificate executed by the Borrower’s
chief executive and chief financial officers or other such person responsible for the
financial management of the Borrower (A) setting forth the computations required to
establish the Borrower’s compliance with each financial covenant, if any, during the
statement period, (B) stating that the signers of the certificate have reviewed this
Agreement and the operations and condition (financial or other) of the Borrower and
each of its Subsidiaries during the relevant period and (C) stating that no Event of
Default occurred during the period, or if an Event of Default did occur, describing
its nature, the date(s) of its occurrence or period. of existence and what
action the Borrower has taken with respect thereto. The Borrower shall also promptly
provide the Bank with copies of all annual reports, proxy statements and similar
information distributed to shareholders, partners or members, and copies of all
filings with the Securities and Exchange Commission and the Pension Benefit Guaranty
Corporation, and shall provide, in form reasonably satisfactory to the Bank, such
additional information, reports or other information as the Bank may from time to time
reasonably request regarding the financial and business affairs of the Borrower or any
Subsidiary, including

 

 

	 	 	 	without limitation monthly accounts receivable and accounts payable aging reports,
inventory reports and the Collateral & Loan Report.
	 
	 	b.	 	Books and Records; Accounting; Tax Returns and Payment of Claims. Keep proper
books of record and account in conformity with generally accepted accounting
principles and maintain a system of accounting and reserves in accordance with
generally accepted accounting principles, has filed and will file each tax return
required of it and has paid and will pay when due each tax, assessment, fee, charge,
fine and penalty imposed by any taxing authority upon it or any of its assets, income
or franchises, as well as all amounts owed to mechanics, materialmen, landlords,
suppliers and the like in the normal course of business; provided, that, neither
Borrower nor any its Subsidiaries shall be required to pay any such tax or other
amount which is being contested in good faith by Borrower or the applicable Subsidiary
and with respect to which, Borrower or the applicable Subsidiary shall have set aside
on its books adequate reserves in accordance with GAAP.
	 
	 	c.	 	Inspections. Promptly upon the Bank’s request, permit during normal business
hours the Bank’s officers, attorneys or other agents to inspect its and its
Subsidiary’s premises, examine and copy its records and discuss its and its
Subsidiary’s business, operations and financial or other condition with its and its
Subsidiary’s responsible officers and independent accountants [including, without
limitation, an annual field exam to be conducted by the Bank].
	 
	 	d.	 	Operating Accounts. Maintain, and cause its Subsidiaries to maintain all
domestic United States bank accounts with the Bank.
	 
	 	e.	 	Changes in Management and Control. Immediately upon any change in the
identity of the Borrower’s chief executive officers or in its beneficial ownership,
the Borrower will provide to the Bank a certificate executed by its senior individual
authorized to transact business on behalf of the Borrower, specifying such change.
	 
	 	f.	 	Notice of Defaults and Material Adverse Changes. Immediately upon acquiring
reason to know of any Event of Default, (ii) any event or condition that could
reasonably be expected to have a material adverse effect upon the Borrower or any
Subsidiary, the Borrower will provide to the Bank a certificate executed by the
Borrower’s senior individual authorized to transact business on behalf of the
Borrower, specifying the date(s) and nature of the event and what action the Borrower
or its applicable Subsidiary has taken or proposes to take with respect to it, [and
shall provide the bank with notice at least 30 days and not more than 60 days prior to
any Change of Control],
	 
	 	g.	 	Insurance. Maintain its and its Subsidiaries’ property in good repair and
will on request provide the Bank with evidence of insurance coverage satisfactory to
the Bank, including fire and hazard, liability, workers’ compensation and business

 

 

	 	 	 	interruption insurance and flood hazard insurance as required and in accordance
with the Security Agreement.
	 
	 	h.	 	Further Assurances. Promptly upon the request of the Bank, execute and
deliver each writing and take each other action that the Bank deems necessary or
desirable in connection with any transaction contemplated by this Agreement.

	7.	 	NEGATIVE COVENANTS. As long as this Agreement is in effect, the Borrower shall not violate,
and shall not suffer or permit any of its Subsidiaries to violate, any of the following
covenants and any “Additional Negative Covenant” on the Schedule. The Borrower shall not:

	 	a.	 	Indebtedness. Permit any indebtedness (including direct and contingent
liabilities) not described on the Schedule titled “Permitted Indebtedness” except for
trade indebtedness, accrued expenses or current liabilities for salary and wages
incurred in the ordinary course of business and not substantially overdue.
	 
	 	b.	 	Guaranties. Become a guarantor, a surety, or otherwise liable for the debts
or other obligations of another, whether by guaranty or suretyship agreement,
agreement to purchase indebtedness, agreement for furnishing funds through the
purchase of goods, supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or discharging indebtedness,
or otherwise, except as an endorser of instruments for the payment of money deposited
to its bank account for collection in the ordinary course of business and except as
any be specified in the Schedule titled “Permitted Guaranties”.
	 
	 	c.	 	Liens. Permit any of its assets to be subject to any security interest,
mortgage or other lien or encumbrance, except as set forth on the Schedule titled
“Permitted Liens” and except for liens for property taxes not yet due; pledges and
deposits to secure obligations or Performance for workers’ compensation, bids,
tenders, contracts other than notes, appeal bonds or public or statutory obligations;
and materialmen’s mechanics’, carriers’ and similar liens arising in the normal course
of business.
	 
	 	d.	 	Investments. Make any investment in or otherwise acquire any obligations,
stock or securities of, or any other related interest in, any person or joint venture,
other than cash and cash equivalents, FDIC insured deposits or United States Treasury
obligations of less than one year, or in money market or mutual funds administering
such investments or in repurchase obligations entered into with, and commercial paper
issued by, the Bank or its Affiliates, except as set forth on the Schedule titled
“Permitted Investments”.
	 
	 	e.	 	Loans. Make any loan, advance or other extension of credit except as
disclosed on the Schedule titled “Permitted Loans”, except for endorsements of
negotiable instruments deposited to the Borrower’s deposit account for collection,
trade credit

 

 

	 	 	 	in the normal course of business and intercompany loans approved in writing by the
Bank.
	 
	 	f.	 	Distributions, Redemptions and Prepayments. (a) declare or pay any dividend
or distribution, or redeem, repurchase or otherwise acquire any of its stock, except
for (i) dividends payable solely in stock; (ii) the distribution payable to United
Wagering Systems, Inc. pursuant to the Acquisition Agreement, in an amount not to
exceed $4,800,000; (iii) cash dividends paid to the Borrower by its Subsidiaries; and
(iv) so long as no Default or Event of Default then exists or would be caused thereby,
and provided further that after giving effect to such payment the Borrower is in
compliance with the covenants set forth in Section 8, payments by Borrower to UT Group
LLC for amounts required for (A) the repurchase membership interests (or equivalent
equity interests) from employees of Borrower or its Subsidiaries upon termination of
their employment or other relationship with the Company to the extent that such
repurchases do not exceed $50,000 in any calendar year; (B) so long as the Borrower
files a consolidated tax return with UT Group LLC, the payment of federal and state
taxes then due and owing, provided that the amount of such distribution shall not be
greater, nor the receipt by Borrower or any of its Subsidiaries of tax benefits less,
than they would have been had the Borrower or any such Subsidiary not filed a
consolidated return with UT Group LLC, or (b) prepay any indebtedness.
	 
	 	g.	 	Changes in Form. (i) Transfer or dispose of substantially all of its assets,
(ii) acquire substantially all of the assets of any other entity, (iii) do business
under or otherwise use any name other than its true name, (iv) make any material
change in its business, structure, purposes or operations that might have a material
adverse effect on the Borrower or any of its Subsidiaries, (v) make any change in its
form of entity, (vii) participate in any merger, consolidation or other absorption or
(viii) make, terminate or permit to be revoked any election pursuant to Subchapter S
of the Internal Revenue Code.
	 
	 	h.	 	Affiliate Transactions. Sell or transfer any property to, or purchase or
acquire any property from, or otherwise engage in any other transactions with, any of
its employees, officers, directors or affiliates, except for (i) transactions on terms
that are fair and reasonable and no less favorable to the Borrower or such Subsidiary
than it would obtain in a comparable arm’s-length transaction with a person not an
employee, officer, director or affiliate, (ii) transactions under the Management
Services Agreement in effect on the date hereof (iii) transactions under the
Employment Agreements dated as of the date hereof between Borrower and Joe Tracy, and
Borrower and Terry Woods; (iv) transactions under the Fee Letter dated as of the date
hereof between Borrower and Kinderhook Industries, LLC and (iii) transactions
otherwise expressly permitted hereby.
	 
	 	i.	 	Inconsistent Agreements. Enter into any agreement or arrangement, or
supplement, amend or otherwise modify the terms of its Governing Documents, in a
manner which would restrict in any material respect the ability of the Borrower to

 

 

fulfill its obligations under the Transaction Documents.

	8.	 	FINANCIAL COVENANTS. During the term of this Agreement, the Borrower shall not violate, and
shall not suffer or permit any of its Subsidiaries to violate, any of the following covenants
(complete applicable financial covenant) or any Additional Financial Covenants on the
Schedule. For purposes of this Section, if the Borrower has any Subsidiaries all references
to the Borrower shall include the Borrower and all of its Subsidiaries on a consolidated
basis. Unless a different measurement period is specified, compliance for the financial
covenants shall be required at all times.
	 
	xA.	 	Borrower shall maintain Tangible Net Worth of not less than $$6,000,000 for the
quarter ending December 31, 2003 and increasing by $250,000 for each quarter thereafter
through December 31, 2004, and increasing by $150,000 for each quarter thereafter, measured
quarterly as of each quarter end commencing December 31, 2003.
	 
	xB.	 	Borrower shall maintain a ratio of Total Liabilities to Tangible Net Worth of not
greater than 2.50 to 1.00, measured quarterly as of each quarter end commencing December
31, 2003.

	9	 	DEFAULT.

	 	a.	 	Events of Default. Any of the following events or conditions shall constitute
an “Event of Default”: (i) failure by the Borrower to pay when due (whether at the
stated maturity, by acceleration, upon demand or otherwise) the Obligations; (ii)
default, breach, failure or violation by the Borrower in the performance, observance
or compliance with any covenant,  obligation, term or condition contained
in Section 7 or Section 8 of this Agreement, or the default, breach, failure or
violation by the Borrower in the performance, observance or compliance with any
covenant, obligation, term or condition contained in this Agreement (other than those
contained in Section 7 or Section 8), or the other Transaction Documents or any other
agreement with the Bank or any of its affiliates or subsidiaries (collectively,
“Affiliates”) which is not cured within fifteen (15) days of the date when the
Borrower knew or should have known of such default; (iii) failure by the Borrower to
pay when due (whether at the stated maturity, by acceleration, upon demand or
otherwise) any indebtedness or obligation owing to any third party or any Affiliate in
excess of One Hundred Thousand Dollars ($100,000), the occurrence of any event which
could result in acceleration of payment of any such indebtedness or obligation; (iv)
the Borrower is dissolved, becomes insolvent, generally fails to pay or admits in
writing its inability generally to pay its debts as they become due; (v) the Borrower
makes a general assignment, arrangement or composition agreement with or for the
benefit of its creditors or makes, or sends notice of any intended, bulk sale; the
sale, assignment, transfer or delivery of all or substantially all of the assets of
the Borrower to a third party; or the cessation by the Borrower as a going business
concern; (vi) the Borrower files a petition in bankruptcy or institutes any action
under federal or state law for the relief of debtors or seeks or consents to the

 

 

	 	 	 	appointment of an administrator, receiver, custodian or similar official for the
wind up of its business (or has such a petition or action filed against it and such
petition action or appointment is not dismissed or stayed within sixty (60) days);
(vii) the reorganization, merger, consolidation or dissolution of the Borrower (or
the making of any agreement therefore); (viii) the entry of any judgment or order
of any court, other governmental authority or arbitrator against the Borrower in
excess of One Hundred Thousand Dollars ($100,000) in excess of the amount covered
by insurance (under which the applicable insurance carrier has acknowledged such
coverage in writing) and such judgment has not been paid, satisfied, vacated,
discharged, stayed or bonded pending appeal within thirty (30) days of the entry
thereof, or the entry of any judgment or order of any court, other governmental
authority or arbitrator against the Borrower in excess of Seven Hundred Fifty
Thousand Dollars ($750,000); (ix) falsity, omission or inaccuracy of facts
submitted to the Bank or any Affiliate (whether in a financial statement or
otherwise); (x) the occurrence of an event which could reasonably be expected to
cause a Material Adverse Change; (xi) any “defined benefit plan” (as such term is
defined in Section 3(35) of ERISA) of the Borrower fails to comply with applicable
law or has vested unfunded liabilities that, in the opinion of the Bank, could
reasonably be expected to have a material adverse effect on the Borrower’s ability
to repay its debts; (xii) any indication or evidence received by the Bank that the
Borrower may have directly or indirectly been engaged in any type of activity
which, in the Bank’s reasonable discretion, might result in the forfeiture or any
property of the Borrower to any governmental authority; (xiii) as the result of any
cause, except in each case action or inaction by Bank, any of the Transaction
Documents ceases to be in full force and effect, or any lien created thereunder
ceases to constitute a valid first priority perfected lien on the Collateral in
accordance with the terms thereof, or the Bank ceases to have such a lien on any of
the Collateral; (xiv) the occurrence of a Change of Control with respect to the
Borrower; or (xv) the occurrence of any event described in Section 9(a)(i) through
and including 9(a)(xiv) with respect to any Subsidiary.
	 
