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First Amend And Restate Forbearance Agree 7/14/06

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Sectors: Services
Governing Law: Nevada, View Nevada State Laws
Effective Date: March 22, 2006
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FIRST AMENDED AND RESTATED FORBEARANCE AGREEMENT


This First Amended and Restated Forbearance Agreement (this "Forbearance Agreement"), which, except as set forth below, amends, restates, and modifies that certain Forbearance Agreement dated March 22, 2006 (the "Original Forbearance") by and among the Lender and the Credit Parties referred to below, is entered into as of June 1, 2006, by and among (i) PDS GAMING CORPORATION, a Minnesota corporation, in its capacity as lender (together with its successors and assigns, the "Lender"); (ii) Cruise Holdings I, LLC, a Nevada limited liability company ("Cruise I"); (iii) Cruise Holdings II, LLC, a Nevada limited liability company ("Cruise II"); (iv) Royal Star Entertainment, LLC, a Delaware limited liability company ("RSE"); (v) Riviera Beach Entertainment, LLC, a Delaware limited liability company ("RBE"); (vi) ITG Vegas, Inc., a Nevada corporation ("ITGV"); and (vii) ITG Palm Beach, LLC, a Delaware limited liability company ("ITGPB" and together with Cruise I, Cruise II, RSE, RBE and ITGV, individually, and collectively referred to as the "Borrower"); (viii) Palm Beach Maritime Corporation, a Delaware corporation ("PBM"); (ix) Palm Beach Empress, Inc., a Delaware corporation ("PBE"); (x) International Thoroughbred Gaming Development Corporation, a New Jersey corporation ("ITGD"); and (xi) International Thoroughbred Breeders, Inc., a Delaware corporation ("ITB" and together with PBM, PBE and ITGD, individually, and collectively referred to as "Guarantor", Borrower and Guarantor are collectively known as the "Credit Parties"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Loan Agreement (as defined below).


PRELIMINARY STATEMENTS


A. The Credit Parties are parties to that certain Loan and Security Agreement, dated as of June 30, 2005 (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"), pursuant to which, among other things, the Lender has made a loan (the "Loan") to Borrower in the aggregate principal amount of Twenty-Nine Million Three Hundred Thirteen Thousand Eight Hundred Eighty-eight and 96/100 Dollars ($29,313,888.96). The current principal amount of the Loan, adjusted to reflect interim payments and the terms of the Original Forbearance, is Twenty-Eight Million Nine Hundred Ninety-Nine Thousand Two Hundred Ten and 7/100 Dollars ($28,999,210.07).


B. Pursuant to the Loan Agreement and that certain Guaranty Agreement dated as of June 30, 2005 by and among Lender and Guarantor, the Guarantors agreed to be unconditionally liable for the payment of all of the Borrower's obligations under the Loan Agreement and the other Loan Documents.


C. Lender and the Credit Parties entered into the Original Forbearance on March 22, 2006 in order to provide the Credit Parties with an opportunity to address and remedy the Current Events of Default described in the Original Forbearance. The Credit Parties have failed to comply with their obligations under the Original Forbearance and are in default thereunder because they:


(i) have failed to make the lease and interest payments required to be
made pursuant to Section 4 thereof, and


(ii) have made a prohibited Restricted Payment.


The Lender asserts (but the Credit Parties dispute) that they have failed
to use their best efforts to sell or finance the Big Easy Vessel and the
Turnberry Note as required by Section 8 thereof (the Original Forbearance
defaults are further described on Schedule I-A).


D. Events of Default have occurred and are continuing under the Loan Agreement by reason of the acts or omissions of the Credit Parties, including:


(i) their failure to make any of the principal or interest payments
required to be made thereunder from and after January 10, 2006, and


(ii) the failure to comply with certain financial covenants thereunder
from and after October 30, 2005 (the Loan Agreement defaults are further
described on Schedule I-B attached hereto).


The defaults and events of default described in Paragraphs C and D are
referred to herein as the "Specific Loan and Forbearance Events of
Default."