	 	b.	 	Rights and Remedies Upon Default. Upon the occurrence and during the
continuance of any Event of Default, the Bank without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any notice
required by law) to or upon the Borrower, any Subsidiary or any other person (all and
each of which demands, presentments, protests, advertisements and notices are hereby
expressly waived), may exercise all rights and remedies under the Borrower’s or its
Subsidiaries’ agreements with the Bank or its Affiliates, applicable law, in equity or
otherwise and may declare all or any part of any Obligations not payable on demand to
be 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. All or any part of any Obligations
whether or not payable on demand, shall be immediately due and payable automatically
upon the occurrence of an Event of Default in Section 9(a)(v) or (vi) above. The
provisions hereof are not intended in any way to affect any rights of the Bank

 

 

with respect to any Obligations which may now or hereafter be payable on demand.
No delay on the part of Bank or failure by Bank to exercise any power, right or
remedy under this Agreement or any other Transaction Document shall operate as a
waiver thereof, nor shall a single or partial exercise of any power, right or
remedy or any abandonment or discontinuance of steps to enforce such right,
power or remedy preclude other or further exercises thereof, or the
exercise of any other power, right or remedy. The rights and remedies in this
Agreement and the other Transaction Documents are cumulative and not exclusive of
any rights of remedies (including, without limitation, the right of specific
performance) which the Bank would otherwise have.

	10.	 	EXPENSES. The Borrower shall pay to the Bank on demand all costs and expenses (including
all reasonable fees and disbursements of counsel retained for advice, suit, appeal or other
proceedings or purpose and of any experts or agents it may retain), which the Bank may incur
in connection with (i) the administration of the Obligations, including any administrative
fees the Bank may impose for the preparation of discharges, releases or assignments to
third-parties; (ii) the enforcement and collection of any Obligations or any guaranty
thereof, (iv) the exercise, performance ,enforcement or protection of any of the rights of
the Bank hereunder or (v) the failure of the Borrower or any Subsidiary to perform or observe
any provisions hereof. After such demand for payment of any cost, expense or fee under this
Section or elsewhere under this Agreement, the Borrower shall pay interest at the highest
default rate specified in any instrument evidencing any of the Obligations from the date
payment is demanded by the Bank to the date reimbursed by the Borrower. All such costs,
expenses or fees under this Agreement shall be added to the Obligations.
	 
	11.	 	TERMINATION. Except as otherwise expressly provided in Section 13(c) and elsewhere herein,
this Agreement shall remain in full force and effect until all Obligations (other than
Obligations in respect of indemnification and expenses to the extent that such Obligations
are not yet due and payable) such outstanding, or contracted or committed for (whether or not
outstanding), shall be finally and irrevocably paid in full, and all of Bank’s commitments
under the Transaction Documents have expired.
	 
	12.	 	RIGHT OF SETOFF. If an Event of Default occurs and is continuing, the Bank shall have the
right to set off against the amounts owing under this Agreement and the other Transaction
Documents any property held in a deposit or other account or otherwise with the Bank or its
Affiliates or otherwise owing by the Bank or its Affiliates in any capacity to the Borrower,
its Subsidiary or any guarantor of, or endorser of any of the Transaction Documents
evidencing, the Obligations. Such setoff shall be deemed to have been exercised immediately
at the time the Bank or such Affiliate elect to do so.
	 
	13.	 	MISCELLANEOUS.

	 	a.	 	Notices. Any demand or notice hereunder or under any applicable law
pertaining hereto shall be in writing and duly given if delivered to Borrower (at its
address on the Bank’s records) or to the Bank (at the address on page one and
separately to

 

 

	 	 	 	the Bank officer responsible for Borrower’s relationship with the Bank). Such
notice or demand shall be deemed sufficiently given for all purposes when delivered
(i) by personal delivery and shall be deemed effective when delivered, or (ii) by
mail or courier and shall be deemed effective three (3) business days after deposit
in an official depository maintained by the United States Post Office for the
collection of mail or one (1) business day after delivery to a nationally
recognized overnight courier service (e.g., Federal Express). Notice by e-mail is
not valid notice under this or any other agreement between Borrower and the Bank.
	 
	 	b.	 	Generally Accepted Accounting Principles. Any financial calculation to be
made, all financial statements (except as set forth in the notes thereto) and other
financial information to be provided, and all books and records, system of accounting
and reserves to be kept in connection with the provisions of this Agreement, shall be
in accordance with generally accepted accounting principles consistently applied
during each interval and from interval to interval, provided, however, that in the
event changes in generally accepted accounting principles shall be mandated by the
Financial Accounting Standards Board or any similar accounting body of comparable
standing, or should be recommended by Borrowers certified public accountants, to the
extent such changes would affect any financial calculations to be made in connection
herewith, such changes shall be implemented in making such calculations only from and
after such date as Borrower and the Bank shall have amended this Agreement to the
extent necessary to reflect such changes in the financial and other covenants to which
such calculations relate.
	 
	 	c.	 	Indemnification. If after receipt of any payment of all, or any part of, the Obligations, the
Bank is, for any reason, compelled to surrender such payment to any person or entity because such
payment is determined to be void or voidable as a preference, an impermissible setoff, or a
diversion of trust funds, or for any other reason, the Transaction Documents shall continue in full
force and the Borrower shall be liable, and shall indemnify and hold the Bank harmless for, the
amount of such payment surrendered. The provisions of this Section shall be and remain effective
notwithstanding any contrary action which may have been taken by the Bank in reliance upon such
payment, and any such contrary action so taken shall be without prejudice to the Bank’s rights
under the Transaction Documents and shall be deemed to have been conditioned upon
such payment having become final and irrevocable. The provisions of this Section
shall survive the termination of this Agreement and the Transaction Documents.
	 
	 	d.	 	Further Assurances. From time to time, the Borrower shall take, and cause its
Subsidiaries to take, such action and execute and deliver to the Bank such additional
documents, instruments, certificates, and agreements as the Bank may reasonably
request to effectuate the purposes of the Transaction Documents.
	 
	 	e.	 	Cumulative Nature and Non-Exclusive Exercise of Rights and Remedies. All

 

 

	 	 	 	rights and remedies of the Bank pursuant to this Agreement and the Transaction
Documents shall be cumulative, and no such right or remedy shall be exclusive of
any other such right or remedy. In the event of any irreconcilable
inconsistencies, this Agreement shall control. No single or partial exercise by
the Bank of any right or remedy pursuant to this Agreement or otherwise shall
preclude any other or further exercise thereof, or any exercise of any other such
right or remedy, by the Bank.
	 
	 	f.	 	Governing Law; Jurisdiction. This Agreement has been delivered to and
accepted by the Bank and will be deemed to be made in the State of Maryland. Except
as otherwise provided under federal law, this Agreement will be interpreted in
accordance with the laws of the State of Maryland excluding its conflict of laws
rules. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT IN THE STATE OF MARYLAND WHERE THE BANK MAINTAINS A BRANCH, AND
CONSENTS THAT THE BANK MAY EFFECT ANY SERVICE OF PROCESS IN THE MANNER AND AT
BORROWER’S ADDRESS SET FORTH ABOVE FOR PROVIDING NOTICE OR DEMAND, PROVIDED THAT
NOTHING CONTAINED IN THIS AGREEMENT WILL PREVENT THE BANK FROM BRINGING ANY ACTION,
ENFORCING ANY AWARD OR JUDGMENT OR EXERCISING ANY RIGHTS AGAINST BORROWER
INDIVIDUALLY, AGAINST ANY SECURITY OR AGAINST ANY PROPERTY OF BORROWER WITHIN ANY
OTHER COUNTY, STATE OR OTHER FOREIGN OR DOMESTIC JURISDICTION. Borrower acknowledges
and agrees that the venue provided above is the most convenient forum for both the
Bank and Borrower. Borrower waives any objection to venue and any objection based on
a more convenient forum in any action instituted under this Agreement.
	 
	 	g.	 	Joint and Several; Successors and Assigns. If there is more than one
Borrower, each of them shall be jointly and severally liable for all amounts, which
become due, and the performance of all obligations under this Agreement, and the term
“the Borrower” shall include each as well as all of them. This Agreement shall be
binding upon the Borrower and Bank and upon their heirs and legal representatives,
their successors and assignees, and shall inure to the benefit of, and be enforceable
by, the Bank, the Borrower and their successors and assignees and each direct or
indirect assignee or other transferee of any of the Obligations; provided, however,
that this Agreement may not be assigned by the Borrower without the prior written
consent of the Bank.
	 
	 	h.	 	Waivers; Changes in Writing. No failure or delay of the Bank in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any abandonment or discontinuance
of steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The Borrower expressly disclaims
any reliance on any course of dealing or usage of trade or oral

 

 

	 	 	 	representation of the Bank (including representations to make loans to the
Borrower) and agrees that none of the foregoing shall operate as a waiver of any
right or remedy of the Bank. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar or
other circumstances. No waiver of any provision of this Agreement or consent to
any departure by the Borrower there from shall in any event be effective unless
made specifically in writing by the Bank and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
modification to any provision of this Agreement shall be effective unless made in
writing in an agreement signed by the Borrower and the Bank.
	 
	 	i.	 	Interpretation. Unless the context otherwise clearly requires, references to
plural includes the singular and references to the singular include the plural;
references to “individual” shall mean a natural person and shall include a natural
person doing business under an assumed name (e.g., a “DBA”) the word “or” has the
inclusive meaning represented by the phrase “and/or”; the word “including”, “includes”
and “include” shall be deemed to be followed by the words “without limitation”; and
captions or section headings are solely for convenience and not part of the-substance
of this Agreement. Any representation, warranty, covenant or agreement herein shall
survive execution and delivery of this Agreement and shall be deemed continuous. Each
provision of this Agreement shall be interpreted as consistent with existing law and
shall be deemed amended to the extent necessary to comply with any conflicting law.
If any provision nevertheless is held invalid, the other provisions shall remain in
effect. The Borrower agrees that in any legal proceeding, a photocopy of this
Agreement kept in the Bank’s course of business may be admitted into evidence as an
original.
	 
	 	j.	 	Waiver of Jury Trial. THE BORROWER AND THE BANK HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY THE BORROWER AND THE
BANK MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH
THIS AGREEMENT OR ANY TRANSACTIONS RELATED HERETO, THE BORROWER REPRESENTS AND
WARRANTS THAT NO REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE BANK WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS
JURY TRIAL WAIVER. THE BORROWER ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.

Acknowledgment. Borrower acknowledges that it has read and understands all the provisions of this
Agreement, including the Governing Law, Jurisdiction and Waiver of Jury Trial, and has been
advised by counsel as necessary or appropriate.

 

 

SCHEDULE

Additional Representations and Warranties (§5)

The Borrower is not an “investment company” registered or required to be registered under the
Investment Company Act of 1940, as amended, and is not controlled by such an “investment company.”

The Borrower has no subsidiaries other than United Tote Canada Inc., Dynatote of Pennsylvania,
Inc. (“Dynatote”) and United Tote of Colombia, LTDA. (“UT Colombia”, and together with Dynatote,
the “Restricted Subsidiaries”).

Neither the Borrower nor any of its Subsidiaries (i) is a person whose property or interest in
property is blocked or subject to blocking pursuant to Section 1 of Executive Order 13224 of
September 23, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit,
Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)), (ii) engages in any dealing
or transactions prohibited by Section 2 of such executive order, or is otherwise associated with
any such person in any manner violative of Section 2, or (iii) is a person on the list of
Specially Designated Nationals and Blocked Persons or subject to the limitations or prohibitions
under any other U.S. Department of Treasury’s office of Foreign Assets Control regulation or
executive order.

The Borrower and each of its Subsidiaries are in compliance, in all material respects, with the
applicable anti-money laundering provisions of the Patriot Act. No part of the proceeds of the
loans will be used, directly or indirectly, for any payments to any governmental official or
employee, political party, official of a political party, candidate for political office, or
anyone else acting in an official capacity, in order to obtain, retain or direct business or
obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of
1977, as amended.

The Restricted Subsidiaries have no assets and engage in no commercial activities whatsoever.

Additional Affirmative Covenants (§6)

Maintain, from the date which is forty-five (45) days after the Closing Date, policies of
insurance in the amount of $1,000,000 on the lives of both Joseph Tracy and Terry Woods, in form
and substance satisfactory to the Bank, which policies of insurance shall be collaterally assigned
to the Bank.

With respect to any agreements entered into by Borrower with customers after the date hereof,
Borrower shall use its reasonable best efforts to cause language to be included in such agreement
whereby any other parties to such agreement shall acknowledge the Security Interest of Bank
therein.

Additional Negative Covenants (§7)

 

 

Permit the Restricted Subsidiaries to own any assets or engage in any commercial activities.

Form a new Subsidiary unless Borrower (a) agrees to pledge (i) 100% of the stock (or equivalent
equity interests) of such Subsidiary to Bank if such Subsidiary is a domestic entity, or (ii) 65%
of the stock (or equivalent equity interests) of such Subsidiary to Bank if such Subsidiary is a
foreign entity and (b) provides a statement of the chief financial officer of Borrower that no
Default or Event of Default exists or would be caused by the formation of such Subsidiary.

Permitted Indebtedness (§7(a))

indebtedness in respect of performance bonds, bid bonds, appeal bonds, surety bonds and similar
obligations, in each case provided in the ordinary course of business.

indebtedness arising. from the honoring by a bank or other financial institution of a
check, draft or similar instrument drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness is extinguished within five (5) Business Days of its
incurrence.

indebtedness in respect of judgments or awards that have been in force for less than the
applicable period for taking an appeal so long as execution is not levied thereunder or in respect
of which the Borrower or the applicable Subsidiary shall at the time in good faith be prosecuting
an appeal or proceedings for review and in respect of which a stay of execution shall have been
obtained pending such appeal or review.

indebtedness secured by purchase money liens and capital leases for equipment not financed by the
Equipment Line of Credit Facility, up to $250,000 in the aggregate outstanding at any one time.

without duplication, indebtedness secured by any lien permitted by Section 7.c.

indebtedness in favor of Bank and its Affiliates, including indebtedness incurred under the
Transaction Documents.

indebtedness of Borrower’s wholly owned Subsidiary, United Tote Canada, Inc. owing to Borrower in
an amount not to exceed $250,000 in the aggregate outstanding at any one time on terms and
conditions reasonably satisfactory to Bank.

Preferred stock classified as indebtedness in accordance with GAAP pursuant to FASB pronouncement
150, which shall not be redeemable any earlier than one (1) year after the Maturity Date.

Permitted Guaranties (§7(b))

none

 

 

Permitted Liens (§7(c))

liens in favor of the Bank or its Affiliates.

the following liens on property existing on the date hereof and any renewals or extensions
thereof; provided that such liens shall secure only those obligations that they secure on the
Closing Date and the amount of indebtedness secured thereby shall not be increased:

[List existing liens]

liens for taxes, assessments or governmental charges (excluding any lien imposed pursuant to any
of the provisions of ERISA) not yet delinquent or which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been set aside on the
books of the Borrower or such Subsidiary to the satisfaction of the Bank and such contest operates
to suspend collection of the contested obligation, tax assessment or charge and enforcement of a
lien.

statutory liens of landlords’, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s
or other like liens arising in the ordinary course of business and securing obligations that are
not more than 30 days delinquent.

pledges and deposits made in the ordinary course of business to secure obligations under workers’
compensation, unemployment insurance and other social security laws or regulations or to secure
public or statutory obligations.

deposits to secure the performance of bids, trade contracts (other than for indebtedness), leases
(other than capital lease), liens to secure the performance of statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary
course of business.

purchase money liens on equipment acquired in the ordinary course of business with respect to
indebtedness permitted under Section 7(a).

zoning restrictions, easements, rights-of-way, restrictions on use of real property and other
similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and do not materially detract from the value of the property subject thereto
or materially adversely interfere with the use of such property for its present purposes.

Permitted Investments (§7(d))

The acquisition of the equity of United Tote Canada, Inc. pursuant to the Contribution Agreement
dated as of the date hereof.

Permitted Loans (§7(e))

advances for business travel and similar temporary advances made in the ordinary course of

 

 

business to officers, directors, consultants and employees in an aggregate amount not exceeding
$100,000 at any time outstanding.

Loans made by Borrower to United Tote Canada, Inc. in an amount not to exceed $250,000 in the
aggregate outstanding at any one time on terms and conditions reasonably satisfactory to Bank.

Additional Financial Covenants (§8)

The Borrower shall maintain Debt Service Coverage Ratio of not less than 1.50 to 1.00, measured
for the previous four quarters as of each quarter end commencing December 31, 2003. For purposes
hereof, “Debt Service Coverage Ratio” means the ratio of (A) the sum of (i) consolidated net
income of the Borrower and its Subsidiaries, (ii) the consolidated depreciation and amortization
of the Borrower and its Subsidiaries, (iii) the consolidated interest expense of the Borrower and
its Subsidiaries and (iv) other non-cash or extraordinary expenses of the Borrower and
its Subsidiaries, minus (v) other non-cash or extraordinary income of the Borrower and its
Subsidiaries to (B) the total of (i) the current installments of all principal payable during the
measurement period by the Borrower or any Subsidiary in connection with any indebtedness or other
obligation (other than preferred stock referred to in Schedule 7(a), Permitted Indebtedness)
maturing more than one year after the end of the applicable measurement period and arising from
the borrowing of any money or the deferral of the purchase price of any asset and (ii) the
consolidated interest expense of the Borrower and its Subsidiaries during such measurement period.

 

 

FIRST AMENDMENT TO CREDIT AGREEMENT

     THIS FIRST AMENDMENT TO CREDIT AGREEMENT (“First Amendment”) is made as of January 4, 2005 by
and between UNITED TOTE COMPANY (“Borrower”) and MANUFACTURERS AND TRADERS TRUST COMPANY (“Bank”).

     I. Borrower and the Bank are the parties to that Credit Agreement, dated as of September 5,
2003 (the “Credit Agreement”). The Borrower has requested that the Bank amend the Credit
Agreement in certain respects, and the Bank has agreed to do so, subject to and in accordance with
this Amendment.

     NOW THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Bank and
the Borrower agree as follows:

     1. Recitals. Borrower acknowledges that the above recitals to this Amendment are true and
correct, and agrees that the same are incorporated by reference into the body of this Amendment.
Capitalized terms used in this Amendment without definition that are defined in the Credit
Agreement have the same meanings given them in the Credit Agreement.

     2. Amendments to Credit Agreement. The Credit Agreement is amended as follows:

	 	a.	 	In Section 1.dd., the number “$5,000,000” is hereby deleted
and the number “$10,000,000” is inserted in lieu thereof.
	 
	 	b.	 	In the first line of Section 2.a.(l), the year “2005” is
hereby deleted and the year “2006” inserted in lieu thereof.
	 
	 	c.	 	The following language shall be added to the end of Section
2.a.(2): At the Borrower’s election, the Equipment Notes executed after
January 4, 2005 shall provide for a six month interest only period.

     3. Representations and Warranties. Borrower represents, warrants and covenants to the Bank
as follows:

	 	a.	 	Each and all of the representations and warranties of Borrower
in the Credit Agreement and the other instruments, agreements and relating to
the Equipment Line of Credit Facility are true and correct on the date hereof
as if the same were made on the date hereof.
	 
	 	b.	 	As of the date hereof, all collateral for the Obligations is
free and clear of all assignments, security interests, liens and other
encumbrances of any kind and nature whatsoever except for those permitted
under the provisions of the Credit Agreement.

     4. Amendment Only. This Amendment is a part of the Credit Agreement. All of the

 

 

provisions of the Credit Agreement are incorporated herein by reference and shall continue in
full force and effect as amended by this Amendment. Borrower hereby ratifies and confirms all of
its obligations, liabilities and indebtedness under the provisions of the Credit Agreement, as
amended by this Amendment. The Bank and Borrower agree that it is their express intention that
nothing herein shall be construed to extinguish, release or discharge or constitute, create or
effect a novation of, or an agreement to extinguish, any of the obligations, indebtedness and
liabilities of the Borrower or any other party under the provisions of the Credit Agreement or
under any of the other Transaction Documents, or any assignment or pledge to the Bank of, or any
security interest or lien granted to the Bank in or on, any collateral and security for such
obligations, indebtedness and liabilities.

     5. Applicable Law, Etc. This Amendment shall be governed by the laws of the State of
Maryland and shall be binding upon and inure to the benefit of the Bank and the Borrower and their
respective successors and assigns.

 

 

     IN WITNESS WHEREOF, Borrower and the Bank have executed this Amendment under their respective
seals as of the day and year first written above.

	 	 	 	 	 	 	 
	 	 	MANUFACTURERS AND TRADERS TRUST COMPANY
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ Gregory J. Oliver (SEAL)
	 	 	 	 	 
	 

	 	 	 	Name:
	 	Gregory J. Oliver
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:
	 	Vice President
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	UNITED TOTE COMPANY
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ Keith Marshall	 	By:	 	/s/ Terry Woods (SEAL)
	 	 	 	 	 
	 

	 	 	 	Name:
	 	Terry V. Woods
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:
	 	President
	 

	 	 	 	 	 	 

 

 

SECOND AMENDMENT TO CREDIT AGREEMENT

     THIS SECOND AMENDMENT TO CREDIT AGREEMENT (“Amendment”) is made as of June ___, 2005 by and
between UNITED TOTE COMPANY’ (“Borrower”) and MANUFACTURERS AND TRADERS TRUST COMPANY (“Bank”).

RECITALS

     1. Borrower and the Bank are the parties to that Credit Agreement, dated as of September 5,
2003 and amended by a First Amendment to Credit Agreement dated as of January 4, 2005
(collectively, the “Credit Agreement”). The Borrower has requested that the Bank amend the Credit
Agreement in certain respects, and the Bank has agreed to do so, subject to and in accordance with
this Amendment.

     NOW THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Bank and
the Borrower agree as follows:

     1. Recitals. Borrower acknowledges that the above recitals to this Amendment are true and
correct, and agrees that the same are incorporated by reference into the body of this Amendment.
Capitalized terms used in this Amendment without definition that are defined in the Credit
Agreement have the same meanings given them in the Credit Agreement.

     2. Amendments to Credit Agreement. The Credit Agreement is amended as follows:

	 	a.	 	In Section 1.dd., the number “$10,000,000” is hereby deleted
and the number “$11,500,000” is inserted in lieu thereof.

     3. Representations and Warranties. Borrower represents, warrants and covenants to the Bank
as follows:

	 	a.	 	Each and all of the representations and warranties of Borrower in the Credit Agreement and
the other instruments, agreements and relating to the Equipment Line of Credit Facility are true
and correct on the date hereof as if the same were made on the date hereof.
	 	 	 	 
	 	b.	 	As of the date hereof, all collateral for the Obligations is free and clear of all
assignments, security interests, liens and other encumbrances of any kind and nature whatsoever
except for those permitted under the provisions of the Credit
Agreement.

     4. Amendment Only. This Amendment is a part of the Credit Agreement. All of the provisions
of the Credit Agreement are incorporated herein by reference and shall continue in full force and
effect as amended by this Amendment. Borrower hereby ratifies and confirms all of its
obligations, liabilities and indebtedness under the provisions of the Credit Agreement, as amended
by this Amendment. The Bank and Borrower agree that it is their express intention

 

 

that nothing herein shall be construed to extinguish, release or discharge or constitute,
create or effect a notation of, or an agreement to extinguish, any of the obligations,
indebtedness and liabilities of the Borrower or any other party under the provisions of the Credit
Agreement or under any of the other Transaction Documents, or any assignment or pledge to the Bank
of, or any security interest or lien granted to the Bank in or on, any collateral and security for
such obligations, indebtedness and liabilities.

     5. Applicable Law, Etc. This Amendment shall be governed by the laws of the State of
Maryland and shall be binding upon and inure to the benefit of the Bank and the Borrower and their
respective successors and assigns.