E. The Specific Loan and Forbearance Events of Default exist and remain uncured as of the date hereof.


F. In addition to the Specific Loan and Forbearance Events of Default, one or more Defaults or Events of Default may occur as a result of the events and circumstances described on Schedule II to this Forbearance Agreement (the "Potential Loan Defaults").


G. By reason of the occurrence of those Specific Loan and Forbearance Events of Default that have existed since October 31, 2005, the unpaid principal and overdue interest owing to the Lender under the Loan Agreement have been bearing interest at the default rate of interest as provided in Section 4(b) of the Loan Agreement. The total amount of unpaid default interest due and owing to the Lender under the Loan Agreement is Three Million Two Thousand Two Hundred Seventy-Four and 35/100 Dollars ($3,002,274.35), as of June 1, 2006.


H. The Credit Parties agree and acknowledge that (i) as of June 1, 2006, the outstanding principal amount of the Obligations owing under the Loan Agreement is Thirty-One Million Eight Hundred Thirty-Five Thousand Six Hundred Eighty-Eight and 32/100 Dollars ($31,835,688.32), including accrued default interest, but excluding continuing accruing interest thereon until full payment thereof, costs, fees and other expenses payable by the Credit Parties under the Loan Agreement and the other Loan Documents (the "Loan Forbearance Balance"), and (ii) the Obligations are not subject to offset, reduction or counterclaim by any Credit Party or otherwise.


I. The Borrower and the Guarantors acknowledge and agree that as a result of the Specific Loan and Forbearance Events of Default, the Lender has the right to exercise all of its rights and remedies under the Loan Agreement, together with any and all documents executed by the Credit Parties in any way related to the Loan Agreement (collectively, the "Loan


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Documents") including, without limitation, the right to accelerate and immediately demand payment in full of the Obligations and to foreclose on the Collateral.


J. PDS, ITGV and ITGPB are parties to (i) that certain Master Lease Agreement dated as of July 6, 2004 (the "PB Master Lease"), (ii) Lease Schedule No. T3 dated as of July 6, 2004 ("Schedule T3"), (iii) Lease Schedule No. T4 dated as of July 6, 2004 ("Schedule T4"), (iv) Lease Schedule No. T5 dated as of July 6, 2004 ("Schedule T5," and collectively with the PB Master Lease, Schedule T3 and Schedule T4, the "PB Lease"). PDS and RSE are parties to (i) that certain Master Lease Agreement dated as of January 6, 2005 (the "RSE Master Lease") and (ii) Lease Schedule No. 1 dated as of January 6, 2005 ("Schedule 1," and together with the RSE Master Lease, the "RSE Lease"). The PB Lease and the RSE Lease are together referred to as the "Leases".


K. Events of Default have occurred under the Leases by reason of the acts or omissions of RSE, ITGV and ITGPB described on Schedule I-C attached hereto (the "Specific Lease Events of Default").


L. The Specific Lease Events of Default exist and remain uncured as of this date.


M. In addition to the Specific Lease Events of Default, one or more Defaults or Events of Default may occur under the Leases as a result of the events and circumstances described on Schedule III to this Forbearance Agreement. The Specific Lease Events of Default and the Specific Loan and Forbearance Events of Default are collectively referred to herein collectively as the "Specific Events of Default."


N. The Credit Parties agree and acknowledge that by reason of the occurrence of the Specific Lease Events of Default, pursuant to the terms of the Leases, the Lender is entitled to terminate the Leases and to repossess all of the equipment leased thereunder.