 

 

     IN WITNESS WHEREOF, Borrower and the Bank have executed this Amendment under their respective
seals as of the day and year first written above.

	 	 	 	 	 	 	 
	WITNESS/ATTEST:	 	UNITED TOTE COMPANY
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ Keith Marshall	 	By:	 	/s/ Terry V. Woods (SEAL)
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	MANUFACTURERS AND TRADERS TRUST COMPANY
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	By:	 	(SEAL)
	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 
	 

	 	 	 	 	 	 

 

 

THIRD AMENDMENT TO CREDIT AGREEMENT

     THIS THIRD AMENDMENT TO CREDIT AGREEMENT (“Amendment”) is made as of August ___, 2005 by and
between UNITED TOTE COMPANY (“Borrower”) and MANUFACTURERS AND TRADERS TRUST COMPANY
(“Bank”).

     1. Borrower and the Bank are the parties to that Credit Agreement, dated as of September 5,
2003 and amended by a First Amendment to Credit Agreement dated as of January 4, 2005 and a Second
Amendment to Credit Agreement dated as of June 13, 2005
(collectively, the
“Credit
Agreement”). The Borrower has requested that the Bank amend the Credit Agreement in
certain respects, and the Bank has agreed to do so, subject to and in accordance with this
Amendment.

     NOW THEREFORE, in consideration of the premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Bank and
the Borrower agree as follows:

     1. Recitals. Borrower acknowledges that the above recitals to this Amendment are true and
correct, and agrees that the same are incorporated by reference into the body of this Amendment.
Capitalized terms used in this Amendment without definition that are defined in the Credit
Agreement have the same meanings given them in the Credit Agreement.

     2. Amendments to Credit Agreement. The Credit Agreement is amended as follows:

	 	a.	 	In Section 1.dd., the number “$11,500,000” is hereby deleted and
the number “$15,500,000” is inserted in lieu thereof.
	 
	 	b.	 	The following language is added to the end of §l.jj.: “and shall
be reduced to $0.00 on December 31, 2005.”
	 
	 	c.	 	The following language shall be added to the end of the first
sentence under the heading entitled “Additional Financial Covenants (§8)” in
the attached Schedule: “provided, however, that the required Debt Service
Coverage Ratio shall be not less than 1.25 to 1.00 for the period commencing
September 30, 2005 and ending on September 30, 2006.”

     3. Representations and Warranties. Borrower represents, warrants and covenants to the Bank
as follows:

     (a) Each and all of the representations and warranties of Borrower in the Credit Agreement
and the other instruments, agreements and relating to the Equipment Line of Credit Facility are
true and correct on the date hereof as if the same were made on the date hereof.

     (b) As of the date hereof, all collateral for the Obligations is free and clear of all
assignments, security interests, liens and other encumbrances of any kind and nature

 

 

whatsoever except for those permitted under the provisions of the Credit Agreement.

     4. Amendment Only. This Amendment is a part of the Credit Agreement. All of the provisions
of the Credit Agreement are incorporated herein by reference and shall continue in full force and
effect as amended by this Amendment. Borrower hereby ratifies and confirms all of its
obligations, liabilities and indebtedness under the provisions of the Credit Agreement, as amended
by this Amendment. The Bank and Borrower agree that it is their express intention that nothing
herein shall be construed to extinguish, release or discharge or constitute, create or effect a
notation of, or an agreement to extinguish, any of the obligations, indebtedness and liabilities
of the Borrower or any other party under the provisions of the Credit Agreement or under any of
the other Transaction Documents, or any assignment or pledge to the Bank of, or any security
interest or lien granted to the Bank in or on, any collateral and security for such obligations,
indebtedness and liabilities.

     5. Applicable Law, Etc. This Amendment shall be governed by the laws of the State of
Maryland and shall be binding upon and inure to the benefit of the Bank and the Borrower and their
respective successors and assigns.

     IN WITNESS WHEREOF, Borrower and the Bank have executed this Amendment under their respective
seals as of the day and year first written above.

	 	 	 	 	 	 	 
	IN WITNESS/ATTEST:	 	UNITED TOTE COMPANY	 	 
	 
	 	 	 	 	 	 
	/s/ Keith Marshall

	 	By:
	 	/s/ Terry Woods
	 	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Terry Woods	 	 
	 

	 	Title:
	 	Pres/CEO	 	 
	 
	 	 	 	 	 	 
	 	 	MANUFACTURES AND TRADERS TRUST

COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	(SEAL)
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

 

 

LIBOR EQUIPMENT NOTE

Maryland

$________________________

_________________

	 	 	 
	BORROWER:	 	United Tote Company
	a(n) o individual(s) o partnership þ corporation o
 trust o                                          organized under laws of
Montana Address of residence/chief executive office: 11505 Susquehanna Trail, Glen
Rock, Pennsylvania 17327-8606

			
	BANK:	 	MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking corporation with banking
offices at One M&T Plaza, Buffalo, New York 14240. Attention: Office of General Counsel

1. DEFINITIONS. As used in this Note, each capitalized term shall have the meaning specified in
the Note or, if not otherwise defined, shall have the meanings given to such term as set
forth in the Credit Agreement (as defined below). Additionally, the following terms
shall have the indicated meanings:

	 	a.	 	“Adjustment Date”, when applicable shall mean the first day of the applicable
Interest Period (or if such date is not a Business Day, the immediately preceding
Business Day).
	 
	 	b.	 	“Applicable Rate” shall mean either the LIBOR Rate or the Base Rate, as the
case may be.
	 
	 	c.	 	“Base Rate” shall mean one (1) percentage point above the highest prime rate
published in The Wall Street Journal in its table entitled “Money Rates” or such
similar publication, quoting service or commonly available source used by the Bank for
determining prune rate (“Prime”).
	 
	 	d.	 	“Business Day” shall mean any day of the year on which banking institutions in
New York, New York are not authorized or required by law or other governmental action
to close and, to the extent the LIBOR Rate is applicable, on which dealings are
carried on in the London interbank market.
	 
	 	e.	 	“Continuation Date” shall mean the last day of each Interest Period.
	 
	 	f.	 	“Interest Period” shall mean, as to the LIBOR Rate, the period
commencing on the date of thin Note or Continuation Date (as the case may be) and
ending on the date that shall be the following day; provided, however, that if an
Interest Period would end on a day that is not a Business Day, such Interest Period
shall be extended to the next succeeding Business Day.
	 
	 	g.	 	“LIBOR” shall mean the rate obtained by dividing the
one-day interest period London Interbank Offered Rate, fixed by the British Bankers
Association for United States dollar deposits in, the London Interbank Eurodollar
Market at approximately 11:00 a.m. London, England time (or as soon thereafter as
practicable) as determined by the Bank from any broker, quoting service or commonly
available source utilized by the Bank by (ii) a percentage equal to

 

 

	 	 	 	100% minus the stated maximum rate of all reserves required to be maintained
against “Eurocurrency Liabilities” as specified in Regulation D (or against any
other category of liabilities which includes deposits by reference to which the
interest rate on LIBOR Rate loans is determined or any category of extensions of
credit or other assets which includes loans by a non-United States’ office of a
bank to United States residents) on such date to any member bank of the Federal
Reserve System.
	 
	 	h.	 	“LIBOR Rate” shall mean three and one-quarter (3.25) percentage points
above LIBOR with an Interest Period duration of one day.
	 
	 	 	 	i “Maturity Date” is the Payment Due Date in September 5, 2008.
	 
	 	j.	 	“Payment Due Date”, when applicable, shall mean the same day of the calendar
month as the date of this Note (or if there is no numerically corresponding day in a
month, on the last day of such month); provided, however, if that day is not a
Business Day, the Payment Due Date shall be extended to the next succeeding Business
Day unless such next succeeding Business Day would fall in the next calendar month, in
which case such Payment Due Date shall be the immediately preceding Business Day.
	 
	 	k.	 	“Principal Amount” shall mean [                    ] Dollars ($[                    ]}.

2. PAYMENT OF PRINCIPAL, INTEREST AND EXPENSES.

     a. Promise to Pay. For value received and intending to be legally bound, Borrower promises
to pay to the order of the Bank on the dates set forth below, the Principal Amount, plus interest
as agreed below and all fees and costs (including without limitation attorneys fees and
disbursements whether for internal or outside counsel) the Bank incurs in order to collect any
amount due under this note, to negotiate or document a workout or restructuring, or to preserve
its rights or realize upon any guaranty or other security for the payment of this Note
(“Expenses”).

     b. Initial Applicable Rate. The initial Applicable Rate shall be the LIBOR Rate in effect on
the date that is the date of this Note (or, if such date is not a Business Day, the immediately
preceding Business Day), and the initial Interest Period shall start on the date of
this Note.

     c. Interest. Interest shall accrue on the outstanding Principal Amount calculated on the
basis of a 360-day year for the actual number of days of each year (365 or 366) at the Applicable
Rate that on each day shall be:

	 	i.	 	if the LIBOR Rate is the Applicable Rate. Interest
shall accrue on the Principal Amount from and including the first day of the
Interest Period until, but not including, the last day of such
Interest Period or the day the Principal Amount is paid in full (if sooner),
at a rate per annum equal to the LIBOR Rate determined and in effect on the
applicable Adjustment Date.
	 
	 	ii.	 	if the Base Rate is the Applicable Rate. Interest
shall accrue on the

 

 

	 	 	 	Principal Amount from and including the first date the Base Rate is the
Applicable Rate to but not including, the day such Principal Amount is paid
in full or the Applicable Rate is converted to the LIBOR Rate, at the rate
per annum equal to the Base Rate. Any change in the Base Rate resulting
from a change in Prime shall be effective on the date
of such change.

     d. Payment Schedule. (Check applicable box):

	 	þ	 	Borrower shall pay the outstanding Principal Amount in [_] consecutive
monthly installments as follows: starting on the first Payment Due Date
after the date of this Note and on each successive Payment Due Date
thereafter consisting of [_] equal installments of principal
each in the amount of $ ___and ONE (1) FINAL INSTALLMENT on
the Maturity Date in an amount equal to the outstanding Principal Amount at
that time together with all other amounts outstanding hereunder including,
without limitation, accrued interest, costs and Expense (the “Final
Installment”); provided, however, if the Applicable Rate is converted to
the Base Rate, Borrower shall pay the outstanding Principal Amount in
consecutive monthly installments commencing on the first Payment Due Date
after the date of such conversion and on the same Payment Due Date
thereafter until conversion back to the LIBOR Rate (at which time
Borrower shall resume the monthly installments in the amount set
forth above or as otherwise agreed to by the Bank. and Borrower
in writing) or the Maturity Date (at which time Borrower shall pay the
Final Installment) with each such installment being equal in an amount to
fully amortize the outstanding Principal Amount of the Note in full by
the Maturity Date or such other date agreed to by the Bank and
Borrower in writing. The determination by the Bank of the foregoing amount
shall, in the absence of manifest error, be conclusive and binding upon
Borrower. In addition, until the outstanding Principal Amount is paid in
full, Borrower shall pay all accrued and unpaid interest, in amounts which
may vary, as follows (i) if the LIBOR Rate is the Applicable
Rate, on the payment Due Date for each month, (ii) if, the Base Rate is the
Applicable Rate, on the Payment Due Date for each month, and
(iii) at maturity (whether by acceleration or otherwise) and, after such
maturity, on demand.

     e. Maximum Legal Rate. It is the intent of the Bank and Borrower that in no event shall
interest be payable at a rate in excess of the maximum rate permitted by applicable law (the
“Maximum Legal Rate”). Solely to the extent necessary to prevent interest under this Note from
exceeding the Maximum Legal Rate, any amount that would be treated as excessive under a final
judicial interpretation of applicable law shall be deemed to have been a mistake and automatically
canceled, and, if received by the Bank, shall be refunded to Borrower.

     f. Default Rate. If an Event of Default (defined below) occurs, the interest rate on

 

 

the unpaid Principal Amount shall immediately be automatically increased to 2.5 percentage
points per year above the higher of the LIBOR Rate or the Base Rate, and any judgment entered
hereon or otherwise in connection with any suit to collect amounts due hereunder shall bear
interest at such default rate.

     g. Repayment of Principal and Interest; Late Charge. Payments shall be made in immediately
available United States funds at any banking office of the Bank. Interest will continue to accrue
until payment is actually received. If payment is not received within five days of its due date,
Borrower shall pay a late charge equal to the greatest of (a) $50.00, or (b) 2.5% of the
delinquent amount. Payments may be applied in any order in the sole discretion of the Bank but,
so long as no Event of Default shall have occurred and be continuing, shall be applied first to
past due interest, Expenses, late charges and principal, then to current interest, Expenses, late
charge and principal, and last to remaining principal.

3. CONVERSIONS.

     a. Expiration of Interest Period. Subject to Section 3(b), upon the expiration of the first
Interest Period and each Interest Period thereafter, on the Continuation Date the LIBOR Rate will
be automatically continued with an Interest Period of the same duration as the Interest Period
duration indicated above.

     b. Conversion Upon Default. Unless the Bank shall otherwise consent in writing, if (i)
Borrower has failed to pay when due, in whole or in part, the indebtedness under the Note (whether
upon maturity, acceleration or otherwise), or (ii) there exists a condition or event which with
the passage of time, the giving of notice or both shall constitute an Event of Default, the Bank
may, in its sole and absolute discretion, immediately convert the Applicable Rate to the Base
Rate. Notwithstanding the foregoing, upon the occurrence of an Event of Default in Section 9(vi)
or (vii) of the Credit Agreement, the Applicable Rate shall be automatically converted to the Base
Rate without further action by the Bank and Borrower shall have no right to have the Applicable
Rate converted from the Base Rate to the LIBOR Rate. Nothing herein shall be construed to be a
waiver by the Bank to have the Principal Amount accrue interest at the Default Rate.

     4. EVENTS OF DEFAULT; ACCELERATION. Any of the following events or conditions shall constitute an
“Event of Default”: (i) failure by the Borrower to pay when due (whether at the stated maturity,
by acceleration, upon demand or otherwise) the any and all amounts payable to Bank under this
Note; (ii) the occurrence of an Event of Default (as defined therein) under the terms of any of
the other Transaction Documents. All amounts hereunder shall become immediately due and payable
upon the occurrence of an Event of Default pursuant to Section 9(v) or (vi) of the Credit
Agreement, or at the Bank’s option, upon the occurrence of any other Event of Default.

     5. RIGHT OF SETOFF. The Bank shall have the right to set off against the amounts owing under this
Note any property held in a deposit or other account with the Bank or any Affiliate or otherwise
owing by the Bank or any Affiliate in any capacity to Borrower or any guarantor or endorser of
this Note. Such set-off shall be deemed to have been exercised

 

 

immediately at the time the Bank or such Affiliate elect to do so.

6. INABILITY TO DETERMINE LIBOR RATES, INCREASED COSTS, ILLEGALITY.

     a. Increased Costs. If the Bank shall determine that, due to either (a) the
introduction of any change (other than any change by way of imposition of or increase in reserve
requirements included in the calculation of the LIBOR) in or in the interpretation of any
requirement of law or (b) the compliance with any guideline or request from any central bank or
other governmental authority (whether or not having the force of law), there shall be any increase
in the cost to the Bank of agreeing to make or making, funding or maintaining any loans
based on LIBOR, then Borrower shall be liable for, and shall from time to time, upon demand
therefore by the Bank pay to the Bank such additional amounts as are sufficient to compensate the
Bank for such increased costs.

     b. Inability to Determine Rates. If the Bank shall determine that for any reason adequate
and reasonable means do not exist for ascertaining LIBOR, the Bank will give notice of such
determination to Borrower. Thereafter, the Bank may not maintain the loan hereunder at the LIBOR
Rate until the Bank revokes such notice in writing and, until such revocation, the Bank may
convert the Applicable Rate from the LIBOR Rate to the Base Rate.

     c. Illegality. If the Bank shall determine that the introduction of any law (statutory or
common), treaty, rule, regulation, guideline or determination of an arbitrator or of a
governmental authority or in the interpretation or administration thereof, has made it unlawful,
or that any central bank or other governmental authority has asserted that it is
unlawful for the Bank to make loans based on LIBOR then, on notice thereof by the Bank
to Borrower, the Bank may suspend the maintaining of the loan hereunder at the LIBOR Rate until
the Bank shall have notified Borrower that the circumstances giving rise to such determination
shall no longer exist. If the Bank shall determine that it is unlawful to maintain the loan
hereunder based on LIBOR, the Bank may convert the Applicable Rate from the LIBOR Rate to the Base
Rate.

7. MISCELLANEOUS. This Note is one of the Equipment Notes referred to in, evidences indebtedness
incurred under, and is entitled to the benefits of, the Credit Agreement, dated as of the date
hereof (said Agreement, as it may be amended, supplemented or otherwise modified from time to
time, being referred to as the “Credit Agreement”) between the Borrower and the Bank. This Note,
together with the Credit Agreement and any other related loan and security agreements and
guaranties, contains the entire agreement between the Bank and Borrower with respect to the Note,
and supersedes every course of dealing, other conduct, oral agreement and representation
previously made by the Bank. All rights and remedies of the Bank under applicable law and this
Note or amendment of any provision of this Note are cumulative and not exclusive. No single,
partial or delayed exercise by the Bank of any right or remedy shall preclude the subsequent exercise by the Bank at any time of any right or remedy of the Bank
without notice: No waiver or amendment of any provision of this Note shall be effective unless
made specifically in writing by the Bank. No course of dealing or other conduct, no
oral agreement or representation made by the Bank, and no usage of trade, shall operate as a
waiver of any right or remedy of the Bank. No waiver of any right or remedy of the Bank shall be

 

 

effective unless made specifically in writing by the Bank. Borrower agrees that in any legal
proceeding, a copy of this Note kept in the Bank’s course of business may be admitted into
evidence as an original. This Note is a binding obligation enforceable against Borrower and its
successors and assigns and shall inure to the benefit of the Bank and its successors and assigns.
If a court deems any provision of this Note invalid, the remainder of the Note shall remain in
effect. Section headings are for convenience only. Borrower hereby waives protest,
presentment and notice of any kind in connection with this Note. Singular number includes plural
and neuter gender includes masculine and feminine as appropriate.

8. NOTICES. Any demand or notice hereunder or under any applicable law pertaining hereto shall be
in writing and duly given if delivered to Borrower (at its address on the Bank’s records) or to
the Bank (at the address on page one and separately to the Bank officer responsible for Borrower’s
relationship with the Bank). Such notice or demand shall be deemed sufficiently given for all
purposes when delivered (i) by personal delivery and shall be deemed effective when delivered, or
(ii) by mail or courier and shall be deemed effective three (3) business days after deposit in an
official depository maintained by the United States Post Office for the collection of mail or one
(1) business day after delivery to a nationally recognized overnight courier service (e.g.,
Federal Express). Notice by e-mail is not valid notice under this or any other agreement between
Borrower and the Bank.

9. JOINT AND SEVERAL. If there is more than one Borrower, each of them shall be jointly and
severally liable for all amounts which become due under this Note and the term “Borrower” shall
include each as well as all of them.

10. GOVERNING LAW; JURISDICTION. This Note has been delivered to and accepted by the Bank and
will be deemed to be made in the State of Maryland. Except as otherwise provided under federal
law, this Note will be interpreted in accordance with the laws of the State of Maryland excluding
its conflict of laws rules. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF
ANY STATE OR FEDERAL COURT IN THE STATE OF MARYLAND WHERE THE BANK MAINTAINS A BRANCH AND CONSENTS
THAT THE BANK MAY EFFECT ANY SERVICE OF PROCESS IN THE MANNER AND AT BORROWER’S ADDRESS SET FORTH
ABOVE FOR PROVIDING NOTICE OR DEMAND; PROVIDED THAT NOTHING CONTAINED IN THIS NOTE WILL PREVENT
THE BANK FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR JUDGMENT OR EXERCISING ANY RIGHTS
AGAINST BORROWER INDIVIDUALLY, AGAINST ANY SECURITY OR AGAINST ANY PROPERTY OF BORROWER WITHIN ANY
OTHER COUNTY, STATE OR OTHER FOREIGN OR DOMESTIC JURISDICTION. Borrower acknowledges and agrees
that the venue provided above is the most convenient forum for both the Bank and Borrower.
Borrower waives any objection to venue and any objection based on a more convenient forum in any
action instituted under this Note.

11. WAIVER OF JURY TRIAL. BORROWER AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY
WAIVE ANY RIGHT TO TRIAL BY JURY BORROWER AND THE BANK MAY HAVE IN ANY ACTION OR PROCEEDING, IN
LAW OR IN EQUITY, IN CONNECTION WITH THIS NOTE OR

 

 

THE TRANSACTIONS RELATED HERETO. BORROWER REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT
OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WILL NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL WAIVER.

BORROWER ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER INTO THIS NOTE BY, AMONG OTHER
THINGS, THE PROVISIONS OF THIS SECTION.

Preauthorized Transfers from Deposit Account. If a deposit account number is provided in the
following blank Borrower hereby authorizes the Bank to debit Borrower’s deposit account #
                     automatically for any amount which becomes due under this Note.

Acknowledgment. Borrower acknowledges that it has read and understands all the provisions of this
Note, including the Governing Law, Jurisdiction and Waiver of Jury Trial, and has been advised by
counsel as necessary or appropriate.

WITNESS the due execution hereof as a SEALED INSTRUMENT the day and year first above written.

	 	 	 	 	 	 	 	 	 
	TAX ID/SS #

	 	 	 	 	 	 
	 	(L.S.)
	 

	 	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	BORROWER	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 
	 	 	 	(L.S.)
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	(L.S.)
	 	 
	 	(L.S.)
	 	 	 	 	 	 	 
	Signature of Witness	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	(L.S.)
	 	 	 	 	 	 	 
	Typed Name of Witness	 	 	 	 	 	 

 

 

ACKNOWLEDGEMENT

	 	 	 
	STATE OF                            )
	 	 
	 

	 	:SS
	COUNTRY OF                     )
	 	 

On the                     day of                     , in the year 20___, before me, the undersigned, a Notary Public in and for said
State, personally appeared                                          , personally known to me or proved to me on
the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to
the within instrument and acknowledged to me that he/she/they executed the same in
his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person upon behalf of which the individual(s) acted, executed the
instrument.

	 	 	 
	 
	 	 
	 
	 	 
	 
	 	Notary Public

 

 

 

FOR BANK USE ONLY

	 	 	 
	Authorization Confirmed:

	 	 
	 

	 	 
	Product Code: 22660
	 	 
	Disbursement of Funds:
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Credit A/C

	 	 	#	 	 	 
	 	Off Ck
	 	 	#	 	 	 
	 	Payoff Obligation
	 	 	#	 	 	 
	 

	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 

	 	 	$	 	 	 
	 	 	 	 	$	 	 	 
	 	 	 	 	$	 	 	 
	 

	 	 	 	 	 	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 

 

 

COST OF FUNDS EQUIPMENT TERM NOTE

Maryland

$                                        

                                        

BORROWER: United Tote Company 

a(n) o individual(s) o partnership þ corporation o trust o organized under laws of Montana

Address of residence/chief executive office: 11505 Susquehanna Trail, Glen Rock, Pennsylvania
17327-8606

			
	BANK:	 	MANUFACTURERS AND TRADERS TRUST COMPANY, a New York banking corporation with banking offices at One M&T Plaza, Buffalo, New York 14240. Attention: Office of General Counsel

1. DEFINITIONS. As used in this Note, each capitalized term shall have the meaning specified in
the Note or, if not otherwise defined, shall have the meanings given to such term as set
forth in the Credit Agreement (as defined below). Additionally, the following terms
shall have the indicated meanings:

	 	a.	 	"Business Day” shall mean any day of the year on which banking institutions in
New York, New York are not authorized or required by law or other governmental action
to close.
	 
	 	b.	 	"Cost of Funds” shall mean the most recent yield on United States Treasury
Obligations adjusted to a constant maturity of five (5) years in effect two (2)
business days prior to the date of this Note as published by the Board of Governors of
the Federal Reserve System in the Federal Reserve Statistical Release H15(519), or by
such other quoting service, index or commonly available source utilized by Bank, plus
the “ask” side of the five (5) year swap spread in effect two (2) business days prior
to the date of this Note as set forth in Bloomberg, L.P. or by such other quoting
service, index or commonly available source utilized by Manufacturers and Traders
Trust Company.
	 
	 	c.	 	“Maturity Date” is the Payment Due Date in September 5, 2008.
	 
	 	d.	 	“Payment Due Date” shall mean the same day of the calendar month as the date
of this Note (or if there is no numerically corresponding day in a month, on the last
day of such month); provided, however, if that day is not a Business Day, the Payment
Due Date shall be extended to the next succeeding Business Day unless such next
succeeding Business Day would fall in the next calendar month, in which case such
Payment Due Date shall be the immediately preceding Business Day.
	 
	 	e.	 	“Principal Amount” shall mean
                                         Dollars ($                    ).