O. The Credit Parties agree and acknowledge that were the Lender to terminate the Leases, the Lender would be entitled to the payment of termination damages in the amount of Two Million Seven Hundred Seventy-Five Thousand Five Hundred Seventy and 04/100 Dollars ($2,775,570.04), as of June 1, 2006, exclusive of costs and other expenses payable by the applicable Credit Parties under the Leases (the "Lease Forbearance Balance," and together with the Loan Forbearance Balance, the "Forbearance Balance"). The Leases have not been terminated as of the date hereof. The Credit Parties agree and acknowledge that (i) as of June 1, 2006, the outstanding amount of the Forbearance Balance is Thirty-Four Million Seven Hundred Seventy-Seven Thousand One Hundred Fourteen and 46/100 Dollars ($34,777,114.46), exclusive of continuing accruing interest and late fees thereon until full payment thereof, costs, fees and other expenses payable by the Credit Parties under the Loan Agreement, and (ii) the Forbearance Balance is not subject to offset, reduction or counterclaim by any Credit Party or otherwise.


P. As a result of the occurrence and continuation of the Specific Lease Events of Default, pursuant to the Leases, the Credit Parties owe late payment fees of Eight


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Thousand Five Hundred Thirteen and 40/100 Dollars ($8,513.40) to the Lender, as of June 1, 2006. Such late payment fees will continue to be applicable to missed Lease payments after the date hereof (including during the Second Forbearance Period) and shall be payable at a rate of One Thousand Seven Hundred Two and 68/100 Dollars ($1,702.68) per month.


Q. On March 22, 2006, following the request made by the Credit Parties to the Lender to agree to an Initial Forbearance Period (as defined below), the Credit Parties and the Lender entered into the Original Forbearance. Pursuant to the terms and conditions of the Original Forbearance, the Lender and the Credit Parties agreed that the Lender would forbear from exercising its rights and remedies under the Loan Documents and the Leases, in consideration of, among other things, the Credit Parties' agreement to take certain actions during the period from the effective date of the Original Forbearance until the earlier of May 31, 2006 or a Forbearance Default (as defined in the Original Forbearance) (hereafter, the "Initial Forbearance Period").


R. Despite the agreement of the Credit Parties to take certain actions during the Initial Forbearance Period, as more fully described in the Original Forbearance, the Credit Parties, as applicable, failed to, or failed to use their best efforts to, take the following actions, all of which were designed to maximize the value of the Collateral:


(i) Sale (or financing pursuant to a Non-Recourse Financing) of the
Big Easy Vessel in exchange for cash proceeds of not less than $15,000,000,
as described in Section 8(h) of the Original Forbearance;


(ii) Sale (or financing pursuant to a Non-Recourse Financing) of the
Turnberry Note in exchange for cash proceeds of not less than $6,500,000,
as described in Section 8(h) of the Original Forbearance; and


(iii) Reduction of Restricted Payments to Affiliates to an amount not
to exceed $25,000 per week, as described in Section 8(g) of the Original
Forbearance.


S. The Initial Forbearance Period expired as of May 31, 2006, and the Credit Parties acknowledge and agree that the Lender (inclusive of all of the Lender Parties) performed all of its obligations under the Original Forbearance.


T. The Credit Parties have now requested that the Lender extend the forbearance period and agree to forbear from exercising certain of its rights and remedies against Borrower, the other Credit Parties (as applicable), and the Collateral with respect to the Specific Events of Default, including, but not limited to, the Lender's rights to (i) accelerate and immediately demand payment in full of the Obligations under the Loan Agreement, (ii) foreclose on the Collateral, and (iii) terminate the Leases and repossess the leased equipment thereunder. The Lender has agreed to such forbearance, subject to the terms and conditions of this Forbearance Agreement.


U. Borrower has requested that the Lender grant a deferment with respect to payment of the Lease, principal and interest payments during the Deferment Period and, subject


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to the terms and conditions of this Forbearance Agreement, the Lender has agreed to grant such deferment.


NOW, THEREFORE, in consideration of the foregoing and of the agreements, promises and covenants set forth below, the parties hereto agree as follows:


1. DEFINITIONS. The following terms shall have the following meanings in this Forbearance Agreement (such meanings to be equally applicable to both the singular and plural forms of the terms defined):


"Agreement" means this Forbearance Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.


"Approved Budget" has the meaning set forth in Section 11(g).