 

 

2. PAYMENT OF PRINCIPAL, INTEREST AND EXPENSES.

     a. Promise to Pay. For value received and intending to be legally bound, Borrower promises
to pay to the order of the Bank on the dates set forth below, the Principal Amount, plus interest
as agreed below and all fees and costs (including without limitation attorneys’ fees and
disbursements whether for internal or outside counsel) the Bank incurs in order to collect any
amount due under this Note, to negotiate or document a workout or restructuring, or to preserve
its rights or realize upon any guaranty or other security for the payment of this Note
(“Expenses”).

     b. Interest. Interest shall accrue on the outstanding Principal Amount calculated on the
basis of a 360-day year for the actual number of days of each year (365 or 386) at the rate per
annum equal to Cost of Funds plus three and one-quarter percent (3.25%).

     c. Payment Schedule. (Check applicable box):

	 	þ	 	Borrower shall pay the outstanding Principal Amount in [_] consecutive
monthly installments as follows: starting on the first Payment Due Date
after the date of this Note and on each successive Payment Due Date
thereafter consisting of [_] equal installments of principal
each in the amount of $                      and ONE (1) FINAL INSTALLMENT on
the Maturity Date in an amount equal to the outstanding Principal Amount at
that time together with all other amounts outstanding hereunder including,
without limitation, accrued interest, costs and Expense (the “Final
Installment”); provided, however, if the Applicable Rate is converted to
the Base Rate, Borrower shall pay the outstanding Principal Amount in
consecutive monthly installments commencing on the first Payment Due Date
after the date of such conversion and on the same Payment Due Date
thereafter until conversion back to the LIBOR Rate (at which time
Borrower shall resume the monthly installments in the amount set
forth above or as otherwise agreed to by the Bank. and Borrower
in writing) or the Maturity Date (at which time Borrower shall pay the
Final Installment) with each such installment being equal in an amount to
fully amortize the outstanding Principal Amount of the Note in full by
the Maturity Date or such other date agreed to by the Bank and
Borrower in writing. The determination by the Bank of the foregoing amount
shall, in the absence of manifest error, be conclusive and binding upon
Borrower. In addition, until the outstanding Principal Amount is paid in
full, Borrower shall pay all accrued and unpaid interest, in amounts which
may vary, as follows (i) if the LIBOR Rate is the Applicable
Rate, on the payment Due Date for each month, (ii) if, the Base Rate is the
Applicable Rate, on the Payment Due Date for each month, and
(iii) at maturity (whether by acceleration or otherwise) and, after such
maturity, on demand.

     d. Maximum Legal Rate. It is the intent of the Bank and Borrower that in no

 

 

event shall interest be payable at a rate in excess of the maximum rate permitted by
applicable law (the “Maximum Legal Rate”). Solely to the extent necessary to prevent interest
under this Note from exceeding the Maximum Legal Rate, any amount that would be treated as
excessive under a final judicial interpretation of applicable law shall be deemed to have been a
mistake and automatically canceled, and, if received by the Bank, shall be refunded to Borrower.

     e. Default Rate. If an Event of Default (defined below) occurs, the interest rate on the
unpaid Principal Amount shall immediately be automatically increased to Cost of Funds plus five
and three-quarters percent (5.75%), and any judgment entered hereon or otherwise in connection
with any suit to collect amounts due hereunder shall bear interest at such default rate.

     f. Repayment of Principal and Interest; Late Charge. Payments shall be made in immediately
available United States funds at any banking office of the Bank. Interest will continue to accrue
until payment is actually received. If payment is not received within five days of its
due date, Borrower shall pay a late charge equal to the greatest of (a) $50.00, or (b)
2.5% of the delinquent amount. Payments may be applied in any order in the sole discretion of the
Bank but, so long as no Event of Default shall have occurred and be continuing, shall be applied
first to past due interest, Expenses, late charges and principal, then to current interest,
Expenses, late charges and principal, and last to remaining principal.

3. EVENTS OF DEFAULT; ACCELERATION. Any of the following events or conditions shall constitute an
“Event of Default”: (i) failure by the Borrower to pay when due (whether at the stated
maturity, by acceleration, upon demand or otherwise) the any and all amounts payable to Bank under
this Note: (ii) the occurrence of an Event of Default (as defined therein) under the terms of any
of the other Transaction Documents. All amounts hereunder shall become
immediately due and payable upon the occurrence of an Event of Default pursuant to Section 9(v) or
(vi) of the Credit Agreement, or at the Bank’s option, upon the occurrence of any other
Event of Default.

4. RIGHT OF SETOFF. The Bank shall have the right to set off against the amounts owing under this
Note any property held in a deposit or other account with the Bank or any Affiliate or otherwise
owing by the Bank or any Affiliate in any capacity to Borrower or any guarantor or endorser of
this Note. Such set-off shall be deemed to have been exercised immediately at the time the Bank or
such Affiliate elect to do so.

5. MISCELLANEOUS. This Note is one of the Equipment Notes referred to in, evidences indebtedness
incurred under, and is entitled to the benefits of, the Credit Agreement, dated as of the date
hereof (said Agreement, as it may be amended, supplemented or otherwise modified from time to
time, being referred to as the “Credit Agreement”) between the Borrower and the Bank. This Note,
together with the Credit Agreement and any other related loan and security agreements and
guaranties, contains the entire agreement between the Bank and Borrower with respect to the Note,
and supersedes every course of dealing, other conduct, oral agreement and representation
previously made by the Bank. All rights and remedies of the Bank under applicable law and this
Note or amendment of any provision of this Note are cumulative

 

 

and not exclusive. No single, partial or delayed exercise by the Bank of any right or remedy
all preclude the subsequent exercise by the Bank at any time of any right or remedy of the Bank
without notice: No waiver or amendment of any provision of this Note shall be effective unless
made specifically in writing by the Bank. No course of dealing or (her conduct, no
oral agreement or representation made by the Bank, and no usage of trade, shall operate as a
waiver of any right or remedy of the Bank. No waiver of any right or remedy of the Bank shall be
effective unless made specifically in writing by the Bank. Borrower agrees that in any legal
proceeding, a copy of this Note kept in the Bank’s course of business may be admitted into
evidence as an original. This Note is a binding obligation enforceable against Borrower and its
successors and assigns and shall inure to the benefit of the Bank and its successors and assigns.
If a court deems any provision of this Note invalid, the remainder of the Note shall remain in
effect. Section headings are for convenience only. Borrower hereby waives protest,
presentment and notice of any kind in connection with this Note. Singular number includes plural
and neuter gender includes masculine and feminine as appropriate.

6. NOTICES. Any demand or notice hereunder or under any applicable law pertaining hereto shall be
in writing and duly given if delivered to Borrower (at its address on the Bank’s records) or to
the Bank (at the address on page one and separately to the Bank officer responsible for Borrower’s
relationship with the bank). Such notice or demand shall be deemed sufficiently given for all
purposes when delivered (i) by personal delivery and shall be deemed effective when delivered, or
(ii) by mail or courier and shall be deemed effective three (3) business days after deposit in an
official depository maintained by the United States Post Office for the collection of mail or one
(1) business day after delivery to a nationally recognized overnight courier. service (e.g.,
Federal Express). Notice by e-mail is not valid notice under this or any other agreement between
Borrower and the Bank.

7. JOINT AND SEVERAL. If there is more than one Borrower, each of them shall be jointly and
severally liable for all amounts which become due under this Note and the term “Borrower” shall
include each as well as all of them.

8. GOVERNING LAW; JURISDICTION. This Note has been delivered to and accepted by the Bank and will
be deemed to be made in the State of Maryland. Except as otherwise provided under federal law,
this Note will be interpreted in accordance with the laws of the State of Maryland excluding its
conflict of laws rules. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT IN THE STATE OF MARYLAND WHERE THE BANK MAINTAINS A BRANCH AND CONSENTS
THAT THE BANK MAY EFFECT ANY SERVICE OF PROCESS IN THE MANNER AND AT BORROWER’S ADDRESS SET FORTH
ABOVE FOR PROVIDING NOTICE OR DEMAND; PROVIDED THAT NOTHING CONTAINED IN THIS NOTE WILL PREVENT
THE BANK FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR JUDGMENT OR EXERCISING ANY RIGHTS
AGAINST BORROWER INDIVIDUALLY, AGAINST ANY SECURITY OR AGAINST ANY PROPERTY OF BORROWER WITHIN ANY
OTHER COUNTY, STATE OR OTHER FOREIGN OR DOMESTIC JURISDICTION. Borrower acknowledges and agrees
that the venue provided above is the most convenient forum for both the Bank and Borrower.
Borrower waives any objection to venue and any objection based on a more

 

 

convenient forum in any action instituted under this Note.

9. WAIVER OF JURY TRIAL. BORROWER AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY
WAIVE ANY RIGHT TO TRIAL BY JURY BORROWER AND THE BANK MAY HAVE IN ANY ACTION OR PROCEEDING, IN
LAW OR IN EQUITY, IN CONNECTION WITH THIS NOTE OR THE TRANSACTIONS RELATED HERETO. BORROWER
REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE BANK WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL
WAIVER. BORROWER ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER INTO THIS NOTE BY, AMONG OTHER
THINGS, THE PROVISIONS OF THIS SECTION.

10. Preauthorized Transfers from Deposit Account. If a deposit account number is provided in the
following blank Borrower hereby ‘authorizes the Bank to debit Borrower’s deposit account #
                                         with the Bank automatically for any .taunt which becomes due under this
Note.

Acknowledgment. Borrower acknowledges that it has read and understands all the provisions of this
Note, including the Governing Law, Jurisdiction and Waiver of Jury Trial, and has been advised by
counsel as necessary or appropriate.

WITNESS the due execution hereof as a SEALED INSTRUMENT the day and year first above written.

	 	 	 	 	 	 	 	 	 
	TAX ID/SS #

	 	 

	 	 	 	 

	 	(L.S.)
	 

	 	 	 	 	 	BORROWER	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 

	 	(L.S.)
	 
	 	 	 	 	 	 	 	 
	 
	 	(L.S.)	 	 
	 	(L.S.)
	Signature of Witness	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 
	 	(L.S.)
	Typed Name of Witness	 	 	 	 	 	 

 

 

ACKNOWLEDGMENT

	 	 	 
	STATE OF                     
	)	 
	 

	 	:SS
	COUNTRY OF                     
	)	 

     On the                      day of                     , in the year 20     , before me, the undersigned, a Notary Public in and for said
State, personally appeared                                          , personally known to me or proved to me on
the basis of satisfactory evidence to be the individual(s) whose name(s) is (are) subscribed to
the within instrument and acknowledged to me that he/she/they executed the same in
his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the
individual(s), or the person upon behalf of which the individual(s) acted, executed the
instrument.

	 	 	 
	 

	 	 
Notary Public

 

 

 

FOR BANK USE ONLY

			
	Authorization Confirmed:	 	
 

Product Code: 22660

Disbursement of Funds:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Credit A/C

	 	 	#	 	 	
 

	 	Off Ck
	 	 	#	 	 	
 

	 	Payoff Obligation
	 	 	#	 	 	
 

	 

	 	 	$	 	 	
 

	 	 	 	 	$	 	 	
 

	 	 	 	 	$	 	 	
 

 

 

REVOLVING CREDIT NOTE

 

			
	September 5, 2003
	 	$2,000,000                    

     FOR VALUE RECEIVED, the undersigned, UNITED TOTE COMPANY, a corporation organized under the
laws of the State of Montana (the "Borrower"), promises to pay, pursuant to the tens of
the Credit Agreement , referred to below, to the order of MANUFACTURERS AND TRADERS TRUST COMPANY,
a New York banking corporation (the "Bank"), the principal sum of two million Dollars
($2,000,000), or, if less, the aggregate unpaid principal amount of all Revolving Loans made by
Bank to Borrower pursuant to the Credit Agreement referred to below. The Borrower further agrees
to pay interest accrued on the unpaid principal amount outstanding hereunder from time to time
from the date hereof in like money at such offices at the rates and on the dates
specified in the Credit Agreement, together with all costs, fees and expenses as provided in the
Credit Agreement. This Promissory Note (this "Note") is issued pursuant to, and subject
to, that certain Credit Agreement (the "Credit Agreement") dated as of the date
hereof by and between Borrower and Bank. Capitalized terms not defined in this Note shall
have the meanings assigned to such terms in the Credit Agreement.

     The Borrower shall make principal payments, on this Note in accordance with the provisions of
the Credit Agreement and in the amounts determined in accordance with the provisions thereof;
provided, that, all of the outstanding Obligations hereunder shall be due and
payable on the Revolver Maturity Date. All payments shall be made in the manner and at the
time and subject to acceleration, prepayment, taxes and all other terms and. conditions of the
Credit Agreement.

     The Bank shall record on its books or records, the principal amount of the Revolving Loans
made by the Bank to the Borrower under the Credit Agreement, all payments and prepayments of
principal and interest, the principal balance from time to time outstanding and the
respective dates thereof. The record thereof shall be prima facie evidence as to all amounts to
owing under this Note; provided, however, that the failure of the Bank to record any of
the foregoing or any error in such notation shall not limit, enhance or otherwise
affect the obligation of the Borrower to repay all advances under the Credit Agreement
together with accrued interest thereon.

     This Note is one of the Notes referred to in, and issued under, the Credit Agreement, and
Bank is entitled to all of the benefits provided for therein; reference is hereby made to the
Credit Agreement for a statement of all such benefits. If an Event of Default shall
occur and be continuing under the Credit Agreement, the principal of and interest accrued under
this Note may be declared to be due and payable in the manner and with the effect
provided in the Credit Agreement. The Borrower agrees to reimburse upon demand, in like manner
and funds, all losses, cost and reasonable expenses of the Bank, if any incurred in
connection with the enforcement of this Note (including, without limitation, all
reasonable legal costs and expenses).

     Any and all payments to be made by the Borrower hereunder shall be made in Dollars

 

 

free and clear of and without deduction for taxes and without set off, counterclaim or
deduction of any nature or for any cause whatsoever. In such event all the amounts due hereunder
shall be increased so that after the deductions or withholdings are made, the Bank shall receive
the amounts as if such deductions or withholdings would not have been made.

     The Borrower hereby waives presentment for payment, notice of nonpayment, protest, and notice
of protest, and; agrees to all extensions and renewals of this Note without notice.

     No delay or omission on the part of the Lender in exercising any right under this Note shall
operate as a waiver of the right or of any other right under this Note. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy on any future
occasion.

     Any demand or notice hereunder or under any applicable law pertaining hereto shall be in
writing and duly given if delivered to Borrower (at its address on the Bank’s records)
or to the Bank fat the address on page one of the Credit Agreement and separately to the Bank
officer responsible for Borrower’s relationship with the Bank). Such notice or demand shall be
deemed sufficiently given for all purposes when delivered (i) by personal delivery and shall be
deemed effective when delivered, or (ii) by mail or courier and shall be deemed effective three
(3) business days after deposit in an official depository maintained by the United States Post
Office for the collection of mail or One (1) business day after delivery to a nationally
recognized overnight courier service (e.g., Federal Express). Notice by e-mail is not valid
notice under this or any other agreement between Borrower and the Bank.

     This Note has been delivered to and accepted by the Bank and will be deemed to be made in the
State of Maryland. Except as otherwise provided under federal law, this Note will be
interpreted in accordance with the laws of the State of Maryland excluding its conflict of laws
rules. BORROWER HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT IN THE STATE OF MARYLAND WHERE THE BANK MAINTAINS A BRANCH AND CONSENTS THAT THE BANK MAY
EFFECT ANY SERVICE OF PROCESS IN THE MANNER AND AT BORROWER’S ADDRESS SET FORTH ABOVE FOR
PROVIDING NOTICE OR DEMAND, PROVIDED THAT NOTHING CONTAINED IN THIS NOTE WILL PREVENT
THE BANK FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR JUDGMENT OR EXERCISING ANY RIGHTS
AGAINST BORROWER INDIVIDUALLY, AGAINST ANY SECURITY OR AGAINST ANY PROPERTY OF BORROWER WITHIN ANY
OTHER COUNTY, STATE OR OTHER FOREIGN OR DOMESTIC JURISDICTION, Borrower acknowledges and agrees that the venue provided above is the most convenient forum for both
the Bank and Borrower. Borrower waives any objection to venue and any objection based
on a more convenient forum in any action instituted under this Note.

WAIVER OF JURY TRIAL, BORROWER AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE
ANY RIGHT TO TRIAL BY JURY BORROWER AND THE BANK MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR
IN EQUITY, IN CONNECTION WITH THIS NOTE OR THE TRANSACTIONS RELATED HERETO. BORROWER REPRESENTS
AND WARRANTS THAT NO

 

 

REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WILL
NOT,. IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURTY TRIAL WAIVER BORROWER ACKNOWLEDGES
THAT THE BANK HAS BEEN INDUCED TO ENTER INTO THIS NOTE BY, AMONG OTHER THINGS, THE
PROVISIONS OF THIS SECTION

Acknowledgment. Borrower acknowledges that it has read and understands all the provisions of this
Note, including the Governing Law, Jurisdiction and Waiver of Jury Trial, and has been
advised by counsel as necessary or appropriate.exv10w2

 

			
	
	 	Exhibit 10.2

CONTINUING GUARANTY

(Business Organization)

Maryland

	 	 	 
	GUARANTOR:

	 	Youbet.com, Inc.
	 

	 	 

Name
	 
	 	 
	 

	 	5901 DeSoto Avenue, Woodland Hills, California 91367
	 

	 	 

Address of Chief Executive Office
	 
	 	 
	 

	 	A corporation organized under the laws of the State of Delaware
	 
	 	 
	BORROWER:

	 	United Tote Company
	 

	 	 

Name
	 
	 	 
	 

	 	11505 Susquehanna Trail, Glen Rock, Pennsylvania 17327
	 

	 	 

Address
	 
	 	 
	BANK:

	 	Manufacturers and Traders Trust Company, a New York banking corporation, with banking offices located at One
M&T Plaza, Buffalo, New York 14240 Attention: Office of General Counsel.

     1. Guaranty.

          (a) Guarantor, intending to be legally bound, hereby unconditionally guarantees the full and
prompt payment and performance of any and all of Borrower’s Obligations (as defined below) to the
Bank when due, whether at stated maturity, by acceleration or otherwise. As used in this Guaranty,
the term “Obligations” shall mean any and all obligations, indebtedness and other liabilities of
Borrower to the Bank now or hereafter existing, of every kind and nature and all accrued and unpaid
interest thereon and all Expenses (as defined below) including without limitation, whether such
obligations, indebtedness and other liabilities (i) are direct, contingent, liquidated,
unliquidated, secured, unsecured, matured or unmatured; (ii) are pursuant to a guaranty or surety
in favor of the Bank; (iii) were originally contracted with the Bank or with another party
(including obligations under a guaranty or surety originally in favor of such other party); (iv)
are contracted by Borrower alone or jointly with one or more other parties; (v) are or are not
evidenced by a writing; (vi) are renewed, replaced, modified or extended; and (vii) are
periodically extinguished and subsequently reincurred or reduced and thereafter increased.
Guarantor will pay or perform its obligations under this Guaranty upon demand. This Guaranty is
and is intended to be a continuing guaranty of payment (not collection) of the Obligations
(irrespective of the aggregate amount thereof and whether or not the Obligations from time to time
exceeds the amount of this Guaranty, if limited), independent of, in addition and without
modification to, and does not impair or in any way affect, any other guaranty, indorsement, or
other agreement in connection with the Obligations, or in connection with any other indebtedness or
liability to the Bank or collateral held by the Bank therefor or with respect thereto, whether or
not furnished by Guarantor. Guarantor understands that the Bank can bring an action under this
Guaranty without being required to exhaust other remedies or demand payment first from other
parties.

          (b) Guarantor acknowledges the receipt of valuable consideration for this Guaranty and
acknowledges that the Bank is relying on this Guaranty in making a financial accommodation to
Borrower, whether a commitment to lend, extension, modification or replacement of, or forbearance
with respect to, any Obligation, cancellation of another guaranty, purchase of Borrower’s assets,
or other valuable consideration.

     2. Continuing, Absolute, Unconditional. This Guaranty is irrevocable, absolute, continuing,
unconditional and general without any limitation. This Guaranty is unlimited in amount.

     3. Guarantor’s Waivers & Authorizations.

          (a) Guarantor’s obligations shall not be released, impaired or affected in any way including
by any of the following, all of which Guarantor hereby waives (i) any bankruptcy, reorganization or
insolvency under any law of Borrower or that of any other party, or by any action of a trustee in
any such proceeding; (ii) any new agreements or obligations of Borrower or any other party with the
Bank; (iii) any adjustment, compromise or release of any Obligations of Borrower, by the Bank or
any other party; the existence or nonexistence or order of any filings, exchanges, releases,
impairment or sale of, or failure to perfect or continue the perfection of a security interest in
any collateral for the Obligations; (iv) any failure of Guarantor to receive notice of any intended
disposition of such collateral; (v) any fictitiousness, incorrectness, invalidity or
unenforceability, for any reason, of any instrument or other agreement which may evidence any
Obligation; (vi) any composition, extension, stay or other statutory relief granted to Borrower
including, without limitation, the expiration of the period of any statute of limitations with
respect to any lawsuit or other legal proceeding against Borrower or any person in any way related
to the Obligations or a part thereof or any collateral therefor; (vii) any change in form of
organization, name, membership or ownership of Borrower or Guarantor; (viii) any refusal or failure
of the Bank or any other person prior to the date hereof or hereafter to grant any additional loan
or other credit accommodation to Borrower or the Bank’s or any other party’s receipt of notice of
such refusal or failure; (ix) any setoff, defense or counterclaim of Borrower with respect to the
obligations or otherwise arising, either directly or indirectly, in regard to the Obligations; or
(x) any other circumstance that might otherwise constitute a legal or equitable defense to
Guarantor’s obligations under this Guaranty.

          (b) The Guarantor waives acceptance, assent and all rights of notice or demand including
without limitation (i) notice of acceptance of this Guaranty, of Borrower’s default or nonpayment
of any Obligation, and of changes in Borrower’s financial condition; (ii) presentment, protest,
notice of protest and demand for payment; (iii) notice that any Obligations has been incurred or of
the reliance by the Bank upon this Guaranty; and (iv) any other notice, demand or condition to
which Guarantor might otherwise be entitled prior to the Bank’s reliance on or

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enforcement of this Guaranty. Guarantor further authorizes the Bank, without notice, demand or
additional reservation of rights against Guarantor and without affecting Guarantor’s obligations
hereunder, from time to time: (i) to renew, refinance, modify, subordinate, extend, increase,
accelerate, or otherwise change the time for payment of, the terms of or the interest on the
Obligations or any part thereof;(ii) to accept and hold collateral from any party for the payment
of any or all of the Obligations, and to exchange, enforce or refrain from enforcing, or release
any or all of such collateral; (iii) to accept any indorsement or guaranty of any or all of the
Obligations or any negotiable instrument or other writing intended to create an accord and
satisfaction with respect to any or all of the Obligations; (iv) to release, replace or modify the
obligation of any indorser or guarantor, or any party who has given any collateral for any of all
of the Obligations, or any other party in any way obligated to pay any or all of the Obligations,
and to enforce or refrain from enforcing, or compromise or modify, the terms of any obligation of
any such indorser, guarantor or party; (v) to dispose of any and all collateral securing the
Obligations in any manner as the Bank, in its sole discretion, may deem appropriate, and to direct
the order and the enforcement of any and all indorsements and guaranties relating to the
Obligations in the Bank’s sole discretion; and (vi) to determine the manner, amount and time of
application of payments and credits, if any, to be made on all or any part of the Obligations.

          (c) Notwithstanding any other provision in this Guaranty, Guarantor irrevocably waives,
without notice, any right he or she may have at law or in equity (including without limitation any
law subrogating Guarantor to the rights of the Bank) to seek contribution, indemnification or any
other form of reimbursement from Borrower or any other obligor or guarantor of the Obligations for
any disbursement made under this Guaranty or otherwise.