"Borrower" has the meaning set forth in the introductory paragraph hereto.


"Credit Party" has the meaning set forth in the introductory paragraph hereto.


"Creditor Party" means any individual or entity that is, from time to time, a creditor of a Credit Party.


"Crisis Manager" has the meaning set forth in Section 11(a) hereof.


"Deferment Period" has the meaning set forth in Section 4 hereof.


"Financier" means PDS Funding 2004-A, LLC.


"Forbearance Balance" has the meaning set forth in the Preliminary Statements.


"Forbearance Default" has the meaning set forth in Section 13 hereof.


"Forbearance Effective Date" has the meaning set forth in Section 6 hereof.


"Forbearance Expiration Date" means August 29, 2006.


"Guarantor" has the meaning set forth in the introductory paragraph hereto.


"Lease Forbearance Balance" has the meaning set forth in the Preliminary Statements.


"Leases" has the meaning set forth in the Preliminary Statements.


"Lender" has the meanings set forth in the introductory paragraph hereto.


"Lender Party" and "Lender Parties" have the meanings set forth in Section 16(a) hereof.


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"Loan" has the meaning set forth in the Preliminary Statements.


"Loan Agreement" has the meaning set forth in the Preliminary Statements.


"Loan Forbearance Balance" has the meaning set forth in the Preliminary Statements.


"Releasor" and "Releasors" have the meanings set forth in Section 16(a) hereof.


"Second Forbearance Period" means the period commencing on the Forbearance Effective Date and continuing through the earliest to occur of (i) the Forbearance Expiration Date; (ii) the date of the termination of the Forbearance Period pursuant to Section 13 hereof; and (iii) the date on which all of the Obligations have been indefeasibly paid in full to the Lender, the applicable Credit Parties have satisfied all of their obligations under the Leases to the Lender, and the obligations of the Lender under the Loan Agreement and the Leases have been terminated.


"Specific Events of Default" has the meaning set forth in the Preliminary Statements.


"Specific Lease Events of Default" has the meaning set forth in the Preliminary Statements.


"Specific Forbearance and Loan Events of Default" has the meaning set forth in the Preliminary Statements.


2. INCORPORATION OF PRELIMINARY STATEMENTS.


The preliminary statements set forth above are hereby incorporated into this Agreement as accurate and complete statements of fact. Without limiting the foregoing, each Borrower and Guarantor hereby acknowledges and agrees that (a) the Specific Forbearance and Loan Events of Default have occurred and are continuing under the terms of the Loan Agreement and the Original Forbearance; (b) the Specific Lease Events of Default have occurred and are continuing under the terms of the Leases; (c) each of the Borrower and the Guarantor does not have any disputes, defenses or counterclaims of any kind with respect thereto; (d) absent the effectiveness of this Forbearance Agreement, the Lender has the right to immediately enforce payment of all Obligations and, in connection therewith, to immediately enforce its security interests in, and liens on, the Collateral, (e) the Forbearance Balance correctly sets forth the amount (exclusive of expenses) owed to the Lender under the Loan Agreement and the Leases as of June 1, 2006 (including rent not yet due and payable), and (f) the Forbearance Balance and all other Obligations are payable pursuant to the Loan Agreement and the Leases, without defense, dispute, offset, withholding, recoupment, counterclaim or deduction of any kind.


3. FORBEARANCE.


(a) During the Second Forbearance Period, and provided that no Forbearance Default occurs, the Lender shall not exercise those rights and remedies afforded to it under the Loan


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Agreement and the other Loan Documents with respect to the Specific Events of Default to (a) accelerate and/or immediately enforce payment in full of the Obligations or enforce payment of any part of the Obligations in advance of the date such Obligations shall be due and payable in accordance with the terms of the Loan Agreement, (b) exercise its rights to terminate the Leases; or (c) enforce its security interests in, and liens on, the Collateral, provided, that (i) no Creditor Party has exercised or taken action to assert any adverse claims (including any litigation) with respect to any part of the Collateral, any Vessel or any equipment leased pursuant to the Leases; (ii) Credit Parties comply with all of their covenants and agreements set forth in this Forbearance Agreement; (iii) no other Event of Default occurs during the Second Forbearance Period; and (iv) no Credit Party or Affiliate receives any Restricted Payment or other proceeds or distribution from the Borrower's business prior to the full and indefeasible payment of the Obligations to the Lender, except as expressly permitted by this Forbearance Agreement.


(b) In consideration of the Lender's agreement to forbear on the terms and conditions set forth herein, the Credit Parties hereby agree that the full Forbearance Balance shall be deemed to be increased by the sum of One Hundred Seventy-Three Thousand Six Hundred Eighty-Seven and 39/100 Dollars ($173,687.39) as a forbearance fee, which shall be deemed fully earned by the Lender and shall constitute a portion of the Obligations secured by the Collateral. The Credit Parties hereby grant to Lender a security interest in and lien on the Collateral securing the full payment of such forbearance fee.


4. DEFERMENT. As a result of the occurrence of the Specific Events of Default, the Lender hereby defers the principal and interest payments payable with respect to the Loan Agreement and the rental payments payable pursuant to the Leases, in each case, from the Forbearance Effective Date through the Forbearance Expiration Date (the "Deferment Period"); provided that (a) such deferred Loan payments will continue to accrue with interest on such sums from the scheduled due date for payment thereof at the Default Rate and deferred rental payments under the Leases will continue to accrue with monthly late charges at the rate set forth therefor in the applicable Lease; and (b) upon the occurrence of a Forbearance Default, the foregoing deferment shall be deemed to have no force or effect. The rate of interest payable on the Loan and all overdue interest thereon shall continue at the applicable Default Rate of interest pursuant to Section 4(b) of the Loan Agreement (and, for the avoidance of doubt, upon the termination of the Deferment Period each Credit Party shall be liable for, and shall pay in cash, any deficiency in any interest payment made prior to the date of the Forbearance Default). Notwithstanding anything to the contrary set forth in the Loan Agreement, during the Second Forbearance Period, provided that no Forbearance Default shall have occurred prior thereto, the Credit Parties shall be permitted to prepay the Loan (including the additional Loan amount described in Section 3), in whole or in part, at 100% of par (plus all fees (including the fees set forth in Section 8(j) of the Original Forbearance, which shall be payable in connection with the sale of the Big Easy Collateral or the Turnberry Note Collateral) and expenses (including the expenses described in Sections 11(n) and 19 and accrued interest payable pursuant hereto or pursuant to the Loan Agreement).


5. EFFECT ON ORIGINAL FORBEARANCE


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The Lender and Credit Parties hereby agree that the provisions of the Original Forbearance described on Schedule IV hereto (and the related definitions set forth in the Original Forbearance) shall survive the amendment and restatement of the Original Forbearance pursuant to the terms hereof and shall remain in full force and effect for all purposes from and after the date hereof, including after the termination of this Agreement (it being acknowledged by Lender that the amounts payable under Section 8(i) of the Original Forbearance have been paid).


6. CONDITIONS TO EFFECTIVENESS. This Forbearance Agreement shall become effective as of the date first written above (the "Forbearance Effective Date") upon the satisfaction of each of the following conditions:


(a) The Lender shall have received this Forbearance Agreement (or counterparts hereof) duly executed by each Credit Party and the Lender;


(b) The Lender shall have received a certificate signed by a duly authorized officer of each Borrower and each of the Credit Parties certifying, as of the Forbearance Effective Date, (i) that all conditions precedent to the effectiveness of this Forbearance Agreement have been satisfied, (ii) that no Events of Default other than the Specific Events of Default have occurred, (iii) that since the date of the Loan Agreement, no amendments, modifications or other changes have been made to each Borrower's or Credit Parties' articles of incorporation, certificate of formation, bylaws, operating agreements or to any other organizational or governing documents of such Borrower or Credit Parties and (iv) the resolutions of each Borrower's and Credit Parties' board of directors or managers authorizing the execution, delivery and performance of this Forbearance Agreement and the transactions contemplated hereby;