     4. Termination. This Guaranty shall remain in full force and effect as to each Guarantor
until actual receipt by the Bank officer responsible for Borrower’s relationship with the Bank of
written notice of Guarantor’s intent to terminate (or Guarantor’s death or incapacity) plus the
lapse of a reasonable time for the Bank to act on such notice (the “Receipt of Notice”); provided,
however, this Guaranty shall remain in full force and effect thereafter until all Obligations
outstanding, or contracted or committed for (whether or not outstanding), before such Receipt of
Notice by the Bank, and any extensions, renewals or replacements thereof (whether made before or
after such Receipt of Notice), together with interest accruing thereon after such Receipt of
Notice, shall be finally and irrevocably paid in full. Discontinuance of this Guaranty as to one
Guarantor shall not operate as a discontinuance hereof as to any other guarantor. Payment of all
of the Obligations from time to time shall not operate as a discontinuance of this Guaranty, unless
a Receipt of Notice as provided above has been received by the Bank. Guarantor agrees that, to the
extent that Borrower makes a payment or payments to the Bank on the Obligations, or the Bank
receives any proceeds of collateral to be applied to the Obligations, which payment or payments or
any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside
or otherwise are required to be repaid to Borrower, its estate, trustee, receiver or any other
party, including, without limitation, under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such repayment, the obligation or part thereof which has
been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and
effect as of the date such initial payment, reduction or satisfaction occurred, notwithstanding any
contrary action which may have been taken by the Bank in reliance upon such payment or payments.
As of the date any payment or proceeds of collateral are returned, the statute of limitations shall
start anew with respect to any action or proceeding by the Bank against Guarantor under this
Guaranty. Likewise, any acknowledgment, reaffirmation or payment, by Borrower or any third party,
of any portion of the Obligations, shall be deemed to be made as agent for the Guarantor, strictly
for the purposes of tolling the running of (and/or preventing the operation of) the applicable
statute of limitations with respect to any action or proceeding by the Bank against Guarantor under
this Guaranty.

     5. Expenses. Guarantor agrees to reimburse the Bank on demand for all the Bank’s expenses,
damages and losses of any kind or nature, including without limitation costs of collection and
actual attorneys’ fees and disbursements for external counsel incurred by the Bank in attempting to
enforce this Guaranty, collect any of the Obligations including any workout or bankruptcy
proceedings or other legal proceedings or appeal, realize on any collateral, defense of any action
under the prior paragraph or for any other purpose related to the Obligations (collectively,
“Expenses”).

     6. Financial and Other Information. Guarantor shall promptly deliver to the Bank copies of
all annual reports, proxy statements and similar information distributed to shareholders, partners
or members and of all filings with the Securities and Exchange Commission and the Pension Benefit
Guaranty Corporation and shall provide in form satisfactory to the Bank: (i) within sixty days
after the end of each of its first three fiscal quarters, consolidating and consolidated statements
of income and cash flows for the quarter, for the corresponding quarter in the previous fiscal year
and for the period from the end of the previous fiscal year, with a consolidating and consolidated
balance sheet as of the quarter end; and (ii) within ninety days after the end of each fiscal year,
consolidating and consolidated statements of Guarantor’s income and cash flows and its
consolidating and consolidated balance sheet as of the end of such fiscal year, setting forth
comparative figures for the preceding fiscal year and to be audited by an independent certified
public accountant; all such statements shall be certified by Guarantor’s chief financial officer or
partner to be correct, not misleading and in accordance with Guarantor’s records and to present
fairly the results of Guarantor’s operations and cash flows and if annual its financial position at
year end in conformity with generally accepted accounting principles. Guarantor authorizes the
Bank from time to time to obtain, verify and review all financial data deemed appropriate by the
Bank in connection with this Guaranty and the Obligations, including without limitation credit
reports from agencies. Guarantor understands this Guaranty and has satisfied itself as to its
meaning and consequences and acknowledges that it has made its own arrangements for keeping
informed of changes or potential changes affecting the Borrower including the Borrower’s financial
condition.

     7. Security; Right of Setoff. As further security for payment of the Obligations, Expenses
and any other obligations of Guarantor to the Bank, Guarantor hereby grants to the Bank a security
interest in all money, securities and other property of Guarantor in the actual or constructive
possession or control of the Bank or its affiliates including without limitation all deposits and
other accounts owing at any time by the Bank or any of its affiliates in any capacity to Guarantor
in any capacity (collectively, “Property”). The Bank shall have the right to set off Guarantor’s
Property against any of Guarantor’s obligations to the Bank. Such set-off shall be deemed to have
been exercised immediately at the time the Bank or such affiliate elect to do so. The Bank shall
also have all of the rights and remedies of a secured party under the Uniform Commercial Code, as
the same may be in effect in the State of Maryland, as amended from time to time, in addition to
those under this Guaranty and other applicable law and agreements.

     8. No Transfer of Assets. Guarantor shall not transfer, reinvest or otherwise dispose of its
assets in a manner or to an extent that would or might impair Guarantor’s ability to perform its
obligations under this Guaranty.

     9. Nonwaiver by the Bank; Miscellaneous. This Guaranty is intended by Guarantor to be the
final, complete and exclusive expression of the agreement between Guarantor and the Bank. This
Guaranty may be assigned by the Bank, shall inure to the benefit of the Bank and

2

 

its successors and assigns, and shall be binding upon Guarantor and his or her legal
representative, successors and assigns and any participation may be granted by the Bank herein in
connection with the assignment or granting of a participation by the Bank in the Obligations or any
part thereof. All rights and remedies of the Bank are cumulative, and no such right or remedy
shall be exclusive of any other right or remedy. This Guaranty does not supersede any other
guaranty or security granted to the Bank by Guarantor or others (except as to Guarantor’s Waiver of
Subrogation rights above). No single, partial or delayed exercise by the Bank of any right or
remedy shall preclude exercise by the Bank at any time at its sole option of the same or any other
right or remedy of the Bank without notice. Guarantor expressly disclaims any reliance on any
course of dealing or usage of trade or oral representation of the Bank including, without
limitation, representations to make loans to Borrower or enter into any other agreement with
Borrower or Guarantor. No course of dealing or other conduct, no oral agreement or representation
made by the Bank or usage of trade shall operate as a waiver of any right or remedy of the Bank.
No waiver or amendment of any right or remedy of the Bank or release by the Bank shall be effective
unless made specifically in writing by the Bank. Each provision of this Guaranty shall be
interpreted as consistent with existing law and shall be deemed amended to the extent necessary to
comply with any conflicting law. If any provision nevertheless is held invalid, the other
provisions shall remain in effect. Guarantor agrees that in any legal proceeding, a copy of this
Guaranty kept in the Bank’s course of business may be admitted into evidence as an original.
Captions are solely for convenience and not part of the substance of this Guaranty.

     10. Joint and Several. If there is more than one Guarantor, each Guarantor jointly and
severally guarantees the payment and performance in full of all obligations under this Guaranty and
the term “Guarantor” means each as well as all of them. Guarantor also agrees that the Bank need
not seek payment from any source other than the undersigned Guarantor. This Guaranty is a primary
obligation. Guarantor’s obligations hereunder are separate and independent of Borrower’s, and a
separate action may be brought against Guarantor whether or not action is brought or joined against
or with Borrower or any other party.

     11. Authorization. Guarantor certifies that it is an entity in the form described above duly
organized and in good standing under the laws of the State of its organization and duly authorized
to do business in each State material to the conduct of its business. Guarantor has determined
that the execution of this Guaranty will be in its best interests, to its direct benefit,
incidental to its powers, and in furtherance of its duly acknowledged purposes and objectives.
Execution of this Guaranty by the persons signing below has been authorized by all necessary
corporate action, including directors’ and shareholder consent or (as appropriate) is authorized by
its partnership agreement or governing instrument. Guarantor’s chief executive office is located
at the above address.

     12. Notices. Any demand or notice hereunder or under any applicable law pertaining hereto
shall be in writing and duly given if delivered to Guarantor (at its address on the Bank’s records)
or to the Bank (at the address on page one and separately to the Bank officer responsible for
Borrower’s relationship with the Bank). Such notice or demand shall be deemed sufficiently given
for all purposes when delivered (i) by personal delivery and shall be deemed effective when
delivered, or (ii) by mail or courier and shall be deemed effective three (3) business days after
deposit in an official depository maintained by the United States Post Office for the collection of
mail or one (1) business day after delivery to a nationally recognized overnight courier service
(e.g., Federal Express). Notice by e-mail is not valid notice under this or any other agreement
between Guarantor and the Bank.

     13. Governing Law and Jurisdiction. This Guaranty has been delivered to and accepted by the
Bank and will be deemed to be made in the State of Maryland. Except as otherwise provided under
federal law, this Guaranty will be interpreted in accordance with the laws of the State of Maryland
excluding its conflict of laws rules. GUARANTOR HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT IN THE STATE OF MARYLAND WHERE THE BANK MAINTAINS A
BRANCH AND CONSENTS THAT THE BANK MAY EFFECT ANY SERVICE OF PROCESS IN THE MANNER AND AT
GUARANTOR’S ADDRESS SET FORTH ABOVE FOR PROVIDING NOTICE OR DEMAND; PROVIDED THAT NOTHING CONTAINED
IN THIS GUARANTY WILL PREVENT THE BANK FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR JUDGMENT OR
EXERCISING ANY RIGHTS AGAINST GUARANTOR INDIVIDUALLY, AGAINST ANY SECURITY OR AGAINST ANY PROPERTY
OF GUARANTOR WITHIN ANY OTHER COUNTY, STATE OR OTHER FOREIGN OR DOMESTIC JURISDICTION. Guarantor
acknowledges and agrees that the venue provided above is the most convenient forum for both the
Bank and Guarantor. Guarantor waives any objection to venue and any objection based on a more
convenient forum in any action instituted under this Guaranty.

     14. Waiver of Jury Trial. GUARANTOR AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY, AND
INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY GUARANTOR AND THE BANK MAY HAVE IN ANY ACTION OR
PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS GUARANTY OR THE TRANSACTIONS RELATED
HERETO. GUARANTOR REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF THE BANK HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THIS JURY TRIAL WAIVER. GUARANTOR ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER
INTO THIS GUARANTY BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.

     15. Power to Confess Judgment. GUARANTOR HEREBY EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD
TO APPEAR FOR GUARANTOR AND, WITH OR WITHOUT COMPLAINT FILED, CONFESS JUDGMENT, OR A SERIES OF
JUDGMENTS, AGAINST GUARANTOR IN FAVOR OF THE BANK OR ANY HOLDER HEREOF FOR ALL AMOUNTS DUE
HEREUNDER, TOGETHER WITH COSTS OF SUIT AND AN ATTORNEY’S COMMISSION OF THE GREATER OF TEN PERCENT
(10%) OF SUCH AMOUNTS OR $1,000 ADDED AS A REASONABLE ATTORNEY’S FEE, AND FOR DOING SO THIS
GUARANTY OR A COPY VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. GUARANTOR HEREBY FOREVER
WAIVES AND RELEASES ALL ERRORS IN SAID PROCEEDINGS AND ALL RIGHTS OF APPEAL AND ALL RELIEF FROM ANY
AND ALL APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED.
INTEREST ON ANY SUCH JUDGMENT SHALL ACCRUE AT THE DEFAULT RATE SET FORTH IN ANY OF THE DOCUMENTS
EVIDENCING THE OBLIGATIONS OF BORROWER. NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS
JUDGMENT, OR A SERIES OF JUDGMENTS, SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH
EXERCISE SHALL BE HELD BY ANY COURT TO BE INVALID, VOIDABLE, OR VOID, BUT THE POWER SHALL CONTINUE
UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS THE BANK SHALL ELECT UNTIL SUCH
TIME AS THE BANK SHALL HAVE RECEIVED PAYMENT IN FULL OF ALL AMOUNTS DUE HEREUNDER. NOTWITHSTANDING
THE FOREGOING, SOLELY WITH RESPECT TO ATTORNEYS’ FEES INCURRED BY THE BANK IN CONNECTION WITH THIS
NOTE, THE BANK AGREES THAT, IN COLLECTING ANY JUDGMENT BY CONFESSION OBTAINED AGAINST THE

3

 

BORROWER IN CONNECTION WITH THIS NOTE, THE BANK SHALL NOT COLLECT ANY AMOUNTS IN EXCESS OF THE
ACTUAL AMOUNT OF ATTORNEYS’ FEES CHARGED OR BILLED TO THE BANK.

     16. Guarantor acknowledges that it has read and understands all the provisions of this
Guaranty, including the Confession of Judgment, Governing Law, Jurisdiction and Waiver of Jury
Trial, and has been advised by counsel as necessary or appropriate.

WITNESS
the due execution hereof as a SEALED INSTRUMENT this 9th day of February, 2006.

	 	 	 	 	 
	 	GUARANTOR:

Youbet.com, Inc.

 	 
	 	By:  	/s/
Gary W. Sproule
 	                   (L.S.) 
	 	 	Name:  	Gary W. Sproule 	 
	 	 	Title:  	Chief Financial Officer 	 
	 

 

 

FOR BANK USE ONLY

	 	 	 	 	 
	Authorization Confirmed:
	 	 	 	 
	 

	 	Signature 

4

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