(c) All of the representations and warranties of each Borrower and Credit Parties contained in this Forbearance Agreement shall be true and correct on and as of the Forbearance Effective Date;


(d) All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions described in this Forbearance Agreement shall be reasonably satisfactory in form and substance to the Lender; and


(e) Borrower shall have paid, or the Credit Parties shall cause the Borrower to pay, to the Lender, in immediately available funds, to the extent provided in Section 11(n) hereof, all fees and expenses reimbursable by Borrower and the Credit Parties as of the Forbearance Effective Date pursuant to Section 6(b) of the Loan Agreement and Section 18 hereof.


7. STATUS AND DISPOSITION OF "BIG EASY VESSEL".


(a) The Credit Parties acknowledge and agree that the Lender has a validly perfected, first-priority lien on, and security interest in the Big Easy Vessel, together with any and all collateral related thereto and more fully described in that certain Preferred Mortgage dated as of June 30, 2005 by Cruise II in favor of Lender (collectively, the "Big Easy Collateral").


(b) The Credit Parties acknowledge and agree that (i) it is in the best interests of the Credit Parties to effect the sale of the Big Easy Collateral; (ii) the monthly costs to maintain,


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protect, and insure the Big Easy Collateral is approximately $240,000, as more fully described in Schedule V hereto; (iii) the Credit Parties have been unable to generate any positive cash flow from the use of the Big Easy Collateral and determined in January 2006 that it was advisable to store the Big Easy Collateral (and otherwise take steps to "mothball" such collateral) until a purchaser could be found; (iv) the Credit Parties have sought to market and sell the Big Easy Collateral since January 2006, but have been unsuccessful in effecting such sale to a third party under terms and conditions that are acceptable to the Lender and would provide for the indefeasible payment in cash to the Lender of the net sales proceeds therefrom; (v) the Credit Parties have failed to pay certain accounts payable with respect to the Big Easy Vessel in an amount that will be reported by the Credit Parties to Lender not later than July 15, 2006, which has caused maritime liens to attach to the Big Easy Vessel; and (vi) the Credit Parties have failed to pay certain ad valorem taxes with respect to the Big Easy Collateral, which have attached to the Big Easy Collateral, and such tax liens remain unpaid as of this date and continue to accrue interest and applicable penalties thereon. Nothing herein shall constitute an admission by the Lender or the Credit Parties as to the validity, priority or effectiveness of such maritime liens.


(c) The Credit Parties shall submit to the Lender a proposed cash budget applicable to the Big Easy Collateral, assuming its continuing non-operational status (the "Big Easy Budget"), in form, substance, and detail reasonably satisfactory to the Lender, covering the three (3) month period from June 1, 2006 through August 29, 2006. The Big Easy Budget shall set forth, among other things reasonable, projected disbursements in connection with the maintenance, storage, insurance, and costs of disposition of the Big Easy Collateral, including line items setting forth proposed professional fees, expenses and similar items for the period indicated thereon, together with the statement of all material assumptions used in the preparation of the Big Easy Budget.


(d) The Credit Parties shall engage the services of Mr. Lou Daleo of Coastal Passenger Vessels, Ltd., LLP ("Daleo") and Innovation Capital, LLC (or another broker approved by Lender) ("ICLLC," ICLLC and Daleo, as applicable, are each referred to herein as a "BEC Broker") not later than July 15, 2006. The terms and conditions of the engagement contract for each BEC Broker shall be reasonably satisfactory to the Lender and the Credit Parties and shall provide (i) for Daleo to attempt to sell the Big Easy Collateral for cash to two prospective third party purchasers previously identified by Daleo to the Credit Parties and (ii) for ICLLC to attempt to sell the Big Easy Collateral for cash to other prospective third party pur
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